Transphorm Technology Inc (TGAN) 2023 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Transphorm's Fourth Quarter and Full Year Fiscal 2023 Earnings Call. (Operator Instructions) I would now like to hand the call over to David Hanover of Investor Relations. Please go ahead.

Good afternoon, and welcome to Transphorm's Fourth Quarter and Full Year Fiscal 2023 Earnings Conference Call. Joining us today from Transphorm are Primit Parikh, CEO, President and Co-Founder; and Cameron McAulay, Chief Financial Officer. Before we begin, I'd like to point out that there is a slide presentation associated with today's prepared remarks, which management will be referencing during the conference call. These slides can be accessed through the live webcast link in the Investors section of Transphorm's website, where they will also be posted and available as a link to a 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, strategy and plans, future operations, specific end markets and other areas of discussion. It's not possible for the company or management to rec all risks nor can the company assess the potential impact of all factors on its business or the extent to 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 these risks, uncertainties and assumptions, the forward-looking statements discussed during this call may or may not occur, and actual results could differ materially and adversely from those anticipated or implied.

Any projections as to the company's future performance represent management's estimates as of today, June 27, 2023. Neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements. The company also undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform such statements to actual results or to the changes 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 in Transphorm's most recent annual report on Form 10-K and other subsequent filings with the SEC. With that said, it is now my pleasure to turn over the call to Transphorm CEO, Primit Parikh. Please go ahead, Primit.

Thank you, David, and good afternoon, everyone. Welcome to Transphorm's Fiscal Fourth Quarter and Full Year 2020 Conference Call. We continue to be pleased with our increased designing momentum, both low-power and high-power areas with growth in our power products pipeline to over $440 million and the total pipeline now nearing $600 million dominated by high-powered products.

Q4 revenues were $3.2 million, almost 100% comprised of product revenue, which was on target. This total revenue of $3.2 million was lower than the estimated $4.5 million, largely impacted by the delay in the award and commencement of a key $115 million government contract and deliverables on another smaller RIE government contract, both of which were pushed out into the current quarter. We are happy to report that the new $115 million program is now fully in place. The overall product revenue of about $15 million in FY 2023 represents a healthy 20% increase year-over-year. Furthermore, more than 70% of the product revenue mix came from high-power, where Transphorm is the #1 game player with high performance and high reliability over every other GaN competitor, notably e-mode GaN.

Going on to Slide 3 now. Before going into our key operating metrics, I want to address our recent announcement regarding a review of strategic opportunities and alternatives for enhancing stockholder value as well as our client rights offering. As many of you are aware, the GaN power semiconductor sector has recently generated a tremendous amount of interest from leading power semiconductor companies who have silicon and silicon carbide, but not necessarily GaN power. This interest has been evidenced by the recent announcement of a large acquisition in the GaN space, by the top power semiconductor company as well as capital raises and other announcements of interest in GaN or GaN strategy.

Transphorm is one of the few pure-play GaN companies operating at scale. It is an established leader, especially in high-power GaN with best-in-class technology and reliability, outperforming e-mode GaN the TSMC GaN in pretty much every game topology and power level today. This is backed by wafer manufacturing ownership and our strong Power GaN IP portfolio of more than 1,000 owned or licensed patents. Given this activity, coupled with Transphorm's prowess in GaN, we believe it is an appropriate time to undergo the strategic review with a single objective of enhancing shareholder value.

Based on multiple opportunities, including various levels of inbound interest we have received, our review will include, but not be limited to, financing, both from strategic partner or investor and/or traditional debt and equity financing alternatives, licensing opportunities in the U.S. and Asia and potential M&A opportunities. We also recently announced a rights offering, which has support from key shareholders, and we are pursuing conventional asset-based debt, both of which will give us runway well into fiscal 2025.

Moving on to Slide 4 and coming back to our key vectors and metrics for the quarter. We achieved a 22% increase year-over-year in product revenue, nearing about $15 million in FY 2023, with majority contribution from high-power GaN, which is more than 300 watts and in key segments like computing and energy, while growing our presence in fast chargers with demonstrated performance over multiple GaN levels in the market. For fast chargers in the low-power space where we now address 25 watts to 300 watts, we secured 10 new design-ins, taking the total over 90 and ramp 3 new designs into production.

Notably, we announced in March at the 8 trade show and conference that we entered the SIP or the System in Package market with integrated controller and driver with our partner, Weltrend the leading player in USB TDIC. We have repeatedly seen that our SuperGaN FET delivers higher performance over the typical TSMC's time GaN, recently, in fact, showing over 10% lower loss and running well over 30% cooler in a 280-watt charger, also as reported in Power Electronics news and validating the physics space benefit of our GaN versus e-mode GaN. Given this design-in momentum and continued superior performance, we see the beginning of an increased ramp in the second half of the fiscal year.

Transphorm has leadership in high-power and to the best of our knowledge, it is the only GaN company with customers across segments from 300 watts to 4 kilowatts who have ramped in the market with their end products. We had a 25% sequential increase in design-ins in this area that now stand over at 60 out of which 30 are in production. We also believe we are the only GaN company to have ramped in the micro-inverter segment with several hundred thousand parts already sold and targeting $1 million with our lead customer over the coming 12 months with several other design ins with marquee customers in progress.

To accelerate revenue in the second half of the fiscal year, we introduced a 3 years of industry standard pin-to-pin compatible surface mount packages in the low-power area, but also applicable to high power over 300 watts, notably with the higher performance of our SuperGaN FET versus e-mode GaN across the range, which has been quantitatively validated. Clearly, we need to take this momentum and the 45% increased product SKUs into increased revenue by enhancing our sales and application outreach worldwide as well as continuing to partner with strong IC and controller companies with our GaN that can be used seamlessly with standard drivers and controllers. We also released at PCIM our 1,200-vold GaN FET simulation kits generating significant interest from EV customers who have begun to look at Transphorm GaN as future-proof 650 volts today, 1,200-volt in future, directly taking on silicon carbide at 1,200 volts.

On the operations side, we intensely focused on initiatives to increase capacity as well as direct margin improvement. Our Japan Epi reactors are now well into production, and we are pleased to report new reactors at global wafers are released into development and on track for completing qualification and release to production in the fiscal fourth quarter. We have put in place lower-cost packaging partners for our flagship high-powered PO products from which we expect to see solid margin improvements in the coming quarters.

Let me now turn to Slide 5 to our partnership and key initiatives. Including our global wafer partnerships, we now have 6 out of the 8 MOCVD reactors we have installed with 4 running at various levels of production or development, and we are on track for 8 reactors in production by the second half of fiscal 2025, setting us up for around $50 million of annualized product revenue with just these reactors. Our AFW wafer fab is running well, and we will be addressing incremental capacity add-ons in our fiscal 2024 to be ready for fiscal 2025.

We made sound progress with our industrial and automotive customer shareholder partners. Our team completed development for the next round of GaN servo motor products and secured 0.5 million funding this month. We have also streamlined our partnership with Nexperia, who remains an important long-term customer for the supply of wafers. Notably, we completed their exclusivity in the 4-wheeler automotive space after paying off the remaining debt in April and have now launched a worldwide initiative for EV 4-wheelers with focus in China, EU, North America, India and continuing in Japan.

In all of these areas, our high-power GaN products are already well recognized in non-automotive segments, something we hope to leverage from. We are also reiterating our commitment to 2- and 3-wheeler EV design wins by end of this year for a ramp in calendar year 2024. To that end, we are newly sampling solutions to our customers from 300 watts to 2-kilowatt power levels for EV and 3-wheeler onboard chargers and portable chargers. Although delays from fiscal Q4 '22 to fiscal Q1 of '23, we have secured and are now executing on our new $15 million government program for enhancing epi-wafer manufacturing for the U.S. DoD ecosystem and in future also applicable to the commercial RF GaN space. We also have significant interest from companies pursuing GaN manufacturing with the U.S. chipset program, which could materialize into licensing revenue and non-dilutive cash for us in fiscal year 2024.

Moving to Slide 5 now. Our core capabilities from low power to high power wafers and packaged products are all reflected in our large and growing pipeline that now stands over $440 million in Power Products, a growth of about 7% from our last update and well over $500 million, including power device wafer sales and our government contracts business. The probabilistically weighted pipelines are about 40% approximately of the total number that again will increase as more design-ins move towards the finish line. By power levels, high power, which overall is everything more than 300 watts, where other GaN like e-mode today is weaker, represents the largest piece of our pipeline by market area, industrial, power adapters and charges, data center, renewables and micro-inverters are some of the key segments. The EV pipeline is growing. And now with the worldwide push since our exclusivity constraint is no longer there, we expect rapid increases in this area. Also, it should be noted that a significant portion of wafer sales pipeline to Nexperia is already towards electric vehicles.

Moving over to Slide 7 now. In summary, we continue to be in a unique and differentiated position among the GaN suppliers with our core platform, spanning a wide range of the power spectrum. Products in the market today that address a $3 billion-plus market opportunity, GaN Camphor power conversion that is expected to double over $6 billion GaN Power in the next 3 years. from lower power adapters and charges to higher power computing, comprising of server, AI, block chain and Datacom power to industrial and energy and PV inverters, including micro-inverters, all areas we are either already in production or ramping towards production. In the mid- to long term, large growth opportunities with automotive electric vehicles, both E2 and 3-wheelers, first in calendar year 2023, followed by EV 4-wheelers are expected to further continue GaN and transplant growth beyond 2024, 2025.

Our customers have confidence in both GaN and Transphorm, evidenced by our end products having been in the field for over 175 billion hours now with very low 0.1 field failure or fit rates, rivaling those of traditional silicon devices. This is an exciting proof point for what lies ahead for us, along with the fact today that we are still the only GAN offering with products in the market ramped in our customer systems from 30-watt fast chargers to 4-kilowatt energy and server products.

Our immediate focus will be on: one, completing the rights offering, meaningfully extending the cash runway well into fiscal year 2025 and undergoing the strategic review process, identifying the best options for enhanced shareholder value; 2, expanding sales and application footprint, converting more design-ins into ramped production and significant design-in expansion based on our superior performance, high-reliability super GaN products as well as our ecosystem of strong solution partners in IT; 3, scaling capacity, improving margins with higher volumes, lower cost packaging and our technology road map improving performance while reducing costs as well as accessing new markets like 800 volt battery electric vehicle systems with new offerings like 1,200 volt GaN.

We remain well positioned to tackle the near-term headwinds and progress towards our long-term model in FY 2024 and beyond. With that, I will hand over to Cameron to walk you through our financials in detail.

Thank you, Primit, and hello to everyone joining us today. Let me now start my remarks with a brief recap of our financial results for both our most recently completed quarter and fiscal year. 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, amortization and other income and expenditure.

Starting with the income statement. Total GAAP and non-GAAP revenue comprising product and government and in the fiscal year licensing was $3.2 million in the quarter and $16.7 million for the fiscal year. This represents an increase of 3% year-on-year, excluding the one-off licensing revenue transaction in the prior financial year. For product revenue, both for the quarter and the fiscal year, it now forms the majority of our total revenue number, virtually 100% in the quarter just completed and close to 90% for fiscal '23. The majority of this product revenue is being generated in higher power applications. The higher percentage is subject to Q4 been driven partially by a strong delay in the company being awarded a new government contract. This was awarded in the current calendar quarter, and we expect to see revenues from this from Q1 FY '24.

Product sales were $3.2 million in the quarter and $14.7 million for FY '23. This is an increase year-on-year of 21%. This revenue has been driven across a broad range of power conversion applications, including fast chargers and adapters, gaming and data centers. As noted by Primit, we now have over 55 customers in production, a solid increase from the prior quarter. Government revenue was under $50,000 in the quarter and $1.8 million for the year. This was a decrease of $2.1 million from the prior fiscal year. The driver here being reduced activity in our prior contract, together with a 1 quarter lag between the successful completion of this trial contract and the award of our new $15 million government program. As mentioned earlier, this will drive revenues in Q1 FY '24.

The gross margin in the quarter was 5%, a negative 6% for the fiscal year. The gross margin for the fiscal year was impacted, as discussed in our prior earnings call by a strategic nonrecurring dispositioning of epi wafer with subassembly entity. Excluding this onetime strategic write-off, the company would have reported stronger positive gross margins for the year. The 5% gross margin for the quarter is primarily a function of bond and direct costs such as staffing, do not scale with revenue and therefore, result in a larger drag of lower revenue numbers. As we resume our growth trajectory, our expectations are that margins will follow suit, including reaching 30% gross margin in the June quarter.

Our direct margins remain consistent, and we continue to progress towards our long-term model of gross margins in excess of 40%, a number of actions, including new product introduction, ongoing cost efficiency activities and benefits that we will receive as we continue to grow in scale are expected to contribute to this increased gross margin. Operating expenses on a non-GAAP basis were $7.5 million in the coming quarter and $24.2 million for the fiscal year. The increase in the quarter was driven by 3 key factors: a significant reduction in government activity, which reduces absorption of our R&D costs, increased costs to bring our reactors of the capacity and an increase in G&A costs to support ongoing compliance activities. Similarly, in FY '23, as we -- as compared to FY '22, the primary increase was an increase in the company's headcount to support our operations.

Turning to EPS. I will focus my remarks here on the non-GAAP results. The non-GAAP EPS loss in Q4 was $0.13 and $0.44 for the fiscal year. Excluding a onetime inventory write-off, the EPS for the quarter was more than $0.02 of the non-GAAP EPS for the prior quarter. The reduced overall revenue and increased OpEx were the primary drivers for this change. Looking ahead to the June quarter, the company guides to the below. Revenue between $5.8 million and $6.2 million, gross margin of between 30% and 34% and EPS loss between $0.10 and $0.13. From an operational perspective, we continue to see solid traction in our targeted markets as evidenced by our improvement in both customers in production and design in activity. Our short-term focus is on product execution and enabling capacity expansion to support medium to long-term growth. We also continue to invest in the long-term growth engine of the company.

Coming now to the balance sheet. Our shareholders' equity was $19.6 million at the end of the quarter. Operational cash fund, excluding capital investment increased in the quarter to $9.4 million. This was driven primarily by reduced revenue attributable to the timing of the government contract being awarded, an increase in DSO driven by nonlinear sales in the quarter, together with weak collections. Collections have improved significantly in the current quarter. Cash and cash equivalents were $16.1 million at the quarter end. We expect our cash flow to reduce in the current quarter moving forward. We continue to invest in CapEx as we look to enable additional capacity to support our growth. Other assets and liabilities remained largely stable.

As announced, the company has made strong progress towards our rights issue, together with an asset-backed non-dilutive debt. We expect to conclude these facilities in the near term. A fully subscribed rate issue together with proceeds from the asset bank debt will give the company financial run rate deep into fiscal year 2025. Looking ahead, we will continue to remain open to opportunities to further strengthen our balance sheet in order to ensure that we are able to continue to invest in our growth. A growth made possible to our continued progress with the designers and production customers.

Turning now to our target operating model. Transphorm is in the process of building a high-growth, cash-generative business. From a revenue perspective, as you know, we have 3 different streams of income: licensing, government and product. In the current fiscal year, product has amounted for the majority of our total revenues. And as we look forward, we expect this trend to continue. The company anticipates rapid top line growth and GaN adoption across multiple end markets with a 5-year expected CAGR in excess of 50%. We are confident that the company can achieve an overall gross margin of over 40%. All segments will be able to benefit now from the improved cost structure in our current products. In addition, a number of actions, including new product introductions, discrete ongoing cost efficiency activities and scale will also help our gross margins to increase.

With respect to operating margin, the company will continue to invest to support all aspects of our core operations. We have a stable OpEx structure, an environment that will ultimately allow us to translate our gross margins into an operating margin model that will deliver over 20% to the bottom line. From a cash perspective, additional CapEx will be deployed for increased scale in medium to long term. But with a strong manufacturing footprint already in place, we expect to be able to generate free cash flow in excess of 10%.

Concluding now with a few key highlights. Transphorm publicly listed on the NASDAQ Exchange we're a global leader in GaN, the future of next-generation power systems. Our disruptive best-in-class technology is addressing a large growing market opportunity. We are commercially ramping with a strong pipeline in place. We have established a strong network of Blue Chip partners and have a comprehensive product offering today that meets our customers' needs across a wide range of power levels in the segments. All of this is underpinned by the industry's strongest IT position, a vertically integrated supply chain and a deep and talented team.

That completes our prepared remarks and materials, and we would now like to open the call to any questions. Operator, please proceed with the Q&A portion of the call.

(Operator Instructions). Please stand by while we compile the Q&A roster. Our first question comes from the line of David Williams of the Benchmark Company. Your question please, David.

Hey, good afternoon gentlemen. Thanks for the time and allowing me to ask a few questions. First, congratulations on the progress and Primit congratulations on the transition to the CEO role. It's great to see -- and I guess maybe my first question is around the strategic review. And you talked a little bit in your script, but can you give us a little more color what -- anything specific that you've seen. You talked about having some inbounds. We know you've got a leading technology, and we've seen what's happened in the ecosystem. So just any clarification that would be very helpful, I think.

Sure. No, thank you for that. So like we said, it is with the -- first of all, with the momentum, we are also having ourselves the designing momentum and customer activities is significantly increased. We are very excited about that. There is excitement in the GaN field itself with both M&A transactions, capital raises and/or announcement of interest by multiple companies. So what we are seeing is taking kind of stock of this situation, what is the best options to accelerate our growth of the brand business and simultaneously enhance stockholder value, right? So that's where we will do the -- with the Board's initiative. We will do the strategic review.

And what we see is this can include one or more things, right? It's financing from strategic partners that also helps to accelerate growth of revenue. It may include traditional financing alternatives. We would look at licensing opportunities. We have had an example of that in the past. So we would look at licensing in both Asia and U.S. of portions of our portfolio. That also helps us to accelerate or like we said in their potential M&A transactions. So those are the kind of things we would want to be open to with, again, the single goal of enhancing stockholder value.

Okay. Thanks for the clarification there. And then I want to ask about your 1,200-volt GaN that you released or the simulation. And I noticed that, that was again on Saharan you guys have historically been on silicon. Is that a transition that we should think about you moving forward with? And is there any, I guess, implications from an IP standpoint, just kind of given where your competitors, at least one of your competitors is fairly large in the gain on SAP in that kind of lower power segment.

Sure. Thanks, David, for that. So we -- on the 650 bold and voltage platforms, there is no change. We continue to march ahead with our Gen IV, Gen V. In future we'll work on other further enhancements to our GaN silicon platform. That's our baseline. As we look at 1,200 words we determined that -- and we've talked about this before also, the best way to get to 1,200 words was GaN on Sapphire because we have IP and expertise in growth. As you know, EPI and MOCVD growth of GaN materials is one of the strongest suite and core IP and technology of the Transphorm team, right, whether it is our flagship gain on silicon for the mainstream power segment at 650 volts or now as you are seeing GaN on Sapphire for the exciting EV high-voltage battery segment at 1,200 volts? Or if you look at our second vertical in the government business, there actually, we do GaN on silicon carbide for RF epi, which is our second, we call it our second vertical primary vertical being power. So all growth of GaN on all substrates has always been an expertise of Transphorm. So we look forward to doing that.

But again, to be clear, our 650-volt baseline continues to thrive and accelerate on GaN on Silicon 1,200. We are looking at GaN on Sapphire. We have demonstrated excellent results, which led us to now release those simulation models. And then we also do for the RF word, we also do some gain on silicon carbide at the -- especially on our government contract. And our IP is strong across the segments, our IP is quite strong.

Okay. Thanks. If I could squeeze in just one more. I just wanted to ask about your -- you've got a relatively strong position in the data center and then the power supply market. I'm just kind of curious if you're seeing anything in terms of just the AI trend and the immense amount of power that, that requires. Are you seeing increased interest from the data center for specifically for kind of AI-based workloads?

Yes. So generally, we put all of that under our computing segment, which includes server power AI, we are seeing some increased inquiries recently. We hope that translates to more design-in momentum specifically for that, along with the server computing. And then we also put block chain in our computing segment as well as high-performance gaming power. So this is all 4 are part of our computing segment, which as you rightly said, on the high-power GaN side having been one of the original players, we have a good lead and performance with reliability demonstrated in the market.

Thank you.

(Operator Instructions) Our next question comes from the line of Craig Ellis of B. Riley Securities. Your question please, Craig.

Yes. Thanks for taking my question Primit and Cameron. Cameron, I wanted to just make sure I understood the elements to the revenue guide for the fiscal 1Q. So I think you said revenues in the range of $5.8 million to $6 million. So should we look at that as having a component in it that's about $1.5 million of the federal government revenue that we didn't get in the prior quarter and then the balance is a nice sequential increase in product revenue. And if so, what are the drivers for the sequential gain in product revenue?

Sure. Thanks, good question. I think the -- you're right that with the government contract being concluded in the quarter, we will see that revenue coming through in the quarter. I think that the overall product line revenue will be flattish. As Primit mentioned, we're looking to see products starting to grow from the September quarter. So I think particularly to this quarter, we will see a higher proportion of government revenue and with that normalizing as we head into Q2 and beyond.

Yes. And so really, we've got 2 quarters in the fiscal first quarter, Camera and one catch-up and one kind of normal and then it regresses back to a more normal level beyond that and then you get the boost from product revenue. Is that what we're seeing? And it was helpful to get Primit's view on the reactor ramp over the next 3 years. How are you feeling about the ability to convert the growing design win activity the company has in the product revenue as we go through '24. What is the linearity of the revenue ramp look like?

So yes, you got that part right. We are well poised actually. On the reactor, the hard work our team has put in last several quarters is now paying off. Our Japan reactors are already ramped into production. And then very exciting for us is the development of the global wafer partnerships in Taiwan, which stays exactly on track. So we have 2 reactors there now in process of development already released for development now. So that's very exciting. And those will -- we expect to be in production first calendar quarter of 2024. So we would have by that -- at that time, 6 out of 8 reactors in production. And then 2 more, we are triggering, we use appropriate triggers of the ramp. So we are going per plan, or I would say, or even slightly ahead of plan in getting all of our MOCVD reactors into production.

Yes. And Primit, do you think you'll be running at full utilization as you ramp those up? Or would initial utilization be much lower as you get test wafers through an issue fine-tune yields as you ramp up new equipment. How should we think about yield issues and utilization issues as that comes up?

Yes. So let me answer that in 2 parts. First, having been through bringing reactors of different type in production, our team, we remain quite confident of our ability to do that now. Secondly, any reactor coming into production in our plants that we have, we always -- we never assume 0% to 100% turn on even in our operation plan. We always assume a gradual turn on over 3 to 4 months of the reactor or even 3 to 6 months to go to 100%, sometimes if it is a brand new different type of reactor, right? So we baked that in our plans. But given now we have demonstrated on various platforms, we feel confident to bring up the new reactors quickly.

Good for you. That sounds constructive. And then lastly, just on the auto opportunity, which has always been a very significant and attractive end market given the evolution of the relationship with Nexperia Primit, what's the best way to look at where the company would start to generate auto revenues, switch sockets because there are many for which your technology is applicable and over what time period? And are there specific customers that you're engaged with there yet? Or is that something that happens as we go through the back half of the year?

Sure. So yes, Nexperia remains an important customer partner for us with the shipment and supply of wafers. A lot of that also targeted for end automotive customers. then Transphorm's direct automotive customers, like we have said, is in the near term, EV2and 3-wheelers that remains a very exciting market for us. We stand by our goal of getting the first design win by end of this calendar year and then ramping in calendar year 2024 to significant numbers. We've actually added some slots there. So we are looking at any chargers. So these are both we are looking at onboard chargers as well as portable chargers from 300 watts to 2 kilowatts. And we are actively sampling Asia customers right now with solutions actually in that -- in those segments from 300 watts to 2 kilowatts.

On the 4-wheeler side, our first opportunities remain in the onboard charger, again #1, and then DCDC converter #2. Now with the exclusivity with an Nexperia on the automotive completed, we can actually jump start, and we have already done that of different geographies, China, Europe, North America, while still continuing in India, still continuing Japan effort. So that's a new initiative and also helped the new initiative is also helped by our 1,200-volt GaN release sampling the sampling of the simulation model that we have done, which increases customers' interest because they see Transphorm is now a long-term player with GaN and GaN and Transphorm is a long-term player from 650 volts to 1,200 watts.

Got it. Thank you Primit, thank you Cameron.

Our next question comes from the line of Richard Shannon of Craig-Hallum Capital Group. Your question please, Richard.

Hi guys, can you hear me?

We can.

Okay. Excellent. The line is a little spotty here. Let's see a few questions for me. I wanted to follow up on the topic of first quarter revenues and what it may imply for the rest of the year here. So I think in a prior question, you said the government should contribute about $1.5 million, if I caught that correctly. You got a $15 million contract over 3 years. How should we think about the ongoing? Is it a kind of steady recognition every quarter as a milestone basis could be lumpy? And then as we think about the product side, I just want to make sure, Cameron, I heard you expecting kind of flattish product revenues in the June quarter and then starting to grow in September.

Yes, that's right, Richard. Certainly for product revenue, I think flattish in the June quarter and then solid growth through the course of the year. The government contract will be pretty linear. It's based on certain deliverables and it's largely the team working a wait time and materials and so forth. So from a revenue standpoint, I think the only quarter that we'll see a little bit more than the kind of linearity is the June quarter. But as we go through the rest of FY '24, I anticipate it being relatively flat as we work through the contract. I don't anticipate any significant lumpiness.

Okay. That is helpful for forward modeling. Let's jump into the automotive mobility space, especially on 2 and 3 wheelers. You talked about being on track for first went by the end of the calendar year and ramping next year. I guess a 2-part question. With this win or maybe wins, but certainly when the -- your target by the end of the year, do you have a sense of how big that potential is and/or broadly speaking, how much of these EV 2- and 3-wheelers are a portion of your pipeline right now?

Yes. So overall, if you look at it, the opportunity, we want to target at least one win. That's why we say we have several -- we have more than 10 plus 10 to 15 customer engagements going on in that area right now. And we look to at least one win by end of the calendar year. The ramp, depending on the number of wins, right, we are looking at I think we had talked in the past about kind of $8 to $10 content per vehicle. That's, of course, in the case of onboard charger that can be more portable chargers as well. So we're looking to kind of a million, low single-digit million contribution from that segment going into calendar year 2024. And that is indeed part of our EV mobility and charging pipeline. We kind of set around, I believe, around 40-something million in the EV mobility and charging pipeline. That 2-wheeler, 3-wheeler is a good chunk of that. We will add more in the 4-wheelers now that this exclusivity is completed. We look forward to adding significantly and quickly more pipeline opportunities in the 4-wheeler segment as well.

Okay. That sounds good. Let's see a couple of more questions for me. You talked about U.S. chipset money here, and I think I missed some of the full statements you made there, Primit. But I guess it seems like you would be looking for another partner here for manufacturing in the United States, I would presume, since you're targeting automotive, it's always great to have multiple geographical splits of your manufacturing here. So wondering if I'm kind of reading this right. And do you have kind of plans fairly far down the road or just exploring things and waiting until chipset money is awarded? Or how would you help us think about what you're viewing with that opportunity.

Yes. No. You got that right, Richard. It's the manufacturing, the way we are looking at it is in 2 parts. First is a direct kind of funding for Transphorm that we are pursuing through this. It's also part of chipset, but it's the microelectronics comments program where there are centers of excellence in activity. These are more like -- this will work more like DoD contracts. So we are part of a couple of centers. Now, of course, it remains to be seen if those centers themselves get funded. So this to be nice development funding for things like higher voltage 1,200 world GaN and some on the RFK and EP. Those are what we will get from that.

The manufacturing expansion funding, yes, we are looking at U.S. potentially a U.S. partner for geographical impact, as you correctly said. We are in initial discussions with a couple of companies beyond just the exploration stage. So now as just recently, there was an announcement just earlier this week about the next phase. So we look we look forward to that, but that will be with a partner, the manufacturing scale and the microelectronics common portion, that is transformed directly on our own.

Got it. Okay. That makes sense. One last quick question for Cameron related to the rights offering and debt facility. You talk about providing a runway. I think I don't know if you said all the way through or most of the way through fiscal '25. Any way that you could help quantify what kind of funding levels you are looking for a rate between those 2?

Sure. I mean, certainly, the rights issue is a $50 million raise issue. And what we're looking at in terms of our non-dilutive asset-backed debt is something in the kind of high single-digit multimillion dollars. The second component will hinge on appraisal values and so on and so forth, Richard, but that's the target. And that's -- we're hoping to get the combination of both of those, giving us runway deep into fiscal '21.

Okay. Fair enough. I think that is all for me. I jump by the line, guys.

Thank you. (Operator Instructions). And we have a follow-up question from the line of David Williams of the Benchmark Company. Your question please, David.

Yes, I just want to ask on the product revenue, you've guided that to be about flat sequentially. I'm just wondering if you're seeing anything in terms of just the inventory digestion, if that's mostly complete, you're seeing more cautious stance from your customers? And then maybe just kind of if you're seeing anything in China, if that's improving or flat? Just help around that would be helpful.

Sure. So we are seeing, I think, what we believe to be the kind of the tail end of the investor the inventory adjustment with some of our customers, including one of our partner customers in China. On the other hand, we are also seeing an increase of mix of customers, which is very positive. So we are seeing a healthy diversification of Power Products customers, especially in Greater China, that with China and then large customer design in Taiwan. So we are seeing a shift towards a more diverse mix. And then we are working through the inventory adjustments of -- especially of 1 or 2 of our customer.

Okay. And just one last one real quick. If you look at across the automotive platform that we're moving towards that 800-volt system where that -- where your 1200-volt GaN device would work very well. Do you think there's -- we'll see a chance that we would -- that these auto mode platforms could move beyond that 800 volts where silicon carbide would be the only alternative -- or do you think there's a physical threshold where 800 is kind of where we'll see that end up?

Right now, what you're seeing is a shift, first of all, from 400 volts through 800 volts, right? So today, if you look at it, still majority of the systems are at 400 volts, a lot of the new design-ins that are happening are moving to 800 volts. There's some talks about how it could potentially increase again in the future. But as of now, what we are seeing is first next is the move from 400 to 800 volts. Also, it's not to say the GaN on Sapphire cannot extend the voltage, right? That's the beauty about that platform that right now, we are focused on 1,200 volts beyond kind of our 650-volt flagship Super GaN platform. But the GaN on Sapphire platform with the right device design is -- there is no kind of a physical limit per se that would limit it only to 1,200 holes.

Thanks again, guys.

Thank you. At this time, I would now like to turn the conference back to Primit Parikh for closing remarks. Sir?

So thank you, everyone, for listening in and the interactive Q&A session. We look forward to executing on the plans to be discussed on this call and capitalize on the exciting momentum we have on the designing and the customer side to aggressively ramp our GaN business. With that, good day to you all. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.