Operator: Thank you for standing by, and welcome to Enablence's Q4 and Full-Year Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found on the bottom of your webinar application. I would now like to turn the call over to Nicole Kunzman with The Blueshirt Group. Please go ahead.
Nicole Kunzman: Good afternoon, and thank you for joining us to discuss Enablence's Q4 fiscal 2026 results. With me on the call are Enablence's CEO, Todd Haugen, and CFO, Steve Cohn. The press release announcing our financial results for the Q4 of fiscal 2026 was issued earlier today and is posted to our Investor Relations website. Before we begin, I will remind everyone that certain statements we make on today's call are forward-looking, including statements related to our guidance for fiscal year 2027, market opportunity, growth prospects, production and capacity expansion, impact of AI, and demand for PLC optical chips. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Additionally, these statements apply only as of today, and we undertake no obligation to update them in the future.
Nicole Kunzman: For a detailed description of the risks and uncertainties, please refer to our earnings press release. Finally, unless otherwise noted, we will be discussing results based on IFRS accounting standards on today's call. Now, let me turn the call over to Todd for an overview of the quarter and updates on Enablence's business. Todd?
Todd Haugen: Thank you, Nicole, and thanks to everyone for joining us today. I am very excited to be here this afternoon on our first ever earnings call. The goal of our call today is to provide you with details around our Q4 results, offer perspective on our fiscal 2027 guidance, and give you some insights into the underlying drivers of the growth inflection Enablence is seeing today. We have a really unique opportunity in front of us, and we want to make sure that our excitement and vision for the future resonates with the investment community. Let's start with our Q4 results. We generated $2.9 million US revenue in Q4. That represents a growth of 38% year-over-year. Gross margin was 8%, an improvement of 36% year-over-year, and our second consecutive quarter of positive gross margin.
Todd Haugen: We finished the fiscal year at a run rate of 375 wafer starts per week, hitting the target we outlined in March of this year. I am very pleased with the growth and progress that our team delivered this year, and we are just getting started. Many of you are likely new to Enablence, so I would like to take time on this call to explain how we got here and why we are confidently optimistic about the future. Starting with a 30,000 foot view, Enablence is a vertically integrated US-based provider of PLC optical chips and assemblies that are increasingly critical to AI infrastructure in North America and around the world. We focus on three lines of business: optical communications, sensing, and compute.
Todd Haugen: The company was founded in 2004, started trading in July of 2006, and our first production facility opened in Fremont, California in 2008 through the purchase of a key supplier, ANDevices. We have invested more than two decades in R&D and our optical component technology, and we have built a customer base and partner network that includes dozens of blue chip enterprises, including many of the largest names leading today's AI revolution. While our goal has always been to deliver highly performant, differentiated optical chips to our customers, in the last five years, we have been able to refine our technology, demonstrating our technical superiority in the market. Our customers recognize our differentiation, and it has been a key driver of demand acceleration recently. Today, we find ourselves squarely in a sweet spot as a supplier of a critical building block of AI infrastructure.
Todd Haugen: Enablence produces the PLC optical chips powering the multi-trillion dollar AI data center build-outs, and while we have the technology and products to address the explosive demand the market is experiencing for these optical chips, Enablence is currently capacity constrained. Customer demand for our chips meaningfully exceeds our current production capacity, and our manufacturing output is completely sold out through the end of fiscal 2027. A core component of our growth story is launching a second production facility in Q3 of fiscal 2027 to meet the explosive market demand. Before I get into all the details around our capacity expansion roadmap, let me first double click on the macro backdrop that has positioned us for success today. The AI revolution is clearly the biggest tailwind here. The infrastructure build-out to support today's AI super cycle is estimated to total $7 trillion in investments.
Todd Haugen: This figure comes from a McKinsey report that was delivered more than two years ago. The spend on data centers is going to continue through 2030 at a minimum. At nearly 1% of global GDP, this $7 trillion figure was intended to represent the ceiling of possible investment. However, by 26 January 2026, market reality suggests that the $7 trillion figure is a conservative floor on the global AI infrastructure, and the reality is this figure could be significantly higher. Our PLC optical chips are critical in networking, sensing, and compute infrastructure, which is the foundation that enables the AI revolution. We play a role in providing optical communication chips for data centers and networking, but now as copper reaches its limitations, optics is key in enabling customers to handle the computing requirements of the modern AI data centers.
Todd Haugen: This has opened up huge opportunities for us to expand beyond communications into compute, which is optics inside the chassis and sensing for robotics and self-driving cars and the like. Looking at the data center networking piece alone, there has been a structural shift away from copper to optical chips. Copper is inefficient at 200G per lane and limited to runs of only a meter in length at 400G per lane. Hyperscale data centers are increasingly relying on compact, power-efficient optical solutions to overcome silicon and thermal limitations, while OEMs push for lower energy per bit performance and higher port density. This dynamic is making hybrid photonic integration, especially PLC architectures, a critical enabler for the next generation of data and AI.
Todd Haugen: This is exactly what is driving surging demand for optical chips in the data center, and is reflected in the dollars being invested in data center interconnect, which is now the number two spending category in data center build-outs, and it represents 15% of the total CapEx, up from 6% historically. There is clearly a critical need for PLC chips across data centers globally. Enablence has proven itself as an established supplier with tier one customers, having sold and deployed over 20 million chips to date. Our relationships across the industry include blue chip enterprises spanning AI, communication, sensing, and compute, and many of the multinational organizations you would recognize as enterprises leading the AI revolution. Our technology is trusted in some of the most critical AI infrastructure build-outs around the world.
Todd Haugen: Looking beyond data center interconnect, our PLC optical chips have applications across robotics, telecommunications infrastructure, LiDAR for autonomous vehicles, aerospace defense, non-invasive medical imaging, and a range of other applications. While AI communications infrastructure drives the majority of revenue today, we see significant growth in these adjacent areas as well. For example, our PLC chips for FMCW LiDAR sensors support the growing demand for a wide range of advanced industrial applications, where high precision is critical to ensuring advanced automation. For example, automotives, robots, and industrial automation all require the most precise navigation and obstacle detection capabilities. In robotics, enhanced operational reliability in dynamic environments is critical. Most importantly, in automotive, PLC-based FMCW LiDAR provides real-time accurate velocity awareness that can be a matter of saving lives.
Todd Haugen: In addition to our continued growth in these adjacent areas, I am excited to talk about our success moving up the value chain from PLC wafers into component assemblies and optical engines. This positions us really well for the longer-term opportunity we see in front of us, and our plan to expand beyond assemblies and optical engines into modules and OCS systems in fiscal 2027 and 2028. This gives us an opportunity to unlock multifold revenue expansion on a per unit basis while meeting direct customer demand, particularly in Europe and North America. This movement up the value chain expands our addressable market by 7x, and so is a huge opportunity for us. While the AI revolution is proving to be a tailwind for many across the ecosystem, Enablence is also benefiting from our geopolitically advantageous supply chain structure.
Todd Haugen: In August, we announced the completion of our advanced optical manufacturing facility in Vietnam, which we developed in partnership with ShunYun Technology, better known as SYT. Our supply chain now integrates chip design in Ottawa, wafer fabrication, specialized assembly, packaging, and test in our fab in Fremont, California, and advanced high volume packaging and assembly in SYT's facility in Vietnam. The launch of our facility in Vietnam now makes Enablence the only non-captive PLC fab in North America, offering a completely ex-China supply chain, and this is already driving significant interest in North America. Our specific model is ideal particularly for North American cloud hyperscalers and tier 1 optical module makers who are looking to mitigate exposure to geopolitical risks, which is an ongoing threat in today's global environment.
Todd Haugen: We are proud of what we have achieved and the momentum we have had with customers, particularly given our relative scale.
Todd Haugen: Our traction in the market is clearly indicative of the differentiated technology we are offering our customers. The success of today's high-performance AI data centers is becoming dependent on how quickly and efficiently data can move, not solely on compute capacity alone. Chips are powering the critical bridge between scale-up compute density, scale-out cluster performance, and the scale across optical networks, creating better outcomes for our customers. Returning now to the discussion around capacity and our expansion opportunity, fiscal 2022 was the beginning of a turning point for Enablence. The year I joined, we pinned our focus to future chip cycles, including 800G, 1.6T, LiDAR, and compute products, and formally established a production goal of 100 wafers per week by the end of that year.
Todd Haugen: By fiscal 2024, we began acquiring key customers and had secured demand for over 500 wafers per week, exceeding our 125 wafer per week capacity.
Todd Haugen: Fiscal 2024 was the beginning of our inflection point. We invested in new equipment and infrastructure that would eventually allow us to exceed 1,000 wafer a week production by the end of Q2 fiscal 2027. We are on track for that objective, and we expect this output to generate over $2.5 million revenue per month. Most importantly, we have demonstrated that customer demand for our chips is unwavering across a diverse customer base. As I have mentioned, our capacity is sold out with committed contracts through the end of fiscal 2027, and any new capacity coming on board will translate to immediate high margin revenue uplift. Looking ahead, we see three key levers for further expansion. Our first area of focus is increasing output capacity in both our Fremont fab and our manufacturing facility in Vietnam.
Todd Haugen: We began producing qualified samples in August in our Vietnam facility, which were delivered to key customers for evaluation. One key area of focus for us is shifting production from 150 millimeter wafers to 200 millimeter wafers in our Fremont fab. The efficiency gained from this transition, 200 millimeter wafers have 90% more chips per wafer and will drive a 25% uplift in gross margin. We expect to begin production of 200 millimeter wafers in the first half of fiscal 2028, and are targeting output of 1,000 wafers a week by the end of calendar 2028. Third, we see an opportunity to expand into adjacent markets, as we discussed earlier, specifically optical compute and LiDAR.
Todd Haugen: We have customers today that are live in production and continuing to ramp their monthly demand, and we think these markets are in the early stages of harnessing the power of PLC optical chips. We see these markets as a longer-term area of expansion for Enablence, growing throughout fiscal 2028, 2029, and 2030. I am very pleased with what we accomplished in fiscal 2026 and believe we are extremely well-positioned to execute on our growth plan as we look into fiscal 2027 and beyond. With that, I would like to turn over our call to our CFO, Steve Cohn, and discuss our financial results. Steve?
Steve Cohn: Thanks, Todd. I am excited to be here today. I joined Enablence in July of this year, and the excitement around the opportunity here is evident. It has been a great first few months of learning and ramping, and I look forward to what is ahead for Enablence. I will start with a review of our Q4 and fiscal 2026 results before turning to 2027 guidance. Before I get into the results, I would note that all currency-based metrics shared are in USD, and all financial comparisons are year-over-year basis unless stated otherwise. We had a very good Q4, with results that met our guidance provided back in March, capping off an exceptional year of growth for Enablence. Our ability to ramp production at our Fremont fab enabled us to grow across all of our businesses.
Steve Cohn: At the same time, our meaningful year-over-year improvement in gross margin reflects our ability to drive top-line growth with minimal incremental overhead. We believe this demonstrates the inherent leverage in our model, which will enable us to drive long-term shareholder value as we continue to scale. Moving on to the numbers. Revenue in Q4 totaled $2.9 million, an increase of 38% year-over-year. Revenue growth was driven by our ongoing expansion in production capacity, and we finished Q4 at a run rate of 350 wafer starts per week. Gross margin was 8%, an improvement of 36 percentage points compared to Q4 last year. Q4 marked our second consecutive quarter of positive growth margin as the investments we made in equipment in fiscal 2025 are driving leverage in our model.
Steve Cohn: While we are continuing to invest in our capacity and production expansion, we expect gross margin will continue to improve as we scale. Operating loss of $2.9 million improved 8% compared to a loss of $3.1 million in Q4 of last year. Net loss was $6 million compared to a net loss of $5.8 million in Q4 last year. To recap the full fiscal 2026, revenue grew 37% to $8.1 million. Gross margin for the year was -16%, an improvement of 24 percentage points compared to fiscal 2025. Operating loss was $12.7 million compared to a loss of $11.4 million last year, primarily driven by about $2 million in incremental R&D investments this year. Net loss was $22.5 million, compared to a loss of $18.2 million in the prior year. The driver of this wider loss was approximately $6 million in higher taxes and interest expenses.
Steve Cohn: We ended the Q4 with cash and cash equivalents of $4.1 million. It is important to note that we closed on a private placement in September, which added CAD 25 million to our cash position, net of fees, and is not reflected in this Q4 cash position. We intend to use the proceeds from that offering for CapEx to expand capacity and for general corporate purposes, including working capital. We will provide a more updated view on our current cash position at our Q1 earnings announcement. We currently have approximately $64 million in debt outstanding with no bank debt. As part of this total, we have about $25 million in outstanding convertible debt, which is comfortably in the money as of today's discussion.
Steve Cohn: Before I get into our guidance for fiscal 2027, I want to provide some detail around the factors we are taking into consideration as we set our guidance. First, we are continuing to refine production in our Fremont fab, and we expect production to ramp to more than 1,000 wafers per week by the end of the H1 of fiscal 2027 as we continue to increase efficiency. Second, as Todd has discussed, our capacity is sold out through the end of fiscal 2027, and production expansion is a critical piece of our growth story. Our assembly plant in Vietnam is production qualified, and we expect our vertically integrated end-to-end supply chain to remain a competitive differentiator for us.
Steve Cohn: With that backdrop, for the full-year fiscal 2027, ending 30 June 2027, we expect revenue to be between $19 million and $21 million, representing yearly growth of 150% year-over-year at the midpoint. Gross margin is expected to be between 25% and 35%, an improvement of approximately 46% year-over-year. Additionally, we have begun to close our books for the Q1 of fiscal 2027, which ended 30 September. For Q1, we expect a record quarter for Enablence. We estimate revenue in Q1 will total approximately $4 million, an increase of almost 500% compared to Q1 last year. We appreciate you taking the time to join us on our call today and hope this has been a helpful introduction to the Enablence story.
Steve Cohn: We firmly believe that the future of AI and robotics will be driven by advanced optical solutions, and we are squarely positioned to benefit from these accelerating tailwinds in the years ahead. We look forward to what is on the horizon for Enablence. With that, Todd and I will take your questions. Operator?
Operator: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. When you have been called on, please unmute your line and ask your question. We kindly ask that you limit yourself to one question and one follow-up. We will now pause a moment to assemble the queue. Your first question comes from Sebastien Naji with William Blair. Please unmute and ask your question.
Sebastien Naji: Yeah. Hi, good afternoon, and congrats on hosting your first earnings call here. It has been great to see the capacity progress this year at both Fremont and the new Vietnam site. It is nice to see you hitting your wafer output targets. As I think about the next target that you set up for yourself, I think you said 1,200 wafers per week, but please correct me if I did not quite get that. Can you just maybe talk a little bit more about what needs to happen for you to get there over the next 12 months, 18 months, and is that going to be a linear ramp or a little bit more back-end loaded? Then I have a quick follow-up.
Todd Haugen: Yeah. There are two numbers that you are conflating there. One is the 1,000 wafer a week target by the end of this calendar year. The obstacles to getting to that are really just logistical. The equipment is all production qualified, and we are just working through getting some recipes finally production qualified as well. They have to be reliability tested and other things of that nature. In terms of where we stand there, we are currently at a 750 a week run rate. We have peaked at over 900. I think we are on track for it. It will be a challenge. The predominant challenge is just change management inside the fab itself, getting people used to operating at that higher pace. Then we have the 1,200 number. The 1,200 number will be by the end of the fiscal year.
Todd Haugen: This is due to optimizations in the fab, and it will be relatively linear throughout the H2 of the fiscal as we refine individual recipes at various points in the fab.
Sebastien Naji: Got it. Okay, great. That is really helpful. Then just maybe for my follow-up, as we think about this fiscal 2027 guidance, any way to think about the mix between wafers and assemblies and then in particular, maybe over a multi-year period, I assume assembly should trend higher, but how to think about that mix shift?
Todd Haugen: Yeah. So, for fiscal 2027, the mix is going to be predominantly wafers. So think 85% to 90% wafers with a small amount of assemblies as we ramp into that assembly production. As we look into fiscal 2028, that ratio starts to shift significantly. The current strategic plan is to allocate 20% of our capacity to that channel. The specific reason of using that target is an assembly sells for roughly $6, and a chip sells for roughly $1. So by allocating 20%, you get a roughly doubling in revenue. So at that point, we will be at a 50/50 distribution between the two. Whether or not we push beyond that is going to be evaluated at the time based upon market demand. If we see a lot of demand coming from North America and other places through our Vietnam facility, we will increase that ratio.
Todd Haugen: Otherwise, we will continue to manage it in a way that does not risk our existing customer base.
Sebastien Naji: Got it. Okay, great. That is a really helpful color. I appreciate it. Thank you.
Operator: Your next question comes from Richard Shannon with Craig-Hallum Capital Group LLC. Please unmute and ask your question.
Richard Shannon: All right, great, Todd and Steve, can you hear me? Just want to make sure.
Todd Haugen: Yes, indeed.
Richard Shannon: Okay, great. Thank you. Sorry, I wasn't sure how. I just see an unmute button here, but I think I figured it out. Well, thanks for letting me ask a couple of questions. Congrats on the first earnings call here. I'd love to understand the dynamics here in gross margins. Obviously, had two quarters in the positive, and you get a very nice gross margin guide for this fiscal year, fiscal 2027. Either one of you, I'd love to understand the dynamics by which you get to this, how much of this is volume versus mix, yield, any other dynamics that helps you get to this and the confidence level you have in doing that?
Todd Haugen: Yeah. So there are really 2 primary drivers. One is spreading our fixed costs over a materially larger product or volume base, so there's a huge amount of margin increase that comes from that. The second is that we are managing our product shift. Given that we are sold out of wafers, we have a wafer allocation process we go through that balances existing customers and existing contracts, which are inherently at a lower margin. They tend to have been established months or years previously versus newer customers and newer contracts, which are at a higher margin. So we manage that balance, and that's allowing us to capitalize on our pricing power that we're seeing in the market now. As we are able to take advantage of that pricing power, we're seeing our ASP on a per wafer basis come up.
Todd Haugen: We'll continue to manage that increase, that pricing power increase, throughout the remainder of fiscal 2027.
Richard Shannon: Okay, great. That's a great detail. Thanks for that, Todd Haugen. My second question is on customer diversification. I think you made a brief comment in your prepared remarks, Todd Haugen, about that. Given that you talked about fiscal 2027 being fully booked, I'd love to get a sense of what that concentration diversification might look like. Do we have 2, 3 customers driving majority, or just any general characterization of what the level of concentration is. I think most people can understand in the AI market here with communications and transceivers, that's a reasonably concentrated market. So I think people are trying to compare and contrast your exposure to what the market is. Thank you.
Todd Haugen: Yeah. So I'll leave Steve to talk about the specific margin portion of the question you asked there. Let me touch on the diversification. Today, you're seeing a concentration amongst 3 customers, and Steve, I think, can talk specifically what the concentration is amongst those 3 customers. We have a much longer tail, and as I was saying, we're balancing our allocation, our product allocation we're using to balance across our high-volume existing customers and our emerging customers with the intention to more balance that revenue out. As you see us step into the assemblies, those are really an entirely new customer set as for North American sales, we're taking a tier of the value chain out of the equation. As a result, you'll see more than a doubling of our key customer base. They'll each occupy roughly half of our total revenue.
Todd Haugen: You will have the assembly customers and the key assembly customers and the key wafer customers. As far as the top three, Steve, do you want to reflect on
Steve Cohn: Yes
Todd Haugen: exactly what that concentration is?
Steve Cohn: Yeah. There are three customers that make up about 90% of the business. One of our customers, Eula, is about 68% of the business. So we continue to work with them, as Todd said, allocate and look for other customers. As we address our product mix going forward, that customer mix is going to be a little bit more flattened, certainly as we get into the assemblies.
Richard Shannon: Okay, perfect. That is great characterization. Thanks for letting me ask questions. I will jump on the line.
Operator: Your next question comes from Toby LaBelle with Northland Capital Markets. Please unmute your audio and ask your question.
Toby LaBelle: Hey, congratulations, guys, on your first quarter here, that you're out, and my name's Toby Piper LaBelle. I'm with Northland Capital Markets. Question about your balance sheet. Do you have a strategy about recapping and optimizing your debt to lower the interest burden?
Todd Haugen: Steve, do you want to take that one?
Steve Cohn: Yes. Great question. As I said, I've been with the company, I mentioned in my opening statement, since July, and eyes wide open on the balance sheet and certainly optimizing our capital structure. About 40% of the debt on the balance sheet is convertible debt, so that becomes an option for us. Also, some of the higher cost interest is on our books with participants that have invested in the company. So it's definitely line of sight for us. We think certainly with the growth of the organization and the margin improvement, that we're going to have a lot of avenues to shore up the balance sheet.
Todd Haugen: Yeah, Toby, just to add on there. I would say that over the next 9 months, clearly it is a high priority of leadership to clean up the balance sheet in a way that puts us in favorable positions for future growth cycles.
Toby LaBelle: Thanks, guys.
Operator: Your next question comes from the line of Daniel Rosenberg with Paradigm Capital. Please unmute your audio and ask your question.
Daniel Rosenberg: Hi, Todd and Steve. Thanks for taking my question. My first one comes around working capital requirements. Obviously, your guidance is pointing to substantial growth here. Could you speak to some of the needs and how we should think about working capital as you guys scale into these larger numbers?
Todd Haugen: Steve?
Steve Cohn: Yeah, thank you. As we mentioned in our opening statements, we just received an infusion, and it has certainly been public, about 25 million Canadian dollars from the Collingwood group. That is going to help us and continue to allow us to grow certainly for the next 3 to 4 quarters. We will start generating positive cash at that point in time. Again, as Todd mentioned, once the fab and once our productivity starts to increase, we are going to see margin accretion along the way, and we will be able to cover our working capital internally. We are looking to, as we get into a better position as a company, to negotiate a little bit better with our suppliers because of scale. We are also working with our customers on terms.
Steve Cohn: That is a priority for us over the next, certainly next couple of quarters to optimize it, and then we are going to be generating enough cash as well to sustain a strong working capital going forward.
Todd Haugen: One point of clarification there, as it might have been misconstrued given how Steve laid it out. We will be cash flow positive in Q3 fiscal 2027, not at the end of the period, as you might have read his statement.
Daniel Rosenberg: Okay, thanks for that. Thinking about the scaling opportunity you have as you move to 200 millimeters sizes, I am wondering how de-risked is that process operationally, technologically, et cetera? Can you speak to just the steps needed to get there, and how confident you are in your ability to do so? Then I will pass the line. Thank you.
Todd Haugen: Great. Thank you, Daniel. Yes, the 200 millimeter is obviously critical from a margin standpoint. It has a huge lever. When we went into purchasing equipment, we purchased all equipment that is 200 millimeter capable. When we looked for a partner to inject our recipes into their fab, in this case Polar, we also looked for a 200 millimeter partner. We have been working for over 2 years to get through the complicated recipe modifications that are required to make that jump in wafer size. As a result, we have de-risked the majority of that transition in-house. The only blocker at this point, we have our first dedicated 200 millimeter anneal furnace. It has not been production qualified yet. We have been working on it for several months, and we are at the final edge of the tail end of getting it production qualified.
Todd Haugen: At that time, you will see us begin in earnest transferring the recipe modifications from Polar back into our fab, and we will start releasing 200 millimeter wafers for customer evaluation in Q4 fiscal 2027 with initial production and low scale production out of our fab. Think one day a week is what it will largely be in Q1, and then we will expand likely to 3 day a week 200 millimeter production in Q2 of fiscal 2028. Then we will be able to cut over to probably 5 days a week for Q3. The remaining 2 days a week will be a challenge. There will be a set of customers that will refuse to make that transition for a period of time. We will allow that, and then there will come a point in time which we will say we are end of life-ing that product.
Todd Haugen: That likely won't be until beginning of fiscal 2029 that we will pull out that hammer. You can kind of see it is largely de-risked for us, and the plan is well established, and I expect it to execute on the timeline we have laid out.
Daniel Rosenberg: Thanks for that, and congrats on all the progress.
Todd Haugen: Thanks, Daniel.
Operator: This concludes our Q&A session. If you have any additional questions, please reach out to management directly. Thank you for participating in today's conference. You may now disconnect.
