Wolfspeed, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended June 26, 2022. The request metadata says “2021 Q4,” but the supplied filing is the FY2022 annual report, not a quarterly filing. Unless noted, figures below are for continuing operations. Dollar amounts are in U.S. dollars.
Business context
Wolfspeed, formerly Cree, focuses on silicon carbide (SiC) and gallium nitride (GaN) materials and semiconductor devices for power and radio-frequency markets, including electric vehicles, charging, renewable energy, 5G, and aerospace and defense. It completed the sale of its former LED Products business in March 2021 and changed its name and NYSE ticker to Wolfspeed (WOLF) in October 2021.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $746.2 million | $525.6 million |
| Gross profit / margin | $249.3 million / 33.4% | $164.6 million / 31.3% |
| Operating loss | $247.8 million | $313.9 million |
| Continuing-operations net loss | $295.1 million | $341.3 million |
| Consolidated net loss | $200.9 million | $522.5 million |
| Continuing-operations diluted loss per share | $2.46 | $3.04 |
| Cash used in operating activities | $154.2 million | $112.5 million |
- Revenue grew 42%, reflecting higher demand across product lines and increased power and materials capacity. Gross margin improved, with management citing greater revenue and lower manufacturing costs, partly offset by product mix.
- FY2022 consolidated net loss includes $94.2 million of income from discontinued operations, largely the LED divestiture earnout. FY2021 included a $73.9 million charge for abandoned Durham building plans and a $181.2 million discontinued-operations loss.
- Cash, cash equivalents and short-term investments totaled $1.199 billion at year-end, versus $1.155 billion a year earlier. Current assets were $1.762 billion and current liabilities $388.5 million.
- Net purchases of property and equipment were $505.9 million, after $139.0 million of reimbursements; gross purchases were $644.9 million. Operating cash use rose year over year, primarily due to inventory growth and higher receivables.
- Convertible notes had $1.325 billion aggregate principal and a $1.022 billion net carrying value. The $125 million revolving credit facility was undrawn at year-end. The notes comprise $575 million principal due 2026 and $750 million due 2028.
Changes, outlook and notable items
- Backlog increased to approximately $2.2 billion from $763.9 million; design-ins rose to $6.4 billion from $2.9 billion. Management cautions that backlog is not necessarily indicative of future revenue and design-ins may not convert to sales.
- The Marcy, New York SiC fabrication facility began qualification lots in FY2022. Management reported $70 million of FY2022 startup and pre-production costs and expects approximately $100 million of startup and underutilization costs in FY2023.
- Management targets approximately $550 million of net capital investment in FY2023, including expected New York state reimbursements. It expects total investment of approximately $2.0 billion for the Marcy facility through FY2024, with approximately $500 million expected to be reimbursed over time. The filing reports approximately $750 million spent and $150 million received in cash reimbursements as of year-end.
- A change in estimated useful lives of certain machinery reduced FY2022 depreciation expense by $33.3 million and improved diluted loss per share by $0.19. This estimate change contributed to reported results.
- In August 2022, after year-end, Wolfspeed received $49 million net of estimated fees and costs from an arbitration award; it expected to recognize the gain in FY2023’s first quarter.
Risks and contingencies
Key disclosed risks include executing the capacity ramp and improving yields, obtaining equipment and materials amid industry supply constraints, inflation and higher logistics costs, and matching capacity to uncertain demand. Two customers represented 20% and 18% of FY2022 revenue, respectively. The company also highlights customer and distributor purchasing variability, competition, new-product qualification, trade restrictions, COVID-19 impacts, and cybersecurity and intellectual-property risks. Management said pending legal outcomes were not reasonably estimable; it did not expect current proceedings, individually or together, to materially harm the company, while acknowledging an unfavorable outcome could have a material effect.
Management said existing working capital, available credit and anticipated operating cash flows were expected to cover daily operations and capital expenditures for at least 12 months. The auditor gave an unqualified opinion on the financial statements and reported effective internal control over financial reporting.
Important facts for investors to verify
- How quickly the Marcy facility ramps, achieves utilization and yields, and whether startup costs and capital spending track management’s expectations.
- Whether backlog and design-ins convert into shipments and revenue, given the filing’s explicit conversion caveats and customer concentration.
- The cash-flow and funding implications of continued heavy capital investment, state reimbursements, and the $1.325 billion principal amount of convertible notes.
- The effect of the $33.3 million depreciation estimate change when comparing operating performance across periods.
- The terms, collectability and timing of the $101.8 million LED earnout note, and the accounting and timing for the subsequent $49 million arbitration award.