Wolfspeed (WOLF) Q4 2026 earnings call transcript

Hello everyone, thank you for joining us and welcome to the Wolf Speed Inc. 4th Quarter Fiscal Year 2026 Earnings Call. On the call today from the Wolf Speed Team is Chief Executive Officer Robert Furlay, Chief Financial Officer Gregor Van Isam and Dan Whalen, Vice President Investor Relations. After today's prepared remarks, we will host a question and answer session.

I will now hand afternoon everyone. Welcome to Wolf Speed's 4th Quarter Fiscal 2026 Conference Call. We encourage you to reference the slides that were published on our website today. Please note that we will be presenting non-gapped financial results during today's call which we believe provide useful information to our investors. Non-gapped results are not in accordance with GAP and may not be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAP. A reconciliation to the most directly comparable GAP measures is in our press release and posted in the investment relations section of our website along with the historical summary of our 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 mentioned important factors that could cause actual results differently.

With that, I will turn the call over to Robert. Thank you and good afternoon everyone. We appreciate you joining us today. This quarter marks another step in building momentum since we substantially refreshed our leadership team and capital structure. The fourth quarter revenue result of 150 million represents another quarter of delivering results at the midpoint of the guidance range and further demonstrates we are delivering on our commitment. Reflecting on this past fiscal year, we have proactively taking aggressive actions including recapitalizing the company to strengthen the balance sheet and bolstering our leadership team and our sales organization with even industry veterans. We've also adjusted our go-to-market sales strategy and positioned the company to refocus on our technology, just ship and the customer centric approach.

But we have accomplished a lot as we continue to deliver on our commitments. We remain early in our transformation and as each month and quarter passes. We continue to gain further confidence in our path to profitability. As we execute our strategic priorities and navigate broader industry dynamics. As I said on my very first earnings call leading the Wall Speed team, we have enormous potential underpinned by a strong foundational element. Since then, we've been proactive building upon these strengths by attracting and incorporating industry veterans with extensive customer relationships to leverage, optimize and capitalize on our physical, operational and intellectual assets. More recently, as announced late July, anti-metas was appointed to our board of directors. As the former CEO of Coherent, he was next off with more than four years of leadership in semiconductor and advanced technology industries.

He brings a strong record of strategic leadership, operational excellence and industry relationships to further bolster and accelerate our path to profitability. Also, in early June, we announced the launch of a dedicated data center solutions team to cover less on the further growth in our fastest growing end market. To lead this effort, we have pointed to industry veterans in the San Francisco Bay Area, the existence of tech innovations with extensive experience in high-voltage power architecture for AI and data center applications. Our investment in folk with AI data center applications is gaining momentum, reflected in both revenue growth and expanding customer traction.

In fiscal 2026, revenue in this business more than doubled versus fiscal 2025, including increasing approximately 20% from the fiscal third quarter to the fourth quarter. He continued to see encouraging progress as new design wins ramp at leading power supply companies, including light on Macmeat and others to support multiple hyperscaler customers. These wins span both established and emerging HVPC AI architectures. Transition to 800-volt architectures is increasing silicon carbide content across the data center power ecosystem.

If these next generation power architectures become a critical enabler of AI infrastructure, hyperscaler customers are placing greater emphasis on system efficiency, quality and supply assurance. Beyond AC-DC power supplies, we are seeing opportunities emerge across battery backup units, supercapacitors, e-fuses and high-voltage DC-to-DC conversion. We are also pursuing opportunities on the secondary side of high-voltage DC-to-DC conversion systems, which could further expand our addressable market over time. While the market remains in its well, participate in this long-term growth opportunity. With industry-leading, thick technology and differentiated vertically integrated 200-millimeter manufacturing capability, we are well positioned to support this transition AI data center adoption continues to scale.

These are all clear examples demonstrating the team is executing and delivering on the key strategic priorities we committed to. I will also comment on a few updates regarding our commitment to technology dishes and other key strategic priorities.

This past June, we announced two significant achievements at PCM, a leading power technology conference in Europe. Gen 5 Mossat technology and 10 kilowatt Mossat commercial readiness. At PCM, we announced our fifth generation silicon carbide Mossat technology, making another significant milestone in our innovation roadmap. Gen 5 Mossat delivered the best specific on-state resistance industry while maintaining the excellent switching behavior, introducing our Gen 4 Mossat. This combination represents a substantial performance leap in efficiency over competitive solutions, giving our customers the option to maintain efficiency and reduce the overall size of their systems, or maintain system size and achieve greater power density. Gen 5 enables more compact track generators, extended EV driving range, ride size battery systems, improved EV charging infrastructure.

Directly addressing the cost efficiency measures faced by automotive OEMs. Beyond automotive, Gen 5 also addresses several industrial power supply applications, demanding leading edge performance, including AI data center power supply, solar state transformers and renewable energy conversion. Importantly, Gen 5 was developed in its running in our highly automated 200 millimeter facility in Mohawk Valley in Upstate New York. This provides our old motive in industrial customers with a rapid, low-risk car from designing into welding production. While we are diversifying our revenue and customer base beyond our historical core concentration as discussed above, we are also continuing to develop and improve our automotive custom relationships. To this point, our previously announced partnership with JURA for onboard charging, systems reflect the continued importance of selling carbide in next generation EV platforms.

More recently, we were awarded first-time business from a European Q1 supplier supporting the onboard charger for a large German OEM. To touch on the aerospace defense market review, our 10-kiloworld selling carbide Mossat was acknowledged at the PCM at the top innovation at the conference. We also recently announced a memorandum of understanding of G Aerospace to accelerate the adoption of high voltage to the carbide across the industrial aerospace and defense market. This technical partnership includes the supply of industry's first commercially available 10-kiloworld sigma session for both speed and the ensure co-development of standard high voltage power module format. The domestic partnership strengthens our supply chain resilience in line to US government priorities around critical technologies for AI, energy, defense, and national security.

Now, materials business continue to serve a broad range of power and IF-based customers, including our 150-millimeter LTA customers. We are also looking closely with them on their 200-millimeter transition by providing state-of-the-art samples and technical support. For increased focus, customer-centric approach and operations has continued to be the backbone of these relationships.

Regarding our 200-millimeter substrates, we continue to explore new opportunities and make steady progress. Since our last update, we began shipping the first engineering system with the customers for the internal evaluation. We continue to view this as a longer-term growth opportunity. Prior to turning it over to Gregor, I will close by saying thank you to the entire continued commitment, execution, and drive. Our strategic alignment is significantly improved with new leadership and new sales energy in a stronger capital structure, at a positioning us to capitalize on long-term industry trends. This will continue to strengthen our earnings potential and we believe will ultimately deliver significant value creation for shareholders.

Thank you, Robert, and good afternoon, everyone. In addition to the key strategic priorities infused by Robert, we have also made great strides with our operational excellence initiatives, which will continue to increase our earnings potential and differentiate us in the marketplace as partner of choice. Our turn to our fourth quarter results, regenerated 150 million in total revenue for the quarter, in line with the midpoint of our guidance.

Materials revenue was approximately 43 million. Our revenue was approximately 106 million, which represents 6 percent sequential growth as the quarter benefit from strength in AI data centers, which increased approximately 20 percent from Q3 and Q4, and more than doubled from fiscal 2025 to fiscal 26, which helped to compensate for the softer results in automotive.

Next, our adjusted NOMGAP cross margin for the quarter was minus 19.9 percent, reflecting a 70 basis point sequential improvement. This was driven primarily by a product mix, including higher INE sales in power and higher IRF sales in materials. Unutilization continues to be the primary driver of our cross margin profile and improving factor utilization remains one of the most important levers to drive margin expansion.

As I mentioned during the third quarter earnings goal, we continue to focus on producing the same revenue with less capacity consumed. These continued efforts position us to keep expanding our earnings potential per dollar of invested capital, even if it makes the reported unutilization larger. NOMGAP operating expenses totaled 62 million in the quarter versus 61 million in the prior quarter, largely due to continued investment in RMD and marketing-related expenses.

Adjusted NOMGAP EVDA for the quarter was negative 62 million comparable to a prior quarter. Both capital expenditures were only 5 million in the fourth quarter versus 38 million in the prior quarter. Changes in working capital contributed approximately 23 million to cash for Q4, driven primarily by continued reduction of inventory levels.

Now, turning to cash flow, which remains one of our top priorities, operating cash flow for Q4 was negative 54 million and included a 41 million benefit from further reduction of inventory levels in the quarter. We ended the quarter with approximately 1.1 billion in cash and short-term investments, allowing us to pursue our strategic priorities with confidence. We continue to pursue aggressive efforts to reduce our debt in cost of capital. During the fourth quarter, our capital structure further improved as holders of 46 million of our two L convertible nodes exercised a voluntary conversion of their debt to equity. This debt principle decreased, resulted in approximately 1 million of annual interest expense savings. Net debt was approximately 600 million at the end of the quarter.

Turning to our business outlook, we continue to seek growth in our device business and our targeting revenue between 140 and 160 million in the first quarter of fiscal year 2027. We are expecting non-gab cross margin to remain negative. As we are entering the new year, we are now expanding our guidance to include non-gab operating expenses, and we expect them to be in the range of 62 million to 66 million in the fiscal first quarter of 2027.

Thank you, Gregor. Before we open the call up for questions, I will reiterate we are laser focused on continuing to deliver on our key strategic initiatives, including technology initiatives, diversifying our revenue and customer base, operational excellence, and financial disciplines. Commutively, this will cement our path to profitable growth, stronger earnings, power, and greater value creation for shareholders.

With that operator, we are now ready to take questions.

I think thanks to the question, Robert here. What we see is that our diversification efforts in terms of broader customer structure globally is really starting to do pay off, right? And then, of course, we cannot influence the demand of our end customers. But what we can clearly see is that pretty much both in the ILE space and also in the auto space, we see no really good traction. And again, we also announced your one additional design, we know at a German car, we are for onboard charging and we see really a broad engagement across the globe. How the overall demand will develop across these end verticals is hard to predict.

But thank you, speaking here. There's also some of our customers going through product mix changes, especially in the on the auto side here. So I think it's something which is which is rather hard to say.

Absolutely. Great question. So, Bruce, we doubled our revenue from FY 25 to 26. It just shows you kind of the momentum this market segment has gained. And I think speaking, this was not an anybody's radar screen a couple of years ago. In terms of the product portfolio, you were quite frankly looking to, again, like I said, on the PSUs side, these quick devices here, we are engaged and we named two of these companies, Macmead and Lydon and our press release also here. But of course, we were engaged with, you know, across the whole ecosystem on the power supply side. And then working with, you know, the major solid-state transformer companies on the higher voltage devices, which are primarily 2.3 and 3.3 kilovolt modules.

And you know, here it's, you know, around how do we get, you know, the end customers, which are the hyperscalers, comfortable pretty much with the reliability aspect and also, you know, making sure that they are comfortable with pretty much deploying these SSTs. So, we really engaged from 7 or 50 volt devices, 12 higher the voltage comes from more differentiated the product for you. And we have the product, you know, and we have this in our 200 millimeter Mohawk value fab. So, we're getting a lot of requests from these customers, okay, we're not gonna go deploy this now, are you ready to ramp? And the good news is, with us having completed the 6 to 8 inch transition, I think this is a huge, huge asset for us as a company, right?

And as you know, we're vertically integrated means we got the substrate, we got the product, and again, we're really, you know, all, all, you know, so, in terms of the Mohawk value fab.

Thank you. Yeah, so again, the couple of factors driving, you know, the demand. The one is, of course, the 800 volts deployment. That's a big milestone here, which is gonna happen, and here we're working on various qualifications across the whole ecosystem. But then also the whole deployment of solid stations, right? I mean, this is where, you know, I talked about it 2.3 kilowatts, 3.3 kilowatts devices are really important and us being able to deliver these devices from our Mohawk value sector is putting us in a really good situation to take advantage of that demand.

Yeah, and thanks for the question. I think indeed, gross margin neutrality is the next big milestone for us to drive towards. That is particularly driven by volume growth. As you know, we have a high fixed cost nature in our business. Revenue expansion is the best way to improve our margins, inherent profitability of the products is quite okay, I would say, so it's really about asset utilization. It greatly depends on the exact mix you have between devices and material, but also within material on the end market. So we're pretty happy to see that some of the industrial markets having a lot of protection, including the data center side. But in a ballpark, we would say on 800 million annual remorade, that's probably the ballpark where a great even a gross margin point lies right now.

But again, that could be plus minus several million, depending on the mix.

Yeah, thanks for the question. Obviously, the first thing that is the highest prior debt to refinance right now, it's around 16% interest. Depending on the means of refinancing, you can calculate on the 630 million of outstanding debt, how much saving that would be. But again, it depends on what type of refinancing or repayment that that would be. But it would be a meaningful contribution to the cash flow. In this particular report, overall, we have spent 32 million in cash out of the total 54 and operating cash flow. So you can see it's a meaningful amount.

I'm just wanting to make sure that I had that correct. I would say I don't go into that. We have absolutely no interest to break it into. So whether that's allowed or not, it's quite irrelevant from our perspective. We believe that having a vertical integrated business drives in really a performance differentiator when it comes to our device performance.

I think when you look at the Gen5 product performance that we have released at the PCIM, you're seeing a lead in performance that others have not been able to achieve with the technology in play. And we are convinced that this is to a certain extent contributed by the fact that we're perfectly integrated. So whether that may or may not be true, I don't think really is relevant for us at all.

And one is 200 begins contributing more meaningfully to the overall number. So we're working with all the major customers on qualifying the eight inch to 200 millimeter materials as we speak. And some of them are digesting your inventory levels. And I think it's kind of we're exactly in this transition from six to eight inch. Some LTA's are running out. Some LTA's on 150 as to continuing. And this is something I would say here, which will continue for this year as we're seeing this transition year year to happen. But as we see, of course, overall demand for silicon carbide and if you're looking to do all the market studies, silicon carbide market is growing. This means also our customers on the material site will transition to eight inch eventually.

And then we clearly are in a very good position with leading edge quality and leading next technology on an eight inch site to take full advantage of that.