Q4 2023 Transphorm Inc Earnings Call
Speaker 1: and good afternoon, everyone. Welcome to Transform's fiscal fourth quarter and full year 2023 conference call. We continue to be pleased with our increased design and momentum, both low power and high power areas, with growth in our power products pipeline to over $440 million and the total pipeline now nearing $600 million dominated by high power products. Q4 revenues were $3.2 million, almost 100% comprised of product revenue, which was on target. This total revenue of $3.2 million was lower than the estimated $4.5 million largely impacted by the delay in the award and commencement of a key $15 million government contract and deliverables on another smaller ARPA-E government contract, both of which were pushed out into the current quarter. We are happy to report that the new $15 million program is now fully in place. The overall product revenue of about $15 million in FY 2023 represents a healthy 20% increase year over year. Furthermore, more than 70% of the product revenue mix
Speaker 1: came from high power where Transform is the number one GAN player with high performance and high reliability over every other GAN competitor, notably E-Mode GAN. Going on to slide 3 now, before going into our key operating metrics, I want to address our recent announcement regarding a review of strategic opportunities and alternatives for enhancing stockholder value as well as our blind rights offering. As many of you are aware, the GAN power semiconductor sector has recently generated a tremendous amount of interest from leading power semiconductor companies who have silicon and silicon carbide but not necessarily GAN power.
Speaker 1: This interest has been evidenced by the recent announcement of a large acquisition in the GAN space by the top power semiconductor company as well as capital raises and other announcements of interest in GAN or GAN strategy.
Speaker 1: Transform is one of the few pure-play GAN companies operating at scale. It is an established leader, especially in high-power GAN, with best-in-class technology and reliability, performing e-mode GAN or the TSMC GAN in pretty much every GAN topology and power level today.
Speaker 1: This is backed by Wafer Manufacturing Ownership and our strong PowerGAN IP portfolio of more than 1,000 owned or licensed patents.
Speaker 1: Given this activity, coupled with Transforms Proves in GAN, we believe it is an appropriate time to undergo this strategic review with the single objective of enhancing shareholder value.
Speaker 1: Based on multiple opportunities, including various levels of inbound interest we have received, our review will include, but not be limited to financing, both from strategic partner or investor and or traditional debt and equity financing alternatives, licensing opportunities in the US and Asia.
Speaker 1: and potential M&A opportunities.
Speaker 1: We also recently announced a rights offering which has support from key shareholders and we are pursuing conventional asset-based debt, both of which will give us runway well into fiscal 2025.
Speaker 1: Moving on to slide 4 and coming back to our key vectors and metrics for the quarter.
Speaker 1: We achieved a 22 percent increase year over year in product revenue, nearing about $15 million in FY2023, with majority contribution from high power, again, which is more than 300 watts. And in key segments like computing and energy, we have achieved a 22 percent increase year
Speaker 1: while growing our presence in fast chargers with demonstrated performance over multiple GaN flavors in the market.
Speaker 1: For fast chargers in the low power space, where we now address 25 watts to 300 watts, we secured 10 new design ins, taking the total over 90, and ramped three new designs into production.
Speaker 1: Notably, we announced in March at the APEC trade show and conference that we entered the SIP or the System in Package market with integrated controller and driver with our partner veteran, the leading player in USB PDICs.
Speaker 1: We have repeatedly seen that our SuperGAN FET delivers higher performance over the typical TSMC-style emote GAN, recently in fact showing over 10% lower loss and running well over 30% cooler in a 280-watt charger. This video is reported in Power Electronics News.
Speaker 1: and validating the physics space benefit of our GAN vs. eMode GAN.
Speaker 1: Given this design in momentum and continued superior performance, we see the beginning of an increased ramp in the second half of the fiscal year.
Speaker 1: Transform has leadership in high power and to the best of our knowledge, it is the only GAN company with customers across segments from 300W to 4kW who have ramped in the market with their end products.
Speaker 1: We had a 25% sequential increase in design ins in this area that now stand over at 60 out of which 30 are in production. We also believe we are the only GaN company to have ramped in the micro inverter segment with several hundred thousand parts already sold and targeting $1 million with our lead customer over the coming 12 months.
Speaker 1: with several other design aims with market customers in progress.
Speaker 1: To accelerate revenue in the second half of the fiscal year, we introduced a series of industry standard pin-to-pin compatible.
Speaker 1: surface mount packages in the low power area, but also applicable to high power over 300 watts, notably with the higher performance of our SuperGAN fetch versus EmoteGAN across the range, which has been quantitatively validated.
Speaker 1: Clearly, we need to take this momentum and the 45% increased product SKUs into increased revenue.
Speaker 1: by enhancing our sales and application outreach worldwide, as well as continuing to partner with strong IC and controller companies with our GAN that can be used seamlessly with standard drivers and controllers.
Speaker 1: We also released a PCIM.
Speaker 1: Our 1200V GaN FET simulation kits generating significant interest from EV customers who have begun to look at TransformGaN as future proof 650V today, 1200V in future, directly taking on silicon carbide at 1200V.
Speaker 1: On the operations side, we intensely focused on initiatives to increase capacity as well as direct margin improvement.
Speaker 1: Our Japan AP reactors are now well into production and we are pleased to report new reactors at global wafers are released into development and on track for completing qualification and release to production in the fiscal fourth quarter.
Speaker 1: We have put in place lower cost packaging partners for our flagship high-powered PO products from which we expect to see solid margin improvements in the coming quarters. Let me now turn to slide five to our partnership and key initiatives. Using our global way for partnerships.
Speaker 1: We now have six out of the eight emulsivity reactors we have installed, with four running at various levels of production or development. And we are on track for eight reactors in production by the second half of fiscal 2025, Setting us up.
Speaker 1: for around $50 million of annualized product revenue with just these reactors.
Speaker 1: Our AFSW wafer fab is running well and we will be addressing incremental capacity add-ons in our fiscal 2024 to be ready for fiscal 2025.
Speaker 1: We made sound progress with our industrial and automotive customer shareholder partners.
Speaker 1: We have also streamlined our partnership with Nexperia, who remains an important long-term customer for the supply of wafers. Notably, we completed their exclusivity in the four-wheeler automotive space after paying off the remaining debt in April , and have now launched a worldwide initiative for EV four-wheelers.
Speaker 1: with focus in China, EU, North America, India, and continuing in Japan.
Speaker 1: In all of these areas, our high-power GaN products are already well recognized in non-automotive segments, something we hope to leverage from.
Speaker 1: We are also reiterating our commitment to 2 and 3-wheeler EV design wins by end of this year for RAMP in calendar year 2024.
Speaker 1: To that end, we are newly sampling solutions to our customers from 300 watts to 2 kilowatt power levels for EV2 and three-wheeler on-board chargers and portable chargers.
Speaker 1: Although delayed from fiscal Q4 of 2022 to fiscal Q1 of 2023, we have secured and are now executing on our new $15 million government program for enhancing epi-wafer manufacturing for the USDOD ecosystem and in future also applicable to the commercial RF GAN space.
Speaker 1: We also have significant interest from companies pursuing GaN manufacturing with the U.S. CHIPSAC program, which could materialize into licensing revenue and non-dilutive cash for us in fiscal year 2024.
Speaker 1: Moving to slide five now, our core capabilities from low power to high power, wafers and packaged products are all reflected in our large and growing pipeline that now stands over $440 million in power products, a growth of about 7 percent from our last update, and a growth
Speaker 1: and well over $500 million including power device wafer sales and our government contracts business.
Speaker 1: The probabilistically weighted pipelines are about 40% approximately of the total number that again will increase as more design ends move towards the finish line.
Speaker 1: By power levels, high power, which overall is everything more than 300 watts, where other GaN like EMOT today is weaker, represents the largest piece of our pipeline.
Speaker 1: by market area, industrial, power adapters and chargers, data center.
Speaker 1: Renewables and microinverters are some of the key segments. The EV pipeline is growing and now with the worldwide push, since our exclusivity constraint is no longer there, we expect rapid increases in this area.
Speaker 1: Also, it should be noted that a significant portion of wafer sales pipeline to Nexperia is already towards electric vehicles.
Speaker 1: Moving over to slide seven now, in summary, we continue to be in a unique and differentiated position among the GaN suppliers with our core platform spanning a wide range of the power spectrum.
Speaker 1: products in the market today that address a $3 billion-plus market opportunity, GaN Cam, for power conversion that is expected to double over $6 billion GaN Cam in the next three years.
Speaker 1: From lower power adapters and chargers to higher power computing comprising of server, AI, blockchain, and data comp power to industrial and energy and PV inverters, including micro-inverters, all areas we are either already in production or ramping towards production.
Speaker 1: in the mid to long term, large growth opportunities with automotive electric vehicles.
Speaker 1: both EV2 and EV3 wheelers, first in calendar year 2023, followed by EV4 wheelers, are expected to further continue GAN and transform growth beyond 2024-2025.
Speaker 1: Our customers have confidence in both GAN and Transform evidenced by our end products having been in the field for over 175 billion hours now with very low 0.1 field failure or fit rates rivaling those of traditional silicon devices. This is an exciting proof point for what lies ahead for us.
Speaker 1: along with the fact today that we are still the only GAN offering with products in the market ramped in our customer systems from 30W fast chargers to 4kW energy and server products.
Speaker 1: Our immediate focus will be on
Speaker 1: One, completing the rights offering, meaningfully extending the cash runway well into fiscal year 2025, and undergoing the strategic review process, identifying the best options for enhanced shareholder value.
Speaker 1: offering, meaningfully extending the cash runway well into fiscal year 2025 and undergoing the strategic review process identifying the best options for enhanced shareholder value. Two,
Speaker 1: expanding sales and application footprint, converting more design ins into ramped production, and significant design in expansion based on our superior performance, high reliability SuperGAN products, as well as our ecosystem of strong solution partners in ICS.
Speaker 1: Three, scaling capacity, improving margins with higher volumes, lower cost packaging, and our technology roadmap improving performance by reducing cost.
Speaker 1: as well as accessing new markets like 800 volt battery electric vehicle systems with new offerings like 1200 volt GAN. We remain well positioned to tackle the near-term headwinds and progress towards our long-term model in FY 2024 and beyond.
Speaker 1: With that, I will hand it over to Kamal to walk you through our financials in detail.
Speaker 1: Thank you Pranit and hello to everyone joining us today. Let me now start my remarks with a brief recap of our financial results for both our most recently completed quarter and fiscal year. For 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, amortisation and other income and expenditure.
Speaker 1: Starting with the income statement, total gap and non-gap revenue comprising product and government and in the fiscal year licensing was $3.2 million in the quarter and $16.7 million from the fiscal year. This represents an increase of 3% year-on-year excluding the one-off licensing revenue transaction in the prior financial year.
Speaker 1: For product revenue, both for the quarter and the fiscal year, it now forms the majority of our total revenue number, virtually 100% in the quarter just completed and close to 90% for fiscal 23. The majority of this product revenue is being generated in higher power applications.
Speaker 2: The higher percentage, specific to Q4, is driven partially by a sharp delay in the company being awarded a new government contract.
Speaker 2: This was awarded in the current calendar quarter and we expect to see revenues from this from Q1 FY24.
Speaker 2: Product sales were $3.2 million in the quarter and $14.7 million for FY23. This is an increase year on year of 21%.
Speaker 2: This revenue has been driven across a broad range of power conversion applications, including fast chargers and adapters, gaming and data centers.
Speaker 2: As noted by Prima, we now have over 55 customers in production, a solid increase from the prior quarter.
Speaker 2: Government revenue was under $50,000 in the quarter and $1.8 million for the year. This was a decrease of $2.1 million from the prior fiscal year.
Speaker 2: The driver here being reduced activity in our prior contract, together with a one-quarter lag between the successful completion of this prior contract and the award of our new $15 million government program.
Speaker 2: As mentioned earlier, this will drive revenues in Q1 FO24.
Speaker 2: The gross margin in the quarter was 5% and negative 6% for the fiscal year. The gross margin for the fiscal year was impacted, as discussed in our prior earnings call, by strategic non-recurring dispositioning of AP wafer with sub-assembly inventory.
Speaker 2: excluding this one-time strategic rate of the company would have reported stronger positive cross margins for the year.
Speaker 2: The 5% gross margin for the quarter is primarily a function of volume. Indirect costs, such as staffing, do not scale with revenue and therefore result in a larger drag at lower revenue numbers.
Speaker 2: As we resume our growth trajectory, our expectations are the margins will follow suit, including reaching 30% gross margin in the June quarter.
Speaker 2: Our direct margins remain consistent and we continue to progress towards a long-term model of gross margins in excess of 40%.
Speaker 2: A number of actions, including new product introduction, ongoing cost efficiency activities, and benefits that we will receive as we continue to grow in scale are expected to contribute to this increased cost margin.
Speaker 2: Operating expenses on a non-GAAP basis were $7.5 million in the coming quarter and $24.2 million for the fiscal year.
Speaker 2: The increase in the quarter was driven by three key factors.
Speaker 2: a significant reduction in government activity which reduces absorption of our R&D costs.
Speaker 2: increased costs to bring our reactors up to capacity, and an increase in G&A costs to support ongoing compliance activities.
Speaker 2: Similarly, in FY23, as compared to FY22, the primary increase was an increase in the company's headcount to support our operations.
Speaker 2: Turning to EPS, I will focus my remarks here on the non-GAAP results. The non-GAAP EPS loss in Q4 was 13 cents and 44 cents for the fiscal year.
Speaker 2: Excluding a one-time inventory write-off, the EPS for the quarter was within 2 cents of the non-GAAP EPS for the prior quarter.
Speaker 2: So it's just overall letting an increased update for the primary drivers for this change.
Speaker 2: Looking ahead to the June quarter, the company guides to the below. Revenue between $5.8 and $6.2 million, gross margin of between 30 and 34%, and ETF loss between 10 and 13 cents.
Speaker 2: From an operational perspective, we continue to see solid traction on our targeted market as evidenced by our improvement in both customers in production and design and activity.
Speaker 2: Our short term focus is on product execution and enabling capacity expansion to support medium to long term growth. We also continue to invest in the long term growth engine of the company.
Speaker 2: Coming now to the balance sheet, our shareholders' equity was $19.6 million at the end of the Mustangs Café and will be tomorrow at seven p.m on Sunday we will beefering at around
Speaker 2: Operational cash fund, excluding capital investment, increased in the quarter to $9.4 million.
Speaker 2: This was driven primarily by reduced revenue, attributable to the timing of the government contract being awarded, and increasing DSO, driven by non-linear sales in the quarter, together with weak collections.
Speaker 2: Collections have improved significantly in the current quarter. Cash in cash equivalents were $16.1 million at the quarter end. We expect our cash fund to reduce in the current quarter moving forward.
Speaker 2: We continue to invest in CapEx as we look to enable additional capacity support or growth. Other assets and liabilities remain largely stable.
Speaker 2: As announced, the company has made strong progress towards a rights issue, together with an asset-backed, non-diluted state.
Speaker 2: As announced, the company has made strong progress towards a rights issue, together with an asset-backed, non-dilutive debt. We expect to conclude this facility in the near term.
Speaker 2: A fully subscribed rates issue, together with proceeds from the asset bank debt, will give the company financial runway deep into fiscal year 2025.
Speaker 2: Looking ahead, we will continue to remain open to opportunities to further strengthen our balance sheet in order to ensure that we are able to continue to invest in our growth. A growth made possible through our continued progress with the design and production customers.
Speaker 2: Turning now to our target operating model.
Speaker 2: Transform is in the process of building a high-growth cash-generated business. From a revenue perspective, as you know, we have three different streams of income. Licensing, government and product.
Speaker 2: In the current fiscal year, product has amounted for the majority of our total revenues. And as we look forward, we expect this plan to continue.
Speaker 2: The company anticipates rapid top-line growth and GAN adoption across multiple end markets, with a five-year expected CAGR in excess of 50%.
Speaker 2: We are confident that the company can achieve an overall gross margin of over 40%.
Speaker 2: All segments will be able to benefit now from the improved cost structure in upcoming products. In addition, a number of actions, including new product introductions, discrete ongoing cost efficiency activities, and scaling will also help our gross margins to increase.
Speaker 2: With respect to operating margin, the company will continue to invest to support all aspects of our core operations.
Speaker 2: We have a stable opaque structure and environment that will ultimately allow us to translate our gross margins into an operating margin model that will deliver over 20% to the bottom line.
Speaker 2: From a cash perspective, additional capex will be deployed for increased scale in medium to long-tail.
Speaker 2: But with a strong manufacturing footprint already in place, we expect to be able to generate free cash flow in excess of 10 percent. Concluding now with a few key highlights, Transform, publicly listed on the NASDAQ exchange is a global leader in GAN, the future of next generation power systems.
Speaker 2: Disruptive, best-in-class technology is addressing a large, growing market opportunity.
Speaker 2: We are commercially advancing with a strong pipeline in place.
Speaker 2: We have established a strong network of blue chip partners and have a comprehensive product offering today that meets our customers' needs across a wide range of power levels and segments.
Speaker 2: All of this is underpinned by the industry's strongest IT position, a vertically integrated supply chain, and a deep and talented team.
Speaker 2: That completes our prepared remarks and materials and we would now like to open the call to any questions. Operator, please proceed with the Q&A portion of the call.
Speaker 3: As a reminder to ask a question, you will need to press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question.
Speaker 3: Please stand by while we compile the Q&A roster.
Speaker 3: Our first question comes from the line of David Williams of the Benchmark Company. Your question, please. David.
Speaker 4: Hey, good afternoon, gentlemen. Thanks. Thanks for the time and allow me to ask a few questions. 1st, congratulations on the progress and permit. Congratulations on the transition to the CEO world. It's great to see.
Speaker 4: And I guess maybe my first question is around the strategic review, and you talked a little bit in your script, but can you give us a little more color, what anything specific that you've seen? You talked about having some inbounds. We know you've got a leading technology and we've seen what's happening in the ecosystem. So just any clarification on that would be very, very helpful, I think. Sure, no, thank you for that.
Speaker 1: So like we said, first of all with the momentum, we are also having ourselves the design in momentum and customer activities is significantly increased. We are very excited about that. There is excitement in the GAN field itself with both M&A transactions, capital raises and or announcement of interest.
Speaker 1: initiative we will do the strategic review. And what we see is this this can include one or more things right it's financing from strategic partners that also help to accelerate growth of revenue.
Speaker 1: It may include traditional financing alternatives. We would look at licensing opportunities. We have had an example of that in the past. So we would look at licensing in both Asia and U.S. of portions of our portfolio. That also helps us to accelerate.
Speaker 1: or like we said in their potential M&A transactions. So those are the kind of things we would want to be open to with again the single goal of enhancing stockholder value.
Speaker 4: Okay, thanks for the clarification there. And then I want to ask about your 1200 volt GaN that you released with the simulation. And I noticed that that was GaN on SAFIRE and you guys have historically been on silicon. Is that a transition that we should think about you moving forward with? Is there any implications from an IP?
Speaker 4: Just kind of giving them where your competitors, at least one of your competitors is fairly large in the, again on SAFIRE and that kind of lower power segment.
Speaker 1: Sure. No. Thanks, David, for that. So we – on the 650 volt and voltage platforms, there is no change. We continue to march ahead with our Gen 4, Gen 5, and future we'll work on other – further enhancements to our GaN on silicon platform. That's our baseline.
Speaker 1: As we look at 1200 volts, we determined that, and we've talked about this before also, the best way to get to 1200 volts was GaN on SAFIRE because we have IP and expertise in growth. As you know, epi and MOCVD growth of GaN materials is one of the strongest suite and core IP and technology of the transform team.
Speaker 1: there actually we do GaN on silicon carbide for RF, which is our second, we call it our second vertical, primary vertical being power. So all growth of GaN on all substance has always been an expertise of transform. So we look forward to doing that. But again to be clear, our 650 volt.
Speaker 1: Baseline continues to thrive and accelerate on GaN on silicon. 1200, we are looking at GaN on SAFIRE. We have demonstrated excellent results, which led us to now release those simulation models. And then we also do, for the RF port, we also do some GaN on silicon carbide, especially on our government contract. And our IP is strong. Across these segments, our IP is quite strong.
Speaker 4: Fantastic, thanks. If I could squeeze in just one more, I just wanted to ask about your, you've got a relatively strong position in the data center and in the power supply market. And just kind of curious if you're seeing anything in terms of just the AI trend and the immense amount of power that that requires. Are you seeing increased interest from the data center for specifically for kind of AI to will kite through this draft?
Speaker 1: server computing and then we also put blockchain
Speaker 1: in our computing segment, as well as high performance gaming power. So this is all four are part of our computing segment, which as you rightly said on the high power GAN site, having been one of the original players, we have a good lead and performance with reliability demonstrated in the market.
Speaker 1: as well as high performance gaming power. So this is all four are part of our computing segment, which as you rightly said on the high power GAN site, having been one of the original players, we have a good lead and performance with reliability demonstrated in the market. Thank you.
Speaker 3: Thank you. Again, to ask a question, please press star 11 on your telephone. Again, that's star 11 on your telephone to ask a question.
Speaker 3: Our next question comes from the line of Craig Ellis of B. Riley Securities. Your question, please. Craig. I feel like....
Speaker 3: Yeah, thanks for taking the question from us and Cameron. Cameron, I wanted to just make sure I understood the elements to the revenue guide for the fiscal 1Q. So I think you said revenues in a range of $5.8 to $6 million. So should we look at that as having an existing?
Speaker 3: a component in it that's about one and a half million of the federal government revenue that we didn't get in the prior quarter and then the balance is a nice sequential increase in product revenue and if so, what are the drivers for the sequential gain in product revenue?
Speaker 2: Sure, no thanks Rick. Good question. I think you're right that with the government contract being concluded in the quarter we will see that revenue coming through in the quarter. I think that the overall product line revenue will be flattish. As Primit mentioned we're looking to see products starting to grow from the September quarter. So I think particularly after this quarter we'll see a higher proportion.
Speaker 2: government revenue and with that normalizing as we head into Q2 and beyond.
Speaker 3: Yep, and so really we've got two quarters in the in the fiscal first quarter camera and one catch-up and and one kind of normal and and then it regresses back to a more normal level beyond that and then you get the boost from product revenue is that what we're seeing and yeah
Speaker 3: And it was helpful to get Primit's view on the reactor ramp over the next three years. How are you feeling about the ability to convert the growing design to an activity the company has into product revenue as we go through 24? What is the linearity of the revenue ramp look like?
Speaker 1: So, yeah, you got that part right. We are well poised, actually, on the reactor. The hard work our team has put in last several quarters is now paying off. Our Japan reactors are already ramped into production. And then very exciting for us is the development of the Global Wafer Partnerships in Taiwan, which stays exactly on track.
Speaker 1: and then two more we are triggering. We use appropriate triggers of the ramp. So we are going per plan or I would say even slightly ahead of plan in getting all of our MOCVD reactors into production.
Speaker 3: Yep. And, Primate, do you think you'll be running a full utilization as you ramp those up, or would initial utilization be much lower as you get test wafers through and as you fine-tune yields as you ramp up new equipment?
Speaker 1: How should we think about yield issues and utilization issues as that comes up? Yes, so let me answer that in two parts. First, having been through bringing reactors of different type in production, our team we remain quite confident of our ability to do that now.
Speaker 1: Secondly, any reactor coming into production in our plants that we have, we always never assume 0 to 100 percent turn on, even in our operation plant. We always assume gradual turn on over three to four months of the reactor, or even three to six months to go to 100 percent sometimes, if it is a brand new, different type of reactor. So we bake that..
Speaker 1: But given now we have demonstrated on various platforms, we feel confident to bring up the new reactors quickly. Good for you. That sounds constructive. And then lastly, just on the auto opportunity, which has always been a very significant waste.
Speaker 3: and attractive end market, given the evolution of the relationship with mixed period permit, what's the best way to look at where the company would start to generate auto revenues, which sockets because there are many for which your technology is applicable.
Speaker 3: and over what time period and are there specific customers that you're engaged with there yet or is that something that happens as we go through the back half of the year? Thanks guys.
Speaker 1: Sure, so yes, NEXPI remains an important customer partner for us with the shipment and supply of vapors. A lot of that also targeted for end automotive customers. Then transforms direct automotive customers, like we have said is in the near term, EV2 and three wheelers that remains a very exciting market.
Speaker 1: well as portable chargers from 300 watts to 2 kilowatts. And we are actively sampling Asia customers right now with solutions, actually, in those segments from 300 watts to 2 kilowatts. On the four-wheeler side, our first opportunities remain in the onboard charger again, number one.
Speaker 1: and then DC-DC converter number two. Now, with the exclusivity with an Xperia on the automotive completed, we can actually jumpstart. And we have already done that. Different geographies, China, Europe , and North America, while still continuing in India, still continuing Japan efforts. So.
Speaker 1: That's a new initiative and also helped, the new initiative is also helped by our 1200 volt GaN release sampling, the sampling of the simulation model that we have done, which increases customers' interest because they see Transform as now a long-term player with GaN and transform as a long-term player from 6.0.
Speaker 3: Richard Shannon of Craig Holland Capital Group. Your question, please, Richard.
Speaker 5: Oh, hi guys, can you hear me?
Speaker 5: We can. Okay excellent, sorry the line is a little spotty here. Let's see a few questions for me. I want to follow up on the topic of first quarter revenues and what it may imply for the rest of the year here. So I think in a prior question you said the government should contribute about a million and a half if I caught that correctly.
Speaker 5: You got a $15 million contract over three years. How should we think about the ongoing? Is it a kind of steady recognition every quarter? Is it milestone-based? It could be lumpy. And then as we think about the products, I just want to make sure, Cameron, I heard you're expecting kind of flattish product revenues in the June quarter and then starting to grow in September .
Speaker 2: Yes that's right Richard. Certainly for product revenue I think flattish in the June quarter and then then solid growth throughout the course of the year. The government contract will be pretty linear. It's based on certain deliverables and it's largely the team working away time and materials and so forth. So from a revenue standpoint I think the June quarter
Speaker 2: and we'll see a little bit more than the linearity is the June quarter, but as we go through the rest of FY24, we anticipate it being relatively flat as we work through the contract.
Speaker 5: Okay. That is helpful for forward modeling. Let's jump into the automotive mobility space, especially on two and three wheelers. You talked about being on track for first wind by the end of the calendar year and ramping next year. I guess a two-part question.
Speaker 5: With this win, or maybe wins, but certainly win, the true target, do you have a sense of how big that potential is, and or broadly speaking, how much of these EV2 and three-wheelers are a portion of your pipeline right now?
Speaker 1: Yes, so overall, if you look at it, the opportunity, we want to target at least one win. That's why we say a win. We have several. We have more than 10 plus, 10 to 15 customer engagements going on in that area right now. And
Speaker 1: We look to at least 1 win by end of the calendar year. The ramp, depending on the number of wins, right? We are looking at, I think we talked in past about kind of $8 to $10 content per vehicle. That's of course in the case of onboard chargers, there can be more portable chargers as well.
Speaker 1: So we're looking to a kind of a million low single digit million contribution from that segment going into calendar year 2024. And that is indeed part of our EV mobility and charging pipeline. We kind of sit around, I believe around.
Speaker 1: 40-something million in the EV mobility and charging pipeline. The two-wheeler, three-wheeler is a good chunk of that. We will add more in the four-wheelers now that this exclusivity is completed. We look forward to adding significantly and quickly more pipeline opportunities in the four-wheeler segment as well.
Speaker 5: Okay, that sounds good. Let's hear a couple more questions for me. Let's hear, talk about US Chips Act money here and I think I missed some of the full statements you made there from it, but I guess it seems like you would be looking for a another partner here for manufacturing.
Speaker 5: awarded or how would you help us think about what you're viewing with that opportunity.
Speaker 1: Yes, no, you got that right, Richard. It's manufacturing. The way we are looking at it is in two parts. First is direct kind of funding for Transform. That we are pursuing through this. It's also part of ChIP-SAT, but it's a microelectronics commons program where there are centers of excellence in activity. These are more like.
Speaker 1: Manufacturing expansion funding, yes, we are looking at a US, potentially a US partner for geographical impact, as you correctly said. We are in initial discussion with a couple of companies, so beyond just the exploration stage. So now, as just recently there was an announcement just earlier this week about the next phase. So we look up.
Speaker 1: We look forward to that, but that will be with a partner, the manufacturing scale-up, and a microelectronics commons portion that is transformed directly on our own.
Speaker 5: Got it. Okay that makes sense. One last quick question for Cameron related to the rights offering and debt facility. You talked about you know providing a runway I think I don't think said all the way through or most of the way through fiscal 25. Any way that you'd help quantify what kind of funding levels here you're looking for an aggregate between those two? Sure I mean certainly the the rights issue is you know a $50 million dollar rights issue.
Speaker 2: And what we're looking at in terms of our non-dilutive asset-backed debt is something in the kind of high single-digit multi-million dollars. The second component will hinge on appraisal values and so on and so forth, Richard, but that's the target and that's what we're hoping to get, you know, the combination of both of those.
Speaker 5: giving those one week deep into fiscal 25. Okay, fair enough. I think that is all from me. I'll jump out of line guys. Thank you. Thank you. Thank you. Again, to ask a question, please press star one one on your telephone. Again, that's star one one on your telephone to ask a question.
Speaker 6: And we have a follow-up question from the line of David Williams of the Benchmark Company. Your question, please, David.
Speaker 4: Hey, thanks. Yeah, just want to ask on the product revenue, you've got that to be about flat sequentially. And just wondering if you're seeing anything in terms of just the inventory digestion, if that's mostly complete, you're seeing more cautious stance from your customers, and then maybe just kind of if you're seeing anything in China, if that's improving or flat, just help around that would be.
Speaker 4: Yeah, just want to ask on the product revenue, you've got that to be about flat sequentially, and just wondering if you're seeing anything in terms of just the inventory digestion, if that's mostly complete, you're seeing more cautious stance from your customers, and then maybe just kind of, if you're seeing anything in China, if that's improving or flat, just help around that would be helpful. Thanks.
Speaker 1: Sure, so we are seeing what we believe to be the tail end of the inventory adjustment with some of our customers, including one of our partner customers in China. On the other hand, we are also seeing an increase of a mix of customers, which is very positive. So we are seeing a healthy trend.
Speaker 1: diversification of power products customers, especially in greater China, with China and then large customer design in Taiwan. So we are seeing a shift towards a more...
Speaker 1: diverse mix and then we are working through the inventory adjustments of especially of one or two of our customer.
Speaker 4: Okay, thanks. And just one last one real quick. If you look at across automotive platform that we're moving towards that 800 volt system where that where your 1200 volt GaN device would work very well. Do you think there's we'll see a chance that we would that these automotive
Speaker 4: platforms could move beyond that 800 volts where silicon carbide would be the only alternative or do you think there's a physical threshold where 800 is kind of where we'll see that end up? Right now what you are seeing is a shift first of all from 400 volts to 800 volts right so today if you look at it still
Speaker 1: majority of the systems are at 400 volts. A lot of the new design ins that are happening are moving to 800 volts. There's some talks about how it could potentially increase again in the future. But as of now, what we are seeing is first, next, it's a move from 400 to 800 volts. Also, it's not to say the ganon sapphire cannot extend.
Speaker 1: the voltage, right? That's the beauty about that platform, that right now we are focused on 1,200 volts beyond our 650 volt flagship SuperGAN platform. But the GaN on Sapphire platform with the right device design is there is no kind of a physical limit per se that would limit it only to 1,200 volts.
Speaker 1: that platform that right now we are focused on 1200 volts beyond kind of our 650 volt flagship SuperGAN platform but the GaN on Sapphire platform with the right device design is there is no kind of a physical limit per se that would limit it only to 1200 volts. Thanks again guys.
Speaker 6: Thank you. Thank you. At this time, I would now like to turn the conference back to Premit Parikh for closing remarks. Please welcome Premit Parikh,ile
Speaker 1: So thank you everyone for listening in and the interactive Q&A session. We look forward to executing on the plans we discussed on this call and capitalize on the exciting momentum we have on the designing and the customer side to aggressively ramp our GAN business. With that, good day to you all. Thank you.
Speaker 6: This concludes today's conference call. Thank you for participating. You may now disconnect.