Q4 2024 Wolfspeed Inc Earnings Call

August 21, 2024

Operator: Good afternoon. Thank you for attending the Wolfspeed Inc. Q4 fiscal year 24 earnings call. My name is Matt and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call and there will be an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. I'll now pass the conference over to our host, Tyler Gronbach, VP of External Affairs. Tyler, please go ahead. Thank you operator and good afternoon everyone. Welcome to Wolfspeed's fourth quarter fiscal

Tyler D. Gronbach: Thank you operator and good afternoon everyone. Welcome to Wolfspeed's fourth quarter fiscal year 2024 conference call. Today, Wolfspeed's CEO, Gregg Lowe and Wolfspeed's CFO, Neill Reynolds will report on the results for the fourth quarter fiscal year 2024.

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

year 2024 conference call. Today, Wolfspeed's CEO, Gregg Lowe and Wolfspeed's CFO, Neill Reynolds will report on the results for the fourth quarter fiscal year 2024.

Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide a useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

Tyler Gronbach: 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 team members. Today's discussion includes forward looking statements about our business outlook and we may make other forward looking statements during the call. Such forward looking statements are subject to numerous risks and uncertainties. Our press release today in the SEC filing noted in the release mention important factors that could cause actual results to differ materially.

Tyler Gronbach: Lastly, note that 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. And now I'd like to turn the call over to Greg.

Gregg Lowe: If you have any additional questions, please feel free to contact us after the call. And now I'd like to turn the call over to Greg.

Gregg A. Lowe: Good afternoon everyone. Thank you for joining us today. As we did on the last call, I'd like to discuss a few thoughts that I know are top of mind. First, we are acting on an aggressive plan to optimize our capital structure for both the near and the long term. We've already begun to align the pace of Capex to our current balance sheet and identify areas to reduce cost and improve profitability across all aspects of the business. As we discussed previously, our 200 millimeter device fab is currently producing solid results at lower cost than our Durham 150 millimeter fab while also presenting significant die cost advantages.

Gregg Lowe: As we did on the last call, I'd like to discuss a few thoughts that I know are top of mind. First, we are acting on an aggressive plan to optimize our capital structure for both the near and the long term. We've already begun to align the pace of capital to our current balance sheet and identify areas to reduce cost and improve profitability across all aspects of the business. As we discussed previously, our 200 millimeter device fab is currently producing solid results at lower cost than our Durham 150 millimeter fab while also presenting significant die cost advantages.

Gregg Lowe: This improved profitability gives us the confidence to accelerate the shift of our device fabrication to Mohawk Valley while we assess the timing of the closure of our 150 millimeter device fab. The team is currently working on these plans and we intend to provide an update on our next earnings call. We believe these actions can generate meaningful cash savings, providing us with greater flexibility to optimize our capital structure. We have already targeted $200 million of CapEx reduction in fiscal 2025. Neill will discuss this in more detail shortly.

Neill Reynolds: Neil will discuss this in more detail. Early.

Gregg Lowe: As we said last quarter, as we close out much of our fixed facility spend by the end of December 2024, our future CapEx spend is variable and can be modulated up or down. Later on, Neill will touch more on what this means for our fiscal 2025 and fiscal 2026 CapEx. We continue to aggressively drive the process of securing additional funding for the business, particularly with the Chips Office. While we are limited as what we can say publicly, our constructive discussions with the Chips Office on a preliminary memorandum of terms or PMT continue. While there can be no assurance that we will reach an agreement, we are now down to negotiating the final terms and conditions of the PMT.

As we said last quarter, as we close out much of our fixed facility spend by the end of December 2024, our future CapEx spend is variable and can be modulated up or down. Later on, Neill will touch more on what this means for our fiscal 2025 and fiscal 2026 CapEx.

We continue to aggressively drive the process of securing additional funding for the business, particularly with the Chips Office. While we are limited as what we can say publicly, our constructive discussions with the Chips Office on a preliminary memorandum of terms or PMT continue. While there can be no assurance that we will reach an agreement, we are now down to negotiating the final terms and conditions of the PMT.

Gregg Lowe: Separately, as part of the Chips Program, we are eligible for more than $1 billion in Section 4080, cash tax refunds from the IRS, of which we've already accrued approximately $640 million. As the world's largest producer of silicon-carbide material, we believe we have a compelling proposition for a Chips grant because silicon-carbide is considered a matter of national security, is designated a critical material by the U.S. Department of Energy and is essential to the electric vehicle ecosystem.

Gregg Lowe: Next, improving operational performance at our manufacturing sites also remains a key focus as we ramp our 200-millimeter output. As you know, our U.S. 200-millimeter footprint for materials and devices is a key competitive advantage. On the material side, our progress on our 200-millimeter platform has been substantial. Crystal Grove and Substate Processing out of Building 10 in Durham continues to scale, and we expect to be able to support a 25% wafer start utilization at Mohawk Valley in the September quarter, one quarter ahead of plan.

Gregg Lowe: As a result of continued productivity improvements, we are also now expecting Building 10 to support 30% wafer start utilization at Mohawk Valley in the March quarter of 2025. These productivity improvements allow for a more measured ramp and therefore measured spend on the JP. At the JP, we powered up the initial furnaces last quarter and are actively qualifying crystals this quarter. We processed the first bulls from the JP through the Durham line and are seeing that the quality is in line with the great performance presenting out of Building 10.

As a result of continued productivity improvements, we are also now expecting Building 10 to support 30% wafer start utilization at Mohawk Valley in the March quarter of 2025. These productivity improvements allow for a more measured ramp and therefore measured spend on the JP.

At the JP, we powered up the initial furnaces last quarter and are actively qualifying crystals this quarter. We processed the first bulls from the JP through the Durham line and are seeing that the quality is in line with the great performance presenting out of Building 10.

Gregg Lowe: Construction continues to progress well and we are still confident in our schedule to have the full flow qualified and delivering wafer to Mohawk Valley by summer of 2025. On the device side, bad yields in Mohawk Valley are ahead of plan and unit costs are well below those in Durham. There is plenty of progress still to come, but it's great to see we're ahead of our most recent projections. As previously mentioned, we are accelerating the transition of our device business to 200 millimeter.

Construction continues to progress well and we are still confident in our schedule to have the full flow qualified and delivering wafer to Mohawk Valley by summer of 2025. On the device side, bad yields in Mohawk Valley are ahead of plan and unit costs are well below those in Durham. There is plenty of progress still to come, but it's great to see we're ahead of our most recent projections.

Construction continues to progress well and we are still confident in our schedule to have the full flow qualified and delivering wafer to Mohawk Valley by summer of 2025.

On the device side, bad yields in Mohawk Valley are ahead of plan and unit costs are well below those in Durham. There is plenty of progress still to come, but it's great to see we're ahead of our most recent projections.

As previously mentioned, we are accelerating the transition of our device business to 200 millimeter. By the March quarter, we plan to move nearly all EV powertrain production to Mohawk Valley. Because of the success of the entire 200 millimeter effort, this gives us the confidence to move forward with plans to migrate our device manufacturing from our 150 millimeter fab to the 200 millimeter fab in Mohawk Valley.

Gregg Lowe: By the March quarter, we plan to move nearly all EV powertrain production to Mohawk Valley. Because of the success of the entire 200 millimeter effort, this gives us the confidence to move forward with plans to migrate our device manufacturing from our 150 millimeter fab to the 200 millimeter fab in Mohawk Valley. Lastly, as I outlined last quarter, the market is clearly not valuing companies consistent with our technology, the business we built or the strategic potential of the business. In light of this disconnect, the management team and the board of directors routinely consider alternatives to enhance value for shareholders. Having laid out those points, let's move to the specifics of Wolfspeed's fourth quarter performance.

By the March quarter, we plan to move nearly all EV powertrain production to Mohawk Valley. Because of the success of the entire 200 millimeter effort, this gives us the confidence to move forward with plans to migrate our device manufacturing from our 150 millimeter fab to the 200 millimeter fab in Mohawk Valley.

Lastly, as I outlined last quarter, the market is clearly not valuing companies consistent with our technology, the business we built or the strategic potential of the business. In light of this disconnect, the management team and the board of directors routinely consider alternatives to enhance value for shareholders. Having laid out those points, let's move to the specifics of Wolfspeed's fourth quarter performance.

Gregg Lowe: The Mohawk Valley fab generated $41 million in revenue for the quarter on the lower end of our estimated range, which was the result of an EV customer deferring delivery of several million dollars worth of product. We expect to recognize this revenue in fiscal 2025 and believe we would have landed in line or slightly above the midpoint of our Mohawk Valley revenue guidance, excluding this push out. We passed internal qualification for nearly all automotive powertrain products in late July, and now have only a handful of customer qualifications left to complete, giving us the confidence that those products can be serviced out of Mohawk Valley sooner than we originally anticipated.

The Mohawk Valley fab generated $41 million in revenue for the quarter on the lower end of our estimated range, which was the result of an EV customer deferring delivery of several million dollars worth of product. We expect to recognize this revenue in fiscal 2025 and believe we would have landed in line or slightly above the midpoint of our Mohawk Valley revenue guidance, excluding this push out.

We passed internal qualification for nearly all automotive powertrain products in late July, and now have only a handful of customer qualifications left to complete, giving us the confidence that those products can be serviced out of Mohawk Valley sooner than we originally anticipated.

Gregg Lowe: While the ramp of EVs is slower than previously projected and many companies in the semiconductor industry are still confronting automotive headwinds, our revenue in the EV market continues to be strong because we are just at the beginning of the ramp of our automotive business across several geographies. Our EV revenue in the fourth quarter was up more than 100% year over year, and is expected to be up approximately 300% year on year in fiscal Q1.

Gregg Lowe: We are in the very early stages of what might be the most significant transition in the history of the auto industry. This will create a very dynamic environment as the OEMs will continue to adjust their ramp programs across their EV product portfolio. Our EV revenue has grown for three consecutive quarters despite a declining auto semiconductor market because some of the EV design ends we accumulated over the last five to seven years are just beginning to ramp. We achieved an additional $2 billion in design in fiscal Q4 bringing our fiscal 2024 total to over $9 billion at design ends.

We are in the very early stages of what might be the most significant transition in the history of the auto industry. This will create a very dynamic environment as the OEMs will continue to adjust their ramp programs across their EV product portfolio.

Our EV revenue has grown for three consecutive quarters despite a declining auto semiconductor market because some of the EV design ends we accumulated over the last five to seven years are just beginning to ramp. We achieved an additional $2 billion in design in fiscal Q4 bringing our fiscal 2024 total to over $9 billion at design ends.

Gregg Lowe: We also had approximately $500 million of design ends convert to design wind in the fourth quarter, reflecting the initial ramp of production for those programs. As we stated previously, our design wind backlog supports more than 125 different car models across more than 30 OEMs over the next several years. But remember, this transition is the biggest disruption in the history of the auto industry and not all of these car models will ramp as currently projected. Some will be very successful, others less so.

Gregg Lowe: As such, we will need to be flexible to match our manufacturing output with this dynamic demand. Additionally, while there's been some near-term reductions in projected EV adoption rate of estimates, the adoption of silicon carbide in EVs has remained strong. Our $21 billion of EV design ends today is a testament to this. A recent McKenzie report highlighted that OEMs are transitioning to purpose-built silicon carbide devices and next-generation EVs that have higher power requirements and therefore 800-volt battery systems.

Gregg Lowe: In fact, by 2027 to 2030, it is projected that more than 90% of new EVs will use 800-volt systems which offer compelling performance advantages over traditional 400-volt systems. On that note, approximately 70% of our $2 billion design ends from this quarter were related to 800-volt applications. Underscoring our belief that this shift to higher performing and more efficient architectures will serve as a major tailwind for both silicon power bi-generally and Wolfspeed specifically given our market leading wafer-in-device quality.

Gregg Lowe: Underscoring our belief that this shift to higher performing and more efficient architectures will serve as a major tailwind for both silicon power bi-generally and Wolfspeed specifically given our market leading wafer-in-device quality. While the automotive industry has led the way in adopting silicon carbide thus far, there are critical high voltage industries and energy markets such as AI data centers, e-mobility, and solar inverters that are right for disruption in the coming years as more industrial and energy companies look to solve for the same efficiency, system size, and system cost challenges that the automotive makers faced as they were designing their next-generation EVs.

Underscoring our belief that this shift to higher performing and more efficient architectures will serve as a major tailwind for both silicon power bi-generally and Wolfspeed specifically given our market leading wafer-in-device quality.

While the automotive industry has led the way in adopting silicon carbide thus far, there are critical high voltage industries and energy markets such as AI data centers, e-mobility, and solar inverters that are right for disruption in the coming years as more industrial and energy companies look to solve for the same efficiency, system size, and system cost challenges that the automotive makers faced as they were designing their next-generation EVs.

Gregg Lowe: As we remarked earlier, silicon carbide is the path they chose to overcome those challenges. We have merely scratched the surface of silicon carbide's potential use cases. Silicon carbide is integral to the electrification of a wide array of current and future applications and plays a foundational role in making our energy systems more efficient, more powerful, and more reliable. And now I'd like to pass the call over to Neill to discuss our quarterly financial and guidance.

Neill Reynolds: more powerful, and more reliable. And now I'd like to pass the call over to Neill to discuss our quarterly financial and guidance.

Neill P. Reynolds: Thanks Greg. As a reminder, before we discuss our performance, all results reported today will be on a continuing operations basis and exclude the impact of our divested RF business in our results. We generated 201 million of revenue for the quarter, slightly above the midpoint of our guidance, and flat sequentially. We recognized power revenue of 105 million, driven largely by the contribution from Mohawk Valley, but offset by continued weakness in industrial and energy markets.

Neill Reynolds: Mohawk Valley's $41 million contribution represents growth of 46% quarter over quarter and an exponential increase from the $1 million contribution one year ago. We achieved $64 million of revenue from our Durham device tab, down approximately 40% year over year, driven by continued weakness in industrial and energy markets. We also recognized materials revenue of 96 million above our expectations, driven by the continued strong execution of our materials operations team. Looking to the future, given the continued yield efficiency and capacity improvements in our 200 millimeter production, we will accelerate the transition of our powered device business to 200 millimeter at Mohawk Valley, where we see significantly improved unit costs well ahead of our 150 millimeter device unit costs.

Mohawk Valley's $41 million contribution represents growth of 46% quarter over quarter and an exponential increase from the $1 million contribution one year ago. We achieved $64 million of revenue from our Durham device tab, down approximately 40% year over year, driven by continued weakness in industrial and energy markets. We also recognized materials revenue of 96 million above our expectations, driven by the continued strong execution of our materials operations team.

Looking to the future, given the continued yield efficiency and capacity improvements in our 200 millimeter production, we will accelerate the transition of our powered device business to 200 millimeter at Mohawk Valley, where we see significantly improved unit costs well ahead of our 150 millimeter device unit costs.

Neill Reynolds: Additionally, the Durham Fab has been running at lower levels of utilization due to the weakness in INE markets, driving a significant level of underutilization and higher unit costs. Therefore, as Gregg mentioned, we are planning to accelerate the shift of our device fabrication to Mohawk Valley, while we assess the timing of the closure of our 150 millimeter device fab. We will come back at our next earnings call with our future device production plans as we work through these plans internally and with our customers. I'd also like to note that this shift in production mix did not change our view that INE products will be substantial and an important part of our product portfolio over the long term.

Additionally, the Durham Fab has been running at lower levels of utilization due to the weakness in INE markets, driving a significant level of underutilization and higher unit costs. Therefore, as Gregg mentioned, we are planning to accelerate the shift of our device fabrication to Mohawk Valley, while we assess the timing of the closure of our 150 millimeter device fab. We will come back at our next earnings call with our future device production plans as we work through these plans internally and with our customers.

I'd also like to note that this shift in production mix did not change our view that INE products will be substantial and an important part of our product portfolio over the long term.

Neill Reynolds: Moving back to our financials, non-GAAP gross margin in the fourth quarter was 5%, slightly above the midpoint of our June guidance. This includes 24 million or 1,200 basis points of expansion under utilization, primarily related to Mohawk Valley. As you know, based on our June update, in the fourth quarter, our gross margin was negatively impacted by an incident at our Durham Fab, which negatively impacted non-GAAP gross margin by an incremental 500 basis points, resulting from underutilization charges, repair costs, and lower yields.

Moving back to our financials, non-GAAP gross margin in the fourth quarter was 5%, slightly above the midpoint of our June guidance. This includes 24 million or 1,200 basis points of expansion under utilization, primarily related to Mohawk Valley.

As you know, based on our June update, in the fourth quarter, our gross margin was negatively impacted by an incident at our Durham Fab, which negatively impacted non-GAAP gross margin by an incremental 500 basis points, resulting from underutilization charges, repair costs, and lower yields. This resulted in adjusted EPS of negative 89 cents and was above the midpoint of our June guidance.

Neill Reynolds: This resulted in adjusted EPS of negative 89 cents and was above the midpoint of our June guidance. Regarding our balance sheet, we ended the fiscal year with approximately 2.2 billion of cash and liquidity on hand to support our facility ramps and growth plans. DSO was 43 days, while inventory on hand was 200 days. Free cash flow during the quarter was negative 885 million, comprised of negative 240 million of operating cash flow, and 644 million of capital expenditures.

This resulted in adjusted EPS of negative 89 cents and was above the midpoint of our June guidance.

Regarding our balance sheet, we ended the fiscal year with approximately 2.2 billion of cash and liquidity on hand to support our facility ramps and growth plans. DSO was 43 days, while inventory on hand was 200 days. Free cash flow during the quarter was negative 885 million, comprised of negative 240 million of operating cash flow, and 644 million of capital expenditures.

Neill Reynolds: As Greg mentioned earlier, we understand very clearly that our future funding plans and capital structure are a major focus for investors. So let me take some time to explain and work through the various levers available to us.

Neill Reynolds: Starting with CapEx, in fiscal year 2025, we expect net capital expenditures to be approximately 1.2 billion to 1.4 billion, down 200 million from our previously communicated range, and down from the 2.1 billion that we spent in fiscal 2024. This reduction in CapEx reflects the significant improvement in yield and efficiency in our 200 millimeter material and device facilities. We have the flexibility to take this estimate down even lower based on the demand and revenue outlook throughout the year.

Neill Reynolds: This level of CapEx ensures that we complete the J.P. Siler City materials factory on time and on budget so that we deliver wafers to Mohawk Valley next calendar year. In addition, we believe we will have the ability to achieve 30% utilization at our Mohawk Valley fab with wafers only from Building 10 on the Durham campus, which continues to produce a steady supply of high quality 200 millimeter substrates.

Neill Reynolds: Looking at fiscal year 2026, our CapEx will fall off sharply as our facility expansion projects will be complete and the vast majority of our CapEx will be related to the production tools to fill those facilities and increase capacity. We expect our gross fiscal year 2026 CapEx to be in a range of 200 million to 600 million, which does not include offsets for federal incentives which could lower that number significantly.

Neill Reynolds: This would include some of the approximately $640 million of 48 detached credits as part of the Chips Act that we have already accrued on our balance sheet. As Gregg mentioned, they expect these tax credits to represent over $1 billion of a future funding source over time that are not associated with a potential chip [inaudible]. In addition, from an operating perspective, we are undertaking several initiatives that accelerate our path to profitability and ensure we slow our operating cash burn, achieve positive EBITDA in the second half of this fiscal year and drive to positive operating cash flow by early fiscal 2026. These initiatives include assessing the timing of a closure of our Durham 150 millimeter wafer fab and lowering our overall cost footprint. As Gregg mentioned earlier, we will give an update on these initiatives on our next earnings call.

Neill Reynolds: achieve positive EBITDA in the second half of this fiscal year and drive to positive operating cash flow by early fiscal 2026. These initiatives include assessing the timing of a closure of our Durham 150 millimeter wafer fab and lowering our overall cost footprint. As Gregg mentioned earlier, we will give an update on these initiatives on our next earnings call. Lastly, from a capital-raised perspective, we continue to pursue additional funding with a potential chips grant being a critical milestone as to how we proceed.

achieve positive EBITDA in the second half of this fiscal year and drive to positive operating cash flow by early fiscal 2026. These initiatives include assessing the timing of a closure of our Durham 150 millimeter wafer fab and lowering our overall cost footprint. As Gregg mentioned earlier, we will give an update on these initiatives on our next earnings call.

Lastly, from a capital-raised perspective, we continue to pursue additional funding with a potential chips grant being a critical milestone as to how we proceed. In addition to chips, we are working closely with our lenders on plans to raise additional capital in the event we choose to go down that path. As previously mentioned, we expect to have more than $1 billion of 48 D tax credits that will help fund the business over time. We are also applying for other government lending and tax credit programs that may provide us with additional access to capital. Therefore, in addition to lowering CapEx and driving towards profitability, we expect to have access to several options that would enable us to end fiscal year 2025 above our $1 billion minimum cash target.

Neill Reynolds: In addition to chips, we are working closely with our lenders on plans to raise additional capital in the event we choose to go down that path. As previously mentioned, we expect to have more than $1 billion of 48 D tax credits that will help fund the business over time. We are also applying for other government lending and tax credit programs that may provide us with additional access to capital.

Neill Reynolds: Therefore, in addition to lowering CapEx and driving towards profitability, we expect to have access to several options that would enable us to end fiscal year 2025 above our $1 billion minimum cash target. Moving on to our guidance for the first quarter of fiscal 2025, we target our revenue to be in the range of 185 million to 215 million. We target roughly 50 million to 60 million of this revenue to come from Mohawk Valley next quarter, up more than 34% from the prior quarter, and up greater than 50 million year over year at the midpoint of our range versus the 4 million we achieved last year at this time.

Therefore, in addition to lowering CapEx and driving towards profitability, we expect to have access to several options that would enable us to end fiscal year 2025 above our $1 billion minimum cash target.

Moving on to our guidance for the first quarter of fiscal 2025, we target our revenue to be in the range of 185 million to 215 million. We target roughly 50 million to 60 million of this revenue to come from Mohawk Valley next quarter, up more than 34% from the prior quarter, and up greater than 50 million year over year at the midpoint of our range versus the 4 million we achieved last year at this time.

Neill Reynolds: Next, we target non-GAAP gross margin of minus 2 percent to 6 percent with the midpoint of 2 percent. At the midpoint, this includes approximately 1,000 basis points of underutilization, repair costs, and yield impact in the Durham fab partially related to the fab facility incident disclosed in June, but also related to weaker industrial and energy markets where we will look to lower inventory levels. We target non-GAAP operating expenses of approximately 128 million, inclusive of 25 million of startup costs related to the JP.

Neill Reynolds: As a reminder, as Mohawk Valley utilization increases and the JP starts to come online, we will start to see incrementally less underutilization out of Mohawk Valley, but incrementally more startup costs from the JP, which hit different lines of our P&L. Net non-operating expenses are targeted to be roughly 41 million for the first quarter, and lastly, we target non-GAAP net loss between 138 million and 114 million.

Gregg Lowe: Now I'll turn it over to Gregg for some closing remarks.

Gregg A. Lowe: Thanks Neill. We are encouraged by the positive results we are seeing in 200 millimeters. The productivity improvements in Building 10, the yield improvements in Mohawk Valley, and the progress thus far at the JP, are giving us further confidence in our ability to accelerate the transition of our device platform from 150 millimeters to 200 millimeters. We've already begun to align the pace of CapEx to our current balance sheet and identify areas of opportunity to reduce costs and improve profitability across all aspects of the business and we'll outline our plans for this transition in greater detail during the next earnings call.

Gregg Lowe: We are driving the process of securing additional funding for the business, particularly with the chips office, while at the same time taking very deliberate actions to reduce our costs by aligning the pace of our investments and identifying new areas across the company to improve profitability. Thanks for your continued support and now we'll move to Q&A.

Operator: If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. In the interest of time, we ask that you please limit yourselves to one question today. As a reminder, if you're using a speaker phone, please remember to pick up your hands that before asking your question. We'll pause to briefly [inaudible].

Nick Cash: The first question is from Brian Lee with Goldman Sachs. Your line is open. Hi everyone. This is actually Nick Cash on the line for Brian. Let's kind of dive into Durham a little bit. One, how much of your outlook at Durham is still levered to INE and how much visibility do you have regarding the Durham family or FAB is finally troughed in terms of demand and margin profile and I guess how quickly into what level can that recover to? I guess one more touching on the equipment incident at the facility, you mentioned a possible 20 million impact to first quarter '25 revenue, does that guide you guys gave inclusive of that 20 million impact? Thank you.

The first question is from Brian Lee with Goldman Sachs. Your line is open.

Nick Cash: Hi everyone. This is actually Nick Cash on the line for Brian. Let's kind of dive into Durham a little bit. One, how much of your outlook at Durham is still levered to INE and how much visibility do you have regarding the Durham family or FAB is finally troughed in terms of demand and margin profile and I guess how quickly into what level can that recover to? I guess one more touching on the equipment incident at the facility, you mentioned a possible 20 million impact to first quarter '25 revenue, does that guide you guys gave inclusive of that 20 million impact? Thank you.

Gregg A. Lowe: Yeah, maybe I'll start with the INE and then I'll turn it over to Neill for a little bit more details. Visibility on INE it's cloudy. Right now it's down. We're anticipating it being down for the better part of the rest of this calendar year and there's no sign of it's all going to jump back really quickly or anything like that. It's down and it will eventually pick back up but when we can't really predict and then it'll maybe turn it over to Neill.

Neill P. Reynolds: Yeah, let me just kind of unpack a little bit the revenue and the gross margin trajectory. So we just guided about flat for the September quarter as increases I think in our EV revenue or Mohawk Valley are being offset by as you mentioned lower INE and lower Durham revenue. So as you look out into the December quarter, we anticipate seeing another solid pickup in EV and Mohawk Valley revenue but there'll likely be a decline in some of the Durham and INE volume kind of that INE as Greg mentioned demand flatness and we start to burn off some inventory there. Just anticipation of kind of an INE kind of recovery is getting into the first half of calendar next year, so I think that's kind of how to think about the revenue.

Gregg Lowe: From a September quarter impact, from the FAB event, I would say we were thinking we would be down a bit lower. Actually the FAB recovered I would say halfway through the quarter but we just elected to keep starts down just because of the impact of the lower INE demand. So we can manage through that and let inventory burn off there a bit.

Neill Reynolds: From a gross margin perspective, again, we've been you know impacted by the lower INE mix but also the lower utilization of the FAB. These repair costs and lower yields in the FAB from the June event impacted us. As I said in the prepared remarks, that was about 500 basis points in the June quarter. Now that the FAB has kind of returned to normal operations we've elected to keep those wafer starts down just to manage inventory.

Neill Reynolds: So the impact in the September quarter both from the FAB incident and the lower levels of utilization related to the the lower industrial energy demand is about a thousand basis points in the quarter. So if you looked at that underlying we actually have a little bit of a margin pickup quarter over quarter just as we start to see more volumes below through Mohawk Valley.

Operator: Thank you for your question. Next question is from the line of Harsh Kumar with Piper Sandler. Your line is now open.

Harsh V. Kumar: Yeah, hey guys. First of all, I'm sorry about the background noise. I'm at a Starbucks. But Gregg, let me ask you the loaded question that's on every investor's mind here. I think the market has sort of liquidity concerns about both speed and it's kind of evident from the stock price decline here. So a question for you is, what is the bare minimum that you have to spend on JP assuming that Mohawk Valley is now flipped? And so is there a way that you could materially cut down the CapEx? And then I think you also mentioned that you're looking at positive free cash flow by early 2026, could you maybe help us bridge that between now and then?

Gregg Lowe: And so is there a way that you could materially cut down the CapEx? And then I think you also mentioned that you're looking at positive free cash flow by early 2026, could you maybe help us bridge that between now and then?

Gregg A. Lowe: Okay, thanks for the question Harsh and I'll kick it off. First off, the progress we're seeing out of Building 10 is exceptional. And the fact that we now know that we can feed Mohawk Valley up to 30% wafer start utilization quite frankly, puts a big pressure off of trying to get the JP up and running in some kind of super fast speed, so it obviously helps us with that.

Gregg Lowe: We're going to be finished with the fixed cost basically build out of the JP by the end of this calendar year. And as Neill said in his remarks, we then can build out the tools and the equipment and so forth at a pace that's aligned with what we're going to need wafer start wise out of Mohawk Valley, especially with the fact that Building 10 is able to support a significantly higher percentage. Maybe Neill you can get some other details.

Neill P. Reynolds: Yeah, Harsh, I just think you just start to look certainly forward from an operating perspective. I think as we talked about in the prepared remarks, we're going to look at driving several things here. One is obviously lower CapEx. We're going to manage that with what we're looking at from a market perspective, from a CapEx efficiency viewpoint. Secondly, we're looking at these operating efficiencies within the business as well. So what that will do is drive towards EBITDA positive as we get into the back half of the year and then drive towards operating cash flow positive as you get into fiscal year 2026.

Neill Reynolds: And then from a funding perspective, we talked a lot on a prepared remarks is about these 48 D tax credits. These are things that we've already approved 640 million for. We're anticipating getting those by 2026. I was expecting an amount of them to help fund the business as well. So I think it's important right now that we continue to execute our build out within the parameters we talked about. We're seeing better capital efficiency right now just because of the performance of 200 millimeter and we'll continue down that path. But if we still remain focused I think from a funding perspective, if we look at the overall liquidity in the business really focused on finishing our work with the with the chips funding and working through that process, which we still feel optimistic about.

Neill Reynolds: But if we still remain focused I think from a funding perspective, if we look at the overall liquidity in the business really focused on finishing our work with the with the chips funding and working through that process, which we still feel optimistic about.

Operator: Thank you for your question. Next question is from the line of [inaudible] with JP Morgan. Your line is now open.

Unknown: Hi, this is [inaudible] on for [inaudible]. Just curious, the potential closure of the Durham device fab would be quite a shift in strategy relative to prior closures, I think 400 million of revenue was coming from that footprint when it's fully loaded. So just curious if you could just dive into that or flesh it out a bit more, what the exact process here is to close around closing that up and take it out of the long term model. And then maybe just second part of that question is what does that imply for the existing footprint there and Durham? Thanks.

Gregg Lowe: what the exact process here is to close around closing that up and take it out of the long term model. And then maybe just second part of that question is what does that imply for the existing footprint there and Durham? Thanks.

Gregg A. Lowe: Thanks for the question. First, it was always the plan to ramp down 150 millimeter and transition to 200 millimeter. What's really made this decision very straightforward is the progress and productivity we're seeing across the entire 200 millimeter platform. Output from Building 10 now able to support 30% wafer start utilization yields in Mohawk Valley ahead of plan, the economics of Mohawk Valley substantially more compelling than Durham, and finally, one scheduled ramp to JP and seeing great results from the initial crystal run.

Gregg Lowe: So combine this with the fact that the industrial energy business is down, so starting this process of transitioning the fab when we're not swimming upstream against the whole bunch of demand from INE certainly gives us breathing room to make this happen. The key decision though was all about the progress and productivity that we see across 200 millimeter. We're super exciting about that. It's actually quite an amazing accomplishment that the team has been able to do.

Neill Reynolds: And Neill, you can get into a little bit of detail, but that progress and productivity also gives us ability to absorb that revenue in our current footprint. So, let me just break down a little bit just a bit of the capital efficiency that we're seeing. So, one thing I talked about is kind of taking the CapEx level down from 1.2 to 1.4 billion during fiscal year 2025 and then dropping that down dramatically in fiscal year '26.

And Neill, you can get into a little bit of detail, but that progress and productivity also gives us ability to absorb that revenue in our current footprint.

So, let me just break down a little bit just a bit of the capital efficiency that we're seeing. So, one thing I talked about is kind of taking the CapEx level down from 1.2 to 1.4 billion during fiscal year 2025 and then dropping that down dramatically in fiscal year '26. So, I think as Gregg said, the facility spend being complete, we could really modulate our CapEx for tools going forward and the facilities will likely be complete by December this year.

Neill Reynolds: So, I think as Gregg said, the facility spend being complete, we could really modulate our CapEx for tools going forward and the facilities will likely be complete by December this year.

Neill Reynolds: So we plan these factories for great economies of scale building up modularly and we're starting to see the benefits of that as you start to exit that facility spend. The second thing is our capital investment model is working as expected. So, the good yields and the efficiency across the 200 millimeter supply chain is just resulting in a lower required amount of CapEx for each incremental dollar of revenue, so we're seeing some good performance there.

Gregg Lowe: So, when you think about what that would mean longer term for the revenue, Joe, as you start to think about moving on beyond the Durham Fab one day, that 200 to 600 million of fiscal year 2026 CapEx could support 50 to 60% utilization out of Mohawk Valley. So, I think that's a real testament to the amount of revenue we can absorb through Mohawk Valley and you start making that trade from 150 millimeters to 200 millimeters.

Gregg Lowe: So, I think here in the in the medium term, if we go down that path, I think Mohawk Valley will have significant capability to absorb a lot of that revenue and a course that trade off from industrial energy from 150 to 200 is actually a very, very good mixture from that perspective. So, we believe that the Mohawk Valley Fab will really be able to incorporate a lot of that revenue just mentioned. And as we tighten up these plans and give more of an update we'll let you know how that impacts a long term model, but we're clearly bullish on the ability of Mohawk Valley to absorb that.

Operator: Thank you for your question. The next question is from the line of Colin Rusch with Oppenheimer. Your line is now open.

Neill Reynolds: Thanks so much. In terms of monetizing these tax credits that you've incurred, are there operational metrics that you need to meet or are those things that you can actually just get monetized in the market and you can you talk a little bit about potential for transferability on those credits. Hey, Colin, thanks. Yeah, thanks for the question. So on the tax credits, these are tax credits that were passed through the Chips Act.

Colin W. Rusch: Thanks so much. In terms of monetizing these tax credits that you've incurred, are there operational metrics that you need to meet or are those things that you can actually just get monetized in the market and you can you talk a little bit about potential for transferability on those credits.

Neill P. Reynolds: Hey, Colin, thanks. Yeah, thanks for the question. So on the tax credits, these are tax credits that were passed through the Chips Act. So very much aligned to those, but don't really have much operational impact other than you just have to have the assets placed into service and then you can administer those. Those get administered through your tax return process through the IRS.

Neill Reynolds: So very much aligned to those, but don't really have much operational impact other than you just have to have the assets placed into service and then you can administer those. Those get administered through your tax return process through the IRS.

Jed Dorsheimer: So that's basically how it's laid out today. Some of the final terminology in terms of how that's going to work is pending, but it's passed into law and very high confidence in terms of ability to monetize those in time. Tradeability, et cetera, not so much from that perspective, but I think that if you think about our facility spend being largely done, our CapEx coming down during this year and into next year, a lot of what we've accrued and what will accrue during this coming year should start to come to fruition to us during 2026.

Operator: Thank you for your question. Next question is from the line of Jed Dorsheimer with William Blair. Your line is now open. Hi, yeah, thanks for taking my question. I guess just help me with a little back of the envelope map here. If I carry your margins and the materials business, and then I back out the under utilization and the startup, I get about three million spread between Mohawk Valley and Durham, and if I use the 500 basis points, it looks like a negative or gross profit dollar loss in Durham of about five million. Is that correct?

Operator: Thank you for your question. Next question is from the line of Jed Dorsheimer with William Blair. Your line is now open.

Jed Dorsheimer: Hi, yeah, thanks for taking my question. I guess just help me with a little back of the envelope map here. If I carry your margins and the materials business, and then I back out the under utilization and the startup, I get about three million spread between Mohawk Valley and Durham, and if I use the 500 basis points, it looks like a negative or gross profit dollar loss in Durham of about five million. Is that correct? And that would imply about a 20% margin for Mohawk Valley. I just want to make sure I'm looking at that correctly.

Gregg Lowe: And that would imply about a 20% margin for Mohawk Valley. I just want to make sure I'm looking at that correctly. Yeah, Jed, I think I can't talk to the specifics between the different factories, but what we can gather is that the profitability coming out of Mohawk Valley is significantly better than what we're seeing at 150 millimeter in Durham. We've talked about it many times, highly automated fab, superior capability and state of the art capability and just significantly better from that perspective. So you can imagine that the profitability is significantly better, which obviously plays a heavy role in informing that decision.

And that would imply about a 20% margin for Mohawk Valley. I just want to make sure I'm looking at that correctly.

Neill P. Reynolds: Yeah, Jed, I think I can't talk to the specifics between the different factories, but what we can gather is that the profitability coming out of Mohawk Valley is significantly better than what we're seeing at 150 millimeter in Durham. We've talked about it many times, highly automated fab, superior capability and state of the art capability and just significantly better from that perspective. So you can imagine that the profitability is significantly better, which obviously plays a heavy role in informing that decision.

Operator: Thank you for your question. Next question is from the line of Joshua Bucalter with TD Cowen. Your line is now open.

Joshua Buchalter: Hey guys, thank you for taking my question. I wanted to ask about the Mohawk Valley ramp and timeline to revenue. Is the right rule of thumb still when you reach those utilization levels, you get revenue, I think it's roughly two to three quarters later, because that would imply that you're in the fiscal third quarter of 2025 and number comfortably above $100 million out of Mohawk. And then, maybe as a follow-on to that question, what's the timeline to get to the 30% beyond that and how does that coincide with the JP layering as well? Thank you.

Gregg A. Lowe: Yeah, so first of all, thanks for the question. And I think as we've laid out before, from a utilization perspective, there is a couple of quarter lag between the time you start versus the time we started to see revenue has got to get processed through the fab and then through the back end operations as well and eventually our customer. So that timeframe you have laid out is correct.

Gregg Lowe: The other thing that impacts utilization and translation into revenue is the mix between automotive parts and industrial energy parts. The revenue per wafer so to speak is just much higher than industrial energy part generally than an automotive part. If you look to the Mohawk Valley revenue just for the June quarter, for instance, we were 85 to 90% EV. If you transition that into the September quarter here we'll be 95% plus EV and expect it to remain that way as you push more and more of our qualified parts to Mohawk Valley.

Gregg Lowe: On the flip side, we'll just see the Durham fab consistently see the EV percentage of revenue start to come down over time. So as that translates into revenue, I think we talked about a heavier auto 20% translates closer to 80 million and close to 100 million is the kind of normal mix. So I think that's the way to think about it moving forward. Now as we think about maybe transitioning the Durham fab will put a lot more industrial energy revenue into Mohawk Valley, which as I said before would be a good trade for us. And then we get back to the kind of normal economics of about a $2 billion fab and the percentages of supply that are capable at various levels of utilization.

Gregg Lowe: And then we get back to the kind of normal economics of about a $2 billion fab and the percentages of supply that are capable at various levels of utilization. Thank you for your question. The next question is from a line of Jill Moore with Morgan Stanley. Your line is now open.

And then we get back to the kind of normal economics of about a $2 billion fab and the percentages of supply that are capable at various levels of utilization.

Operator: Thank you for your question. The next question is from a line of Jill Moore with Morgan Stanley. Your line is now open.

Gregg Lowe: Great, thank you. I think you gave an EV number in terms of the percentage growth, but I didn't hear an absolute number. I wonder if you could help us kind of size where you are now with EV and what you're classifying as EV. Yes, so on the EV revenue, as you said, EV revenue was up to 2X in the quarter, 3X year over year in the outlook for the September quarter.

Unknown: Great, thank you. I think you gave an EV number in terms of the percentage growth, but I didn't hear an absolute number. I wonder if you could help us kind of size where you are now with EV and what you're classifying as EV.

Neill P. Reynolds: Yes, so on the EV revenue, as you said, EV revenue was up to 2X in the quarter, 3X year over year in the outlook for the September quarter. It's also gone, by the way, from representing about 25% of our power device revenue a year ago, to over 50% even the mid 50% of our power device revenue here in June. And if you look here in the September quarter, more than 50% of our power device outlook. So we expect that to grow even further as the year goes on. So, while we've seen some some moderation, I would say the overall EV growth rates, and this has been well documented and reported, and supply and demand are more matched up, you would continue to see some significant growth into the December quarter and into the first half of calendar year 2025.

Gregg Lowe: It's also gone, by the way, from representing about 25% of our power device revenue a year ago, to over 50% even the mid 50% of our power device revenue here in June. And if you look here in the September quarter, more than 50% of our power device outlook. So we expect that to grow even further as the year goes on. So, while we've seen some some moderation, I would say the overall EV growth rates, and this has been well documented and reported, and supply and demand are more matched up,

Christopher Rowland: you would continue to see some significant growth into the December quarter and into the first half of calendar year 2025. Thank you for your question. Next question is from the line of Christopher Rowland with Susquehanna. Your line is now open.

you would continue to see some significant growth into the December quarter and into the first half of calendar year 2025.

Operator: Thank you for your question. Next question is from the line of Christopher Rowland with Susquehanna. Your line is now open.

Christopher Adam Jackson Rolland: Hey, guys, thanks for the question. Are there any more details on the incident in Durham? What would exactly happen there? And then you guys had mentioned when you were initially ramping Mohawk that you didn't have redundant lines or backup equipment there, has this changed like over time over the past year? And do you feel comfortable that you guys would be able to absorb an equipment failure or a similar problem in Mohawk? Thanks.

Gregg Lowe: And then you guys had mentioned when you were initially ramping mohawk that you didn't have redundant lines or backup equipment there. Has this changed like over time over the past year? And do you feel comfortable that you guys would be able to absorb an equipment failure or a similar problem in mohawk? Thanks.

Gregg A. Lowe: Yeah, so a couple of things. First off, the facility issue with the issue in the June quarter in the Durham Fab, a facility issue has been rectified and repaired and it's behind us. From a Mohawk Valley perspective, there are significant amounts of redundancies, including power fees in water and we are now, I don't know the exact percentage, but the vast majority of the tools have quote second of a kind tools. And so if one tool goes down, there's another tool that can pick up for it. We're going to be at 100% very soon. I don't know exactly that date, but we have a significant amount of redundancy out of the Mohawk Valley Fab. And you would actually expect that out of a modern fab. Our fab here in Durham is a few decades years old. And we've got a modern highly automated fab in Mohawk Valley, so we're very confident in its ability to withstand different incidents that might happen.

Gregg Lowe: And so if one tool goes down, there's another tool that can pick up for it. We're going to be at 100% very soon. I don't know exactly that date, but we have a significant amount of redundancy out of the Mohawk Valley Fab. And you would actually expect that out of a modern fab. Our fab here in Durham is a few decades years old. And we've got a modern highly automated fab in Mohawk Valley, so we're very confident in its ability to withstand different incidents that might happen.

Operator: Thank you for your question. There are no additional questions waiting at this time, so I'll pass the call back to George Lowe, CEO for any closing remarks. Thanks everybody for your participation today. We look forward to updating you on our next call. Thank you. That concludes the conference call. Thank you for your participation. You may now disconnect your line.

Operator: Thank you for your question. There are no additional questions waiting at this time, so I'll pass the call back to George Lowe, CEO for any closing remarks.

Gregg A. Lowe: Thanks everybody for your participation today. We look forward to updating you on our next call. Thank you.

Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your line.

Matt: good afternoon thank you for attending the wolf speed in q four or fiscal year twenty four earnings call my name is matt 'll be moderatorfor today's call

Operator: your 24 earnings call.

Matt: My name is Matt and I'll be your moderator for today's call.

Matt: All lines be muted during the presentation portion of the call for an opportunity for questions and answers at the end.

Matt: If you'd like to ask a question please press star 1 on your telephone keypad.

Tyler Grambuck: all long s be needed during presentation portion on the call opportunity for questions and answers at the end if you like to ask a question please press start one on your telepky pet ' out to past the conference overto holds tyler grambuck v p external affairs tyler please go it

Matt: I'll now have to pass the conference over to our host Tyler Gronbach, VP External Affairs.

Matt: Tyler please go

Greg Lo: thank you operator and good afternoon everyone welcome to wol speed fourth quarter fiscal two thousand and twenty four conference call today we'll speed ceo greg lo and will'll speed cfo neo reynolds willll report on the results for the fourth quarter of fiscal year two thousandand twenty four

Tyler Gronbach: ahead.

Speaker Change: please note that we will be presenting non-gaap financial results during today's call which we believe provides a useful information to our investors

Speaker Change: non-gaap results are not being accordance with gaap and may not be comparable to non-gaap information provided by other companies

Speaker Change: non-gaap information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with gaap

Speaker Change: reconciliation to the most directly comparable gaap measures as in our press release and posted in the investor relation section of our website along with a historical summary of other key metrics

Speaker Change: 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

Speaker Change: our press release today and the sec filings noted in the release mention important factors that could cause actual results to differ materially

Speaker Change: last note that all discussions today will be on a continuing operation basis

Greg Lo: during the q anda session we would ask that you limit yourself to one questionions 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 and now i'd like to turn the call over to greg

Tyler Gronbach: Thank you operator and good afternoon everyone.

Tyler Gronbach: Welcome to Wolfspeed's fourth quarter fiscal 2024 conference call. Today Wolfspeed CEO Gregg Lowe and Wolfspeed CFO Neill Reynolds will report on the results for the fourth quarter of fiscal year 2024.

Greg Lo: good afternoon everyone thank you for joining next ed it

Tyler Gronbach: Please note that we will be presenting non-GAAP financial results during today's call which we believe provides a useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

Greg Lo: as we did on the last call i'd like to discuss a few thoughts that i know our top of mindine

Greg Lo: first we are acting on an aggressive plan to optimize our capital structure for re both the near and the long term

Tyler Gronbach: 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.

Greg Lo: we've already begun to align the pace of the capex to our current balance sheet and identify areas to reduce costs and improve profitability across all aspects of the business

Greg Lo: as we've discussed previously our two hundred millimeter device fab is currently producing solid results at lower costs than our durham one hundred and fifty millimeter fou while also presenting significant dye cost advantages

Greg Lo: this improved profitability gives us the confidence to accelerate the shift of our device fabrication to mohawk valley while we assess the timing of the closure of our one hundred and fifty millimeter device fab

Greg Lo: the team is currently working on these plans and we intend to provide an update on our next earnings call

Greg Lo: we believe these actions can generate meaningful cash savings providing us with greater flexibility to optimize our capital structure

Greg Lo: we have already targeted two hundred million dollars of capex reduction in fiscal two thousand and twenty-five neil will discuss this in more detail shortly

Neil: as we said last quarter as we close out much of our fixed facility spend by the end of december two thousand and twenty four our future capex spend is variable and can be modulated upperor down

Neil: later onm neil will touch more on what this means for our fiscal two thousand and twenty-five and fiscal two thousand and twenty six capex

Tyler Gronbach: Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ, materially.

Neil: we continue to aggressively drive the process of securing additional funding for the business particularly with the chip's office

Tyler Gronbach: Last note that all discussions today will be on a continuing operation basis.

Neil: while we are limited as what we can say publicly

Tyler Gronbach: 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.

Tyler Gronbach: If you have any additional questions, please feel free to contact us after the call.

Neil: our constructive discussions with the chip's office on a preliminary memorandum of terms or pmt continue

Tyler Gronbach: And now I'd like to turn the call over to Greg.

Neil: while there can be no assurance that we will reach an agreement we are now down in negotiating the final terms and conditions of the tmt

Gregg Lowe: Good afternoon, everyone.

Neil: separately as part of the chippss program we are eligible for more than one billion dollars in section for ty eight cash tax refarunds from the is of which we've already crued approximately six hundred and forty million dollars

Gregg Lowe: Thank you for joining us today.

Neil: as world's largest producer of silicon carbide material

Gregg Lowe: As we did on the last call, I'd like to discuss a few thoughts that I know are top of mind.

Neil: we believe we have a compelling proposition bro shipipps gram because silicon carbide is considered a matter of national security is designated a critical material by the u s department of energy and is essential to the electric vehicle ecosystem

Gregg Lowe: First, we are acting on an aggressive plan to optimize our capital structure, for both the near and the long term. We've already begun to align the pace of CapEx to our current balance sheet and identify areas to reduce costs and improve profitability across all aspects of the business.

Neil: next improving operational performance at our manufacturing sites also remains a key focus as we ramp our two hundred millimeter output

Gregg Lowe: As we've discussed previously, our 200-millimeter device fab is currently producing solid results at lower costs than our Durham 150-millimeter fab while also presenting significant die cost advantages. This improved profitability gives us the confidence to accelerate the shift of our device fabrication to Mohawk Valley while we assess the timing of the closure of our 150-millimeter device fab.

Gregg Lowe: The team is currently working on these plans and we intend to provide an update on our next earnings call. We believe these actions can generate meaningful cash savings, providing us with greater flexibility to optimize our capital structure.

Gregg Lowe: We have already targeted $200 million of CapEx reductions in fiscal 2025. Neil will discuss this in more detail shortly. As we said last quarter, as we close out much of our fixed facility spend by the end of December, 2024, our future CapEx spend is variable and can be modulated up or down.

Gregg Lowe: Later on, Neill will touch more on what this means for our Fiscal 2025 and Fiscal 2026, CapEx.

Gregg Lowe: We continue to aggressively drive the process of securing additional funding for the business, particularly with the CHIPS office.

Neil: as you know our u s two hundred millimeter footprint or materials and devices is a key competitive advantage

Gregg Lowe: While we are limited at what we can say publicly, our constructive discussions with the CHIPS, office on a Preliminary Memorandum of Terms, or PMT, continue.

Gregg Lowe: As the world's largest producer of silicon carbide material, we believe we have a compelling, proposition for a CHIPS grant because silicon carbide is considered a matter of national security, is designated a critical material by the U.S. Department of Energy, and is essential to the electric vehicle ecosystem.

Gregg Lowe: While we are limited at what we can say publicly, our constructive discussions with the CHIPS, office on a Preliminary Memorandum of Terms, or PMT, continue.

Gregg Lowe: While there can be no assurance that we will reach an agreement, we are now down to negotiating, the final terms and conditions of the PMT.

Gregg Lowe: Next, improving operational performance at our manufacturing sites also remains a key, focus as we ramp our 200-millimeter output.

Gregg Lowe: As you know, our U.S. 200-millimeter footprint for materials and devices is a key competitive, advantage.

Gregg Lowe: While there can be no assurance that we will reach an agreement, we are now down to negotiating, the final terms and conditions of the PMT.

Gregg Lowe: Next, improving operational performance at our manufacturing sites also remains a key, focus as we ramp our 200-millimeter output.

Gregg Lowe: Separately, as part of the CHIPS program, we are eligible for more than $1 billion in, Section 48D cash tax refunds from the IRS, of which we've already accrued approximately $640 million.

Neil: on a material side our progress on our two hundred millimeter platform has been substantial

Gregg Lowe: On the materials side, our progress on our 200-millimeter platform has been substantial.

Gregg Lowe: As you know, our U.S. 200-millimeter footprint for materials and devices is a key competitive, advantage.

Neil: crystal growth and subate processing out of building ten in durha continues to scale and we expect to be able to support a twenty-five percent way for start utilization at mohak valley in the september quarter one quarter ahead of plan

Gregg Lowe: Crystal growth and substrate processing out of Building 10 in Durham continues to scale, and we expect to be able to support a 25 percent wafer start utilization at Mohawk Valley in the September quarter, one quarter ahead of plan. As a result of continued productivity improvements, we are also now expecting Building 10 to support, 30 percent wafer start utilization at Mohawk Valley in the March quarter of 2025.

Neil: as a result of continued productivity improvements

Neil: we are also now expecting building ten to support thirty percent qua for start utilization at mohack valley in the march quarter oftwo thousand and twenty five

Gregg Lowe: These productivity improvements allow for a more measured ramp and therefore measured, spend on the JP.

Neil: these productivity improvements allows for a more measured gramp and therefore measured spend on the jp

Gregg Lowe: At the JP, we powered up the initial furnaces last quarter and are actively qualifying crystals, this quarter.

Gregg Lowe: On the materials side, our progress on our 200-millimeter platform has been substantial.

Neil: at the jp we powered up the initial furnaces last quarter and are actively qualifying crystals this quarter

Gregg Lowe: We processed the first bulls from the JP through the Durham line and are seeing that the quality, is in line with the great performance we're seeing out of Building 10.

Gregg Lowe: These productivity improvements allow for a more measured ramp and therefore measured, spend on the JP.

Neil: we processed the first bools from the jp through the dham line and are seemed that the quality is in line with the great performance for sitting out a building ten

Gregg Lowe: Construction continues to progress well, and we are still confident in our schedule to, have the full flow qualified in delivering wafers to Mohawk Valley by summer of 2025.

Neil: construction continues to progress well and we are still confident in our scheduled to have the full flow qualified and delivering wafers to mohak valley by summer of two thousand and twenty-five

Gregg Lowe: On the device side, bad yields in Mohawk Valley are ahead of plan, and unit costs are well, below those in Durham. There is plenty of progress still to come, but it's great to see we're ahead of our most, recent projections.

Neil: on the device side bad yields and mohawk valley are ahead of plan and unic costs are well below those in durham there is plenty of progress still to come but it's great to see where're ahead of our most recent projections

Gregg Lowe: As previously mentioned, we are accelerating the transition of our device business to 200-millimeter.

Neil: as previously mentioned we are excelling that accelerating the transition of our device business to two hundred millimeter

Gregg Lowe: By the March quarter, we plan to move nearly all EV powertrain production to Mohawk Valley.

Neil: by march quarter we plan to move nearly all ed power train production to mohawk valley

Gregg Lowe: Because of the success of the entire 200-millimeter effort, this gives us the confidence to move, forward with plans to migrate our device manufacturing from our 150-millimeter fab to the 200-millimeter fab in Mohawk Valley.

Neil: because of the success of the entire two hundred millimeter effort this gives us the confidence to move forward with plans to migrate our device manufacturing from our one hundred and fifty millimeter clabd to the two hundred millimeter fab in ma valleue

Gregg Lowe: Lastly, as I outlined last quarter, the market is clearly not valuing the company consistent, with our technology, the business we've built, or the strategic potential of the business. In light of this disconnect, the management team and the board of directors routinely, consider alternatives to enhance value for shareholders.

Gregg Lowe: At the JP, we powered up the initial furnaces last quarter and are actively qualifying crystals, this quarter.

Gregg Lowe: We processed the first bulls from the JP through the Durham line and are seeing that the quality, is in line with the great performance we're seeing out of Building 10.

Neil: lastly as i outlined last quarter the market is clearly not valuing company consistent with our technologlogy the business we've built or the strategic potential of the business

Neil: in light of this disconnect the management team and the board of directors routinely consider alternatives to enhance value for shareholders

Gregg Lowe: Having laid out those points, let's move to the specifics of Wolfspeed's fourth quarter, performance. The Mohawk Valley FAB generated $41 million in revenue for the quarter on the lower end, of our estimated range, which was the result of an EV customer deferring delivery of several million dollars' worth of product. We expect to recognize this revenue in fiscal 2025 and believe we would have landed in line, or slightly above the midpoint of our Mohawk Valley revenue guidance, excluding this pushout.

Gregg Lowe: Construction continues to progress well, and we are still confident in our schedule to, have the full flow qualified in delivering wafers to Mohawk Valley by summer of 2025.

Speaker Change: having laid out those points let's move to the specifics of both speeds fourth quarter performance

Gregg Lowe: As previously mentioned, we are accelerating the transition of our device business to 200-millimeter.

Speaker Change: the mohaw valley fad january forty-one million dollars in revenue for the quarter on the lower end of our estimatated range which was the result of an eb customer deferring delivery of several million dollars worth the product

Speaker Change: we expect to risk recognize this revenue in fiscal two thousand and twenty-five and believe we would have landed in line or sictly above the midpoint of our mo haw valy revenue guidance excluding this perushsho

Gregg Lowe: We passed internal qualification for nearly all automotive powertrain products in late, July and now have only a handful of customer qualifications left to complete, giving us the confidence that those products can be serviced out of Mohawk Valley sooner than we originally anticipated.

Gregg Lowe: By the March quarter, we plan to move nearly all EV powertrain production to Mohawk Valley.

Speaker Change: we passed internal qualification

Speaker Change: for nearly all automotive power train products in late july and now have only a handful of customer qualifications left to complete giving us to confidence that those products can be serviced at a moulhawk valley

Gregg Lowe: While the ramp of EVs is slower than previously projected and many companies in the semiconductor, industry are still confronting automotive headwinds, our revenue in the EV market continues to be strong because we are just at the beginning of the ramp of our automotive business across several geographies. Our EV revenue in the fourth quarter was up more than 100% year over year and is expected, to be up approximately 300% year on year in fiscal Q1. We are in the very early stages of what might be the most significant transition in the, history of the auto industry.

Speaker Change: sooner than we originally anticipated

Speaker Change: while the ramp of e is slower than previously projected than many companies in the semiconductor industry are still confronting automotive headwinds our revenue in the eating market continues to be strong because we are just at the beginning of the ramp of our automotive business across several giographies

Speaker Change: our easy revenue in the fourth quarter was up more than one hundred percent year-over-year and is expected to be up approximately three hundred percent year-on-year in fiscal q one

Speaker Change: we are in the very early stages of what might be the most significant transition in the history of the auto industry

Gregg Lowe: This will create a very dynamic environment as the OEMs will continue to adjust their, ramp programs across their EV product portfolio.

Speaker Change: this will create a very dynamic environment as the oems will continue to adjust their ramp programs across their e product portfolio

Gregg Lowe: Our EV revenue has grown for three consecutive quarters despite a declining auto semiconductor, market because some of the EV design ends we've accumulated over the last five to seven years are just beginning to ramp. We achieved an additional $2 billion in design ends in fiscal Q4, bringing our fiscal 2024, total to over $9 billion of design ends. We also had approximately $500 million of design ends convert to design wins in the, fourth quarter, reflecting the initial ramp of production for those programs.

Speaker Change: our e revenue has grown for three consecutive quarters despite a declining auto tonic conductor market

Speaker Change: because some of the evv design end we accumulated over the last five to seven years are just beginning to ramp

Speaker Change: we achieved an additional two billion dollars in designers in fiscal q four bring our fiscal two thousand and twenty four total to over nine billion dollars at the guidance

Speaker Change: we also had approximately five hundred million dollars of designings convert to design wins in the fourth quarter reflecting the initial ramp of production for those programs

Gregg Lowe: As we stated previously, our design win backlog supports more than 125 different car models, across more than 30 OEMs over the next several years.

Speaker Change: as we stated previously our design win backlog supports more than one hundred and twenty-five different car models across more than thirty oems over the next c of several years

Gregg Lowe: But remember, this transition is the biggest disruption in the history of the auto industry, and not all of these car models will ramp as currently projected.

Speaker Change: but remember this transition is the biggest disruption in the history ofthe auto man industry and not all of these car models will ramp is currently projected

Gregg Lowe: Some will be very successful, others less so.

Gregg Lowe: As such, we will need to be flexible to match our manufacturing output with this dynamic, demand.

Speaker Change: some will be very successful othersis less so

Speaker Change: as such we will need to be flexible to match our manufacturing output with this dynamic andthat demand

Gregg Lowe: Additionally, while there's been some near-term reductions in projected EV adoption rate estimates, the adoption of silicon carbide in EVs has remained strong.

Speaker Change: additionally while there's been some near-term reductions in the projected e adoption rate estimates

Speaker Change: the adoption of silicon carbide in evs has remained strong our twenty-one billion dollars of evv designend to date is a testament to dose

Gregg Lowe: Our $21 billion of EV design ends to date is a testament to this.

Gregg Lowe: A recent McKinsey report highlighted that OEMs are transitioning to purpose-built silicon, carbide devices and next-generation EVs that have higher power requirements, and therefore, 800-volt battery systems.

Speaker Change: a recent mckinenzy report highlighted that oems are transitioning to purpose built silicon carbide devices and next generation bs that have higher power requirements and therefore eight hundred bull battery systems

Gregg Lowe: In fact, by 2027 to 2030, it is projected that more than 90% of new EVs will use 800-volt, systems, which offer compelling performance advantages over traditional 400-volt systems.

Speaker Change: in fact by two thousand and twenty seven to y and thirty that is projected that more than ninety percent of new eds will use eight hundred bolt systems

Speaker Change: which offeer compelling performance advantages over traditional four hundred vol systems

Gregg Lowe: On that note, approximately 70% of our $2 billion design ends from this quarter were, related to 800-volt applications, underscoring our belief that this shift to higher-performing and more efficient architectures will serve as a major tailwind for both silicon carbide generally and Wolfspeed specifically, given our market-leading wafer and device quality.

Speaker Change: on that note approximately seventy percent of our two billion dollar designingss from this quarter were related to eight hundred bu applications

Speaker Change: underscoring our belief that this shift to higher performing and more efficient architectureures will serve at a major tailwind for both silicon power by generally and will speed specifically given our market leading wver and device quality

Gregg Lowe: While the automotive industry has led the way in adopting silicon carbide thus far, there are critical high-voltage industries and energy markets, such as AI data centers, e-mobility, and solar inverters, that are ripe for disruption in the coming years as more industrial and energy companies look to solve for the same efficiency, system size, and system cost challenges that the automotive makers faced as they were designing their next-generation EVs. As we remarked earlier, silicon carbide is the path they chose to overcome those challenges.

Speaker Change: while the automotive industry has led the way in adopting silicon car ide thafar there are critical high voltage industries and energy markets such as ai data centers emobility and solar and verters that are right for disruption in the coming years as more industrial and energy companies

Speaker Change: look to solve for the same efficiency system size and system cost challenges that the automotive makers face as they were designing their next generation eatings

Speaker Change: as we remarked earlier silon carbyi is the path they chose to overcome those challenges

Gregg Lowe: We have merely scratched the surface of silicon carbide's potential use cases. Silicon carbide is integral to the electrification of a wide array of current and future applications, and plays a foundational role in making our energy systems more efficient, more powerful, and more reliable.

Speaker Change: we have merely scratched the surface of silicon carbide potential use cases

Speaker Change: filton carbide is integral to the electrification of a wide array of current and future application and plays a foundational role than making our energy systems more efficient more powerful than more reliable

Gregg Lowe: And now I'd like to pass the call over to Neil to discuss our quarterly financial and

Speaker Change: and now i'd like to pass the call over to neil to discuss our quarterly financial and guidance

Neill Reynolds: guidance.

Neill Reynolds: Thanks, Greg.

Neill Reynolds: As a reminder, before we discuss our performance, all results reported today will be on a continuing, operations basis and exclude the impact of our divested RF business in our results. We generated $201 million of revenue for the quarter, slightly above the midpoint of our, guidance and flat sequentially. We recognized power revenue of $105 million, driven largely by the contribution from Mohawk, Valley, but offset by continued weakness in industrial and energy markets. Mohawk Valley's $41 million contribution represents growth of 46% quarter over quarter and an, exponential increase from the $1 million contribution one year ago.

Neil: thanks greg as a reminder before we discuss our performance all results reported today will be on a continuing operations basis and exclude the impact of our divested rf business in our results

Neil: we generated two hundred and onemillion of revenue for the quarter slightly above the midpoint of our guidance and flat sequentially

Neil: we recognizede power revenue of one hundred and five million driven largely by the contribution for moha valley but offset by continued weakness in industrial and energy markets

Neil: mohog valleys forty-one million dollar contribution represents growth of forty-six percent quarter of a quarter in an end an exponential increase from the one million contribution one year ago

Neill Reynolds: We achieved $64 million of revenue from our Durham device fab, down approximately 40% quarter over year, driven by continued weakness in industrial and energy markets.

Neil: we achieved sixty-four million of revenue from our gerurm device stab down approximately forty percent year-over-year driven by continued weakness in industrial and energy markets

Neill Reynolds: We also recognized materials revenue of $96 million, above our expectations, driven by, the continued strong execution of our materials operations team.

Neil: we also recognized materials revenue of ninety-six illion above our expectations driven by the continued strong execution of our materials operations team

Neill Reynolds: Looking to the future, given the continued yield, efficiency, and capacity improvements, in our 200 millimeter production, we will accelerate the transition of our power device business to 200 millimeter at Mohawk Valley, where we see significantly improved unit costs, well ahead of our 150 millimeter device unit costs.

Neil: looking to the future given the continued yield efficiency and capacity improvements in our two hundred millimeter production we will accelerate the transition of our power device business

Neil: to two hundred millimeter at mohag valley where we see significantly improved unit costs well ahead of our one hundred and fifteen millimeter device unit costs

Neill Reynolds: Additionally, the Durham fab has been running at lower levels of utilization due to the, weakness in I&E markets, driving a significant level of underutilization and higher unit costs.

Neil: additionally the durham fth has been running at lower levels of utilization due to the weakness in i markets

Greg Lo: driving a significant level of underutilization and higher unit costs therefore as greg mentioned we are planning to accelerate the shift of our device fabrication to mohawk valley all the assess the timing of the closure of one one hundred fifty millimeter device fab

Neill Reynolds: Therefore, as Gregg mentioned, we are planning to accelerate the shift of our device fabrication, to Mohawk Valley, while we assess the timing of the closure of our 150 millimeter device fab.

Neill Reynolds: We will come back at our next earnings call with our future device production plans as, we work through these plans internally and with our customers.

Greg Lo: we will come back at our next earnings call with our future device production plans as we work through these bandans internally and with our customers

Neill Reynolds: I'd also like to note that this shift in production mix did not change our view that I&E products, will be a substantial and important part of our product portfolio over the long term.

Speaker Change: i'd also like to note that this shift in production mix did not change our view that i products will be a substantial and important part of our product portfolio over the long term

Neill Reynolds: Moving back to our financials, non-gap gross margin in the fourth quarter was 5%, slightly, above the midpoint of our June guidance. This includes 24 million or 1,200 basis points of expansion under utilization, primarily, related to Mohawk Valley. As you know, based on our June update, in the fourth quarter, our gross margin was negatively, impacted by an incident at our Durham fab, which negatively impacted non-gap gross margin by an incremental 500 basis points, resulting from underutilization charges, repair costs, and lower yields.

Speaker Change: moving back to our financials non-gaap growross margin in the fourth quarter was five percent slightly above the midpoint of our june guidance

Speaker Change: this includes twenty-four million or one thousand two hundred basis points of expansion under utilization primarily related to mohha valley

Speaker Change: as you know based on our june update in the fourth quarter our gross margin was negatively impacted by an incident at our durm tab which negatively impacted non-gaap gross margin on an incremental five hundred basis points resulting from our utilization charges repair costs and lower yields

Neill Reynolds: This resulted in adjusted EPS of negative 89 cents and was above the midpoint of our, June guidance.

Speaker Change: this resulted in adjusted eps of negative eighty-nine cents and was above the midpoint of our june guidance

Neill Reynolds: Regarding our balance sheet, we ended the fiscal year with approximately $2.2 billion, of cash and liquidity on hand to support our facility ramps and growth plans. DSO was 43 days, while inventory on hand was 200 days.

Speaker Change: regarding our balance sheet we ended the fiscal year with approximately two point two billion of cash and liquidity on hand to support our facility ramps and growth plans

Speaker Change: gso was forty three days while inventory on hand was two hundred days free cash flow for during the quarter was negative eight hundred eighty five million comprised of negative two hundred andforty million of operating cash flow and six hundred and forty four million of capital expenditures

Neill Reynolds: Free cash flow during the quarter was negative $885 million, comprised of negative $240 million, of operating cash flow and $644 million of capital expenditures.

Neill Reynolds: As Greg mentioned earlier, we understand very clearly that our future funding plans, and capital structure are a major focus for investors. So let me take some time to explain and work through the various levers available to us. Starting with CapEx, in fiscal year 2025, we expect net capital expenditures to be approximately, $1.2 billion to $1.4 billion, down $200 million from our previously communicated range, and down from the $2.1 billion that we spent in fiscal 2024. This reduction in CapEx reflects a significant improvement in yield and efficiency in our, 200-millimeter materials and device facilities.

Speaker Change: as greg mentioned earlier we understand very clearly that our future funding plans and capital structure our major focus for investors

Greg Lo: so let me take some time to explain and work through the various levers available to us

Greg Lo: starting with capex in fiscal year two thousand and twentyfive we expect net capital expenditures to be approximately one point two billion to one point four billion down two hundred million from our previously communicated range and down for the two point one billion that we spent in fiscal twothousandand twenty four

Greg Lo: this at this reduction in capex reflects the significant improvement in yield and efficiency in our two hundred millimeter materials and device facilities

Neill Reynolds: We have the flexibility to take this estimate down even lower based on the demand and revenue, outlook throughout the year.

Greg Lo: we have the flexibility of flexibility to take this estimate down even lower based on the demand and revenue outlook throughout the year this level of capex ensures that we complete the jp cyler city materials factory on time and on budget so that we deliver wafers to mohhag valley made next calendar year

Neill Reynolds: This level of CapEx ensures that we complete the J.P. Seiler City Materials factory on, time and on budget so that we deliver wafers to Mohawk Valley mid-next calendar year.

Neill Reynolds: In addition, we believe we will have the ability to achieve 30 percent utilization at our Mohawk, Valley fab with wafers only from Building 10 on our Durham campus, which continues to produce a steady supply of high-quality 200-millimeter substrates.

Greg Lo: in addition we believe we will have the ability to achieve thirty percent utilization mohawk valley bap with wafers only from building ten on a derm campus which continues to produce a steady supply of high quality two hundred millimeter substrates

Neill Reynolds: Looking at fiscal year 2026, our CapEx will fall off sharply as our facility expansion, projects will be complete and the vast majority of our CapEx will be related to the production tools to fill those facilities and increase capacity. We expect our gross fiscal year 2026 CapEx to be in the range of $200 million to $600, million, which does not include offsets for federal incentives, which could lower that number significantly. This would include some of the approximately $640 million of 48D tax credits as part of, the CHIPS Act that we have already accrued on our balance sheet.

Greg Lo: looking at fiscal year two thousand and twenty six our capex will fall off sharply as our facility expansion projects will be complete and the vast majority of our capex will be related to the production tools to build those facilities and increased capacity

Greg Lo: we expect our gth fiscal year two thousand and twenty six capex to be a range of two hundred million to six hundred million which has not include offsets for federal incentives which could lower that number significantly

Greg Lo: this would include some of the approximately six hundred and forty million of forty eight d taxcredits as part of the chipsc that we have already accrued on our balance sheet

Neill Reynolds: As Gregg mentioned, we expect these tax credits to represent over $1 billion of a future funding, source over time that are not associated with a potential CHIPS grant.

Greg Lo: as gregmentioned they expect these tax credits to represent over one billion dollars of a future funding source over time that are not associated with a potential chip renint

Neill Reynolds: In addition, from an operating perspective, we are undertaking several initiatives that, accelerate our path to profitability and ensure we slow our operating cash burn, achieve positive EBITDA in the second half of this fiscal year, and drive to positive operating cash flow by early fiscal 2026. These initiatives include assessing the timing of a closure of our Durham 150-millimeter, wafer fab and lowering our overall cost footprint.

Speaker Change: in addition from an operating perspective we are undertaking several initiatives that accelerate our path to profitability and ensure we slow our operating cash burn achieved positive ebitata in the second half of this fiscal year and drive to positive operating cash flow by early fiscal two thousand and twenty-six

Speaker Change: these initiatives include assessing the timing of a closure of our urm one hundred and fifty millimeter waferfor abb and lowering our overall cost footprint as greg mentioned earlier we will give an update on these initiatives on our next earnings call

Neill Reynolds: As Gregg mentioned earlier, we will give an update on these initiatives on our next earnings, call.

Neill Reynolds: Lastly, from a capital raise perspective, we continue to pursue additional funding with, a potential CHIPS grant being a critical milestone as to how we proceed.

Speaker Change: lastly from a capital raise perspective we continueed to pursue additional funding with a potential chips grant being a critical milestone as to how we proceed

Neill Reynolds: In addition to CHIPS, we are working closely with our lenders on plans to raise additional, capital in the event we choose to go down that path.

Speaker Change: in addition to chips we are working closely with our lenders on plans to raise additional capital in the event we choose to go down that path

Neill Reynolds: As previously mentioned, we expect to have more than $1 billion of 48D tax credits that, will help fund the business over time.

Speaker Change: as previously mentioned we expect to have more than one billion dollars of forty- eight d tax credits that will help fund the business over time we are also applying for other government lending and tax credit programs that may provide us with additional access to capital

Neill Reynolds: We are also applying for other government lending and tax credit programs that may provide, us with additional access to capital. Therefore, in addition to lowering CapEx and driving towards profitability, we expect to, have access to several options that would enable us to end fiscal year 2025 above our, $1 billion minimum cash target.

Speaker Change: therefore in addition to lowering capex and driving towards profitability we expect to have access to several options that would enable us to end fiscal year two thousand and twenty five above our one billion dollar minimum cash target

Neill Reynolds: Moving on to our guidance for the first quarter of fiscal 2025, we target our revenue to be, in the range of $185 million to $215 million.

Speaker Change: moving on to ourguidance for the first quarter of fiscal two and twenty-five wetget our revenue to be in the range of one hundred andeighty five million to two hundred and fifteen million

Neill Reynolds: We target roughly $50 million to $60 million of this revenue to come from Mohawk Valley, next quarter, up more than 34% from the prior quarter, and up greater than $50 million year over year at the midpoint of our range versus the $4 million we achieved last year at this time.

Speaker Change: we target roughly fifty million to sixty million of this revenue to come from mohag valley next quarter of more than thirty-four percent from the prior quarter in up greater than fifty million year-over-year at the midpoint of our range versus the four million we achieved last year at this time

Neill Reynolds: Next, we target non-GAAP gross margin of minus 2% to 6% with a midpoint of 2%. At the midpoint, this includes approximately 1,000 basis points of underutilization, repair, costs, and yield impact in the Durham FAB, partially related to the FAB facility incident disclosed in June, but also related to weaker industrial and energy markets where we will look to lower inventory levels.

Speaker Change: next target non-gaap growross margin of minus two percent to six percent with a midpoint of two percent

Speaker Change: at the mid midpoint this includes approximately one thousand basis points of underutilization or par cost and yield impact in the durham fab partially related to the fat facility incident disclosed in june but also related to weaker industrial and energy markets where we will look to lower inventory levels

Neill Reynolds: We target non-GAAP operating expenses of approximately $128 million, inclusive of $25 million of, startup costs related to the JP. As a reminder, as Mohawk Valley utilization increases and the JP starts to come online, we will start to see incrementally less underutilization out of Mohawk Valley, but incrementally more startup costs from the JP, which hit different lines of our P&L.

Speaker Change: we target non-gaap operating expenses of approximately one hundred twenty eight million inclusive of twenty-five million of stup costs related to the jp

Speaker Change: as a reminder at mohag value utilization increases and the jp starts to come online we will start to see incrementally less underutilization out of mohawk valley but incrementally more start up costs from the jp which hit different lines of our pl

Neill Reynolds: Net non-operating expenses are targeted to be roughly $41 million for the first quarter, and lastly, we target non-GAAP net loss between $138 million and $114 million.

Speaker Change: net nonoperating expenses are targeted to be roughly forty-one million for the first quarter and lastly we target non-gaap net loss between one hundred and thirty eight million and one hundred and fourteen million

Gregg Lowe: Now I'll turn it over to Greg for some closing remarks.

Gregg Lowe: Thanks, Neil.

Gregg Lowe: We are encouraged by the positive results we are seeing in 200 millimeters, the productivity, improvements in Building 10, the yield improvements in Mohawk Valley, and the progress thus far at the JP, are giving us further confidence in our ability to accelerate the transition of our device platform from 150 millimeter to 200 millimeter.

Greag: now i'll turnit over to greag for some closing remarks

Greag: thanks neilwe are encouraged by the positive results we are seeing in two hundred millimeter

Greag: the productivity improvements in building tenon the yield improvements in mohawk valley and the progress thus far at the jp are giving us further confidence in our ability to accelerate the transition of our device platform from one hundred and fifty millimeter to two hundred millimeter

Gregg Lowe: We've already begun to align the pace of CAPEX to our current balance sheet and identify, areas of opportunity to reduce costs and improve profitability across all aspects of the business, and we'll outline our plan for this transition in greater detail during the next earnings call. We are driving the process of securing additional funding for the business, particularly with, the CHIPS office, while at the same time taking very deliberate actions to reduce our costs by aligning the pace of our investments and identifying new areas across the company to improve profitability.

Speaker Change: we've already begun to align the pace of capex to our current balance sheet and identify areas of opportunities to reduce costs and improve profitability across all aspects of the business and we'll outline our plan for this transition in greater detail during the next earnings paul

Speaker Change: we are driving the process of securing additional funding for the business particularly with the chip's office while at the same time taking very deliberate actions to reduce our cost by aligning the pace of our investments and identifying new areas across company to improve profitability

Gregg Lowe: Thanks for your continued support, and now we'll move to Q&A.

Paul: thanks for your continued support and now we'll move to qna

Speaker Change: a keep

Speaker Change: if you would like to ask a question please press star from by one on your telephone key that if any reason i' like to move that question and please for start bu to again to ask a question for star one

Operator: Again, to ask a question, press star one.

Operator: In the interest of time, we ask that you please limit yourselves to one question today.

Speaker Change: in the interest of time we ask that you please limit yourselves to one question todayas our reminder are using a speer phone please remember to pick up your handset before asking your question we will use a briefly his questions registered

Operator: As a reminder, if you're using a speakerphone, please remember to pick up your handset before, asking your question.

Operator: We'll pause it briefly as questions are registered.

Operator: The first question is from the line of Brian Lee with Goldman Sachs.

Nick Cash: Hi, everyone.

Brian Lee: the first question is going to line of brian leave with g missex ilize that will be

Nick Cash: This is actually Nick Cash on the line for Brian.

Nick Cash: I just kind of wanted to dive into Durham a little bit.

Nick Cash: high one this actually nick cash on the line for ryan just kind of the dive into to durham a little bit i guessyou know one how much of your outlook at deram is still levered to ionine and how much visibility do you have you know regarding the derm famm you know or fab is finally trought in terms of demand and margin profile but i guessyou know how quickly into what level can that recover to

Nick Cash: I guess, you know, one, how much of your outlook at Durham is still levered to I&E, and how, much visibility do you have, you know, regarding the Durham FAM, you know, or FAB has finally troughed in terms of demand and margin profile?

Nick Cash: And I guess, you know, how quickly and to what level can that recover to?

Nick Cash: And I guess, you know, one more, touching on, you know, I guess the equipment incident, at the facility, you mentioned a possible 20 million impact to first quarter 25 revenue.

Speaker Change: i i guess he one more touch on i guess the equipment incident that the facility you mentioned a possible twenty million impact to first quarter twenty five revenue is that guide you guys gave inclusive of that twenty million impact thank you

Nick Cash: Is that guide you guys gave inclusive of that 20 million impact?

Nick Cash: Thank you.

Gregg Lowe: Yeah, maybe I'll start with the answer, Nick, and then I'll turn it over to Neil for a little bit more details.

Speaker Change: yes maybe i'll start with the the ethenic and i'll turnitover to neil for a little bit more detail

Gregg Lowe: Visibility on I&E is, it's cloudy, you know, so right now it's down. We're anticipating it being down for, you know, the better part of the rest of this, calendar year.

Speaker Change: visibility on ien it's cloudy so right now it's down we're anticipating and being down for the better part of the rest of this calendar year

Gregg Lowe: And there's no sign of, you know, it's all going to jump back really quickly or anything, like that. So it's down, and it will eventually pick back up, but when, we can't really predict.

Neil: and there's no sign of it's all going to jump back really quickly or endanything like that so it's down and it will eventually pick back up but when we can't really predict

Gregg Lowe: And then I'll maybe turn it over to Neil for.

Neill Reynolds: Yeah, let me just kind of unpack a little bit the revenue and the gross margin trajectory. So we just guided about flat for the September quarter, you know, as increases, I think, in our EV revenue in Mohawk Valley are being offset by, as you mentioned, lower I&E and lower Durham revenue.

Neil: and then it'll make it turn over the ilod

Speaker Change: yes letme just try to pack a little bit the revenue in the gross margintrajectory so we just guided about flat for the september quarter as increases i think in our easv revenue moha valley

Neill Reynolds: So as you look out into the December quarter, we anticipate seeing another, you know, solid, pickup in EV and Mohawk Valley revenue, but it'll likely be a decline in some of the Durham and I&E, you know, volume, kind of as an I&E, as Greg mentioned, demand flattens and we start to burn off some inventory there.

Speaker Change: are being offset by as you mentioned lower i and lower durham revenue so as you look out into thedecember quarter we anticipating solid pickup in ev mobile valley revenue but likely be a decline in some of the durm and n eight volumekind of that ie greg mentioned

Neill Reynolds: So that's anticipation of kind of, you know, an I&E kind of recovery to get into the first, half of calendar next year.

Speaker Change: demand flatten and we start to burn off an inventory there to anticipation of kind of i kind of recovery get into thefirsthalf accalendar next year i thinkthat's kind of of think about the the revenue from from a september porter impact from the fab event iwould say we were wewere thinking we would don'tbe down a bit lower actually

Neill Reynolds: So I think that's kind of how to think about the revenue.

Neill Reynolds: From a September quarter impact from the FAB event, you know, I would say we were thinking, we would be down a bit lower, actually.

Neill Reynolds: The FAB recovered, I would say, halfway through the quarter, but we just elected to keep starts, down just because of the impact of the lower, you know, I&E demand. So we're continuing to manage through that and just let inventory burn off there a bit.

Speaker Change: the fact recovered i would say halfway thequarter but we just elected to keep starts down just because of the just because of the impact

Speaker Change: of the lower i need band so we can to manage through that and let inventory burn out there that from a gross margin perspective again weve we've been impacted by the lower eing mix

Neill Reynolds: From a gross margin perspective, again, we've been, you know, impacted by the lower I&E, you know, mix, but also the lower utilization in the FAB, you know, as these repair costs and lower yields in the FAB from the June event impacted us.

Speaker Change: but also the lower utilization in the fab these pa s and lower yield in the f from the un end juneev impacted us

Neill Reynolds: As I said in the prepared remarks, that was about 500 basis points in the June quarter.

Speaker Change: as said in theprepared remarks that was about five hundred basispoints intheje quarter

Neill Reynolds: Now that the FAB has kind of returned to normal operations, we've elected to keep those wafer, starts down just to manage inventory.

Speaker Change: now thatthe kind of return to normal operations we've elected to keep those way starts down just the manage inventory so the impact they say both in the september report both from the fab incident and the lower levels of utilization related to the lower industrial energydemanded about a thousand basis points in the arder so have you looked at that underlying actually have a little bit of a margin pickup quarter of a board just as we start to seeing more volume glow through mobile valley

Neill Reynolds: So the impact, I'd say, both in the September quarter, both from the FAB incident and the, lower levels of utilization related to the lower industrial energy demand is about 1,000 basis points in the quarter.

Neill Reynolds: So if you looked at that underlying, we actually have a little bit of a margin pickup quarter, over quarter just as we start to see more volume flow through Mohawk Valley.

Neill Reynolds: Thank you for your question.

Operator: Next question is from the line of Harsh Kumar with Piper Sandler.

Speaker Change: thank you for your question next quest from alino harsh camar with five percent reganon on is that open

Operator: Your line is now open.

Harsh Kumar: Yeah.

Harsh Kumar: Hey, guys.

Harsh Kumar: First of all, sorry about the background noise.

Harsh Kumar: I'm at a Starbucks, but, Gregg, let me ask you the loaded question that's on every investor's, mind here.

Speaker Change: yes hey guys first of all solry about the background noise and tus stcarbus but greg let me ask you the loaded question that's on every investor's mind here i think

Harsh Kumar: I think the market has sort of liquidity concerns about Wolfspeed, and it's kind of evident, in the stock price decline here.

Speaker Change: the market has sort of liquidity concerned about about both speed and it's can i evidence in the stock ice decline here so my question for you is what is the bare minimum that you have to spread on jp assuming that mark while he is now flpt

Harsh Kumar: So my question for you is, what is the bare minimum that you have to spend on JP assuming, that Mohawk Valley is now equipped?

Harsh Kumar: And so is there a way that you could materially cut down the CapEx?

Harsh Kumar: And then I think you also mentioned that you're looking at positive free cash flow by early, 2026.

Speaker Change: and so in there a way that you could materially ut down the capex and then i think you also mentioned that we're looking at positive free cash low by early two thousand and twentyandsix but you may be help us brreadch that between now and then

Harsh Kumar: Could you maybe help us bridge that between now and then?

Harsh Kumar: Okay.

Gregg Lowe: Thanks for the question, Harsh, and I'll kick it off.

Gregg Lowe: First off, the progress we're seeing out of Building 10 is exceptional, and the fact, that we now know that we can feed Mohawk Valley up to 30% wafer start utilization quite frankly puts a big pressure off of trying to get the JP up and running at some kind of super fast speed.

Speaker Change: okay thanks for the question harsh i'll kick it off first off the progress we're seeing out of building ten is exceptional and the fact that we now know that we can feed mohawk valley up to thirty percent w for startar utilization

Speaker Change: quite frankly put a big pressure off of

Speaker Change: trying to get the jp up and running in some kind of superfast feedet so it obviously helps us with that

Gregg Lowe: So it obviously helps us with that.

Gregg Lowe: We're going to be finished with the fixed cost, basically, build out of the JP by the, end of this calendar year.

Speaker Change: we're going to be finished with the fixed cost basically build out of the j by the end of this calendar year

Gregg Lowe: And as Neil said in his remarks, we then can build out the tools and the equipment and, so forth at a pace that's aligned with what we're going to need wafer start-wise out of Mohawk Valley, especially with the fact that Building 10 is able to support a significantly, higher percentage.

Speaker Change: and as neilsettingin his remarks we then can

Neil: build out the tools and the equipment so th at a pace that's aligned with what we're going to need

Neil: wer startwise out of mohak valley especially with the fact that building ten is able to support a significantly a higher percentage

Neill Reynolds: Maybe, Neil, you can hit some of the other details.

Neill Reynolds: Yeah, Harsh, I just think as you start to look forward from an operating perspective, I think as we talked about in the prepared remarks, we're going to look at driving several, things here.

Speaker Change: maybe ll or you can hit some of other details horhar i just think you just start to look i start look forward from a operating perspective i think as we talked about in the prepared remarks

Neill Reynolds: One is obviously lower CapEx.

Neill Reynolds: We're going to manage that with what we're looking at from a market perspective, from, a CapEx efficiency viewpoint.

Speaker Change: we're look at driving several things one of obviouslylow capex we'regoing to manage that with what we're looking at from

Neill Reynolds: Secondly, we're looking at these operating efficiencies within the business as well.

Speaker Change: a market perspective from from a capex efficiency viewpoint

Neill Reynolds: So what that will do is drive towards EBITDA positive as we get into the back half of the, year, and then drive towards operating cash flow positive as you get into fiscal year, 2026.

Speaker Change: secondly we're these operating efficiencies with in thebusiness well else what theniwill do was drive towards bitda positive as we get in the back half of the year and then drive towards operating cash flow positive as youget into fiscal year twotwentthousand and twenty six

Neill Reynolds: And then from a funding perspective, we talked a lot on the prepared remarks just about these, 40AD tax credits, and these are things that we've already accrued $640 million for. We're anticipating getting those by 2026, a significant amount of them, to help fund, the business as well.

Speaker Change: and then from a funding perspective and wetal a lot on prepared remarks about these forty eight tax credits and these are things that we'vealready accred six hundred and forty million four we anticipating getting those by two thousand and twenty six significant amount of them

Neill Reynolds: So I think it's important right now that we continue to execute our build-out within the, parameters we talked about. We're seeing better capital efficiency right now just because of the performance of 200, millimeter, and we'll continue down that path.

Speaker Change: to help fund the business as well so i think it's important right now that we continue to execute our build out within the pra weve talked about we're seeing better capital efficiency right now disbecause the performance of two hundred millimeter

Neill Reynolds: We still remain focused, I think, from a funding perspective, looking at the overall liquidity, in the business, really focused on finishing our work with the CHIPS funding and working through that process, which we still feel optimistic about.

Speaker Change: and wewill continue down that path but we still remain focusused i think from a funding spectiv with the overall all liquitying the business really focused on finishing our work with with the chip' funding and working through that process which we still feel optimistic about

Neill Reynolds: Thank you for your question.

Operator: Next question is from the line of Samik Chatterjee with J.P. Morgan.

Speaker Change: i

Speaker Change: thank you for your question next questionquest is from the line osic chattergy with j p mortgan you want to know

Operator: Your line is now open.

Joe Cardoso: Hey, this is Joe Cardoso.

Joe Cardoso: I'm for Samik Chatterjee.

jokerozso: hey this is jokerozso on for omic strategy

Joe Cardoso: I'm just curious, like, the potential closure of the Durham device FAB would be quite a, shift in strategy relative to prior to closures.

Jokeroz So: just curious like the potential closure of the durm device ab would be quite a shift in strategy relative to partor closures i think

Joe Cardoso: I think $400 million of revenue was coming from that footprint when it's fully loaded.

Joe Cardoso: So just curious if you could just dive into that or flesh it out a bit more, what the, exact thought process here is around closing that FAB and take it out of the long-term model.

Joker Ozso: forform milliona revenue was coming from that frotprint when it's fully loaded so just curious if you could just dive into that or flh it out a bit more what an exact top process here is to close what around closing that of

Joe Cardoso: And then maybe just second part of that question is what does that imply for the existing footprint, there in Durham?

Joker Ozso: and take it out of the long-term model and then maybe just second part of that question is what does that imply for the existing footprint there and thes

Joe Cardoso: Thanks.

Gregg Lowe: Thanks for the question.

Gregg Lowe: First, it was always the plan to ramp down 150-millimeter and transition to 200-millimeter. What's really made this decision very straightforward is the progress and productivity we're seeing, across the entire 200-millimeter platform.

Speaker Change: thanks thank for the question first it we always see the plan to ramp down one hundred fifty million leadter and transitioned of two hundred millimeter what's really made this decision very straightforward is the progress in productivity we're seeing across the entire two hundred millimeter platform

Gregg Lowe: Output from Building 10, now able to support 30 percent wafer start utilization, yields, in Mohawk Valley ahead of plan, the economics of Mohawk Valley substantially more compelling than Durham.

Speaker Change: output from building ten now able to forpport thirty percent wave for start utilization yields and mohawk valley ahead of plan the economics of mohawk alley substantially more compelling than than dha

Gregg Lowe: And finally, we want to schedule the ramp to JP, and seeing great results from the initial crystal run.

Speaker Change: and finally want schedule the rampto jp and seeing great results from the initial crystal run so

Gregg Lowe: So, you know, combine this with the fact, that the industrial energy business is down.

Speaker Change: combineed this with the fact that the industrial and energy business is down took starting this process of transitioning the fab when we're not swiming upstream against the bunch ofdemand from i certainly gives us breathing room to make this happen

Gregg Lowe: So, starting this process of transitioning the fab, when we're not swimming upstream against a whole bunch of demand from I&E certainly gives us breathing room to make this happen.

Gregg Lowe: The key decision, though, was all about the product, and the progress and productivity that we see across 200 millimeter.

Speaker Change: the key decision though was all about the product to product their progress in productivity that we see across two hundred millimeter we' per excited about that it's actually quite an amazing accomplish that the teams been able to

Gregg Lowe: We're super excited about that.

Gregg Lowe: It's actually quite an amazing accomplishment, that the team's been able to do.

Gregg Lowe: And, you know, Neill, you can get into a little bit of detail, but that progress and productivity also gives us ability to absorb that revenue in our current footprint.

Speaker Change: to do and know you can get into a little bit of detail but that progress and productivity also gives us ability to absorb that revenue in our turnrening footprint

Neill Reynolds: So, let me just break down a little bit, just a bit of the capital efficiency that we're seeing. So, one thing I talked about, is kind of taking the CapEx level down from 1.2 to 1.4 billion during fiscal year 2025 and then dropping that down dramatically in fiscal year 26.

Speaker Change: solet me just break down a little bit just a bit the capital efficiency that were seeing so

Speaker Change: one thing i ked about is kind of taick the capex level down from one point two to one point four billion during fiscal year thousand twentyfive dropping thatdowndramatically in fiscalyear twenty sixso i think it s gregg said

Neill Reynolds: So, I think as Greg said, you know, the facility spend being complete, you know, we can really modulate our CapEx for tools, you know, going forward. And that facility, you know, will be, the facilities, you know, also will likely be complete by December of this year.

Gregg: thefacility spend being complete we can really modulate our capex for tools going forward net facilities will be the facilities also will likely be complete by december of this year

Neill Reynolds: So, you know, we plan these factories, for great economies of scale building up modularly and we're starting to see the benefits of that as we can start to exit that facility spend.

Gregg: so if we planned these factories for great economies of scales building up modularlyand we're startingto see the benefits of that as you start to exit that facility spend

Neill Reynolds: The second thing is our capital investment model, is working as expected. So, the good yields and the efficiency, across the 200 millimeter supply chain is just resulting in a lower required amount of CapEx for each incremental dollar of revenue.

Gregg: the second thing is our capital investment models working is expected so you could yield efficiency across the two hundredmilmeter supplycha is just resulting in a lower required amount of capex for each incremental dollar of revenes so we' seeing some good perforce there

Neill Reynolds: So, we're seeing some good performance there.

Neill Reynolds: So, when you think about, you know, what that would mean longer term for the revenue, Joe, as you start to think about, you know, moving on beyond the Durham Fab one day, that 200 to 600 million of fiscal year 2026 CapEx could support 50 to 60% utilization out of Mohawk Valley.

Joe: so you think about what that would be longer term for the revenue joe as you start to think about moving on beyond the durm fab one day

Joe: that's two hundred to six hundred million of fiscal year twothousand and twenty six capex

Neill Reynolds: So, I think that's a real testament, to the amount of revenue we can absorb through Mohawk Valley when you start making that trade, you know, from 150 millimeter, you know, to 200 millimeter.

Speaker Change: could support fiftyto sixty percent utilization at a mo ley i think it'sa real testent to theamount of revenue we can absorb your all value start making that trade from one hundred andfifty millimeter to two hundred so i think here in in the medium term

Neill Reynolds: So, I think here in the medium term, you know, if we go down that path, I think Mohawk Valley will have, you know, significant capability to absorb a lot of that revenue.

Speaker Change: you know if if we go down that path i think mo ha value will have you significant capability to absorb a lot of that revenue and of course the trade off from industrial energy from one and fifty to two hundred is actually a very very good mix shif from that perspective so we believe that the demoha ley bab will really be able to incorporate a lot of that revenue this mentioned

Neill Reynolds: And of course, the trade off from industrial energy, from 150 to 200 is actually a very, very good mixed shift from that perspective.

Neill Reynolds: So, we believe that the Mohawk Valley Fab, will really be able to incorporate a lot of that revenue just mentioned as we tighten up these plans and give more of an update, we'll let you know how that impacts a long-term model, but we're clearly bullish on the ability of Mohawk Valley to absorb that.

Speaker Change: amle as we tightup these plans and give moreofan updap let you know how that impacts a longter model but we'reclearly bullish on the abilityion moileha valy to aborb that

Neill Reynolds: Thank you for your question.

Operator: The next question is from the line of Colin Rushwood Oppenheimer.

Operator: Your line is now open.

Speaker Change: thank you for your question the next question is from the line of coler and rush would openen imer open

Colin Rusch: Thanks so much.

Colin Rusch: You know, in terms of monetizing these tax credits, that you've accrued, are there operational metrics that you need to meet or are those things that you can actually discuss monetizing the market?

Speaker Change: thanks so much in terms of monetizzeingin these tax credits that you've accurred are there operational metrics that you need to meet over those things that are that you can actually discusgot monetizze in the market and can you talk a little bit about potial for transfer ability on those those credits

Colin Rusch: Can you talk a little bit about potential, for transferability on those credits?

Neill Reynolds: Hey Colin, thanks for the question.

Neill Reynolds: So, on the tax credits, you know, these are tax credits that were passed through the CHIPS Act.

Speaker Change: i com thank you thanks for the questions so on the tax credits theseare taxcredits that were passedthrough the chipps act so very much aligned to those but you don't really have

Neill Reynolds: So, very much aligned to those, but, you know, don't really have much operational impact other than you just have to have the assets placed into service and then you can administer those.

Speaker Change: much operational impact to other than it does have tohave the assets ed in the service and thenyou can administer they will get madministerred to your tax return process through the that's basically its laidout today some of the final terminology in terms of how that's going to is pending but it'spassed into a ong have know very high confidence in terms of abilitying ability to monetize those in time

Neill Reynolds: Those get administered through your tax return process, through the IRS.

Neill Reynolds: So, that's basically how it's laid out today.

Neill Reynolds: Some of the final terminology in terms, of how that's going to work is pending, but it's passed into law and we have, you know, very high confidence in terms of ability to monetize those in time.

Neill Reynolds: Tradeability, et cetera, you know, not so much from that perspective, but I think that if you think about our facility spend being largely done, our CapEx coming down during this year and into next year, a lot of what we've accrued and what will accrue during this coming year should start to come to fruition to us during 2020.

Speaker Change: tradeability etca not so much from that perspective but i think that you think about our facilityities spend being largeger done our capex coming down during this year and into next year a lotof we've crued ple accruueduring this coming year should start to come fort fruition to us during during two thousand and twenty six

Neill Reynolds: Thank you for your question.

Speaker Change: i

Operator: Next question is from the line of Jed Dorsheimer with William Blair, if your line is now open.

Speaker Change: thank you for your question the next question from the line of jed dorshimer wliam bla one that open

Operator: Hi.

Jonathan Dorsheimer: Yeah.

Jonathan Dorsheimer: Thanks for taking my question.

Jonathan Dorsheimer: I guess if I just help me with a little back of the envelope math here, if I carry your, margins in the materials business and then I back out the underutilization in the startup, I get about $3 million spread between Mohawk Valley and Durham, and if I use the 500 basis, points, it looks like a negative or gross profit dollar loss in Durham of about $5 million.

Jed Dorshimer: hi yeah thanks for a

Jed Dorshimer: take my question i guess some

Jed Dorshimer: if i i just help me with a little back of the evlope math here if i carrier margins in the materials business and then i back out underutilization in the startup i get about three million spread between mog valley in darm and if i use the five hundred basis points

Speaker Change: it looks like negative or gross profit dollar loss in derm of about five million is that correct and that would imply about a twenty percent margin for mooile value just want tomake sure m looking at that correctly

Jonathan Dorsheimer: Is that correct?

Jonathan Dorsheimer: And that would imply about a 20% margin for Mohawk Valley.

Jonathan Dorsheimer: I just want to make sure I'm looking at that correctly.

Neill Reynolds: Yeah, Jed, I think I can't talk to the specifics between the different factories, but what, you can gather is that the profitability coming out of Mohawk Valley is significantly better than what we're seeing at 150 millimeter in Durham.

Speaker Change: yes yet i think i can't talk to the specifics between the different factories but which you can can gather is that the profitability coming out of more hawk valy is significantly better than whatwe'reseeing onehundred fiftymillimeter in talking aboutit many times ' value highly automated fab would superior capability and state of our capability and just significantly better from that perspective so you can imagine that the the profitability is significantly better which obviously

Neill Reynolds: We've talked about it many times, Mohawk Valley, highly automated fab with superior capability, and state-of-the-art capability, and just significantly better from that perspective. So you can imagine that the profitability is significantly better, which obviously plays, a heavy role in informing that decision.

Neill Reynolds: Thank you for your question.

Operator: The next question is from the line of Joshua Bacalter with TD Cowan.

Speaker Change: thank you for your question the next question answer the line of joshua book culture with ptd cowing open

Operator: Your line is now open.

Joshua Buchalter: Hey, guys.

Joshua Buchalter: Thank you for taking my question.

Joshua Buchalter: I wanted to ask about the Mohawk Valley ramp and timeline to revenue.

Speaker Change: think i think you for taking my question i want to ask about the moha valley ramp and timeline to revenue is the right rule of thum

Joshua Buchalter: Is the right rule of thumb still, you know, when you reach those utilization levels, you, get revenue, I think it's roughly two to three quarters later, because that would imply that you're in the fiscal third quarter of 2025, a number, you know, comfortably above $100 out of Mohawk.

Speaker Change: still you know when you reach those utilization level you get revenue i think ' roughly two three arters later because that would imply that you're in the fiscal third quarter of three and twentyfive a number you ' comfortly above one hundred million dollars out of mohawk and then you maybe isa

Joshua Buchalter: And then, you know, maybe as a follow-on to that question, what's the timeline to get, to the 30% beyond that, and how does that coincide with the JP layering and as well?

Speaker Change: fall under that question what's the timeline to get to the thirty percent beyond that and how does that collincide with the jacie laring and as well thank you

Joshua Buchalter: Thank you.

Neill Reynolds: Yeah.

Neill Reynolds: So, first of all, thanks for the question.

Neill Reynolds: And, you know, I think as we've laid out before, there's a, you know, from a utilization perspective, there is a, you know, a couple of quarter lag between the time you start a wafer to the time we start to see revenue, it's got to get, you know, processed through the fab and then through the back-end operations as well, and then eventually out to customers.

Speaker Change: yes so first of all thanks for the question and you knowi think as 'velaid out before there's from a utilization perspective there is a couple of quarter lag between the time you start away to the time we start to see revenue is going to get process to the fab and then through the back end operations well andeventually the tomer so they've got time fringyou laid out is correct

Neill Reynolds: So they've got a timeframe you laid out is correct.

Neill Reynolds: The other thing that impacts utilization and translation into revenue is the mix between, automotive parts and industrial energy parts.

Speaker Change: the other thing that impacts utilization translation into a revenue is the mix between automotive parts and industrial energy parts the revenue pervid for so to speak is just much higher than industrial energy generally than automotive part

Neill Reynolds: You know, the revenue per wafer, so to speak, is just, you know, much higher than industrial, energy part generally than an automotive part.

Neill Reynolds: If you looked at the Mohawk Valley revenue just for the June quarter, for instance, we, were 85 to 90% EV. If you transition that into the September quarter here, we'll be 95% plus EV, and we, expect it to remain that way as we push more and more of our qualified parts to Mohawk, Valley.

Speaker Change: ifit look at the moha ley revenue just for the june quarterforinstance we eighty five ninety percent e

Speaker Change: if you transition that into into the september quarter here wewillll be ninety-five percent plus e and expected to remain that way as you push more and more of our qualified partpar the mohawk to move our valley

Neill Reynolds: On the flip side, we'll just see the Durham fab, you know, consistently see the EV percentage, of revenue start to, you know, start to come down, you know, over time.

Speaker Change: on the flip side to see the derm fap consistently see the eas percentage of revenue start to start to come down over time so as i translates into a revenue i think we talked about of a heer auto twenty percent translates closer to eighty million

Neill Reynolds: So as that translates into revenue, I think we talked about if it's heavier auto, 20%, you know, translates closer to 80 million and close to 100 million at the kind of normal mix.

Neill Reynolds: So I think that's the way to think about it moving forward.

Speaker Change: and close to one illion kindof normal mixsoi thinkthats the wayto think about it moving forward now as we think about maybe transitioning the durm fab would put a lot more conditionional energy revenue into mo hog value which i said before of be a good tradefor and then we getbacktothe kind of think normal economics of

Neill Reynolds: Now, as we think about, you know, maybe transitioning the Durham fab, we'll put a lot more industrial, energy revenue into Mohawk Valley, which, as I said before, would be a good trade for us.

Neill Reynolds: And then we get back to the kind of, I think, normal economics of thinking about a $2 billion, fab and the percentages of supply that are capable at various levels of utilization.

Speaker Change: than you've got a two billion dollar fab and the percentages of supply that are capable at various levels of our utilization

Neill Reynolds: Thank you for your question.

Speaker Change: thank you for your question the next question is from the line of joe more with mmorgan anily that open

Operator: The next question is from the line of Joe Moore with Morgan Stanley.

Joe Moore: great thank you i think you gave an a ev number in terms of the percentage growth but here now a number woners you could help uskind ize where you are now with ev and what you're what you're classifying

Operator: Your line is now open.

Joe Moore: Great, thank you.

Speaker Change: yes so on the d revenue you said ebe revenue was up to two actionin the quarter three x year-over-year and the outlook for the september quarter

Joe Moore: I think you gave an EV number in terms of the percentage growth, but I didn't hear an absolute number.

Speaker Change: it's also gone by the way from representing about twenty-five percent of ourpower device revenue year ago to over fifty percent even the mid fifty percent of our power the device revenue here in jun and you look here in the september quarter more than sixty percent of our power device outlook

Speaker Change: so we expect that to grow know even further is year goes on so

Joe Moore: I wonder if you could help us kind of size where you are now with EV and what you're classifying as EV.

Speaker Change: so while we we've seen some moderation i would say in the overall evening growth rates this has been bo document and reported and supply de and or more matched up you we continue to see some significant growth into december quarter and into the first half of calend year two thousand and twenty-five

Neill Reynolds: Yes, so on the EV revenue, as you said, EV revenue was up to 2x in the quarter, 3x year over year in the outlook for the September quarter.

Neill Reynolds: It's also gone, by the way, from representing about 25% of our power device revenue a year ago, to over 50%, even the mid-50% of our power device revenue here in June.

Neill Reynolds: And if you look here in the September quarter, more than 60% of our power device outlook.

Neill Reynolds: So we expect that to grow even further as the year goes on. So while we've seen some moderation, I would say, in the overall EV growth rates, as has been well documented and reported, and supply and demand are more matched up, we do continue to see some significant growth into the December quarter and into the first half of calendar year 2025.

Christopher Rolland: thank you for your question the next questionions for a line of christopher roolland with suscahana you knowiz that

Neill Reynolds: Thank you for your question.

Speaker Change: hey guys thanks for the question um

Christopher Rolland: are there anymore details on the incident in dern what would exactly happen there and then

Operator: Next question is from the line of Christopher Rowland with Susquehanna.

Speaker Change: you guys had mentioned when you were initially ramping no hawk that you didn't have redundant lines or pack up equipment there has this changed like over time over the past year and do you feel comfortable that you guys would

Operator: Hey guys, thanks for the question.

Neill Reynolds: It's also gone, by the way, from representing about 25% of our power device revenue a year ago, to over 50%, even the mid-50% of our power device revenue here in June.

Speaker Change: be able to an absorb an equipment failure or a similar problem in mohawk

Christopher Rolland: Are there any more details on the incident in Durham?

Speaker Change: yes so a couple of things firstus off be the facility issue would be issue in the june quarter in the

Christopher Rolland: What exactly happened there?

Christopher Rolland: And then you guys had mentioned when you were initially ramping Mohawk, that you didn't have redundant lines or backup equipment there.

Christopher Rolland: Has this changed over time, over the past year?

Speaker Change: in the dur bad was a facilities issue has been rectified and repaired and it's behind us

Christopher Rolland: And do you feel comfortable that you guys would be able to absorb an equipment failure or a similar problem in Mohawk?

Neill Reynolds: And if you look here in the September quarter, more than 60% of our power device outlook.

Gregg Lowe: Thanks.

Speaker Change: from a mohawk valley perspective are significant amounts of redundancies including power fees in water and we are now i don't know the exact percentage but the vast majority that the tools have quote second of a kind tools

Gregg Lowe: Yeah, so a couple of things.

Gregg Lowe: First off, the facilities issue, the issue in the June quarter in the Durham fab was a facilities issue that's been rectified and repaired, and it's behind us.

Gregg Lowe: From a Mohawk Valley perspective, there are significant amounts of redundancies, including power fees in, water, and we are now, I don't know the exact percentage, but the vast majority of the tools have quote second of a kind tools. And so if one tool goes down, there's another tool that can pick up for it.

Gregg Lowe: We're, going to be at 100% very soon.

Speaker Change: and so if one tool goes down there's another tool that can that can

Speaker Change: pick up for it we're going to be at one hundred percent very soon i don't know exactly that date but we have a significant amount of redundancy out of the mohawk valley that and you would actually expect that out of a modern f our fast hearing gerurm is few decades years old

Gregg Lowe: I don't know exactly that date, but we have a significant amount of redundancy out of the Mohawk Valley fab, and you would actually expect that out of a modern fab.

Gregg Lowe: Our fab here in Durham is a few decades, years old, and we've got a modern, highly automated fab in Mohawk Valley, so we're very confident in its ability to withstand different incidents that might happen.

Speaker Change: and we've got a modern highly autom f in mohak valley so we're very we're very confident in its ability to withstand different incidents that that might happen

Gregg Lowe: Thank you for your question.

Neill Reynolds: Thank you for your question.

Operator: There are no additional questions waiting at this time,

Operator: Next question is from the line of Christopher Rowland with Susquehanna.

Operator: Hey guys, thanks for the question.

Christopher Rolland: Are there any more details on the incident in Durham?

Gregg Lowe: so I'll pass the call back to George Lowe, CEO, for any closing remarks.

Speaker Change: thank you for your question there are no additional questions waiting at this time so 'll pass the call back to george low ceo for any closing remarks

Christopher Rolland: What exactly happened there?

Christopher Rolland: And then you guys had mentioned when you were initially ramping Mohawk, that you didn't have redundant lines or backup equipment there.

Christopher Rolland: Has this changed over time, over the past year?

Christopher Rolland: And do you feel comfortable that you guys would be able to absorb an equipment failure or a similar problem in Mohawk?

Gregg Lowe: Thanks.

Gregg Lowe: Thanks everybody for your participation today.

Gregg Lowe: Yeah, so a couple of things.

Gregg Lowe: We look forward to updating you on our next call.

Gregg Lowe: First off, the facilities issue, the issue in the June quarter in the Durham fab was a facilities issue that's been rectified and repaired, and it's behind us.

Gregg Lowe: We're, going to be at 100% very soon.

George Low: thanks everybody for your participation today we look forward to updating you on our next call thank you

Gregg Lowe: I don't know exactly that date, but we have a significant amount of redundancy out of the Mohawk Valley fab, and you would actually expect that out of a modern fab.

Gregg Lowe: Thank you.

Operator: That concludes the conference call.

Gregg Lowe: Thank you for your question.

Operator: Thank you for your participation.

Operator: There are no additional questions waiting at this time,

Operator: You may now, disconnect your line.

Speaker Change: that concludes the conference call thank you for your participation may now disconnect your l

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