Wolfspeed, Inc. Q4 FY2024 earnings call

• Aggressive plan to optimize capital structure: Aligning CapEx pace to balance sheet, identifying cost reduction areas. Accelerating shift of device fabrication to Mohawk Valley 200 millimeter fab while assessing closure of Durham 150 millimeter fab. Targeted $200 million CapEx reductions in fiscal 2025. - CHIPS office progress: Constructive discussions on preliminary memorandum of terms for a CHIPS grant, negotiating final terms. Eligible for over $1 billion in Section 48D cash tax refunds from IRS, with approximately $640 million already accrued. - Manufacturing site performance: Progress on 200 millimeter platform with material side scaling, expecting 25% wafer start utilization at Mohawk Valley in September quarter and 30% in March 2025. Fab yields in Mohawk Valley ahead of plan. EV revenue strong, up over 100% year-over-year in Q4 and expected to be up ~300% year-on-year in fiscal Q1. Achieved $2 billion in design-ins in fiscal Q4, total design-ins for 2024 over $9 billion, with ~$500 million design-wins converting to production. - Financials: Revenue of $201 million, non-GAAP gross margin 5% in Q4, balance sheet had ~$2.2 billion cash and liquidity, free cash flow negative $885 million in the quarter.

For the fourth quarter of fiscal year 2024, Wolfspeed generated $201 million in revenue, slightly above the midpoint of guidance and flat sequentially. Power revenue was $105 million, with Mohawk Valley contributing $41 million (a 46% quarter-over-quarter growth, up from $1 million one year ago). Durham Device Fab generated $64 million in revenue, down approximately 40% year-over-year due to weakness in industrial and energy markets. Materials revenue was $96 million, above expectations. Mohawk Valley's $41 million contribution represents 20.4% of the total quarter revenue, Durham Device Fab's $64 million is 31.8% of total, and Materials' $96 million is 47.8% of total.

• Fiscal Q1 2025 revenue target: $185 million to $215 million. - Mohawk Valley revenue target for Q1 2025: ~$50 million to $60 million. - Non-GAAP gross margin target for Q1 2025: -2% to 6% with midpoint 2%, including ~1,000 basis points of underutilization, repair costs, and yield impact. - Non-GAAP operating expenses target for Q1 2025: ~$128 million, inclusive of $25 million start-up costs related to The JP. - Non-GAAP net loss target for Q1 2025: $138 million to $140 million. - Fiscal 2025 CapEx expected: $1.2 billion to $1.4 billion, down $200 million from prior range. - Fiscal 2026 CapEx expected: $200 million to $600 million, excluding federal incentives which could lower the number.

• Market demand uncertainty: Visibility on industrial and energy (I&E) market demand is cloudy, with no quick recovery expected in the near term. - Equipment incident risk: The Durham Fab incident in June impacted non-GAAP gross margin by 500 basis points, and there could be potential equipment issues in the future that could impact operations and margins.

Q: How much of Wolfspeed's outlook at Durham is still levered to I&E and visibility on Durham Fab's demand and margin profile? And is the first quarter '25 revenue guide inclusive of the $20 million impact from the equipment incident?

A: Gregg Lowe said visibility on I&E is cloudy, it's down and will eventually pick back up but can't be predicted. Neill Reynolds added that revenue in the September quarter is flat with EV revenue in Mohawk Valley offsetting lower I&E and Durham revenue, and the first quarter '25 revenue guide includes about 1,000 basis points of impact from the fab incident and lower utilization related to I&E demand.

Q: What is the bare minimum spend on The JP assuming Mohawk Valley is not equipped and how to bridge to positive free cash flow by early 2026?

A: Gregg Lowe said progress in Building 10 puts pressure off getting The JP up quickly, and The JP's fixed cost build-out will be done by end of calendar year. Neill Reynolds mentioned driving lower CapEx, operating efficiencies to drive EBITDA positive in back half of the year and operating cash flow positive by early 2026, and relying on $640 million of 48D tax credits already accrued to help fund the business.

Q: Potential closure of Durham Device Fab and its implications?

A: Gregg Lowe said it was always the plan to ramp down 150 millimeter and transition to 200 millimeter, and the progress and productivity in the 200 millimeter platform made the decision straightforward. Neill Reynolds added about capital efficiency, CapEx levels, and Mohawk Valley's ability to absorb revenue from the transition.

Q: Monetizing tax credits and operational metrics?

A: Neill Reynolds said tax credits from CHIPS Act are aligned to assets placed into service and administered through tax return process with IRS, with high confidence in monetizing them in time and no significant operational impact other than asset placement.

Q: Details on Durham incident and Mohawk Valley redundancy?

A: Gregg Lowe said the Durham Fab incident was a facilities issue rectified and repaired, and Mohawk Valley has significant redundancies including power, water, and most tools have second-of-a-kind tools for better incident withstand.