Q1 2024 Transphorm Inc Earnings Call
Speaker 1: Thank you for standing by and welcome to Transform's first quarter fiscal 2020 Ford Conference call. At this time, all participants are in a listen only mode. After the speech presentation, there will be a question and a session. To ask a question during this session, you will need to press star 111 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 111 again. Please be advised that today's conference is being recorded.
Speaker 1: I would now like to hand the call over to David Henn over of
Speaker 1: of investor relations, please go ahead.
Speaker 2: Good afternoon, and welcome to TRANSFORM's first quarter Fiscal 2024 Earnings Conference Call. Joining us today from TRANSFORM are Pramit Parikh, CEO , President and Co-Founder, and Cameron McAuley, Chief Financial Officer.
Speaker 3: On the low-power side, our GAN products, both discrete and SIPs with a system in package varieties, with our ecosystem partners, continue to lead in efficiency and reliability with the physics-based benefits of transformed super GAN products versus e-mode GAN technology. Coupled with a strong pipeline, we now see resumption of sequential product revenue growth in the second quarter. Second, we close well into fiscal 2025. With the rights offering completed, we are now beginning our previously announced strategic review of TRANSFORM with the goal of maximizing shareholder value. Given both inbound third-party interest we have received as well as strong macro interest, including recent M&A activity in the GAN arena, we believe the time is right for this process. This review encompasses strategic and or traditional equity or debt financings, U.S. and Asia-based licensing opportunities, and potential M&A opportunities, again, all with the focused objective of maximizing shareholder value. Turning to slide four now, I will go into our key vectors and metrics for the quarter. We reported $5.9 million of revenue within our targeted range, roughly evenly split between product and government revenues, with majority contribution coming from high power, which is more than 300 watts for us. But competing GAN has not yet realized meaningful end-customer product reps. For the fast chargers in the low-power space, we secured more than 10 new design-ins, taking the total to more than 100.
Speaker 3: with over 30 now in production. We are gaining rapid traction with our system in package SIP strategy. We adopted earlier this year with integrated controller and driver and strong ecosystem partners like Valtren, a leading IC provider. With the dynamic capability and superior performance advantage of our supergun effects versus typical Foundry style EMODGAN, we have the versatility to use the same transform GAN chip for 65 watts or 100 watt adapter design across over difficult if not impossible with EMODGAN. We are ramping into designs for multiple fortune 100 OEMs at leading ODMs in this area supporting our expectations of resumed sequential product revenue growth. To the best of our knowledge, transform is still the only GAN company with customers in the high power ramped in the market from 300 watts to 4 kilowatts. And we are now in the process of extending that to 7.5 kilowatts with some new design.
Speaker 3: Since our last update, we had another 25% sequential increase in design-ins for high-power that today stand at over 75, of which over 30 are in production. In addition to Transform being the only GaN company to have ramped in the attractive micro-inverter segment, we recently achieved another first by demonstrating a robust 5-microsecond short circuit withstand rating, which is a safety spec required for large market segments like motor drives and inverters. Our team
Speaker 3: recently completed a 600-watt battery charging solution for EV two-wheelers, with our SuperGAN FET achieving over 1% efficiency gain, or 14% loss reduction in this application, versus silicon superjunction with 25% lower device count, making it cheaper than silicon with superior performance over silicon. We continue to expand our product offerings in what is the most diverse package portfolio for GAN powered devices.
Speaker 3: High performance and industry standard compact PQFN style packaging for lower power to standard robust TO packages for higher power that by the way, EMOT again today cannot do due to its inherent weakness to new robust high power surface mount packages.
Speaker 3: These coupled with ecosystem partnerships with IC companies for Transform Gen that can be used with standard controllers and drivers will also contribute to our anticipated sequential product revenue growth.
Speaker 3: Continuing with our 1,200-volt GaN progress, we now introduced a preliminary data sheet generating significant interest from EV customers who begin to see transform GaN as future-proof 650 volts today, 1,200 volts in the future, directly taking on silicon carbide. On the operations side, our focus on capacity and cost improvements.
Speaker 3: has led to record productivity from our Japan-Abi reactors in and cost improvements. We have now started multi-sourcing and cost down activity for our low-power products as we target aggressive growth over the next few quarters in this area as well.
Speaker 3: Moving on to slide 5, let me now turn our attention to partnership and key initiatives.
Speaker 3: I want to highlight our Global Wafers Corporation relationship, a key partnership for MOCVD epi wafer scaling with a large international $6 billion plus market cap materials and manufacturing leader. We remain on course.
Speaker 3: to qualify two reactors and release them to production by the end of the fiscal year with early samples by end of the current calendar year.
Speaker 3: As a recap, we already have six out of our eight EmoCivity reactors installed with four running at various levels of production or development today.
Speaker 3: With the 8 reactors we already possess, we can support $50 million of annualized product revenue.
Speaker 3: Our AFSW wafer fab continues to operate on target and has sufficient capacity in place for fiscal year 24 and plans in place for fiscal year 2025.
Speaker 3: In collaboration with Yasukawa, our customer partner and meaningful shareholder, and also a worldwide leader in motion control and robotics.
Speaker 3: We have achieved a major breakthrough with our patented technology for short-circuit rated gallium nitride, demonstrating 5 microseconds with 10 times at high voltage.
Speaker 3: Previously, possible only with silicon IGBTs or silicon carbide. Simultaneously, we achieved 12 kilowatts of power from a single device in a half-bridge topology without any paralleling.
Speaker 3: This first, with high-performance GAN, a key safety piece feature for rugged applications like servo and industrial motor drives, along with the high power capability.
Speaker 3: Addresses a multi-billion dollar cam, including servo, industrial motors and electric vehicle power trains, and further underscores the robustness of trans-wounds-gand power portfolio.
With solutions from 350 watts to 2kW, we are deepening design traction with multiple solutions now in the 2 and 3-wheeler electric vehicle space of Focus Area we have outlined previously. And now engaged in design ins for multiple customers in Asia, including recently.
A more than $5 billion market cap top three EV 2 and 3-wheeler India-based manufacturer. We remain on track for achieving $1 million level ramps in this EV segment, the 2 and 3-wheeler EV segment next calendar year.
With the automotive exclusivity with respect to the mixed-peria contract behind us, we have started worldwide customer engagement with EV 4-wheeler customers.
with our automotive AEC Q1 01 qualified 650-volt products. And we are in early discussions regarding our 1200-volt technology that is already generating a lot of interest.
We are now well underway with performing on our NST Excel EpiWafer government program that was awarded to transform in the fiscal first quarter of 2024.
We are also in discussions for potential licensing revenue with parties some of whom are planning for gang manufacturing under the US chipset program. Moving to slide six now. Our core capabilities from low power to high power, very first and package products are well captured in our large and growing pipeline. Now, over $450 million in power products and close to $600 million including power device vapors and our government contract business.
Reflecting on our recent revenue profile, 70% of our power products pipeline is also for high power, about 300 watts, where transform is superior to other gain offerings, including e-mode and typical found rebased offerings.
Our focus will be on one, progressing through the strategic review process, identifying the best options for enhanced shareholder value, and continuing to secure non-delieu to debt and other capital, meaningfully extending our cash runway well into fiscal year 2025.
Second, resuming sequential product revenue growth in the current fiscal Q2 and growing our worldwide sales and application footprint to enable faster conversion of growing design ends into RAM production, all based on our superior performance, high-reliability, super-gen products, as well as our ecosystem of strong solution partners in ICs.
Sips for lower power and system level solutions for higher power.
power and system level solutions for higher power. Third, improving margins.
through higher volume, lower cost packaging, and our technology roadmap, improving performance while reducing cost.
And four, accessing new markets like 800-volt battery electric vehicle systems with new offerings like our 1200-volt gallium nitride and motor drives and short circuit capable again, both first in GAN from Transform.
Overall, as one of the only pure-play GAN power-semic-interfere companies in the world with volume production in low power and high power segments, we are well positioned to progress towards our long-term model in fiscal year 2024 and beyond.
With that, I will hand it over to Cameron to walk you through our financials in detail. Thank you.
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 the reasons that can be completely quota. For my remarks, I would affair both the gap and non-gap results, which are reconciled to gap and are press release-tident.
Non-GAP results, AXC would stop this compensation, depreciation, amortization, and other income and expenditure.
Starting with the income statement, total gap and non-gap revenue comprising product and government was $5.9 million in the quarter. This represents an increase of 84% in the prior quarter and 14% over the same quarter total anticipated year.
This was in line with our projected revenue. Product sales was $3 million in the quarter. Our product revenue is being driven across a broad range of current industrial applications.
including first childers and the doctors, gaining the data from those.
As noted by Trump, we continue to see caused at momentum other customers in production.
Looking to the immediate future, the company anticipates a return to sequential product revenue growth in the current quarter.
Government revenue was £2.99 million in quarter. The St. Chris being driven by a successful award and execution of our new $15 million Government programme.
We will continue to see solid revenue from this program over the year, but some reduction from Q1 in anticipated.
The gross margin in the quarter was 35.5%, a significant increase from the 5% delivered in the prior quarter, and higher by 14%, which compared to the same quarter last year.
The train driver here was to increase margin from our government business.
They get margins for the chronic business to remain strong.
Overall, company gross margins will drop in the current quarter with the reduction in government revenue and associated fixed cost impact on gross margins. But with our direct margins remaining consistent, we will be able to deliver solid margin performance continuing to improve further as we resume product revenue growth.
A number of actions, including new product introductions, ongoing cost efficiency activities, and benefits that we will receive as we grow a scale are expected to contribute to the increased growth margin. Operating expenses on a non-gap basis were $6.8 million in the current quarter, a reduction from $7.5 million in the prior quarter. This reduction being driven by a number of factors, including government absorption, reduce legal costs, and other smaller efficiency.
Spend for the quarter that anticipated to be launched at last. Coming to EPS, the non-GAPT EPS loss and the quarter was 8 cents. This compares to a 13 cents loss in the flyer quarter. The main driver here being the increased revenue and margins together with lower index. From an operational perspective, we continue to see solid tr...
to sequential product weather you draw in the current quarter.
Operational cash burn, excluding capital investment, decreased in the quarter to $6.7 million. This was driven primarily by improved collections, including $500,000 from our customer partner, Yaskawa, reduced waste costs driven by timing of payroll and ongoing tight spend management procedures. In addition to this, the company paid off its $12 million revolving credit facility and now has a balance sheet with no debt. For the current quarter, we expect a continuation of the reduction in our cash burn, enabled by strong collections and a continued focus on cost controls. Cash-in-cash equivalents were $3.3 million at the quarter end.
We continue to progress towards completion of asset-backed, non-delutive debt, and we expect to conclude these facilities in the near term. Looking ahead, we 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 to continue to progress with design and production customs. Including now, for the few key highlights, transform publicly listed on the Mandak Exchange is a global leader in robust GAN, the future of the next generation power systems. Of disruptive, best-in-class technology.
is addressing a large growing market opportunity. We are commissionally ramping with a strong pipeline in place. We have established a strong network of blue chip partners and a comprehensive product offering today that meets our customers needs across a wide range of power levels and sales.
All of us is under 10 by the industry's strongest IP position, a vertical integrated supply chain and a deep account IP.
I can please start to prepare remarks on the materials, and we would now like to open the call to any questions. Operator, please proceed with the Q&A portion of the call.
Thank you.
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while we compile the Q&A roster. Our first question will come from David Williams with the Bitchmark Company, Your Line is Open. David Williams briefly prepared Mount Sinistery K
Can you talk a little bit about that? About 30% of that account receivable was tied to the government deliverables that we referenced in our prepared remarks and we've sent received that. So, you can expect to see account receivable coming down in the current quarter. Inventory from quarter to quarter was up slightly. Mostly due to the fact that the standard cost increased overall in the green number. There wasn't an increase in inventory per se. And we've managed to keep in the jealousy. Pretty flat from September 22 as they can't do it. And obviously we'll continue to
and make sure we're being efficient in that regard. Okay, very good. Just kind of given the level of demand that you see in front of you, what do you think is the most appropriate level there on the inventory side? Is $8 million about it, or would you prefer to see that down maybe with a quarter's worth of revenue? Yeah, definitely.
For me, I think what we've got to do is make sure we've got a mixture of level that allows us to support the business. David, as we resume sequential revenue growth, we want to make sure that we strike that balance between having the right end of the number and having the individual number that allows us to scale and to support our customers. So I'm really...
And one of the things that sounds like, or at least it seems like, the data center and the artificial intelligence kind of trends, you guys are already designed into power supplies there. Just kind of curious if you're seeing that demand pulled in and since you already have existing design wins or those being pulled in and just in the activity you're seeing around the AI trends and the data center will be very helpful. Thank you.
Yes, no, thank you for that. So we're that all of that is in our computing segment, computing and storage in networking segment, which has traditionally been strong for us, study and strong stack segment. So we are seeing some nice.
upticks in the computing segment with the server-based designs in the AI space, our technology, our products, and our customer products with GAN-based, highly efficient GAN-based power supply, titanium rated power supplies from GAN, a bit transformed. We were one of the first by the way, and I have a...
very patented, broadly patented approach for realizing titanium based high efficiency servers for amongst other things, AI and high power computing in general. So we are seeing some nice design insta in the space of indirectly impacting AI, our existing winds which we are seeing proliferation.
Thanks so much. Certainly appreciate it. Thank you. One moment for our next question. Our next question comes from Ananda Baru from Loop Capital. Your line is open. Hey, thanks, guys. Appreciate you letting me ask the question. Congrats on the progress. I guess just to start out with regards to the strategic review process, you're saying that you're now officially underway. Thank you.
Describe to us what the milestones are, at least these initial milestones. Have you hired a banker yet? How long do you think that process takes if you haven't? And anything else that's relevant as you get started here. And I have a few follow-ups.
So, yes, and so what we said, and just clarifying again, that we are beginning our previously announced strategic review process. So some of the specific we cannot yet come comment on, but we are talking, we continue to discuss with the bankers who are familiar with Transform, and also those bankers who are very similar. Thank you.
We are doing all of those discussions. We cannot comment more specifics at this time, but again, like we said, we are beginning our review process and it will include multiple opportunities.
like financing, strategic semiconductor, financing, traditional financing, licensing, like we talked about in the call and potential, M&E. All this will be part and parcel of the discussions.
sort of interest for the opportunity holistically relative to what your desires would be when you started the process. Again, I think our primary focus is to, it's very exciting design and momentum space that we have got in front of us, really keep growing that, keep converting more of the design wins to design wins and ramp the design wins. That's a clear business focus of transform. And then, like we said, equally important to enhance the shareholder value and accelerate the growth of our Gantt.
companies out there with the strongest products in low power and high power, very strong IP, our own way for manufacturing and clear kind of a differentiator in various areas that we talked into low power, high power, 1200 volt gain and things like that. So we're finding a kind of interest across the board in this space.
which is why to channel those inbound interests properly is why we are again doing this with again a single-minded focus to enhance shareholder value.
No, that sounds good. This sounds great. You made mention in the particular remarks about
the ability to increase the velocity of the diamond impact.
And I just wanted to make sure I just, I understood the context there of those remarks. Does that, do you recall making those remarks?
Yes, yes. So we're like we said, our pipeline is very strong in just the last six or seven weeks since we did our ear end call end of June . We've got a 10% increase in design-ins in the low power and 25% increase in design-ins in the high power. So now as we, our goal is to convert more and more of those design-ins.
designs, product-freezing at existing customers, taking more slots in the design than existing customers. And we are doing that through a couple of things. We have already put in place over the last six to nine months personnel in place relationships and technical resources to first of all, Garnet is strong pipeline. E ?? plants. NOthropens.
as we go on our own team in worldwide sales and application, as well as very important customers and our partners, our IC partners that we have to increase the momentum. All of those two or three things put together, we look forward to.
getting more traction in increasing revenues faster. We also aim to add new geographies like India, for example, as well as increase our US base fuel.
That's all great. Thanks.
That's all great. Hence, I guess it's... ... ends here.
Like structurally, can you give us any sense as you sort of implement, you know, these various initiatives and processes? Any sense structurally after this is complete?
the impact it can have in, I don't know, sort of a development to revenue cycle or development to qualification cycle, whatever the appropriate metrics are.
Yeah, both actually write qualifications internally and then working with qualification, the product qualification design, qualification at our customers, and then impacting the revenue cycles. Both of them we intend to shorten, particularly the example I gave at proliferating within existing customers.
more slots and supporting our existing customers to do more. That's an area we particularly want to emphasize upon. And we are confident now, looking at the pipeline and what we have in the process, to resume good sequential product revenue growth from here on now.
That's great. I'll see you before I appreciate the context. Thank you so much. Thank you. One moment for our next question.
Next question comes from Craig Ellis with Be Rily. Your line is open.
Craig please check your mute button.
Please check your meal button. Can you hear me now?
Yes.
Yeah, thank you. Apologies there. So my first question, I'll direct to you, Cameron, and then I want to follow up on some of the strategic issues with you, Primate.
Kevin really nice gross margins in the quarter with significant government mix. Now there was catch up payment, which we won't have in that current quarter. So can you just help us with the arc of gross margins over the next couple of quarters?
with the contribution from government and then how significantly do you think volume can scale given the breadth of design winds both in higher and lower voltage? Thank you. Sure. No, thank you. So, yeah, government, you know, there will be a mixed in that we think about the core that we're going to do.
activity. But even with that, because we've got more scale, because we're still seeing solid margins in our direct business, although there will be a drop in from Q1 to Q2 margins, it will be a drop that will still afford the company solid margins. And from there, it is largely a case of scaling the business, and ultimately a dangerous.
Thank you. And we have a question from Tori's Fenberg with Stevele. Your line is open. Yes. Thank you, Premier. Premier, Premier, maybe for your first, you mentioned the 12-hundred-volt GAN now sort of in data sheet. When can we realistically think about sampling of the 12-hundred-volt products?
Thanks, Tori, for that. So we've started discussions with a few customers, systematically on that. First, we announced the modeling at PCIM, now the preliminary data sheet. So we are working through it, what we expect in sampling, sometimes in the...
closer kind of so-called customer partners who want to work with us closely into system-based design and evaluation of this technology. But the very important thing about that, about the 1200 volt is like we mentioned customers now, this is also helping frankly our traction with 650 volts existing.
call automotive qualified products that we have today because customers see us now that look we can have 650 volts for 400 volts battery today and then in future when we want to design for 800 volt batteries that 1200 volts is in place all with gallium nitride.
That's very helpful. And also a question for Cameron, a little bit related to Craig's question, but maybe a little bit differently, you know, revert back to 75-25, type of a mix between product and government. And what will it take for the product gross margin to too?
be a bit more optimized, is that sort of like 5 million in product revenue per quarter or higher than that?
No, thank you. I think this split, you know, roughly 50-50 in this quarter, I think it will be two colors one for roughly in the September quarter, as I think about the difference between the two. And then you'll start to see product, you'll continue to have a higher percentage. I think that the government will be flatter.
coming together is the right confluence to have, kind of, embark on this process.
That's helpful. And do you envision this leading to you selecting a single partner, or is it possible that you would have multiple partners depending on...
their technology position or desired technology, geographic domicile, market focus, et cetera.
those two right with a different partner, for example. So there could be very well-being multiple partners because we have multiple opportunities on the horizon. Thank you, Private. Thank you. And there are no other questions in the queue. I'd like to turn the call back to Permit Park for our closing remarks. So thank you everyone for tuning in today. We look forward to continue to blow faster on this exciting opportunity that we have in front of us.