Transphorm, Inc. (NASDAQ:TGAN) Q3 2022 Earnings Conference Call February 9, 2022 5:00 PM ET
Mario Rivas - CEO & Director
Primit Parikh - Co-Founder & COO
Cameron McAulay - CFO
Conference Call Participants
David Williams - The Benchmark Company
Ananda Baruah - Loop Capital Markets
Richard Shannon - Craig-Hallum
Orin Hirschman - AIGH Investment Partners
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
0:06 Good afternoon. My name is Savannah (ph), and I will be your conference operator. I would like to welcome everyone to today's Transphorm’s Business Update Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded.
0:35 Joining today's call from Transphorm our 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 call, 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.
1:07 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 the 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.
1:35 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, February 9, 2022, neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements.
2:03 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.
2:24 With that, I will now turn the call over to Transphorm's CEO, Mario Rivas for opening remarks. Mario, please go ahead.
2:33 Thank you, Savannah, and welcome to everyone on today's call. And thank you for joining us. Product revenue increased sequentially for the eighth consecutive quarter and grew 220% year-over-year to a quarterly record of $3.6 million. We shipped over $1 million SuperGan Gen IV sets for 45 watt to 300 watt power adapter and fast charger applications in December of 2021.
3:03 We increase the total the signings for power adapters and fast chargers to over 50, with over 20 of them in production and the total design-ins for higher power, which is 300 Watts and 4 kilowatts, increased to over 30 – with 20 of them in production. We closed the 12.9 million number non-brokered private placement of common stock at $7.71 a share in December, bringing the total amount of equity financings close during the quarter to more than $45 million. Cash and equivalents as of December 31, 2021, was $41 million.
3:44 With that allow me pass the call to Primit to work through the developments in more detail over the past few months.
3:52 Thank you, Mario and good afternoon everyone. As you just heard Transphorm continued our record Product Revenue traction for yet another quarter, achieving key milestones as we had talked, demonstrating capability to deliver over a million adopter parts in a month and stand on our balance sheet with strong investor support. Like before, I will start with a quick recap of GaN overall value proposition, TGAN leadership position and clarifying our views on market positioning of various types of GaN including clarifying some misinformation floating out there in the market and then moved to reviewing our team's strong execution on various fronts in December quarter that sets us up now for an exciting 2022.
4:36 What is gallium nitride, it is a part of the wide bandgap semiconductor material family, that is becoming the new present and future of power conversion because it reduces energy, eliminates electrical waste, enables compact power conversion and lowers power system cost across a variety of electrical energy conversion applications and does this much better than silicon and also better than other new materials semiconductors like silicon carbide. Transphorm TGAN is an established innovator and leading manufacturer, supplier of GaN power semiconductors, or the widest range of applications from lower power to higher power, from adapters and fast chargers to higher power data center, mining, crypto-mining, communications, broad industrial renewables, and in design-ins for automotive electric vehicle applications.
5:32 Our strong technology and world leading intellectual property more than 1000 patents and our products have been validated by our blue chip investors, customers, partners, including financial, IC design solution partners, manufacturing and automotive industry leaders. Our talented team as relied on our core and complete GaN manufacturing capability, allowing control and innovation with our asset like vertically integrated models. That is e-led our comprehensive product portfolio with 30 billion – more than 30 billion hours of field operation, having delivered $21.5 million revenue in the calendar year 2021.
6:11 Transphorm is in a very unique position of strength to have products in the market today that addresses a tremendous multibillion market opportunity or GaN TAM as we call it, for power conversion from lower power to higher power. And there are markets that we are already ramped in today. For example the power adapters and chargers, higher power server crypto data come power, and now ramping in industry energy and renewables markets, which are also moving for us now from the midterm to the more closer near-term energy and mid-to-long term the largest growth opportunity remains in automotive electric vehicles.
6:52 This GaN TAM as you can see on the right in the multibillion dollar range over the next few years, and a further inflection point through the EV powertrain segment, middle of the decade, and we believe reaching $10 billion GaN TAM opportunity by end of the decade. Across this gamut of applications, Transphorm GaN solutions deliver high efficiency compact systems with easy to use products for the customer with proven performance benefits against silicon carbide, silicon and other GaN solutions. What is necessary and we aspire to do every day is deliver a combined spectrum of benefits to all power conversion customers, by taking the inherent benefits of gallium nitride over silicon, silicon carbide to the next level.
7:43 Our core Gan FET architecture delivers performance with high efficiency over a wide range of power levels with leadership in product qualification and reliability. Field reliability now rivals that of standard silicon. Our asset light vertically integrated model allows for in house GaN supply with control, innovation and ability to scale. While others are now talking, which is a good thing about getting into higher power with GaN, we have been there for a while now and have sent benchmarks for titanium class GaN power supplies more than three years ago. And in process also built up core intellectual property and we are not stopping at 650 volts, or 900 volts where transform has the only GaN product in the market but are now pursuing advanced R&D with 1200 volts, which we think is well in the realm of GaN not just Silicon carbide domain anymore.
8:38 The TGAN FET is directly compatible with leading silicon controllers and their inbuilt integrated drivers. No extra components or shrubbery required to interface our GaN with the outside world. And this is manifested in our growing ecosystem of solutions partners as we will review.
8:57 And finally, our strong IP portfolio that is needed to 5 to 10 times bigger than some competition in GaN, covers not only how GaN is made, but also how it is used in many ubiquitous power application architectures, for example, like the bridge topology.
9:14 As a result, TGAN has enabled our customers with products that range from adapters to automotive from lower power to higher power, from 30 Watts to 30 kilowatts. For example, realizable by our Gen510 kilowatt class solution in a multi-phased application. Every major category of power conversion can be targeted now, including automotive converters and chargers, and in the future electric vehicle powertrain inverters as well.
9:46 Shifting gears to some of the verticals now from lower power to higher power and then why we will, as the GaN adoption is happening fast now, many good companies are in the market, the market needs multiple companies to grow at a fast rate and to support the customers, especially at lower power this is happening with transformer having the distinction of being in market both at lower power and higher power, allowing the customers to do more with less and a simpler architecture and bill of materials with our GaN solutions.
10:17 One of the things we try in our list is not to confuse the market and to do our best as to how GaN, any GaN can help the customer win. Indeed there are some misinformation or myths as we call it that sometimes gets spread down and confused about gallium nitride. So, first of all, no matter what you call your GaN, normally of operation is what the customer and the application has always demanded in power that has been a constant. There are many good ways of doing it, which is up to the individual companies. For example, term terminologies like E-mode approach or D-mode approach or whatever the mode is, at the end of the day, one needs to deliver the best performing and the most reliable normally off GaN that is what matters.
11:03 Performance is delivered by superior underlying GaN technology and coupled with solutions working with the customer, there is no universal one size fits all quite yet. For example, here we show on the right, a transform GaN solution TGAN set of performing E-mode GaN, in this case happens to be an IC variant in the same third party customer testing, only as an example.
11:30 Then there are all kinds of claims about megahertz switching and fast frequency so on so forth. The fact is that years ago, we've taken our normally of GaN to 1 megahertz 1000 kilohertz 99% efficient operation and that to a higher power, 1 kilowatt, which is more challenging.
This is high frequency operation is a system design trade-off, heat losses, transformer losses, everything has to be keeping in mind. So, we work closely with our customers. Of course, as far as the power switch is concerned, the fundamental GaN that is due to the inherent nature of GaN, it is not due to any particular IC or other topology. Good GaN will switch fast.
12:13 And finally, a lot of talk about integration and drivers and it is very important. But one often ignored fact is that modern day controllers, many modern day adapters and charge controllers especially at lower power, have integrated drivers basically for free. As it turns out in our architecture, we integrate a small silicon FET with our GaN, there is no extra driver needed at all in this cases, especially at lower power. So integration is about where, what, how you integrate to give the best advantage to your customer.
12:47 In the table below, we list out some of our differentiate band benefits that we apply both to adapters and chargers for mobile and laptops, 45 Watts to 200 Watts plus, which is a key market trend in the last couple of years the shift for adapters and chargers to can very exciting for the GaN world. There are multiple good offerings from various companies at the lower power end, which is growing, and transform is also moving fast in this area as evidence – evidenced by the million units shipped in December.
13:16 As you see here, silicon obviously has been working great in the past, but now for short in efficiency, speed and small size required for new products. GaN launches from here. Transformed GaN excels in ease of use and flexibility, compatibility with standard drivers, no extra bond components or shrubbery needed to interface our GaN to the external world, which means cost effective easy to use, the intrinsic GaN performance which is our basic GaN material and device is fully exploited to achieve highest efficiency or lowest losses among many other GaN adapters. And the ability to go to higher power levels and reliably. So, where the TGAN implementation, the so called TGAN in the e-mode rendition of the normally off presents a weaker input interface and a weaker device.
14:14 Another important reminder is power conversion application again spanned from low-to-mid-to-high and then also very high power levels. Today out of the GaN offerings and this is what to our best of the knowledge of release products in the market by customers. Our customer systems not just talk for the future. Transforms GaN spans from 30 Watts to 10 kilowatts and in a three phase it can be even higher as we have demonstrated with our Gen5 products.
Many competing offerings will buy for higher power in the future, but today they are limited to lower power. So why does TGAN linked. First of all, our success in higher power comes from the underlying stability of the TGAN FET architecture that allows it to be offered industry standard, thermally robust packages like the TOs to TO247 which today's e-mode gallium nitride finds it difficult to do because of inherent device weakness,
15:11 Better materials capability for GaN devices which is better and higher power from a smaller or lower current diet versus that of competing and solutions and proven reliability with high yield manufacturing of large area GaN power chips. And now with these attributes, what these attributes have enabled us to do is build a strong ecosystem of solution partners, notably manufacturers of controllers and integrated drivers. This includes market companies like Diodes, innovative controller companies like Silanna and a few others who were – who we have not publicly announced yet.
15:50 In just the last few months, our partners and transform together have rolled out four more charger designs and solutions, three of them at the higher power range in this low power adapter and charger market at 100 to 250 Watts and 145 Watt implementation. There are other solutions now cover this fast charger space from 45 Watts to 250 watts. TGAN architecture that is high performing and very easy to design in with our solution in the ecosystem has allowed us to now increased the design in to more than 50 with over 20 of them in production. We show a sample of this year including the recent designments that include as we highlight here 100 Watts, 150 Watts and 250 Watt adapters and chargers for laptops and other applications.
16:52 The higher power space as I've said is extremely important, higher the power, higher the energy saving, higher the impact of GaN and on a holistic level, the impact of electricity usage and carbon footprint. So, here are some of our Gen4 and Gen5 offerings now are compared to leading silicon carbide products in this space, because other gallium nitride the e-mode type of gallium nitride is not quite ready today at least for higher power, especially in thermally robust packages like the TO-247.
17:21 as an example, shown here, our highest power 15 million product by the way to the best we can tell this is the lowest around for a qualified ramped 650 volts gallium nitride in a discreet TO-247 package, it outperforms silicon carbide, whether it be the MOSFET or the JFET, both very good products by strong companies in a standard package in a standard bridge circuit 25 to 38% lower losses and ability to deliver 10 kilowatt power levels from a single part in average configuration.
17:55 Again, why does gallium nitride and transformed when the cost, number one gallium nitride offers lowest losses and highest performance of leading power semiconductor materials does extending the Moore's law as we told it of power conversion, enabling performance up to power density in this case to continuously increase buy time, with time.
18:17 Gallium nitride on silicon which is a transformed platform in the market, our products are made on GaN on silicon today, utilizes lower cost silicon substrates and after the game FPV for a step that we have full ownership of, we are not limited to just an external foundry for example, our solutions and any GaN on silicon for that matter, will leverage a full silicon wafer fab manufacturing, something again to transform has joint ownership of control of in our Japan for joint venture and then the proven reliability automotive qualification robustness in the field.
18:55 So customers have selected our Higher Power offerings across the spectrum. Whether it is crypto-mining, which is extreme power hungry application, where our titanium plus efficient telemetric solutions have enabled a 1% efficiency increase. And by the way, one system at that 1% can save a few 100 kilowatt per hour and 200 pounds of carbon footprint equality. What we expect is more than 50,000 metric tons of savings can be possible from what we estimate our 2022 outlets just in the crypto and the gaming segments combined together.
19:36 Top right in the solar power space, we have along with our customers enable titanium rated power supplies for well over three to four years now. Other GaN suppliers are now trying to follow suit in this domain which is great. Efficiency compactness of GaN, there is an enable leading gaining suppliers to adopt again solutions increasing power by 6% to 7% while at the same time decreasing system size by more than 10%. And being able to do so, pricing the final power supply the same price as the older generation silicon solutions.
20:08 And then there is a variety of industrial, energy, military, Hywel and E-mobility solutions from 500 Watts to 4 kilowatts were transformed is winning. We aim to grow this high power segments and maintain our leadership position here. Electric vehicles are a key focus area for GaN and transform. As we know silicon carbide has done very well in the segment. And GaN with this core capability, the fundamental capability I just showed is poised to enable long-term benefits to the EV marketplace.
20:46 Essentially GaN helps address the barriers of slower charging and range anxiety that stemmed from power losses in the heat constraints due to the heavy bulky converter and inverters with inefficient silicon based electronics. Transphorm has automotive qualified AEC qualified products today, the Gen4 high power already ramped in the market in various commercial obligations. Not only that, but we are targeting to stay ahead in this game by enabling in future 1200 volt gallium nitride and taking on silicon carbide there.
21:20 We will announce R&D results in this area in future. All in all, we look forward to gallium nitride improving the electric vehicle range by 10% to 20% in future or even more depending on the efficiency enabled and with higher power in a small form factor, enabling faster charging. The acceleration of the EV opportunity and aggressive adoption scenarios worldwide, makes the longer term scenario for GaN hybrid attractive.
21:49 The specific GaN opportunities in EV today are in the areas of OBCs onboard charger, DC-DC converters off grid DC to AC auxiliary inverters. And over the next several years, we will have unlocking the drivetrain inverter opportunity, something we are very closely working with our strategic partners that will triple the accessible GaN content for automotive. We aim to be in the market with the 50 volts products today and higher voltage solution in future for all the key slots.
22:24 Next, we move into our December quarter performance and key vectors driving our growth. First and foremost, we are happy to say that we delivered on what we had said achieving 152% revenue level from the first half of the year to the second half of the calendar year, with key highlights of maintaining dominance in the GaN high-power segment and gaining footprint in the adopter market including the important milestone of 1 million shipments in December.
22:58 Second as evident we have delivered multiple quarters of product revenue growth now launching on top of over licensing – on top of our licensing and government revenue business. The key business focus now is on expansion and scaling revenue product revenue. We outline here several key metrics that we achieved during the last quarter and put them in perspective as to future growth.
22:58 First, product revenue in the quarter was 3.6 million, our eight successful record quarter in this department with $1.1 million of government revenue making up the rest. TGAN continues to grow each share in the adopter and fast chargers areas. Now with over 50 design-ins out of which over 20 plus are in production. We look forward to growing especially in the 100 Watt plus segments, you can call it the higher range of the lower power adapter area and we are really pleased to have new solutions and reference designs not only by transform, but also our valued partners who liked the thing and solution over say that e-mode type of solutions because of our ease of interfacing and no external drivers needed desirability and drivability.
24:10 We are pleased to lead in the GaN for the higher power broadly speaking 300 watt to 4 kilowatt is in production today. And many of these applications in the one to four kilowatt range, where we increase the design install now over 30, out of which more than half are in production, we aim to grow and further get into areas like energy PV power e-mobility, where we are opening up new design – new design-ins.
24:38 We have we have 17 products in our portfolio, low power to high power 650 volts and the only 900 volt product in the market. In surface mount packages and CEO type of packages, three of these are automotive qualified parts already and we will continue in future to expand this product offering to meet our customer and market needs.
25:03 Very importantly, now a significant emphasis and positive challenges will be a shift in focus on capacity, expansion and managing production growth in what is still a challenging worldwide supply chain environment. expected to be there for next couple of quarters. We made a very important proof point in our adopter product capacity with the 1 million parts in December, and now have expansion efforts underway for wafer capacity, both internal and external.
25:32 Three key takeaways basically, you have the record quarter product revenue growth were transformed in our partner solutions, penetrating the market focusing on supply chain execution and planning for capacity initiatives.
25:50 To that end, we have started moving on the previously announced GlobalWafers partnership that we talked about last time. GlobalWafers is also an investor in transform for epi wafer expansion to support significant expected 2023 demand. Our wafer fab joint venture with our financial strategic partner remains on track and looking ahead for various initiatives. They're also to be ready for higher ramps in the future.
26:17 We are working through our industrial and automotive partnerships that remain solid. In the area of thermal drives and robotics. Discover is a key partner for transform. We had a milestone deliverable delayed that has shifted some of the cash payment receivables by a quarter or so. But overall no major program change. With Nexperia, who is our licensee and semiconductor partner, and especially they look to expand GaN in the automotive and EV area. Our next milestone here area is our next milestone here is our Gen5 AEC automotive qualification. Our Gen5 already having achieved commercial qualification and introducing the market the AC automotive qualification we expect by media – middle of the year.
27:01 Marelli is now moving to targeted product development phase with our Gen4 and Gen5 products for onboard charger in DC-DC converter. And also the transform product today supports up to 50 kilowatts of prototype inverter, the driver and inverter that can be achieved by parallel in our Higher Power Gen5 devices.
27:21 We continue design-ins with other Japan based or EV for 2023, 2024 Q - Daniel Chan-DC and OBC opportunities. Debt remains on-track The government revenue and the epi business remains steady as well. On the epi side, this is RF epi way first. We increase our traction with DoD customers we continue to support them. And we are also engaged with a couple of commercial designs are still we are awaiting the progress feedback there. With the cycles of learning at our customers. The Navy program is running exactly to plan. And like I mentioned, we also have innovative 1200 of course R&D, which is in part supported by an R&D grant and contract from ARPA E department of energy.
28:09 With that, a quick recap of our major announcement in the last quarter and in January with starting with Yaskawa convertible to equity. The Gen4 automotive qualification, continued partnership with Diode zinc, highlighting the superior performance and ease of use of our gallium nitride financial investments, over 45 million that have strengthened our balance sheet success in the game adapter area and of course, today our products revenue record Product Revenue quarter.
28:42 All in all, we are very excited to be in the midst of an all-round GaN adoption growth phase with transform and our worthy fellow GaN companies in the market. TGAN focus remains in expanding our leadership in the high power GaN, growing our footprints in the adopters and fast chargers and capacity expansion, keeping up first with the demand and then next year staying well ahead of the demand curve.
29:06 With that, I'd like to turn over to Cameron for our financial results.
29:11 Thank you, Primit and hello to everyone joining us today. Let me start with some financial highlights. For my remarks. I will refer both to GAAP and Non-GAAP results which are reconciled to GAAP and our press release table. Non-GAAP results exclude stock-based compensation, depreciation Amortization and adjustments to the fair value of our convertible note starting with the income statement, Q3 FY22. So a continuation of our growth story. Total GAAP and non-GAAP revenue comprising product and government was $4.6 million in the quarter compared to $3.3 million product and government revenue from the prior quarter and $2 million for the equivalent quarter 2020.
29:50 This quarterly year over year increase was driven by record product sales from ramping shipments, including over 1 million units shipped in the month of December. This growth is supplemented by continued execution on our three-year government contract. Focusing more on product sales, the three months to September, so our eight successive product, quarter of product revenue growth and record product revenue of $3.6 million. But comparing this quarter to the same quarter last year, product revenue grew by over 200%. This growth is being driven across a broad range of product conversion applications, including fast chargers and adapters gaming data center, crypto main.
30:29 Cost of goods sold for $3.9 million in the quarter an increase of 102% year on year below the revenue increase of 129%. Over the same period. This cogs increase is largely driven by strong volume growth across several market segments. We have also increased our manufacturing personnel and are as primitive mentioned investing in incremental capital equipment to support product rule.
30:51 Operating expenses on a Non-GAAP basis are $4.4 million in the coming quarter, compared to $4.5 million in the prior quarter. When comparing non GAAP OPEX to the same quarter in the prior year, we saw a 20% increase. This growth has been primarily driven by an expansion in our sales and applications team to support increased revenue together with one-off compliance costs tied to a year of change.
31:16 Coming to EPS. I will focus my remarks here on non-GAAP results. The revenue growth ROA to continued OPEX management resulted in Non-GAAP EPS loss of $0.09 in a quarter to $0.4 improvement on the equivalent quarter in the prior financial year.
31:31 Coming to the balance sheet, across all aspects of the balance sheet December quarter saw significant improvement. Initially assets the company had total assets of $55 million as at 31st of December more than three times the equivalent number in the prior quarter this was driven by strong raise activity, adding an excess of $45 million before fees to a balance sheet and resulting in a cash balance of $41 million at the end of the quarter.
31:59 This race included strategic partners such as SCS GlobalWafer, together with strong institutional investment from [Indiscernible] amongst others. Operational bonded increase in the quarter primarily due to timing of the seats and funding tied to a development agreement with your school, funding we anticipate to see in the near future. Inventory also increased to support an improved traction and we'll enable continued revenue growth. The company also significantly reduced its liabilities to $18.6 million as of December 31. This is just over 50% of the $34 million liabilities that the company had that got in September. The key driver here was a successful conversion $15.6 million. Note that the company held with a long-term customer partner and no shareholder.
32:36 This combination of funding activity, loan conversion and our ongoing focus on cost and working capital management have significantly strengthened their balance sheet and improved our stockholders equity position by over $55 million in the quarter. It is through these developments. We believe the company is very well-positioned to meet the qualification requirements for up listing or common stock to NASDAQ. This is an ambition that we will continue to pursue now working internally to realize this.
33:15 Coming to the next slide and transitioning from our financial performance, I wanted to touch on position. The company is very well positioned to draw across multiple segments, including consumer, data centers, crypto mining, industrial Epi, and in the long term or the EV market. We are right now at the stage where we are seeing strong adoption and as illustrated in our presentation today, strong revenue growth.
33:39 Revenue traction in just to be several segments, including consumer data centers, crypto and industrial applications. A key proof of this traction being the shipment over 1 million units in the month of December. Looking ahead, a strong balance sheet will allow us to continue to invest in a growth engine across all aspects of the company with a strong foundation of police are focused on the execution, ensuring that we can support the growing demand and what we believe will be a broad market inflection point in the medium term. In addition to our existing revenue streams, we do expect to see initial revenue in the automotive segment in this timeframe. From the other company will drive towards a long-term target model enabled by continued momentum across multiple segments now, including automotive.
34:24 Turning now to the next slide, well, I'd like to reiterate our long-term operating model. We are in the process of building a high growth, cash generative business. The company has multiple revenue streams, including government products across several segments and our AP vertical. In the current year, we've continued to generate solid revenue from both licensing and government contracts, and this is being supplemented by significant growth in product revenue.
34:50 As mentioned earlier, product revenue has grown 8 quarters in succession and has become a much greater proportion of our overall revenue in the year growing from 17% to 50%. This growth has been driven across a broad range of power conversion applications including fast chargers, adapters, gaming, data centers, crypto-mining, we achieved annual product revenue growth 200% last fiscal year and are targeting a continuation of this trajectory moving forward.
35:19 From 2023 onwards, as we continue to ramp up production revenue across our target segments product will form over 90% already. As of the current year, this growth coming from multiple segments and not simply consumer. Automotive revenue will further contribute to this multi segment growth in 2023. It's consistent, rapid acceleration and our product revenue allows TGAN to target a five-year annual CAGR in excess of 50%.
35:45 From a margin perspective, or strong product portfolio now including Gen4 and Gen5 parts together with our manufacturing excellence will translate our sales into gross margin in the 40% range. The company will continue as it is currently doing investor support all aspects of our core operations. This stable existing structure, allowing us to translate gross margins into developing an operating margin that we believe will be in excess of 20%.
36:13 Including now with a few key highlights. Transform is a pioneer, a leading provider of GaN Power conversion devices. You have disruptive technology that provides solutions across a number of significant growing markets. We have established a strong network of blue chip partners including KKR, Marelli, ACS GlobalWafer, Yaskawa and others. Were commercially ramping with strong production revenue growth now growing for eight successive quarters and have a comprehensive product offering today, that meets our customers’ needs across a wide range of power levels and segments, a wide range all our level understands, by all of which is underpinned by strong balance sheet, the industry strongest IP portfolio, and a very deep competency.
This concludes our prepared materials and remarks. We'd now like to open the call to any questions operator, please proceed with managing the Q&A portion of the call.
37:04 Thank you. And as a reminder, I would like to let you know that [Operator Instructions] And we will take our first question from David William. Please go ahead.
Q - David Williams
37:29 Hi. Thanks so much for the question. And congrats on the continued execution here. Just maybe a little sorry. yeah, a little bit of color. So you shipped the $1 million in December and if we kind of think about that, that cadence going forward, is this kind of a level set that we should think about expanding on as we go through? Maybe for a monthly basis, this flow? Maybe can we draw a straight line, maybe a million this quarter and then continuing? Or what do you think there'll be some set down or maybe just any, any color around that that trajectory would be helpful?
38:04 Thank you. Yes, the $1 million, like we said was a key benchmark is a reminder of the capacity efforts that we have put in a large, one of the large orders, there is some seasonality definitely in the adapter business. So it's not quite exactly $1 million and we also focus on our mix of higher power to lower power, that all various segments, so it's not exactly a month to month, and usually the December, numbers are in this adaptors were good for us. But the core – the fundamental point there is now we have established capacity, including multiple sources of packaging that allows us to do more than that when required in future, but it won't be exactly two things like that million in that terms, we have various mix of products, packaged products, type products, higher power products. So it really depends on the customer. Makes sense in any given quarter.
39:03 Okay, very fair. Thank you. And the only way to kind of think about maybe the mix that you did ship this quarter just kind of thinking about its wide power range, a lot of units. How did that make shake out? Is there a way maybe to quantify the magnitude of lower maybe the 45 versus maybe the upper end of that 300 blocks?
39:23 In the in the adapter space itself, it was more focused on 65 Watts was the was the highest earner there. And in the adapter space and as you look at the complete different lower power adapters versus higher power, we had a good of course units why that is very different. Because for kilowatt to TO-247 is a different partner 65 Watt adapter PQFN. But in that adapter space, it was definitely the 65 Watts, which was the front run.
39:52 Okay, fantastic. And you before have kind of talked about the differential in your packaging and what it allows you to do in the space in the higher power. Can you let me step us through that again and maybe just so we all have a better understanding of the importance of the packaging and why that matters?
40:12 Sure. So the key to high power right and this is physics that nobody can change is that heat needs to be taken out right from the day which is GaN or whatever semiconductor may be to the package through the heatsink to the outside world that is just basic physics that cannot be violated. So, traditionally, the higher power folks have liked thermally robust packages which nicely interface to a heatsink her have a good thermal resistance – contribute to good thermal resistance performance like the TO packages – TO-247 in particular, which has been an industry for runners. Silicon carbide uses it extensively again uses it, but what happens in those TO packages is that there is input voltage swings that happen in the application. And it happens in any application but especially in the TO packages combined with GaN are the higher power packages and our transforms GaN solution with the integrated approach of the silicone fed and again together bringing out the best of both worlds is really immune to such input voltage fluctuations whereas the other approach of achieving normally off which is this emo approach, the input of the device in that is weaker and more susceptible to those signals. So what they have to do is put it in different packages and which means for the same power you may need to parallel two packages where we could have done it, or we do it with one package for example. So it's the crux of the matter is, is the fundamental weakness of the e-mode [Indiscernible] gate, that manifests itself in this fashion and there will be a and in future things will improve, but that is the crux of the matter, which is which we have exploited gallium nitride, silicon carbide also for that matter is widely offered in TO247 gallium nitride being our gallium nitride.
42:07 Okay, fantastic, certainly appreciate color, they're very helpful. And then one last thing if I can, maybe for Cameron, if you kind of think about the opportunities ahead of you and the limited resources, how do you think about your investments going forward, maybe over the next 6 to 12 months? And where do you see the greatest need for investment? And I guess I do get to a point maybe a tipping point, where you begin to maybe need to focus more on the higher quality or the higher value products versus the higher volume or do you think you have enough capacity and resources to run those kind of simultaneously, just kind of given that the strength of these islands that you've had over the last several quarters?
42:44 We certainly have David, a very good solid balance sheet. And that gives us the opportunity to invest both in CapEx has been mentioned to bring up the capacity that's enabled to enable higher volume. And we're also investing in personnel. There's, across different aspects of the company, whether that's it was an applications we have invested in, in developing our manufacturing team and growing that and, we'll continue to do that, David, I think that the great thing about the company is that the strong base that we've established and the strength that we've got across a number of different parts of the company, and it's building on it, rather than them really investing in one area more than the other. It's a gradual growth.
43:28 Great, thanks so much, and best of luck on the quarter. But congrats on the solid quarter.
43:33 Thank you.
43:37 And our next question will come from Ananda Baruah with Loop Capital. Please go ahead.
43:43 Yeah, good afternoon, guys. Thanks for taking the questions. And yeah, congrats on the strong revenue performance. Really nice to see. A couple for me if I could, on fast charge – on the fast charging and adapter revenue that you guys are driving. Could you describe to us the market share game, dynamics, Primit, I think you talked in your prepared remarks that these of interfacing and the need for no external driver, plays a role in your design in, is that one of the main drivers of the share gain is really happening at the design-in level. Is there anything in addition to that just context around the share gain dynamic would be great. And then I have a quick follow up.
44:31 Yeah, there's two key level one is the one is that right? So our parts we've been saying for a while our parts are easier to design in because they seamlessly interface with outside world can use. We don't need external drivers, we are already using integrated drivers that come with the controllers. So what is this like to write now this has led to more solutions partners in solutions with transformed scan, external solution partner companies like Diodes and Silanna, as well as our solutions and others like that we have not announced that this ecosystem has so basically helped amplification of our resources, our market footprint to create this penetration.
45:12 And second, actually, our performance of the GaN itself, our fundamental GaN device, to the best of our knowledge, inherent GaN devices still higher performance because of superior switching characteristics that our basic device design, our materials capability – materials capability and device design enables. So both those reason ease of use and higher performance.
45:35 Performance makes a lot of sense to, yeah, that's helpful. Thanks. And another one to that end, or you guys are the sole source agreement that when you want to design in entirely sold source on transform GaN?
45:49 They come in various mixes and flavors. So typically, what we find is the larger companies may require multiple sources, at least on paper, some do use in this area, multiple sources, some basically, effectively, it may end up becoming sole source, whether with somebody else's GaN frankly or our GaN. But yeah, it is important to have, at least on paper, multiple sources agreement that said some of the folks who go especially when we go in with a strong partner solution, right, complete solution. We have got some beans that are sole source, while others, especially the larger players will always want multiple sources.
46:30 I guess, and this makes sense and then I guess once you get in even to a multisource situation, your again has stronger performance. It's easier to use et cetera, et cetera, you can gain share once you're inside as well, that makes a lot of sense also.
46:47 Correct? And this, this is like I've said before, this is a very large market. I liken it many times to the GaN LED market that was booming in the late 90s, in the 2000s, where multiple good companies and solutions were required to sustain a very large market worldwide.
47:05 That's super helpful. And it was either you or Mario, who also said this, the demand contribution, I think, I think the term broadly was used and talked about cross crypto-mining gaming. I think it was across crypto-mining and gaming, I don’t know data center was mentioned. But I guess the question was, are you seeing momentum in in crypto-mining? I think I think last quarter, you had mentioned that gaming had been strong and strong as my term, you may not have said exactly like that, but was robust and nicely conservative. I got the sense that the crypto was a little stable and data center was a little on the calm. Guys, I wanted to ask about that, because the comment was made that the demand, the strength this quarter use kinda was more broad and I think crypto was also mentioned. But I guess in the context around what you saw the last 90 days in crypto gaming in the data center, and I just added any context about what you're expecting there as we go through the year. Thanks a lot.
48:10 Yes, [Indiscernible] contain the recently completed quarter of the higher power of products. Crypto was the leading share of our Higher Power products in the last data center fee study and we expect especially like they said in past I didn't explicitly say this time, but the new regulations coming out in the European regulations, especially in the data center, requiring titanium plus power supplies. By January 2023, we expect to see an uptick in the data center of based Higher Power Apps by the second half of this year or later Q4 of this year.
48:50 Got it, got it and gave me I just kind of remains you made this robust right way to say it sounds like things are going well.
48:56 Correct. Our steady customers are remaining robust.
49:01 Very helpful. And then just one quick clarification for me, at the very end, when you were going through the long term model, was it, did you say initial auto rev in 2023?
49:20 Yes, that's right. And under what we're looking [Indiscernible] 22 for initial automotive revenue.
49:26 Awesome. Thanks, Cameron for the clarification. Great, thank you guys.
49:25 You are welcome.
49:29 Thanks you guys.
49:36 And our next question will come from Richard Shannon. Please go ahead.
49:41 Well, thanks, guys for taking my question. Need to follow up on the topic of kind of applications for your product revenues here? Maybe asked another way here. How much of how much of your product writers or maybe you're an adapter wherever you're coming from, “high power stuff during the Watts and above”, the way you characterize your quantify that was?
50:04 Yes. In the in the adopter portion. Richard, the light in the last quarter majority of the revenue in the adopter portion was centered around 65 watts. That said, the trend is to now get 100 Watts, 140 Watts is another important slot. There are partners that Diodes and we have solution together, and then also moving into 200 to 250 watts. But last quarter shipments, the dominant application was 65 volts.
50:41 Okay, that is helpful. Quick question on some numbers here gross margins in the December quarter. If I calculate right around 16% or so it was a little bit lower than the last quarter without a big licensing jumping there two quarters ago at ’21. I think I heard you say some increased cost investments to capacity. I don't know if there's any mixer yield dynamics, and they're really good. Help us understand why that went downwards and kind of what to expect going forward this year?
51:07 Sure. Sure. I think certainly licensing is one of the key things that Richard as you highlight minutes, essentially 100% margin, and we did invest in the team, we added several headcount to support the growth and not just an [Indiscernible] I think, Cam, you know, near term, I think that you will see our margins kind of steadily increase, a combination of volume, continued focus and improvement in efficiencies and obviously increase fixed cost component as well. I think the long-term model remains the same as we target up 40% gross margin in the longer-term.
51:45 Right. Okay, perfect. Last question, I'll jump on the line here on the automotive space here. You've talked about the kind of initial revenues and automotive in 2023. I didn't hear you say anything about having any design wins with an automotive OEM. I know you've got relationships with tier ones, like really, as an example. But I'm assuming you don't have any wins with OEMs. Yet to in order to hit this timeframe of auto revenues in 23, you'd have to have designed when in place, we're able to announce that right away and then how many of these ones do you expect to, to maybe have this year?
52:22 It says kind of an end of the year, early 2023. Because when we say, towards the end of 2023, automotive revenue, the intent of prediction revenue, so that would be for this automotive, it's a way the cycles work is also our revenue will be one or two quarters ahead of our customers revenue, and that may be going to an OEM so it will precede a car model by as much as six months, right when we have to ship our products. That's how the automotive supply chain is typically structured. So this would be basically for 2024 models, so to speak. And we would expect in this case, the end of the year or early 2023 to confirm obviously the design in processes moving along at every node. But that's what we would expect in that timeframe.
53:16 Now independent of transform, which transforms licensed technology, our good partner and experience they are independently moving the automotive EV, their design-ins, in which we will supply wafers in February for the APB for so that will be another source of revenue, automotive revenue for us that may happen ahead of that timeframe.
53:40 Okay. Perfect. Thanks for the detail. That’s all for me Primit, thanks.
53:44 You are welcome.
53:48 Our next question will come from Michael Manny (ph). Please go ahead.
53:53 Hi, this is Michael on for Craig, thanks for letting me ask a couple of questions and congrats on the positive momentum machine. My first question is on the renewables and alternative energy markets. I believe you mentioned that some of these opportunities who pulled into more of the intermediate and near term, because you talk about what changed are for to allow that to happen, if anything? And would these be material contributors in 2022? Or is this more of a 2023? And beyond driver?
54:23 Yes, so thank you. So first of all, our traction in the high-power the 1 kilowatt to 4 kilowatt segment, 1 kilowatt to 5 kilowatt with crypto data centers, gaming, this is allowed the market also to recognize the potential have transformed GaN, now hundreds of 1000s of units have been ramped fie performance has been established. So impact that in our continued designing efforts, has allowed us to do that in some, for example, some inverter opportunities or energy storage UPS, those kinds of applications. So yeah, we do see in 2022, and it was going to be very expecting that was in our planning and the good thing is it's getting realized now. So we do see, see that happening in 2022.
55:11 Great, thank you. My next question is on your visibility. So, it's nice to see the growing number of design wins. And while acknowledging it's early, could you characterize the level of charger, adaptor visibility you have into the second half of this calendar year with either your high volume charger adopter ramps, I think you mentioned we'd see some uptick in your higher power offerings like data center and you talked about renewable energies too. But in general, what else? Could you elaborate on the rest of your visibility and would – to what extent could some of these new design winds that you mentioned secured start to convert into production?
55:48 Yeah, no, we do expect a newer design means both lower power stay lower power area and higher power area to start not necessarily every single one of them. But a lot of them we expect to convert to design-ins and our goal will be to keep growing product revenue quarter-over-quarter, right. That's the key and the demand remains very strong. So we're very excited by that. It will also be managing together our supply chains worldwide and increasing our capacity. That will complete the picture. But yeah, we are very excited. The demand remains extremely strong, and we do expect a lot of those designs to convert, and we do expect our product revenues to keep growing quarter-over-quarter.
56:34 Thank you very much
56:36 Thank you.
56:39 Our next question will come from Orin Hirschman with AIGH Investment. Please go ahead. Please.
56:43 One minute guys. Hi, how are you. Congratulations on the progress.
56:50 Thank you.
56:54 In terms of your, again, nest in different ways that maybe this was a slightly different way of asking as well, in terms of the design within the course, the chargers, as we go up the power scale, are you seeing a higher win rate of notably higher win rate as we go to higher power? [Indiscernible]?
57:17 like I said, like the 65 Watts, which is the highest volume in the market today, that was our, by extension, that was also our highest when we saw newer wins of the newer wins we saw, we did see adoption in the higher power. So those are the three we highlighted, it doesn't mean we didn't get the 65. But yeah, you're right, we are seeing in 100 watts, 140 watts and 250 Watts, we have seen some nice swings as the market, the base, a lot of the market is at 65 Watts, but slowly, it may move to higher power levels, right 90 watts, 100 watts, 140 watts and even higher than 200 watts.
58:01 Okay, and in terms of realizing your gross margin goal [Indiscernible] as to what needs to happen, how important and how important for that it's just the absorption aspect of it. It's nothing, nothing else changed. With that drive a good piece of the gross margins [Indiscernible] price will target?
58:24 In the absorption of our fixed costs and the capacities etc. We have already put in that that is one of the key drivers of the gross margin and I would like to Cameron elaborate on that.
58:35 Yeah, I think, I think one of the [Indiscernible] and I think volume will help, obviously, in terms of price competitiveness, in terms of yields and continuing to focus on efficiencies in our product offerings. So I don't think there's only one factor I think is a few. But certainly, the more revenue we have, the less impactful fixed costs absorption is that's certainly true as we as we continue to grow.
59:04 And last question for me, with me just in terms of pricing, Delta on the on the handset ordering, some higher the base level towards the highest power. What's that delta? Like? Is it a meaningful delta, where the highest, the highest ones are 20%, 30% higher in terms of ASP? So we knew that as well.
59:34 The ASP is actually range on the darker side, it's sort of under $1 or 65 Watts, kind of $0.70, $0.80 cent, $0.90 cent regimes, 45 Watts will be bit lower than that. On the higher power side on the crypto-mining the data center gaming, the new three kilowatt part you're looking at kind of, now for $4 or $5, those kind of ASPs, right, and as you go to our highest power part for energy, that 5 kilowatt to 10 kilowatt part you're looking at, $7, $8, those kind of ASP so it's a 10x Because our parts of power capability or the current carrying capability of the parts is indeed 10x difference. So that's reflected in the ASPs.
60:23 Okay. Great, thank you very much.
60:30 And without further questions, I would like to turn the call back to Mario Rivas for closing remarks.
Thank you Savannah. I want to thank everybody again for joining us on today's call. I look forward to reporting on our continued progress and developments over the coming year. Operator, you may now disconnect the call.
60:52 And this concludes today's conference. Thank you for your participation and you may now disconnect.