Transphorm Technology Inc (TGAN) 2022 Q4 法說會逐字稿

Good afternoon. My name is Savannah, and I will be your conference operator. I would like to welcome everyone today to Transphorm's Business Update Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

Joining today's call from Transphorm are Mario Rivas, Chief Executive Officer; Primit Parikh, Co-Founder, President and Chief Operating Officer; and Cameron McAulay, Chief Financial Officer.

Before we begin, I would like to point out that there is a slide for notations associated with today's call in which management will be referencing during the conference call. These slides can be accessed through the live webcast link in the Investor Relations section of Transphorm's website, and they will also be posted on the linked PDF subsequent to today's conference call.

Additionally, during the course of this call, the company may make forward-looking statements regarding the company's financial position, strategies, plans and future operations with specific end markets and other areas of discussion. It is not possible for the company or management to predict all the risks nor for the company to assess the total potential impact of all factors on its business or to the extent which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements.

In light of all these risks, uncertainties and assumptions, the forward-looking statements discussed during this call may or may not occur, and the actual results could differ materially and adversely from those anticipated or implied. Any projections as to the company's future performance represent management's views as of today, May 24, 2022. Neither the company or any person assumes responsibility for the accuracy or completeness of the forward-looking statements.

The company undertakes no obligation to publicly update the forward-looking statements for any reason after the date of this call, should conform such statements to actual results or to change in the company's expectations. For more detailed information on risks associated with the company's business, we refer you to the risk factors described on Transphorm's S-1, 10-KT and other subsequent filings with the SEC.

With that, I will now turn the call over to Transphorm's CEO, Mario Rivas, for opening remarks. Mario, please go ahead.

Thank you, Savannah, and welcome to everybody on today's call. We appreciate you joining us today. Allow me to review our fiscal fourth quarter and recent highlights. We achieved an uplisting of transfer common stock to the Nasdaq under the ticker symbol TGAN.

The full year fiscal '22 revenue increased 89% year-over-year to a record $24.1 million due to strong growth in product revenue. The fourth quarter of fiscal year '22 total revenue increased sequentially for the ninth consecutive quarter to a record of over $4 million with total revenue for the quarter at $4.93 million. We secured our largest SuperGaN high-powered Gen IV pad production order for the company today for over 0.5 million units of 3-kilowatt class power supplies. The magnitude of this order clearly demonstrates Transphorm's continuing leadership in high-power GaN. We also secured a laptop adapter design win from a Tier 1 Fortune 100 company, including an initial purchase order of 50,000 units of SuperGaN Gen IV 240 mohm class FET. These FETs provide higher efficiency for 65-watt fast-charging adapter applications when compared with competing e-mode GaNs that require a larger 150 mohm device for similar applications. As a result, this Transphorm SuperGaN FET allow our customers to do more with less. Cash and equivalents as of March 31, 2022 were $34 million.

I now pass the call to Primit for a detailed walk-through of the developments these past few months. Primit?

Thank you, Mario, and good afternoon, everyone. Transphorm, TGAN, has continued our product revenue ramp, delivering our ninth successive quarter of product revenue growth and cementing our leadership position in high-power GaN with a new 500,000-plus unit order for kilowatt class gallium nitride, a strong result of our targeted deliberate investments over the past several years in high-performance GaN products for the broad market areas from low power to high power.

To the best of our knowledge, TGAN is the only GaN company to be shipping anything in the kilowatt range in these high-volume productions today. This places us in a very strong position to address the $3 billion GaN TAM in diverse areas like blockchain computing, data servers, communications, gaming, energy, renewables and electric vehicles, while systematically growing our share in the lower power fast charger and adapter consumer segments.

First, I'll give a short recap of gallium nitride, the overall value proposition, our leading position clarifying market positioning of various types of GaN products and then review our strong execution in the March 2022 ending quarter and then our expansion strategy for FY 2023. Gallium nitride GaN is a wide band gap semiconductor material for power conversion that reduces electrical energy base, enables compact power conversion footprint and lowers power systems cost, supports a variety of electrical power conversion applications, chargers, converters, inverters, and does this significantly better than traditional silicon and much better than other new semiconductors like silicon carbide. TGAN is an established innovative design pioneer and leading manufacturer supplier of high-voltage GaN power semiconductor products over the widest range of applications from 30 watts, lower power to over 4 kilowatts higher power and in application areas ranging from adapters and fast chargers for which GaN has been well accepted in the market today to higher power data centers, mining, crypto mining, communication infrastructure, broad industrial, renewable energy and in design-in for automotive electric vehicle applications as a result of our targeted investments and strategy.

Our core and strong fundamental IP with over 1,000 patent strong portfolio as well as our high-performance, high-quality products have been validated by various broad chip investors, customers and partners, financial partners, design partners, manufacturing partners and automotive and industrial market customer partners as well as the U.S. Department of the Defense. Our comprehensive and differentiated product offering, backed by a high-quality manufacturing base that we essentially own, has ramped in the market now with over 40 billion hours in our customers' product in the field, including both high-power and low-power GaN, and resulted in over $124 million of revenue in our fiscal 2022, a record for us and a 1.9x growth about in spite of a challenging supply chain environment.

Our focus is on building a product-driven, fast-ramping profitable business, and we are already off to the races doing that. While we have multiple revenue segments like historically licensing and now government revenue and products, we target over 90% of the mix from product revenue in 2023, representing a 200% CAGR from over 2020. We are committed to making the required operating and capital investments for increased scale, high-performance products and solutions for our customers and fostering an adoption over multiple end markets to achieve our targets and our target model of well over 50% long-term CAGR with gross margins over 40% and operating margins, including over 20%.

We are in a unique and differentiated position among the GaN suppliers to have products in the market today that address a tremendous multibillion dollar market opportunity of GaN for power conversion across the various segments, again, from lower power adapters and chargers to higher-power server crypto datacom power that we had already ramped in, our customers are already ramping into industrial energy and renewables, now also in production with quite a few accounts and in the mid- to long-term large growth opportunities with automotive electric vehicles. Further bolstering our long-term picture beyond 2024, 2025. Our GaN solutions delivered high efficiency, compact systems with easy-to-use and easy-to-interface products for the customer with proven performance benefits against silicon, silicon carbide and other gallium nitride solutions like e-mode GaN.

The GaN TAM is in the multibillion dollar range. This is the GaN TAM we show here that is reasonably addressable by products we have today all in the near-term pipeline over the next few years. And from 2021 to 2026, a very strong 5-year growth of more than 3x fueled by a robust faster growth in GaN TAM versus the overall power semiconductor market in each of the segment areas shown here. And then a further inflection point through electric vehicle powertrain segment mid-decade, giving GaN and Transphorm a 10x larger EV segment market in 2026 for a $6 billion GaN TAM.

One of our key attributes from early on, this has been our philosophy, is doing more with less. We want to enable our customers by taking the inherent benefits of GaN over both silicon and silicon carbide to the next level and delivering multipronged benefits to power conversion customers. Our patented, normally off gallium nitride FET architecture delivers high efficiency over a wide range of power levels with leadership and product proliferation and reliability, field reliability rivaling that of standard silicon with a sub 0.3 FIT, which is called failure in time per billion hours of operation. TGAN's asset-light, vertically integrated value chain allows for in-house GaN wafers with manufacturing control, innovation and ability to scale.

Few other companies are now talking about getting into higher power with GaN. We have been setting these benchmarks for over 4 years now. For example, titanium class kilowatt scale GaN power supplies with our customers. And in process, also built up very fundamental IP for the same. We offer products spanning from 45 watts to 10 kilowatts. Also, we have led in terms of high-voltage offerings, 650 volts, 900 volts being the only company with a 900-volt product in the market and are now pursuing, in R&D, 1,200-volt gallium nitride which we have proven is well within the realm of GaN, not just silicon carbide territory anymore.

TGAN FET is directly compatible with leading silicon controllers and their in-build drivers bringing ease of design and drivability. No extra components or shrubbery, as we call it, are needed to interface our GaN with the outside world, a feature that has brought us a rich ecosystem of solution partners, and they appreciate this. Above all, our strong IP, 5 to 10x versus some other GaN competition, underpins all of this strength with core patents in not just gallium nitride materials and manufacturing, that's, of course, very key, but equally important in how the gallium nitride is used in common power application architecture, like, for example, the totem-pole bridge topology that is now widely used and is a core example of Transphorm original GaN product design innovation.

Another one of our key attributes from early on is the ownership of our GaN wafer production supply chain, an advantage that is becoming even more important in today's geopolitical climate. This starts with the design of our safe, robust and easy-to-interface, normally off GaN FET. We directly own and control our epi wafer manufacturing with multiple MOCVD reactors. These are the tools used to making or growing gallium nitride on, say, for example, silicon wafers that we do in 2 geographical locations owned by Transphorm, California and Japan.

Our wafer factory is a joint venture with our financial strategic partner. And to remind, it is a high-quality manufacturing site with the only formal report of yields for gallium nitride matching those of silicon CMOS running in the same factory, another feature that has contributed to our high-powered GaN products yield and quality. While packaging is done with our key OSAT partners, we bring Transphorm IT in these designs. For example, allowing GaN to be efficiently used in robust TO packages desired by higher power customers.

Last but not the least is our application and design efforts both with customers and solution partners, who work preferentially with our GaN for their controller or driver products. As a result, Transphorm has enabled our customers with products that range from adapter to automotive, lower power to higher power as shown in this chart from 30-watt adapters and wall block chargers to more than 10 kilowatt. And even higher power systems are realizable by paralleling multiple of our 10-kilowatt Gen V solutions, for example, in multiphase applications. This wide breadth of products is also complemented by the highest voltage range, 650 volts, 900 volts. Qualification, JEDEC AEC qualification, which Transphorm has always led in the first and then proven robust qualification product over product and now in R&D for innovative solutions like the 1,200 volt gallium nitride. We are not a one-trick pony. We service the entire market, the entire gamut of customers.

Now I will discuss why TGAN wins in various verticals from lower power to higher power. As GaN adoption is happening fast, which is great, many good companies are in the market with gallium nitride, notably at lower power adapters and chargers, while TGAN is systematically addressing today high power and low power together. Silicon obviously has been great in the past and still works today, but fall short in efficiency, speed and the smaller size required for new products. GaN takes off from here. A few factors that outline TGAN's differentiated benefits over competing GaN are that we excel in ease of use and flexibility with standard drivers, controllers interfacing with our GaN FET as a result of the integration choices that we have made.

No extra BoM components or shrubbery is required to interface, again, our GaN, which makes the solution cost effective, especially key in lower power chargers and adapters for smartphones and laptops where total BoM cost is key. The intrinsic gallium nitride performance fully exploited in our products to achieve the highest efficiency or lowest losses among many other GaN and then bringing reliability and robustness across the entire power chain.

This is evidenced very clearly by our proven design wins with customer systems in production as TGAN is adopted in many more market verticals today with higher range, higher reliability and higher performance. As you can see, applications like server power, gaming, blockchain crypto mining, a variety of industrial and also select high rel applications like aerospace. Some of these are more than 10x the power levels that some of the other gallium nitride offerings enabled today, mainly more or less in the low-power range. Along with the ease of use benefits, reduced BoM and the intrinsic GaN performance, the underlying results for our high-power dominance stem from the fact that typical e-mod gallium nitride, competing gallium nitride interface to the outside world is inherently weaker and harder to operate in many common package types.

The fundamental design innovations in directly controlled manufacturing does enable superior performance, superior dynamic performance as it is called from our gallium nitrides, allowing smaller GaN dye to be used for the same power level versus larger or sometimes even 2 packages for competing GaN versus one from Transphorm for the same application.

We prefer to lay out the facts of our GaN products very clearly and hopefully seek to clear any confusion in understanding by customers or investors in this space. First off, power customers, power applications have always required normally off products, whether it's silicon or gallium nitride this is just a basic safety thing. And gallium nitride FETs on the market today are normally off. The Transphorm gallium nitride FET, just like silicon MOSFET, is normally off. How this is achieved, whether e-mode GaN or other type of GaN are not -- are kind of technicalities of little constituents. Other than what matters is the implementation by each particular company, their solutions, the performance, reliability, ease of use and, of course, the cost of the solutions.

High performance, first comes from the underlying GaN, and it is not a function of a particular implementation. For example, a so-called GaN IC just won't give you high performance if the underlying GaN is not high performance. We, our design partners and customers have validated higher efficiency of the TGAN FET with other gallium nitride versus other gallium nitride in the same application. This is not to say that other gallium nitride cannot improve. But just pointing out where the fundamental benefits arise from. And when it comes to high speeds, high frequency, that is nature's gift to gallium nitride, at least well designed gallium nitride, operating at much higher speed than silicon and even silicon carbide.

Finally, there are various shenanigans out there about integration. Clearly, integration is a design choice of the offeror. Clearly, integration is important. But where, how are aspects of how each product is designed. For example, we can talk of a driver FET integrated in GaN or other levels of integration, but a lot of modern day controllers have already integrated drivers in build, literally [free.] In our Transphorm GaN FET, we choose to integrate a small low-voltage silicon FET with our high-voltage GaN. Thus, no need for any external or internal driver in, say, fast charger phone or laptop applications, where the controller already houses a driver because we have a traditional silicon light interface with the performance of high-voltage gallium nitride.

Now the higher power space is a very large market for GaN and very important. Very simply put, higher the power, the higher the energy saving impact of GaN, higher the impact on electricity usage and carbon footprint at the holistic level, higher the semiconductor content because the larger the chips enhance the total higher market.

Here, our Gen IV and Gen V offerings are compared to leading silicon carbide offerings in this space as other types of gallium nitride, like the e-mode gallium nitride, are not quite ready today, at least, for high power especially in thermally robust packages like the TO247 due to the inherent device weakness. Previously, we had shown that with our highest power 15 mohm product to best we can tell, this is the lowest resistant, highest current, horsepower 4650-volt GaN qualified and in production in a discrete package like the TO247 that outperforms silicon carbide, good silicon carbide products like the MOSFET and the JFETs and realizes a 25% to 38% lower loss in an apples-to-apples comparison, delivering 10-kilowatt class power levels from a single part in a half bridge testing.

Now there are also independent third-party validation confirming the same thing what we had previously said. For example, a recent technical paper at the PCIM Europe trade show and conference, where superiority of TGAN or silicon carbide in 5-kilowatt applications was published. Customers have selected our high-power GaN products across the spectrum. And some of our wins were all built on the foundation of efficiency, performance, ease of use and reliability as our customers as well as third-party reports have also shared. Recently, we secured a PO of over 500,000 units for high-power GaN. And mind you, these are 7, 8, 10x bigger chips than used in lower power adapter-type applications, validating our leadership in high-power GaN.

Blockchain computing is a power-hungry application where our GaN has enabled a 1% efficiency. And to put that in perspective, 1 system can save a few hundred kilowatt hours per year and well over 100 pounds of carbon footprint depending on what your source of energy is, with more than 50,000 metric tons of reduction possible just from our own 2022 outlook in blockchain computing and gaming alone.

Shown on the right here, in the server power segment, we, with our customers, have enabled titanium rating now for more than 4 years. Other GaN suppliers are trying to follow suit, which will all be good for the GaN market, and starting to talk about titanium efficiencies. Here again, our existing customers have increased their follow-on orders, and we anticipate further that initiatives and regulations like the EU ecodesign from 2023, we even increase further the need for high-efficiency high-power gain like that from Transphorm.

We aim to grow the high-power segment continuously and maintain our leadership position here. While there is a very significant growth for us in the various segments we outlined from low power to high power, the EV applications continue to present a massive long-term opportunity as the performance of GaN enables continued performance of the electric vehicles addressing and improving on fundamental issues of power loss, heat generation and range anxiety with high-power density enabled fast charging, reduced size, lower losses that ultimately result in higher range.

Transphorm is accelerating this opportunity for electric vehicles for GaN. It will accelerate in the next few years. Where today, Transphorm is addressing the EV markets, specific EV opportunity markets are in the areas of onboard chargers, DC/DC converters and upgrade DC-AC inverters with the main drive train inverter opportunity after 2025, '26 that can triple the accessible GaN content from about $70 to well over $200. As I also alluded to, we announced our preliminary 1,200 volts gallium nitride R&D results.

In fact, this week at a premier IEEE conference, the ISPSD including 800 volts of operations from our gallium nitride for which a 1,200-volt device is necessitated and with higher efficiency over competing 1,200-volt silicon carbide products that, of course, are well established in the market today. But it's a clear proof point that GaN is not sitting still. We are not sitting still. We are moving forward. Besides Transphorm has AEC automotive and qualified products today with our Gen IV power solutions that are already ramped in the market for various commercial and industrial power segments.

Now I'm going to turn our attention to our execution in the last quarter and then how we expect going forward. In the December quarter, we had announced several vectors driving our growth. We are very pleased in the March quarter, which is the fourth fiscal quarter of 2022 to achieve our ninth successive quarter of product revenue growth with a key highlight of Transphorm dominating in GaN high-power segments. Our latest proof point of our leadership is our largest single order 'til date for high-power GaNs of over 0.5 million units that we recently secured. We also continue to gain our share in the low-power fast charger segment and have secured multiple early wins at marquee customers that I'll outline in the next slide.

Our management focus remains squarely on product revenue growth, supply chain management and capacity expansion. Overall, we are seeing a very strong demand for the rest of the year and beyond as well as we are gaining share in every segment, including continued leadership in high power. We do face near-term headwinds due to the worldwide supply chain issues facing the industry today. This may land our fiscal Q2, which is the July to September quarter, more in line with fiscal Q1, which is the April to June quarter, resulting in approximately a 1 quarter shift. We anticipate that continued strong growth scenario from there on, targeting a robust 50% growth in the second half versus first half of the year. The midterm scenario through calendar 2023 remains very strong as our capacity initiatives, our current capacity initiatives are expected to be online.

Thus, supply chain management as well as capacity expansion are our top focus areas over the next several quarters. We expect that with our strong balance sheet, leadership in high-power products and gaining share in lower power will allow us to continue this momentum forward.

What we show here now is the key metrics in growth vectors that we achieved during the Jan to March quarter, and we had previously targeted as well as how they are shaping our future growth. First, product revenue in the quarter was $4 million, our ninth successive record quarter in this department and already representing 80% of the quarter's total revenue. We have in place a strong and record backlog 'til date, driven by continued and robust demand for our products. We continue to win and grow our share in the adapters and fast chargers.

We added at least 5 design-ins in the last quarter, the January to March quarter. We also secured important design wins, including a laptop adapter win with a Tier 1 Fortune 100 company with the first 50,000 unit secured and pilot production wins, additional pilot production wins at a leading Asia-based smartphone manufacturer for 65-watt and a pilot order for a worldwide e-retailer for 140-watt adapters. We look to grow especially in the 100-plus watts segment. For example, the new USB-C PD 3.1 standard with enabling 140 watts, where we will have cutting-edge solutions by Transphorm and our valued partners who like the TGAN solution over competing GaN, say, e-mod or other products because of ease of interface and no external driver needed.

We are pleased to leave in GaN for higher power, broadly speaking 300-watt to 4-kilowatt that is already in production at our customers today, where we continue to add design-ins now at 35-plus with over 15 in production.

It is notable that more than 50% of our revenues now are already in the higher-power segment that includes multi-kilowatt GaN solution. We aim to further grow and get into areas like energy, EV power e-mobility, where we are opening up new design-ins. We have 17 high-voltage GaN qualified and released products in our comprehensive portfolio today. Again, low power to high power, 650 volts, the only 900-volt product in the market, and many of these products are either in compact surface mount packages or thermally robust TO packages.

Our products do not have these limitations of package type. 3 of these products are already AEC automotive qualified parts today, including our Gen IV, with Gen V AEC to follow in the future.

As I mentioned, a significant emphasis and positive challenge now is on the capacity expansion and managing product revenue for rapid growth in what is still a very challenging worldwide supply chain environment for the next couple of quarters. While we have achieved sufficient peak package adapter product growth and capacities as we previously had also mentioned, now we have expansion efforts underway for high-power packaged products and both internal and external wafer capacity in the areas of epi wafer growth and wafer production.

So 3 takeaways with our record quarter: product revenue growth with leadership in high power GaN; gaining all around and focus on supply chain execution; and multiple capacity initiatives ongoing. Strategic partners have always been important for our business. First and foremost, top of the list now this includes manufacturing and capacity increases and partners who we are working with. The global wafers partnership and epi expansion is on track, with completion scheduled for mid-calendar year 2023. We are managing on track with our AFSW fab joint venture with our financial strategic partner and planning further increases in capacity, wafer fab capacity, in the second half of the calendar year 2022 and 2023 to keep up with the rising demand that we are seeing.

In the industrial and automotive segment, our partners who also happen to be valued shareholders in TGAN are working closely with us. We expect to complete the Yaskawa development program payment in the imminent future and have updated the development plan with Yaskawa for cost-effective innovative solutions for robotic applications. Nexperia, who is also our automotive partner and licensee, customer partner for IP wafer and fab wafer supply, has recently demonstrated independently a 35-kilowatt GaN inverter for EVs at the APEC trade show in Houston.

The next milestone for us in this area is the AEC qualification of our Gen V products, which we are already commercially qualified and already ramped in the market for commercial production. Other EV, DC/DC and OBC opportunities currently with Japan-based Tier 2, Tier 1s and Marelli for charger and converter are in progress with midterm insertion possibilities. The government revenue business stream remains steady, with targeted $0.9 million in the Jan to March quarter done on track, driven by our Navy program of epi wafer manufacturing. And like before, excellent results on the 1,200-volt GaN with our ARPA-E program.

Additional RF epi, especially government epi customers are ongoing, but the primary focus now is on satisfying our internal power products for the rapid demand and rapid growth that we are seeing.

All in all, we are very excited to be in the midst of an all-round GaN adoption growth phase with Transphorm and our good fellow GaN companies in the market. TGAN focus remains in 3 key areas: expanding our leadership in high-power GaN; gaining share in the adapters and fast chargers; and capacity expansion. First, keeping up and then next year, staying ahead of the very strong demand that our products are generating.

With that, over to Cameron to present the detailed picture of our financials.

Thank you very much, and hello to everyone joining us today. Let me start with a brief recap of our unaudited results for our more -- most recently completed quarter. Please note that these results are subject to the completion of our audit procedures. We anticipate filing our 10-K for our fiscal year ended March 31 in mid-June.

For my remarks, I will refer both to GAAP and non-GAAP results, which are reconciled to GAAP in our press release table. Non-GAAP results exclude stock-based compensation, depreciation and amortization and adjustments to fair value of our previously held convertible notes. Starting with the income statement.

Total GAAP and non-GAAP revenue, comprising product and government, was $4.9 million in the quarter. This represents a 7% quarterly growth when compared to $4.6 million product and government revenue for the prior quarter. Total revenue for FY '22 was $24.1 million, an increase of 89% in the prior fiscal year. This quarterly and year-over-year increase was driven by record product sales from ramping shipments. Product revenue now forms the majority of our total revenue number, over 80% in the quarter just completed and over 50% for the year.

Continuing to focus on product sales. Our last quarter saw our ninth successive quarter of product revenue growth and record product revenue of over $4 million. This represents a 10% increase from the prior quarter. Product sales for FY '22 grew 190% in FY '21. This growth has been driven across a broad range of per conversion applications, including fast chargers and adapters, gaming, data center and crypto.

The overall blended gross margin for the year was 48%. The gross margin in the quarter was 23%. The company is progressing nicely towards its long-term model of gross margins in excess of 40%. A number of actions, including new product introductions, discrete ongoing cost efficiency activities and benefits that we will receive as we continue to grow and scale will contribute to this.

Operating expenses on a non-GAAP basis were $4.7 million in the current quarter compared to $4.5 million in the prior quarter. This modest growth being primarily driven by an expansion in our sales and applications team to support our increased revenue, together with one-off compliance costs tied to our uplisting to Nasdaq. When comparing non-GAAP OpEx in the same quarter of the prior year, we saw a 16% increase, due primarily to personnel increases across the company, ongoing compliance costs and strong R&D spend.

Turning to EPS. I will focus my remarks here on non-GAAP results. The revenue growth allied to continued OpEx management resulted in a non-GAAP EPS loss of $0.08 in the quarter, a $0.01 improvement on Q3. Our non-GAAP EPS for the fiscal year improved $0.20 to a non-GAAP EPS loss of $0.22 for the year. From an operational perspective, we continue to see strong traction in our targeted markets. Q4 saw record product bookings contributing to a strong backlog position. This record is excluding the over 500,000 unit production order the company booked for kilowatt class power supplies, which was received in the current quarter. The company is fully booked for the current quarter, our short-term focus being on product execution and enabling capacity expansion to support medium to long-term growth.

Turning now to the balance sheet. FY '22 saw a great deal of progress. The cash position improved by $25 million due to our strong raise activity in the year. We exited the year with $34 million in cash, providing a stable runway for the company to grow. We also significantly reduced our liabilities in the year, firstly, in the first half of FY '22 through our execution on the $10 million development loan. And in October, our long-term partner, Yaskawa, converted their $15 million loan into equity.

The combination of these activities has improved the shareholders' equity position by over $55 million in the fiscal year. These activities provide the company a strong platform to enter this fiscal year. Looking ahead, we will remain open to opportunities to further strengthen our balance sheet to ensure that we are able to continue to invest in our growth. We also successfully completed our targeted uplifting to Nasdaq in the quarter and have seen a strong increase in trading volume in the period since this was completed.

Transitioning from our financial performance, I wanted to touch on our positioning. The company is well positioned to grow across multiple segments, including consumer, data centers, crypto mining, industrial and, in the longer-term, EV. We are now at a stage where we have seen and continue to see strong adoption and, as illustrated in our presentation, revenue growth. Revenue traction exists today in several segments, including customer data centers, crypto and industrial applications. Looking ahead, our strong balance sheet will allow us to continue to invest in our growth engine across all aspects of the company, both from a staffing and a capacity perspective.

With this strong foundation in place, our focus turns to execution, ensuring that we can support the growing demand in what we will believe will be a broad market inflection point in the medium term. In addition to our existing revenue streams, we expect to see initial wins in the automotive segment in this time frame. From the other company, will drive towards our long-term target model, enabled by continued momentum across multiple segments.

Concluding now with a few key highlights. Transphorm, publicly listed on the Nasdaq Exchange, is a pioneer and leading provider of GaN power conversion devices. We have disruptive technology that provides solutions today across a number of significant growing markets. We have established a strong network of blue-chip partners, including KKR, Marelli, SAS, Yaskawa and others. We are commercially ramping with strong production revenue growth now growing for 9 successive quarters. We have a comprehensive product offering today that meets our customers' needs across a wide range of power levels and segments. All of which is underpinned by a strong balance sheet, the industry's strongest IP position and a deep and talented team.

This completes our prepared materials and remarks. We'd now like to open the call to any questions. Operator, please proceed with the Q&A portion of the call.

(Operator Instructions) Our first question will come from David Williams with The Benchmark Company.

Congrats on the progress, and very impressive design win results and orders there.

Thank you.

Thanks, David.

Yes. If we kind of step back and look at just the strength of those design wins, it seems like there could be more opportunities here than maybe resources. You talked about adding the capacity. But I guess as you kind of look out the next 6 to 12 months, do you feel that you have enough internal capacity that you can fulfill these orders, at least to some degree? Or how do you kind of think about, I guess, the backlog and fulfilling this demand?

Thank you for that. So yes, we are seeing a very strong demand. And like we said, a record backlog is in place. We obviously fulfill -- strive to fulfill this opportunity across the range. But like I also said, we have capacity to fulfill today and are adding more capacity as we go online. The next 2 to 3 quarters is really where the supply chain, in part, limited by the worldwide supply chains. And what we need in coming to increase that capacity will be something we'll be watching very, very closely. And overall, the picture doesn't change.

We have several capacity efforts going on, which will come online all towards the end of this year and then in 2023, like I alluded in the call. So the next few quarters, like I alluded to, we have to grapple with the capacity balancing that with the demand, which is looking very strong.

Okay. Great. And then you'd mentioned this in the script at APEC, but there was a traction inverter design that we saw that appeared to be a GaN-based traction inverter. And it was the first one we had seen. Just curious if you could give us any color. And if I'm not mistaken, I think, Nexperia has a license agreement with your products. Is that -- am I thinking about that right? And how do you think about that traction inverter? It seems like maybe that's pulling forward a little bit faster than what we would have anticipated.

No, it's a great proof point. And as you rightly said, all those statements are correct. Nexperia did it with their products. They have a license agreement with Transphorm for the GaN as well. And it's a fantastic proof point for gallium nitride. That it was a demonstration, but it's a fantastic proof point that the 35-kilowatt inverter was demonstrated.

Okay. Great. And then maybe just lastly for me is how you're thinking about the business. It seems like we're in a bit of a decelerating macro here. But I think, at least from your perspective, it's more of a demand is driven by the transition in technology and lift from demand from end consumption. So as I kind of think about, I guess, your performance through the cycle or maybe through a downturn, how should we think about your business?

No, that is well framed. So our demand gallium nitride in general, Transphorm and gallium nitride in general is the technology transition to newer products, right? So it is -- the demand has been strong. Our supply side, supply chain growth, capacity growth are the important things that we will focus on. But like I said, this was our -- we just recently landed a 0.5 million order in higher power that we mentioned. Our largest order to date was the recent win that we secured and we hope to be targeting those kind of things as we go forward.

Our next question will come from Ananda Baruah with Loop Capital.

Congrats on the progress as well. I guess this could be for Mario and for Primit. Mario -- I mean, Primit, just to your remarks just a moment ago about macro, have you -- it sounds like you guys are not yet seeing what you would consider to be an incremental impact from macro or sort of slowing economic growth. I just want to make sure that, that is in fact accurate that you guys are not yet seeing that as far as you can tell.

Yes, I'll answer it first. Mario may add his comments after that. Yes, so we are not to a first order, actually. We are not seeing that yet. Sometimes to a second order, we see it, for example, some of our customers are designing complex systems, right? That has many other parts in it. And even though the customers are ready to go with our solution, they could be short of an IC, some other silicon product IC or some other component in their BoM, of their system, which could delay our design-in. So those kind of things, we are seeing but overall macro, we are not yet seeing a direct impact yet, which I guess is a good thing. And then we are striving to increase our capacity to keep up with the demand.

Definitely, we haven't seen anything like that. And demand is very strong, and we're changing after it for the next couple of quarters. Now we are in semiconductors, so this is not new, so. But we haven't seen any evidence at the moment that there is a slowdown.

Mario, that's super helpful. And then to Primit's remark, this is more of a clarification question, guys. Primit, you made a remark about -- and please just sort of correct this for me. You made a remark, that I heard, something along the lines of we can -- sort of supply chain isn't really necessarily an issue right now, but maybe 2, 3 quarters out, it could be. And Mario it's something, maybe that's kind of what you were saying as well. Could you just clarify that for me? I just want to make sure that I understand that accurately.

No. Actually, the supply chain, yes. So we have to focus, definitely manage the supply chain and focus on the supply chain downstream, our own wafer production and the raw materials, spare parts, consumables, et cetera, that we need. So we have to manage the supply chain. Our demand is growing fast, right? And we have a record backlog in place. So for the next couple of quarters, the supply chain and our own capacity is an important for us to watch out.

Beyond that, our capacity initiatives that we have already put in place will bear fruit to increase our capacity, say, towards end of this year end and going into 2023. So the next couple of quarters, while the demand is very strong, no change in increasing demand. Our supply chain and capacity is something we'll be watching very carefully.

Yes. And just to add to that. The last couple of quarters, we've been working very hard to monitor a very tight supply chain. So that continues going forward, at least for the rest of the year as far as we can see it. So that's why we consider it prudent to say we could have headwinds because the supply chain continues to be very tight. Hopefully, it will be successful on.

That's really helpful clarification. And last one for me right now is, I guess, on the new win, the 500,000 unit win, how -- timing for delivery on that, how are you guys thinking about that? That would be helpful.

The timing is over the next few quarters.

Our next question will come from Fahad Najam with Loop Capital.

Mario, on the 500,000 new unit order win, can you maybe tell us a little bit more about this and what application this is targeting, what ASPs, if you can share? Anything you can share with us on this new order win.

Well, we are receiving -- the customer privacy at this moment, right? But we did say this Fortune 100 computer manufacturer.

I'll just clarify that. It's a higher power design-in, so with our TO247 products that Transphorm is absolute leader in. It's in the -- like we said, it's in the 3-kilowatt plus class segment. So that is what we said, 3-kilowatt plus. That's the key point that Transphorm is dominating in this, is leading -- leadership position in the kilowatt class segment where other gallium nitride has not yet penetrated. So it's our TO247, 3-kilowatt class. Generally, they apply to various segments like crypto mining, data server, energy, those kind of products.

Got it. And what kind of ASPs do you think this segment enjoys? And what are the trends in this segment?

Generally speaking, those ASPs, as you can imagine, scale with the power level are in the -- well in the multi-dollar range.

Got it. And then on the supply chain side, are you guys able to get access to your technology like from your suppliers like AIXTRON? Anything you can share with us on your supply chain constraints or anything or any update on that supply chain?

Yes. So we work closely with our partners like AIXTRON that you mentioned, they are extremely collaborative working with Transphorm. We also have, as you can imagine, there are many downstream elements in supply chain, including from like larger companies like AIXTRON to smaller companies for spare parts and consumables. So all of that entire value ecosystem has to be managed. So it's not just one kind of out there, right? The key partners, like the example you gave, we work extremely closely together.

Okay. And then one last question for me. Maybe I misheard you, but if I recall in the past, you had targeted entering the EV market by 2025. But I think on the call today, you said 2026. Did I hear that correctly? Maybe can you rehash or remind us when do you expect to have meaningful penetration in the EV market?

No, in part correct. So what we had said in kind of the 2024 time frame, getting the onboard charger and DC/DC converter opportunities that we are in the design-ins today. What I said is from 2026, it opens up the TAM for the inverter, the EV powertrain, which significantly increases the GaN content possible in the automotive by 3x because these are much higher-power levels. Hence the larger amounts of total semiconductor area and total semiconductor products used.

So we are today designing into the onboard charger DC/DC converter, that's earlier -- that's midterm, but that's an earlier time frame. The inverter, the drivetrain inverter, that's a later time frame, which is what we had said before as well.

(Operator Instructions) And our next question will come from Richard Shannon with Craig-Hallum Capital.

Maybe ask a financial one here is I just want to make sure I'm kind of putting the things together, you're right, so you're talking about pretty strong demand, but perhaps some supply chain constraints here. So I guess just thinking about revenues going forward here, especially as we look at it more from the product side point of view, are we looking for a flattening of the curve here for a quarter or 2? Or is it still going to grow but at a slower pace? I just want to make sure I'm getting the key leads right on this. How can you help us understand that better, please?

Sure. No, I think, Richard, we are seeing, as Primit mentioned, we are seeing some headwinds there. And it may be that the September quarter lands more in line with the June quarter, so there's a flattening there. But from there, we do see a resumption of strong growth, and there's a 50% target in the second half versus the first half of the year. So really just a 1-quarter shift as much as anything else. It's certainly not a demand issue, and it's certainly not a growth issue.

Okay. So just to make sure I understand this, Cameron, you said September kind of in line with June, but how do we think about June? Is June still a growth quarter here, at least, from a product point of view or not necessarily?

I think that you can expect to see a continuation of growth in the June quarter. I mean I think we don't guide specifically, but the demand is there. And we're continuing to execute towards that. I did mention that we were fully booked as well, Richard. So there are constraints in that regard. But I think the flattening is more than that kind of June to September quarter and then a kind of resumption of the growth trajectory from there.

Got it. Okay. That is helpful. Maybe, Cameron, another one for you on gross margin, specifically on the product side here. Obviously, you don't do any that specifically, but if I'm trying to read the numbers here right here, it seems like product gross margins have grown here a bit quarter-to-quarter. Maybe you can give us a sense of the degree to which that is mix versus yield and how that's tracking and how you think about kind of the path to getting to that 40% plus gross margin number.

Sure. Sure. I think over the course of the year, I think product and government was 23% for the quarter, 22% for the year. And I think that's relatively stable over the course of each quarter aside from the occasional blip that you get, which is kind of typically mix-driven. I think for us, I mean, we're pleased with where we are.

I think what we have to do now over the course of the next year and beyond is look at different opportunities to improve the margin. That's cost efficiency, that's new product introduction, that's the opportunities you get from growing the business as well, Richard. And I think that each one of those factors will help improve the margin as we think about the long-term target of 40%.

Okay. Perfect, Cameron. Primit, my last question for you as we think about the kind of high-power segment of the market here. I think you're suggesting or even stating directly that you don't believe any other GaN companies are supplying kilowatt class opportunities here. So maybe if you can discuss whether you're seeing that imminent inflection by other GaN guys. And then also thinking on the other side against silicon, what are the things -- what are the obstacles and accelerators for you getting more share of that market?

Sure. So to the first point, to the best we can see, no other GaN companies is at least ramped to the extent that we have. There may have been an isolated product announcement a year or so, but not certainly in the volumes that we have had and the diversity of customers and products in the market that we have had, not the company's product, but customer systems in the market. That is what we have achieved in high power.

Second, actually, it'll be good to have more GaN companies in the higher power segment, right? Multiple companies with this market is tremendous. We are looking at a very strong year-over-year growth, a multiyear growth year in all low power, high power, but high power in specific and multiple GaN companies will vie for that. And that is what it takes to make a strong market as well because that leads to the second part of your question is, clearly, there's an efficiency and loss advantage over silicon, operating at higher speeds, higher frequency, smaller systems.

And as you go to high power, the impact of energy savings is also very important, right? 100-watt adapter with a 1% improvement saves 1 watt. If you are looking at 5 kilowatts that saves 50 watts and that much amount of electricity. So the shift from silicon to gallium nitride at the high power, we believe, will be a strong one over the next few years.

Our next question will come from Michael Mani with B. Riley Securities.

This is Michael on for Craig Ellis. And congratulations on the kilowatt class win as well. Maybe to start with capacity regarding adapters. So I believe, if I recall correctly, in the last quarter's presentation, there was a point that you expect it to get to $5 million to $10 million monthly units maybe by the end of 2022 and or next year in 2023.

I was wondering if that target still held with everything going on and how you thought you were tracking to that. And then if you could just walk us through the milestones to get us there in terms of investments quarter-over-quarter and getting equipment, just how do we get to that goal?

Yes. So overall, I believe we had mentioned the total wafer capacity and that obviously is a mix of high power, low power and various levels of segment, right? So that depends on our mix of the products, how much gets allocated where, for the adapters specifically what we have shown. And we proved, we had said that our packaging OSAT capacity, we wanted to demonstrate well over 1 million a month with 2 OSAT subcontractors partners in place for packaging. And that we have achieved.

We showed a proof point that we could ship over 1 million a month and including we have now 2 qualified OSAT suppliers. The expansion -- the second part of your question, the expansion that we refer to, and I refer to in the call today are for continued expansion in the higher-power packages as well as expansion of our own wafer capacity expansion, both on the epi wafers side and the wafer fab side.

Got it. And then maybe just a quick follow-up on the kilowatt class win. I was just wondering if you could talk about the potential for further orders from the same customer or whether in your backlog or engagement with other customers, you sense that you could secure similar design wins and other customers of the same size in the higher-power segment.

Yes, we believe so. Both -- answer to both those questions is, yes, the same customer and the same types of customer in the application areas and similar power range. We expect that will continue to be a growth segment for us.

And our final question will come from Orin Hirschman with AIGH.

Congratulations on the progress. Just to follow up on the last question. Could it also be for the exact same application for another customer? Is it a standard type of application where it could just be for another customer as well for the same exact thing?

Yes, that is absolutely correct.

Okay. And can you just go through again quickly some of the higher-power design-in verticals, meaning the end products right now, not only stuff that you're shipping today, but where you actually have design-ins besides you've mentioned server crypto, but let me -- if I can just ask you to rattle them off again.

Yes. So it is -- sorry, we got echo over there. But I'll start again, I'm hearing some echo but if you guys are not -- it's in blockchain, computing, gaming center, the data centers and servers, UPS and renewable energy.

Would it hold true that you could be in a graphics chip card or something of that nature?

Yes, it is possible that those servers are also having -- those servers will have a multi-kilowatt class. So not so much in a graphic chip card, Orin. But for example, a graphics chip card that necessitates, due to the high-performance graphics here, a 3-kilowatt server, for example, or a 2-kilowatt server, right, or for that matter of 1.5 kilowatt server. Those types are -- we have not talked explicitly about that, but those type of applications where very high power in a compact footprint is necessity, there GaN and Transphorm's GaN definitely should have a value play over existing silicon products.

Do you have any design-ins on that very high performance type of products for the data center?

Yes. The data centers we have. We have design-ins in the data centers. In the past, we have talked about publicly about some customers that have done public announcements with us, for example, Bell Power has a whole slew of power supplies from -- starting from 2 kilowatts to 3.6 kilowatts, number of power supply designs with our GaN targeted to data server.

On a high-performance card like you were just describing?

The high performance card, I do not publicly talk about that yet.

Okay. So you're saying it's something you could address or are addressing, but haven't announced any definitive wins?

It's potentially that level of power we can -- the GaN 2-kilowatt, 3-kilowatt level of power, which at the end of the day, it will be a server, right, that can be addressed.

Okay. And I just want to -- last question, just clarification on the auto opportunity. Could you just go back to 2024 with actually for revenue from the initial auto products? And is that correct? I just want to make sure I caught that.

Yes. That is what we are targeting. That is correct.

In terms of announcements on design wins, it sounded like just in passing that you had indicated that it sounds like there are some early card design wins, but I want to make sure I got that right.

No, not design wins. That is design-ins, which as you can appreciate, the auto design-in is a long process with the Tier 2, Tier 1s and then ultimately, they are design-in with the OEM car manufacturers. So we are in design-ins, the process, not yet a completed design win because that has to be validated not only with the Tier 2 or Tier 1 with who we would work with, but the end OEM customer as well.

In terms of getting those design wins in order to get revenue in -- from the auto space in 2024, knowing how they work the model years as well, when would you have to actually see the early wins?

Sometimes you see in mid-2023, mid- to late 2023 is what we would have to nail it down.

Do you think there's a chance to see anything still in '22 or it's not likely yet?

We expect more and more in the mid-2023 segment because it just takes with not only our direct -- like even if we have a direct win with our Tier 2, Tier 1, they have to also secure subsequently a design-in with the end automotive customers. But as we alluded to, we have a variety of partners also.

They are also, for example, our licensee partner. In Nexperia, they will have their own independent efforts, right, that are on their own, increasing the so-called the reach of GaN, Transphorm's GaN, and we supply wafers into that. So there can be multiple options or avenues for us.

And that will conclude today's conference. Thank you for your participation, and you may now disconnect.