Wolfspeed (NYSE:WOLF) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below.

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Summary

Wolfspeed generated approximately $476 million from common stock and pre-funded warrants, using proceeds to reduce senior secured note balance by 43% and lower annual interest expenses by $62 million.

The company reported $150 million in total revenue for Q3, in line with guidance, with 90% coming from Moag Valley's 200 millimeter device fabrication.

Gross margin improved to -20.6%, driven by a better product mix and Fresh Start accounting inventory digestion, but underutilization cost $46 million.

Non-GAAP operating expenses were $61 million, and adjusted EBITDA was negative $62 million; cash flow remains a priority with Q3 operating cash flow at negative $84 million.

Strategic focus includes diversifying revenue beyond automotive into AI, data centers, and industrial applications, with ongoing organizational changes to an application-oriented approach.

For fiscal Q4, Wolfspeed targets $140-$160 million in revenue, expects non-GAAP gross margins to remain negative, and aims for flat OPEX quarter over quarter.

The emphasis on technology leadership, financial discipline, and operational excellence is aimed at capturing growth and expanding earnings power as market conditions improve.

Full Transcript

OPERATOR

Common stock and pre funded warrants generating approximately 476 million of aggregate gross proceeds. We used the cash on hand to cover fees associated with the private placements, directing the full aggregate gross proceeds towards reducing our existing senior secured note balance by approximately 43%. These actions reduced total debt principal by approximately 97 million and are expected to lower the annual interest expense by approximately 62 million. Our first debt maturity remains in 2030 providing Runway to execute our strategic plans as we continue to optimize our capital structure. Additionally, during the quarter we received CFIUS clearance that resulted in the release of equity to Renesas. CFIUS approval coupled with our strategic refinancing primarily drove the more than 400 million increase in the company's equity position during the quarter, significantly improving our debt to equity ratio. Now I will turn to our third quarter results. We generated 150 million in total revenue for the quarter in line with the midpoint of our guidance. Our revenue was approximately 100 million of which 90% was from our Mohawk Valley 200 millimeter device fabric. The remaining 10% of power device revenue was last time buys of our 150 millimeter device inventory. Materials revenue was approximately 50 million flat sequentially. Next, our gross margin for the third quarter was minus 20.6% representing a double digit percentage point improvement compared to the last quarter, partially driven by a more favorable product mixed as well as beneficial impacts from accounting for the Fresh Start inventory in the last quarter. The impact of underutilization across our manufacturing footprint was approximately 46 million in Q3. Underutilization continues to be the primary driver of our gross margin profile and improving factory utilization remains one of the most important levers to drive margin expansion going forward. One point worth highlighting is as our operation performance continue to improve, we are producing the same revenue with less capacity consumed. These continuous efforts position us to keep expanding our earnings potential per dollar of invested capital even if it makes the reported underutilization look larger. Non GAAP operating expenses totaled 61 million in the quarter. With headcount reduction actions largely complete, we expect to maintain approximately this level of OPEX moving into the next quarter. Adjusted EBITDA for The quarter was negative 62 million. Now turning to cash flow which remains one of our top priorities. Operating cash flow for Q3 was negative 84 million, driven by improvement in precious metal reclamation interest income and and continued working capital improvements. Capital expenditures were approximately 5 million on a net base in the third quarter reflecting 38 million of gross CapEx, mostly coming from previous commitments we have made. These investments were nearly entirely offset by 33 million of incentive receipts from the New York State related to Morocco Valley. We ended the quarter with approximately 1.2 billion in cash and short term investments, allowing us to continue to pursue our our strategic priorities with confidence. Whilst we've taken meaningful steps to strengthen our balance sheet, we recognize there is more work ahead. Looking Ahead While near term demand in automotive remains uncertain, we continue to see encouraging momentum in high growth areas such as AI data centers and other I and E applications. These markets represent meaningful long term opportunities, though it will take time for them to scale and offset current softness in Automotive. During the fourth quarter of fiscal year 26 we are targeting revenues between 140 and 160 million dollars. We expect non GAAP gross margin to remain negative in the fourth quarter and OPEX to be roughly flat quarter over quarter. On the long term, our objective remains clear to return to above market revenue growth driven by more diversified customer base and to achieve EBITDA and cash flow profitability.

Gregor

Thank you Gregor. This quarter reflects continued progress against our three strategic priorities, advancing technology leadership, demonstrating strict financial discipline and driving operational excellence. The actions we have taken this quarter, strengthening our balance sheet, launching industry leading products, deepening our leadership team in the region with a focus on customer centricity and enhancing our operational capabilities are all directed towards one objective positioning Wolfspeed to capture growth and expand earnings power as the market environment improves. With that operator, we are now ready to take questions.

Christopher Rowland (Equity Analyst)

Thank you guys for the question. I guess my first one is going to be around AI and your opportunities to address AI. Very specifically. If you could talk about perhaps the AI power train, what's available in your view for Silicon Carbide? What applications you might address earliest. You know, whether it might be, you know, PSUs or power delivery boards or solid state transformers or the 300 millimeter kind of future applications that you spoke about in your prepared remarks. If you could just talk about what you think actually comes to revenue first and what might be meaningful for Wolfspeed, that'd be great.

Robert

Well, thank you. So that's a great question. Let me quickly start kind of answering. It's kind of two things. The one is on the device side here it's everything which is, I call it 650 volt up. Right. And then if you look at from an application perspective, these are the power supplies in the data center, the traditional customers around that space. Then this is of course battery backup, storage, powering, also the air conditioning in the data center is consuming silicon carbide. Then outside the data center is more the transmission piece where pretty much you will see the future adoption of solid state transformers. This is really a significant driver of future silicon carbide demand. And we are engaged, I would say the whole chain from energy generation to up to the kind of 650 volt level below that, that's then a different wide band gap technology kind of taking that space. But up to that space I think we are engaged with everybody in the ecosystem. The lower voltages are primarily, I'll call it component and discrete approaches and the higher voltage are modules. So the qualification times are also a little bit different between modules. Improving reliability of a solid state transformer versus pretty much selling components to the power supply. So the one which is probably ramping faster is more the power supply stuff while then solid state transformers I think will kick in and of kind of over time. And second piece to the second answer to your question is around 300 millimeter. So again we started these, we call it beyond power activities and we see quite some really good momentum here with a lot of ecosystem partners on using silicon carbide's unique property around thermals and mechanicals in various aspects. But all of them come around packaging co packaging interposers, heat sinks and that kind of application area. I think people are looking like, wow, it's really unique properties being super conductive while also being insulating. And I think here these discussions have started here. This is early discussions also as we've indicated, there's nothing where we see revenue short term, but we believe here the technology has certainly a right to play.

Christopher Rowland (Equity Analyst)

Excellent, thank you for that. Maybe as a follow up, I think the legacy for Wolf for silicon carbide has primarily been automotive. I was wondering if you could speak to how the end markets might change under your management. You know, particularly between automotive, industrial and AI. And AI in particular, might you be able to offer maybe an aspirational AI target for revenue at some point in the future?

Robert

No, absolutely. Very good question here. Look, when I came in the company was organized around Products there was, you know, one gentleman running modules, one gentleman running discretes. And so what I said is we got to change this to be application oriented. Because look, at the end of the day the focus was all around EVs. And then we did an organizational change and let's move to an application focused go to market approach. And so the business lines are now pretty much, we've got an automotive business line, the gentleman from, you know, on semi running that business line and there's an I&EE business line. And that I&EE business line is kind of, you know, with some substructures around renewables, a data center and then internally drives business. So which is pretty much all of what we call industrial here. And then we have a segment around aerospace and defense and then there's the materials business. And this is kind of how we, how we view kind of the go to market to really support a more differentiated view of how do we approach customers but also how do we service the customers. Because the design cycles are different, the requirements are different and the dynamics are certainly different. I think that's something which we really see. That organizational change which I put in place last year is really starting to pay off to get that focus on it. And as you've probably seen Here, previous quarter Q1 to Q2 we grew 50% of the data center side. This quarter Q2 to Q3 we grew 30%. So it's really growing here. Again it's not a huge size of revenue yet, but it's certainly the growth shows putting the focus on there. We got the product portfolio and we're making really, really good progress.

Christopher Rowland (Equity Analyst)

Thank you so much. Appreciate.

OPERATOR

Your next question comes from the line of Jed Dorsheimer with William Blair. Your line is open. Please go ahead.

Jed Dorsheimer (Equity Analyst)

Hi. Yeah, thanks guys. Robert, question for you just maybe a little bit on the go to market strategy. You're some of the, your competitors. I mean everybody's talking up, you know, the use in AI in terms of 800-volt. But utilization at some of the competitors has actually come down which tells me that you know, auto still the main driver. So I'm just. I guess my question for you is as you think about your go to market strategy on the product level for AI applications and maybe also for solid state transformers, how much absorption do you think you can, you know, what type of utilization do you think you can get to in Mohawk Valley? And then I have a follow up question.

Robert

Yeah, look, I mean at the end of the day, first of all, we're not disengaging from Automotive, let's make, make this very clear here. Automotive is a very, very important part of our business. And I think, look, the cars are becoming electric and the cars are becoming connected. So we will clearly focus on, I call it technology leadership around really penetrating these, let's say high end sockets. And quite frankly speaking, quite frankly speaking, the customers are really appreciating kind of what we're doing on the technology side. And you will see here some announcement at PCIM. PCIEM is the upcoming trade show on the power side here, beginning of June here. And you will see some announcement around the technology side coming out on that trade show. Then on your question on AI Data center, again this is being driven out of our I and E business line. And again it really represents a significant growth for us in a sense that really diversifying whole speed away from pretty much being a pure play auto company and really diversifying the revenue. And then within I and E, like I already mentioned, right, it goes pretty much everything from 650 volts upwards. So at the 650 volt discrete, it's pretty much 1200 volt discrete. And then kind of in the 2.3 kilowatt, 3.3 kilowatt, you look into modules and these are pretty much modules which are used for the solid state transformers. And as these transitions in this transformer space happens, I think we are very, very well positioned here with the customers in this ecosystem. And then of course we see demand picking up and that then also will increase the loading effectively in our Mohawk Valley. The good news is quite frankly speaking that the restructuring on our, let's say device side is done. We talked about, we phased out 6 inch. We pretty much exited our Durham facility. This means we have completely made the move over to Mohawk Valley, which means also its ability to scale because a lot of, you know, if I look at the competition here, a lot of them are still on 6 inch. A lot of them are really trailing in that conversion. And I think this puts us in a unique position that we can also tell the customer, look, there is no PC and we don't have to move the product anywhere to go through as kind of the demand picks up on these applications.

Jed Dorsheimer (Equity Analyst)

Great. And then maybe as a follow up for Gregor, you know, just it looks like you've been able to restructure a little bit more than half of the L1. I'm just curious, you know, what your intentions are in terms of that. Can you, is the goal to. I may have missed this in the, in the remarks, but get that completely restructured before the June timeframe or July 10th.

Gregor

Yeah. Obviously you saw that we took a first big step by taking out 43% of the first lien debt. That is the most expensive debt we have is around 14% interest rate and there will be a further step up to 16%. So clearly this is the prime focus to address. We felt it was very important to take this first step and we are very pleased with the signal of strength with new loan holders coming in and even having a part of equity at the premium be part of this mix of taking a part of the L1 out. The size of the L1 was, however, such that doing this in one go would have been too costly. Particularly because we expected that the stock would re rate after taking a first step and showing the signal of strength that we have this ability. We think we see some of that over the last couple of weeks. And what we're doing right now is evaluating which exact steps we're going to take and when. We are not in a rush because of the maturities in 2030, but obviously I'm keen to do something. We're not going to put a specific timeline against that. That is not necessary to put that pressure on ourselves. We will take the best possible approach when the market conditions are optimal to get the best cost of capital for the company.

Jed Dorsheimer (Equity Analyst)

Great. That's helpful. Thank you.

OPERATOR

There are no further questions at this time. I will now turn the call back to Robert for closing remarks.

Robert

All right. Thank you so for joining us on the call and thank you for the very constructive questions. Thank you. Bye bye.

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