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 may be muted during the presentation portion of the call for an opportunity for questions-and-answer at the end. [Operator Instructions] I would now like to pass the conference over to our host, Tyler Gronbach, VP External Affairs; Tyler, please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's fourth quarter fiscal 2024 conference call. Today, Wolfspeed’s CEO, Gregg Lowe; and Wolfspeed’s CFO, Neill Reynolds will report on the results for the fourth quarter of fiscal year 2024. 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. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of other key metrics. 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 and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Last 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 Gregg.

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'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. 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 reductions in fiscal 2025. Neill 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. 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 in what we can say publicly, our constructive discussions with the CHIPS office on a preliminary memorandum of terms or PMT continue. While there can…

Thanks, Gregg. 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 and 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. We achieved $64 million of revenue from our Durham Device Fab 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 Power Device business to 200 millimeter at Mohawk Valley, where we see significantly improved unit costs well ahead of our 150 millimeter device unit cost. 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. 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 does not change our view that I&E products…

Thanks, Neill. We are encouraged by the positive results we are seeing in 200 millimeter. 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. 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 plans 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. Thanks for your continued support, and now we'll move to Q&A.

[Operator Instructions] The first question is from the line of Brian Lee with Goldman Sachs. Your line is now open.

Hi, everyone. This is actually Nick Cash on the line for Brian. I just kind of wanted to dive in to Durham a little bit. I guess, one, how much of your outlook at Durham is still levered to I&E and how much visibility do you have regarding the Durham Fab for fab has finally troughed in terms of demand and margin profile? And I guess, how quickly into what level can that recover to? And I guess one more touching on, I guess, the equipment incident at the facility, you mentioned a possible $20 million impact to first quarter '25 revenue. Is that guide you guys gave inclusive of that $20 million impact? Thank you.

Yeah. Maybe I'll start with the answer, Nick, and then I'll turn it over to Neill for a little bit more detail. Visibility on I&E, it's cloudy. So 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. So it's down, and it will eventually pick back up, but when we can't really predict. And then, I'll maybe turn it over to Neill.

Yeah. Let me just try to 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 in Mohawk Valley are being offset by, as you mentioned, lower I&E and lower Durham revenue. So as you look out into the December quarter, we anticipate seeing other solid pickup in EV and Mohawk Valley revenue, but there will likely be a decline in some of the Durham and I&E volume. Kind of the I&E, as Gregg mentioned demand flattens and we start to burn off some inventory there. Just anticipation of kind of a I&E kind of recovery as you get into the first half of calendar next year. So I think that's kind of how to think about the revenue. 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'd say, halfway through the quarter, but we just elected to keep starts down just because of the impact of the lower I&E demand. So we'll continue to manage through that and let inventory burn off there a bit. From a gross margin perspective, again, we've been impacted by the lower I&E mix, but also the lower utilization in the fab, as 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. 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. 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.

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

Yeah. Hey, guys. First of all, 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 Wolfspeed and it's kind of evident in the stock price decline here. So my question for you is, what is the bare minimum that you have to spend on JP assuming the Mohawk Valley is not equipped. 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?

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 at some kind of superfast speed. So it obviously helps us with that. 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 hit some of the other details.

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. 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 going to the 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. And then from a funding perspective, we talked a lot in the prepared remarks, it's about these 48D tax credits. And these are things that we've already accrued $640 million for. We anticipate getting those by 2026, a significant 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 we still remain focused, I think, from a funding perspective, as you look 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.

Thank you for your question. Next question is from the line of Samik Chatterjee with JP Morgan. Your line is now open.

Hey. This is Joe Cardoso on for Samik Chatterjee. Just curious like the potential closure of the Durham Device Fab would be quite a shift in strategy relative to prior disclosures. 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 thought process here is to close -- around closing that fab and take it out of the long-term model? And then maybe the second part of that question is, what does that imply for the existing footprint there in Durham? Thanks.

Thanks. 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 we're 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, weren't scheduled to ramp to JP and seeing great results from the initial crystal run. So combine this with the fact that the industrial and 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 I&E 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 excited about that. It's actually quite an amazing accomplishment that the team has been able to do. 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 taking the CapEx level down from $1.2 billion to $1.4 billion during fiscal year 2025 and then dropping it down dramatically in fiscal year '26. So I think as Gregg said, the facility spend being complete, we can really manage our CapEx for tools going forward. And that facility will be -- the facilities costs will likely be complete by December of this year. So we plan these factories for great economies of scale, building up modularly, and we're starting to see the benefits of that as we 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. 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 million to $600 million of fiscal year 2026 CapEx could support 50% to 60% utilization out of Mohawk Valley. So I think it's a real testament to the amount of revenue we can absorb through Mohawk Valley, and you start making that trade from 150 millimeter to 200 millimeters. So I think here 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 of course, the trade-off from industrial and energy 150 to 200 is actually a very, very good mix shift 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 we’ll – as we tighten up these plans and give more of an update, we’ll let you know how that impacts the long term model, but we’re clearly bullish on the ability of Mohawk Valley to absorb that.

Thank you for your question. Next question is from the line of Colin Rusch with Oppenheimer. Your line is now open.

Thanks so much. 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 just cut and monetize in the market? And can you talk a little bit about potential transferability on those grants?

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. So that's basically how it's get 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 we have very high confidence in terms of ability to monetize those in time. Tradability, etc., 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 we'll accrue during this coming year should start to come to fruition to us during 2026.

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

Hi. Yes. Thanks for taking my question. 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 underutilization in the start-up, 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. 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.

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. 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.

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

Hey, guys. Thank you for taking my question. I wanted to ask about the Mohawk Valley ramp and time lines of 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, a number comfortably above $100 million out of Mohawk. And then maybe, as a follow-on to that question, what's the time line to get to the 30% beyond that and how does that coincide with The JP layering in as well? Thank you.

Yeah. So first of all, thanks for the question. And I think as we laid out before, there's -- from a utilization perspective, there is a couple of quarter lag between the time you start a wafer to the time we start to see revenues kind of get process through the fab and then through the back-end operations as well and then eventually out to customers. So that time frame you laid out is correct. The other thing that impacts utilization and translation into revenue is the mix between automotive parts and in industrial and 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 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 park to Mohawk Valley. 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 with heavier auto, 20 translates closer to $80 million and close to $100 million is the kind of the normal mix. So I think that's the way to think about it moving forward. Now, as we think about maybe transitioning to Durham Fab, we've put a lot more industrial and energy revenue into Mohawk Valley, which as I said before, will be a good trade for us. 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.

Thank you for your question. The next question is from the line of Joe Moore with Morgan Stanley. Your line is now open.

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?

Yeah. So on the EV revenue, as you said, EV revenue was up 2x in the quarter, 3x year-over-year and 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 60% of our Power Device outlook. So we expect that to grow even further as the year goes on. So while we’ve seen some moderation, I would say, the overall EV growth rates, this 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.

Thank you for the question. Next question is from the line of Christopher Rolland with Susquehanna. Your line is now open.

Hey, guys. Thanks for the question. Are there any more details on the incident in Durham? What exactly happened 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.

Yeah. So a couple of things. First off, the facilities issue, with the issue in the June quarter in the Durham Fab was a facilities issue, it's 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 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.

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 lines.