Transphorm Technology Inc (TGAN) 2022 Q2 法說會逐字稿

Good afternoon, and welcome to the Transphorm, Inc. Second Quarter 2022 Business Update Conference Call. Today's conference is being recorded. (Operator Instructions)

At this time, I'd like to turn the conference over to Brett Perry of Shelton Group Investor Relations. Please go ahead.

Good afternoon, and welcome to Transphorm's

Quarterly Business Update conference call. Joining us today from Transphorm are Mario Rivas, Chief Executive Officer; Primit Parikh, Co-Founder and Chief Operating Officer; 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 linked in the Investor Relations section of Transphorm's website, and they will also be posted and available as a link to 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 predict 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, November 10, 2021, 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 S-1, 10-KT and other subsequent filings with the SEC.

With that said, it's now my pleasure to turn the call over to Transphorm's CEO, Mario Rivas. Please go ahead, Mario.

Thank you, Brett, and welcome, everybody on today's call. Thank you for joining us. Transphorm's fiscal second quarter, which ended September 30, 2021, delivered continued growth and record product revenue. Product revenue increased sequentially for the seventh consecutive quarter and grew 30% year-over-year to a quarterly record.

Continued momentum in adapter and fast charging market penetrations, including partnerships with leading controllers and integrated driver makers. We completed an agreement to transition ownership of AFSW wafer fab facility in Aizu Wakamatsu, Japan. Our strategic partner, Yaskawa converted $15.6 million of debt to Transphorm common stock at $5 per share in October 2021. We were awarded $1.4 million GaN development contract by Defense Advanced Research Projects Agency or DARPA.

We also are proud that we achieved automotive qualification of SuperGaN Gen IV multi-kilowatt class power FET device. We closed a $5 million private placement for strategic investment by Sino-American Silicon Products, SAS, a multi-billion dollar public company in Asia and also closed $33 million private placement in November 2021, comprised of follow-on investments of $5 million by KKR and $10 million by Sino-American Silicon Products as well as participation by institutional investors.

Now allow me to transfer the call to Primit Parikh, President and COO. Primit?

Thank you, Mario, and good afternoon, everyone. We are very excited to report that Transphorm has continued our growth momentum and forged several marquee partnerships. And as announced yesterday and today, raised more than $30 million of capital to propel our growth even faster.

First, a quick recap of GaN overall value proposition and TGAN Transphorm leadership position within gallium nitride. GaN is the future of power conversion because it reduces waste, enable smaller footprint and lowers power system cost across a variety of electricity conversion application and does this much better than silicon or other semiconductors. TGAN is an established innovator, manufacturing supplier and leader in GaN power over the widest range of applications. Transphorm is one of the only companies to have ramped GaN in broad market segments from lower power, adapters and fast chargers to help our data center, mining, communication infrastructure, broad industrial, renewables, UPS and impactive design-in for automotive. Our phenomenal GaN team has enabled the top patent portfolio with more than 1,000 patents, 5 to 10x more than nearest competitors.

Full gallium nitride manufacturing capability has allowed us to control and innovation with our asset-light vertically integrated model and build a comprehensive product portfolio with more than 25 billion hours of field operation, having delivered $12.7 million of revenue in our last fiscal year. And growing product unit shipments now at a very fast pace. We are thrilled to have our technology, IP and business, validated by blue-chip investors and customer partners, the likes of KKR, Yaskawa, Marelli and now SAS and Diodes, Inc., to name a few.

Overall, we are addressing a very exciting market opportunity for GaN and power conversion, a multi-billion-dollar GaN TAM with a further inflection point as we go through the EV powertrain segment in a couple of years to reach $10 billion by end of the decade. In fact, some of this market opportunity may be leaning more towards the conservative side.

In the near term, our revenues are being derived from power adapters and chargers, computing data center, infrastructure, crypto mining power, followed by some industrial applications, industrial and renewable energy in the near to midterm. And without a doubt, a large growth area for automotive electric vehicles and charging in the mid to long term, all bodes very strong with growing markets for gallium nitride.

Across this gamut of application, Transphorm GaN solutions deliver high efficiency, compact systems, lightweight, with easy-to-use products. I'll be coming -- referring more to that the ease of use with proven performance benefits against silicon, silicon carbide on the higher power side and other GaN solutions.

Understanding this market in a little bit more detail, the broad power semiconductor TAM itself is exciting and growing steadily. The GaN TAM, the gallium nitride portion of that, which is reasonably addressable with GaN offerings that we have in today and in near future, is about $1.8 billion today, out of which power adapters and chargers is one of the biggest segments. As the underlying strong power semiconductor market will continue to grow steadily, we expect the GaN TAM CAGR to be double of that. And while all segments in the general markets will grow fast over the next 5 years or so, the largest growth is expected from the electric vehicle segment, going to well over $2 billion in 2026, for which we are positioning very well with automotive qualified parts available today.

What is necessary and our team aspires to do every day is deliver a broad combined spectrum of benefits to all power conversion customers. By taking the intrinsic benefits that GaN has to offer over silicon or silicon carbide to the next level. Our core GaN FET architecture delivers performance with high efficiency over a wide range of power levels with leadership in product qualification and reliability. Our asset-light vertically integrated model allows for unparalleled in-house GaN control, supply, control of our manufacturing, innovation and ability to scale.

While others are talking about getting into higher power, we have been there for a while and have set a number of benchmarks, including titanium class gallium nitride power supplies, partnered with our customers more than 2 years ago. The TGAN FET is directly compatible with leading silicon controllers and drivers. No extra shrubbery needed to interface our GaN with the outside world, and this is reflected in our growing ecosystem of solution partners.

And finally, our strong IP portfolio covers not only how the gallium nitride is made, but also how it is used in a certain widely used power application architectures, for example, like the (inaudible) bridge technology, brick topology.

A key market trend over the last couple of years, as many of you are aware, is the shift for adapters and fast chargers to higher power for mobile and laptops, such as 45 watts, 65 watts and over 100 watts now with fast charging, which gallium nitride is extremely well suited to. While our other good companies in our fellow GaN companies have combined very well for enabling this market. Some of the key differentiated benefits that allow customers to do more with GaN with simple architectures and a simple bill of materials, or BOM, are outlined here.

The silicon, obviously, has been working great in the past but now falls short in efficiency, speed and smaller-sized compact form factor required for new products. Among the variety of GaN solutions, looking at the key attributes, what makes Transphorm gallium nitride attractive for customers versus competing solutions like e-mode GaN or the so called e e-mode IC GaN, are -- is the ability to be flexible, which means ease of use, compatible with standard drivers, no extra BOM components or shrubbery to interface the GaN FET, the ability to go to higher power and ability to do so very reliably.

For example, based on data verified by customers for metrics that allow GaN FET in a direct comparison to exceed performance with other gallium nitride FETs, in this case, shown with the comparison with the GaN IC, more efficient, Transphorm GaN and thus literally easy to use. We also strive to not confuse the market and do our best to clear certain misinformation that sometimes proliferates in the market around gallium nitride. First of all, no matter what you call your GaN, it's the overall performance that counts. For example, normally, of GaN is what customers and application demands, and there are many good ways of doing it. All our good fellow competitors in GaN are also doing it. But the semantics about things like e-mode or d-mode as to achieving normally are bookkeeping matters. It's a superior normally of product that matters.

Performance. Performance is delivered by fundamental superior underlying GaN technology and very importantly, coupled with solutions, there is no universal one size fits all. Talking about high-speed or megahertz switching, the fact is we have taken gallium nitride to 1 megahertz and 99% efficient operation several years ago. And that, too, at a higher power level, which is more challenging. Many other systems like transformers, et cetera, have to be kept in mind as one takes gallium nitride and systems, especially at higher frequency.

But as far as the power switch is concerned, fast switching is not fundamentally due to any particular thing like an IC or a controlled topology. That is what God and nature gives to mankind is, if you make good GaN, it will switch fast. There's been a lot of talk about integration and drivers, and one often ignore fact is many modern tech controllers, especially for the adapters and fast chargers have drivers integrated for free. So, in this case, working our excellent solution partners, our architecture avoids the need for any extra driver in the case of adapters and fast chargers.

Another important reminder is power conversion application span low to mid-to-high and then very high-power levels. Today, out of the GaN offerings, and this is what is shown here is best for knowledge of release products in the market, not talk about the future, our GaN spans from 30 watts to 10-kilowatts as we demonstrated recently with our Gen 5 products on the higher power spectrum. Many competing offerings will buy for higher power sources in the future. But today, they are limited to lower power. Our success at higher power comes from, again, the inherent robustness and stability of TGAN's FET architecture that allows us to be offered in industry standard, thermally robust packages, like the TOs, which today's other solutions with GaN sometimes find difficult to do due to their inherent weakness.

And now what are these attributes enabling us to do? They have enabled us to build a strong ecosystem of solutions and partners. This is all very -- these partners are manufacturers of controllers with integrated drivers. Recently, Diodes Inc., announced a 130-watt solution utilizing Transphorm GaN and a 65-watt solution utilizing Transphorm GaN is already in place. And as previously announced, we continue to work with Silanna, another strong innovator in controller architectures. With multiple other partners that are not public at this point, we aim to lead in the solutions for the adapters and chargers space from 45 watts to 250 watts.

Our strong product attributes, coupled with this adapter solution space in the ecosystem of partners, continue to allow our expanding adoption in the fast charger space. We have added some leading brands, including, for example, the compact 65-watt power bar with Philips to add to the Qualcomm QC5 100-watt solution we announced last time. The highest power space is very important. As you can imagine, higher the power, higher the energy savings, impact of GaN and the impact on electricity usage and carbon footprint at the holistic level. Here, our generation 4 and generation 5 offerings, both are leading in this space, and we compare here to leading silicon carbide offerings in this space as other type of gallium nitride is not quite ready for high-power, especially in thermally robust packages, again, due to the inherent device weaknesses in those cases. An example shown here on the right is our highest power 15-milliohm product. By the way, this is best as far as we can tell, the lowest our own for a 650-volt qualified GaN in a discrete TO-247 package. It outperformed silicon carbide, both the MOSFET and the JFETs' cut score both are very good products by strong companies in a standard package, in a standard grid circuit, realizing 25% to 38% loss reduction over this good silicon carbide products and able to deliver as we show 10-kilowatt lower power from a single part in our half bridge lab testing.

Customers have selected our higher power products in a variety of applications. For example, 35 milliohm and 50 milliohm parts over the last 4 years from 1-kilowatt to 4-kilowatt solutions for gaming, crypto, servers, industrial, renewable and military applications for their ease of use, superior thermal management, reliability, higher efficiency, power conversion. This list will continue to grow.

The electric vehicle is a very important area of focus for gallium nitride and Transphorm. As we know, silicon carbide has done very well in this segment, and gallium nitride with the intrinsic performance as well as the ability to harness this intrinsic performance, as I just showed, is poised to enable long-term benefits with GaN in this EV marketplace. These benefits include key impact areas like faster charging by packing more power in a smaller footprint, also giving more compact and lightweight systems, which, coupled with higher efficiency and lower losses inherent to the GaN translate to increased driving range, improving battery efficiency. We just announced today that our Gen 4 product qualification under the stringent AEC-Q101 criteria was completed it being our third automotive qualified higher power product.

Most of you know well, the acceleration of the electric vehicles opportunity worldwide and aggressive adoption scenarios that make longer-term scenario for GaN hyper attractive. The specific GaN opportunities in EV today are in the areas of onboard chargers, DC-DC converters and off grid DC to AC auxiliary inverters and over the next several years, unlocking of the drivetrain inverter opportunity, something we are working closely with strategic partner will triple the accessible GaN content on in automotive. Transphorm GaN is AEC-Q101 qualified here and now today.

Shifting gears now, I wanted to explain a key partnership that we announced today. First of all, we have announced a total of $33 million of investment this week, including the support of KKR, our leading shareholder, U.S. institutional investor group and Sino-American Silicon Products or SAS. SAS is a marquee international company, a total green energy solutions provider and parent to GlobalWafers Corporation, which is a top 3 supplier of silicon wafer materials in the world. And a combined market cap of SAS and GlobalWafers being $16 billion with worldwide manufacturing operations.

SAS made a new $10 million equity investment in Transphorm, adding to the previous $5 million they did in August and including that the total amount raised from SAS as well as other investors since August stands now at $38 million. Equally, if not more importantly, the SAS GWC partnership will help enhance our GaN epiwafer supply chain in the future while protecting our core intellectual property in this area and augmenting our internal capacity. Also, they will become a distribution partner for select Transphorm products, helping drive growth.

Now turning our attention to execution today and how we are driving growth. We are pleased to report a continued growth factor and consistent to what we said last time, targeting a 3x unit shipment growth from the first half to the second half of this calendar year. In terms of overall product revenue growth, this is 50% growth targeted again from first half to the second half of the calendar year '21. This ramp is again coming from our increased penetration into adapters and chargers and sustained shipping for gaming server and crypto segments. Clearly, managing supply chain, external constraints that are facing all of us, especially the semiconductor industry today in the near to mid-term will continue to be important for us.

The key business focus remains on continuing to scale product revenue and targeting, again, an annual growth of 3x in this area. We outlined several vectors that help us build this foundation. First off, in the adapters and chargers we are steadily increasing wins and now over 20 in production with over 40 in design-ins, including the 30-watt to 240-watt range. We are fully booked for the quarter and have added strong wins like the Philips power bars that I talked about.

Our strong partner ecosystem is a very key to us for sustained expansion, and we have 10 solutions now ahead of our target, including our home solution as well as with partners, which are either done and released or ongoing. This is, again, ahead of our plan and the recent Diodes' 130 watts announcement is a strong testament to that. We had previously also set a metric to achieve our PQFN package capacity. PQFN is the compact package used in adapters and charger products to exceed 1 million a month. And we are pleased to report that our team now has a second -- our outsourcing partner qualified and in place, and we have this package capacity exceeding 1 million a month in place in Q4 now as we have previously said. We have also enabled a new higher power compact PQFN 5x6 package on plan.

In the higher power segment, a leadership area for Transphorm versus other GaN. We have overall 20 design-ins now having grown that from last time and with the more than 10 introduction. And recently, among others, we have added a very prominent gaming supplier in production. Solutions are key here as well, and we plan to release a new 2.5-kilowatt totem-pole design with our partner. Totem-pole, by the way, is a widely used architecture in GaN and also where Transphorm has a very broad IP coverage.

And new higher power products today -- amongst new higher power products today, the Gen 4 AEC announcement that we did will be important to accelerate automotive design-ins and also, our goal remains to secure even higher power Gen 5 wins with the record high power Gen 5 product that I talked about earlier. We have commercially qualified that, as we said last time, and now it's in early sampling stage.

Strategic partners and our government and Epi business are important parts of our value proposition and business, and I'm pleased to report strong all around execution in these areas as well. Within the ease of designability and drivability of TGAN FET and performance stemming from the inherent better GaN technology lends itself well to the success at Diodes Inc., 130 watt solution with minimized BoM and high performance. We continue to partner with Silanna, another very good controller innovator and other companies in this area.

With our strong customer partners who are also our shareholders, Yaskawa's note conversion to equity was key along the continued development with Yaskawa and progress towards our business milestones and product milestones. With Nexperia, the focus now is on continued supply, having recently completed the licensing technology milestone, which led to the $8 million revenue recognition in the July quarter and with Marelli targeted product development, especially now with Gen 4 AEC qualified parts. An important recent achievement in our Epi business was completion of the transfer of GaN RF Epi process for a major DoD customer to our facilities.

We are still continuing our activity to target a commercial GaN RF win as well as we will be completing the details of the SAS GWC partnership that we announced and looking to get that going in full steam ahead. Our Navy contract activities will deliver more than $3.5 million revenue in calendar 2021. And we have now also commenced activity on the new DARPA contract.

A quick recap on the significant, very significant recent milestones before I hand over to Cameron McAulay to talk about our financials. First Nexperia, the licensing and associated revenue milestone has been completed. Along with this, Gen 5 commercial call was also achieved. Second, Yaskawa note converted to equity, adding $15 million to shareholder equity and reiteration of support from one of our strongest partners.

The data contract continues to highlight synergy that Transphorm garners from public private partnerships. The Gen 4 automotive qualification here and now today for driving automotive design-ins. Adding new solution partners, a top-tier company like Diodes Inc., backing up what we've been saying on the ease of use and performance of our parts. And the investment from KKR, our largest shareholder and SAS, this partnership will enable faster scaling in the future as we aim to get ready for the mega growth we expect in GaN land.

With that, over to Cameron.

Thank you Primit and hello to everyone joining us today. I'll start with a brief recap of our most recently completed quarter. From our remarks, I will refer both to GaN and non-GAAP results, which are reconciled to GAAP in our press release table. Non-GAAP results exclude stock-based compensation, amortization and adjustments to the fair value of our convertible note.

Q2 FY22 saw continuation of our growth story. Total GAAP and non-GAAP revenue comprising product, licensing and government was $11.3 million in the quarter compared to $3.2 million for the prior quarter and $1.9 million for the equivalent quarter of 2020. This sequential and year-over-year increase was driven by combination of licensing revenue relating to our ongoing work with Nexperia, continued execution on our key government contract and record product sales from ramping shipments. Focusing more now on product sales. The 3 months of September saw our seventh successive quarter of product revenue growth. And comparing this quarter to the same quarter last year, product revenue grew by over 200%. This growth has been driven across our broad range of power conversion applications, including fast chargers and adapters, gaming, data center and crypto mining applications.

Operating expenses on a GAAP basis were $5.1 million in the current quarter compared to $5.3 million in the June quarter. This 2% decrease was achieved despite an increase in the company's headcount to support our growth. This included headcount to expand our sales and applications teams as well as increasing investments in our R&D engine and compliance efforts. On a non-GAAP basis, operating expenses in the second fiscal quarter of 22 were $4.5 million compared with non-GAAP operating expenses of $4.6 million in the prior quarter.

Cost of goods sold were $2.2 million in the quarter, a decrease of $0.3 million from the June quarter. As with OpEx, the spend reduction was achieved despite an increase in manufacturing footprint to support our continued growth. For EPS and net income I'll focus my remarks here on the non-GAAP results. As a reminder non-GAAP excludes noncash items such as stock-based comp amortization, and fair value adjustments. On a non-GAAP basis, net income for the fiscal second quarter of 2022 was $3.6 million or $0.09 per share compared to a non-GAAP net loss of $5.3 million or $0.13 per share in the prior quarter, and a non-GAAP net loss of $5.3 million or $0.15 per share in the fiscal second quarter of 2021. These results compare very favorably to our consensus EPS of $0.02.

Turning now to the balance sheet. On assets, cash remained stable in the quarter. Our burn offset by the initial $5 million SAS investment that Primit highlighted earlier on in the call. Operational burn was in the $5 million in the quarter, a reduction of 29% from June, driven by increased revenue, $750,000 payment from Yaskawa in the relation to our ongoing development agreement and a continuation of our payer control environment. Inventory increased to support our improved traction and will enable continued revenue growth.

On liabilities the fair value of our convertible debt reduced from $17.1 million to $15.6 million. This is in line with the post balance sheet conversion of this debt as expanded, as I'll expand on in the next segment. Speaking of liabilities the $8 million development loan is tied to the successful execution of our SOW with Nexperia was also released in the quarter. This execution strengthened our balance sheet and improved our stockholders' equity position by over $11 million for the quarter. We're also happy to report several important developments that occurred till September 30 each one strengthening our balance sheet and improving our stockholders' equity position.

On debt on October 4, we completed the successful conversion of our $15.6 million convertible note that the company held with a long term customer, partner and our shareholder Yaskawa. From a funding perspective, the company released an 8-K yesterday announcing the completion of a $23 million equity round including our lead shareholder KKR taking their total investment in the company to $80 million. This $23 million round also includes several U.S. institutional investors.

In addition to this earlier today, the company also announced an additional $10 million from our strategic partners, SAS, bringing their total investment in the company to $50 million. These developments significantly strengthen our balance sheet, providing long-term financial stability through the injection of $38 million of cash, reducing our debt profile and improving our stockholders' equity position by close to $50 million in addition to the $11 million that was realized in the quarter. It is through these developments that we believe the company is positioned to meet the qualification requirements for uplisting our common stock to the NASDAQ. This is an ambition that we will continue to pursue, and we are working in internally to realize this.

Starting from the current year to reiterate our long-term business model. We are in the process of building a high growth, cash-generative business. The company has 3 distinct revenue streams: licensing, government and product. In the current year, we are continuing to generate solid revenue from both licensing and government contracts. This is being supplemented by significant growth in our product revenue. Product revenue has grown seven quarters in succession and will become a significant proportion of our overall revenue in the current year. This growth is being driven across a broad range of power conversion applications, including fast chargers and adapters, gaming, data center and crypto mining. We have achieved annual product revenue growth of 200% in the last fiscal year, and we are targeting a continuation of this product growth into 2022. From '23 onwards, as we continue to ramp our production revenue across our target segments, product performed over 90% of our total revenue. This growth, as before, coming from multiple segments, not simply consumer.

Automotive revenue will further contribute to this multi-segment growth from 2023. This consistent rapid acceleration in our product revenue allows TGAN to target a 5-year annual CAGR in excess of 50%. And from a margin perspective, our strong product portfolio, now including our Gen 4 and Gen 5 parts, together with our manufacturing excellence, will translate our sales into a gross margin in excess of 40%.

With respect to operating margin, as we have shown this year, the company will continue to invest to support all aspects of our core operations. Our stable existing structure, allowing us to translate gross margins into delivering our operating margin that we believe will be in excess of 20%.

To conclude, TGAN is a pioneer and leading provider of GaN power conversion devices. We have disruptive technology that provides power conversion solutions across a number of significant growing markets. We are commercially ramping with strong production revenue growth now growing for seven successive quarters, together with a manufacturing structure in place that can support our long-term growth. We have a comprehensive product offering to meet our customers' needs across a wide range of parallels and segments. All of which is underpinned by a strong balance sheet, the industry's strongest IP position and a deep talented team led by renowned GaN experts.

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

(Operator Instructions) We'll go first to Ananda Baruah with Loop Capital.

Congrats on the solid results. I appreciate you taking the question. Just I guess a couple, if I could. What are you guys looking for sounding as it sounds like there's good momentum as you had anticipated it would be and had laid out for us. What are you looking for as a key signpost over the next 1 to 2 quarters that can continue to drive the growth as you're anticipating. And you guys did a great job to walk through the presentation. So, anything incremental in that regard that may not be laid out would be great. And then I have a follow-up. Thanks

Thanks Ananda, for that. Yes, like if we have laid out, just the quarter-over-quarter, we like to -- on the metrics driving that foundation in the growth vectors. These are basically our design-in and production wins in both adapters as well as higher power solutions and reference designs. That's a key area we laid out some. I alluded to that we are working on more, which is not public at this time. As you will see, we talk about the ease of use of our parts, right? And what is that getting us, right, inherent performance with respect to other GaN? What is that getting us? It's getting multiple of this solution and reference design partners. So, as they expand their ecosystem, it will drive our growth even faster. And then continuous milestones on new products, right? We have continued our new product introduction and continuing that, especially you saw today with the Gen 4 automotive over the next few quarters. I didn't say explicitly, but Gen 5 automotive qualification will also be an important vector going into, say, the second quarter of next year, sometime around that time frame and then securing more wins or design wins with our Gen 5.

Primit, that's super helpful. And then, Primit

, just a follow-up on new wins. And this is really my follow-up to EV and automotive. When do you guys -- I guess, from our perspective, when should we envision that really beginning to make a contribution to you guys? What year would that be do you envision it?

This is the EV. We've been in it, really, you have to be in the EV segment with qualified products today to have an impact in the next several years. So, I say sometimes in the 2023 time frame, as we have seen -- said before, is where the EV goes -- these things will again will be on the cars in the design-ins that we have today. But what we have also done, one of the things we have established is strong partnerships, right? So, for example, Marelli and for example, Nexperia. So, we have, for example in Nexperia Epiwafer sales or wafer sales, which are all targeted towards end EV applications. And this is one of our ways of expanding our ecosystem with partners to drive growth faster than we can on our own. And that is contributing to revenues actually today as we speak.

That's great. I got it. Thanks a lot. I'll get back in queue. Thanks a lot.

. We'll move next to David Williams at Benchmark

And congrats on the solid quarter. I just wanted to ask kind of making a high level, the GaN, and you obviously have done a good job pointing this out in the past, but just the silicon carbide competitiveness and versus your GaN products. Have you seen that you've been able to displace any silicon carbide to date? Or do you think that is still a possibility as we get deeper into the automotive, maybe the inverter section?

Thanks for that. The silicon carbide actually, we have -- we've been winning because of our efficiency in applications that we have designed in and in production today, like, for example, data center or crypto mining or gaming powers, right? There are efficiency gains we have, which, like we have said, Transphorm has made the inherent performance of GaN inherent potential of GaN practical. We are seeing that today. In the area of automotive, like I said, that's a longer designing process. Silicon carbide has been doing that for last decade or so and is doing very well in the market today, but that is where, again, with our inherent performance advantage like this 25%, 35%, 38% loss reduction that we showed the inherent fundamental performance of GaN, coupled with our partner ecosystem and the quality reliability, Gen 4 AEC announced today. We expect to see an impact on that by 2023. As we -- and we have also said this before, what we expect is that older technologies don't go away. Silicon won't go away, silicon carbide won't go away, but newer design wins, newer design-ins that customers start, we expect that to be started with our GaN.

Okay. Fantastic. And then maybe secondly, just any updates on the wafer fab JV moving forward. Is that the transition is expected? Anything, any hurdles or constraints there that you experienced in last quarter?

No, that is actually going very well on plan, and that's one of the strong backbones of our manufacturing also. So that transition has gone well very synergy. And like we had said, the operating team and the management team at the AFSW factory, that's basically unchanged. So, we've been working in close partnership with our new partners. And yes, so far, everything good, and we expect it to be like that in the future.

Fantastic. Thanks so much, certainly appreciate it and best of luck on the quarter.

Next, we'll go to Craig Ellis with B. Riley Securities.

A nice job on the quarter, guys. And congratulations on the things that you're doing to strengthen the balance sheet. Let me just ask a clarification question there. Cameron, there was the press release on the $23 million raise, there was an announcement with SAS. Are the SAS investments in the $23 million raise, are those separate items? So, is the balance sheet benefiting from $15 million from SAS plus the $23 million raise? Or was part of the SAS raise included in the $23 million?

It's 2 separate events, Craig. The timing of it was the first $5 million from SAS was in August. And what happened in the last week was we had the $23 million that came in. And then you have that $10 million, which is the second component of the SAS investment earlier on today, so that it's kind of five plus twenty three plus ten, to take us to a total of $38 million.

And I think the press release indicated that there was potential to upsize the $23 million raise. Any color on when that would need to happen or how the company is thinking about the potential for that to be realized?

I think at this point, Craig, we're delighted with the investment that we got. There is an option there. Obviously, with the cash influx that we've got, and we've got a good stable platform to grow the business and long-term financial stability. So, in terms of the follow-on, we're comfortable right now with our cash position, and we'll see how things transpire in the coming months.

Got it. Primit, I'll flip it over to you. So, one of the things that we're hearing from a lot of companies that are supplying to end markets that have some similarity to Transphorm, whether it's chargers or data center communication infrastructure, et cetera, is that demand visibility has really extended pretty meaningfully over the last couple of quarters. And so, with that as a backdrop, as you look at your engagement with your customers and partners, can you characterize the visibility that you have beyond the calendar fourth quarter into either the first quarter of '22 or to the extent that you've got visibility on projects or design wins and design-ins beyond that, just give us a sense of what you're seeing in your order book?

Yes. No. So we are definitely seeing that is a true statement. We're definitely seeing vectors and visibility that will allow us to continue the growth plan. Our goal remains to increase product revenue quarter-over-quarter. So, we do see demand visibility adapters and chargers as well as the higher power segments. Some of them are more longer than a couple of quarters. And as you can appreciate, coupled with that is the supply chain visibility also that we track closely, and we do expect that to remain a dynamic over the next, say, 2 to 3 quarters.

And then just looking at your Epi sales that occur under your agreement with the Navy. How should we think about the potential for those sales to persist as we look into calendar '22, are you expecting those to be steady? And I think there was potential for some customer expansion there, what's happening with end customer activity in that part of the business.

Yes. So that's been going steady, Craig. So the Navy, again, there are 2 things with the Navy contract. One is the direct Navy contract itself, which, I said, $3.5 million, which is actually slightly higher than target for calendar year 2021. That's the Navy contract revenue, which helps us with the expansion of our activities. And then there is a separate Epi sale, which is catalyzed by the Navy contract and that I referred to it doing kind of 2 key initiatives there, along with other kind of some other higher margin customers also that one major U.S. DoD customer, this is outside of the Navy contract, has completed the transfer of their RF epi wafer process to Transphorm. And then second, we still are targeting commercial wins from a commercial RF GaN transistor manufacturer.

Got it. And then lastly, you mentioned the Diodes announcement. What's the implication for revenues, either near-term or intermediate to long-term from that agreement? And should we be expecting other such relationships and announcements in the future?

Yes. So first of all, it helps support the adapter and charger growth, right? In this market, one needs to be -- have solutions on the market. And the two things that it gives first is it gives us a strong confidence on what we've been saying that why did they choose our part, right? Because it's easy to interface with standard silicon driver electronics that without what we call shrubbery external interfacing that some other topologies may require.

And second, the performance of our GaN, right? So as what we expect the growth from that is not only we have the solution in place, but companies like Diodes, they have their controller with an integrated driver on that also, right? So, they independently -- the solution space that the customers face, we expect to be bolstered by that because independent of Transphorm, it's their sales and marketing channels also are promoting that with powered by Transphorm inside.

Got it. That's helpful. I'll hop back in the queue.

We do expect to have more announcements like that, hopefully, next quarter.

Good. I'll hop back in the queue guys.

And next, we'll move to Richard Shannon at Craig-Hallum.

Maybe I'll ask a very simple question. We didn't hear about it in the prepared remarks, and that is how you're thinking about the December quarter here quantitatively. I know you're not going to have a big license deal, not like a big license like you did in September. But how do we think about the revenues you're excluding that, if you want to compare it to like June as an example, any way we can pick that growth in gross margins? Just kind of a starting point, that would be great, please.

Sure. Let me take a quick go at revenue for Richard. I think as we look at the December quarter, we feel pretty comfortable with the consensus number that's out there for December quarter, just over $4 million. And I think that there is a possibility for upside there as well, depending on the supply chain constraints. So I think from a revenue perspective, that's where we are. From a margin perspective, obviously, we're looking to continue to improve our margins. We saw a good quarter there. I think we revert back more aligned with the June quarter simply because of the mix. It reverts back to a little bit more product and government as opposed to license fee.

Okay. That's helpful. Thanks for that starting point there. Maybe a question on the fast-charging market Primit, you gave us some numbers here about number of designs and the production and also about kind of unit capability here. If you want to compare and contrast as what you hear out in the market or maybe kind of position where Transphorm is finding success in the charger market either by wattage or particular kinds of customers or other reactions you're hearing out there in the market relative to other competitors?

Yes. So two things there. We are growing penetration fast in this market. Again, this is a very large market, a number of other companies Power integration. They have done very well and helped actually seed some of this market, and it's growing fast. It's a good opportunity for everyone. It is a fast-growing opportunity for the 3 or 4 leading companies in this market. We are seeing for insertion across 65 watts is a prime segment for us, but now also in the higher power area like this 130 watts we sell from Diodes where we expect more traction. And a clear win kind of -- which is an indicator, maybe perhaps leading indicators, so to speak, is the fact that our GaN is being chosen by the solution supervisor, right? Because, again, of course, the testament of the fact that our GaN architecture is easy to use interface with external electronics and the fundamental performance itself.

Okay. Great. That's helpful perspective Primit. I want to follow up on the topic in automotive here that someone else started earlier here. I guess the context that I've been thinking about, and I'd love to hear your thoughts on this Primit is we've had a few companies who have exposure to silicon carbide are talking about huge opportunities, massive pipelines are measuring the way into the billions of dollars. And talking about the opportunities in onboard chargers and DC to DC conversion and probably more so powertrain inverters. How -- it just looks like silicon carbide is dominating that market that we hear you talk about, and certainly, it seems probable that GaN is going to have a real place here. Can you kind of give us some help here in kind of offsetting or providing perspective against all those other extremely positive comments at silicon carbide as to how GaN and how Transphorm will have a real place there.

Yes. So there's no doubt, silicon carbide, and there are multiple good companies, right, not just 2. That's another catalyst important for the market, multiple companies with good qualified products out there, which is why we have put together partners like Marelli and Nexperia, where we have licensed our -- part of our technology as well. So that's the first thing. As we have this proof points like automotive qualified products, we will continue to get momentum there. Silicon carbide has been around much longer, right? And that's what the results they are seeing today. But the reason, again, companies like Marelli, have invested in Transphorm companies like Nexperia is because of the fundamental superiority of GaN, right? So it won't be an overnight change. But the good thing about Transphorm is we are growing fast in adapters and chargers in 1-5 kilowatt segment, the data center, the gaming, which is our switch point -- switch port where we've been there for a couple of years now and really know that area well with our parts. And then industrial and then EV exactly kind of in the order that we have laid out.

But we have no doubt that GaN, with its proven performance over the next few years. It does take time in the automotive, but you can see what happened to silicon carbide, right? Suddenly, it exploded. And we see certainly GaN taking market share first, in DC/DC that the 2023 adapted to. And then inverters and drivetrain that the drivetrain inverters that's the opportunity we look forward to after 2025 and onwards.

Okay. Great. Last quick question for me on your potential NASDAQ uplisting here. What kind of timeframe should we expect? And what if any obstacles are out of your control and getting that done?

Sure. It's Cameron, Richard, let me jump in. We -- I mentioned in our prepared remarks, it remains an ambition, it's an active ongoing near-term target. And we've done a deep dive into where we're positioned. And I think that the key development for the quarter now, obviously, is the strong raise. And it positions us very well. We believe we're well positioned to uplist. It's hard to give a specific timeline but we certainly want to get it done sooner rather than later.

Okay. That is all for me. Congratulations on nice results and also the capital raise, guys. Thank you.

We'll move next to Orin Hirschman at AIGH Investment Partners

Congratulations on the progress. In terms of -- in terms of product revenues, I don't know if you traditionally break it out, I don't remember if you break it -- if you ex out the licenses to give us a combined product and government? Any metrics you can give us there?

No, we haven't traditionally expected a great detail, as you say, our -- I think the licensing is very discrete in terms of one-off individual amounts and that this quarter, for example, is $8 million. And you can see the difference of product and government make up the balance of that. And what you -- what we typically see is government, as Primit mentioned, is around $3.5 million in the year, and it is relatively stable at that level. So, from there, you can see the growth in product that we've experienced over the last 7 quarters and the growth we hope to achieve in the subsequent quarters.

Okay. That's very helpful. In terms of the charging market, there are some early players that almost, I would say, certainly, in my opinion at least had a lead over you. But these are the fast chargers at lower wattages. Can you reiterate again, you're seeing success there? It sounds like as you go up on the wattage, that's where you really signed through because of your inherent advantages. What power levels does that really become evident? And where the power level is going right now? And then I have one other follow-up.

Sure. So, on the -- when we talked about the power levels, right, Orin. So, we talked about the lower power versus the entire adapter range and the higher power, which is our data centers, gaming and those areas, renewables where Transphorm has a clear leadership.

Now coming to the adapter itself, you're right, we actually entered the market first at the higher power range because our products could do high power though. Then we -- second, we entered in all earnest in the adapters, and we are through our ecosystem of partners, we are accelerating growth there. So, within the adapters, we see 65 watts is a sweet point for us. And then going forward, the 130, 140, 150-watt segment, we are also very excited about that. But our solutions in adapters actually are from -- like we got a new design win at 35 watts, right? So, spanning from 35 watts to 50 watts. And the reason we are winning, and other companies are also doing very well. Some of them have been in the market, candidly before us. The reasons we are winning is the ease of use of our parts related to interface. It has the performance of GaN, but the look and feel of silicon. That's how our parts are architectured. And then the efficiency, the fundamental efficiency performance advantage, which is also due to a key dynamic of GaN. So those are the 2 reasons that we are seeing traction. And again, as exemplified by more and more solution partners working with us in this area.

Great. On the standard, I believe it's European standard going into effect next year. I forget the name of it maybe titanium, gold or something like that for the data center, more of that you're qualified. Is that helping you design, win designs? And is anybody else qualified yet on the GaN side?

Yes. So, the titanium itself is actually a PSMA power supply manufacturing association, a standard of certain weighted power efficiencies across the range. So, it started with silver first and gold and platinum and now titanium. The European standards, which is coming into play for -- from January 2023, are applying to a certain class of data center power supplies, which will require titanium. So we expect that from the second half of 2022, we do expect to see a strong impact of that as the supply chain gets ready for that couple of quarters before that Jan 2023 for newer installations.

And then titanium, what gallium nitride in general does is -- it makes titanium easy to -- with a simple architecture. Otherwise, it is tricky to achieve that highest level of performance because, like we have said before silicon, has reached its physical limit. So GaN makes it easier to reach titanium. We were the first to show titanium, others will follow. I'm sure if they get good GaN some other companies like are talking about getting to titanium levels of efficiency, but we've been there for now several years. And one of the key things enabling that for us is this -- which is unique to GaN with this totem-pole -- so called totem-pole architecture, which is a typical architecture used in GaN in those classes of power supplies and Transphorm also has a very strong intellectual property position in that area. No matter how the gallium nitride is made but to use the gallium nitride .in those applications. So that will also become an interesting play as the market expands in the future.

And we'll go next to Nate Nahirny at ThinkEquity.

Yes. Congratulations on the quarter, guys. I guess my question can be looked at kind of from a macro standpoint and also maybe Transphorm strategy or outlook going forward. Has there been more adoption or recognition for GaN to be used more in logic chips and data processors? Or is the current use still primarily in power?

The GaN that Transphorm is focused on with the power conversion devices. So that is in power switching, right? So, in power, there is power management, with broadly speaking, at the controllers and drivers of digital and analog control. And then power management, which is the power switch, which is the heart of our power conversion systems, right? So, we are in that power switch domain with our GaN with our -- what we call our second vertical, which is GaN epiwafers, as we talked about. Those are addressed towards RF gallium nitride, which is more in the infrastructure of wireless base station, communication and different slew of applications.

And that does conclude the question-and-answer session. I will turn the conference back over to management for closing remarks.

Thank you, operator. Before closing on today's call, I'd like to highlight that we plan to participate several common investor conferences. We will host meetings next week at both the Craig-Hallum Alpha Select and the benchmark technology conferences. And we will also be at the Oppenheimer 5G Summit in mid-December. But those interested in meeting with us at one of these virtual conferences or another upcoming event, we encourage you to contact the hosting firm or reach out to the Shelton Group in order to schedule a meeting.

I want to thank you again for joining us on today's call. Operator, you may now disconnect the call.

Thank you. And again, that does conclude today's conference. You may now disconnect.