Q1 2023 Transphorm Technology Inc Earnings Call
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Good day, everyone. Welcome to today's transform incorporated fiscal first quarter 2023 financial results and business update call. Today's program is being recorded all lines have been placed on mute to prevent any background noise. After our speakers remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press.
Star one on your telephone keypad, if he would like to withdraw your question. Please press star one again at this time for opening remarks, I'd like to turn things over to Mr. Jack Perkins. Please go ahead Sir.
Thank you operator good afternoon. My name is Jack Perkins, and I will be a conference operator, I would like to welcome everyday everyone today to transform its business update conference call. Please be advised that today's conference call is being recorded.
Joining the call joining today's call from transform our permit Parikh co founder President and Chief operating Officer, and Cameron Mccauley, Chief Financial Financial Officer before we begin I would like to point out that there is a slide four notations associated with today's call and which management will be rapid.
Sing.
During the conference call and your.
Slides can be assessed through accessed through the live webcast link in the Investor Relations section of transforms website.
And they will also be posted on the linked PDF subsequent to today's conference call additional.
Additionally, during the course of this call. The company May make forward looking statements regarding the company's financial position strategies plans and future operations with specific end market and other areas of discussion. It is not possible for the company or management to predict all the risks nor for the company to assess that.
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 statements and.
In light of all these risks uncertainties and assumptions. The forward looking statements 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 management views as of today August 15th 2022, neither the company nor any person assumes responsibility for the accuracy or completeness of the forward looking statements.
<unk> undertakes no obligation to public up publicly update the forward looking statements for any reason after the date of this call.
Good.
Conform such statements to actual results or to change in the company's expectations.
For detailed information on risks associated with the company's business. We refer you to the risk factors described on transforms the S. One.
Ken.
K T and other subsequent filings with the SEC with that I'll turn the call over to transforms.
President and Chief operating officer.
Pat.
Please go ahead.
Thank you Jack and thank you to our listeners and good afternoon everyone.
We are pleased to report <unk> 10 successive quarter of product revenue increase with product revenues well over $1 4 million.
100% plus year to year increase and a total revenue of $5 2 million in the quarter, a 60% year to year increase and in line with consensus analyst estimates Omics, what is continuing to be a challenging supply chain environment and COVID-19 related shutdown slowdown in Asia still linger.
Getting on.
This growth was made possible by our execution and leadership in high powered again, which was more than 60% of our revenue mix.
Executing towards the 500 plus units, but just order we announced last quarter.
As well as continued traction in low power again.
This was further enabled.
Easy to use higher efficiency TVN fit versus competing email Gan solutions and as exemplified by Vince such as the fee Hong 65 Watt adapter and the release of seven reference designs for the 65, what at a 140 watt adapter range.
These results have been a direct impact of our targeted investments in this area and we plan to continue investing in these areas in the future.
An additional example of our high power leadership include the release of our surface Mount Hi, Paolo <unk> Pak industry standard package and continued reduction in higher end applications like the Japanese Utah medical power supply the Pn enabled 73% loss reduction in a fabulous design.
Another example in a recent third party teardown.
Revealed to gain insight associates, leading $1 60, what gaming power supply.
The first gaming PSU within assist to the best of our knowledge to implement gallium nitride.
Again, we believe it's still the only game company to be shipping in high volume in multiple programs in the kilowatt range today.
Looking us a one stop shop for again from low to high power.
We continue to see robust demand and our current backlog is at record levels.
While we do see intermediate softness in certain market segments like blockchain computing. This is presently being absorbed by other demand, but we will be much with in the coming quarters.
Yeah.
And it is also clear Asia, China mobile handset softness however, it has not been a significant factor for us since we are gaining design ins and market share from our relatively modest space, even in gallium nitride, which itself is a smaller portion of the total adopter total adaptive power device market.
For example, although still in early growth mode. We secured follow on orders for Fortune 165, what laptop adapter design win that we talked last time and avoid like E. D. Tailored 141 win as well as a new pilot win for a leading brand TV manufacturers 100 inch television power supply.
The key challenge in front of us in the next two quarters is continuing to expand our capacity in.
In the May to July timeframe, we've had some delays in bringing more of our existing reactor capability in Japan online due to COVID-19 related travel restrictions and the downstream supply chain issues in securing hardware and associated equipment.
As a result, despite the record backlog, we do anticipate up to 30% lower product revenues in FQ223 versus FQ $1 23.
The company to resume growth back in FQ3 in FQ4.
At about 30% sequential quarterly product revenue growth.
For our development programs, we are finishing up our existing Navy manufacturing.
Programmed for again, MP materials, which is an important second vertical for transform.
New program has just been announced that we will target you've been using the same platform, which has enabled us to win the previous contract.
The timing of this follow on program is likely the beginning of calendar year 2023.
On the domestic front.
Again has much of its core Gan MPV from manufacturing in the United States, and we will be thinking funding.
The chipset to further support and skew this core U S manufacturing competence.
Even with these challenges.
Still targeting a 40% to 45% increase in product revenues from FY 'twenty two FY 'twenty three.
As I will walk through in a short presentation.
Gradually taking steps to increase.
Installed reactor capacity by.
By acquiring additional reactors and having them in production around mid to second half of calendar 2023.
With our high power strength and strong intellectual property. We are also targeting additional new market segments.
An example of this is the electric tubular and three Wheeler segment, especially in Asia.
We expect this market to grow rapidly to a multimillion dollar base for us in FY 2024.
This provides us with an early entry point into the electric vehicle market with the four Wheeler segment expected to follow in 'twenty four 'twenty five.
Overall with the proven performance and design benefits of TVN over competing solutions and the leadership in high power again.
With strong application based patent portfolio.
We remain very strongly positioned to address the $3 billion again, Tim in diverse Ats like servers and communications blockchain computing gaming energy.
In washers and electric vehicles, two Wheeler three Wheeler spoilers.
While drilling those ship in the lower power <unk> adapter segment.
With that outline.
I will next review some of the salient point of <unk> value proposition.
As a recap.
And then outline our strong execution in the April to June ending quarter and other key challenges over the next two quarters, including the focus on our expansion strategy for <unk>.
By 2023 and beyond.
So first off as a recap for new listeners gallium nitride is a wide bandgap semiconductor material for power conversion that reduces electrical energy based enables compact power conversion footprint and lower power system cost across a variety of electrical power conversion applications laptop or mobile charges computing power.
Automotive and welders and does this much better than traditional silicon and also better than other new semiconductors like silicon carbide.
<unk> is an established.
Later and design pioneer leading manufacturer supplier of high voltage Gan power semiconductor products.
This range of applications from 31, low power to over four kilowatts high powered and in applications ranging from adapters in fast Chargers to high power data centers mining communication infrastructure broad industrial renewables and design ins for automotive.
Is that all callers solid core investment strategy and focus.
Our fundamental intellectual property with over 1000 patents strong portfolio as well as our high performance high quality products have been validated by Blue chip customers and partners financial partners IC design partners manufacturing partners and automotive industry or the market leaders as well as the U S Department of defense.
Our comprehensive and differentiated product offering.
By high quality manufacturing base decking essentially owned.
Has ramped in the market with over 60 billion field now.
Now in our customers' product, including both high power and low power again again and resulted in over $24 million in revenues in FY 2022.
In spite of a challenging supply chain environment.
Above all Gan is addressing large multibillion dollar growing market segment, including electric vehicles, <unk> and smart charging amongst other things.
Our focus is building a strong product driven business fast ramping profitable growth and we had already after the races doing that.
In FY 'twenty to 'twenty, four we target more than 90% of our revenue base to be product revenues and as you see today.
Already more than 80% in that regard.
We are committed to making the required operating and capital investment for increased SKU to meet higher demand high performance products and solutions for our customers and fostering and adoption across multiple end markets that I talked about to achieve our targets long term targets of well over 50%.
Gross margins of over 40% and operating margins exceeding 20%.
<unk> is in a unique and differentiated position amongst against suppliers today to have products in the market that address a multibillion dollar market opportunity for again again, Tim for public condition.
From low power to high powered.
Doctors and Chargers power server data servers blockchain datacom.
That we are already ramping to industrial energy and PV and work towards renewables now also in production with <unk> partnered with our customers and in the mid to long term large growth opportunities with automotive electric vehicles, both <unk>, two and <unk> in the middle and formulas in the long term further bolstering.
Our long term growth beyond 2020 for 2025.
Transform provide gan solutions.
This platform delivering high efficiency complex systems with easy to use and easy to interface products with proven performance benefits again, silicon and silicon carbide and other Gan solutions.
One of our key attributes from early on and one of the <unk> of our success as well is the ownership of our Gan wafer production supply chain.
This is 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 off against it.
We directly own and control our again ABB for manufacturing with multiple and most immediate reactors. These are the tools used for banking are growing again material on silicon wafers. Today for example in two geographical locations, our California headquarters in Japan.
Our reefer factory. The fact that wafer fab is a joint venture with our financial strategic partner and to remain it is a high quality manufacturing site with the only formally reported useful again matching that of silicon Cmos running in the same factory a feature that has contributed to our high power Gan products yield.
Quality.
While packaging is done with some of our valued also had partners we bring TBH transform IP in this design.
Example, allowing began to be efficiently used in robust Peel packages designed by high power customers something that is not easy for other gallium nitride provides us to do.
Last but not least is our application and design efforts, both with customers and solution partners, who work preferentially with our again.
The controller and driver products.
Because transform again easy to interface and use like silicon.
Yes.
Next I will discuss why <unk> wins in the latest verticals from lower power to higher powered.
Yes.
So as the Gan adoption is happening fast many good companies are in the market with gallium nitride, notably at lower power adapters and charges.
<unk> is addressing today, both low power and high power together.
Silicon obviously has been working great in the past, but now for short inefficiencies speed in the smallest size required for new products again takes off from here.
A few factors that outline T against differentiated benefits from compete again.
First.
We excel in ease of use and flexibility compatibility with tender drivers and controllers.
No extra bond components, our shrubbery is needed to interface over again, which is designed for the performance of Gan and look and feel of silicon to the users.
This makes it very cost effective, especially in lower power charging Chargers and adapters for smartphone and laptop where the total bond cost is very important.
The intensive gallium nitride performance is fully exploited by transform to achieve the highest efficiency or lower losses, among many other gallium nitride devices.
And above all bringing reliability and robustness across the horsepower range.
Okay.
This is clearly evidenced by proven Vince with customer systems in production.
As Tidjane is it updated many more market verticals today with higher range reliability and performance.
As you can see applications like several power gaming blockchain.
A variety of industrial and also highlight that the aerospace.
<unk> products addressing more than 10 times the power levels that some of the other again offerings enabled today.
Along with the benefits of ease of use and reduce the bomb and intrinsic and performance.
Underlying the results for our high powered dominance.
Is that what are the reason is that the typical E. More gallium nitride interface is weaker and how to operate in many common package types.
The fundamental design innovations and directly controlled manufacturing.
It'll enable us superior dynamic performance from over again fit, allowing smaller again die to be used for the same power level doing more with less.
Sometimes even two packages versus one from competing yet.
And this in against industry standard robust tiered packages with customers are very used to and compact surface Mount packages for.
Applications, such as adapters and Chargers.
And finally hired the power <unk> energy and carbon footprint impacted gallium nitride can deliver for example in blockchain completing one of the most power hungry applications.
But again has enabled 1% efficiency improvement.
And can save.
Hundreds of kilowatts per year in one system and well over 100 pounds of carbon footprint, depending on your source of energy.
With more than 50000 metric ton reduction possible just from our 2022 outlook in this area.
The overall energy impact with more than one more than the 120 Terawatt energy consumed by blockchain worldwide with a 1% efficiency gain is staggering.
With these type of benefits a variety of customers have selected transform gan in adapters and Chargers.
With around 16 design ins that we have secured.
The latest one we released recently among others is a design win with <unk>, a large and very reputable ODM supplier to a number of top tier mobile and laptop branch along with Vince other wins across a range of power levels and their doctors.
The hydropower space is a large market for gallium nitride and very important again hydropower had impact in energy savings electric due to savings and carbon footprint at a holistic level.
Here, our generation four and generation five Super <unk> offerings are compared to leading silicon carbide offerings.
As other type of Ken are not quite ready for this type of high power, especially and timely robust packages that the tier 247 due to the inherent device weakness.
So we've shown this previously with our highest power 15 million product to the best we can tell this is still the lowest our own qualified and ramping production in gallium nitride in a discrete till 247 package ultra funding nicely silicon carbide, MOSFET and GFS, both good products by strong companies.
Our standard package.
Tender bid circuit with 25% to 38% lower loss and able to deliver 10 kilowatt class powered from a single pad.
Now that also third party validation confirming the same thing for example, recent technical paper at the PCI EM Europe conference superiority of Gan High power again over silicon carbide in a cycle of what application plus published.
Customers, who have selected our higher powered products across the spectrum.
And some of our wins were built on a foundation of efficiency performance ease of use reliability and strong support.
We've shared some of this in the past and some interesting recent wins include a high power gallium nitride now entering the medical space and another win that I talked about with a suite.
Our leading brand name in getting gaining power supplies.
Yes.
While this is a very significant high power growth for <unk> in the various segments I outlined and we are already ramped in some of them.
Electric vehicle applications continued to present, a massive long term opportunity as the performance of Gan enables continued.
Performance of electric vehicles addressing fundamental issues of power loss heat generation and ranging <unk> IV with high power density enabled fast charging reduced size and lower losses possible, but again that ultimately, resulting in faster charging and higher range.
Tidjane has AUC cue 101, which is the automotive qualification standard box qualify today with our Gen four highly higher power solutions.
We have already ramped in various commercial and industrial market with coupon field reliability.
We also announced our preliminary 200 volt gallium nitride R&D results at Premier I totally conference in May, including 800 volt operation.
For which a 200 volt devices is needed and with high efficiency.
Silicon carbide products.
To accelerate in the electric vehicle segment.
<unk> added a new vertical, namely the tubular and the three Wheeler electric vehicle charging that fall right into the sweet spot of our today's high power solutions.
The specific gain opportunities and even today are in the areas of <unk> on more charges DC DC converter and off grid DC to AC auxiliary Inverters and cars with the main drivetrain powertrain opportunity.
After 'twenty five 'twenty six.
That drive in powertrain opportunity can infect tripled accessible game content $2 $200 conservatively.
We aim to be in the full market with $650 today and high voltage, including addressing the 800 volt battery makers slot with 12 100, well again in the future all key to electric vehicles.
For the two and three Wheeler.
Directly addressing a variety of charging opportunities, including the onboard charger.
This is an attractive market with.
With a tam that approaches $1 billion and.
And more importantly, near term revenue opportunities for <unk>.
Next the move toward fiscal Q1, 'twenty three quarter performance and key vectors driving our growth.
With our continued lean <unk> continued leadership in high powered.
More than 60% revenue this quarter in this segment and increasing share in low power. We have successfully gone grown product revenue for the 10th quarter in a narrow even with supply challenges facing us as well as some other softness emerging in some of the specific end markets like China handset market.
We did this by satisfying existing demand and creating New Orleans Lake of Gray of high voltage <unk> products in the medical field with the endless power supply and revenue from the gaming power market evidenced.
In one way by the third party teardown suits, one six kilowatt game, giving power supply.
And of course, continuing to ship and design wins that we have already secured and ramping fast.
We gained solid designs into adaptive charging failure in this case, notably Duffy humbling as well.
Yes.
Our business victors focus remains squarely on supply chain management and capacity expansion with continued emphasis on demand generation and diversification.
We exited the quarter with a record product revenue of $4 4 million a record backlog with continued leadership in high power in New Orleans and adapters Chargers.
We added wins in this market, bringing our total design ins design ins to 60, driven by Allergan effects ease of use high performance and again facility a lower total bom cost for the customer.
The few hungry and provides a strong proof point.
Therefore, this disadvantage of TVN the high power market continues to be strength of the again as we added very established applications this quarter, along with satisfying existing demand.
We plan to continue to leverage this.
Expand into more segments, notably accelerating the EV adoption by addressing the electric tubular market with a revenue potential in calendar year 2020, as I discussed earlier.
On the product segment, we released a new high power surface Mount package in an industry standard Viking used <unk> product consistent with the benefit of the gain perhaps provide high power in industry standard packages.
<unk> hundred will again demo with R&D results showing better performance in Silicon carbide MOSFET has started to generate attention from many customers.
A key emphasis we are now addressing is on the supply side.
Both getting internal existing capacity fully online as well as acquiring new capacity.
To this end.
<unk> more reactors that we plan to bring online by mid to the second half of CDI 2023, with the goal of doubling capacity by <unk> by 2023, including further additional MPV actress.
Need to make some of these investments ahead of time, especially due to long lead times for equipment.
Secondly, while our wafer fab is well set.
For our FY 2023 requirements and going into FY 2024, we are still targeting incremental investments in our JV factory for FY 'twenty for growth and beyond.
For packaging like previously we mentioned we have sufficient capacity in place for adapters and charges pick you up on products as well as other high power products and emphasis there we'll be adding skus like we did with <unk> recently.
The medium term scenario towards the end of FY 'twenty, three and start of FY 'twenty four remains strong as our current capacity initiatives for both existing tools and new doors acquired I'd expect it to start becoming a detail quarter by quarter.
Essentially supply chain management as well as capacity expansion, our top focus areas over the next several quarters.
We expect that with our strong balance sheet leadership in high power products and increased sharing lower power products.
We will allow <unk> to continue our strong momentum forward.
Strategic partnerships and our government initiatives are key for our business, the foremost being manufacturing and capacity increase now.
First off we have already successfully acquired two additional MPD actors.
And to be fully online.
In the second half of calendar year 2023.
The global wafer Corporation partnership and the expansion there is on track.
We completed our formal agreement with TWC this quarter.
This will add capacity above and beyond to look to additional reactors that I just mentioned as our goal is to be aggressive on the capacity side with long term demand scenario and our growth model remains intact.
On the wafer fab side, we continue to align clients with our JV partner and are investing in incremental capacity for next year.
With respect to our customer partners, we completed agreement.
For centering our development program with the Gaba on more targeted solution for several motor drives and robotics.
With this we also secured now the pending.
$75 million development funding in July 2022.
The <unk> partnership remains strong with continued focus on AP and wafer supply.
And also completing our generation five automotive qualification generation four as a reminder has already been automotive qualified.
We are continuing design in activities with Japan automotive customers in the RBC in DC this year, yes.
While this may take a bit longer we are positioning for worldwide automotive EV opportunities now.
Another clear acceleration initiatives. We are now executing launch is that 82, Wheeler and tubular market segment with real potential of calendar year 2023 revenue.
Again this is nearly a 1 billion nearly $1 billion market segment.
We're getting meaningful early to apps.
On the government's revenue side, our fiscal Q1 building on the Navy program was around zero point $7 million.
We're now targeting a follow on in the fiscal Q4 as the current program that's up in fiscal Q3.
We will also complete the <unk> hundred will gain effort with Talbot ARPA E program, because given us excellent proof point for our <unk> hundred one initiative.
Okay.
Lastly, as many of you are aware <unk> is a manufacturing company with significant quarter happy with sort of manufacturing in the United States.
We're aiming to position for the chipset funding with the objective to maintain and expand critical <unk> manufacturing in the United States.
All in all.
<unk> III V and the broader semiconductor industry are in a challenging spot. This fee quarters, yes, we're very excited to be in a strong secular gan adoption growth phase.
Our long term model remains attractive and to that end.
Resolutely investing in capacity expansion.
<unk> focus remains in three key areas, one capacity expansion and supply chain management, Keith Neal keeping up with and then next year staying ahead of demand to <unk>.
Spanning our leadership in high power again, including opportunities to diversify high power base to better address market cycles as well as accelerate EMEA revenues tend to market entry with our fundamental better products' value proposition continue to gain share in the Dr. In charter market.
Notwithstanding the short term headwinds, we expect that our market position in gallium nitride as well as a strategy and initiatives. We have outlined will allow us to build our overall momentum and emerge even stronger at the end of FY 2023 going forward into FY 'twenty for addressing the long term growth model I outlined at the onset.
With that over to Kevin to walk you through our financials in detail.
Thank you, Brett and Hello to everyone. Joining us today, let me start with the brief recap of our financial results for our most recently completed quarter.
So in my remarks, I will refer both to GAAP and non-GAAP results, which are reconciled to GAAP in our press release table.
non-GAAP results exclude stock based compensation depreciation amortization and adjustments to fair value of our previously held convertible note.
Starting with the income statement total GAAP and non-GAAP revenue comprising product and government was $5 $2 million in the quarter.
This represents a 5% quarterly growth when compared to $4 $9 million product and revenue for the prior quarter and a 60% improvement from the $3 2 million for the June 2021.
This quarterly and year over year increase was driven by record product sales from ramping shipments product revenue no storms. The majority of our total revenue number over 85% in the quarter just completed as compared to just over 50% for the plastics with you.
Focusing on product sales last quarter, so our 10th successive quarter of product revenue growth and record product revenue of over $4 $4 million.
This represents a 10% increase from the prior quarter and an increase of over 90% over the same quarter in the prior year.
This growth is being driven across a broad range of power conversion applications, including fast Chargers and adapters gaming data center industrial and blockchain applications.
The gross margin in the quarter was 21, 5%, 1% decrease from the prior quarter driven primarily through some cost increases slightly reduced government income and continued investment in our production team.
As mentioned in our prior earnings call. The company is progressing towards its long term model of gross margins in excess of 40% a number of actions, including new product introductions discrete ongoing cost efficiency activities and benefits that we will receive as we continue to grow and scale will contribute to this.
Operating expenses on a non-GAAP basis were $5 $4 million in the quarter compared to $4 seven in the prior quarter.
Growth being driven by G&A costs associated with our.
Jos.
Rail costs as we continue to increase our team to support our operations across all aspects of the company, including Genie sales applications and island.
When comparing non-GAAP opex to the same quarter in the prior year, we saw a 17% increase again due to personnel increases across the company and ongoing compliance costs.
Turning to EPS I will focus my remarks here on non-GAAP results. The revenue growth together with continued Opex management, resulting in non-GAAP EPS loss in the quarter flat to the prior quarter and a five point improvement on the same quarter in the prior year.
From an operational perspective.
We continue to see strong traction in our targeted markets Q1 saw record product bookings contributing to a strong backlog position, including the over 500 key unit production, although the company took for kilowatt class power supply in the quarter.
We are still levered silicone quarter, our short term focus being on product execution, and enabling capacity expansion to support medium to long term growth. We also continued to invest in the long term growth engine of the company.
<unk> mentioned, we purchased two additional reactors and we anticipate bringing <unk> online in the second half of calendar 2022.
Turning now to the balance sheet Q1 saw the company continue to strengthen our cash position improved by over $9 $5 million due to a green shoe late in the quarter offset by operational Brown we.
We exited the quarter with over $43 million in cash and cash equivalents, providing a stable runway for the company to go into.
Inventory also grew as we look to support our backlog position other assets and liabilities remains stable.
Our activities have improved the shareholders' equity position by $11 million in the current quarter and $73 million when compared to the same quarter in the prior fiscal year.
These activities provide the company a strong platform for this fiscal year.
Looking ahead, we will remain open to opportunities to further strengthen our balance sheet to ensure that we were able to continue to invest in our growth.
We also successfully completed our first quarter as a NASDAQ listed company and have seen our average.
Average trading volume increased significantly since the uplift was completed integrity. We were also added to the Russell 2000 index.
Index.
Transitioning node.
From a financial performance I wanted to touch briefly on positioning.
The company is well positioned to grow across multiple segments, including consumer data samples blockchain industrial and in the longer term. The EV market. We are now at a stage, where we have seen and continue to see strong adoption and a higher power space and over 500 key unit production, although as mentioned for the 30 kilowatt class supply.
In consumer we secured a lot.
Laptop adapt to the Zealand with tier one fortune 100 company, including an additional cortisol and follow on orders.
Recently, we announced a technology will push the homes to import 65, what is absent.
Revenue collection exists today several segments, we have seen strong traction and have grown production revenues 10 quarters in succession. Looking ahead, our strengthened balance sheet will allow us to continue to invest in our growth engines across all aspects of the company both from a staffing and a capacity perspective.
With a strong foundation in place our focus comes to execution, ensuring that we can support the growing demand and what we believe will be a broad market inflection point in the medium term. In addition to our existing revenue streams, we expect to see initial wins in the automotive segment, including two suite for cleaners in this timeframe from.
From there the company will drive towards our long term target model enabled by continued momentum across multiple segments.
Concluding note with a few key highlights.
Transform publicly listed on the NASDAQ exchange under the symbol <unk> is a pioneer and leading provider of Gan power conversion devices.
We have disruptive technology that provide solutions today across a number of significant growing markets.
We have established a strong network of Blue chip partners, including <unk> <unk> and others.
We are commercially ramping the strong production revenue growth no growing for pain successive quarters.
We have a comprehensive product offering today that meet our customers' needs across a wide range of power levels and segments. All of this underpinned by a strong balance sheet, the industry's strongest IP position and a deep and talented team.
This completes our prepared materials and remarks, and we'd like to open the call to any questions. Operator. Please proceed with the Q&A portion of the call.
Thank you as a reminder, if you do have a question for US today. Please press star one on your telephone keypad again that will be star one for questions. We'll hear first today from Craig Ellis.
Excuse me, we will go first today from Ananda Baruah with loop capital.
Hi, Thanks, guys for taking the question.
Yes listen congratulations on.
On all the progress across the board.
A few if I could.
It sounds like and I just wondered if this is more of a <unk>.
Verification.
Is it accurate to say that the demand is actually has been accelerating.
That's kind of what I got from Nielsen collected which meeting remarks, but I wanted to actually just.
Yes.
Clarify that makes you less accurate.
Okay.
Yes.
We said, we have a record backlog and we are getting new demand and like I said some the good fact, good news with transform as we diversified into low power and high power and immediate high-power segments. So sometimes the segmental softness like I said blockchain is.
<unk> segmental softness, but that gets offset by other aes, we add into so yes overall right now.
We ended the quarter with record backlog.
Okay, great great great product and it is also accurate that that really what the.
Constraint is.
Is really the capacity constraints.
The Japan situation.
It didn't sound to me like incremental component constraints.
What's really what's holding you back sounded to me like it was really the capacity situation is that accurate.
Yes, but admittedly that is exactly.
Correct the capacity related to Alberta.
Japan capacity, especially Japan reactor capability that we had.
Awesome Awesome and then just the last one for me is Kevin Jeff in your prepared remarks, you made mention of an inflection point in the medium term and I think you said that was an industry situation, but could you just get more context around that voice that would be awesome.
No I think.
And then it's something that we continue to believe and we see.
The interactions with customers across a number of markets that have progressed, the gallium nitride is making it I think.
You can build those factors it looks as if that we.
Should reach that inflection point in the medium term.
I'm not exactly when it will be but we all of the things that we're seeing with the demand.
Experiencing and the technology that is out there for gallium nitride point towards that in our minds.
Okay. That's all for me Kevin. Thanks, Let me ask you this any any.
Any context on sort of what medium term, meaning like what kind of time time range.
It's useful for us to think about.
Yes, I think when we think about that.
<unk> talked to the 2020.
'twenty early 'twenty four type of sanction.
Awesome.
Thanks, guys.
Thank you.
Okay.
We'll hear next from Craig Ellis with B Riley Securities.
Yeah. Thanks for taking the question and all the color today guys I just wanted to make sure I understood. The second quarter issue with the 30% decline.
<unk>.
So are you, saying this is all a capacity issue in China and there is not anything either from the supply chain or correlated to end demand, it's purely a capacity situation.
Yes. This is primarily a capacity situation that we have.
Not not China, but.
In Japan, primarily like we said due to again online.
Restrictions of Covid related travel and David downstream supply chain issues in securing hogs opened a gain associated with this.
Equipment. So it is due to that not not due to the.
Slowdown in a slowdown in demand at this time.
Okay, and then given that I think we've had some challenges with capacity and transform is not the only one but I know we've had multiple quarters of capacity challenges.
And what gives you confidence to suggest that.
<unk>.
We could see a 30% increase in revenue beyond fiscal <unk> win in fiscal <unk> and what are some of the Gibson takes quarter on quarter. As you look at the order book and backlog from two to three Q.
Sure I think certainly this.
It is not spend that mentioned the demand issue.
Demand is solid and bookings are sold it really our confidence is a function of our ability to bring our existing capacity.
And running.
And we've made some good progress on that so that's where we feel.
What else you would see 30% down in the next quarter.
As I mentioned, we feel confident that we can reverse that trend in Q3, and Q4 with sequential 50% increases there.
And what are the three or four things that investors should be looking at operationally that will drive that improvement Cameron, but can you just help us with some of the specifics that are.
Bidder on the company's dashboards that are giving you confidence. So we can have an idea in a sense for what levers you're pulling to get the 30% Chris.
Jimmy can you talk to that from an operational question. So that we outline when we talked about.
Scaling scaling of our product revenue rate and how do we do that right, including shares in high power shares and low power on that on the demand side qualifying new products.
On the product portfolio side, along with reference designs and solution partners and then importantly, the current.
Current job.
The challenge on the capacity, we are bringing our existing reactors online.
And also like we said we acquired new reactor capacity.
Already and also it will be.
Initiated longer term initiatives for example, with global wafers for further capacity Rachel.
All of these initiatives together will allow us to double the installed capacity base that we have today.
As we look at in seven quarters out.
Got it and then just two more and I'll hop back in the queue first one Kevin what are the implications for operating expense in the near term with.
The decrease in fiscal Q2 revenues flattish or do you expect incremental investment for the longer term opportunity you see or will the belt tightened up.
Yes, it's a great question I mean, I think Greg we we have to react.
When you see when you have these revenue results and we run our opex pretty tightly.
And we will continue to do that we will continue to look at ways to save money and we'll continue to look at ways to.
We support the company, but do it.
In a responsible manner opex did increase this quarter, but it increased less than production revenue and Thats a good model for us as we continue to look.
It looked at Miami spend and manage the business.
Got it and then lastly, you mentioned the Green shoe a couple of times and when I looked at.
The balance sheet I saw a term loan on there at $12 million can you just provide a little color on that.
Sure Matt.
$12 million revolver that we have with our partner on Expedia.
As it matures in the early part of FY 'twenty four.
Got it thanks.
Thanks, guys spoke back in the queue.
Great.
We'll hear next from David Williams with Benchmark company.
Hey, good afternoon, thanks for taking the question.
Congrats on the continued progress I know you've got some of the constraints there on the supply side and capacity, but just kind of curious if if you look at your backlog and think about how much was left on the table. This quarter of what was requested to be shipped how much do you think.
Can you quantify that in any way.
I think yes.
We've got strong.
David.
I think its backlog that wasn't all for this particular quarter theres backlog in place for the longer term. So I don't think that.
There was a lot left on the table in that regard, but I think what makes us feel comfortable with is the fact that the backlogs stretching over the next two to three quarters.
I wouldn't say the number would have been.
Much different as we had all the capacity in the world.
Okay. So let me just some data comes from leaving.
Working with our customers carefully.
That comes from the basically the next quarter on quarter and onwards, right. The FQ1 gamma reiterated.
Did actually increased product revenue.
Significantly to $4 $4 million right.
Even the prior FQ4 of 22 with Q1 of 2012 increased product revenue significantly.
Limited supply constraints now come from FQ, two and then we go back to improving that in FQ3 in FQ4.
Okay. Okay. So it feels like Youre at least shipping the end consumption or what your customers are looking for or had been.
Okay that makes that makes sense.
And I guess from you talked a little bit about the silicon carbide in the performance advantage that you have but just curious if youre seeing any one changing or are customers coming to you looking to design out maybe a silicon carbide design yet.
Just kind of thinking about 1200 volt and the opportunities there.
On the <unk> hundred will just to be you know we have announced initial R&D result that look extremely promising.
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Yes.
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Right.
Okay, and you were cutting out just a bit there so I'm not sure. If you can still hear me.
Okay.
Okay.
Okay.
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Okay.
Okay.
But we will aim to do now.
Now in the future.
The initial announcement has piqued a lot of interest in caught people by surprise that Gan can now play in that 100 will have space right and bodes very well for overall for again and transform that we can play in that space in the future, but it's not to a point, yet where people will start designing our silicon carbide with <unk> 100 will again.
Because it's not yet qualified released product does that makes sense.
It does thank you so much.
And just maybe one last one for me if I can.
On the automotive in your model you talked a little bit about this on the call, but you talked to two or three Wheeler applications and just kind of curious can you remind us the exclusivity agreement.
When that expires for the four Wheeler or regular automotive type vehicles and kind of when you think that.
Maybe talk about any traction that you've had there over the last two to three quarters.
Yes. So again the primary reason we are looking at is a two wheeler three Wheeler is.
Because it's just an earlier insertion point into this is right in line with the solutions and products that we have right the power Rangers really well aligned so.
Earlier insertion point, that's how we are looking at it.
Separately.
On a different note the exclusivity that you referred to on the on the four Wheeler side that expires in April of 2023, but notwithstanding the exclusive with DB.
And we have an expedia as our valued partner in that collaboration.
We will continue obviously in the future.
Thanks again, certainly appreciate the help.
And once again for questions that is star one at this time, we will move next to Richard Shannon with Craig Hallum Capital Group.
Well, thanks, guys for taking my question.
Maybe just a quick one here I jumped on the call little late so I may have missed the complete detail here, but did I hear correctly that you're guiding revenues down 30% in the September quarter, and then 30% growth each of the next two quarters is that correct.
Okay.
Yes, absolutely.
Yes.
Okay perfect. Thanks for that and then I think there was a question I want to follow on and maybe ask it a little bit more detail here again about the confidence and be able to bring the capacity online here in Japan. So you can get those two quarters neuro sequential growth is.
Is it a matter of getting the equipment in places that are already in place and if that is what are the other hindrance.
Hindrances and obstacles that you have confidence you are going to be able to get over.
Okay.
Yes.
Thank you.
Okay.
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So.
Okay.
Okay.
That has improved now and then last but not the least it was a travel restrictions due to COVID-19 with chip prevented our quoting from the U S getting getting over that and getting all of that activity growing jet and Jumpstarted and now that is also beyond us now will be able to address that travel.
Related equipment. So we're already seeing some a positive vector of the of the supply from the Japans reactors and that is what gives us the confidence that after the FQ2 situation is handled.
FQ3 in FQ4 we can address that 30% Q over Q growth.
Okay permit I'll have to ask that question offline because the line was badly garble. There I think David also is experiencing that too so just FYI your lineup.
Fairly bad there one last question for me and I'll jump out of line here, It's just you're saying I know you talked about it in the last quarter as well with this two and three Wheeler market, where you get.
Faster time to market can you characterize this as a $1 billion Tam maybe.
Maybe I don't have.
A good first person understanding of those markets how big they are worldwide.
But that seems like a fairly substantial Tam can you kind of compare this firming units content basis too.
Broader automotive market and are you seeing any difference.
Reliability and competitive dynamics in that market.
Sure and hopefully the line is not carnival. This time, but so what do I look I think it's.
It is good right now permit clarified.
Terrific.
We see as just a niche kind of thing that $75 million two wheelers.
And three wheelers additional so think about it at 75 to 100 million vehicles, and probably more worldwide and think about charging content of.
Eight to $10 per hour per vehicle right are associated with one vehicles, because sometimes discharging afford isabella.
So that's what's kind of the 100 million vehicles times $10 roughly gives a $1 billion total Tam.
And the second part of the question. Obviously, you will have one has to be done.
Liable.
There is no doubt, but the primary entry point Debbie.
Targeting in the two Wheeler three Wheeler just the onboard charger.
Alright.
Okay.
Okay.
Okay.
Okay.
Okay permit I don't know if you can just finished talking but it just got garbled again.
I appreciate the thoughts I'm going to jump out of line, but thanks for your time.
And that will conclude today's question and answer session for this afternoon. At this time I would like to turn things back to permit for any closing remarks.
Okay.
Okay.
Yes.
Okay.
Yes.
Please.
Congrats.
Right.
Okay.
Okay.
Okay.
Okay.
Okay.
Execute on our long term growth model, which.
Which is the 50% CAGR.
With 40% gross margins and 20% operating margins and we look forward to gaining market share in meeting our customer needs and gallium nitride.
Thank you so much.
And that will conclude today's conference call. We do appreciate your participation and you may now disconnect.
Please wait the conference will begin shortly.
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