Transphorm, Inc.

Good afternoon. My name is Savannah, and I will be your conference operator. I would like to welcome everyone today to Transform's Business Update conference call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star 1 on your telephone keypad. If you would like to respond to a question, please press star 1 again. Please be advised that today's conference is being recorded. Joining today's call from Transform are Mario Rivas, Chief Executive Officer, Premit Parikh, Co-Founder, President, and Chief Operating Officer, and Cameron McCauley, Chief Financial Officer. Before we begin, I would like to point out that there is a slide presentation associated with today's call, and which management will be referencing during the conference call. These slides can be accessed through the live webcast link in the Investor Relations section of TRANSFER's website, and they will also be posted on a linked PDF subsequent to today's conference call. Additionally, during the course of this call, the company may make forward-looking statements regarding the company's financial position, strategy, plans, and future operations, specific end markets, and other areas of discussion. It is not possible for the company or management to predict all the risks, nor can the company assess the total potential impact of all factors on its business or to the extent which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement. In light of all these risks, uncertainties, and assumptions, the forward-looking statement discussed during this call may or may not occur, and the actual results could differ materially and adversely from those anticipated or implied. Any projections as to the company's future performance represent management's views as of today, May 24, 2022. Neither the company nor any person assumes a possibility for the accuracy or completeness of the forward-looking statement. The company undertakes no obligation to publicly update the forward-looking statements for any reason after the date of this call to conform such statements to actual results or to change in the company's expectation. For more detailed information on risks associated with the company's business, we refer you to the risk factors described on Transform's S-1, 10-CT, and other subsequent filings of the SEC. With that, I will now turn the call over to Transform's CEO, Mario Rivas, for opening remarks. Mario, please go ahead.

Thank you, Savannah, and welcome to everyone in today's call. We appreciate you joining us today. Allow me to review our fiscal four-quarter and recent highlights. We achieved an uplifting of transform common stock to the NASDAQ under the sticker symbol PGAM. The full-year fiscal 2022 revenue increased 89% year-over-year to a record $24.1 million due to strong growth in product revenue. The fourth quarter of fiscal year 2022 total revenue increased sequentially for the ninth consecutive quarter to a record of over $4 million, with total revenue for the quarter at $4.93 million. The secure and our largest super-gen high-power Gen 4 fed production order for the company today put over half a million units of three-kilowatt-class power supplies. The magnitude of this order clearly demonstrates Transform's continuing leadership in high-power GANs. We also secure a laptop adapter designed from a Tier 1 Fortune 100 company, including an initial purchase order of 50,000 units of SuperGAN Gen 4 240 million class PEP. These FEDs provide higher efficiency for 65-watt fast-charging adapter applications when compared with competing e-mode GAN FEDs that require a larger, $160 million device for similar applications. As a result, these transform SuperGAN FEDs allow our customers to do more with less. Cash-in accrual in terms of March 31st, 2022 was $34 million. I now pass the call to Primate for a detailed walkthrough of the development these past few months. Primate?

Thank you, Mario, and good afternoon, everyone. Transform TGAN has continued our product revenue ramp, delivering our ninth successive quarter of product revenue growth and cementing our leadership position in high-power GAN with a new 500,000-plus unit order for kilowatt-class gallium nitrides. are strong results of our targeted deliberate investments over the past several years in high-performance GaN products for the broad market areas, from low power to high power. To the best of our knowledge, T-GaN is the only GaN company to be shipping anything in the kilowatt range in these high-volume productions today. This places us in a very strong position to address the $3 billion GaN TAM in diverse areas like blockchain computing, data servers, communications, gaming, energy, renewables, and electric vehicles, while systematically growing our share in the lower power fast charger and adapter consumer segments. First, I'll give a short recap of Gallium Nitride, the overall value proposition, our leading position, clarifying market positioning of various types of GAN products, and then review our strong execution in the March 2022 ending quarter, and then our expansion strategy for FY2023. Gallium nitride, GaN, is a wide-bandgap semiconductor material for power conversion that reduces electrical energy waste, enables compact power conversion footprint, and lowers power systems costs. It's also a variety of electrical power conversion applications, chargers, converters, inverters, and does this significantly better than traditional silicon and much better than other new semiconductors like silicon carbide. T-GaN. is an established innovative design pioneer and leading manufacturer supplier of high-voltage GaN power semiconductor products. Over the widest range of applications, from 30 watts lower power to over 4 kilowatts higher power, and in application areas ranging from adapters and fast chargers, for which GaN has been well accepted in the market today, to higher power data centers, mining, crypto mining, communication infrastructure, broad industrial, renewable energy, and in design-in for automotive electric vehicle applications, as a result of our targeted investments and strategy. Our core and strong fundamental IP with over 1,000 patent-strong portfolio, as well as our high-performance, high-quality products have been validated by various Blue Chip investors, customers, and partners, financial partners, design partners, manufacturing partners, and automotive and industrial market customer partners, as well as the U.S. Department of Defense. Our comprehensive and differentiated product offering backed by a high-quality manufacturing base that we essentially own has ramped in the market now with over 40 billion hours in our customers' products in the field, including both high-power and low-power GAN, and resulted in over $24 million of revenue in our fiscal 2022, a record for us and a 1.9x growth about in spite of a challenging supply chain environment. Our focus is on building a product-driven, fast-ramping, profitable business, and we are already off to the races doing that. While we have multiple revenue segments like historically licensing and now government revenue and products, we target over 90% of the mix from product revenue in 2023, representing a 200% CAGR from over 2020. We are committed to making the required operating and capital investments for increased scale. high-performance products and solutions for our customers, and fostering GAN adoption over multiple end markets to achieve our targets and our target model of well over 50% long-term CAGR with gross margins over 40% and operating margins including over 20%. We are in a unique and differentiated position among the GAN suppliers to have products in the market today that address a tremendous multi-billion dollar market opportunity of GAN for power conversion across the various segments. Again, from lower power adapters and chargers to higher power server, crypto, datacom power that we are already ramped in, our customers are already ramping in, to industrial energy and renewable, now also in production with quite a few accounts, and in the mid to long term, large growth opportunities with automotive electric vehicles further bolstering our long-term picture beyond 2024-2025. Our GaN solutions deliver high-efficiency, compact systems with easy-to-use and easy-to-interface products for the customer with proven performance benefits against silicon, silicon carbide, and other gallium nitride solutions like E-Mode GaN. The GaN TAM is In the multi-billion dollar range, this is the Gantam we show here that is reasonably addressable by products we have today or in the near-term pipeline over the next few years. And from 2021 to 2026, a very strong five-year growth of more than 3x fueled by a robust, faster growth in Gantam versus the overall power semiconductor market in each of the segment areas shown here. And then a further inflection point through electric vehicle power trend segment mid-decade, giving GaN and Transform a 10x larger any segment market in 2026 for a $6 billion GaN TAM. One of our key attributes from early on, this has been our philosophy, is doing more with less. We want to enable our customers by taking the inherent benefits of GaN over both silicon and silicon carbide to the next level and delivering multi-pronged benefits to power conversion customers. Our patented, normally off-gallon nitride-fed architecture delivers high efficiency over a wide range of power levels. With leadership in product qualification and reliability, field reliability rivaling that of standard silicon with a sub-0.3 fit, which is called failure in time per billion hours of operation. TGAN's asset-light vertically integrated value chain allows for in-house GAN wafers with manufacturing control, innovation, and ability to scale. Few other companies are now talking about getting into higher power with GaN. We have been setting these benchmarks for over four years now. For example, titanium class kilowatt scale GaN power supplies with our customers. And in process, also built up very fundamental IP for the same. We offer products spanning from 45 watts to 10 kilowatts. Also, we have led in terms of high voltage offerings. 650 volts, 900 volts, being the only company with a 900 volt product in the market, and are now pursuing in R&D 1,200-volt gallium nitride, which we have proven is well within the realm of GAN, not just silicon carbide territory anymore. T-GAN FET is directly compatible with leading silicon controllers and their inbuilt drivers, bringing ease of design and drivability. No extra components or shrubbery, as we call it, are needed anymore. to interface our GAN with the outside world, a feature that has brought us a rich ecosystem of solution partners, and they appreciate this. Above all, our strong IP, five to ten times versus some other GAN competition, underpins all of this strength. The core patents in not just gallium nitride materials and manufacturing, that's of course very key, but equally important in how the gallium nitride is used in common power application architecture. Like, for example, totem pole bridge topology that is now widely used and is a core example of transform original grand product design innovation another one of our key attributes from early on is the ownership of our gan wafer production supply chain an advantage that is becoming even more important in today's geopolitical climate this starts with the design of our safe robust and easy to interface normally of can fit We directly own and control our epi-wafer manufacturing with multiple MOCVD reactors. These are the tools used to making or growing gallium nitride on, say, for example, silicon wafers that we do in two geographical locations owned by Transform California and Japan. Our wafer factory is a joint venture with our financial strategic partner. And to remind, it is a high-quality manufacturing site with the only formal report of yields for gallium nitride matching those of silicon CMOS. running in the same factory, another feature that has contributed to our high-power GaN products' yield and quality. When packaging is done with our key OSEC partners, we bring transform IT in these designs, for example, allowing GaN to be efficiently used in robust PO packages desired by high-power customers. Last but not the least is our application and design efforts, both with customers and solution partners who work preferentially with our GaN for their controller or driver products. As a result, Transform has enabled our customers with products that range from adapter to automotive, lower power to higher power, as shown in the chart, from 30-watt adapters and wall-block chargers to more than 10 kilowatt. And even higher power systems are realizable by paralleling multiple of our 10-kilowatt Gen 5 solutions, for example, in multi-phase applications. This wide breadth of products is also complemented by the highest voltage range, 650 volts, 900 volts, qualification, JPEG AAC qualification, which Transform has always led in, been the first, and then proven robust qualification product over product, and now in R&D for innovative solutions like the 1,200-volt Gallium Nitride. We are not a one-trick pony. We service the entire market, the entire gamut of customers. Now I will discuss why T-GaN wins in various verticals from lower power to higher power. As GaN adoption is happening fast, which is great, many good companies are in the market with gallium nitride, notably at lower power adapters and chargers, while T-GaN is systematically addressing today high power and low power together. Silicon obviously has been great in the past and still works today, but falls short in efficiency, speed, and the smaller size required for new products. GAN takes off from here. A few factors that outline TGAN's differentiated benefits over competing GAN are that we excel in ease of use and flexibility with standard drivers, controllers, interfacing with our GAN thread as a result of the integration choices that we have made. No extra BOM components or shrubbery is required to interface the GAN, our GAN, which makes the solution cost effective, especially key in lower power chargers and adapters for smartphones and laptops where total bomb cost is key. The intrinsic gallium nitrate performance fully exploited in our products to achieve the highest efficiency or lowest losses among many other GANs. And then bringing reliability and robustness across the entire power chain. This is evidenced very clearly by our proven design wins with customer systems in production as T-GAN is adopted in many more market verticals today with higher range, higher reliability, and higher performance. As you can see, applications like server power, gaming, blockchain, crypto mining, a variety of industrial, and also select high-rel applications like aerospace. Some of these are more than 10 times the power levels that some of the other gallium nitride offerings enable today, namely more or less in the low power range. Along with the ease of use benefits, reduced BOM, and the intrinsic GAN performance, the underlying Results for our high-power dominance stem from the fact that typical e-mode gallium nitride, competing gallium nitride interface to the outside world is inherently weaker and harder to operate in many common package types. The fundamental design innovation in directly controlled manufacturing does enable superior performance, superior dynamic performance, as it is called, from our gallium nitride sets, allowing smaller GANDI to be used for the same power level versus larger or sometimes even two packages for competing GAN versus one from Transform for the same application. We prefer to lay out the facts about GAN products very clearly and hopefully seek to clear any confusion in understanding by customers or investors in this space. First off, power customers, power applications have always required normally off products, whether it's silicon or gallium nitride. This is just a basic safety thing. And gallium nitride FETs on the market today are normally off. The transformed gallium nitride FET, just like silicon MOSFETs, is normally off. How this is achieved, whether e-mode GAN or other type of GAN, are kind of technicalities of little consequence. Other than what matters is the implementation by each particular company, their solutions, the performance, reliability, ease of use, and, of course, the cost of the solutions. High performance. First comes from the underlying GAN, and it is not a function of a particular implementation. For example, a so-called GAN IC just won't give you high performance if the underlying GAN is not high performance. We, our design partners and customers, have validated higher efficiency of the T-GAN FAT with other gallium nitride versus other gallium nitride in the same application. This is not to say that other gallium nitride cannot improve, but just pointing out where the fundamental benefits arise from. And when it comes to high speed, high frequency, that is nature's gift to gallium nitride, at least well-designed gallium nitride, operating at much higher speed than silicon and even silicon carbide. Finally, there are various shenanigans out there about integration. Clearly, integration is a design choice of the offeror. Clearly, integration is important. But where, how are aspects of how each product is designed? For example, We can talk of a driver FET integrated in GAN or other levels of integration, but a lot of modern day controllers have already integrated drivers, inbuilt, literally free. In our transformed GAN FET, we choose to integrate a small low voltage silicon FET with our high voltage GAN. Thus, no need for any external or internal driver in, say, fast charger phone or laptop application, where the controller already houses the driver. Because we have a traditional silicon-like interface with the performance of high-voltage gallium nitride. Now, the higher power space is a very large market for GaN and very important. Very simply put, higher the power, the higher the energy saving impact of GaN, higher the impact on electricity usage and carbon footprint at the holistic level, higher the semiconductor content because the larger the chips enhance the total higher market. Here, our Gen 4 and Gen 5 offerings are compared to leading silicon carbide offerings in this space, as other types of gallium nitride, like the E-mode gallium nitride, are not quite ready today, at least, for high power, especially in thermally robust packages like the TO247, due to the inherent device weakness. Previously, we had shown that with our highest power 15 milliohm product to best, we can tell this is the lowest resistance, highest current, highest power for 650 volt GaN qualified and in production in a discrete package like the TO247. That outperforms silicon carbide, good silicon carbide products like the MOSFETs and the JFETs, and realizes a 25% to 38% lower loss in an apples-to-apples comparison, delivering 10 kilowatt-class power levels from a single part in a half-bridge testing. Now, there are also independent third-party validation confirming the same thing, what we had previously said. For example, a recent technical paper at the PCIM Europe Trade Show and Conference where superiority of T-GAN or silicon carbide in 5 kilowatt applications was published. Customers have selected our high-power GAN products across the spectrum, and some of our wins were all built on the foundation of efficiency, performance, ease of use, and reliability, as our customers, as well as third-party reports, have also shared. Recently, we secured a PO of over 500,000 units for high-power GAN, And mind you, these are 7A, 10 times bigger chips than used in lower power adapter type applications, validating our leadership in high power GAN. Blockchain computing is a power-hungry application where our GAN has enabled a 1% efficiency. And to put that in perspective, one system can save a few hundred kilowatt hours per year and well over 100 pounds of carbon footprint, depending on what your source of energy is. With more than 50,000 metric tons of reduction possible just from our own 2022 outlook in blockchain computing and gaming alone. Shown on the right here in the server power segment, we, with our customers, have enabled titanium rating now for more than four years. Other GAN suppliers are trying to follow suit, which will all be good for the GAN market, and starting to talk about titanium efficiencies. Here again, our existing customers have increased their follow-on orders, and we anticipate further that initiatives and regulations like the EU EcoDesign from 2023, we even increased further the need for high-efficiency high-power GANs like that from Transform. We aim to grow the high-power segment continuously and maintain our leadership position here. While there is a very significant growth for us in the various segments we outlined from low-power to high-power, the EV applications continue to present a massive long-term opportunity As the performance of GAN enables continued performance of the electric vehicles addressing and improving on fundamental issues of power loss, heat generation, and range anxiety, with high power density enabled fast charging, reduced size, lower losses that ultimately result in higher range. Transform is accelerating this opportunity for electric vehicles for GAN. It will accelerate in the next few years. Where today, Transform is addressing the EV markets, specific EV opportunity markets, are in the areas of on-board chargers, DC-DC converters, and off-grid DC to AC inverters with the main drive train inverter opportunity after 2025-26 that can triple the accessible GAN content from about $70 to well over $200. As I also alluded to, we announced our preliminary 1200 volts gallium nitride R&D results. In fact, this week at a premier IEEE conference, the ISPSD, including 800 volt of operation from our gallium nitride, for which a 1200 volt device is necessitated, and with higher efficiency over competing 1200 volt silicon carbide products that, of course, are well established in the market today. But it's a clear proof point that GAN is not sitting still. We are not sitting still. We are moving forward. Besides, TRANSFORM has AEC automotive GAN qualified products today with our Gen 4 power solutions that are already ramped in the market for various commercial and industrial power segments. Now I'm going to turn our attention to our execution in the last quarter and then how we expect going forward. In the December quarter, we had announced several vectors driving our growth. We are very pleased in the March quarter, which is the fourth fiscal quarter of our 2022, to achieve our ninth successive quarter of product revenue growth, with a key highlight of transform dominating in GAN high-power segments. Our latest proof point of our leadership is our largest single order till date for high-power GAN of over half a million units that we recently secured. We also continue to gain our share in the low-power fast charger segment, and have secured multiple early wins at multi customers that I'll outline in the next slide. Our management focus remains squarely on product revenue growth, supply chain management, and capacity expansion. Overall, we are seeing a very strong demand for rest of the year and beyond as well, as we are gaining share in every segment, including continued leadership in high power. We do face near-term headwinds, due to the worldwide supply chain issues facing the industry today. This may land our fiscal Q2, which is the July to September quarter, more in line with fiscal Q1, which is the April to June quarter, resulting in approximately a one-quarter shift. We anticipate that continued strong growth scenario from there on, targeting a robust 50% growth in the second half versus first half of the year. The midterm scenario through calendar 2023 remains very strong as our capacity initiatives, our current capacity initiatives are expected to be online. Thus, supply chain management as well as capacity expansion are our top focus areas over the next several quarters. We expect that with our strong balance sheet, leadership in high power products and gaining share in lower power will allow us to continue this momentum forward. What we show here now is the key metrics and growth factors that we achieved during the January to March quarter and we had previously targeted, as well as how they are shaping our future growth. First, product revenue in the quarter was $4 million, our ninth successive record quarter in this department, and already representing 80% of the quarter's total revenue. We have in place a strong and record backlog till date, driven by continued and robust demand for our products. We continue to win and grow our share in the adapters and fast chargers. We added at least five design-ins in the last quarter, the January to March quarter. We also secured important design wins, including a laptop adapter win with a Tier 1 Fortune 100 company with the first 50K unit PO secured and pilot production wins, additional pilot production wins at a leading Asia-based smartphone manufacturer for 65W and a pilot order for a worldwide e-retailer for 140-watt adapters. We look to grow especially in the 100-watt plus segment. For example, the new USB PD 3.1 standard with enabling 140 watts, where we will have cutting-edge solutions by Transform and our valued partners who like the Tegan solution over competing GANs, say e-mode or other products, because of ease of interface and no external driver needed. We are pleased to lead in GAN for higher power, broadly speaking, 300 watt to 4 kilowatt that is already in production at our customers today, where we continue to add design-ins, now at 35 plus, with over 15 in production. It is notable that more than 50% of our revenues now are already in the higher power segment. That includes multi-kilowatt GAN solution. We aim to further grow and get into areas like energy, TV power, e-mobility, where we are opening up new design-ins. We have 17 high-voltage GAN qualified and released products in our comprehensive portfolio today. Again, low power to high power, 650 volts, the only 900-volt product in the market, and many of these products are either in compact surface mount packages or thermally robust TEO packages. Our products do not have these limitations of package type. Three of these products are already AEC automotive qualified parts today, including our Gen 4 with Gen 5 AEC to follow in future. As I mentioned, a significant emphasis and positive challenge now is on the capacity expansion and managing product revenue for rapid growth in what is still a very challenging worldwide supply chain environment for the next couple of quarters. While we have achieved sufficient PQFN package adapter product codes and capacities, as we previously had also mentioned, now we have expansion efforts underway for high-power package products and both internal and external wafer capacity in the areas of epi wafer growth and wafer production. So three takeaways with our record quarter, product revenue growth with leadership in high power GAN, gaining all round and focus on supply chain execution and multiple capacity initiatives ongoing. Strategic partners have always been important for our business. First and foremost, Top of the list now, this includes manufacturing and capacity increases and partners who we are working with. The global wafers partnership and IP expansion is on track with completion scheduled for mid-calendar year 2023. We are managing on track with our AFS StepLoop FAB joint venture with our financial strategic partner and planning further increases in capacity, wafer FAB capacity, in second half of the calendar year 2022 and 2023 to keep up with the rising demand that we are seeing. In the industrial and automotive segment, our partners, who also happen to be valued shareholders in TEN, are working closely with us. We expect to complete the Yescava development program payment in the imminent future and have updated the development plan with Yescava for cost-effective, innovative solutions for robotic applications. Nixpedia, who is also our automotive partner and licensee, customer partner for IP Wafer and Fab Wafer Supply, has recently demonstrated independently a 35-kilowatt GaN inverter for EVs at the APEC trade show in Houston. The next milestone for us in this area is the AEC qualification of our Gen 5 products, which we are already commercially qualified and already ramped in the market for commercial production. Other EV, DCBC, and OBC opportunities currently with Japan-based Tier 2 Tier 1s, and Morelli for charger and converter are in progress with mid-term insertion possibilities. The government revenue business stream remains steady, with targeted $0.9 million in the January to March quarter done on track, driven by our Navy program of epi-wafer manufacturing. And like before, excellent results on the 1200-volt GAN with our RPIE program. Additional RFIP, especially government IP customers, are ongoing, but the primary focus now is on satisfying our internal power products for the rapid demand and rapid growth that we are seeing. All in all, we are very excited to be in the midst of an all-round GAN adoption growth phase with Transform and our good fellow GAN companies in the market. TGAN focus remains in three key areas, expanding our leadership in high-power GAN, gaining share in the adapters and fast chargers, and capacity expansion, first keeping up and then next year staying ahead of the very strong demand that our products are generating. With that, over to Cameron to present the detailed picture of our financial.