Wolfspeed Q1 2027 Earnings Call Transcript

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

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View the webcast at https://events.q4inc.com/attendee/868938132

Summary

Wolfspeed Inc reported first-quarter fiscal 2027 revenue of $155 million, slightly above the midpoint of their guidance range, with a focus on financial discipline and strategic objectives.

The company secured a conditional 30-year $1.5 billion loan commitment from the U.S. Department of Energy to enhance its wide-bandgap supply chain, which will help refinance existing debt and support strategic investments in SiC and GaN technologies.

Wolfspeed’s AI data center business is highlighted as a major growth area, with revenue more than doubling year-over-year, and they continue to strengthen customer partnerships, including a significant agreement with BorgWarner for SiC inverter platforms in the automotive sector.

The company achieved a 710-basis-point sequential improvement in non-GAAP gross margin to negative 12.8%, driven by higher utilization and favorable product mix, and expects further margin improvement in the coming quarter.

Wolfspeed is expanding into the GaN market, targeting applications in robotics and data centers, leveraging its existing IP and manufacturing capabilities.

Full Transcript

OPERATOR

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed’s first quarter fiscal 2027 conference call. We encourage you to reference the slides that were published on our IR website today. Please note that we will be presenting non-GAAP financial results during today’s call, which we believe provide 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 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 mention important factors that could cause actual results to differ materially. With that, I’ll turn the call over to Robert.

Robert Feurle (Chief Executive Officer)

Thank you, and good afternoon, everyone. We appreciate you joining us today. We continue to build momentum. With each passing quarter, my conviction in our strategy and team grows stronger. First quarter revenue of $155 million marks another quarter of delivering on the commitments we have made, in this case above the midpoint of our guidance range. Our progress is anchored on our four strategic objectives: advancing technology leadership, diversifying our revenue and customer base, driving operational excellence, and maintaining financial discipline.

Together with our strengthened leadership team, these are translating into financial traction. Let me start with financial discipline. In October we announced a conditional 30-year $1.5 billion loan commitment from the U.S. Department of Energy to advance the domestic wide-bandgap supply chain. Upon closing, this would mark another significant milestone in optimizing our capital structure and financial foundation. Gregor will elaborate on this later, but at a high level, Tranche A would refinance our outstanding higher-cost first lien senior secured notes due in 2030, significantly reducing our cost of capital, increasing cash flow generation, and extending the maturity of the refinanced debt to 2056.

The tranches beyond Tranche A would give us the flexibility to fund a multi-year strategic investment program on a project basis, including scaling our established silicon carbide platform, establishing and expanding domestic GaN power device capabilities, advancing GaN on SiC RF materials technology, and developing domestic radiation hardening capabilities. To be clear, this is not a program to build additional sites or square footage. It’s about capitalizing on our existing capabilities, IP, tooling, and customer relationships we already have, which is fully aligned with the strategic objectives we’ve discussed for several quarters. Importantly, our manufacturing capacity is highly fungible and synergistic between SiC and GaN, and outside of targeted tooling investments, we can pivot existing capacity as appropriate and as needed.

Put simply, this would broaden our portfolio to span both SiC and GaN, two complementary power technologies that address different points on the voltage spectrum. SiC anchors the high-voltage, high-power applications where we lead today, while GaN extends our reach into lower-voltage designs. Together they give us two engines to drive high utilization across our sites and ultimately fuel both revenue growth and gross margin expansion. To elaborate, we believe GaN is the next power technology of the future beyond silicon, with major growth drivers emerging in data center power devices and humanoids. Given our physical assets, our existing GaN IP position, and operational synergies in manufacturing, we believe we’ve earned the right to compete in this market. Regarding our AI data center, or superintelligence, opportunity, our dedicated data center team is becoming more deeply integrated into our go-to-market efforts and is leveraging longstanding customer relationships in Silicon Valley to drive medium- and long-term sustainable growth.

We are already engaging directly with hyperscaler customers on product innovation. We continue to view AI data centers as our highest growth end market. Consistent with last quarter, revenue more than doubled year over year on a trailing performance basis, and our order book is accelerating, reinforcing its position as our fastest growing market. Because our top AI data center OEM relationships are building and the trajectory keeps moving higher as these programs mature, we are also gaining share in HVDC, high-voltage direct current, adoption as the architecture of the industry is moving toward a disaggregated power architecture so high power density can be driven from a smaller footprint. The architecture is evolving from a single rack carrying both GPU and power to a dedicated two-rack design, one rack for compute and a dedicated sidecar power rack alongside it.

Our technology is at the core of enabling high power density with high efficiency. This opens up more space for power content and plays directly to our strength, as our components convert incoming power, enable backup power through conversion, protect against faults, and step voltage down to what the AI data center servers require. In mid-September, MacMead, an emerging customer in the AI data center market, presented us with the highest honor, the Strategic Partner Award.

This underscores the strength of the partnership we are building. We see significant growth potential here and are actively providing technical, commercial, and supply support to ensure a smooth ramp. In automotive, we continue to make strides in this long validation-time, high-volume market as automakers scale next-generation EV platforms. Silicon carbide is increasingly essential to the efficiency, power density, and performance these architectures demand, further separating SiC from silicon, which is directly aligned with advancing our technology leadership and doubling down on core markets. Notably, we recently signed a majority-share long-term supply agreement supporting BorgWarner’s next-generation 800-volt silicon carbide inverter platform.

This deepens a longstanding collaboration while providing BorgWarner a reliable long-term supply of high-performance SiC for next-generation EVs, which is directly aligned with advancing our technology leadership and doubling down on core markets. In aerospace and defense, we continue to leverage our established leadership in high-voltage SiC, which is anchored by the industry’s first commercially available 10-kilovolt MOSFET, into a new class of ultra-high-voltage, high-current bipolar device architecture. Our industry-leading materials expertise and advanced device capabilities to develop power semiconductors operating at unprecedented voltage and current levels continues to position us well to support the increasingly demanding power conversion applications.

In materials, we continue to serve a broad range of power and RF customers. As you may have seen, we recently announced the expansion and extension of our long-term SiC wafer supply agreement with Infineon. The expanded agreement adds 200-millimeter wafers to the existing 150-millimeter supply, building on a relationship spanning multiple decades. It also further cements our position as a leading investment materials manufacturer and highlights the value customers place on multiple suppliers across reliable geopolitical regions.

We also recently announced the commercial introduction of our proprietary transparent silicon carbide technology, further expanding growth potential of silicon carbide. This proprietary technology, coupled with our extensive IP portfolio, will enable breakthroughs across augmented reality, quantum computing, and other emerging markets—a true testament to silicon carbide’s versatility and transformative potential. I want to take a moment to further elaborate on where this technology can go beyond our core markets. For years, the industry’s vision of truly immersive, all-day augmented reality glasses has collided with the hard limits of optical materials. You simply could not deliver a wide field of view, high image quality, and lightweight, wearable form factor all at the same time. We believe silicon carbide changes that equation. Its exceptionally high refractive index allows a single-layer waveguide to do the work that once required stacked optics, a kind of step-change that can move AR from a novelty into everyday eyewear.

Our work on optical-grade transparent silicon carbide is exactly the type of materials innovation that underscores the versatility of silicon carbide and the long-term optionality of our platforms. It is a powerful example of how the material leadership that defines our power business can open entirely new markets over time. With that, I will turn it over to Gregor.

Gregor van Issum (Chief Financial Officer)

Thank you, Robert, and good afternoon, everyone. As you heard, we’re making strong progress on multiple fronts, and we remain in the early stages of translating that into revenue growth and margin expansion. As noted, we generated $155 million in total revenue for the quarter, slightly above the midpoint of our guidance. Materials revenue was approximately $38 million. Power revenue was approximately $117 million, up 10% sequentially, driven largely by growth in the INE end market, which includes our data center business.

We believe fiscal 2027 will be a turning point and the start to more meaningful longer-term growth in both revenue and profitability. Adjusted non-GAAP gross margin was negative 12.8%, a 710-basis-point sequential improvement on a slightly higher revenue base, reflecting the benefits of our operational improvement initiatives. This margin improvement was primarily driven by higher utilization as we largely completed our inventory reduction, with a secondary benefit from a more favorable product mix in power. Underutilization remains the primary driver of our gross margin profile, and improving factory utilization is one of the most important near-term levers to drive margin expansion.

Non-GAAP operating expenses were $64 million versus $62 million in the prior quarter as we position the company for growth. Adjusted non-GAAP EBITDA was negative $55 million, an $8 million, or 12%, improvement sequentially. Gross capital expenditures were approximately $11 million. Turning to cash flow, which remains a top priority, our operating cash flow was negative $84 million, including $32 million of interest paid during the quarter. Changes in working capital contributed approximately $60 million to cash in the quarter, partially from further inventory reduction. Over the past five quarters, working capital improvements have contributed approximately $235 million to cash. At this point, we believe we have largely completed the working capital optimization initiatives we launched shortly after I joined Wolfspeed.

Before turning to the outlook, I’ll elaborate on Robert’s comments regarding the conditional 30-year, $1.5 billion loan commitment from the U.S. Department of Energy. This is an important milestone that will provide long-term capital to support our strategy while strengthening our capital structure, and one we believe is reflective of the importance of Wolfspeed’s silicon carbide to the U.S. national and economic security. The initial $600 million tranche, Tranche A, is expected to refinance the remaining balance of our high-cost first lien senior secured notes due in 2030.

This builds on the reduction we completed in March, which lowered our first lien debt from $1.1 billion to approximately $630 million, and would complete our planned refinancing of these notes. The refinancing is expected to deliver more than $50 million in annual interest savings, and given the first five years of interest payments will be paid in kind, annual cash interest savings are expected to be approximately $100 million. Ultimately, we see this as the start of a meaningful financing partnership.

This is a conditional, milestone-based commitment that supports our existing strategy, improves our capital structure, and funds the next phase of growth as we position the company to become the partner of choice in critical end markets, benefiting customers, shareholders, and national security. The additional tranches are intended to support the strategic objectives Robert previously outlined. For more details, please see the presentation posted to the Events and Presentations section of our website.

Turning to our outlook, we continue to see growth and are targeting second quarter fiscal 2027 revenue in a range of $155 to $175 million. We expect non-GAAP gross margin to improve sequentially and approach break-even for the second quarter. Operating expenses are expected to be in the range of $65 to $69 million, a modest sequential increase driven primarily by the investments to support anticipated AI data center growth. I’ll also note that this quarter we completed the previously planned workforce reduction of approximately 6%, further streamlining our organization.

Before turning the call back to Robert, I’ll echo his growing conviction in our strategy and long-term outlook. With that, I’ll turn the call back over to Robert for his closing remarks.

Robert Feurle (Chief Executive Officer)

Thank you, Gregor. Before we open the call up for questions, let me reinforce my enthusiasm and conviction for what lies ahead. Our leadership additions are becoming more integrated across every level. We continue to deepen customer partnerships across the widening scope of the market. We’re taking every necessary step to return Wolfspeed to a path of long-term growth and success, and that is the source of our increased conviction of Wolfspeed’s future.

With that, operator, we’re ready to take questions.

OPERATOR

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Joshua Buchalter with TD Cowen.

Joshua, your line is now open. Please go ahead.

Sam (Analyst at TD Cowen)

Hi, good evening, gentlemen. This is Sam on for Josh. Congrats on the quarter of results. I was just curious if you could remind us of the milestones for the $1.5 billion commitment that you’re getting from the government—what hurdles do you still have to clear and roughly what timing should we think about in terms of the refinancing occurring this year? And then secondarily, how has that dynamic shaped the relationship with your customers, either ongoing or new ones, perhaps using your BorgWarner deal as an example of how that’s given potential customers more confidence in your ability as a long-term supplier?

Thank you.

Gregor van Issum (Chief Financial Officer)

Yeah, thanks. Let me take the first question on the DOE loan. Obviously a lot of work has been done by the government already before we went into the announcement that led to a very detailed LOI. However, during this period the government is further completing its detailed due diligence. That’s all well on track, and we expect that this takes another couple of weeks to be able to do that, as well as, in parallel, finalizing the credit agreement as such.

Around the actual drawing of the tranches, there are several financial commitments, limited equity raise, and some other de-risking measures that we have to take on the balance sheet. That’s something we’re looking at and discussing together with the U.S. government. But all in all, we look to be well on track to be able to do this ideally before end of the year.

Robert Feurle (Chief Executive Officer)

And let me briefly comment on your question on the customer side. I would say this has been received very, very positively across the globe. I talked to a lot of customers both in the United States and Europe, but also Asia Pacific, and the feedback has been very well received. It really supports that strategy.

Sam (Analyst at TD Cowen)

Excellent. Thank you for the color there. And then my follow-up: your gross margin guidance is approaching break-even, obviously, as you said. Could you give us some guideposts to think about what break-even looks like in terms of Mohawk Valley utilization or what kind of revenue levels we’re talking about here, just so we can kind of range-bound when we might be break-even on the gross margin line? Thank you.

Gregor van Issum (Chief Financial Officer)

Yeah, let me comment on that. So last call I mentioned that you should think about the company as being around $200 million a quarter to be break-even. Given the improvements we are making and the favorable end market mix, we think that break-even point is a little bit lower than the $200 million. We’ll have to see exactly how that plays out, but we think that we’re really well on track. Utilization of Mohawk Valley to be able to achieve that, I would say wall-to-wall would be around 25% to 30% on the equipment utilization.

We believe we’re well on track to be able to do that. That’s a bit more difficult to comment on because the question is how do you measure that. But I would say we are well within capabilities in Mohawk Valley to be able to achieve that.

Sam (Analyst at TD Cowen)

Thanks so much.

OPERATOR

Your next question comes from the line of Christopher Roland with Susquehanna. Christopher, your line is now open. Please go ahead.

Christopher Roland (Analyst at Susquehanna)

Hey guys, thank you for the question. Some of our data around the silicon carbide market has actually shown an increase in lead times as well as an increase in pricing. So I guess my question for you guys is: do you think the market has kind of bottomed here in terms of both pricing—it seemed like it was a race to the bottom for a while there—but also this overcapacity situation? And if you could address maybe both the materials market and the device market, your perspective would be greatly appreciated.

Robert Feurle (Chief Executive Officer)

So what we see clearly is that the buildout of the power infrastructure for AI data centers has created a very large additional consumer socket, or end application, for silicon carbide. And I think this really helped to make sure that the capacity which was built over the last years is getting more and more absorbed in two large end markets. One is automotive—this is a very important market, and especially with the high gas prices and high energy prices, a lot of EVs are getting bought. And the other one is the AI data center buildout, especially now with the 800-volt systems getting deployed, which will drive additional demand for silicon carbide. I think this is something which a lot of people didn’t have on the radar screen, let’s say two years ago, and I think this will help to get the market into a better supply-demand balance.

And on the materials side, what we clearly see is the RF business is something which is very, very interesting. We see a lot of announcements around satellite communication and these types of applications. And of course, us being positioned in the United States with our unique capabilities is putting us in a pretty good situation for the materials business.

Christopher Roland (Analyst at Susquehanna)

Yeah, sorry, go ahead. Excellent. And for my second question, your entry into the GaN market seems really interesting. When might you have products coming? What end-market products or applications are you targeting for GaN as well?

Robert Feurle (Chief Executive Officer)

So let me start with the market. What we really see is that two markets are driving the demand for GaN—for the low-voltage GaN—and one is robotics, specifically the human robotics. The other one is the voltage step-down for the data center, covering the voltage range below what silicon carbide can do. If you look at Wolfspeed from a capability perspective, we have core assets, and the tools are pretty fungible. Of course, there’s some additional tools to run a dedicated GaN line, but a lot of tools are fungible between GaN and SiC, and we have a very broad IP portfolio on GaN as well.

That’s why we believe it’s a good way for us to expand the TAM of Wolfspeed—just as a general direction to say, look, in addition to silicon carbide, we’re also going to enter that market.

Christopher Roland (Analyst at Susquehanna)

Excellent. Thank you.

OPERATOR

As a reminder, if you would like to ask a question, please press star one to raise your hand. There are no further questions at this time. This concludes today’s call. Thank you for attending. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.