Wolfspeed, Inc.

Ladies and gentlemen, thank you for joining us and welcome to Wolfspeed Incorporated third quarter fiscal year 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Ed Goodwin, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Welcome to Wolfspeed's third quarter fiscal 2026 conference call. Today, Wolfspeed's Chief Executive Officer, Robert Furla, and Chief Financial Officer, Gregor Von Nissen, will report on the results for the third quarter of fiscal year 2026. We would also encourage you to reference the slides that were published on our IR website 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. A reconciliation to the most directly comparable GAAP measures is in our press release and and posted in 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. With that, let me turn the call over to Robert.

Thank you and good afternoon everyone. We appreciate you joining us today. We are pleased to see that our strategy is building meaningful momentum. The third quarter of fiscal 2026 delivered revenue of 150 million in line with the midpoint of our guidance. We continue to make strong progress on the areas of our business within our control. Addressing our capital structure in engagement with customers across the broad set of end markets. As we move forward, we remain focused on three key strategic priorities, advancing technology leadership, demonstrating strict financial discipline, and driving operational excellence. We have made strong progress in each of these areas this quarter. Starting with technology leadership, we continue to accelerate innovation across our thin carpet platform to create a fundamental technology advantage. We are maintaining a disciplined approach to R&D, focusing our investments on high-return programs in the fastest-growing markets, and our efforts are delivering tangible results. This quarter, we introduced the first commercially available 10 kilovolt silicon carbide power MOSFET and launched our next generation TOLT portfolio. These innovations, particularly 10 kilovolts, will help to cement Bullskill's position as a leader in high voltage applications. At the same time, we are making progress on our materials capabilities. After shifting all device production to 200mm at Mohawk Valley, our germ facilities anchor our materials capabilities. The infrastructure, talent, and floor space there today support at least our new-term growth ambitions, including commercial-scale 200mm development as the market evolves. Now turning to financial discipline, we took an important step this quarter to further optimize our capital structure. through the refinancing of a portion of our first team's dealer-secured node. This refinancing was supported by both new and existing institutional investors, demonstrating confidence in the long-term growth prospects of Wolfspeed and through Carbet technology more broadly. Gregor will provide more on the specific financial implications shortly. This brings us to our third priority, driving operational excellence. We remain focused on differentiating through quality, customer responsiveness, time to market, and supply chain resilience. We continue to refine our manufacturing processes to improve quality, cost, and speed across everything we do. As mentioned last quarter, we completed the shutdown of 150mm device production at Durham ahead of schedule. This creates optionality to re-deploy that space. This approach allows leveraging our current tooling base without the heavy incremental capital investment that would otherwise be required. The Durham campus can currently support all commercial materials activities as well as our emerging 3D user platform. We are also leveraging AI within our own operations through our expanded partnership with Snowflake We have unified factory, supply chain, and interpret data on a single platform, and we've deployed AI-driven tools that enable real-time insights and faster decision-making across the organization. Last quarter, we outlined the realignment of our go-to-market strategy around four verticals, auto, I&E, aerospace, and defense, and materials. During the quarter, we have sharpened our approach with best practices Yu as regional president for Greater China, Stefan Steyerl as vice president of sales for EMA, and most recently, Yasu Harita as regional president for Asia Pacific. These leaders strengthen our ability to scale our go-to-market efforts globally, and we are encouraged by early traction we're seeing across each of these end markets. In order, global EV adoption continues to grow, though more modestly in certain regions. so the carbide revenue doesn't necessarily scale in lockstep with vehicle sales due to design-in and codification cycles. As the industry evolved, we believed that we needed to retool the approach as the market entered its next phase. Therefore, we strengthened our team with experienced automotive executives and launched a focus strategy targeting key global accounts with high-effic adoption, positioning those speeds to capture the next wave of design wins. Given the qualification cycles of EV programs, our success from these engagements are expected to translate into revenue over time. In I&E, momentum in AI data and application continues to build. Our Toast portfolio is purpose-built for AI rack power, and we are actively collaborating with AI ecosystem partners on the transition from 400-volt to 18-volt architectures. While it represents a moderate portion of our business today, we have continued to see strong sequential growth in AI applications, with approximately 30% sequential growth from Q2 to Q3 and increasing customer engagement, which gives us confidence in the long-term trajectory of this opportunity. In aerospace and defense, growth is supported by electrification trends and increasing demand for secure domestic supply chains. In addition, we continue to expand our presence in emerging applications such as electric aviation. Our partnership with the leading manufacturer of electrical vertical takeoff and landing aircraft is a strong example of how our solutions enable higher efficiency and power density in the next generation platforms. Finally, in our materials business, we continue to serve our under 50mm materials customers, including under the LTA framework. In addition, we are making progress with qualification on 200 mm materials. At the same time, we are engaging with AI ecosystem companies to explore how 3 mm substrates can address thermal, mechanical, and electrical challenges in next-generation AI and high-performance computing packaging architectures. We continue to engage on 3 mm as a longer-term opportunity. I want to thank the team for their continued execution against our strategic priorities and for their excellent progress against our technological, operational, and go-to-market objectives. With that, I return it over to Gregor.

Thank you, Robert, and good afternoon, everyone. Before walking through our financials, I want to highlight the benefits of our recent refinancing. We took a significant step to strengthen our capital structure through the private placements of new convertible one-and-a-half-linz senior secured nodes, common stock and pre-funded warrants, generating approximately 476 million of aggregate gross proceeds. we used the cash on hand to cover fees associated with the private placements, directing the full aggregate gross proceeds towards reducing our existing senior secured note balance by approximately 43%. These actions reduce total debt principal by approximately $97 million and are expected to lower the annual interest expense by approximately $62 million. Our first debt maturity remains in 2030, providing runway to execute our strategic plans as we continue to optimize our capital structure. Additionally, during the quarter, we received CFS clearance that resulted in the release of equity to Renesas. CFI's approval, coupled with our strategic refinancing, primarily drove the more than $400 million increase in the company's equity position during the quarter, significantly improving our debt-to-equity ratio. Now I will turn to our third quarter results. We generated $150 million in total revenue for the quarter, in line with the midpoint of our guidance. Power revenue was approximately 100 million, of which 90% was from our Mohawk Valley 200mm device fab. The remaining 10% of power device revenue was last time buys of our 150mm device inventory. Materials revenue was approximately 50 million, flat sequentially. Next, our gross margin for the third quarter was negative 20.6%, representing a double-digit percentage point improvement compared to the last quarter, partially driven by a more favorable product mix, as well as beneficial impacts from digesting the fresh start accounting inventory in the last quarter. The impact of underutilization across our manufacturing footprint was approximately 46 million each to three, Thunder utilization continues to be the primary driver of our gross margin profile, and improving vector utilization remains one of the most important levers to drive margin expansion going forward. One point worth highlighting is as our operation performance continues to improve, we are producing the same revenue with less capacity consumed. These continuous efforts position us to keep expanding our earnings potential per dollar of invested capital, even if it makes the reported unutilization look larger. Non-GAAP operating expenses totaled $61 million in the quarter. With headcount reduction actions largely complete, we expect to maintain approximately this level of OPEC, Adjusted EBITDA for the quarter was negative 62 million. Now turning to cash flow, which remains one of our top priorities. Operating cash flow for Q3 was negative 84 million, driven by improvement in precious metal reclamation, interest income, and continued working capital improvements. Capital expenditures were approximately $5 million on a net base in the third quarter, deflecting $38 million of gross CAPEX, mostly coming from previous commitments we have made. These investments were nearly entirely offset by $33 million of incentive receipts from the New York State related to Mohawk Valley. We ended the quarter with approximately $1.2 billion in cash and short-term investments, allowing us to continue to pursue our strategic priorities with confidence. Whilst we've taken meaningful steps to strengthen our balance sheet, we recognize there is more work ahead. Looking ahead, while near-term demand in automotive remains uncertain, we continue to see encouraging momentum in high-growth areas such as AI data centers and other I&E applications. These markets represent meaningful long-term opportunities, though it will take time for them to scale and offset current softness in automotive. During the fourth quarter of fiscal year 26, we are targeting revenues between $140 and $160 million. We expect non-GAAP gross margin to remain negative in the fourth quarter and OPEX to be roughly flat quarter over quarter. On the long term, our objective remains clear, to return to above-market revenue growth driven by a more diversified customer base and to achieve EBITDA and cash flow profitability.

Thank you Gregor. This quarter reflects continued progress against our three strategic priorities. Advancing technology leadership, demonstrating strict financial discipline, and driving operational excellence. The actions we have taken this quarter, strengthening our balance sheet, launching industry-leading products, deepening our leadership team in the region with a focus on customer centricity, and enhancing our operational capabilities, are all directed towards one objective. Positioning rule speed to capture growth and expand earnings power if the market environment improves. With that, operator, you're now ready to take questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Roland with Susquehanna. Your line is open. Please go ahead.

Thank you, guys, for the question. I guess my first one is going to be around AI. and your opportunities to address AI very specifically. If you could talk about perhaps the AI power tree, what is available in your view for silicon carbide, what applications you might address earliest, you know, whether it might be, you know, PSUs or power delivery boards or solid-state transformers, or the 300-millimeter kind of future applications that you spoke about in your prepared remarks. If you could just talk about what you think actually comes to revenue first and what might be meaningful for Wolfspeed, that would be great.

Well, thank you. So that's a great question. Let me quickly start kind of answering these two things. The one is on the device side here. It's everything which is, I call it 650 volts up, right? And then if you look at it from an application perspective, these are the power supplies in the data center, the traditional new customers around that space. Then this is, of course, battery backup storage, kind of, you know, powering also the air conditioning in the data center is, you know, consuming silicon carbide. Then outside of the data center is more the transmission piece where pretty much you will see the future adoption of service-grade transformers, right? So this is really a significant driver of future silicon carbide demand. And we are engaged, I would say, the – whole chain from energy generation to up to the kind of 650 volt level. Below that, that's then a different, you know, white band technology kind of, you know, taking that space. But up to that space, I think we are engaged with everybody in the ecosystem. So, Lower voltages are primarily, I'll call it, component and discrete approaches, and the higher voltage are modules, so the qualification times are also a little bit different between modules and proving the reliability of a solid-state transformer versus pretty much selling components to the power supply. So the one which is probably ramping faster is more the power supply stuff, while then solid-state transformers, I think, will kick in kind of over time. And second piece to the second answer to your question is around 300 millimeter. So again, we started these, we call it beyond power activities, and we see quite some really good momentum here with a lot of ecosystem partners on using silicon carbide's unique property around thermals and mechanicals in various aspects. But all of them come around packaging, co-packaging, interposers, heat sinks, and that kind of application area. I think people are looking like, wow, you know, it's really unique properties, being super conductive while also being insulating. And I think here the discussions have started here. This is early discussions. Also, as we've indicated, there's nothing where we see revenue, you know, short term. But we believe here that technology has certainly a right to play.

Excellent. Thank you for that. Maybe as a follow-up, I think the legacy for Wolf for silicon carbide has primarily been automotive. I was wondering if you could speak to how the end markets might change under your management, you know, particularly between automotive, industrial, and AI, and AI in particular, might you be able to offer maybe an aspirational AI target for revenue at some point in the future?

No, absolutely. Very good question there. Look, when I came in, the company was organized around products. There was one gentleman running modules, one gentleman running discrete. And so what I said is we got to change this to be application-oriented. Because, look, at the end of the day, the focus was all around e-commerce. And then we did an organizational change and said, let's move to an application-focused, go-to-market approach. And so the business lines are now pretty much, we've got an automotive business line, the gentleman from Montemi running that business line, and there's an I&E business line. And that I&E business line is kind of, you know, with some substructures around renewables, AI data center, and then in general, it drives business, which is pretty much all of what we call industrial here. And then we have a segment around aerospace and defense. And then there's the materials business. And this is kind of how we view kind of the go-to market to really support a more differentiated view of how do we approach customers, but also how do we service the customers because the design cycles are different, the requirements are different. And the dynamics are certainly different. I think that's something which we really see that organizational change, which I put in place last year, is really starting to pay off to get that focus on it. And as you've probably seen here, you know, previous quarter Q1 to Q2, we grew 50% of the data. So this quarter, Q2 to Q3, we grew 30%. So it's really growing here. Again, it's not a... huge size of revenue yet, but it's certainly the growth shows, putting the focus on it. We got the product portfolio, and we're making really, really good progress.

Thank you so much. Appreciate it.

Your next question comes from the line of Jed Dorsheimer with William Blair. Your line is open. Please go ahead.

Hi, yeah, thanks, guys. Robert, question for you, just maybe a little bit on the go-to-market strategy. Some of your competitors, I mean, everybody's talking up, you know, the use in AI in terms of 800 voltage. But utilization in some of the competitors has actually come down, which tells me that, you know, auto is still the main driver. So I'm just... I guess my question for you is, as you think about your go-to-market strategy on the product level for AI applications and maybe also for solid-state transformers, how much absorption do you think you can, you know, what type of utilization do you think you can get to in Mohawk Valley? And then I have a follow-up question.

Yeah, look, I mean, first of all, we're not disengaging from automotive. Let's make this very clear here. Automotive is a very, very important part of our business. And I think, look, the cars are becoming electric and the cars are becoming connected. So we will clearly focus on, I call it technology leadership around really penetrating these, let's say, high-end sockets. And quite frankly speaking, the The customers are really appreciating kind of what we're doing with technology side. And you will see here some announcement at PCM. PCM is the upcoming trade show on the power side here. Beginning of June here, and you will see some announcement around the technology side coming out on that trade show. Then on your question on AI data center, this is being driven out of our IME platform. And, again, it really represents a significant growth for us in the sense of really diversifying Wall Street away from pretty much being a pure play auto company and really diversifying the revenue. And then within I&E, like I already mentioned, right, it goes pretty much everything from 650 volts upwards. So I have a 650-volt discrete. It's pretty much the 1,200-volt discrete. And then we kind of in the 2.3 kilowatts, 3.3 kilowatts, you'd look into modules. And these are pretty much, you know, modules which are used for the solid-state transformers. And as these transitions in this transformer space happens, I think we are very, very well positioned here with, you know, with the customers in this ecosystem. And then, of course, we see demand picking up, and that then also will increase, you know, the loading, you know, effectively in our morgue valley. I mean, the good news is, quite frankly speaking, that the restructuring on our, let's say, device side is done. Now, we talked about we phased out 6-inch, we pretty much exited our Durham facility. This means we have completely made the move over to Mohawk Valley, which means also its ability to scale. There's a lot of, you know, if I look at the competition here, A lot of them are still on six-inch. A lot of them are really trailing in that conversion. And I think this puts us in a unique position that we can also tell the customer, look, there is no PCN. We don't have to move the product anywhere to go through as kind of the demand picks up on these applications.

Great. And then maybe as a follow-up for Gregor, you know, just it looks like you've been able to restructure a little bit more than half. of the L1. I'm just curious, you know, what your intentions are in terms of that. Can you, is the goal to, and I may have missed this in the remarks, but get that completely restructured before the June timeframe or July timeframe?

Yeah, obviously you saw that we took a first big step by taking out 43% of the first lean debt. That is the most expensive debt we have. It's around 14% interest rate, and there will be a further step up to 16%. So clearly this is the client focus to address. We felt it was very important to take this first step And we are very pleased with the signal of strength with new long holders coming in and even having a part of equity at the premium be part of this mix of taking a part of the L1 out. The size of the L1 was, however, such that doing it in one go would have been too costly, particularly because we expected that the stock would re-rate after taking a first step and showing the signal of strength that we have this ability. We think we see some of that over the last couple of weeks, and what we're doing right now is evaluating which exact steps we're going to take and when. We are not in a rush because of the maturities in 2030, but obviously I'm keen to do something. We're not going to put a specific timeline against that. That is not necessary to put that pressure on ourselves. We will take the best possible approach when the market conditions are optimal to get the best cost of capital for the company.

Great. Fantastic. Thank you.

There are no further questions at this time. I will now turn the call back to Robert for closing remarks. All right. Thank you for joining us on the call, and thank you for the very constructive questions. Thank you. Bye-bye. This concludes today's call. Thank you for attending. You may now disconnect.