Q3 2024 Wolfspeed Inc Earnings Call

Operator: Hello all, and welcome to Wolfspeed's third quarter fiscal 2024 conference call. My name is Lydia, and I'll be your operator today. If you'd like to ask a question during the Q&A, you can do so by pressing star followed by 1 on your telephone keypad. I'll now hand you over to Tyler Gronbach, Vice President, External Affairs, to begin. Please go ahead.

Hello, and welcome to you wont speak third quarter fiscal 'twenty to 'twenty four conference call.

Lydia: My name is Lydia and there will be your operator today.

Speaker Change: If you'd like to ask a question during the Q&A you can do so by pressing star followed by one on your telephone keypad.

Lydia: I'll now hand, you over to talk on Bock, Vice President external effects begin please.

Bock: Please go ahead.

Tyler D. Gronbach: Thank you, Operator, and good afternoon, everyone. Welcome to Wolfspeed's third quarter fiscal 2024 conference call. Today, Wolfspeed CEO Gregg Lowe and Wolfspeed CFO Neill Reynolds will report on the results for the third quarter of fiscal year 2024. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provides useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP.

Bock: Thank you operator, and good afternoon, everyone welcome to <unk> third quarter fiscal 2024 conference call today, <unk> CEO, Gregg Lowe and will speed CFO Neill Reynolds will report on the results for the third quarter of fiscal year 2024.

Bock: Please note that we will be presenting non-GAAP financial results during today's call, which we believe provides useful information to our investors non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies non-GAAP information should be.

Bock: A supplement to and not a substitute for financial statements prepared in accordance with GAAP.

Tyler D. Gronbach: A reconciliation to the most directly comparable gap measures is in our press release and posted in the investor relations section of our website along with a historical summary of other key methods. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainty. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially.

Bock: A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website along with a historical summary of other key metrics.

Bock: Today's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call such forward looking statements are subject to numerous risks and uncertainties.

Bock: Our press release today and the SEC filings noted in the release mentioned important factors that could cause actual results to differ materially.

Tyler D. Gronbach: Last note: All discussions today will be on a continuing operation basis. During the Q&A session, we would ask that you limit yourself to one question so that we can accommodate as many questions as possible during today's call. If you have any additional questions, please feel free to contact us after the call.

Bock: Last note that all discussion today will be on a continuing operation basis. During the Q&A session. We would ask that you limit yourself to one question. So that we can accommodate as many questions as possible. During today's call. If you have any additional questions. Please feel free to contact us after the call.

Bock: Now I'd like to turn the call over to Greg.

Gregg A. Lowe: Thanks, Tyler. And good afternoon, everyone.

Greg: Thanks, Tyler and good afternoon, everyone will speed is the world's only pure play vertically integrated silicon carbide company.

Gregg A. Lowe: Wolfspeed is the world's only pure play vertically integrated silicon carbide company. 100% of our team's focus is to capitalize on the industry transition from traditional silicon to next-generation silicon carbide, helping customers deliver energy efficient products to market and pursuing outsized returns for our investors. We have an unmatched manufacturing ecosystem, with first-of-a-kind tools and automation that will allow us to scale our efforts as the electrification of key industry segments gains velocity. With that as a backdrop, I'd like to spend a few minutes covering four points.

Greg: 100% of our team's focus is to capitalize on the industry transition from traditional silicon to next generation Silicon carbide.

Greg: Hoping customers deliver energy efficient products to market and pursuing outsized returns for our investors.

Greg: We have an unmatched manufacturing ecosystem with.

Greg: With first of a kind tools and automation that will allow us to scale our efforts as the electrification of key industry segments gains velocity.

Greg: With that as a backdrop I'd like to spend a few minutes covering four points.

Gregg A. Lowe: First, we believe the market is not fairly valuing the company consistent with the technology and the business we have built or the strategic potential of the business. The management team and the board of directors are focused on this disconnect and routinely consider alternatives to enhance value for shareholders. Second, driving better financial performance and value for shareholders by delivering on our near-term operational commitments for fiscal 2024 and 2025 is at the core of every decision we make.

Greg: First we believe the market is not fairly valuing the company consistent with the technology and the business. We have built for the strategic potential of the business.

Greg: The management team and board of directors are focused on this disconnect and routinely consider alternatives to enhance value for shareholders.

Greg: Second driving better financial performance and value for shareholders by delivering on our near term operational commitments for fiscal 2024, and 2025 is that the core of every decision we make.

Gregg A. Lowe: We are laser focused on increasing the utilization at Mohawk Valley, and as I'll talk about in a few minutes, we are making solid progress there. We are also focused on bringing the JP online, and we are likewise making solid progress on that project.

Greg: We are laser focused on increasing the utilization at Mohawk Valley and Thats, All I will talk about in a few minutes, we are making solid progress there.

Greg: We are also focused on bringing the JP online.

Greg: Where we are likewise, making solid progress on that project.

Gregg A. Lowe: Third, our operational roadmap provides sufficient time to focus all of our efforts on making sure Mohawk Valley and the JP are on track before we move on to new projects, which is not only good for investing but also for our customers, who are also counting on us to meet our commitments. At this time, there are not any additional greenfield projects scheduled to launch until we demonstrate further progress on our existing projects, and we expect to significantly reduce CAPEX for fiscal 2025 ahead of receiving any grants or funding from the U.S. government. Finally, we are deliberately and effectively allocating capital.

Greg: Third.

Greg: Our operational roadmap provide sufficient time to focus all of our efforts on making sure Mohawk Valley and the J P are on track before we move on to New project.

Greg: Which is not only good for investors.

Greg: For our customers, who are also counting on us to meet our commitments.

Greg: At this time there are not any additional greenfield projects scheduled to launch until we demonstrate further progress on our existing project and we expect to significantly reduce capex for fiscal 2025.

Greg: Seeming any grants or funding from the U S government.

Greg: Finally, we are deliberately and effectively allocating capital.

Gregg A. Lowe: And let me be clear, our current operational performance and development roadmap does not currently contemplate raising dilutive capital that would lock us into a disadvantageous capital structure at this time, especially considering the disconnect between our current valuation and the leadership position we have built in the silicon carbide market. As stated previously, we are working closely with the Commerce Department and other government entities to secure the CHIPS Act and related funding to support our U.S.-based project.

Greg: And let me be clear our current operational performance and development roadmap does not currently contemplate raising dilutive capital that would lock us into a disadvantageous capital structure at this time.

Greg: Especially considering the disconnect between our current valuation and the leadership position, we have built and the silicon carbide market.

Greg: As stated previously we are working closely with the Commerce Department and other government entities to secure chip tact and related funding to support our U S based projects.

Gregg A. Lowe: Having laid out those points, let's move on to the specifics of Wolfspeed's performance over the past quarter, which we believe demonstrates the positive results of our operational focus and discipline, despite the near-term headwinds in the industrial and energy domain. We made strong progress at Mohawk Valley in the third quarter, more than doubling our revenue and delivering $28 million of product to customers from this fab. We are on track to achieve 20% wafer start utilization in Mohawk Valley by June of this year.

Greg: Having laid out those points, let's move on to the specifics of Wolf speeds performance over the past quarter, which we believe demonstrates the positive results of our operational focus and discipline. Despite the near term headwinds in the industrial and energy demand.

Greg: We made strong progress at Mohawk Valley in the third quarter more than doubling our revenue and delivering $28 million of product to customers from this fab.

Greg: We are on track to achieve 20% wafer start utilization of Mohawk Valley by June of this year.

Gregg A. Lowe: And to give you a sense of the progress we're making, as of April, we were already at more than 16% utilization based on wafer starts per week, making us extremely confident in our ability to achieve our target in June of 2020. We've made great progress on optimizing factory tool integration, and the operating flow is continuing to improve. Our dye costs out of Mohawk Valley are better than the equivalent dyes being produced in Durham, which is another sign of the progress we've made in the past year.

Greg: Give you a sense of the progress we're making as of April we are already at more than 16% utilization based on wafer starts per week, making us extremely confident on our ability to achieve our target in June of 2024.

Greg: We've made great progress in optimizing factory tool integration.

Greg: And the operating flow is continuing to improve.

Greg: Our die cost shot at Mohawk Valley are better than the equivalent diodes being produced in Durham, which is another sign of the progress we've made in the past year.

Gregg A. Lowe: I'm proud of our team for its strong focus on the Mohawk Valley ramp and its ability to hit each of the milestones we put in place a year ago. From a materials perspective, we are the largest producer of silicon carbide substrates in the world, driven by our Durham facility, which is consistently producing high quality and high yielding 200 millimeter wafers out of building tech. We are continuing to build inventory to support the RAMP and the FAB in New York.

Greg: I'm proud of our team for its strong focus on the Mohawk Valley ramp.

Greg: And its ability to hit each of the milestones we've put in place a year ago.

Greg: From a materials perspective, we are the largest producer of silicon carbide substrates in the world.

Greg: Driven by our Durham facility, which is consistently producing high quality and high.

Greg: High yielding 200 millimeter wafers out of building 10.

Greg: We are continuing to build inventory to support the ramp of the fab in New York.

Gregg A. Lowe: We already are at a high yield for automotive-grade MOSFET substrates on our 200-millimeter silicon carbide wafer and are now confident that our Building 10 factory will be able to support at least 25% wafer starts in Mohawk Valley. Our leadership position in 200 millimeter materials will continue to expand with the construction of the JP. A game-changing facility that will significantly grow our materials capacity and support Mohawk Valley's annual $2 billion plus revenue target. Recently, we had the honor of hosting state and local officials, community partners, and employees at a ceremony to celebrate the topping out of the construction at JP. In attendance that day was U.S. President Bill Clinton.

Greg: We already are at a high yields for automotive grade MOSFET substrates on our 200 millimeter silicon carbide wafers.

Greg: And are now confident that our building 10 factory will be able to support at least 25% wafer starts and Mohawk Valley.

Greg: Our leadership position in 200 millimeter materials will continue to expand with the construction of the JP.

Greg: Our game changing facility that will significantly grow our materials capacity and support Mohock valleys annual $2 billion plus revenue target.

Greg: Recently, we had the honor of hosting state and local officials community partners and employees at a fair money to celebrate the tapping out of the construction at the J P.

Gregg A. Lowe: Senator Tom Tillis, another ardent supporter and vocal advocate for Wolfspeed. We have enjoyed significant support for our silicon carbide expansion from all levels of government since we announced our expansion plans in New York and in North Carolina, with visits from President Biden and Senator Schumer.

Speaker Change: Tenants that day with U S. Senator Thom Tillis another.

Greg: Quarter and vocal advocate for Wolf speed.

Greg: We have enjoyed significant support for our silicon carbide expansion from all levels of government since we announced our expansion plans in Europe and in North Carolina with visits from President Biden.

Greg: Senator Schumer.

Gregg A. Lowe: Commerce Secretary Raimondo, Governor Cooper, and Governor Hochul have worked together in the last two years. We appreciate their continued partnership and support as we build the world's largest silicon carbide ecosystem here in the United States. The J.P. will be instrumental in supplying high-quality, 200-millimeter silicon carbide materials to our Mohawk Valley fast. During the quarter, we started installing crystal growth furnaces and connected the facility to the power grid, two major accomplishments made possible by the diligence of our global expansion team and our general contractor, Whiting Terman.

Greg: Commerce Secretary Rimando.

Greg: Government of Cooper.

Greg: And Kevin are hopeful in the last two years.

Greg: We appreciate their continued partnership and support as we build the world's largest silicon carbide ecosystem here.

Greg: In the United States.

Greg: J P will be instrumental in supplying high quality 200 millimeter silicon carbide materials to our Mohawk Valley Fab.

Greg: During the quarter, we started installing crystal growth furnaces and connected the facility to the power grid.

Greg: Two major accomplishments made possible by the diligence of our global expansion team that our general contractor Whiting Turner.

Gregg A. Lowe: Our teams have struck a great partnership by applying the many lessons we learned from the ramp-up of our Durham Materials Facility and building tech. Looking ahead, we expect to begin powering up initial furnaces by the end of June, which will allow us to start qualifying furnaces in the September quarter, leading to initial bull production by the end of this calendar year.

Greg: Our teams have struck the right partnership by applying the many lessons we learned from the ramp of our durum materials facility and building Ted.

Greg: Looking ahead.

Greg: We expect to begin powering up initial furnaces by the end of June which will allow us to start qualifying furnaces in the September quarter, leading to initial oil production by the end of this calendar year.

Gregg A. Lowe: Construction has progressed incredibly well, and we are confident in our ability to meet these targets. As we mentioned last quarter, we continue to be a key supplier of silicon carbide substrates to the broader market, as evidenced by the two supply extensions that we announced in January. Our LTAs underscore the importance of our role as the leading provider of high-quality 150 millimeter substrates to the market, and we will continue to be an important partner to our customers in the years to come.

Greg: Construction is progressing incredibly well and we are confident in our ability to meet these targets.

Greg: As we mentioned last quarter, we continue to be a key supplier of silicon carbide substrates to the broader market as evidenced by the two supply extensions that we announced in January.

Greg: Our LTA underscore the importance of our role as the leading provider of high quality 150 millimeter substrates to the market and.

Greg: And we will continue to be an important partner to our customers in the years to come.

Gregg A. Lowe: We believe these agreements are an indicator of where the market for alternative sources of silicon carbide wafers currently stands. On 200 millimeter, we're focused on our internal needs around supplying Mohawk Valley but remain in close contact with our customers to discuss potential 200 millimeter green technologies. We've said it before and we'll say it again, silicon carbide is an incredibly complex technology that cannot be rushed or taken lightly.

Greg: We believe these agreements are an indicator of where the market for alternative sources of Silicon carbide wafers currently stands.

Greg: On 200 millimeter, we're focused on our internal needs around supply Mohawk Valley.

Greg: But remain in close contact with our customers to discuss potential 200 millimeter agreements.

Greg: We've said it before and we'll say it again silicon carbide is an incredibly complex technology.

Greg: We rushed were taken lately.

Gregg A. Lowe: We know this from our 35 plus years of experience and leadership in the industry. Our high-quality substrates allow us to produce the highest quality MOSFET devices out of our Mohawk Valley fab, where the ramp is progressing well. As I mentioned, Mohawk Valley generated $28 million of revenue this quarter ahead of the midpoint of our forecast and more than double last quarter's total of $12 million. Neill will give you more specific guidance on Mohawk Valley in a few minutes, but in general, we expect to continue our strong growth trajectory at the facility.

Greg: We know this from our 35 plus years of experience and leadership in the industry.

Greg: Our high quality substrate allow us to produce the highest quality MOSFET devices out of our Mohawk Valley Fab, where the ramp is progressing well.

Greg: As I mentioned Mohawk Valley generated $28 million of revenue. This quarter ahead of the midpoint of our forecast and more than double last quarters total of $12 million.

Greg: Neal will give you more specific guidance on Mohawk Valley in a few minutes, but in general we expect to continue our strong growth trajectory at the facility.

Gregg A. Lowe: As I said earlier, Mohawk Valley is anticipated to achieve 20% utilization this quarter. We also continue to make progress with Mohawk Valley product qualifications this quarter, completing five more product transfers, including two MOSFET dyes and three discrete MOSFETs. Mohawk Valley, which currently services almost entirely EV customers, is coming. The I&E market, or industrial energy market, remains challenged and remains weaker than our original expectations, primarily due to inventory buildups across many end market channels, predominantly in the Asian market.

Greg: As I said earlier Mohawk Valley is anticipated to achieve 20% utilization this quarter.

Greg: We also continue to make progress with Mohawk Valley product qualification during the quarter.

Greg: Completing five more product transfers, including two MOSFET die in three discrete markets.

Greg: While Mohawk Valley, which currently services almost entirely EV customers.

Greg: The <unk> market or industrial and energy market remains challenged and remains weaker than our original expectations, primarily due to inventory buildup across many end market channels predominantly in the Asian markets.

Gregg A. Lowe: We are responding by shifting I&E capacity, both in Durham and Mohawk Valley, towards EV. Our ability to shift our production from I&E to EV speaks to the flexibility that our business model provides. However, this end market shift and change in product mix will have a short-term headwind on gross margins.

Greg: We are responding by shifting any capacity, both in Durham, and Mohawk Valley towards EV.

Greg: Our ability to shift our production from irony to EV.

Greg: Thanks to the flexibility that our business model provides us.

Greg: However, at this end market shift and change in product mix will have a short term headwind on gross margins.

Gregg A. Lowe: But it will position us well for fiscal 2025, as we could see the start of a recovery for I&E demand at some point during this period. Unlike Ione, we continue to see a ramp of EVs that have adopted our silicon carbide devices. Well, this is a disruptive time in the industry, and we continue to see OEMs adjusting and modifying their near-term EV production plans. However, we remain substantially supply constrained for our silicon carbide device.

Greg: But it will position us well for fiscal 2025, as we could see the start of a recovery for the <unk> demand at some point during this period.

Greg: Unlike any we continue to see a ramp up of Tvs that have adopted <unk>.

Greg: Our silicon carbide devices.

Greg: While this is a disruptive time in industry and we continue to see Oems adjusting and modifying their near term EV production plans.

Greg: We remain substantially supply constrained for our silicon carbide devices.

Gregg A. Lowe: As demand remains well above our current supply, we can be nimble and shift much of our supply to other customers to accommodate for these near-term changes. Underscoring this continued EB demand is our strong design end and design wind performance this quarter. As a reminder, a design in represents business we've been awarded, which converts to a design win once we begin ramping into initial production.

Greg: As demand remains well above our current supply we can be nimble and shift much of our supply to other customers to accommodate for these near term changes.

Greg: Underscoring this continued EBIT demand as our strong design in and design win performance this quarter.

Greg: As a reminder.

Greg: Designer and represents business, we've been awarded which converts to a design win once we begin ramping into initial production.

Gregg A. Lowe: This quarter, we achieved approximately $2.8 billion of design investment, about 80% of which was for EV applications, marking our second highest total on record, totaling over $7 billion of design ins for fiscal 2020. We're proud to announce that we had approximately $870 million of design wins in the third quarter. These design wins typically mature over the next five to seven years, which provides ample revenue visibility for the foreseeable future. Our backlog of design wins now supports more than 125 car models across more than 30 OEMs over the next three to five years.

Greg: This quarter, we achieved approximately $2 $8 billion of design and about 80% of which was for EV applications, marking our second highest total on record at totaling over $7 billion of design ins for fiscal 2024.

Greg: We're proud to announce that we had approximately $870 million of design wins in the third quarter.

Greg: These design wins typically mature over the next five to seven years, which provides ample revenue visibility for the foreseeable future.

Greg: Our backlog of design wins now support more than 125 car models across more than 30 Oems over the next three to five years.

Gregg A. Lowe: As we continue to execute on our unprecedented greenfield expansion plans and serve the highest quality silk carbide materials and devices to a largely untapped market, we maintain our conviction in our strategy, and are on strong design-in and design-win trajectories this year, notwithstanding the current gyrations of the EV market. This gives us confidence in the future and the longevity of silicon carbide, and we look forward to continuing our momentum, particularly at Mohawk Valley through the close of fiscal 2024 and beyond. Now, I'd like to pass the call over to Neill to discuss our quarterly guidance. Thanks, Gregg.

Greg: As we continue to execute on our unprecedented greenfield expansion plans and serve the highest quality, so carbide materials and devices to a largely untapped market.

Greg: Maintain our conviction and our strategy.

Greg: Our strong design in and design win trajectory this year notwithstanding the current gyrations of the EV market.

Greg: Gives us confidence in the future and the longevity of Silicon carbide, and we look forward to continuing our momentum, particularly at Mohawk Valley through the close of fiscal 2024 and beyond.

Greg: Now I'd like to pass the call over to Neil to discuss our quarterly guidance.

Neill P. Reynolds: Before I go into the detailed financials and follow up on Gregg's comments, I would like to frame up our current performance and how it aligns with our longer-term health. First, the company's long-term demand remains strong. We achieved another $2.8 billion in revenue, our second highest quarter ever.

Neil: Thanks, Greg before I go into the detailed financials and following up on Greg's comments I would like to frame up our current performance and how it aligns with our longer term outlook.

Neil: First the company's long term demand remains strong.

Neil: We achieved another $2 $8 billion of designing our second highest quarter ever.

Neill P. Reynolds: Customers who have visited our new state-of-the-art manufacturing facilities and tested and used our products and compared them to rival products continue to choose Wolfspeed as our key supplier across both EV and industrial and energy device applications. In recent months, key customers such as Infineon and Roam have come back to Wolfspeed for the expansion of multi-year 150 millimeter wafer supply agreements. In addition, last year, after surveying the materials landscape, RENESAS selected Wolfspeed for a 10-year supply agreement, including 200-millimeter substrates that included a $2 billion capacity reservation deposit, which we believe is the largest CRD in the history of semiconductors.

Greg: <unk> visited our new state of the art manufacturing facilities and tested and used our products.

Greg: Them to rival products continue to choose will speed as a key supplier across both EV and industrial and energy device applications.

Greg: In recent months and materials key customers, such as Infineon and wrong to come back to Wolff speeds for expansion of multi year 150 millimeter wafer supply agreement.

Greg: In addition last year after serving the materials landscape Renaissance selected low speed for a 10 year supply agreement, including 200 millimeter substrate.

Greg: That included a $2 billion capacity reservation deposit what we believe is the largest CRD in the history of semiconductors.

Neill P. Reynolds: Secondly, our operating execution has significantly improved during the last 12 months. One year ago, we delivered a revised ramp schedule for 200 millimeter wafer production out of our Durham campus and Mohawk Valley. Since then, we have achieved every one of those announced milestones, which will culminate in 20% utilization in June 2024. We've also had best-in-class performance from our materials operation, generating revenue at or above our guidance in that timeframe, including $99 million this past quarter, our second-highest quarter ever. Let me walk you through a few facts related to our 200 millimeter ram.

Greg: Secondly, our operating execution has significantly improved during the last 12 months.

Greg: One year ago, we delivered a revised ramp schedule for 200 millimeter wafer production out of our current campus and Mohawk Valley.

Greg: Since then we have achieved every one of those announced milestones, which will culminate in 20% utilization in June 2024.

Greg: We have also had best in class performance from our materials operation generating revenue at or above our guidance in that timeframe, including $99 million this past quarter, our second highest quarter ever.

Greg: Let me walk through a few facts related to our 200 millimeter ramp.

Neill P. Reynolds: Dye costs from our 200-millimeter substrates at Mohawk Valley, even including the full burden of the Mohawk Valley fab under utilization, which was $30.4 million in Q3, are now lower than that of the same product produced out of our Durham fab at 150 millimeters. We expect this cost reduction to accelerate as we continue to ramp up the fat. The Mohawk Valley device unit cost performance has been driven by breakthroughs in both yield and cycle times that we are continuing to see improve as we transition into the current quarter.

Greg: Die cost from our 200 millimeter substrates at Mohawk Valley, even including the full burden of Mohawk Valley Fab other utilization, which was $34 million in Q3.

Greg: It is now lower than that of the same product produced out of our Durham fab at 150 millimeter.

Greg: We expect this cost reduction to accelerate as we continue to ramp the fab.

Greg: The Mohawk Valley device unit cost performance has been driven by breakthroughs in both yield and cycle times that we are continuing to see improve as we transition into the current quarter.

Neill P. Reynolds: Next, MOSFETs continue to have very strong qualification success in Mohawk Valley. And our back-end testing and packaging operation has performed very well, with no substantial issues, and continues to perform well at higher levels of utilization. Please keep in mind, these results are on a new material substrate, in a new fab, at a new diameter, with tools seeing this technology for the very first time.

Greg: Next MOSFET has continued to have very strong qualifications success in Mohawk Valley.

Greg: And our back end testing and packaging operation has performed very well with no substantial issues and continues to perform well at higher levels of utilization.

Greg: Please keep in mind. These results are on a new material substrate and a new fab a new diameter with tools being this technology for the very first time.

Neill P. Reynolds: In addition, this was achieved as we completed the sale of our RF business last year, the third carve-out divestiture in the last five years that has transformed our business and will allow us to remain focused on executing on our capacity ramps in both power devices and materials. Our team is executing very well. Next, we remain sharply focused on optimizing our funding and capital allocation strategy. And with our current financing facilities and finance partners, we expect to maintain a cash position greater than $1 billion for the foreseeable future.

Greg: In addition, this was achieved as we completed the sale of our RF business last year.

Greg: Third carve out divestiture for the last five years that has transformed our business and will allow us to remain focused on executing on our capacity ramps in both power devices and materials.

Greg: Our team is executing very well.

Greg: Next we remain sharply focused on optimizing our funding and capital allocation strategy and with our current financing facilities and finance partners, we expect to maintain our cash position greater than $1 billion for the foreseeable future.

Neill P. Reynolds: From a financing perspective, we have delivered on our plan. In November 2022, we told you we wanted to raise between $4 billion and $5 billion over the next few years. Eight months later, we had executed on $5 billion of low-dilution funding from a combination of public markets, private markets, customers, and government.

Greg: From a financing perspective, we have delivered on our plan in November 2022, We told you we wanted to raise between 4 billion and $5 billion over the next few years.

Greg: Eight months later, we had executed on $5 billion of low dilution funding from a combination of public markets private markets customers and governments.

Neill P. Reynolds: This allowed us to end the March quarter with over two and a half billion dollars of cash and liquidity on the balance, including the final draw of our Renesas customer deposit. We now anticipate ending fiscal 2024 with approximately $2.2 to $2.4 billion of cash from liquidity. Looking at CapEx, we expect to spend approximately $2 billion in fiscal 2024, our peak year, consistent with the guidance we communicated last year. This includes $2.2 billion of gross CapEx, offset by approximately $200 million of government incentives in fiscal 2024.

Greg: This allowed us to end March quarter with over $2 5 billion of cash and liquidity on the balance sheet, including.

Greg: Including the final draw of a Renaissance customer deposit we now anticipate ending fiscal 2024 was approximately $2 two to $2 4 billion of cash and liquidity.

Greg: Looking at Capex, we expect to spend approximately $2 billion in fiscal 2020 for our peak year consistent with the guidance, we communicated last year.

Greg: This includes $2 2 billion of gross Capex offset by approximately $200 million of government incentives in fiscal 2024.

Neill P. Reynolds: In fiscal 2025, we expect a substantial reduction in gross capex of about $600 million to $800 million, resulting in approximately $1.4 billion to $1.6 billion of gross capex. This capex is primarily focused on the JP and Mohawk Valley and does not include any capex for new greenfield facilities.

Greg: In fiscal 2025, we expect a substantial reduction in gross capex of about $600 million to $800 million.

Greg: Resulting in approximately $1 4 billion to $1 6 billion of gross Capex.

Greg: This capex is primarily focused on the JP and Mohawk Valley and does not include any capex for a new Greenfield facility.

Neill P. Reynolds: We will not begin another greenfield facility expansion until we have achieved our cash flow objectives from our facilities in the U. S. Government funding meets our minimum requirements, and liquidity and financing plans are clearly in place. The $1.4 to $1.6 billion of fiscal 2025 CapEx also does not include potential government incentives, grants, and subsidies that would further lower this CapEx number and potentially be received within fiscal 2025. We continue to work with the CHIPS Program Office, and this remains a key focus.

Greg: We will not begin another greenfield facility expansion until we have achieved our cash flow objectives from our facilities in the U S government funding meets our minimum requirement and liquidity and financing plans are clearly in place.

Greg: The one four to $1 6 billion of fiscal 2025 Capex also does not include potential government incentives grants and subsidies that with further lowered this capex number potentially be received within fiscal 2025.

Greg: We continue to work with the Chip program office and this remains a key focus.

Neill P. Reynolds: To date, our interactions with the CHIPS office have been very constructive, and we look forward to completing our work with them in the near future. Depending on the timing of when these incentive payments are approved and then funded, it will be very important for the company to maintain flexibility on the financing front. This may include some interim financing under current financing facilities or otherwise that would allow us to enhance our balance sheet and cash position as we proceed with the Siler City construction and add more tools and a Mohawk Valley FAB. To be clear, as Gregg stated earlier, we do not anticipate that such interim financing, should we decide to execute it, will be diluted or lock us into a disadvantageous capital structure.

Greg: To date, our interactions with the chips office have been very constructive and.

Greg: And we look forward to completing our work with them in the near future.

Greg: Pending on the timing of when these incentive payments are approved and then funded it will be very important for the company to maintain flexibility on the financial front.

Greg: This may include some interim financing under current financing facilities or otherwise that would allow us to enhance our balance sheet and cash position as we proceed with our siler city construction and add more tools in our Mohawk Valley Fab.

Greg: To be clear as Greg stated earlier, we do not anticipate that interim financing should we decide to execute it to be dilutive or lock us into a disadvantage its capital structure.

Neill P. Reynolds: In addition, we expect the initial phase of the JP facility to be largely complete by the end of calendar 2024, closing out the vast majority of our fixed facility spend. At that point, our CapEx will be much more flexible and variable, as we will be able to modulate how we invest in tool capacity to match our demand outlook. From a business performance standpoint, you're targeting to achieve positive EBITDA exiting fiscal year 2025 and operating cash flow shortly after that.

Greg: In addition, we expect the initial phase of the JP facility to be largely complete by the end of calendar 2020 for closing out the vast majority of our fixed facility spend.

Greg: At that point, our capex will be much more flexible and variable as we will be able to modulate how we invest in tools capacity to match our demand outlook.

Greg: From a business performance standpoint, we are targeting to achieve positive EBITDA exiting fiscal year 2025, and operating cash flow breakeven shortly after that.

Neill P. Reynolds: Given that outlook and the number of liquidity options at our disposal, we expect to maintain a minimum cash balance greater than $1 billion for the foreseeable future, and we will continue to evaluate that need as we complete our U.S. facility expansion plan and transition to positive EBITDA and operating cash flow.

Greg: Given that outlook and the number of liquidity options at our disposal, we expect to maintain a minimum cash balance of greater than $1 billion for the foreseeable future and we will continue to evaluate that need as we complete our U S facility expansion plan and transition to positive EBITDA and operating cash flow.

Neill P. Reynolds: Looking ahead, we believe the current U.S. capacity expansions can generate approximately $3 billion in annual revenue with greater than 40% EBITDA margin. We remain confident in our long-range financial targets, as the underlying economics we are seeing so far for Mohawk Valley and Building 10 demonstrate that our purpose-built, vertically integrated, greenfield approach to capacity expansion will generate strong revenue and profitability. In combination with the JP, Mohawk Valley will be able to produce more than $2 billion of device revenue, in addition to the $400 million of device capacity currently installed in our Durham device fab.

Greg: Looking ahead, we believe the current U S capacity expansions can generate approximately $3 billion in annual revenue with greater than 40% EBITA margins.

Greg: We remain confident in our long range financial targets at the underlying economics, we are seeing so far for Mohawk Valley and building 10 demonstrate that our purpose built vertically integrated greenfield approach to capacity expansion will generate strong revenue and profitability and.

Greg: In combination with the JP Mohawk Valley will be able to produce more than $2 billion of device revenue. In addition to the $400 million of debate capacity currently installed in our Durham device that.

Neill P. Reynolds: In addition, with J-P online, we have the potential to grow the material substrate business to greater than $600 million. Lastly, short-term revenue and growth margins are being impacted by slower industrial and energy markets. In the short term, we are pivoting our available capacity to EV products, where EV product demand continues to outstrip our available capacity to serve that demand. The outcome of this will be more muted revenue growth and a low gross margin for the next few quarters.

Greg: In addition, with the JP online, we have the potential to grow the material substrate business to greater than $600 million.

Greg: Lastly, short term revenue and gross margins are being impacted by slower industrial and energy markets.

Greg: In the short term, we are pivoting our available capacity to EV products for EV product demand continues to outstrip our available capacity to serve that demand.

Greg: The outcome of this will be more muted revenue growth and low gross margin for the next few quarters, but as Greg mentioned earlier it positions us for any potential recovery and most importantly, it does not impact our longer term plan to achieve our revenue and EBITDA targets.

Neill P. Reynolds: But, as Gregg mentioned earlier, it positions us for any potential recovery in I&E. And, most importantly, it does not impact our longer-term plans to achieve our revenue and EBITDA targets. We believe that it will be at least the second half of this calendar year before we see inventory levels return to normal, but as we said last quarter, much of the product we had already produced and slated to ship has a match elsewhere in our pipeline, and we are continuing to work to find the best match for that inventory now.

Greg: We believe that it will be at least the second half of the calendar year before we see inventory levels return to normal, but as we said last quarter much of the product we have already produced and slated to ship at the match elsewhere in our pipeline and we are continuing to work to find the best match for that inventory now.

Neill P. Reynolds: I would now like to shift to our quarterly performance. As a reminder, before we discuss Q3 performance, all results reported today will be on a continuing operations basis and exclude the impact of our divested RF business from our results. We generated $201 million of revenue for the quarter, a decline of 4% sequentially and an increase of 4% year over year. We generated power revenue of $102 million.

Speaker Change: I would now like to shift to our quarterly performance.

Speaker Change: As a reminder, before we discuss Q3 performance all results reported today will be on a continuing operations basis and exclude the impact of our divested RF business and our results.

Speaker Change: We generated $201 million of revenue for the quarter, a decline of 4% sequentially, an increase of 4% year over year.

Speaker Change: We generated power revenue of $102 million. These results were largely driven by the $28 million of revenue contribution from Mohawk Valley, and offset by persistent weakness in our industrial and energy markets, particularly across Asia.

Neill P. Reynolds: These results were largely driven by the $28 million revenue contribution from Mohawk Valley and offset by persistent weakness in our industrial and energy markets, particularly across Asia. We continue to see growth from our EV customers as EV device revenue increased approximately 48% year-over-year. As I mentioned earlier, we posted materials revenue of $99 million, our second-highest quarter ever. This strong performance was driven by better-than-expected yields and output on a 150-millimeter weight. The Non-Gap Gross Margin in the third quarter was 15%.

Speaker Change: We continue to see growth from our <unk> customers as EEG device revenue increased approximately 48% year over year.

Speaker Change: As I mentioned earlier, we posted materials revenue of $99 million, our second highest quarter ever. This strong performance was driven by better than expected yield output on a 150 millimeter wafers.

Speaker Change: non-GAAP gross margin in the third quarter was 15%.

Neill P. Reynolds: As I mentioned previously, unit costs at Mohawk Valley continue to improve, driven by increasing yields and lower cycle times as we ramp up the fab. However, in the short term, as demand shifts away from I&E, we will see an impact on revenue and gross margins. We will shift as much production capacity as possible to EV products in the near term, but the same underlying production will not generate the equivalent revenue or gross margin.

Speaker Change: As I mentioned previously.

Speaker Change: What caused that Mohawk valley continued to improve driven by increasing yield and lower cycle times as we ramped the fab. However in the short term as demand shifts away from Miami, We will see an impact on revenue and gross margin.

Speaker Change: We will shift as much production capacity as possible to EV products in the near term the same underlying production will not generate the equivalent revenue or gross margin results.

Neill P. Reynolds: We anticipate this to be the case until we start to see a recovery in I&E markets in the first half of calendar year 2025. This does not, however, change our view that I&E products will be a substantial and important part of our product portfolio and capacity investment over the longer term. Our adjusted EPS of negative 62 cents was just above the midpoint of our guidance.

Speaker Change: We anticipate this to be the case until we start to see a recovery in <unk> markets in the first half of calendar year 2025 it.

Speaker Change: It does not however change our view that <unk> products will be a substantial and important part of our product portfolio and capacity investments over the longer term.

Speaker Change: Our adjusted EPS of negative <unk> 62 with.

Speaker Change: With just above the midpoint of our guidance our EPS. In addition to the Underutilization costs mentioned above also included the impact of $14 4 million of factory startup costs related to the construction of the JP and our materials expansion efforts now.

Neill P. Reynolds: Our EPS, in addition to the underutilization costs mentioned above, also included the impact of $14.4 million of factory startup costs related to the construction of the JP and our materials expansion efforts. Now on to our balance sheet, ending the quarter with over $2.5 billion of cash and liquidity on hand to support our facility ramps and growth plan. DSO was 36 days, while inventory on hand was 213 days. Free cash flow during the quarter was negative $616 million, comprised of negative $136 million of operating cash flow and $480 million of capital expenditure.

Speaker Change: Now onto our balance sheet, we ended the quarter with over $2 5 billion of cash and liquidity on hand to support our facility ramps and growth plans.

Speaker Change: <unk> was 36 days, while inventory on hand was 213 days free.

Speaker Change: Free cash flow during the quarter was negative $616 million comprised of negative $136 million of operating cash flow and $480 million of capital expenditures.

Neill P. Reynolds: Moving on to our guidance for the fourth quarter of fiscal 2024, we expect revenue for continuing operations of $185 million to $215 million. To give a bit more of a specific breakdown on our revenue expectations for the fourth quarter, we expect materials to be approximately $90 million to $95 million, consistent with our prior outlook. Mohawk Valley to contribute $40 million to $50 million of revenue in the quarter, up more than 60% from the prior quarter at the midpoint, and revenue contribution from power devices in our Durham fab to be down to approximately $55 million to $70 million, down from $106 million in the prior year period.

Speaker Change: Moving on to our guidance in the fourth quarter of fiscal 2024, we expect revenue from continuing operations of 185 million to $215 million.

Speaker Change: Give a bit more of a specific breakdown on our revenue expectations for the fourth quarter, we expect materials to be approximately $90 million to $95 million consistent with our prior outlook Mohawk valley to contribute $40 million to $50 million of revenue in the quarter up more than 60% from prior quarter at the midpoint and revenue contribution.

Speaker Change: For power devices, and our Durham fab to be down to approximately $55 million to $70 million.

Speaker Change: Down from $106 million in the prior year period.

Neill P. Reynolds: Also embedded in our guidance is a significant shift in our product mix in Durham from INE to EV, as I mentioned earlier. As Gregg mentioned earlier, we had a strong quarter in Mohawk Valley, and we have a clear trajectory toward 20% utilization at Mohawk Valley by the fiscal year end. However, as we stated previously, that does not entail a 20% revenue contribution in the June quarter due to the time needed to run through our full production cycle. We expect non-GAAP gross margins of 8% to 16%, with a midpoint of 12%. At the midpoint, this includes 29 million, or 1,450 basis points, of underutilization.

Speaker Change: Also embedded in our guidance is a significant shift of our product mix in Durham for any to EV as I mentioned earlier.

Speaker Change: As Greg mentioned earlier, we had a strong quarter in Mohawk Valley, and we have a clear trajectory towards 20% utilization at Mohawk Valley by the fiscal year end. However, as we stated previously that does not entail a 20% revenue contribution in the June quarter due to the time needed to run through our full production cycle.

Speaker Change: We expect non-GAAP gross margins of 8% to 16% with the midpoint of 12% at the midpoint. This includes $29 million or 1450 basis points of under utilization.

Neill P. Reynolds: We expect non-GAAP operating expenses of approximately $119 million, inclusive of $20 million of startup costs related to the JP. As a reminder, as Mohawk Valley fab utilization increases and the JP starts to come online, we will start to see incrementally less underutilization but incrementally more startup costs, which hit different lines of our P&L. Net non-operating expenses will be roughly $34 million for the fourth quarter.

Speaker Change: non-GAAP operating expenses of approximately $119 million inclusive of $20 million of startup costs related to the J P.

Speaker Change: As a reminder, at Mohawk Valley Fab utilization increases at the J P starts to come online.

Speaker Change: <unk> incrementally less underutilization, but incrementally more startup costs, which hit different lines of our P&L.

Speaker Change: Net non operating expenses will be roughly $34 million for the fourth quarter and as a result, we expect non-GAAP net loss between $109 million and $91 million.

Neill P. Reynolds: And as a result, we expect a non-GAAP net loss between $109 million and $91 million. Before I turn it back to Gregg for closing comments, I'd like to highlight again that our plan to be a leading provider of silicon carbide solutions to the market is on track and gaining velocity. We believe this because long-term demand remains robust, and operating execution is improving. Our balance sheet remains strong, supported by a multi-faceted financing plan, and we expect to maintain a cash position of greater than $1 billion. The U.S. capacity expansion can generate strong financial returns, and pivoting to more EV device production now positions the company for future I&E recovery. Gregg, I'll hand it back over to you.

Speaker Change: Before I turn it back to Greg for closing comments I'd like to highlight again that are planned to be a leading provider of silicon carbide solutions to the market is on track and gaining velocity. We believe this because long term demand remains robust.

Speaker Change: Operating execution is improving our balance sheet remains strong supported by our multifaceted financing plan and we expect to maintain a cash position of greater than $1 billion. The.

Greg: The U S capacity expansion can generate strong financial returns.

Greg: Pivoting to more EV device production now positions the company for future recovery.

Greg: Greg I'll hand, it back over to you.

Gregg A. Lowe: Thanks, Neill. As we continue to pioneer 200 millimeter silicon carbide and embark on our capacity expansion plan, we maintain conviction in our strategy. Progress is never a straight line. We've said that there will be peaks and valleys, sometimes at the same time, in different areas of our business, exactly like we are seeing today. That said, the numbers demonstrate progress on execution, but, of course, there is more work to be done. I'm proud that our team has continued to execute well in an environment where many of our analog peers are seeing substantial, sequential, and year-over-year declines in revenue.

Greg: Thanks, Neil as we continue to pioneer 200 millimeter silicon carbide and embark on our capacity expansion plan, we maintain conviction in our strategy.

Greg: Progress is never a straight line, we've said that there will be peaks and valleys, sometimes at the same time in different areas of our business exactly like we are seeing today.

Speaker Change: That said the numbers demonstrate progress on execution, but of course, there is more work to be done.

Speaker Change: I am proud that our team has continued to execute well in an environment, where many of our analog peers are seeing substantial sequential and year over year declines in revenue.

Gregg A. Lowe: Forward-looking indicators point to continued outperformance, as corroborated by our strong design ends, which reaffirms our market leadership position and the strong demand for Wolfspeed's silicon carbide product. Mohawk Valley will be the flywheel of growth for Wolfspeed, and that ramp is underway. The continued progress of the Mohawk Valley and JP ramps will position us ahead of our competition by further enhancing our lead as the world's only pure play, fully vertically integrated 200 millimeter silicon carbide company at scale. From a macro standpoint, our view of long-term demand is unwavering despite short-term noise.

Speaker Change: Forward looking indicators point to continued outperformance is corroborated by our strong design ends, which reaffirms our market leading position and the strong demand for well speeds silicon carbide products.

Speaker Change: Mohawk Valley will be the flywheel of growth for Wolf speed and that ramp is underway.

Speaker Change: The continued progress of the Mohawk Valley and J P ramps will position US ahead of our competition by further enhancing our lead as the world's only pure play fully vertically integrated 200 millimeter silicon carbide company at scale.

Speaker Change: From a macro standpoint.

Speaker Change: Our view of long term demand unwavering despite short term noise.

Gregg A. Lowe: The transition from the internal combustion engine to EVs is the most disruptive change in the history of the automobile, and it will be a bumpy and turbulent transition for traditional OEMs, as well as the new EV manufacturers. But the transition from internal combustion to EV will continue. Nowhere is this more apparent than in China.

Speaker Change: The transition from the internal combustion engine to Evs.

Speaker Change: As the most disruptive change in the history of the automobile.

Speaker Change: And it will be a bumpy and turbulent transmission for the traditional Oems as well as the new entrants.

Speaker Change: But the transition from internal combustion to EV will continue.

Speaker Change: Nowhere is this more apparent than in China.

Gregg A. Lowe: I recently visited some of our customers in China, as well as many new car showrooms, and it is very clear to me that the Chinese OEMs are using this transition to try to become the dominant player in the EV market. Based on my personal observation of the quality of the vehicles and the innovative approaches they are using with their new models, this is a legitimate threat that traditional OEMs need to navigate.

Speaker Change: I recently visited some of our customers in China as well as many new car showrooms and it is very clear to me.

Speaker Change: With the Chinese Oems are using this transition to try to become the dominant player in the EV market.

Speaker Change: Based on my personal observation of the quality of the vehicles and the innovative approaches they are using with their new models.

Speaker Change: This is a legitimate threat that the traditional Oems need to navigate.

Gregg A. Lowe: The EV sector has recognized the profound impact silicon carbide can have in making cars more energy efficient. It helps reduce the system size, reduce energy consumption, and drive an overall system savings when compared to traditional silicon. Using silicon carbide increases the range and decreases the charge time for EVs. It is now the standard for new EV models coming to the market.

Speaker Change: The EV sector has recognized the profound impact silicon carbide can have in making cars more energy efficient.

Speaker Change: It helps reduce the system size reduce energy consumption and drive an overall system savings when compared to traditional silicon.

Speaker Change: Using silicon carbide increases the range and decreases to charge time for Evs.

Speaker Change: It is now the standard for new EV models coming to the market.

Gregg A. Lowe: As the world electrifies on the existing power grid, other industries are starting to recognize the need for greater energy efficiency as well. This trend is reflected in many of the design wins we have secured in the last few years for applications including wireless EV charging, energy storage, Cryptocurrency Mining, AI Servers, and Heavy Duty Mining Equipment. Despite the short-term correction in the I&E market.

Speaker Change: As the world Electrifies on the existing power grid. Other industries are starting to recognize the need for greater energy efficiency as well.

Speaker Change: This trend is reflected in many of the design ends we have secured in the last few years for applications, including wireless EV charging energy storage.

Speaker Change: Crypto currency mining AI servers, and heavy duty mining equipment.

Speaker Change: Despite the short term correction in the iron ore market.

Gregg A. Lowe: The future holds vast potential. We currently have more than $4.7 billion of design-ins for industrial and energy applications, representing more than 6,000 opportunities. This number will ramp up over the next several years. We see even further potential coming from industrial segments as the electrification of all things continues across a broad set of applications, and as such, they are undeterred by the short-term fluctuations in demand. I understand that our story has many moving parts as we continue to ramp up our capacity and fund our future. We believe our current stock price does not reflect the true value of the company, and we are working very hard to change that. And I believe this is possible for the following reasons.

Speaker Change: The future holds the vast potential.

Speaker Change: We currently have more than $4 $7 billion of design ins for the industrial and energy applications.

Speaker Change: Representing more than 6000 opportunities ramping in the next several years.

Speaker Change: We see even further potential coming from industrial segments as the electrification of all things continues across a broad set of applications and as such are undeterred by the short term fluctuations in demand.

Speaker Change: I understand that our story has many moving pieces as we continued to ramp our capacity and fund our future.

Speaker Change: We believe our current stock price does not reflect the true value of the company and we are working very hard to change that.

Gregg Lowe: And I believe this is possible for the following reasons.

Gregg A. Lowe: First, Mohawk Valley is producing high-quality devices, and Bill Eten is producing a high volume of 200 millimeter automotive gradeware. And we are on track to hit the 20% where you can start utilization goal by June. Our dye costs out of Mohawk Valley are better than the equivalent dyes being produced out of Durham. And we are at a very high yield for automotive-grade MOSFET substrates on our 200-millimeter silicon carbide wafer

Speaker Change: First Mohawk Valley is producing high quality devices.

Speaker Change: Building 10.

Speaker Change: Producing high volume of 200 millimeter automotive grade wafers.

Speaker Change: We're on track to hit the 20% wafer start utilization goal by June.

Speaker Change: Our die cost out of Mohawk Valley are better than the equivalent dies being produced out of Durham.

Gregg A. Lowe: And we are at a very high yield for automotive grade MOSFET substrates on our 200 millimeter silicon carbide wafers.

Speaker Change: Next.

Gregg A. Lowe: We are almost past the peak capital investment period for the business. At the same time, we expect to secure government funding and tax incentives that will allow us to complete the construction of the world's largest 200 millimeter sodium carbide capacity. We continue to optimize our capital structure going forward with a keen focus on delivering outsized returns for our investors. Finally, our value proposition is the strongest it's ever been since I joined the company seven years ago.

Gregg A. Lowe: We're almost past the peak capital investment period for the business at the same time, we expect to secure government funding and tax incentives that will allow us to complete the construction of the world's largest 200 millimeter silicon carbide capacity footprint.

Speaker Change: We continue to optimize our capital structure going forward with a keen focus on delivering outsized returns for our investors.

Gregg A. Lowe: Finally, our value proposition is the strongest it's ever been since I joined the company seven years ago.

Gregg A. Lowe: We are the first company in the world to produce 200 millimeter solid carbide wafers and devices from those substrates. We have more than $25 billion in design patents, and we are the world's largest supplier of silicon carbide materials to the market. Leading the silicon carbide revolution is a formidable task, and at Wolfspeed, we approach it with focus and intent. We are executing, making good progress, and are well on our way to achieving the targets that we previously communicated. Thank you for your continued support of Wolfspeed. Operator, we're now ready to open up for Q&A.

Gregg A. Lowe: We are the first company in the world to produce 200 millimeter silicon carbide wafers and devices from those substrates.

Gregg A. Lowe: We have more than $25 billion of design ins and we are the world's largest supplier of silicon carbide materials to the market.

Gregg A. Lowe: Leading the Silicon carbide Revolution is a formidable task.

Speaker Change: And at what speed, we tackle it with focus and then Ken.

Gregg A. Lowe: We are executing making good progress and are well on our way to achieving the targets that we've previously communicated.

Speaker Change: Thank you for your continued support and we will speed.

Speaker Change: Operator, we're now ready to open up for Q&A.

Gregg A. Lowe: Yes.

Speaker Change: Thank you.

Operator: Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. Our first question comes from George Gianarikas of Canicle Genuity. Your line is open, please go ahead.

Speaker Change: Please press star followed by the number one if you'd like to ask a question. So all your devices on mute likely furniture, which anticipate.

George Gianarikas: Last question comes from George <unk> of Canaccord Genuity. Your line is open. Please go ahead.

George Gianarikas: Hi, good afternoon, and thank you for taking my question. Just sort of a higher level one, you know; there's significant concern in the marketplace about the Chinese, both from a materials and device perspective, particularly as they appear to be aggressively ramping capacity. Can you help us put that into context?

George Gianarikas: Hi, good afternoon, and thank you for taking my question.

George Gianarikas: Just sort of a higher level one.

George Gianarikas: There is significant concern.

George Gianarikas: In the marketplace about the Chinese both from a materials and device perspective, particularly as they appear to be.

George Gianarikas: Aggressively ramping capacity.

Speaker Change: Help us put that into context, how concerned are you about them material, but the devices have you seen any impact yet.

Gregg A. Lowe: How concerned are you about their material and about their devices? Have you seen any impact yet? And how can we get comfortable if there won't be a significant P&L impact over the next few years?

Gregg A. Lowe: And how can we get comfortable that that won't be a significant P&L impact over the next few years. Thank you.

Operator: Thank you.

Gregg A. Lowe: Yeah, thanks George. A couple of things. I'll start off on the substrate side of things. You know, the news on this is kind of all over the place. You hear that they're far behind in terms of high-quality, high-automotive-grade substrates, but they're definitely investing. And, you know, I would say from a 150-perspective that they're probably making progress, or the word is that they're making some progress. And then at 200 millimeters, it seems to be much further off. It's hard for us to totally judge because there's a lot of speculation out there. But I did visit China, as I mentioned, a couple weeks ago.

Speaker Change: Yeah. Thanks, George a couple of start up unnecessary side of things.

Gregg A. Lowe: Yes.

Gregg A. Lowe: <unk>.

Gregg A. Lowe: I would say the the new design is kind of all over the place.

Gregg A. Lowe: Sure.

Gregg A. Lowe: Okay.

Gregg A. Lowe: Yes.

Gregg A. Lowe: We are behind in terms of high quality high.

Gregg A. Lowe: Automotive grade subsidiary.

Gregg A. Lowe: They are definitely investing.

Gregg A. Lowe: I would say from a 150 perspective, probably making sure that where it is that they're making some progress.

Gregg A. Lowe: And then on 200 millimeter it seems to be much further off.

Gregg A. Lowe: It's hard for us to totally just because a lot of speculation out there visit China as I mentioned.

Gregg A. Lowe: A couple of weeks ago.

Gregg A. Lowe: And I would say the conviction that there's going to be a— a pretty good supply of high-quality, high-volume substrates was not strong. And I guess the best fact that I can say is, um... We've just extended two supply agreements with two of our long-term customers for wafers and substrates at 150 millimeters. Those were a half-decade extension, so I guess that points to the fact that maybe there's not some conviction along those lines as well.

Gregg A. Lowe: And I would say the conviction that there is going to be.

Gregg A. Lowe: Hey.

Gregg A. Lowe: <unk>.

Gregg A. Lowe: Pretty good supply of high quality high volume substrate.

Gregg A. Lowe: What's not strong.

Gregg A. Lowe: And I guess.

Gregg A. Lowe: The fact that I can say.

Gregg A. Lowe: We've just renewed to supply were extended to supply agreements with two of our long term customers.

Gregg A. Lowe: Wafers and substrates at a 150 millimeter.

Gregg A. Lowe: Half a decade extension, so I guess that points to the fact that maybe there is not some conviction along that line as well.

Gregg A. Lowe: I'm not trying to say we're not worried about that. We obviously, you know, understand that there's a lot of investment going on there, but it seems from a VAC perspective that there's still some ways to go for the Chinese to catch up with both the quality and the quantity of automotive grade substrates. From a device perspective, I think they're further off than that as well.

Gregg A. Lowe: I'm not trying to say, we're not worried about that.

Gregg A. Lowe: Obviously.

Gregg A. Lowe: Understand that there is a lot of.

Gregg A. Lowe: A lot of investment going on there.

Gregg A. Lowe: It seems like from a bank perspective.

Gregg A. Lowe: There are still some weeks ago for the Chinese to catch up with both the quality and quantity.

Gregg A. Lowe: Automotive grade subsidiary.

Gregg A. Lowe: From a device perspective, I think they are further out on that as well.

Gregg A. Lowe: Okay.

Gregg A. Lowe: Yes.

Gregg A. Lowe: Okay.

Operator: Thank you. The next question comes from Brian Lee of Goldman Sachs.

Speaker Change: Thank you.

Gregg A. Lowe: Next question comes from Brian Lee of Goldman Sachs. Please go ahead.

Brian K. Lee: Hey guys, good afternoon.

Brian K. Lee: Hey, guys. Good afternoon, thanks for taking the questions.

Brian K. Lee: Yes.

Brian K. Lee: Maybe as a bit of a follow up too.

Operator: Thanks for taking the questions. I guess maybe as a bit of a follow-up to George's question, more focused on the device side, Gregg, can you give us a sense of what you're seeing on market share trends? It seems like there has been some movement and commentary among some of your peers in the device market. Are you seeing any market share impact as you're unable to meet shorter-term supply needs? Maybe if you could address that, just what you're seeing and hearing from customers.

Brian K. Lee: To George's question.

Speaker Change: More focused on the.

Operator: Device side.

Operator: Greg can you give us a sense of what youre seeing on market share trends. It seems like there has been some movement of commentary.

Operator: Amongst some of your peers and the device market.

Operator: Are you seeing any market share impact as you're unable to meet shorter term supply needs. Maybe if you could address that just what you are seeing and hearing from customers and then.

Operator: Separately, on the outlook for Durham device revenue, this has been a little bit of a thorn in your side for the past several quarters. How much of your outlook for Durham is still levered to INE, and do you believe that's now fully troughing here? Could we continue to see headwinds from that end market? If so, what's the timeframe for seeing some of that pick back up?

Operator: On the separately on the outlook for Durham device revenue I mean, this has been a little bit of a.

Operator: A thorn in your side for the past several quarters how much of.

Operator: Of your outlook here for Durham is still.

Operator: Levered to <unk> and do you believe that's now fully trough in year could we continue to see headwinds from that end market.

Operator: And then if so kind of what's sort of the timeframe for seeing some of that pick back up thanks guys.

Gregg A. Lowe: Thanks. Thanks for the questions, Brian. I'll take the first one.

Operator: Thanks, guys. Thanks. Thanks for the questions.

Speaker Change: Thanks, Thanks for the question Bryan I'll take the first one maybe tackle.

Speaker Change: Tackle the second one.

Neill P. Reynolds: Maybe Neill can tackle the second one. You know, we just posted our second highest design in our history, $2.8 billion, 80% of which is scored EV. So I think that's obviously a pretty good sign of continued progress. At the midpoint of our guidance for the Automotive or EV business, we're going to be up, I think, on the order of 48% year-on-year and also at the midpoint of our guidance for EV. Our EV business will have doubled since the beginning of this year, so it's grown 100%.

Speaker Change: We just posted our second highest design.

Neill P. Reynolds: Our history of $2 8 billion, 80% of which are for <unk>.

Neill: So I think Thats, obviously, a pretty good size continued progress at the midpoint of our guidance for.

Neill P. Reynolds: Our.

Neill P. Reynolds: Automotive, our EV business, we're going to be up.

Neill P. Reynolds: On the order of 48% year on year.

Neill P. Reynolds: Also at the midpoint of the guidance for Evs.

Neill P. Reynolds: Our <unk> business.

Neill P. Reynolds: Hello.

Neill P. Reynolds: The beginning of this year, so it's grown 100%.

Gregg A. Lowe: So, I think it's... I'm unaware of anybody that's growing 100% through the year, so I don't see how there's a commentary of losing share. And then you put that on top of having the second highest growth rate in our history. It doesn't quite square the circle.

Neill: So I think.

Gregg A. Lowe: Unaware of anything Thats growing 100%.

Speaker Change: For the year so.

Gregg A. Lowe: How does the commentary about losing share.

Gregg A. Lowe: And then you put that on top of having the second highest designing in our history.

Gregg A. Lowe: It doesn't quite square the circle.

Neill P. Reynolds: Yeah, and Brian, secondly, from an IAEA perspective and Durham VAP perspective, I think that's exactly right. We have seen some further weakness there. I think we talked about going down to, you know, call it $65 million in revenue from Durham, which is, you know, primarily IAEA, and you should see that for the next couple of quarters down at that level. It does feel like the bottom, I would say.

Neill: Yes, Brian secondly from <unk>.

Neill P. Reynolds: Any perspective in terms of that perspective.

Speaker Change: I think that's exactly right we have seen some further weakness there I think we talked about going down call. It 69.

Neill P. Reynolds: $9 million of revenue.

Neill P. Reynolds: <unk>.

Neill P. Reynolds: We just see that for the next couple of quarters down down at that level.

Neill P. Reynolds: There's another thing to consider here. This isn't just really just a normal margin mix type of tradeoff. If you think about what we're doing, we shift from IAEA to auto, you're also talking about more complex data, bigger dyes in the factory, and going through more steps from an automotive perspective. So that tradeoff really isn't kind of one-to-one from that perspective.

Neill P. Reynolds: Feels like the bottom I would think there is another thing to consider that this is just really just a kind of a normal margin mix type of trade off if you think about what we're doing with shift for high end auto you're also talking about more complex.

Neill P. Reynolds: The factory.

Neill P. Reynolds: More steps for automatic respect is that trade off.

Neill P. Reynolds: Wanted to one from that perspective.

Neill P. Reynolds: To manage through this and supply customers, we have demand end market demand.

Neill P. Reynolds: These will swap out first.

Operator: Push for more of our volume and leverage our capacity for EV applications. But that will be the Durham FAD. I think it's a $65 million range for the next couple of quarters, you know, after that December quarter. And then as IAE starts to come back, you know, March and June next year, we anticipate that coming back, you know, most likely in that time frame, we'll start to get ready to, you know, respond.

Neill P. Reynolds: First of all our volume leverage our capacity for <unk> applications.

Operator: The Durham fab.

Operator: $65 million range now for the next couple of quarters.

Operator: After that December quarter.

Operator: Start to come back.

Operator: Art during next year, we anticipate that coming back slightly in that timeframe that will start to see it looks ready to greater risk.

Operator: Tom.

Operator: Okay.

Operator: Okay.

Operator: Yes.

Operator: Our next question comes from Samik Chatterjee of JP Morgan. Your line is open.

Operator: Our next question comes from Mike <unk> of Jpmorgan. Your line is open.

Operator: Hi. Good afternoon. Thank you for the question. This is Joe Cardoso on behalf of SOMIC.

Samik Chatterjee: Hi, Good afternoon. Thank you for the question. This is Joe Cardoso on for Sonic maybe.

Joseph Lima Cardoso: Maybe just a quick follow-up in terms of the response there around the design-in and wins. Can you just – and maybe this is for Gregg – can you just spend some time talking about the conversion rate you're seeing from design-in to win, particularly with the step-down in design wins this quarter, despite design-ins tracking relatively in line with your recent trends? Like, how should investors be interpreting the moderation here relative to trends over the past two quarters, particularly as it relates to design wins? Thank you. We feel very good about the conversion. Yeah

Joseph Lima Cardoso: Maybe just a quick follow up on in terms of overall response there around the design in wins can you just and maybe this is for Greg can you just spend some time talking about the conversion rate you are seeing from design in to win particularly with the step down in design wins this quarter. Despite design wins tracking relatively in line with your recent trends.

Joseph Lima Cardoso: How should the investors be interpreting the moderation here relative to trends over the past two quarters, particularly as it relates to design win thank you.

Gregg A. Lowe: We feel very good about the conversion, and the one thing that I would tell you is that design ends and design wins aren't necessarily synchronized. Let me explain that a little bit more clearly.

Gregg: We feel very good conversion them, but one thing that I would tell you.

Gregg: Design ins and.

Gregg: And design wins arent necessarily synchronized let me, let me explain that a little bit more clearly.

Gregg A. Lowe: Depending on, let's say it's an ED application, depending on the company, some companies... design you in four years before they go into production. And then we then convert that into a win when we get 20% purchase orders for 20% of the first year's volume. So it can take, excuse me, four years to go from design to design win. Other more nimble EV manufacturers, some of the startups, for instance, would go into production.

Gregg A. Lowe: Depending on let's say some easy application depending on the company.

Gregg A. Lowe: Some companies desire.

Gregg A. Lowe: Four years before they go into production.

Gregg A. Lowe: And then we then convert that into a win when we get 20%.

Gregg A. Lowe: Purchase orders for 20% of the first year's volume so.

Gregg A. Lowe: It can take.

Gregg A. Lowe: Four years ago from design and a design win.

Gregg A. Lowe: They're more nimble easy manufacturer startups for instance, they would be.

Gregg A. Lowe: Go into production.

Gregg A. Lowe: You know, two years after doing a design, and so it isn't necessarily synchronized between the two, so I wouldn't look into it. We're very pleased with both our design end number for the quarter and our design win number for the quarter as well.

Gregg A. Lowe: Two years after.

Gregg A. Lowe: So it isn't necessarily synchronized between the two so I wouldn't read into it we're very pleased with both our design and number four for the quarter and our design win.

Gregg A. Lowe: That number for the quarter as well.

Gregg A. Lowe: Okay.

Operator: Our next question comes from Jed Dorsheimer of William Blair. Please go ahead; your line is open.

Gregg A. Lowe: Our next question comes from Chad Dillard.

Operator: William Dong. Please go ahead your line is open.

Jonathan Dorsheimer: Hi, thanks. I guess I have a couple questions here. I guess the first one is just, If you can help me with squaring a circle on the unit economics, if I look at the materials business of $90-95 million, I'm going to use a 40% margin on that business. Now, I'm getting to, and I look at the 12% on the 200, your midpoint, which would be $24 million, plus the $29 million under utilization, I get $53 million, which Can you help me where my math might be wrong? For example, is Durham a negative contributor to gross profit dollars? Or, what am I doing wrong?

Jonathan Dorsheimer: Hi, Thanks.

Jonathan Dorsheimer: I guess, so couple of questions here I guess.

Jonathan Dorsheimer: <unk>.

Jonathan Dorsheimer: One is just.

Jonathan Dorsheimer: If you can help me with.

Jonathan Dorsheimer: Squaring the circle on the unit economics.

Jonathan Dorsheimer: Look at the materials business, the $90 million to $95 million going to use the 40% margin on that business.

Jonathan Dorsheimer: I am getting too and I look at the 12% on the 200, your midpoint, which will be 24 million plus the $29 million Underutilization I get.

Jonathan Dorsheimer: $53 million, which would then imply that even if Durham is zero Mohawk valley would only be $13 million, which will be at 29%.

Jonathan Dorsheimer: Gross margin can you help me, where my math might be wrong.

Jonathan Dorsheimer: Is that a negative.

Jonathan Dorsheimer: Gross profit dollars or what am I doing wrong here.

Neill P. Reynolds: Yeah, Jed, I think you're kind of breaking this down in a way that is a little more nuanced than that. As I talked about before, when you move to the bigger guy and transition things over to the automotive industry, it becomes a bit more challenging from a manufacturing standpoint. So, we're kind of going through a manufacturing transition right now to go from high-end products to automotive products. It'll smooth itself out, I think, as we work through the next couple of quarters, but clearly, for the same product running out of Mohawk Valley, we are seeing better, you know, cost performance.

Jonathan Dorsheimer: Yes.

Speaker Change: I think youre kind of breaking this down the road.

Neill P. Reynolds: It's a little more nuanced than that and we've talked about before we can move to the bigger die and transitioning the automotive it becomes a bit more challenging.

Neill P. Reynolds: Any factoring standpoint, we're kind of going through a manufacturing transition right now to go behind these products to automotive product will smooth itself out I think as it worked through the next couple of quarters.

Neill P. Reynolds: Clearly we are seeing.

Neill P. Reynolds: Same product running animal or value, we are seeing better cost performance.

Neill P. Reynolds: You know, and clearly that would transition to, you know, same part, same customer. That translates into better profitability, obviously, if you think about that transition over to Mohawk Valley. Okay, so it's non-optimized, then, I guess it would be the... I think in Durham, I think over the longer term, I think, well, you know, it doesn't really change our view on how things look over the longer term. This is really just, I think, a couple of, you know, a couple of quarters type of issue.

Neill P. Reynolds: Clearly that Retrans as you do the same same park same customer.

Neill P. Reynolds: Translates into better profitability, obviously think about that transition.

Neill P. Reynolds: Yeah.

Speaker Change: Okay. So.

Neill P. Reynolds: <unk>.

Neill P. Reynolds: Non optimized I guess would be that.

Neill P. Reynolds: Yes.

Neill P. Reynolds: I think over the longer term I think it doesn't really change our view of what how things look over the longer term. This is really just the timing.

Neill P. Reynolds: A couple of a couple of quarters and that issue over time, we have strong conviction ability to try and drive that can drive that business up over 50% gross margin thinking about.

Neill P. Reynolds: You know, over time, you have strong conviction and the ability to try to drive the business up over 50% gross margin. Think about the 70-30 mix of EV to IAE products. It could be heavy IAE in this period.

Neill P. Reynolds: 32.

Neill P. Reynolds: That'll be self-optimizing the factory for a while to serve customers. And then when we're ready to shift back, we'll be able to respond to that very quickly, I think. So there is, you know, I think the sort of aligning from that perspective is that we have the ability to transition to business and move product around to where we see the end market demand. But I think over the longer term, as you look at where the markets are growing, we've got a lot of designs across a lot of customers for IAE applications that will clearly come back over time, not just in the short term, but very significantly as you think about it over the long run.

Neill P. Reynolds: Two product can be heavier in this period that will be to optimize the factory for a while but as our customers and then we'll be ready to shift back we'll be able to respond to that Greg.

Neill P. Reynolds: So I think yes.

Neill P. Reynolds: The silver lining from that perspective.

Neill P. Reynolds: The ability to transfer transition to business group product and Thats, a very good end market demand, but I think over the longer term as you look at where the markets are growing.

Neill P. Reynolds: A lot of design ins across a lot of customers right applications, though clearly come back over time.

Neill P. Reynolds: Not just in the short term, but very significantly.

Neill P. Reynolds: And we'll be able to, you know, ready to respond and leverage a Durham footprint, I think, for that as well. But I think, again, the unit cost economics in Mohawk Valley are just very, very positive for us right now, even at the early stages. We just expect that to accelerate over time.

Neill P. Reynolds: After a long run and we will be ready to respond and leverage our footprint I think for that as well, but I think again.

Neill P. Reynolds: Unit cost economics at Mohawk Valley are just very very positive for US right now even at early stages risks.

Neill P. Reynolds: And over time.

Operator: Our next question comes from Joshua Buchalter of TD Cowen. Your line is open.

Neill P. Reynolds: Our next question comes from Joshua <unk> of TD Cowen Your line is open.

Joshua Louis Buchalter: Hi guys. Thank you for taking the time to answer my question. I was hoping you could maybe expand a little bit more on the change in tone around expansion and the Starland facility. You know, is this primarily a reaction to, you know, what you think is better for the stock right now, or was there a change in sort of the long-term outlook? It doesn't seem like the latter, given you mentioned sort of perpetual supply constraints and confidence in EV demand. But it would be helpful to hear some more input on what's driving the change in CapEx. Thank you.

Joshua Louis Buchalter: Hi, guys. Thank you for taking my question I was hoping you could maybe expand a little bit more on the change in tone around expansion in the <unk> facility.

Joshua Louis Buchalter: This primarily into react a reaction to what you think is better for the stock right now or was there a change in the sort of the long term outlook. It doesn't seem like the latter, giving you mentioned sort of perpetual supply constraints and confidence in EV demand, but it would be helpful to hear.

Joshua Louis Buchalter: Some more input on what's driving the change in Capex. Thank you.

Gregg A. Lowe: Yeah, I'll let Neill cover a little bit of that after I give an introduction here. But I think what we're trying to do today is be very, very clear and add clarification to what we're focused on right now. For the last couple of quarters, you've heard me say we are laser focused on the ramp for Mohawk Valley, and that included getting Building 10 up and running. It included getting JP constructed. So those three projects are laser focused on what we're on right now. Mohawk Valley has hit all of the milestones we've talked about.

Joshua Louis Buchalter: Yes.

Speaker Change: Ill cover a little bit of that.

Gregg A. Lowe: The introduction here.

Gregg A. Lowe: I think what we're trying to do today is very very clear and a clarification to what we're focused on right now for the last couple of quarters.

Gregg A. Lowe: You've heard me say, we are laser focused on a rapid Mohawk valley that included getting ability to turn up and running.

Gregg A. Lowe: It is getting to J P. Constructed so those three projects are laser focus what we're on right now.

Gregg A. Lowe: Mohawk Valley.

Gregg A. Lowe: All of the milestones we've talked about 20% utilization this quarter building talent has been a great success.

Gregg A. Lowe: We'll hit 20% utilization this quarter. Building 10 has been a great success. We're very confident in our ability to... be able to service 25% utilization in Mohawk Valley out of that building plan and our Durham campus infrastructure as well. And the JP is on schedule, and the furnaces are being installed, as we mentioned; the campus is being energized and connected to the grid. We'll start qualifying those furnitures later this year, and we have super high confidence in that because the JP site is about 40, 45 minutes away from where we're at right now. And the same team that brought up building 10, which I'll remind you was a basketball court, racquetball courts, and things like that. It was not a manufacturing facility.

Gregg A. Lowe: Very confident in our ability to.

Gregg A. Lowe: Being able to service to 25% utilization and Mohawk valley out of that building.

Gregg A. Lowe: Jeremy campus.

Gregg A. Lowe: Structure as well and the GP is on schedule.

Gregg A. Lowe: Sure.

Gregg A. Lowe: The.

Gregg A. Lowe: Furnaces are being installed as we mentioned.

Gregg A. Lowe: The campus has been energized and connected to the grid will start qualifying those furniture's later this year and we are super high confidence in that because the J P.

Gregg A. Lowe: It's about 40 45 minutes away from where we're at right now at the same team.

Gregg A. Lowe: <unk> building 10, which I'll remind you was a basketball court.

Gregg A. Lowe: <unk> and things like that.

Gregg A. Lowe: Not a manufacturing facility and now Hanmi too.

Gregg A. Lowe: And it's now humming 200 millimeter silicon carbide. The same team will be bringing up the JP. So we're very confident in that. What we're trying to give clarification on is that that's what our focus is. And we're not taking our focus off of that until we can get until we demonstrate the success that we know that we can get out of those facilities. And then, from a perspective, I think there's really no change.

Gregg A. Lowe: 200 millimeter silicon carbide.

Gregg A. Lowe: <unk> will be bringing up the JV solar.

Gregg A. Lowe: We're very confident that what we're trying to get a clarification on.

Gregg A. Lowe: That's what our focus is.

Gregg A. Lowe: Were not taken our focus off of that.

Gregg A. Lowe: We can get until we demonstrate the success that we know that we can yes.

Neill P. Reynolds: What we've been saying, I think for quite some time, we always kind of thought 2024 would be our series. We're going to see it come down in 2025 pretty substantially. We talked about bringing that down to 6800M, and that's before, including any potential government incentives that can come in at a high frame.

Gregg A. Lowe: And then from a Capex perspective, I think there's really no change.

Neill P. Reynolds: <unk> quite some time.

Neill P. Reynolds: 2020 forward ERP Capex period.

Neill P. Reynolds: CA Capex come down in 2025 pretty substantially can you talk about bringing that down to $800 million of that before.

Neill P. Reynolds: Putting any potential government incentives that could come in.

Neill P. Reynolds: And the reason for that is JP will be largely complete from a facility perspective as you finish this calendar year, and that's the majority of our CapEx spend in 2024. As you get out of this calendar year and start looking into calendar 25, it's very much a tool-based spend. So we're installing tools in both JP and Mohawk Valley, and we'll just continue to modulate our CapEx to match that with that market demand.

Neill P. Reynolds: And the reason for that is the JV will be largely complete from a facilities perspective as you finish this calendar year. That's been a majority of our Capex spend in 2024 as you get out of this calendar year and start looking into calendar 'twenty five it was very much a tuesday.

Neill P. Reynolds: Going towards both J D I'll hop Valley.

Neill P. Reynolds: Continue to modulate our capex.

Neill P. Reynolds: I ask that with end market demand.

Neill P. Reynolds: So, that's really where we're focused right now. As for another facility after that, I said it very clearly in my prepared remarks, we'll wait until we see the performance Greg talked about in addition to having good cash flow and operating performance, like the support and what we would do next. That's really the plan that we've laid out.

Neill P. Reynolds: That's really where we're focused right now.

Neill P. Reynolds: Late to another facility after that.

Neill P. Reynolds: Clearly on the prepared remarks, we will wait until we see that performance Greg talked about in addition to having good cash flow and operating performance support and what we would do next absolutely plan that we laid out in that regard.

Neill P. Reynolds: Focus on.

Operator: Our next question comes from Colin Rusch of Oppenheimer. Your line is open, please go ahead.

Neill P. Reynolds: Our next question comes from Colin Rusch of Oppenheimer. Your line is open. Please go ahead.

Colin William Rusch: Thanks so much. You know, given the design activity...

Colin William Rusch: Thanks, so much given the design activity and a lot of the cost reduction activity that we're seeing in the evening that Chris can you talk about what youre seeing from a voltage perspective on powertrain designs are you seeing a steady migration towards 800 volt or you're seeing.

Colin William Rusch: Given the design activity and a lot of the cost reduction activity that we're seeing with the EV makers, can you talk about what you're seeing from a voltage perspective on powertrain designs? Are you seeing a city migration towards 800 volts? Are you seeing kind of a retrace back to 400 volts or some sort of middle ground, or any activity around even higher voltages than 800? No, there is certainly not a retrenching back to 400.

Colin William Rusch: Kind of a retrace back to 400 goal or some sort of middle ground or any activity around even higher all participant 800.

Colin William Rusch: No.

Colin William Rusch: There is certainly not a retrenching factor 400 I think.

Colin William Rusch: I think folks have realized that you get much better efficiency, better charging, you know, and so forth. At the 800, an even higher voltage bus on the EV, that requires an even higher voltage, call it 1200 volts, you know, MOSFET.

Colin William Rusch: Folks if realized.

Colin William Rusch: You get much better efficiency better charging extra for it.

Colin William Rusch: The 800.

Colin William Rusch: Even higher voltage bus.

Colin William Rusch: Okay.

Colin William Rusch: That requires an even higher voltage call. It 200 volt MOSFET, so no retrenching back to that.

Gregg A. Lowe: So no retrenching back to that. I'm not an expert on what's next beyond the 800 volt, but I would say really switching from 400 to 800 is not going back. Okay, that's super helpful.

Speaker Change: I'm not the expert on what's new.

Gregg A. Lowe: Next beyond 800 calls, but I would say really switching from 400 800, if not going backwards.

Operator: And then on the supply chain side, obviously, there's been a lot of rebalancing around inputs into various processes. Can you talk a little bit about the opportunity for, you know, kind of fundamental cost reduction on the manufacturing side from a supply side? Yeah, I would, let me hit that, and then maybe Neill can give a little bit more color. You know, we're at the early phase of ramping up, you know, a new wafer diameter and a new wafer fab, you know, and so forth.

Speaker Change: Okay. That's super helpful. And then on the supply chain side, obviously, there's been a lot of rebalancing around inputs into various processes can talk a little bit, but the opportunity for kind of fundamental cost reduction on the manufacturing side from a supply chain perspective.

Neill: Yes, I would.

Speaker Change: Let me hit that and then maybe give a little bit more color, whereas the early phase of ramping.

Operator: No.

Operator: Hey.

Operator: For diameter wafer fab and so forth.

Operator: And I think we're already seeing excellent progress on the quality of 200 millimeter bulls in terms of the percentage of the wafers that we get out that are automotive grade. You know, substantially all of them are in that kind of category.

Operator: I think we're seeing already excellent progress.

Operator: Quality of 200 millimeter tools in terms of the percentage of the wafers that we get out at our automotive grade.

Neill: Substantially all of them are in that kind of category.

Gregg A. Lowe: And so we're really pleased with that. We will obviously continue working on getting more wafer cuts per bull. We'll look at getting better, you know, yield in the fab, you know, and so forth. So I think there's, there's a lot. Despite the fact that we're already below the die cost in Mohawk Valley compared to Durham, I think we're in the early innings of cost reductions on $200. Yeah, and let me just add on to that.

Neill: So we're really pleased with that where obviously, we will continue working on getting more wafer cuts per well look is getting better.

Gregg A. Lowe: Yield in the fab and so forth. So I think there is there is a lot of.

Gregg A. Lowe: Despite the fact that we are already below the die cost.

Gregg A. Lowe: Hock valley compared to Europe.

Gregg A. Lowe: I think we're in the early innings of cost reductions.

Gregg A. Lowe: On.

Gregg A. Lowe: 200 <unk>.

Neill P. Reynolds: Well, I think, and I fully agree, I think we're at the very early stages of the opportunity we have to drive costs down. And I think the early returns on yield and cycle times that we've seen in the past really only reinforce that even further. But I think there's also a structural component to the business that we're building here. And if you look at the cash margins, or you look at EBITDA's target of over 40% over time, if you look at our business today, we'll do about $185 million of depreciation this year.

Speaker Change: Yes, let me just add on to that model.

Neill P. Reynolds: Fully agree I think we're very early stages.

Neill P. Reynolds: The opportunity we have.

Neill P. Reynolds: Drive cost out of their early returns.

Neill P. Reynolds: Cycle times that we're seeing that.

Neill P. Reynolds: It really only reinforced at FERC.

Neill P. Reynolds: Further I think Theres also a structural component of the business that we're building here you've looked at.

Neill P. Reynolds: The cash margins are looking at EBITDA target about 40% over time, we'll look at our business today, Walter about $185 million of depreciation each year that represents about 20% to 25% of our revenue once we bring the JP online next year.

Neill P. Reynolds: That represents about 20 to 25% of our revenue. Once we bring the JP online next year, that'll push upwards towards 30%, even in these early stages of building the business. So that means a very substantial part, 20 to 25% of our cost today, is our cash. So we see a very, very nice cash opportunity from a margin perspective and a policy perspective over time as we build up the business. So as we improve yield and cycle times and build scale for these facilities, this business is going to generate a lot of cash flow. I think it's just continuing to execute on the basis of yield and cycle times to supply our customers. I think structurally, that'll translate into a business that just generates a lot of cash.

Neill P. Reynolds: That would push up for upwards towards 30% even in these early stages available buildings business. So first from us.

Neill P. Reynolds: Very substantial part 20% to 25% of our cost today.

Neill P. Reynolds: Yes.

Neill P. Reynolds: As is our cash so we see very very nice cash opportunity from a margin perspective and quality perspective over time as it goes out of business. So as we improve yield cycle time.

Neill P. Reynolds: Scale for these facilities.

Neill P. Reynolds: That's going to generate a lot of cash flow I think it's just continuing to execute on it.

Neill P. Reynolds: The cycle time to supply our customers with a structurally that will translate into a business that just generates a lot of cash.

Neill P. Reynolds: Sure.

Operator: Our next question today comes from Jack Egan of Charter Equity Research. Please go ahead.

Neill P. Reynolds: Our next question today comes from John Aiken of Charter equity Research. Please go ahead.

Jack Egan: Hey guys, thanks for taking my question. So, Gregg, I just had a quick clarification for you on one of your earlier comments. So, I think you mentioned that Chinese devices are probably further off than materials, but, you know, as we generally understand it, from a, I guess, a science and an R&D point of view, materials are generally a lot harder to develop and scale than devices. So, I mean, why would China be further behind in devices even if they're, you know, relatively easier to ramp up than the material?

Jack Egan: Hey, guys. Thanks for taking my question. So Greg I just had a quick clarification for you on one of your earlier comments. So I think you mentioned that Chinese devices are probably further off than materials, but as we generally understand it from a I guess, a science and an R&D point of view material.

Jack Egan: Generally a lot harder to develop and ramp them devices. So.

Jack Egan: I mean, why would China be further behind them devices, even if they are relatively easier to ramp than the material side.

Gregg A. Lowe: Yeah, so thanks for the question, Jack. You know, this is just the input that I got from the customers in China. I know there is a lot of effort going into trying to develop a silicon carbide Crystal Rose capability. As I mentioned, it's hard to, It's through all the noise on this thing, but likely they're making progress on 150, and what we hear is they're pretty far behind on 200. So, and then from a device perspective, you know, so the carbide MOSFET is also not, you know, a super easy thing to do as well.

Gregg: Yes, so thanks for the question Jack.

Gregg A. Lowe: The inputs that I got from your customers out of China.

Gregg A. Lowe: I know there is a lot of effort going into trying to develop a silicon carbide.

Gregg A. Lowe: Crystal growth capability as.

Gregg A. Lowe: As I mentioned, it's hard to.

Gregg A. Lowe: Through all the noise on this thing.

Gregg A. Lowe: They are making progress on 150, what we hear pretty far behind that 200.

Gregg A. Lowe: And then from a device perspective, some carbide MOSFET is also now.

Speaker Change: Super Thank you.

Gregg A. Lowe: As well I think there is.

Gregg A. Lowe: I think it feels like there's less focus on that at this point.

Gregg A. Lowe: It feels like there is less focus on that at this point.

Gregg A. Lowe: Okay.

Operator: The next question is a follow-up from Jed Dorsheimer of William Blair. The line is open.

Speaker Change: The next question is.

Speaker Change: From <unk> of William Blair. Your line is open.

Jonathan Dorsheimer: Hi. Thanks. I just want to dig into, Gregg, your comments on demand, which seems strong for you in EV. Just in the materials business, with that business coming down so much, so if I kind of take your guide on a quarterly basis, it's come down about $40 million per quarter. Why aren't materials ramping, you know, comparable to that?

Jonathan Dorsheimer: Hi, Thanks.

Jonathan Dorsheimer: I just wanted to dig into.

Jonathan Dorsheimer: Greg your comments on demand, which seem strong for you in <unk>.

Jonathan Dorsheimer: In EV.

Jonathan Dorsheimer: In the materials business.

Jonathan Dorsheimer: With that business coming down so much so if I kind of take.

Jonathan Dorsheimer: Your guide on a quarterly basis, it's come down about $40 million per quarter.

Jonathan Dorsheimer: Why arent materials ramping.

Speaker Change: As you know.

Jonathan Dorsheimer: Content to that because I would assume that that opened up the 150 millimeter.

Jonathan Dorsheimer: Wafers to to sell to other customers.

Neill P. Reynolds: Because I would assume that that opens up the 150 millimeter wafers to sell to other customers. Sorry, so in terms of the, you know, how we think about that right now, the end market demand for automotive in terms of our EV customers, there's a lot of changes that Greg talked about in terms of the OEM landscape, but the amount of demand still outstrips our supply. So, it's really important for us to continue to use as much capacity as we can to serve those customers.

Gregg: So in terms of the how we think about that right now the end market demand for automotive.

Neill P. Reynolds: Customers, who have a lot of changes as Greg talked about in terms of the OEM landscape the amount of demand outstrips our supply so it's very important for us.

Neill P. Reynolds: In the meantime, you know, we'll continue to drive our materials business. As you know, we've got a lot of long-term agreements there that underpin our revenue for a long time. And I think that the, you know, that $90 to $95 million per quarter, we'll continue to service that market, I think, in terms of how it's kind of laid out today. I think it's very important that we continue to service our automotive customers at this time. And we're going to continue to do that.

Neill P. Reynolds: To continue to take as much capacity as we can serve our customers in the meantime, we will continue to drive our materials business. As you know we've got a lot of long term agreements that underpin our revenue for a long time.

Speaker Change: Thank you.

Neill P. Reynolds: $995 million per quarter.

Neill P. Reynolds: And we will continue to service that market.

Neill P. Reynolds: How it has kind of laid out today I think it's very important that we continue to service our automotive customers at this time.

Neill P. Reynolds: And we're going to be.

Neill P. Reynolds: Alright.

Neill P. Reynolds: Neil, maybe I didn't ask the question clearly, but it's 40 million coming out of Durham on the devices side, where you're supplying 150 millimeter wafers internally. Why wouldn't you be able to see a $12 million increase in the material? Yeah, so maybe I'll take a crack at that.

Speaker Change: Neil maybe maybe I didn't ask the question.

Speaker Change: As clearly, but $40 million coming out of Durham on the devices side, where you are supplying the 150 millimeter wafers internally why wouldn't you be able to see at $12 million increase in the materials business.

Gregg A. Lowe: I don't think I understood that to be a question. So, a couple of things. Obviously, we have automotive demand that is higher than our current supply. So transitioning that capability from I&E to automotive is a very important customer satisfaction item that we're focused on. Automotive devices are larger than industrial products, and substantially most of the industrial products are sold in packaged or module form, and the exact opposite for automotive. For automotive, substantially most of the product that we sell is in dye form.

Neil: Yeah. So.

Speaker Change: Maybe I'll take a crack at that.

Gregg A. Lowe: I understood that could meet your question so.

Gregg A. Lowe: A couple of things, obviously, we have automotive demand.

Gregg A. Lowe: Higher than our current supply.

Gregg A. Lowe: Transitioning back.

Gregg A. Lowe: The facility from IV to automotive.

Gregg A. Lowe: Very important customer satisfaction heightened focus.

Gregg A. Lowe: The automotive devices are larger.

Gregg A. Lowe: In industrial products and.

Gregg A. Lowe: Substantially most.

Gregg A. Lowe: The industrial products are sold and packaged tour module form.

Gregg A. Lowe: The exact opposite.

Gregg A. Lowe: For automotive for automotive substantially.

Gregg A. Lowe: So, you know, we're not adding value; we're adding incremental revenue potential for the same amount of, I'll call it, silicon carbonite millimeters squared. So it's not a one-to-one trade-off when you move from an industrial part to an automotive part in the fab itself. Is that clear, Jed?

Gregg A. Lowe: The product that we sell it in die form so we're not adding value we're adding incremental.

Gregg A. Lowe: Revenue potential for the same amount of I'll call it silicon carbide millimeters squared.

Jed: It's not a one for one trade off when you move from an industrial.

Gregg A. Lowe: Two in automotive part and the fab itself.

Gregg A. Lowe: Jed.

Operator: Thank you. We have no further questions in the queue, so I'll turn the call back over to Gregg Lowe for any closing comments.

Speaker Change: Thank you.

Gregg A. Lowe: We have no further questions in the queue. So I'll turn the call back over to Greg Lang for any closing comments.

Gregg A. Lowe: Well, thanks everybody for participating in the call with us, and we look forward to catching up at the end of next quarter.

Gregg A. Lowe: Well, thanks, everybody for participating on the call with us and we look forward to catching up.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your line.

Gregg A. Lowe: At the end of next quarter. Thank you.

Operator: Yes.

Gregg A. Lowe: This concludes today's call. Thank you for joining.

Gregg A. Lowe: May now disconnect your line.

Operator: Yeah.

Operator: [music].

Operator: Yes.