Wolfspeed, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2023. The quarter comprised 14 weeks, compared with 13 weeks in the prior-year quarter. Unless noted, operating results below are from continuing operations. Wolfspeed focuses on silicon carbide materials and power devices for applications including electric vehicles, charging, and renewable energy.
Financial performance
| Metric | Three months ended Dec. 31, 2023 | Six months ended Dec. 31, 2023 | Prior-year comparable |
|---|---|---|---|
| Revenue | $208.4 million | $405.8 million | $173.8 million quarterly; $363.2 million six months |
| Gross profit / margin | $27.8 million / 13.3% | $52.5 million / 12.9% | $56.7 million / 32.6% quarterly; $124.4 million / 34.3% six months |
| Operating loss | $98.1 million | $193.0 million | $73.0 million quarterly; $136.5 million six months |
| Net loss | $144.7 million | $540.4 million | $90.9 million quarterly; $117.1 million six months |
| Loss per share, diluted | $1.15 | $4.31 | $0.73 quarterly; $0.94 six months |
- Quarterly revenue grew 20%; six-month revenue grew 12%. In the quarter, Power Products revenue was $107.7 million, up 12%, and Materials Products revenue was $100.7 million, up 29%.
- Gross margin declined sharply. Mohawk Valley Fab underutilization costs were $35.6 million for the quarter and $70.0 million for the six months; six-month results were also affected by product mix. Management expects ramp-related underutilization costs to weigh on margins in future periods.
- Six-month net loss includes $290.6 million from discontinued operations, principally reflecting the RF divestiture-related loss recorded earlier in fiscal 2024. Continuing-operations net loss was $249.8 million.
- Non-operating expense was $27.8 million for the quarter and $56.3 million for six months. Higher interest expense more than offset increased interest income; six-month interest expense, net of capitalized interest, was $126.0 million, versus $12.6 million in the prior-year period.
Cash flow, liquidity, and debt
- At December 31, 2023, cash and cash equivalents were $904.4 million and short-term investments were $1.731 billion, totaling $2.636 billion, down from $2.955 billion at June 25, 2023.
- For the six months, cash used in operating activities was $295.6 million from continuing operations and $349.9 million including discontinued operations. Continuing-operations cash use increased from $69.9 million a year earlier.
- Capital expenditures were $1.052 billion before $79.4 million of reimbursements; management reported net property and equipment purchases of $972.8 million. Investing cash use from continuing operations was $1.447 billion.
- Net long-term debt and convertible notes totaled $5.168 billion at period-end, compared with $4.175 billion at fiscal year-end. The company received a $1.0 billion unsecured refundable customer deposit under a long-term agreement; it bears 6% interest, potentially increasing to 10% or 15% if specified supply targets are not met. Additional deposits of up to $1.0 billion may be available subject to conditions.
- The 2030 Senior Notes carry a 9.875% interest rate for the first three years and include a $500 million minimum-liquidity covenant, reducible upon specified facility utilization and revenue milestones. Wolfspeed reported compliance with debt covenants at December 31, 2023.
Material changes, outlook, and risks
- Wolfspeed completed the sale of its RF product line to MACOM on December 2, 2023, receiving approximately $75 million in cash, subject to adjustment, and 711,528 MACOM shares. The shares were valued at $66.1 million at quarter-end and are restricted pending a future transfer of the RTP Fab; one-quarter may be forfeited if that transfer does not occur within four years.
- Management targets approximately $2.0 billion of net capital investment for fiscal 2024. It expects daily operations to be funded for at least 12 months, but anticipates needing additional funding to complete planned capacity expansions. The target depends in part on project progress and expected reimbursements.
- Expansion plans include Mohawk Valley, a new materials facility in Siler City, and a planned facility in Germany. Management cites strong EV-related power demand but softening demand in industrial and energy applications, production constraints, and the need to improve manufacturing yields and utilization.
- Six-month design-ins were $4.3 billion, versus $4.8 billion a year earlier; design-wins were $4.4 billion, versus $0.9 billion. The filing cautions these indicators do not guarantee future revenue.
- Key risks include execution, yield, utilization and demand uncertainty at new facilities; access to additional financing; supply constraints and take-or-pay supplier commitments; reliance on government incentives and reimbursements; trade and geopolitical disruption; and substantial indebtedness.
- The Purdue patent case remains in fact discovery, with trial expected in 2025; the company says potential loss cannot currently be estimated. Management states that disclosure controls were effective and that no material change to internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether Mohawk Valley utilization, production yields, and product mix improve enough to restore gross margins as ramp costs continue.
- Whether fiscal 2024 capital spending, government incentives, and customer deposits provide sufficient funding—or whether additional financing or shareholder dilution is needed.
- The cost and conditions of the customer deposit agreement, including supply targets, potential higher interest rates, and repayment obligations.
- Whether design-ins and design-wins convert into customer orders and sustained revenue, particularly given demand softness and capacity constraints.
- Completion timing and value realization for the RF sale arrangements, including the RTP Fab transfer and restrictions or forfeiture provisions on MACOM shares.
- Potential exposure from the Purdue litigation and the company’s ability to maintain compliance with debt covenants and supplier commitments.