Wolfspeed Q1 Earnings Call Highlights

Key Points

• Revenue reached $155 million in fiscal Q1, while adjusted gross margin improved 710 basis points sequentially to negative 12.8% as higher factory utilization narrowed losses. For Q2, Wolfspeed forecast revenue of $155 million to $175 million and gross margin approaching break-even.
• A conditional $1.5 billion, 30-year U.S. Department of War loan commitment could refinance debt and fund technology investments. The initial $600 million tranche is expected to refinance debt and deliver significant interest savings, but financing remains subject to due diligence and other conditions.
• Wolfspeed cited AI data centers as its highest-growth end market, with related revenue more than doubling year over year on a trailing 12-month basis. It also highlighted automotive supply agreements and potential growth in GaN and transparent silicon carbide applications.

Wolfspeed NYSE: WOLF reported fiscal first-quarter revenue of $155 million, slightly above the midpoint of its guidance, and forecast sequential gross margin improvement as higher factory utilization helped narrow losses.

The silicon carbide semiconductor and materials company also outlined plans to refinance debt and invest in new technologies through a conditional $1.5 billion loan commitment from the U.S. Department of War. Chief Financial Officer Gregor van Issum said the company was working to complete the financing ideally before the end of the year.

For the fiscal second quarter, Wolfspeed expects revenue of $155 million to $175 million and non-GAAP gross margin to approach break-even. It also expects operating expenses of $65 million to $69 million, reflecting investment to support anticipated AI data center growth.

Margins improve as utilization rises

First-quarter power revenue was approximately $117 million, up 10% from the previous quarter, largely because of growth in the industrial and energy market, which includes data centers. Materials revenue was approximately $38 million.

Adjusted non-GAAP gross margin was negative 12.8%, an improvement of 710 basis points sequentially. Van Issum attributed most of the improvement to higher utilization after the company largely completed its inventory reduction, with a secondary benefit from a more favorable power product mix.

Underutilization remains the primary driver of the company’s gross margin profile, van Issum said. He added that Wolfspeed now expects to reach gross margin break-even at quarterly revenue somewhat below the roughly $200 million level he had previously discussed, though the precise figure remains uncertain.

Adjusted non-GAAP EBITDA was negative $55 million, an $8 million improvement from the prior quarter. Non-GAAP operating expenses rose to $64 million from $62 million.

Operating cash flow was negative $84 million, including $32 million of interest paid. Changes in working capital contributed approximately $60 million to cash during the quarter, partly through further inventory reduction. Van Issum said the company had largely completed its working capital optimization initiatives after generating approximately $235 million in cash from such improvements over five quarters.

Van Issum also said Wolfspeed completed a previously planned workforce reduction of approximately 6%.

Conditional loan would refinance debt and fund investment

The 30-year loan commitment announced in October remains conditional and milestone-based. Its initial $600 million tranche is expected to refinance the remaining balance of Wolfspeed’s first lien senior secured notes due in 2030. Van Issum said the company had reduced that debt to approximately $630 million from $1.1 billion in March.

The refinancing is expected to save more than $50 million in annual interest expense. With the first five years of interest payments to be paid in kind, annual cash interest savings are expected to be approximately $100 million, van Issum said.

Government due diligence and the credit agreement were still being completed, he said. Drawing the tranches also involves financial commitments, a limited equity raise and other balance-sheet de-risking measures under discussion with the government.

Chief Executive Officer Robert Feurle said later tranches would provide flexibility for project-based investments, including scaling silicon carbide operations, expanding domestic gallium nitride, or GaN, capabilities and developing radiation-hardening capabilities. He said the program was not intended to build additional sites or square footage.

Data centers and automotive drive opportunities

Feurle said AI data centers remain Wolfspeed’s highest-growth end market. Revenue from the market more than doubled year over year on a trailing 12-month basis, and the order book is accelerating, he said. Wolfspeed is engaging directly with hyperscaler customers on product innovation and sees opportunities as data center power architectures evolve.

In automotive, the company recently signed a majority-share long-term supply agreement supporting BorgWarner’s next-generation 800-volt silicon carbide inverter platform, Feurle said. Wolfspeed also expanded and extended its long-term wafer supply agreement with Infineon, adding 200-millimeter wafers to existing 150-millimeter supply.

Asked about the silicon carbide market, Feurle said AI data center infrastructure and automotive demand should help absorb capacity built in recent years and improve the supply-demand balance.

For GaN, Feurle identified humanoid robotics and data center voltage step-down as potential markets. He said Wolfspeed’s existing intellectual property and manufacturing assets support its planned entry, although some additional tools would be needed for a dedicated GaN line.

The company also announced the commercial introduction of transparent silicon carbide technology. Feurle said the material could have applications in augmented reality, quantum computing and other emerging markets.

About Wolfspeed (NYSE:WOLF)

Wolfspeed, Inc is a semiconductor company focused on silicon carbide (SiC) technologies. Its products are designed to support the conversion and management of electrical power in applications that require high efficiency, high voltage, and operation at elevated temperatures.

The company develops and manufactures SiC power devices, including metal-oxide-semiconductor field-effect transistors, diodes, power modules, and related components. It also produces SiC materials such as wafers and epitaxial substrates used by semiconductor manufacturers.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.