Wolfspeed, Inc. Common Stock New

Thank you, operator. Good afternoon, everyone. Welcome to Wolfspeed's second quarter fiscal 2026 conference call.

Today, Wolfspeed Chief Executive Officer Robert Boyerle and Chief...

We would also encourage you to reference the slides that were published on the IR website today as we will be referring to them during the call today. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP. Reconciliation to the most directly comparable GAAP measures is in our press release and posted to the investor relations section of our website, along with a historical summary of our other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Now, I'll turn the call over to Robert.

Thank you, Tyler, and good afternoon, everyone. We appreciate you joining us on today's call. As you can see on slide three, we have continued to build solid momentum across the business since reporting our fiscal first quarter results, from achieving 50% quarter-over-quarter growth in AI data center revenue, to producing a 300-millimeter silicon carbide wafer, securing key customer wins, and most recently, business forward in multiple forms. Under our refresh leadership team, Blue Speed has sharpened its operational discipline and strategic focus to ensure consistent execution. Since I've joined the company, we've brought in top tier talent from across the semiconductor industry, people who recognize our unique position in the silicon carbide market in helping us scale execution to better serve all customers who need future market demands. As we outlined on our last call and cover on slide four, we're concentrating in a few key areas. Strict financial discipline, advancing our technology leadership, and driving operational excellence. The central theme across these priorities is diversifying our revenue base, particularly in industrial and energy, including applications tied to AI-related power demand and grid modernization. by continuing to support our broad base of automotive and other device and materials customers. During Q2, we continued to fortify our sales of marketing and product teams, adding experienced leaders with deep semiconductor knowledge and strong customer relationships. These hires are already helping us extend our reach into emerging power device opportunities. More on this later. First and foremost, we're making solid progress in applying strict financial discipline across the organization, following our financial restructuring, whose bid has a stronger capital structure, net debt, approximately $600 million, annual cash interest by approximately 60%, and a strong liquidity, which includes approximately $700 million in 48-day cash tax refunds we recently secured. Our cash position is $1.3 billion. As we move forward, we are operating with strict financial discipline, aiming to maintain our balance sheet strength and stability through diligent execution. Consistent with this focus, our second priority is advancing technology leadership across the entire silicon carbide value chain. As you can see on slide 5 of our presentation, we have positioned the company to win in both devices and materials, leveraging our vertically integrated 200 millimeter footprint. Central to extending our technology leadership is our approach to deploying our R&D resources. We streamline R&D to focus exclusively on high return programs in the highest growth markets. Our third priority centers on our commitment to driving operational excellence. The focus on differentiating through quality, customer responsiveness, time to market, and supply chain resilience. As shown on slide six of our presentation, this secure and scalable infrastructure remains a core differentiator for the company as we execute our strategy and support growing customer demand. We remain focused on driving costs out of our footprint, processes, and products, even as we navigate undualization headwinds. We have officially completed the shutdown of all 150-millimeter device production over during campus, roughly a month ahead of schedule, transitioning our entire device platform to a higher efficiency 200-millimeter manufacturing. We continue to improve production efficiency and speed to optimize the earnings potential of the business. The results of these efforts will be even more apparent when demand accelerates and we begin to increase FAB utilization. As I mentioned earlier, essential theme across these three priorities is diversifying our revenue base in key verticals, where I believe we can extend our leadership position, particularly in mid to high voltage applications. To accomplish this, we have organized our go-to-market strategy around four verticals that we believe will drive growth in our business in the near to mid-term. Auto, industrial energy, aerospace and defense, and materials. and we are already seeing strong traction from these early efforts. Our first vertical automotive remains a core market despite muted EV demand due to a mix of macro and structural sectors, which include higher interest rates in the US and Europe, the elimination of certain government incentives in the US, excess supply across the market, and intensifying competition globally, including China. Despite weaker near-term demand, our portfolio is aligned with OEMs that prioritize efficiency, range, and power density. A great example of this is our recently announced partnership with Teodon, one of the most respected and quality-driven automakers in the world, to power the onboard charging systems for their BEVs. Thanks to the efforts of our leadership team, we are strengthening our relationship with the top global EV OEMs. And we are now sampling across several key strategic programs. While these headwinds are creating a softer demand environment in the near term, silicon carbide remains a foundational technology for EV and other platforms. As highlighted on slide 7, silicon carbide continues to capture share in high voltage applications where performance, reliability, and system level efficiency are critical. Positioning it at the preferred system level efficiency are critical. positioning it as the preferred technology over both silicon and GaN. In I&E, our second vertical, we're leveraging our expertise to expand our reach, concentrating on AI data center power, grid storage, solid-state transformers, and broader grid modernization applications. We have the expertise to extend our knowledge into the AI data center opportunity, which operates at significantly higher voltages than legacy data centers. As I mentioned, as voltages increases, we believe an increasingly larger portion of this addressable market will be better served to silicon carbide technology, the legacy silicon-based solutions from grid to rack. As you can see on slides 8 and 9 of our presentation, BOOSTIC has a strong momentum in this area. The AI revolution is fundamentally reshaping data center requirements and accelerating the shift from general purpose facilities to purpose-built AI infrastructure. that demand unprecedented power density and efficiency, playing directly into whole speed strength. Our devices are already embedded in critical AI data center power systems, and we have doubled our data center revenue in the last three quarters, with 50% quarter over broader growth from Q1 to Q2. Further, we are actively collaborating with a broad ecosystem of partners to support the industry transition from legacy 400-volt architectures to next-generation 8-ton-volt AI platforms. Data centers, build-outs, and widespread electrification have driven a surge in global energy demand. There are two key solutions to rising energy needs. The first involves bringing online new energy sources like wind and solar. We're already seeing sling carbide adoption across wind and solar applications, as evidenced by our recently announced collaboration with Hope Wind to advance the next generation of wind power solutions. Turning to our third vertical, aerospace and defense. We believe there is a growing opportunity due to tailwinds from defense modernization and electrification, including direct energy platforms. the U.S. government has already recognized lean carbide as strategically significant to national security, with both the Department of War and the Department of Energy designating it as a critical material. Additionally, the U.S. government has emphasized the strategic importance of secure domestic semiconductor supply chains for national security applications, and we believe Wolfspeed is best positioned to support those needs. As you can see on slide 10, Woolspeed is not only entrenched in established high-voltage markets like Aetern World Automotive, solar and industrial, but we believe we are also positioned to lead in the next wave of emerging high-growth applications from AI data centers and grid modernization to aerospace and heavy equipment. These opportunities demand material innovation that silicon carbide can deliver. brings us to our fourth vertical, materials. In materials, we're executing a clear two-pronged strategy. Scale and strengthen 200 millimeter leadership for power devices today, while advancing 300 millimeter capabilities to expand our long-term addressable opportunities. First, on 200 millimeter, material quality is increasingly critical as customers push into higher voltage. Higher power density applications Substate performance influences everything that matters downstream, device yield, reliability, and system efficiency. So our priority is delivering high-quality tuner millimeter wafers at commercial scale. Because Rufstead moved earlier to commercialize tuner millimeter in a scaled manufacturing environment, we believe we're best positioned to support not only our internal device openness, but also merchant demand as the market continues to mature. Second, we are very proud to have recently produced a single crystal 300-millimeter silicon carbide wafer, a meaningful milestone that clearly demonstrates Wolfspeed's longstanding material innovation. Importantly, our view of 300-meter is not that it replaces 200-meter for power devices in the near term. This helps lay the groundwork for silicon carbide beyond power. The different end markets can value material properties like thermal conductivity and optical performance. One example is optical-grade silicon carbide for next-generation AR-VR systems. Their compact, lightweight design demands a high brightness and effective thermal management. Taking together this combination, industry-leading 200-millimeter materials for power today with early validation of a 3-millimeter platform that can unlock emerging applications over time reinforces our beliefs that Wolfspeed can maintain and extend its leadership in silicon carbide materials. Our efforts against our three strategic priorities, coupled with our vertical go-to-market strategy, enable Wolfspeed to capitalize on the incredible opportunity created by the transition from silicon to silicon carbide. Now I'd like to turn it over to Gregor, who will walk through our financial performance for the quarter and provide more details on our path forward.

Thank you, Robert, and good afternoon, everyone. I'll begin with a brief overview of our second quarter performance. Then I'll walk through the key financial impact from our restructuring and the adoption of fresh start accounting. And finally, I will share our outlook for the fiscal third quarter, starting with an update on some highlights of our second quarter, which we've illustrated on slide 12 of our presentation as follows. We continue to make progress implementing strict financial discipline. focusing on the aspects of the business within our control. The closure of the Durham 150 millimeter divide fab one month ahead of schedule is a good example of that. We upsized and collected the 700 million cash tax refunds in Q2. We also improved 89 million in working capital management, excluding the headwind for final payments linked to our restructuring and further reduced both operating expenses and CAPEX investments. Now I'll review our quarterly financial results and speak to some of these updates in more detail, which you can see on slide 13 of our presentation. We generated 168 million of total revenue in line with the midpoint of the guidance range we provided last quarter. Power revenue was 118 million, of which Mohawk Valley contributed approximately 75 million. This includes some of the last time by shipments from Durham campus are ahead of the closing I referenced earlier. As Robert mentioned, the revenue tracking is a mix between a weaker automotive market and fast-growing mid to high voltage revenue. This is linked to the good traction in AI and data center space. Materials revenue was $50 million driven largely by a tightening demand environment and increased competition in the marketplace. Non-GAAP gross margin for the second quarter was negative 34%, which included several adverse effects. First of all, a $39 million drag related to fresh start accounting, $23 million of which is related to inventory step-ups, which we digested in the quarter. as well as a recurring $60 million increase related to amortization for intangible assets. Furthermore, we recorded $14 million of costs related to specific inventory reserves, which further adversely affected the margins in Q2. The impact of underutilization in our manufacturing sites stood at approximately $48 million in Q2. As Robert noted, we completed the closure of the Durham 150 mm device stack at the end of November, one month ahead of schedule, which improved gross margins by 5 million in the quarter. We'll continue to see benefits going forward as we focus on our 200 millimeter device manufacturing in Mohawk Valley. We've continued to reduce non-GAAP operating expenses, which are now 200 million lower on a run rate base versus last year. At the same time, we continue to invest in R&D to reestablish and extend our technology leadership. The gap operating expenses totaled $83 million in the quarter, including approximately $24 million of restructuring and transition related items. Adjusted EBITDA for the second quarter was negative $82 million and included the impact of the previously discussed fresh start accounting implications as well as the underutilization. Adjusted EBITDA is largely unaffected by fresh start accounting impacts on a go-forward basis. Now I'm turning to cash flow, which remains one of our top priorities. We are making strides in reducing our working capital by reducing inventory and receivables. Our discipline focused contributed approximately 90 million to ending cash, partially offset by the final liability management payments of 64 million we made in Q2. Our operating cash flow for Q2 successor period was negative 43 million. As you can see on slide 14, we have also continued to reduce CAPEX, which was just 31 million in the second quarter, which were primarily linked to prior commitments. This is a substantial improvement from the approximately 400 million of CAPEX in the second quarter of last year. Looking ahead, we remain committed to a disciplined capital allocation strategy and drive CAPEX further down over time as prior commitments start to fall off. As announced earlier, we have received 700 million of 40 AD tax credit in the quarter. We have used a part of our cash to reduce 175 million of our first lien debt. In addition to retiring some of our first lien debt, approximately 1.5 million shares have been converted from our second lien convert, resulting into a debt reduction of approximately 18 million. Together, these form a first step to further improve our balance sheet post-emergence and will deliver 25 million in annual interest savings. We ended the quarter with 1.3 billion in cash and short-term investments. This stronger liquidity position enables us to pursue our strategic priorities with confidence. We have made significant progress in addressing our capital structure thus far, and we recognize that we have further work to do in this area. We believe our results in Q2 reflect meaningful progress in improving our operations, enhancing capacity, and improving our earnings potential, but there is still work ahead of us to improve further with factory utilization as one of the main levers. Next, I'll review the impacts on the financials as a result of the adoption of Fresh Start accounting. I would also encourage you to reference our press release, slide 15 and 16 of our presentation, and form thank you for additional details on this topic. As you know, over the past year, we took important steps to strengthen our capital structure, positioning Wolfspeed to emerge from our restructuring on firmer financial footing. As part of these efforts, it's required that we adopt fresh start accounting, which marks a true reset for Wolfspeed. With Fresh Start Accounting, our income statement for the second fiscal quarter of 2026 is split between the predecessor period ending on September 29, 2025, which reflects activity up to and including our emergence from Chapter 11, and a successor period beginning September 30, 2025, which reflects our results after emergence. We were able to emerge from Chapter 11 on the first day of the fiscal quarter, so our successor period effectively includes all operating income for the quarter. Unless I say otherwise, the details that I will outline in a moment pertain to the successor period only, because fresh start accounting requires that fair values are estimated for a company's assets, liabilities, and equity as of the date of emergence. Certain pre- and post-emergence financial and operating results will not be comparable. All adjustments related to fresh start accounting are non-cash. As part of the fresh start process, we re-measured our assets and liabilities to fair value, anchored to the court-approved enterprise value at the midpoint of $2.6 billion. Our new debt, measured at fair value, replaced the legacy debt. We also recorded a 1.1% billion gain from emergence, which reflects approximately 3.7 billion in debt forgiveness, offset by approximately 2.6 billion of net adjustments to assets, primarily property, plant, and equipment. Looking ahead, we expect a net reduction of approximately 30 million per quarter in depreciation and amortization compared to pre-emergence wall speed. due to the lower property plans and equipment on the balance sheet partially offset by the step-up in intangibles. The application of fresh start accounting also results in fair value adjustments to step-up work in progress and finished goods and step-downs in our raw materials. The 23 million step-up related to work in progress and finished goods was recognized in COGS during the second quarter. resulting into a one-time headwind, as I mentioned earlier in my gross margin comments. The favorability from the 70 million stepped down related to raw materials will only be realized in the P&L over the next several quarters. While fresh start accounting limits comparison across the predecessor and successor period, I want to reiterate that adjusted EVDA is largely unaffected by fresh start accounting impacts, except for this quarter. Lastly, we received final clearance from CFIUS to allocate equity shares to Renesas in connection with our previously approved restructuring agreement. This regulatory approval enabled the release of approximately 16.85 million shares of new common stock to Renesas. In addition, we completed the distribution of the final 2% equity recovery representing approximately 871,000 shares to our legacy pre-petition shareholders. Our total shares outstanding are now 45.1 million. Finally, let's turn to our outlook on slide 17 of our presentation. While the automotive end market remains volatile in the near term, we are encouraged by the growing momentum in key strategic areas such as AI data centers and other industrial and energy applications. These emerging opportunities represent meaningful long-term growth drivers, but they will take time to scale and offset the continued softness in EVs. During the third quarter of fiscal 2026, we expect revenues between $140 million and $160 million. The decline is driven primarily by accelerated customer purchases in our first fiscal quarter. as certain customers build up inventory by placing orders from the Durham FAB prior to its planned closure. Certain customers pursue a second sourcing of products during wall speed and weaker EV demand. The company expects OPEX to be flattered slightly down sequentially as we remain confident in controlling operating costs through actions already implemented. lastly due to the ongoing fresh start accounting impacts wall speed will not yet provide a numeric gross margin guide but does expect further quarter over quarter improvements driven by ongoing operational actions however gross margin is expected to remain negative in fiscal q3 as we mentioned on last quarter's call we expect to provide an update on our long range plan in the first half of calendar 2026, where we will give an update on the long-term financial targets and capital allocation plans. With that, I'll return the call back over to Robert.

Thank you, Gregor. Across the business, our team is working tirelessly to drive progress against our strategic priorities and to mobilize our scale and technology advantages. All of these efforts are intended to strengthen our ability to capture the next wave of growth in silicon carbide. But the near-term demand picture remains dynamic. Two trends remain clear. First, electrification is happening across new markets every day. Second, voltages will continue to increase, necessitating more power density and increased energy efficiency. We are building a stronger, more resilient Wall Street. With an improved financial foundation, experienced leadership team, and our vertically integrated platform, a strategically positioned to drive long-term growth and value as we define the future of silicon carbide technology. Operator, we are now ready to take questions.

Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove your question, press star followed by two. Again, to ask a question, press star one. And as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. And during the Q&A session, we ask that you please limit your questions to one question and one follow-up. The first question comes from the line of Ryan Lee with Goldman Sachs. You may proceed.

Hey, guys. Good afternoon. Thanks for the updates here. Appreciate the slide deck as well. A lot of new information. So maybe the first question, just thinking about the strategy, you mentioned the diversification away from EVs, you know, key segments like A and D, grid modernization, AI. your data centers. Maybe just walk through a little bit of how that's going to work and then what it requires for you to change how you go to market and maybe the timeline involved. And then I had a follow-up.

Yeah, thanks, Brian. At the end of the day, what we're doing is we're pretty much looking into pivoting away from being a one-trick pony focused on EVs. So this means here that When I started, I kind of turned the organization, the GoToMarket organization, to be application-oriented, coming from a product-oriented setup, which means we're really looking into now automotive, industrial energy, and aerospace as defense and pretty much take these application requirements into what does it take to build these products. And I think what you can see here with our progress quarter over quarter and in AI data centers, that revenue growth here is really starting to pay off. In addition to that, it's also to get the right sales organization and the right channel strategy in place. This means a clear tiering of what are the key accounts in this respective application segment. But also, especially the I&E segment, it's a large number of customers. So really getting a channel strategy around distribution and specifically for the US, a rep structure in place. This is all in progress as we've brought in some really good new talent from the outside, from other big semiconductor companies.

Great. That's helpful, Kalar. And then maybe just a follow-up on the financials and the balance sheet. You know, a lot's changed and maybe more is going to change, but could you guys remind us, is there any uh expected um interest rate step up on the first lien this year or next year and then i think up you know until recently the the 2031 converts were sort of in the money but are you contemplating doing any sort of additional financing um uh strategic maneuvers uh with respect to the you know the first green and the converts just given you know the the equity and where it's been trading thank you Yeah, Gregor.

Yeah, maybe, Robert, I can take that one. Yeah, yeah. So, you're right. So, we took, obviously, first big steps with emerging from Chapter 11 and restructuring the balance sheet in that process, and then we focused very much on collecting the cash from the 48D and using a first pay down of the L1s, but that's just the first step, and we are very much aware of the situation and opportunity potential in the convert area, which we're deeply looking into at the moment, alongside other options that we have. So, as I mentioned in the script earlier, is that we realize there's more work to be done, and over the next period, we will be very actively looking at that. Very concretely, the interest rate will step up around the middle of calendar year 2026 and at that moment also some of the make whole premiums step down and so in our view that is definitely a very high cost of capital there and something to to be looked at for the rest we continue to focus a lot on the strict financial discipline so you've seen we focus a lot on getting more cash out to working capital i hope to make some further improvements there as well um And we believe that with the long maturity and the strong cash balance, we do have the time to look into this refinancing topic in a structured and, yeah, good way.

Appreciate the call. Thank you.

The next question comes from the line of Christopher Rowland with Susquehanna. Christopher?

Thank you, guys. Excellent. Thanks guys. Appreciate the question. So I also wanted to dig in and some of these other opportunities, particularly AI data center, I think from a power perspective, it's, it's pretty interesting right now. If you guys can talk about kind of what your AI data center revenue consists of today, that was up 50% quarter over quarter. And then going forward, kind of your top sockets. Is it going to be SSTs or in the power supply? Or we're hearing even potentially for substrates. Would love to know about your competitive position there and how big this thing could be for you guys eventually.

Yeah, thanks, Chris. I mean, really, very, very good questions. Let me kind of take them one step at a time. I think what's happening in the AI data center space, especially on the REC side, is that today you're on about the 100 kilowattish per REC. That's kind of moving in two years from now to like 600 kilowatt per REC into like a megawatt per REC, like in the 2029, 2030 time frame. This means you have to go figure out, how do you power these racks? And how do you get the energy from the energy generation to that rack? And I think this is where exactly Wolfspeed can play to the full advantages, coming from the energy generation, which is pretty much really going from the kilowatts, stepping that voltage down, And then as more and more renewables come into the mix, you need also a lot of energy storage systems in between to kind of buffer glitches and these type of things. So that's kind of the next portion we are focused on. And then, of course, you need to get this energy into the data center with transformers, right? And there is a transition happening from traditional transformers to solid-state transformers, where also silicon carbide is the perfect solution. Perfect solution. I would say that transition is starting to happen here. So we're really playing in terms of energy generation, energy storage system, solid state transformers. But then also you look into in the data center, there is the UPS. So the under uninterrupted power supply is a big, big application. And then again, 40% of the energy in the data center is consumed for cooling devices. Another way to say, hey, can you build these systems more effectively? You see, this is not just one application. These are multiple applications spanning across the whole power range. I think this is something what we're very actively working on. And we get multiple excellent customer engagements and partner engagements on that side. We announced a new package just recently, kind of the topside cooling package here, really looking to build specific products for that application. Coming to your questions on the substrate. So what we are seeing is that silicon carbide, from a materials perspective, unique properties um and and one unique property is thermal conductance right i mean it is one of the best materials for thermal conductance and has great optical properties and i think here there's clear interest to explore now to see is there a way to use this this thermal conductance in in some type of improvement for for the system architecture this is why we've also kind of pioneered this base on developing a single crystal through the millimeter vapor here And we have very early ongoing discussions with key partners in the industry to say, hey, with us now being able to produce really large scale single crystal silicon carbide here, what could be a potential solution? I mean, this is something where I cannot give you an exact timeline on revenue coming into the company, but this is something where we, again, have very good interest and working with various partners in the industry.

Excellent. Sounds very exciting. The my second question is around just kind of stability moving forward. And then, you know, eventually growth. And I think you guys talked about the fiscal first half customer purchases from from Durham transition. obviously it sounds like a pull-in of orders. Where are we in digesting those orders and alleviating that overhang? And when do you think you have confidence in the bottom and then building growth on top of that bottom again? How should we think about these different dynamics?

Yeah, I think there's various places various topics playing into this. The one is what clearly the kind of the transition from 150 millimeter devices to 200 millimeter devices is such a pep transition. You always have customer purchasing more for end of life in the parts, right? I think that that is pretty much The end of life thing is done, right? The 150 millimeter factory is shut down. We took the cost out of the company, also the running cost of the company. And I believe here with that step also, we are really the first company in the Western world who's completely only manufacturing on 200 millimeter devices. And then, of course, it comes the question to demand, right? And I think we talked about this also in the earnings call. It's a very dynamic market environment, especially around the EV side here. And it's really hard to predict in terms of visibility of kind of how that will develop. On the long run, I think, look, the electrification of the drivetrain is continuing, right? I mean, if you see, I just recently saw a market research forecast, right? slightly over 90 million cars getting sold around about 20 percent of these cars being you know evs yeah and that that that portion of evs is just going to grow right towards end of the decade i saw some forecasting around about 50 percent of the cars being sold end of the decade are evs right and then in these evs you have kind of two two dominant voltages for the batteries the one is an 800 volt platform the other one is a 400 volt platform And for the 800-volt platform, I mean, the primary solution is to do the traction and weather of silicon carbide. So I think the overall trend, long-term, of adopting silicon carbide, using this in EVs, and also, again, we talked about the AI data opportunity, it's real, right? Can I tell you exactly kind of short-term what will happen? No, with all the macroeconomic factors playing into this. Excellent.

Thank you for that, Colin. Appreciate it.

The next question comes from the line of Jed Dorseheimer with William Blair. You may proceed.

Hey, thanks. Thanks for taking my questions, guys. I guess first one for you, Gregor, you know, just a follow-up to Brian's previous question is it would seem like, you know, dealing with the L1s in some capacity might be the lowest hanging fruit. So I'm just curious, have you kind of looked at what the potential savings and interest could be? I'm just wondering in terms of, you know, as you explore different options, are you talking about sort of a 50 to 100 million annual savings? Are you talking 150? Like what is the scope of that? And then I have a follow-up.

Yeah, I think it depends a little bit on how we would execute some portion of the refinance of the L1. As I said, there are several options, and it depends a bit on what is available, given the specifics and nature of just emerging for Chapter 11. So we are very actively looking at that. You know our cost of capital is right now very high, and there will be a further step up. So that is something that we are looking for to address head on. I think the exact amount of interest reduction will really depend on the instrument we would use and the size of the first step we can make. And I think it's a bit premature to indicate exactly how big that would be, but I'm looking for making, let's say, material first steps there. But it's probably not going to be in a one-go transaction, if that helps. Thank you.

It does, yeah. I think you addressed sort of, you know, scope. I guess second question would be for you, Robert. With respect to Siler City and, you know, just I know you can't guide or, you know, it's premature to frame around the 300 millimeter for virtual lens opportunities, but that would Seemingly be the the fastest way to fill that fab so i'm just wondering is there any is there any framework to think about how to timing of utilization should the ar vr type opportunity ran, how should we be thinking how should people be thinking about that.

Look, I mean, at the end of the day, we're always adjusting, you know, kind of the production to the demand, right? And we're going to be scaling this up as demand, you know, picks up. And at the end of the day, this is really dependent on customer adoption of the technology, right? And then, of course, we are ready to scale. I mean, look, the good thing is here with full speed here, we got really the facilities we got the capex which was spent here um pretty much in both the device fab up in mohawk valley and also as you said on the material side here we got you know capacity in durham but also in silo city here the factories are built right so this means at the end of the day it is really now looking into how do we get customers how do we get pretty much new new applications yeah to drive that growth is this something we complete We need to make the customer need to make an architectural choice, right? And then, of course, we need to go, we get this qualified and wrapped. And this is why I think, you know, diversifying here the customer base, the go-to-market, and also how we think about understanding the end application is such an important piece of getting Wolfspeed here into the right position. Great.

Thanks, guys. The next question comes from the line of Sameek Chatterjee with JP Morgan. You may proceed.

Hi, good afternoon, and thanks for the question. This is Joe Cardoso on Frisomic. Maybe for my first, I just wanted to follow up on the EV comments you made, but maybe less on the market itself and just more curious how we should think about Wolfspeed's positioning in the market today, particularly following a somewhat turbulent 12 months or so, but also kind of on the heels of the recent announcements like the one you mentioned with Toyota. Just curious what you're seeing across customer conversations and dialogues and any incremental color you can provide on that front. And then I have a follow-up.

Sure. Again, we announced the partnership with Toyota, which is pretty much showing we're diversifying here also globally. And clearly, Toyota is a very well-known brand for quality. So I think this is also a testament to the great cooperation between the two companies here. And then, of course, we're really here looking into diversifying here globally, but also in terms of within the EV makers. As I said, right, I mean, really the emergence of this 800-volt battery platform is really the perfect fit for the silicon carbide in the traction inverter. And this is what we're really, really focused on. A lot of them are valuing our vertical integration, right? I mean, if you saw what happened recently around, you know, On rare earth, obviously, kind of what happened last year also around gallium, pretty much all of a sudden certain countries restricted these materials from being exported, right? A lot of customers are valuing, okay, full speed, you have the manufacturing capabilities, you have the capacity, and you have this right here in the United States, right? I mean, if you see kind of our footprint is pretty much, first of all, very lean, but it's also something which we have under our control. That is pretty much between North Carolina, Mohawk Valley, and our device and module site in Arkansas, right? I mean, we can really move very fast, and we have this all under control. under one roof. So this is really something where a lot of customers like it. And we have, again, here a lot of sampling ongoing with various key customers here for programs.

That concludes today's Q&A. I would now like to pass the call back for any closing remarks.

Oh, I thought you had a follow-on question still. Yeah, I think, Cameron, I think he did have a follow-on question. We can take that. Yeah, exactly. Perfect.

Sameek, if you can queue back up for a question, pressing star followed by 1. If you want.

You don't have to, but I think you mentioned it.

Okay. Okay. And yeah, thanks everybody for joining us in the call today here. Thank you. Thank you.

Thank you for your participation and enjoy the rest of your day.