Transphorm, Inc. (TGAN) CEO Mario Rivas on Q4 2022 Results - Earnings Call Transcript

May 24, 2022 10:40 PM ETTransphorm, Inc. (TGAN)
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Transphorm, Inc. (NASDAQ:TGAN) Q4 2022 Earnings Conference Call May 24, 2022 5:00 PM ET

Company Participants

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

Operator

Good afternoon. My name is Savannah, and I will be your conference operator. I would like to welcome everyone to today's to Transphorm’s Business Update Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Joining today's call from Transphorm are Mario Rivas, Chief Executive Officer; Primit Parikh, Co-Founder 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, in 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 on 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 plans, and 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 total 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 all 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, May 24, 2022, neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements.

The company undertakes no obligation to publicly update the forward-looking statements for any reason after the date of this call 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, I will now turn the call over to Transphorm's CEO, Mario Rivas for opening remarks. Mario, please go ahead.

Mario Rivas

Thank you, Savannah and welcome to everybody in today's call. We appreciate you joining us today. Allow me to review our fiscal fourth quarter and recent highlights. We achieved an up listing of Transphorm’s common stock to the NASDAQ under the ticker symbol TGAN. The full year fiscal ‘22 revenue increased 89% year-over-year to a record $44.1 million due to strong growth in product revenue.

The fourth quarter of fiscal year ‘22 product revenue increased sequentially for the nineth consecutive quarter to a record of over $4 million, with total revenue for the quarter at $4.93 million. We secured our largest SuperGaN high-power Gen IV FET production order for the company today over 0.5 million units of 3 kilowatt class power supplies. The magnitude of this order clearly demonstrates Transphorm’s continuing leadership in high-power GaN.

We also secured laptop adapter design-win from a Tier 1 Fortune 100 company, including an initial purchase order of 50,000 units of SuperGaN Gen IV 240 mohm class FETs. These FETs provide higher efficiency for 65 watt fast-charging adapter applications when compare with competing e-mode GaN FETs that require a larger 150 mohm device for similar applications. As a result, these Transphorm SuperGaN FETs allow our customers to do more with less. Cash and equivalents as of March 31, 2022 were $34 million.

I'll now pass the call to Primit for a detailed walk through of the development these past few months. Primit?

Primit Parikh

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

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

First, I'll give a short recap of gallium nitride, the overall value proposition, our leading position, clarifying market positioning of various types of GaN products and then review our strong execution in the March 2022 ending quarter, and then our expansion strategy for FY 2023. Gallium Nitride GaN is a wide-band GaN semiconductor materials for power conversion that reduces electrical energy waste, enables contact power conversion footprint and lower power systems cost across the variety of electrical power conversion applications chargers, converters, inverters and does this significantly better than traditional silicon and much better than other new semiconductors like silicon carbide.

TGAN is an established innovative design pioneer and leading manufacturer, supplier of high-voltage GaN power semiconductor products over the widest range of applications from 30 watts lower power to all 4 kilowatts higher power and in application areas ranging from adapters and fast chargers for which GaN has been well accepted in the market today to higher power datacenters, mining, crypto mining, communication infrastructure, broad industrial renewable energy and in design-in for automotive electric vehicle applications as a result of our targeted investments in strategy.

Our core and strong fundamental IP with over 1,000 patents strong portfolio as well as our high performance, high quality products have been validated by various blue chip investors, customers and partners, financial partners, design partners, manufacturing partners and automotive and industrial market customer partners as well as the US Department of Defense. Our comprehensive and differentiated product offering backed by a high quality manufacturing base that we essentially own has ramped in the market now with over 40 billion hours in our customers' products in the field, including both high power and low power GaN and resulted in over $24 million of revenue in our fiscal 2022, a record for us and a 1.9 times growth about in spite of a challenging supply chain environment.

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

We are in a unique and differentiated position among the GaN suppliers to have products in the market today that address the tremendous multi-billion dollar market opportunity of GaN for power conversion across the various segments. Again from lower power adapters and chargers to higher power server crypto data come power that we are already ramped in, our customers are already ramping in to industrial energy and renewable now also in production with quite a few accounts and in the mid to long-term large growth opportunities with automotive electric vehicles, further bolstering our long-term picture beyond 2024, 2025.

Our GaN solutions delivered high-efficiency, compact systems with easy to use and easy to interface products for the customer with proven performance benefits again silicon, silicon carbide and other gallium nitride solutions like e-mode GaN. The GaN TAM is in the multi-billion dollar range. This is the GaN TAM, we show here that is reasonably addressable by products we have today, all in the near-term pipeline over the next few years and from 2021 to 2026 a very strong five-year growth of more than 3 times fueled by a robust, faster growth in GaN TAM versus the overall power semiconductor market in each of the segment areas as shown here. And then a further inflection point through electric vehicle powertrain segment a mid-decade giving GaN and Transphorm a 10 times larger in EV (ph) segment market in 2026 for $6 billion GaN TAM.

One of our key attributes from early on this has been our philosophy is doing more with less. We want to enable our customers by taking the inherent benefits of GaN over both silicon and silicon carbides to the next level and delivering multi-pronged benefits to power conversion customers. Our patented normally of gallium nitride FETs architecture delivers high efficiency over a wide range of power levels with leadership and product qualification and reliability, field reliability rivaling that of standard silicon with a sub 0.3 FIT, which is called failure in time per billion hours of operation.

TGAN’s asset light vertically integrated value chain allows for in-house GaN wafers with manufacturing control innovation and ability to scale. Few other companies are now talking about getting into higher power with GaN. We have been selling this benchmarks for over four years now. For example, titanium class kilowatt scale GaN power supplies with our customers and in process also built up very fundamental IP for the same. We offer products standing from 45 watts to 10 kilo watts. Also we have led in terms of high-voltage offerings 650 volts, 900 volts being the only company with 900 volt product in the market and are now pursuing in R&D 1,200 volt gallium nitride which we have proven is well within the is realm of GaN not just Silicon carbide territory anymore.

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

Another one of our key attributes from early on is the ownership of our GaN wafer production supply chain, an advantage that is becoming even more important in today's geopolitical climate. This starts with the design of our safe, robust and easy to interface normally of GaN FIT. We directly own and control our epi wafer manufacturing with multiple MOCVD reactors.

These are the tools used to making or growing gallium nitride on say, for example, silicon wafers that we do, in two geographical locations owned by Transphorm, California and Japan. Our wafer factory is a joint venture with our financial strategic partner and to remind it is a high quality manufacturing site with the only formal report of yields for gallium nitride matching those of silicon CMOS running in the same factory.

Another feature that has contributed to our high power GaN products yield and quality. While packaging is done with our key OSAT partners. We bring Transphorm IP in this designs. For example, allowing GaN to be efficiently used in robust PO packages desired by high power customers. Last but not the least is our application and design efforts, both with customers and solution partners, who worked preferentially with our GaN for their controller or driver products.

As a result Transphorm has enabled our customers with products that range from adapters to automotive lower power to higher power as shown in the chart from 30 watt adapters in wall plug chargers to more than 10-kilowatt. And even higher power systems are realizable by [indiscernible] multiple of our 10 kilowatt Gen IV solutions for example in multiphase applications. This wide breadth of products is also complemented by the highest voltage range 650 volts, 900 volts, qualification JEDEC, AEC which Transphorm has always led in the first and then proven robust qualification product over product and now in R&D for innovative solutions like the 1,200 volt gallium nitride. We are not a one-trick pony, we service the entire market, the entire gamut of customers.

Now, I will discuss why TGAN wins in various verticals from lower power to higher power? As GaN adoption is happening fast, which is great, many good companies are in the market with gallium nitride, notably at lower power adapters and charges. While TGAN is systematically addressing today high power and low power together. Silicon obviously has been great in the past and still works today, but fall short inefficiency, speed and the smaller size required for new products. GaN takes off from here. A few factors that outline TGAN’s differentiated benefits over competing GaN or that we excel in ease of use and flexibility with standard drivers, controllers, interfacing with our GaN FED. As a result of the integration choices that we have made. No extra born components or shrubbery is required to interface the GaN, our GaN, which makes the solution cost effective, especially key in lower power chargers and adapters for smartphones and laptops while total bond is key.

The intrinsic gallium nitride performance fully exploited in our products to achieve the highest efficiency or lowest losses among many other GaN. And then bringing reliability and robustness across the entire power chain. This is evidenced very clearly by our proven design wins with customer systems in production as TGAN is adopted in many more market verticals today with higher range, high reliability and high performance. As you can see applications like silver (ph) power, gaming, blockchain, crypto mining, variety of industrial and also select higher level applications like aerospace. Some of these are more than 10 times the power levels that some of the other gallium nitride offerings enable today. Namely, more or less in the low-power range.

Along with the ease of use benefits reduced BoM and the intrinsic GaN performance, the underlying results for our high-power dominant stems from the fact that typical e-mode gallium nitride, competing gallium nitride interface to the outside world is inherently weaker and harder to operate in many common package types. The fundamental design innovations and directly control manufacturing does enable superior performance, superior dynamic performance as it is called from our gallium nitride FETs, allowing smaller GaN die to be used for the same power level versus larger or sometimes even two packages for competing GaN versus one from Transphorm for the same application.

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

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

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

Now the higher power space is a very large market for GaN and very important, very simply put higher the power, the higher the energy saving impact of Gan, higher the impact on electricity usage and carbon footprint at the holistic level, higher the semiconductor content because the larger the chips enhance the total higher market. Here, our Gen4 and Gen5 offerings are compared to leading silicon carbide offerings in this space as other types of gallium nitride like to e-mode gallium nitride, I'm not quite ready today at least for high power especially and thermally robust packages like the TO247 due to the inherent device weakness.

Previously, we had shown that with our highest power 15 million product to best we can tell this is the lowest resistance highest current, higher power for 650 volt GaN qualified and in production in the discrete packages like the TO247 that outperformed silicon carbide, good silicon carbide products like the MOSFETs and JFETs. And realize a 25% to 38% lower loss in an apples to apples comparison delivering 10 kilowatt class power levels, from a single part in a half bridge testing. Now that are also independent third-party valuation confirming the same thing, what we had previously said, for example, a recent technical paper at the PCIM Europe Tradeshow and Conference, where superiority of TGAN or silicon carbide in 5 kilo watt applications was published.

Customers have selected our high power GaN products across the spectrum and some of our wins were all built on the foundation of efficiency, performance, ease of use and reliability, as our customers as well as third-party reports have also shared. Recently, we secured our PO of over 500,000 units for high power GaN and mind you, these are 7, 8, 10 times bigger than used in lower power adapter type applications, validating our leadership in high-power GaN,

Blockchain computing is a power hungry applications where our GaN has enabled a 1% efficiency. And to put that in perspective, one system can save a few hundred kilowatt hours per year and well over 100 pounds of carbon footprint depending on what your source of energy is. With more than 50,000 metric tons of reduction possible just from our own 22 outlook in blockchain computing and gaming alone.

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

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

Transphorm is accelerating this opportunity for electric vehicles for GaN, this will accelerate in the next few years. Well, today Transphorm is addressing the EV markets specific, EV opportunity markets, R&D areas of on-board charges, DC-DC converters and operate DC to AC invertors with the main drivetrain inverter opportunity after 2025, ‘26 million that can triple the accessible GaN contents from about $70 to well over $200.

As I also alluded to, we announced our preliminary 1,200 volts gallium nitride R&D results, in fact this week at a premier IEEE conference, the ISPSD including 800 volt operation from our gallium nitride for which 1,200 volt devices necessitated and with higher efficiency over competing 1,200 volt silicon carbide products that of course are well established in the market today. But it's a clear proof point that GaN is not sitting still, we are not sitting still. We are moving forward. Besides Transphorm has AEC automotive GaN qualified products today with our Gen-4 power solutions that are already ramped in the market for various commercial and industrial power segments.

Now I'm going to turn our attention to our execution in the last quarter and then how we expect going forward? In the December quarter, we had announced several vectors driving our growth. We're really pleased in the March quarter versus the fourth fiscal quarter of our 2022 to achieve our nineth successive quarter of product revenue growth, with key highlight of Transphorm dominating in GaN high power segments. A latest proof point of our leadership is our largest single order till date for high power GaN of over 0.5 million units that we recently secured.

We also continue to gain our share in the low-power fast charger segment and have secured multiple early wins at marquee customers that I'll outline in the next -- next slide. Our management focus remains squarely on product revenue growth, supply chain management, and capacity expansion. Overall, we are seeing a very strong demand for rest of the year, and beyond as well, as we are gaining share in every segment including continued leadership in high-power. We do face near term headwinds due to the worldwide supply chain issues facing the industry today. This may land our fiscal Q2, which is the July to September quarter more in line with fiscal Q1 which is April to June quarter, resulting in approximately a one quarter shift.

We anticipate that continued strong growth scenario from thereon, targeting a robust 50% growth in the second half versus first half of the year. The mid-term scenario through calendar 2023 remains very strong as our capacity initiatives, our current capacity initiatives are expected to be online. Thus, supply chain management as well as capacity expansion are our top focus areas over the next several quarters. We expect that with our strong balance sheet, leadership in high-power products and gaining share in lower power will allow us to continue this momentum forward.

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

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

We are pleased to lead in GaN for higher power, broadly speaking, 300 watt to 4 kilowatt that is already in production at our customers today, where we continue to add design-ins now at 35 plus with over 15 in production. It is notable that more than 50% of our revenues now are already in the higher power segment that includes multi-kilowatt GaN solution. We aim to further grow and get into areas like energy, TV power, e-mobility where we are opening up new design-ins. We have 17 high voltage GaN qualified and released products in our comprehensive portfolio today, again low power to high power 650 volts, the only 900 volt product in the market and many of these products are either in compact surface-mount packages or thermally robust TO packages. Our products do not have this limitations of package type. Three of these products are already AEC, automotive qualified parts today, including our Gen4, with Gen5 AEC to follow in future.

As I mentioned, a significant emphasis and positive challenge now is on the capacity expansion and managing product revenues for the rapid growth, in what is still a very challenging worldwide supply chain environment for the next couple of quarters. While we have achieved sufficient PQFN package adapter product goods and capacities, as we previously had also mentioned, now we have expansion efforts underway for high power packaged products and both internal and external wafer capacity in the areas of epi wafer growth and wafer different production. So three takeaways, with our record quarter, product revenue growth with leadership in high-power GaN, gaining all around and the focus on supply chain executions, and multiple capacity initiatives ongoing.

Strategic partners have always been important for our business. First and foremost, top of the list now this includes manufacturing and capacity increases, and partners who we are working with. The Global Wafers partnership in Epiwafer expansion is on track with completion scheduled for mid-calendar year 2023. We are managing on track with our AFSW fab joint venture with our financial strategic partner and planning further increases in capacity, Wafer fab capacity in second half of the calendar year 2022 and 2023 to keep up with the rising demand that we are seeing.

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

The next milestone for us in this area is the AEC qualification of our Gen5 products which are already commercially qualified and already ramped in the market for commercial production. Other EV, DC-DC and OBC opportunities currently with Japan based Tier 2 Tier 1s and Marelli for charger and converter high in progress with midterm insertion possibilities. The government revenue business stream remained steady, with targeted 0.9 million in the Jan to March quarter done on track, driven by our Navy program of Epiwafer manufacturing. And like the excellent results on the 1,200 volt GaN with our ARPA-E program. Additional RF epi especially government epi customers are ongoing, but the primary focus now is on satisfying our internal power products for the rapid demand and rapid growth that we're seeing.

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

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

Cameron McAulay

Thank you, Primit and hello to everyone joining us today. Let me start with a brief recap of our unaudited results for most complete -- recently completed quarter. Please note these results are subject to the completion of our audit procedures. We anticipate filing our 10-K for our fiscal year ended March 31 in mid-June. For my remarks, I will refer both to GAAP and non-GAAP results, which are reconciled to GAAP in our press release tables. Non-GAAP results exclude stock-based compensation, depreciation and amortization, and adjustments to fair value of our previously-held convertible notes.

Starting with income statement, total GAAP and non-GAAP revenue comprising products and government was $4.9 million in the quarter. This represents a 7% quarterly growth with compared to $4.6 million product and government revenue for the prior quarter. Total revenue for FY ‘22 was $24.1 million, an increase of 89% in the prior fiscal year. This quarterly and year-over-year increase was driven by record product sales from ramping shipments. Product revenue, no forms the majority of our total revenue number over 80% in the quarter just completed and over 50% for the year.

Continuing to focus on product sales, last quarter, so our nineth successive quarter of product revenue growth and record product revenue of over $4 million. This represents a 10% increase from the prior quarter. Product sales for FY ‘22 grew 190% from FY ’21. This growth has been driven across a broad range of power conversion applications including fast chargers and adapters, gaming, datacenter and crypto.

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

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

Turning to EPS. I will focus my remarks here on non-GAAP results. The revenue growth allied to continued OpEx management resulted in a non-GAAP EPS loss of $0.08 in the quarter, a $0.01 improvement in Q3. Our non-GAAP EPS for the fiscal year improved $0.20 to non-GAAP EPS loss of $0.22 for the year. From an operational perspective, we continue to see strong traction in our targeted markets.

Q4 saw record product bookings contributing to a strong backlog position. This record is excluding the over 500,000 unit production order. The company booked for kilowatt class power supplies, which was received in the current quarter. The company is fully booked for the current quarter. Our short-term focus being on product execution and enabling capacity expansion to support medium to long-term growth.

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

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

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

With this strong foundation in place are focused on 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 expect to see initial wins in the automotive segment in this time frame. From the other company, we will drive towards our long-term target model enabled by continued momentum across multiple segments.

Concluding now with a few key highlights. Transphorm publicly listed on the NASDAQ exchange as a pioneer and leading provider of GaN power conversion devices. We have disruptive technology that provides solutions today across a number of significant growing markets. We have established a strong network Blue Chip partners, including KKR, Marelli, SAS, Yaskawa, and others. We are commercially ramping with strong production revenue growth, now growing from nine successive quarters.

We have a comprehensive product offering today that meet our customers' needs across a wide range of power levels and segments, all of which is underpinned by a strong balance sheet, the industry's strongest IP position and a deep and talented team. This completes our prepared materials and remarks.

We'd now like to open the call for any questions. Operator, please proceed with the Q&A portion of the call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from David Williams with The Benchmark Company. Please go ahead.

David Williams

Hey. Good afternoon and thanks so much, and congrats on the progress, and very impressive design win results in orders there.

Mario Rivas

Thank you.

Primit Parikh

Thanks, David.

David Williams

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

Mario Rivas

Thank you for that. So yeah, we are seeing a very strong demand, like we said a record backlog is in place. We obviously fulfill -- strive to fulfill this opportunity across the range, but like I also said, we have a capacity to fulfill today and are adding more capacity as we go online. The next two to three quarters is really aware the supply chain in part limited by the [indiscernible] worldwide supply chains and what we need and coming to increase that capacity will be something we'll be watching very, very closely. And overall the picture doesn't change, we have several capacity efforts going on which will come online call towards the end of this year and then in 2023 like I alluded in the call. So the next few quarters, like I alluded to, we have to grapple with capacity balancing that with the demand, which is looking very strong.

David Williams

Okay. Great. Thanks so much for the color. And then you had mentioned this in the script that APAC, but there was a traction about your design that we saw that appeared to be again based traction inverter and even with first one we had seen. Just curious if you could give us any color and if I am not mistaken. I think Nexperia has a license agreement with your products, is that – am I thinking about that, right. And how do you think about that traction inverter seems like maybe that's pulling forward a little bit fashion, what we would have anticipated?

Primit Parikh

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

David Williams

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

Primit Parikh

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

David Williams

Good. Thanks again. Appreciate your time and best of luck.

Primit Parikh

Thank you.

Operator

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

Ananda Baruah

Hey. Good afternoon, guys, and congrats on the progress as well. I guess just could be for Mario and for Primit. Maybe Primit, just to your -- your remarks just a moment ago about macro, have you, it sounds like you guys are not yet seeing where you would consider the incremental impact from macro or are you sort of slowing economic growth? I just want to make sure that that isn't in fact accurate that you guys are not yet seeing that as far as you can tell?

Primit Parikh

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

Mario Rivas

The only [indiscernible] definitely, we haven't seen anything like that. The demand is very strong and we've take upgrade for the next couple of quarters. Now, we're in semiconductor, so this is not new. So -- but we haven't seen any evidence at the moment that is not, there is a slowdown.

Ananda Baruah

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

Primit Parikh

No, actually the supply chain, yeah, so we have to focus definitely or manage the supply chain and focus on the supply chain downstream our own wafer production and the raw materials spare parts consumables et cetera., that we need so we have to manage the supply chain. Our demand is growing fast, right. And we are -- we have a record backlog in place. So for the next couple of quarters, the supply chain in our own capacity is an important for us to watch out, beyond that our capacity initiatives that we have already put in place will bear fruit to increase our capacity say, towards end of this year and then going into 2023. So the next couple of quarters while the demand is very strong, no change in increasing demand. Our supply chain and capacity is something we'll be watching very carefully.

Ananda Baruah

I see. Thanks for clarifying.

Mario Rivas

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

Ananda Baruah

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

Primit Parikh

The timing is over the next, next few quarters.

Ananda Baruah

Okay. Awesome.

Primit Parikh

Yeah. Thanks.

Ananda Baruah

Thanks, Primit. Thanks guys. I'll get back in the queue. Thanks.

Operator

Our next question will come from [indiscernible] Capital. Please go ahead.

Unidentified Participant

Thank you for taking my question. Mario, on the 500,000 new unit order win, can you maybe tell us a little bit more about this and what application this is targeting? What ASP if you can share anything you can share with us on this new order win?

Mario Rivas

Well received (ph) because the customer privacy at this moment drive that we need to say this is a Q1 Fortunate 100 manufacturer…

Primit Parikh

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

Unidentified Participant

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

Primit Parikh

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

Unidentified Participant

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

Primit Parikh

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

Unidentified Participant

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

Primit Parikh

No, in part, you are correct. So what we have said in kind of the 2024 timeframe, getting the on board charger and DC-DC converter opportunities that we are in the design-ins today what I said is from 2026, it opens up the TAM for the inverter the EV powertrain, which significantly increases the GaN content possible in the automotive by 3 times, because these are much higher power levels, hence the larger amounts of total semiconductor area and total semiconductor products. So we are today designing into the on-board charger DC-DC converter that’s earlier -- that's mid-term but that's an earlier timeframe. The inverter, the drivetrain inverter that's a later timeframe.

Unidentified Participant

Got it. Appreciate the color. [Multiple Speakers]

Primit Parikh

Which is what we had said before, as well.

Unidentified Participant

Got it. Thank you. Appreciate the clarification.

Operator

[Operator Instructions] And our next question will come from Richard Shannon with Craig-Hallum Capital. Please go ahead.

Richard Shannon

Well, hi, guys. Excuse me. Hi, guys. Thanks for taking my question. Maybe ask a financial one here is, I just want to make sure I'm kind of putting the teams together here, right. So you're talking about pretty strong demand, but perhaps some supply chain constraints here. So I guess just thinking about revenues going forward here, especially as we look at it more from the product side point of view. Are we looking for flattening of the curve here for a quarter or two, or is it still going to grow at a slower pace or just want to make sure I'm getting the team lead right on this? How can you help us understand that better, please.

Cameron McAulay

No, I think, Richard, we are seen, as Primit mentioned, we are seeing some headwinds there and it may be that the September quarter aligns more than the June quarter. So there's a flattening there but from there we do see a resumption of strong growth. There is a 50% target in the second half versus the first half of the year. So really just a one quarter shift as much as anything else, it's certainly not a demand issue and it's certainly not a growth issue.

Richard Shannon

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

Cameron McAulay

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

Richard Shannon

Got it. Okay. That is helpful. Maybe Cameron another one for you on gross margin, specifically on the product side, you're obviously doing -- specifically, but if I'm trying to read the numbers here, right. It seems like product gross margins have grown here a bit quarter-to-quarter. Maybe you can give us a sense of the degree to which that is a mix versus yield and how that's tracking and how you think about kind of the path to getting to that 40% plus gross margin number?

Cameron McAulay

Sure. I think over the course of the year, I think product and government was 23% for the quarter, 22% for the year and I think that's relatively stable over the course of each quarter, let's say, from the occasional blip that you gave, which is kind of typically mix driven. I think for us, I mean we're pleased with where we are. I think what we have to do now over the course of the next year and beyond is, is look at different opportunities to improve the margin that's cost efficiency, that's new product introduction, that’s the opportunities you get from growing the business as well, Richard. And I think that each one of those factors will help improve the margin as we think about the long-term target of 40%.

Richard Shannon

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

Primit Parikh

Sure. So to the first point, yeah, to the best we can say no other GaN companies is at least ramped to the extent that we have that may have been an isolated product announcement a year or so, but not certainly in the volumes that we've had and the diversity of customers and products in the market that we had not -- the company's product but customer systems in the market that is what we have achieved in high power. Second, actually a little good to have more GaN companies in the high power segment, right multiple companies with this market is tremendous.

We are looking at a very strong year-over-year growth or multi-year growth here in all, low-power, high-power, the high power in specific and multiple GaN companies will buy for that and that is what it takes to make a strong market as well, because that leads to the second part of your question is clearly there is an efficiency and loss advantage over silicon operating at higher speeds, higher frequency, smaller systems. And as you go to high power, the impact of energy savings is also very important, right. A 100 watt adapter with a 1% improvement since 1 watt, if you're looking at 5 kilowatts that’s 50 watts, and that much amount of electricity. So the shift from silicon to gallium nitride at high power, we believe will be a strong one over the next few years.

Richard Shannon

Okay. That's helpful. Thanks, Primit. That is all from me.

Primit Parikh

Thank you.

Operator

Our next question will come from Michael [indiscernible] with B. Riley Securities. Please go ahead.

Unidentified Participant

Good afternoon, guys. Thanks. So let me ask a couple of questions. This is Michael on for Craig Ellis, and congratulations on the kilowatt class win as well. Maybe to start with a capacity regarding adopters, if I believe, if I recall correctly, in the last quarter's presentation, there was a point that you expect it to get to 5 million to 10 million monthly units maybe coming under 2022 and for next year in 2023. I was wondering if that target still held with everything going on and how you thought you were tracking to that? And then if you could just walk us through the milestones to get us there in terms of investments quarter-over-quarter and getting equipment and just how do we get to that goal? Thank you.

Primit Parikh

Yes. So overall, I believe we’ve mentioned the total wafer capacity and that obviously is a mix of high-power, low power and various levels of segment, right. So that depends on our mix of the products, how much gets allocated, where for the adapter specifically what we had shown and we proved it. We have said that our packaging OSAT capacity, we wanted to demonstrate well over 1 million a month with two OSAT subcontractors partners in place for packaging and that we have achieved. We showed proof point that we could ship over 1 million a month and including we have now two qualified OSAT suppliers.

The expansion, the second part of your question, the expansion that we referred to and I referred to in the call today are for continued expansion in the higher power packages as well as expansion of our own wafer capacity expansion, both on the epiwafer side and the wafer fab side.

Unidentified Participant

Got it. Thank you. And then maybe just a quick follow-up on the total cost. When -- I was just wondering if you could talk about the potential for further orders from the same customer or whether in your backlog engagements other customers you sense that you could secure similar design wins at other customers are above the same size in the higher power segment?

Primit Parikh

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

Unidentified Participant

Great. Thank you.

Operator

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

Orin Hirschman

Hi. Thank you for taking the question queue and congratulations on the progress. Just to follow up on the last question, could it also be for the exact same application for another customer, is it a standard type of application, where it could just be for another customer as well for the same exact thing?

Primit Parikh

Yes. That is absolutely, correct.

Orin Hirschman

Okay. And could you just go through again quickly some of the higher power design-in verticals, meeting the end products right now not only stuff that you are shipping today, but where you actually have design-ins besides you mentioned sever crypto, but let me, if I can just ask you to rattle them once again?

Primit Parikh

Yes. So it is [indiscernible] echo over there, but I’ll start again, I am hearing some echo but you guys are not. It's a blockchain computed gaming data centers, servers UPS and renewable energy.

Orin Hirschman

We hold true that you could be in graphics chip card or something of that nature?

Primit Parikh

Yeah, it is possible, but servers are also having those servers will have a multi-kilowatt class. So not so much in the graphics chip card, or else, but for example, a graphics chip card that necessitates due to the high-performance graphics here at 3 kilowatt server , for example, our 2 kilowatt server right or for that matter of 1.5-kilowatt server, those types are -- we have not talked explicitly about that, but those type of applications were very high power in a compact footprint is necessitated their GaN and transforms GaN definitely should have a value play over existing silicon products.

Orin Hirschman

Do you have any design-in from that very high-performance type of products for the datacenter?

Primit Parikh

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

Orin Hirschman

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

Primit Parikh

The high-performance card we have not publicly talked about that yet.

Orin Hirschman

Okay. So you think it's something you could address more or we are addressing that haven't announced any definitive wins?

Primit Parikh

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

Orin Hirschman

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

Primit Parikh

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

Orin Hirschman

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

Primit Parikh

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

Orin Hirschman

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

Primit Parikh

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

Orin Hirschman

Do you think there is a chances of see anything still in ’22 or not like a year?

Primit Parikh

We expect more in the mid-2023 segment because it just takes time with not only our direct like even if we have a direct win with our Tier 2, Tier 1. They have to also secure subsequently design win the end our automotive customers, but as we alluded to, we have a variety of partners also, they are also for example our licensee partner and Nexperia, they will have their own independent efforts right that on their own, increasing the sort of so-called the reach of GaN Transphorm’ GaN and we supply wafers into that. So there could be multiple options or avenues for us.

Orin Hirschman

Okay. Thank you so much.

Primit Parikh

Thank you.

Operator

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

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