Wolfspeed Stock

Hello, everyone. Thank you for joining us, and welcome to the Wolfspeed, Inc. Fourth Quarter Fiscal Year 2026 Earnings Call. On the call today from the Wolfspeed team is Chief Executive Officer, Robert Feurle; Chief Financial Officer, Gregor Van Issum; and Dan Whalen, Vice President, Investor Relations. After today's prepared remarks, we will host a question-and-answer session. I will now hand the conference over to Dan Whalen. Dan, please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's Fourth Quarter Fiscal 2026 Conference Call. We encourage you to reference the slides that were published on our IR website today. Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of our other key metrics. Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. With that, I will turn the call over to Robert.

Thank you, and good afternoon, everyone. We appreciate you joining us today. This quarter marks another step in building momentum since we substantially refreshed our leadership team and capital structure. The fourth quarter revenue results of $150 million represents another quarter of delivering results at the midpoint of the guidance range and further demonstrates we are delivering on our commitments. Reflecting on this past fiscal year, we have proactively taken aggressive actions, including recapitalizing the company to strengthen the balance sheet and bolstering our leadership team and our sales organization with seasoned industry veterans.

We have also adjusted our go-to-market sales strategy and positioned the company to refocus on our technology leadership and a customer-centric approach. While we have accomplished a lot as we continue to deliver on our commitments, we remain early in our transformation. And as each month and quarter passes, we continue to gain further confidence in our path to profitability as we execute our strategic priorities and navigate broader industry dynamics.

As I said on my very first earnings call leading the Wolfspeed team, we have enormous potential, underpinned by strong foundational elements. Since then, we've been proactive building upon these strengths while attracting and incorporating industry veterans with extensive customer relationships to leverage, optimize and capitalize on our physical, operational and intellectual assets. Most recently, as announced late July, Andy Mattes was appointed to our Board of Directors, as the former CEO of Coherent and Diebold Nixdorf with more than 40 years of leadership in semiconductor and advanced technology industries, brings a strong record of strategic leadership, operational excellence and industry relationships to further bolster and accelerate our path to profitability.

Also, in early June, we announced the launch of a dedicated data center solutions team to capitalize on the further growth in our fastest-growing end market. To lead this effort, we appointed 2 industry veterans in the San Francisco Bay area, the epicenter of Tech Innovation, who have extensive experience in high-voltage power architecture for AI and data center applications. Our investment and focus on AI data center applications is gaining momentum, reflected in both revenue growth and expanding customer traction. In fiscal 2026, revenue in this business more than doubled versus fiscal 2025, including increasing approximately 20% from the fiscal third quarter to the fourth quarter.

We continue to see encouraging progress as new design wins ramp at leading power supply companies, including LITEON, MacMic and others to support multiple hyperscaler customers. These wins span both established and emerging HPC AI architectures. The transition to 800-volt architectures is increasing silicon carbide content across the data center power ecosystem. As these next-generation power architectures become a critical enabler of AI infrastructure, hyperscaler customers are placing greater emphasis on system efficiency, quality and supply assurance. Beyond AC/DC power supplies, we are seeing opportunities emerge across battery backup units, super capacitors, e-fuses and high-voltage DC to DC conversion.

We're also pursuing opportunities on the secondary side of high-voltage DC to DC conversion systems, which could further expand our addressable market over time. While the market remains in its early stages, we believe our technology leadership and available manufacturing capacity position us well to participate in this long-term growth opportunity. With industry-leading SiC technology and differentiated vertically integrated 200-millimeter manufacturing capability, we are well positioned to support this transition as AI data center adoption continues to scale. These are all clear examples demonstrating the team is executing and delivering on the key strategic priorities we committed to.

I will also comment on a few updates regarding our commitment to technology leadership, another key strategic priority. This past June, we announced 2 significant achievements at PCIM, a leading power technology conference in Europe. Gen 5 MOSFET technology and 10-kilovolt MOSFET commercial readiness. At PCIM, we announced our fifth-generation silicon carbide MOSFET technology, marking another significant milestone in our innovation road map. Gen 5 MOSFETs deliver the best specific on-state resistance in the industry while maintaining the excellent switching behavior introduced in our Gen 4 MOSFET. This combination represents a substantial performance leap in efficiency over competitive solutions, giving our customers the option to maintain efficiency and reduce the overall size of their systems or maintain system size and achieve greater power density.

Gen 5 enables more compact tract inverters, extended EV driving range, right-sized battery systems and improved EV charging infrastructure, directly addressing the cost and efficiency pressures faced by automotive OEMs. Beyond automotive, Gen 5 also addresses several industrial power supply applications, demanding leading-edge performance, including AI data center power supplies, solid-state transformers and renewable energy conversion. Importantly, Gen 5 was developed and is running our highly automated 200-millimeter facility in Mohawk Valley in Upstate New York. This provides our automotive and industrial customers with a rapid low-risk path from design in to volume production.

While we are diversifying our revenue and customer base beyond our historical core concentration as discussed above, we are also continuing to develop and improve our automotive customer relationships. To this point, our previously announced partnership with Toyota for onboard charging systems reflect the continued importance of silicon carbide and next-generation EV platforms. More recently, we were awarded first-time business from a European Tier 1 supplier supporting the onboard charger for a large German OEM. To touch on the aerospace and defense market briefly, our 10-kilovolt silicon carbide MOSFET was acknowledged at the PCIM as the Top Innovation at the conference.

We also recently announced a memorandum of understanding with GE Aerospace to accelerate the adoption of high-voltage silicon carbide across the industrial, aerospace and defense market. This technical partnership includes the supply of the industry's first commercially available 10-kilovolt SiC MOSFET from Wolfspeed and will ensure co-development of standard high-voltage power module formats. This domestic partnership strengthens our supply chain resilience and aligns with U.S. government priorities around critical technologies for AI, energy, defense and national security.

In our Materials business, we continue to serve a broad range of power and RF-based customers, including our 150-millimeter LTA customers. We are also working closely with them on their 200-millimeter transition by providing state-of-the-art samples and technical support. Our increased focus, customer-centric approach and operational discipline continue to be the backbone of these relationships. Regarding our 200-millimeter substrates, we continue to explore new opportunities and make steady progress. Since our last update, we've begun shipping the first engineering samples to multiple customers for the internal evaluation.

We continue to view this as a longer-term growth opportunity. Prior to turning it over to Gregor, I will close by saying thank you to the entire Wolfspeed team for their continued commitment, execution and drive. Our strategic alignment is significantly improved with new leadership and new sales strategy and a stronger capital structure, better positioning us to capitalize on long-term industry trends. This will continue to strengthen our earnings potential, and we believe will ultimately deliver significant value creation for shareholders.

Thank you, Robert, and good afternoon, everyone. In addition to the key strategic priorities reviewed by Robert, we have also made great strides with our operational excellence initiatives, which will continue to increase our earnings potential and differentiate us in the marketplace as partner of choice. I will turn to our fourth quarter results. We generated $150 million in total revenue for the quarter, in line with the midpoint of our guidance. Materials revenue was approximately $43 million, Power revenue was approximately $106 million, which represents 6% sequential growth as the quarter benefited from strength in AI data centers, which increased approximately 20% from Q3 to Q4 and more than doubled from fiscal 2025 to fiscal '26, which helped to compensate for the softer results in automotive.

Next, our adjusted non-GAAP gross margin for the quarter was minus 19.9%, reflecting a 70 basis point sequential improvement. This was driven primarily by product mix, including higher I&E sales in power and higher RF sales in materials. Fund utilization continues to be the primary driver of our gross margin profile and improving factory utilization remains one of the most important levers to drive margin expansion. As I mentioned during the third quarter earnings call, we continue to focus on producing the same revenue with less capacity consumed. These continued efforts position us to keep expanding our earnings potential per dollar of invested capital even if it makes the reported underutilization appear larger.

Non-GAAP operating expenses totaled $62 million in the quarter versus $61 million in the prior quarter, largely due to continued investment in R&D and marketing-related expenses. Adjusted non-GAAP EBITDA for the quarter was negative $62 million comparable to the prior quarter. Gross capital expenditures were only $5 million in the fourth quarter versus $38 million in the prior quarter. Changes in working capital contributed approximately $23 million to cash for Q4, driven primarily by continued reduction of inventory levels.

Now turning to cash flow, which remains one of our top priorities. Operating cash flow for Q4 was negative $54 million and included a $41 million benefit from further reduction of inventory levels in the quarter. We ended the quarter with approximately $1.1 billion in cash and short-term investments, allowing us to pursue our strategic priorities with confidence. We continue to pursue aggressive efforts to reduce our debt and cost of capital. During the fourth quarter, our capital structure further improved as holders of $46 million of our 2L convertible notes exercised a voluntary conversion of their debt to equity.

This debt principal decrease resulted in approximately $1 million of annual interest expense savings. Net debt was approximately $600 million at the end of the quarter. Turning to our business outlook. We continue to see growth in our device business and are targeting revenue between $140 million and $160 million in the first quarter of fiscal year 2027. We are expecting non-GAAP gross margin to remain negative. As we are entering the new year, we are now expanding our guidance to include non-GAAP operating expenses, and we expect them to be in the range of $62 million to $66 million in the fiscal first quarter of 2027.

Thank you, Gregor. Before we open the call up for questions, I will reiterate we are laser-focused on continuing to deliver on our key strategic initiatives, including technology leadership, diversifying our revenue and customer base, operational excellence and financial discipline. Cumulatively, this will cement our path to profitable growth, stronger earnings power and greater value creation for our shareholders. With that, operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna.

I guess my first is just going to be a pretty simple near-term question. When it comes to automotive and industrial, your primary customers, what are you seeing? What does the outlook look like both for materials and devices? And are you confident that June is the bottom for this business?

Yes. I think -- thanks for the question. It's Robert here. So, what we see is that our diversification efforts in terms of broader customer structure globally is really starting to pay off, right? And then, of course, we cannot influence the demand of our end customers, but what we can clearly see is that pretty much both in the I&E space and also in the auto space, we see now really good traction. And again, we also announced here one additional design win now at a German car OEM for onboard charging, and we see really a broad engagement across the globe. How the overall demand will develop across these end verticals it's hard to predict, quite frankly speaking here, as also some of our customers are going through product mix changes, especially on the auto side here. So I think that's something which is rather hard to predict.

Maybe as a follow-up, there's a ton of interest in AI. You've talked about AI revenue. I don't know if you have any projections perhaps for next year and where you might be. But if you could talk about the progression of products that you will be releasing to market and/or have design wins for. Obviously, you had the announcement with LITEON. I believe that's for PSUs for a side car. I don't know if there's any timing around that, but SSTs beyond that, perhaps even with your 10-kilovolt solutions. Maybe if you could talk about the progression and new product opportunities and what that time line might look like?

Absolutely. Great question. So [indiscernible] we doubled our revenue from FY '25 to '26. And that just shows you kind of the momentum this market segment has gained. And quite frankly speaking, this was not on anybody's radar screen a couple of years ago. In terms of the product portfolio, we are quite frankly looking into, again, like you said, on the PSU side, discrete devices here, we are engaged, and we named 2 of these companies, MacMic and LITEON in our press release also here. But of course, we are engaged with across the whole ecosystem on the power supply side.

And then working with the major solid-state transformer companies on the higher voltage devices, which are primarily 2.3 and 3.3 kilovolt modules. And here, it's around how do we get the end customers, which are the hyperscalers comfortable pretty much with the reliability aspect and also making sure that they are comfortable pretty much deploying these SSTs. So we're really engaged from 750-volt devices, 1,200-volt devices, 2.3 kilovolt devices, 3.3 kilovolt devices. And again, the higher the voltage comes, the more differentiated the product portfolio is. And we have the product, and we have this in our 200-millimeter Mohawk Valley Fab. So where we're getting a lot of requests from these customers is, okay, we're going to go deploy this now, are you ready to ramp. And the good news is with us having completed the 6- to 8-inch transition, I think this is a huge, huge asset for us as a company, right? And as you know, we're vertically integrated. It means we got the substrates, we got the product. And again, we all can serve them out of the Mohawk Valley fab.

Your next question comes from the line of Joshua Buchalter with TD Cowen.

Maybe following up on Chris' last one. So I think you called out -- great to see the data center business doubling, but it still remains modest. I guess any time line you're able to offer us on when you would expect data center revenue to become more meaningful? And I guess, how much of that is tied specifically to the 800-volt architecture versus broader compute and AI deployments?

Yes. So again, there are a couple of factors driving the demand. One is, of course, the 800-volt deployment. That's a big milestone here, which is going to happen. And we're working on various qualifications across the whole ecosystem. But then also the whole deployment of solid-state transformers, right? I mean this is where I talked about the 2.3 kilovolt, 3.3 kilovolt devices. are really important and us being able to deliver these devices from our Mohawk Valley factory is putting us in a really good situation to take advantage of that demand.

Got it. And then for my follow-up, any help you can give us on the gross margin trajectory, either near term or longer term? Like I guess, for the medium term, what level of Mohawk Valley utilization or revenue is needed for gross margins to flip positive?

Yes. Thanks for the question. I think, indeed, gross margin neutrality is the next big milestone for us to drive towards. That is particularly driven by volume growth. As you know, we have a high fixed cost nature in our business. Revenue expansion is the best way to improve our margins. Inherent profitability of the products is quite okay, I would say. So it's really about asset utilization. It greatly depends on the exact mix you have between devices and material, but also within material on the end market. So we are pretty happy to see that some of the industrial markets having a lot of traction, including the data center side. But in a ballpark, we would say on an $800 million annual run rate, that's probably the ballpark where a breakeven gross margin point lies right now. But again, that could be plus/minus several million depending on the mix.

Your next question comes from the line of Jed Dorsheimer with William Blair.

So my first is, could you just take a minute and maybe come back and talk about what you could do in terms of cash management and specifically around the L1 and what that would save in terms of interest. I believe that is callable at this point in time. What would that save you on annual interest? And what would that do to your cash burn? And then I have a follow-up.

Jed, thanks for the question. Obviously, the first lien debt is the highest priority debt to refinance. Right now, it's around 16% interest. Depending on the means of refinancing, you can calculate on the $630 million of outstanding debt, how much saving that would be. But again, it depends on what type of refinancing or repayment that would be. But it will be a meaningful contribution to the cash flow. In this particular quarter, overall, we have spent $32 million in cash out of the total $54 million in operating cash flow. So you can see it's a meaningful amount. Obviously, that's not all coming from the L1, but a significant portion of that.

Got it. And then just as my follow-up question, that retiring the L1 would also unencumber the ability to break the business in two between materials and power. Is that still the case? I believe the covenants previously had maintained that Apollo would have to sign off on that. But I'm assuming if the L1 was taken care of, that would unlock that covenant. Not that you're planning on doing that. I just wanted to make sure that I had that correct.

I would say I don't go into that. We have absolutely no interest to break it in two. So whether that's allowed or not is quite irrelevant from our perspective. We believe that having a vertically integrated business drives really a performance differentiator when it comes to our device performance. I think when you look at the Gen 5 product performance that we have released at the PCIM, you have seen a leap in performance that others have not been able to achieve with the technology in play, and we are convinced that this is to a certain extent, contributed by the fact that we are vertically integrated. So whether that may or may not be true, I don't think really is relevant for us at all.

Your next question comes from the line of Joseph Cardoso with JPMorgan.

This is [ Akash ] on for Joe Cardoso. Just had a broad question here related to materials revenue. It was $43 million this quarter, while you support 150-millimeter LTA customers through their 200-millimeter transition. How do we think about materials revenue from here? And when does 200 begin contributing more meaningfully to the overall number?

So we're working with all the major customers on qualifying the 8-inch to 200-millimeter materials as we speak. And some of them are digesting inventory levels. And I think it kind of -- we're exactly in this transition from 6- to 8-inch. Some LTAs are running out. Some LTAs on 150 are still continuing. And this is something I would say here which will continue for this year as we're seeing this transition here to happen. But as we see, of course, overall demand for silicon carbide and if you look into all the market studies, silicon carbide market is growing. This means also our customers on the material side will transition to 8-inch eventually. And then we clearly are in a very good position with leading-edge quality and leading-edge technology on the 8-inch side to take full advantage of that.

We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, thank you for joining us, and welcome to Wolfspeed, Incorporated Third Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to [ Ed Goodwin ], Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's Third Quarter Fiscal 2026 Conference Call. Today, Wolfspeed's Chief Executive Officer, Robert Feurle; and Chief Financial Officer, Gregor van Issum, will report on the results for the third quarter of fiscal year 2026. We would also encourage you to reference the slides that were published on our IR website today.

Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of our other key metrics.

Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. With that, let me turn the call over to Robert.

Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased to see that our strategy is building meaningful momentum. The third quarter of fiscal 2026 delivered revenue of $150 million, in line with the midpoint of our guidance. We continue to make strong progress on the areas of our business within our control, addressing our capital structure, improving our operational efficiency and deepening engagement with customers across the broad set of end markets.

As we move forward, we remain focused on 3 key strategic priorities: advancing technology leadership, demonstrating strict financial discipline and driving operational excellence. We have made strong progress in each of these areas this quarter. Starting with technology leadership. We continue to accelerate innovation across our silicon carbide platform to create a fundamental technology advantage. We are maintaining a disciplined approach to R&D, focusing our investments on high-return programs in the fastest-growing markets, and our efforts are delivering tangible results.

This quarter we introduced the first commercially available 10-kilovolt silicon carbide power MOSFET and launched our next-generation TOLT portfolio. These innovations, particularly 10-kilovolt will help to cement Wolfspeed's position as a leader in high-voltage applications. At the same time, we are making progress on our materials capabilities. After shifting all device production to 200-millimeter at Mohawk Valley, our Durham facilities anchor our materials capabilities. The infrastructure, talent and floor space there today support at least our near-term growth ambitions, including commercial scale 300-millimeter development as the market evolves.

Now turning to financial discipline. We took an important step this quarter to further optimize our capital structure through the refinancing of a portion of our first lien senior secured notes. This refinancing was supported by both new and existing institutional investors, demonstrating confidence in the long-term growth prospects of Wolfspeed and silicon carbide technology more broadly. Gregor will provide more on the specific financial implications shortly.

This brings us to our third priority, driving operational excellence. We remain focused on differentiating through quality, customer responsiveness, time to market and supply chain resilience. We continue to refine our manufacturing processes to improve quality, cost and speed across everything we do.

As mentioned last quarter, we completed the shutdown of 150-millimeter device production at Durham ahead of schedule. This creates optionality to redeploy that space. This approach allows us to increase output and improve our earnings potential by leveraging our current tooling base without the heavy incremental capital investment that would otherwise be required. The Durham campus can currently support all commercial materials activities as well as our emerging 300 millimeter platform.

We are also leveraging AI within our own operations. Through our expanded partnership with Snowflake, we have unified factory, supply chain and enterprise data on a single platform, and we've deployed AI-driven tools that enable real-time insights and faster decision-making across the organization. Last quarter, we outlined the realignment of our go-to-market strategy around 4 verticals: auto, I&E, aerospace and defense and materials. During the quarter, we have sharpened our approach with the completion of recent leadership additions, including Daihui Yu as Regional President for Greater China; Stefan Steyerl as Vice President of Sales for EMEA, and, most recently, Yasuhisa Harita as Regional President for Asia Pacific. These leaders strengthen our ability to scale our go-to-market efforts globally, and we are encouraged by early traction we are seeing across each of these end markets.

In auto, global EV adoption continues to grow, though more modestly in certain regions. Silicon carbide revenue doesn't necessarily scale in lockstep with vehicle sales due to design-in and qualification cycles. As the industry evolved, we believe that we needed to retool the approach as the market entered its next phase. Therefore, we strengthened our team with experienced automotive executives and launched a focused strategy targeting key global accounts with high electric adoption, positioning Wolfspeed to capture the next wave of design wins. Given the qualification cycles of EV programs, our success from these engagements are expected to translate into revenue over time.

In I&E, momentum in AI data center applications continues to build. Our TOLT portfolio is purpose-built for AI rack power, and we are actively collaborating with AI ecosystem partners on the transition from 400-volt to 800-volt architectures. While it represents a moderate portion of our business today, we have continued to see strong sequential growth in AI applications with approximately 30% sequential growth from Q2 to Q3 and increasing customer engagement, which gives us confidence in the long-term trajectory of this opportunity.

In aerospace and defense, growth is supported by electrification trends and increasing demand for secure domestic supply chains. In addition, we continue to expand our presence in emerging applications such as electric aviation. Our partnership with a leading manufacturer of electrical vertical takeoff and landing aircraft is a strong example of how our solutions enable higher efficiency and power density in the next-generation platforms.

Finally, in our materials business, we continue to serve our 150-millimeter materials customers, including under the LTA framework. In addition, we are making progress with qualification on 300-millimeter materials. At the same time, we are engaging with AI ecosystem companies to explore how 300-millimeter substrates can address thermal, mechanical and electrical challenges in next-generation AI and high-performance computing packaging architectures. We continue to engage on 300-millimeter as a longer-term opportunity. I want to thank the team for their continued execution against our strategic priorities and for the excellent progress against our technological, operational and go-to-market objectives.

With that, I will turn it over to Gregor.

Thank you, Robert, and good afternoon, everyone. Before walking through our financials, I want to highlight the benefits of our recent refinancing. We took a significant step to strengthen our capital structure through the private placements of new convertible 1.5 lien senior secured notes, common stock and prefunded warrants, generating approximately $476 million of aggregate gross proceeds.

We used the cash on hand to cover fees associated with the private placement, directing the full aggregate gross proceeds towards reducing our existing senior secured note balance by approximately 43%. These actions reduced total debt principal by approximately $97 million and are expected to lower the annual interest expense by approximately $62 million. Our first debt maturity remains in 2030, providing runway to execute our strategic plans as we continue to optimize our capital structure.

Additionally, during the quarter we received CFIUS clearance that resulted in the release of equity to Renesas. CFIUS approval, coupled with our strategic refinancing, primarily drove the more than $400 million increase in the company's equity position during the quarter, significantly improving our debt-to-equity ratio.

Now I will turn to our third quarter results. We generated $150 million in total revenue for the quarter, in line with the midpoint of our guidance. Power revenue was approximately $100 million, of which 90% was from our Mohawk Valley 200-millimeter device fab. The remaining 10% of power device revenue was last time buys of our 150-millimeter device inventory. Materials revenue was approximately $50 million, flat sequentially.

Next, our gross margin for the third quarter was negative 20.6%, representing a double-digit percentage point improvement compared to the last quarter, partially driven by a more favorable product mix as well as beneficial impact from digesting the fresh start accounting inventory in the last quarter.

The impact of underutilization across our manufacturing footprint was approximately $46 million in Q3. Underutilization continues to be the primary driver of our gross margin profile and improving factory utilization remains one of the most important levers to drive margin expansion going forward. One point worth highlighting is as our operation performance continue to improve, we are producing the same revenue with less capacity consumed. These continuous efforts position us to keep expanding our earnings potential per dollar of invested capital even if it makes the reported underutilization look larger.

Non-GAAP operating expenses totaled $61 million in the quarter. With headcount reduction actions largely complete, we expect to maintain approximately this level of OpEx moving into the next quarter. Adjusted EBITDA for the quarter was negative $62 million.

Now turning to cash flow, which remains one of our top priorities. Operating cash flow for Q3 was negative $84 million, driven by improvement in precious metal reclamation, interest income and continued working capital improvements. Capital expenditures were approximately $5 million on a net base in the third quarter, reflecting $38 million of gross CapEx, mostly coming from previous commitments we have made. These investments were nearly entirely offset by $33 million of incentive receipts from the New York State related to Mohawk Valley.

We ended the quarter with approximately $1.2 billion in cash and short-term investments, allowing us to continue to pursue our strategic priorities with confidence. Whilst we've taken meaningful steps to strengthen our balance sheet, we recognize there is more work ahead.

Looking ahead, while near-term demand in automotive remains uncertain, we continue to see encouraging momentum in high-growth areas such as AI data centers and other I&E applications. These markets represent meaningful long-term opportunities, though it will take time for them to scale and offset current softness in automotive.

During the fourth quarter of fiscal year '26, we are targeting revenues between $140 million and $160 million. We expect non-GAAP gross margin to remain negative in the fourth quarter and OpEx to be roughly flat quarter-over-quarter. On the long term, our objective remains clear: to return to above-market revenue growth driven by a more diversified customer base and to achieve EBITDA and cash flow profitability.

Thank you, Gregor. This quarter reflects continued progress against our 3 strategic priorities: advancing technology leadership, demonstrating strict financial discipline and driving operational excellence. The actions we have taken this quarter, strengthening our balance sheet, launching industry-leading products, deepening our leadership team in the region with a focus on customer centricity and enhancing our operational capabilities are all directed towards one objective, positioning Wolfspeed to capture growth and expand earnings power as the market environment improves.

With that, operator, we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Christopher Rolland with Susquehanna.

I guess my first one is going to be around AI and your opportunities to address AI very specifically. If you could talk about perhaps the AI power tree, what's available in your view for silicon carbide, what applications you might address earliest, whether it might be PSUs or power delivery boards or solid-state transformers or the 300-millimeter kind of future applications that you spoke about in your prepared remarks. If you could just talk about what you think actually comes to revenue first and what might be meaningful for Wolfspeed, that would be great.

Thank you. So that's a great question. Let me quickly start kind of answering, you discuss 2 things. The one is on the device side here. It's everything which is, I call it, 650 volt up, right? Then if you look at from an application perspective, these are the power supplies in the data center, the traditional new customers around that space. And this is, of course, battery backup storage, kind of powering also the air conditioning in the data centers consuming silicon carbide.

And then outside of the data center, more of the transmission piece where pretty much you will see the future adoption of solid state transformers, right? So this is really a significant driver of future silicon carbide demand. And we are engaged, I would say, the whole chain from energy generation to up to the kind of 650 volt level. Below that, that's then a different wide bandgap technology kind of taking that space. But up to that space, I think we are engaged with everybody in the ecosystem.

Lower voltages are primarily, I'll call it, component and discrete approaches and the higher voltage are modules. So the qualification times are also a little bit different between modules and improving reliability of a solid-state transformer versus pretty much selling components to the power supply. So the one which is probably ramping faster is more the power supply stuff while then solid-state transformers, I think, will kick in kind of over time.

And second piece to the second answer to your question is around 300-millimeter. So again, we started these, we call it beyond power activities, and we see quite some really good momentum here with a lot of ecosystem partners on using silicon carbide's unique property around thermals and mechanicals in various aspects, but all of them come around packaging, co-packaging, interposers, heat things in that kind of application area.

I think people are looking like, wow, there is really unique properties being super conductive while also being insulating, and I think here, the discussions have started here. This is early discussions. Also as we've indicated, there's nothing where we see revenue short term. But we believe here the technology has certainly a right to play.

Excellent. Maybe as a follow-up, I think the legacy for Wolf for silicon carbide has primarily been automotive. I was wondering if you could speak to how the end markets might change under your management, particularly between automotive, industrial and AI. And AI, in particular, might you be able to offer maybe an aspirational AI target for revenue at some point in the future?

No, absolutely, very good question here. Look, when I came in, I mean the company was organized around products. There was one gentleman running modules, one gentleman running discrete. And so what I said is we got to change this to be application-oriented because, look, at the end of the day the focus was all around EVs. And then we did an organizational change and said let's move to an application-focused go-to-market approach. And so the business lines are now pretty much we've got an automotive business line, the gentleman from Onsemi running that business line.

And there's an I&E business line and that I&E business line is kind of with some substructures around renewables, AI data center and then generally drives business, which is pretty much all of what we call industrial here. And then we have a segment around aerospace and defense, and then there's the materials business. And this is kind of how we view kind of the go-to-market to really support a more differentiated view of how do we approach customers, but also how do we service the customers because the design cycles are different, the requirements are different and the dynamics are certainly different. I think that's something which we really see that organizational change which I put in place last year is really starting to pay off to get that focus on it.

And as you've probably seen here, previous quarter, Q1 to Q2, we grew 50% on the data center side. This quarter, Q2 to Q3, we grew 30%. So it's really growing here. Again, it's not a huge size of revenue yet, but it's certainly the growth shows putting the focus on it. We got the product portfolio, yes, and we are making really, really good progress.

Your next question comes from the line of Jed Dorsheimer with William Blair.

Robert, a question for you, just maybe a little bit on the go-to-market strategy. Some of your competitors, I mean, everybody is talking of the use in AI in terms of 800 voltage. But utilization at some of the competitors has actually come down, which tells me that auto is still the main driver. So I'm just -- I guess my question for you is, as you think about your go-to-market strategy on the product level for AI applications and maybe also for solid-state transformers, how much absorption do you think you can -- what type of utilization do you think you can get to in Mohawk Valley? And then I have a follow-up question.

Yes. Look, I mean, at the end of day, first of all, we're not disengaging from automotive, yes. Let's make this very clear here. Automotive is a very, very important part of our business. And I think, look, the cars are becoming electric and the cars are becoming connected. So we will clearly focus on, I call it, technology leadership around really penetrating these, let's say, high-end sockets.

And quite frankly speaking, the customers are really appreciating kind of what we're doing on the technology side. And you will see here some announcement at PCIM. PCIM is the upcoming trade show on the power side here, beginning of June here, and you will see some announcement around the technology side coming out on that trade show.

Then on your question on AI data center, again, this is being driven out of our I&E business line. And again, it really represents a significant growth for us in a sense that really diversifying Wolfspeed away from pretty much being a pure-play auto company and really diversifying the revenue.

And then within I&E, like I already mentioned, right, it goes pretty much everything from 650 volts upwards. So a 650-volt discrete, it's pretty much 1,200-volt discrete. And then kind of in the 2.3 kilowatt, 3.3 kilowatts, you look into modules. And these are pretty much modules which are used for the solid-state transformers.

And as these transitions in this transformer space happens, I think we are very, very well positioned here with the customers in this ecosystem. And then, of course, we see demand picking up and that then also will increase the loading effectively in our Mohawk Valley. I mean the good news is, quite frankly speaking, that the restructuring on our, let's say, device side is done. We talked about we phased out 6-inch. We pretty much exited our Durham facility.

This means we have completely made the move over to Mohawk Valley, which means also it's the ability to scale, yes, because a lot of -- if I look at the competition here, a lot of them are still on 6-inch. A lot of them are really trailing in that conversion. And I think this puts us in a unique position that we can also tell the customer, look, there is no PCN. We don't have to move the product anywhere to go through as kind of the demand picks up on these applications.

Great. And then maybe as a follow-up for Gregor, just it looks like you've been able to restructure a little bit more than half of the L1. I'm just curious what your intentions are in terms of that. Can you -- is the goal to -- and I may have missed this in the remarks, but get that completely restructured before the June time frame or July time frame?

Yes. Obviously, you saw that we took a first big step by taking out 43% of the first lien debt. That is the most expensive debt we have. It's around 14% interest rate. And there will be a further step up to 16%. So clearly this is the prime focus to address. We felt it was very important to take this first step, and we are very pleased with the signal of strength with new long holders coming in and even having a part of equity at a premium be part of this mix of taking a part of the L1 out.

The size of the L1 was, however, such that doing this in one go would have been too costly, particularly because we expected that the stock would rerate after taking a first step and showing the signal of strength that we have disability.

We think we see some of that over the last couple of weeks. And what we're doing right now is evaluating which exact steps we're going to take and when. We are not in a rush because of the maturities in 2030, but obviously I'm keen to do something. We're not going to put a specific time line against that. That is not necessary to put that pressure on ourselves. We will take the best possible approach when the market conditions are optimal to get the best cost of capital for the company.

There are no further questions at this time. I will now turn the call back to Robert for closing remarks.

All right. Thank you also for joining us on the call, and thank you for the very constructive questions.

Thank you. Bye-bye.

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

Good afternoon. Thank you for standing by, and welcome to the Wolfspeed, Inc. Second Quarter Fiscal Year 2026 Earnings Call.

[Operator Instructions]

Please note today's call is being recorded. I would now like to pass the conference over to your first speaker today, Tyler Gronbach, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon, everyone. Welcome to Wolfspeed's Second Quarter Fiscal 2026 Conference Call. Today, Wolfspeed's Chief Executive Officer, Robert Feurle; and Chief Financial Officer, Gregor Van Issum, will report on the results for the second quarter of fiscal year 2026. We would also encourage you to reference the slides that were published on the IR website today as we will be referring to them during the call today.

Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors.

Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies. Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP.

Reconciliation to the most directly comparable GAAP measures is in our press release and posted to the Investor Relations section of our website, along with a historical summary of our other key metrics.

Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially. Now I'll turn the call over to Robert.

Thank you, Tyler, and good afternoon, everyone. We appreciate you joining us on today's call. As you can see on Slide 3, we have continued to build solid momentum across the business since reporting our fiscal first quarter results from achieving 50% quarter-over-quarter growth in AI data center revenue to producing a 300-millimeter silicon carbide wafer, securing key customer wins and most recently, completing CFIUS clearance, we have been moving the business forward on multiple fronts.

Under our refreshed leadership team, Wolfspeed has sharpened its operational discipline and strategic focus to ensure consistent execution. Since I've joined the company, we've brought in top-tier talent from across the semiconductor industry, people who recognize our unique position in the silicon carbide market and helping us scale execution to better serve our customers and meet future market demand.

As we outlined on our last call and cover on Slide 4, we're concentrating in a few key areas: strict financial discipline, advancing our technology leadership and driving operational excellence. A central theme across these priorities is diversifying our revenue base, particularly in industrial and energy, including applications tied to AI-related power demand and grid modernization by continuing to support our broad base of automotive and other device and material customers.

During Q2, we continued to fortify our sales, marketing and product teams, adding experienced leaders with deep semiconductor knowledge and strong customer relationships. These hires are already helping us extend our reach into emerging power device opportunities. More on this later.

First and foremost, we are making solid progress in applying strict financial discipline across the organization. Following our financial restructuring, Wolfspeed has a stronger capital structure with net debt of approximately $600 million, annual cash interest expense lowered by approximately 60% and a strong liquidity, which includes approximately $700 million in 48D cash tax refunds we recently secured. Our cash position is $1.3 billion.

As we move forward, we are operating with strict financial discipline, aiming to maintain our balance sheet strength and stability through diligent execution. Consistent with this focus, our second priority is advancing technology leadership across the entire silicon carbide value chain.

As you can see on Slide 5 of our presentation, we've positioned the company to win in both devices and materials, leveraging our vertically integrated 200-millimeter footprint. Central to extending our technology leadership is our approach to deploying our R&D resources.

We streamlined R&D to focus exclusively on high-return programs in the highest growth markets. Our third priority centers on our commitment to driving operational excellence with focus on differentiating through quality, customer responsiveness, time to market and supply chain resilience.

As shown on Slide 6 of our presentation, this secure and scalable infrastructure remains a core differentiator for the company as we execute our strategy and support growing customer demand.

We remain focused on driving costs out of our footprint, processes and products, even as we navigate underutilization headwinds. We have officially completed the shutdown of all 150-millimeter device production in our Durham campus, roughly a month ahead of schedule, transitioning our entire device platform to a higher efficiency 200-millimeter manufacturing.

We continue to improve production efficiency and speed to optimize the earnings potential of the business. The results of these efforts will be even more apparent when demand accelerates and we begin to increase fab utilization.

As I mentioned earlier, a central theme across these 3 priorities is diversifying our revenue base in key verticals where I believe we can extend our leadership position, particularly in mid- to high-voltage applications.

To accomplish this, we have organized our go-to-market strategy around 4 verticals that we believe will drive growth in our business in the near to midterm, auto, industrial and energy, aerospace and defense and materials, and we are already seeing strong traction from these early efforts.

Our first vertical, automotive, remains a core market despite muted EV demand due to a mix of macro and structural factors, which include higher interest rates in the U.S. and Europe, the elimination of certain government incentives in the U.S., excess supply across the market and intensifying competition globally, including China.

Despite weaker near-term demand, our portfolio is aligned with OEMs that provide us efficiency, range and power density.

A great example of this is our recently announced partnership with Toyota, one of the most respected and quality-driven automakers in the world to power the onboard charging systems for their BEVs.

Thanks to the efforts of our leadership team, we are strengthening our relationship with the top global EV OEMs, and we are now sampling across several key strategic programs.

While these headwinds are creating a softer demand environment in the near term, silicon carbide remains a foundational technology for EV and other platforms. As highlighted on Slide 7, silicon carbide continues to capture share in high-voltage applications where performance, reliability and system-level efficiency are critical, positioning it as the preferred technology over both silicon and GaN. In I&E, our second vertical, we are leveraging our expertise to expand our reach, concentrating on AI data center power, grid storage, solid-state transformers and broader grid modernization applications.

We have the expertise to extend our knowledge into the AI data center opportunity, which operates at significantly higher voltages in legacy data centers. As I mentioned, as voltages increases, we believe an increasingly larger portion of this addressable market will be better served with silicon carbide technology, the legacy silicon-based solutions from grid to rack.

As you can see on Slides 8 and 9 of our presentation, Wolfspeed has a strong momentum in this area. The AI revolution is fundamentally reshaping data center requirements and accelerating the shift from general purpose facilities to purpose-built AI infrastructure that demands unprecedented power density and efficiency, playing directly into Wolfspeed's strength.

Our devices are already embedded in critical AI data center power systems, and we have doubled our data center revenue in the last 3 quarters with 50% quarter-over-quarter growth from Q1 to Q2.

Further, we are actively collaborating with a broad ecosystem of partners to support the industry transition from legacy 400-volt architectures to next-generation 800-volt AI platforms.

Data center build-outs and widespread electrification have driven a surge in global energy demand. There are 2 key solutions to rising energy needs. The first was bringing online new energy sources like wind and solar. We're already seeing silicon carbide adoption across wind and solar applications as evidenced by our recently announced collaboration with Hopewind to advance the next generation of wind power solutions.

Turning to our third vertical, aerospace and defense. We believe there is a growing opportunity due to the tailwinds from defense modernization and electrification, including direct energy platforms. U.S. government has already recognized silicon carbide as strategically significant to national security with both the Department of War and the Department of Energy designating it as a critical material.

Additionally, the U.S. government has emphasized the strategic importance of secure domestic semiconductor supply chains for national security applications. And we believe Wolfspeed is best positioned to support those needs. As you can see on Slide 10, Wolfspeed is not only entrenched in established high-voltage markets like 800-volt automotive, solar and industrial, but we believe we are also positioned to lead in the next wave of emerging high-growth applications from AI data centers and grid modernization to aerospace and heavy equipment.

These opportunities demand material innovation that silicon carbide can deliver, which brings us to our fourth vertical, materials. In materials, we're executing a clear two-pronged strategy, scale and strengthen 200-millimeter leadership for power devices today while advancing 300-millimeter capabilities to expand our long-term addressable opportunities.

First, on 200-millimeter, material quality is increasingly critical as customers push into higher voltage, higher power density applications. Substrate performance influences everything that matters downstream, device yield, reliability and system efficiency.

So our priority is delivering high-quality 200-millimeter wafers at commercial scale. Because Wolfspeed moved earlier to commercialize 200-millimeter in a scaled manufacturing environment, we believe we're best positioned to support not only our internal device road map, but also merchant demand as the market continues to mature.

Second, we are very proud to have recently produced a single crystal 300-millimeter silicon carbide wafer, a meaningful milestone that clearly demonstrates Wolfspeed's long-standing materials innovation. Importantly, our view of 300-millimeter is not that it replaces 200-millimeter for power devices in the near term.

This helps lay the groundwork for silicon carbide beyond power, but different end markets can value material properties like thermal conductivity and optical performance. One example is optical grade silicon carbide for next-generation AR/VR systems.

The compact lightweight designs demand a high brightness and effective thermal management. Taken together, this combination industry-leading 200-millimeter materials for power today plus early validation of a 300-millimeter platform that can unlock emerging applications over time, reinforces our belief that Wolfspeed can maintain and extend its leadership in silicon carbide materials.

Our efforts against our 3 strategic priorities, coupled with our vertical go-to-market strategy, enable Wolfspeed to capitalize on the incredible opportunity, created by the transition from silicon to silicon carbide. Now I'd like to turn it over to Gregor, who will walk through our financial performance for the quarter and provide more details on our path forward.

Thank you, Robert, and good afternoon, everyone. I'll begin with a brief overview of our second quarter performance. Then I'll walk through the key financial impacts from our restructuring and the adoption of fresh start accounting. And finally, I will share our outlook for the fiscal third quarter.

Starting with an update on some highlights of our second quarter, which we've illustrated on Slide 12 of our presentation are as follows. We continue to make progress implementing strict financial discipline, focusing on the aspects of the business within our control.

The closure of the Durham 150-millimeter device fab 1 month ahead of schedule is a good example of that. We upsized and collected the $700 million cash tax refund in Q2. We also improved $89 million in working capital management, excluding the headwind of final payments linked to our restructuring and further reduced both operating expenses and CapEx investments.

Now I'll review our quarterly financial results and speak to some of these updates in more detail, which you can see on Slide 13 of our presentation. We generated $168 million of total revenue, in line with the midpoint of the guidance range we provided last quarter.

Power revenue was $118 million, of which Mohawk Valley contributed approximately $75 million. This includes some of the last-time buy shipments from Durham campus are ahead of the closing I referenced earlier.

As Robert mentioned, the revenue tracking is a mix between a weaker automotive market and fast-growing mid- to high-voltage revenue. This is linked to the good traction in AI and data center space. Materials revenue was $50 million, driven largely by a tightening demand environment and increased competition in the marketplace.

Non-GAAP gross margin for the second quarter was negative 34%, which included several adverse effects. First of all, a $39 million drag related to fresh start accounting, $23 million of which is related to inventory step-ups, which we digested in the quarter as well as a recurring $60 million increase related to amortization for intangible assets.

Furthermore, we recorded $4 million of costs related to specific inventory reserves, which further adversely affected the margins in Q2. The impact of underutilization in our manufacturing sites stood at approximately $48 million in Q2.

As Robert noted, we completed the closure of the Durham 150-millimeter device fab at the end of November, 1 month ahead of schedule, which improved gross margins by $5 million in the quarter.

We'll continue to see benefits going forward as we focus on our 200-millimeter device manufacturing in Mohawk Valley. We've continued to reduce non-GAAP operating expenses, which are now $200 million lower on a run rate base versus last year.

At the same time, we continue to invest in R&D to reestablish and extend our technology leadership. The GAAP operating expenses totaled $83 million in the quarter, including approximately $24 million of restructuring and transition-related items.

Adjusted EBITDA for the second quarter was negative $82 million and included the impact of the previously discussed fresh start accounting implications as well as the underutilization.

Adjusted EBITDA is largely unaffected by fresh start accounting impacts on a go-forward basis. Now I'm turning to cash flow, which remains one of our top priorities. We are making strides in reducing our working capital by reducing inventory and receivables.

Our disciplined focus contributed approximately $90 million to ending cash, partially offset by the final liability management payments of $64 million we made in Q2. Our operating cash flow for Q2 successor period was negative $43 million.

As you can see on Slide 14, we have also continued to reduce CapEx, which was just $31 million in the second quarter, which were primarily linked to prior commitments.

This is a substantial improvement from the approximately $400 million of CapEx in the second quarter of last year. Looking ahead, we remain committed to a disciplined capital allocation strategy and drive CapEx further down over time as prior commitments start to fall off.

As announced earlier, we have received $700 million of 48D tax credit in the quarter. We have used a part of our cash to reduce $175 million of our first lien debt. In addition to retiring some of our first lien debt, approximately 1.5 million shares have been converted from our second lien convert, resulting into a debt reduction of approximately $18 million.

Together, these form a first step to further improve our balance sheet post emergence and will deliver $25 million in annual interest savings. We ended the quarter with $1.3 billion in cash and short-term investments.

This stronger liquidity position enables us to pursue our strategic priorities with confidence. We have made significant progress in addressing our capital structure thus far, and we recognize that we have further work to do in this area.

We believe our results in Q2 reflects meaningful progress in improving our operations, enhancing capacity and improving our earnings potential, but there is still work ahead of us to improve further with factory utilization as one of the main levers.

Next, I'll review the impacts on the financials as a result of the adoption of fresh start accounting. I would also encourage you to reference our press release, Slide 15 and 16 of our presentation and Form 10-Q for additional details on this topic.

As you know, over the past year, we took important steps to strengthen our capital structure, positioning Wolfspeed to emerge from our restructuring on firmer financial footing. As part of these efforts, it is required that we adopt fresh start accounting, which marks a true reset for Wolfspeed.

With fresh start accounting, our income statement for the second fiscal quarter of 2026 is split between a predecessor period ending on September 29, 2025, which reflects activity up to and including our emergence from Chapter 11 and a successor period beginning September 30, 2025, which reflects our results after emergence.

We were able to emerge from Chapter 11 on the first day of the fiscal quarter. So our successor period effectively includes all operating income for the quarter. Unless I say otherwise, the details that I will outline in a moment pertain to the successor period only because fresh start accounting requires that fair values are estimated for company's assets, liabilities and equity as of the date of emergence.

Certain pre- and post-emergence financial and operating results will not be comparable. All adjustments related to fresh start accounting are noncash. As part of the fresh start process, we remeasure our assets and liabilities to fair value, anchored to the court approved enterprise value at the midpoint of $2.6 billion.

Our new debt measured at fair value replaced the legacy debt. We also recorded a $1.1 billion gain from emergence, which reflects approximately $3.7 billion in debt forgiveness, offset by approximately $2.6 billion of net adjustments to assets, primarily property, plant and equipment.

Looking ahead, we expect a net reduction of approximately $30 million per quarter in depreciation and amortization compared to pre-emergence Wolfspeed due to the lower property, plant and equipment on the balance sheet, partially offset by the step-up in intangibles.

The application of fresh start accounting also results in fair value adjustments to step up work in progress and finished goods and step-downs in our raw materials. The $23 million step-up related to work in progress and finished goods was recognized in COGS during the second quarter, resulting into a onetime headwind, as I mentioned earlier in my gross margin comments.

The favorability from the $170 million step-down related to raw materials will only be realized in the P&L over the next several quarters. While fresh start accounting limits comparison across the predecessor and successor period, I want to reiterate that adjusted EBITDA is largely unaffected by fresh start accounting impacts, except for this quarter.

Lastly, we received final clearance from CFIUS to allocate equity shares to Renesas in connection with our previously approved restructuring agreement. This regulatory approval enabled the release of approximately 16.85 million shares of new common stock to Renesas.

In addition, we completed the distribution of the final 2% equity recovery, representing approximately 871,000 shares to our legacy pre-petition shareholders. Our total shares outstanding are now 45.1 million.

Finally, let's turn to our outlook on Slide 17 of our presentation. While the automotive end market remains volatile in the near term, we are encouraged by the growing momentum in key strategic areas such as AI data centers and other industrial and energy applications.

These emerging opportunities represent meaningful long-term growth drivers, but they will take time to scale and offset the continued softness in EVs. During the third quarter of fiscal 2026, we expect revenues between $140 million and $160 million. The decline is driven primarily by accelerated customer purchases in our first fiscal quarter as certain customers build up inventory by placing orders from the Durham fab prior to its planned closure.

Certain customers pursuing second sourcing of products during Wolfspeed and weaker EV demand. The company expects OpEx to be flat to slightly down sequentially as we remain confident in controlling operating costs through actions already implemented.

Lastly, due to the ongoing fresh start accounting impacts, Wolfspeed will not yet provide a numeric gross margin guide, but does expect further quarter-over-quarter improvements driven by ongoing operational actions.

However, gross margin is expected to remain negative in fiscal Q3. As we mentioned on last quarter's call, we expect to provide an update on our long-range plan in the first half of calendar 2026, where we will give an update on the long-term financial targets and capital allocation plans. With that, I will return the call back over to Robert.

Thank you, Gregor. Across the business, our team is working tirelessly to drive progress against our strategic priorities and to mobilize our scale and technology advantages. All of these efforts are intended to strengthen our ability to capture the next wave of growth in silicon carbide. While the near-term demand picture remains dynamic, 2 trends remain clear. First, electrification is happening across new markets every day. Second, voltages will continue to increase, necessitating more power density and increased energy efficiency. We are building a stronger, more resilient Wolfspeed.

With an improved financial foundation, experienced leadership team and our vertically integrated platform, we're strategically positioned to drive long-term growth and value as we define the future of silicon carbide technology. Operator, we are now ready to take questions.

[Operator Instructions]

The first question comes from the line of Brian Lee with Goldman Sachs.

Thanks for the updates here. I appreciate the slide deck as well. A lot of new information. So maybe the first question, just thinking about the strategy, you mentioned the diversification away from EVs, key segments like A&D, grid modernization, AI, data centers.

Maybe just walk through a little bit of how that's going to work and then what it requires for you to change how you go to market and maybe the time line involved? And then I had a follow-up.

Yes. Thanks, Brian. At the end of day, look, what we're doing is we're pretty much looking into pivoting away from being a one-trick pony focused on EVs.

So this means when I started, I kind of turned the organization, the go-to-market organization to be application-oriented from -- coming from a product-oriented setup, which means we're really looking into now automotive, industrial energy and aerospace and defense and pretty much take these application requirements into what does it take to build these products.

And I think what you can see here with our progress quarter-over-quarter in AI data centers that, that revenue growth here is really starting to pay off. In addition to that, it's also to get the right sales organization and the right channel strategy in place, right?

This means a clear tiering of what are the key accounts in this respective application segment, but also especially I&E segment, these are -- it's a large number of customers.

So really getting a channel strategy around distribution and specifically for the U.S., a rep structure in place. This is all in progress as we brought in some really good new talent from the outside from other big semiconductor companies.

Great. That's helpful color. And then maybe just a follow-up on the financials and the balance sheet. A lot's changed and maybe more is going to change. But could you guys remind us, is there any expected interest rate step-up on the first lien this year or next year?

And then I think until recently, the 2031 converts were sort of in the money, but are you contemplating doing any sort of additional financing strategic maneuvers with respect to the first lien and the converts, just given the equity and where it's been trading?

Greg?

Maybe, Robert, I can take that one. Yes. So you're right. So we took obviously first big steps with emerging from Chapter 11 and restructuring the balance sheet in that process. And then we focus very much on collecting the cash from 48D and using the first paydown of the L1s, but that's just the first step.

And we are very much aware of the situation and opportunity potential in the convert area, which we're deeply looking into at the moment alongside other options that we have. So as I mentioned in the script earlier is that we realize there's more work to be done. And over the next period, we will be very actively looking at that.

Very concretely, the interest rate will step up around the middle of calendar year 2026. And at that moment, also some of the make-whole premiums step down. So in our view, that is definitely a very high cost of capital there and something to be looked at. For the rest, we continue to focus a lot on the strict financial discipline.

So you've seen we focus a lot on getting more cash out of working capital. I hope to make some further improvements there as well. And we believe that with the long maturity and the strong cash balance, we do have the time to look into this refinancing topic in a structured and yes, good way.

The next question comes from the line of Christopher Rolland with Susquehanna.

So I also wanted to dig in, in some of these other opportunities, particularly AI data center. I think from a power perspective, it's pretty interesting right now.

If you guys can talk about kind of what your AI data center revenue consists of today that was up 50% quarter-over-quarter.

And then going forward, kind of your top sockets. Is it going to be SSTs or in the power supply or we're hearing even potentially for substrates. Would love to know about your competitive position there and how big this thing could be for you guys eventually?

Thanks, Chris. I mean, it's really a very, very good question. So let me kind of take them one step at time. I think what's happening in the AI data center space, especially on the rack side is that today, you're around about the 100 kilowatt-ish per rack.

That's kind of moving in 2 years from now to like 600 kilowatt per rack into like a megawatt rack like in the 2029, 2030 time frame. This means you have to go figure out how do you power these racks and how do you get the energy from the energy generation to that rack.

And I think this is where exactly Wolfspeed can play to the full advantages coming from the energy generation, which is pretty much really going into the -- from the kilowatts, stepping that voltage down -- and then as more and more renewables come into the mix, you need also a lot of energy storage systems in between to kind of buffer glitches and these type of things.

So that's kind of the next portion where we are focused on. And then, of course, you need to get this energy into the data center with transformers, right?

And there is a transition happening from traditional transformers to solid-state transformers where also silicon carbide is the perfect solution, I would say. That transition is starting to happen here.

So we're really playing in terms of energy generation, energy storage system, solid-state transformers. But then also you look in the data center, there is the UPS. So the uninterrupted power supply is a big application.

And then again, 40% of the energy in the data center is, let's say, consumed for cooling devices, another way to say, hey, can you build these systems more effective. So you see this is not just one application.

These are multiple applications. spanning across the whole power range. So I think this is something what we're very actively working on, and we got multiple excellent customer engagements and partner engagements on that side. We announced a new package just recently, kind of the topside cooling package here, really looking to build specific products for that application.

Coming to your questions on the substrate. So what we are seeing is that silicon carbide from a materials perspective has unique properties. And one unique property is thermal conductance, right? I mean it is one of the best materials for thermal conductance and has great optical properties.

And I think here, there's clear interest to explore now to see is there a way to use the thermal conductance in some type of improvement for the system architecture. This is why we've also kind of pioneered this space on developing a single crystal 300-millimeter wafer here.

And we have very early ongoing discussions with key partners in the industry to say, hey, with us not being able to produce really large-scale single crystal silicon carbide here, kind of what could be a potential solution? I mean this is something where I cannot give you an exact time line on revenue coming into the company, but this is something where we again have very good interest and working with partners, various partners in the industry.

Excellent. Sounds very exciting. My second question is around just kind of stability moving forward and then eventually growth. And I think you guys talked about the fiscal first half customer purchases from Durham transition Obviously, it sounds like a pull-in of orders.

Where are we in digesting those orders and alleviating that overhang? And when do you think you have confidence in the bottom and then building growth on top of that bottom again? What -- how should we think about these different dynamics?

Yes. I think there are various topics playing into this. The one was clearly the kind of the transition from 150-millimeter devices to 200-millimeter devices. As such a fast transition, you always have customers purchasing more for end-of-life in the parts, right? I think so that is pretty much -- the end of lighting is done, right?

The 150-millimeter factory is shut down. We took the cost out of the company, also the running cost out of the company. And I believe with that step also, we are really the first company in the Western world who is completely only manufacturing on 200-millimeter devices.

And then, of course, it comes a question to demand, right? And I think we talked about this also in the earnings call. It's a very dynamic market environment, especially around the EV side here. And it's really hard to predict in terms of visibility of kind of how that will develop.

On the long run, I think, look, the electrification of the drivetrain is continuing, right? I mean if you see, I just recently saw a market research forecast, right, slightly over 90 million cars getting sold, around about 20% of these cars being EVs.

And that portion of EVs is just going to grow, right, towards the end of the decade, I saw some forecasting around about 50% of the cars being sold end of the decade are EVs, right? And then in these EVs, you have kind of 2 dominant voltages for the batteries.

The one is an 800-volt platform, the other one is a 400-volt platform. And for the 800-volt platform, I mean, the primary solution is to do the traction and silicon carbide. So I think so the overall trend long term of adopting silicon carbide using this in EVs.

And also again, we talked about the data center opportunity, it's real, right? Can I tell you exactly kind of short term what will happen? No, with all the macroeconomic factors playing into this.

The next question comes from the line of Jed Dorsheimer with William Blair.

I guess first one for you, Gregor. Just a follow-up to Brian's previous question is it would seem like dealing with L1s in some capacity might be the lowest hanging fruit.

So I'm just curious, have you kind of looked at what the potential savings in interest could be? I'm just wondering in terms of -- as you explore different options, are you talking about sort of a $50 million to $100 million annual savings? Are you talking $150 million? Like what is the scope of that? And then I have a follow-up.

Yes. I think it depends a little bit on how we would execute some portion of the refinancing of the L1. As said, there are several options and it depends a bit on what is available given the specifics and nature of just emerging for Chapter 11.

So we are very actively looking at that. Our cost of capital is right now very high, and there will be a further step up. So that is something that we are looking forward to address head on.

I think the exact amount of interest reduction will really depend on the instrument we will use and the size of the first step we can make. And I think it's a bit premature to indicate exactly how big that would be, but I'm looking for making, let's say, material first steps there, but it's probably not going to be in a one go transaction.

It does. Yes. I mean I think you addressed sort of scope. I guess second question would be for you, Robert. With respect to Siler City and just -- I know you can't guide or it's premature to frame around the 300-millimeter for virtual lens opportunities, but that would seemingly be the fastest way to fill that fab.

So I'm just wondering, is there any framework to think about timing of utilization should that AR/VR type opportunity ramp? How should we be thinking -- how should people be thinking about that?

Look, I mean, at the end of the day, we're always adjusting kind of the production to the demand, right? And we're going to be scaling this up as demand picks up. And at the end of the day, this is really dependent on customer adoption of the technology, right?

And then, of course, we are ready to scale. I mean, the good thing is here with Wolfspeed here, we got really the facilities. We got the CapEx, which was spent here pretty much in both the device fab up in Mohawk Valley. And also, as you said, on the material side here, we got capacity in Durham, but also in Siler City.

The factories are built, right? So this means at the end of the day, it is really now looking into how do we get customers, how do we get pretty much new applications to drive that growth. Is this something we completely have in our hand?

No, because we need to make -- the customer need to make an architectural choice, right? And then, of course, we need to go -- we get this qualified and wrap. This is why I think diversifying the customer base, the go-to-market and also how we think about understanding the end application is such an important piece of getting Wolfspeed here into the right position.

The next question comes from the line of Samik Chatterjee with JPMorgan.

This is Joe Cardoso on for Samik. Maybe for my first, I just wanted to follow up on the EV comments you made, but maybe less on the market itself. And just more curious how we should think about Wolfspeed's positioning in the market today, particularly following a somewhat turbulent 12 months or so, like -- but also kind of on the heels of the recent announcements like the one you mentioned with Toyota.

Just curious what you're seeing across customer conversations and dialogues and any incremental color you can provide on that front? And then I have a follow-up.

Sure. So look, again, we announced the partnership with Toyota, right, which is pretty much showing we're diversifying here also globally. And clearly, Toyota is a very well-known brand for quality.

So I think this is also a testament to the great collaboration between the 2 companies. And then, of course, we're really looking into diversifying here globally, but also in terms of within the EV makers.

As I said, right, I mean, really the emergence of the 800-volt battery platform is really the perfect fit for the silicon carbide in the traction inverter. And this is what we're really, really focused on.

A lot of them are valuing our vertical integration, right? I mean if you saw also what happened recently around rare earth, you saw kind of what happened last year also around gallium and pretty much all of a sudden, certain countries restricted these materials from being exported, right?

A lot of customers are valuing, okay, Wolfspeed, you have the manufacturing capabilities, you have the capacity and you have this right here in the United States, right? I mean if you see kind of our footprint, it's pretty much, first of all, very lean, but it's also something which we have under our control.

There is pretty much between North Carolina, Mohawk Valley and our device and module site in Arkansas, right? I mean, we can really move very fast, and we have this all under one roof. So this is really something where a lot of customers like it. And we have, again, here a lot of sampling ongoing with various key customers here for programs.

So that concludes today's Q&A. I would now like to pass the call back for any closing remarks.

Thanks, everybody, for joining us on the call today here. Thank you.

Thank you for your participation, and enjoy the rest of your day.

Good afternoon, everyone. Welcome to Wolfspeed's Fiscal First Quarter 2026 Earnings Conference Call. Today's call will include prepared remarks from our Chief Executive Officer, Robert Feurle; and our Chief Financial Officer, Gregor Issum. Following their remarks, the call will conclude. We will not be conducting a Q&A session today.

Please note that we will be presenting non-GAAP financial results during today's call, which we believe provide useful information to our investors. Non-GAAP results are not in accordance with GAAP and may not be comparable to non-GAAP information provided by other companies.

Non-GAAP information should be considered as a supplement to and not a substitute for financial statements prepared in accordance with GAAP. A reconciliation to the most directly comparable GAAP measures is in our press release and posted in the Investor Relations section of our website, along with a historical summary of our other key metrics.

Today's discussion includes forward-looking statements about our business outlook, and we may make other forward-looking statements during the call. Such forward-looking statements are subject to numerous risks and uncertainties. Our press release today and the SEC filings noted in the release mention important factors that could cause actual results to differ materially.

With that, I'll turn the call over to Robert.

Thank you, Tyler, and good afternoon, everyone. It's great to be speaking with you and providing an update on the business following the successful completion of our financial restructuring. We recognize this has been a significant journey for all of our stakeholders, and we sincerely appreciate your continued support and engagement throughout this process.

I'd also like to acknowledge the exceptional efforts of our employees whose focus and dedication were critical to achieving this important milestone. Throughout this process, we remain committed to operating with discipline and integrity and continuing to run the business in the normal course.

As we begin a new fiscal year in the next chapter of Wolfspeed story, our first priority is clear: to accelerate our path to profitability. The foundation for that journey is already taking shape as we emerge from restructuring with an improved balance sheet and a simplified operating model that can make us more efficient.

I want to emphasize that we are treating this as a new starting point. We have a disciplined plan under development that can guide us towards sustainable self-funding operations.

We are taking a hard look at every aspect of the business to better align our operations with customer needs, improving how we deliver, how we invest and how we grow. That means focusing on the areas that drive the most long-term value for our customers, while deploying capital where it can generate strong, sustainable revenue growth. Profitability with discipline can define the next phase for Wolfspeed, and it begins with growing alongside our customers and helping them succeed.

Our second priority is to advance Wolfspeed's technology leadership. We remain the clear leader in silicon carbide with 10 consecutive quarters of revenue generation from our 200-millimeter Mohawk Valley Fab. A strong validation of our first-mover position in the industry shift from 150-millimeter to 200-millimeter technology. While we have faced challenges scaling production to meet robust customer demand in the past, we've made meaningful progress at Mohawk Valley and believe we are well positioned to support future growth as the market conditions improve.

While peers are still ramping 200-millimeter device production for the last few years, we've been shipping devices and leveraging the learning curve that comes with that being first. Earlier this year, we launched our Gen 4 device platform, the most advanced generation of silicon carbide technology Wolfspeed has ever brought to the market. Gen 4 was purpose-built for the high-voltage, high-performance demands of next-generation applications, including AI data centers, aerospace and defense.

Additionally, the company has also introduced commercially available full suite of 200-millimeter silicon carbide materials. This is another important milestone as it reinforces our technology leadership and opens additional potential with customers looking to accelerate their own silicon carbide road map.

This leadership isn't accidental, it's the product of years of investment and unmatched materials capabilities and a team committed to continued innovation. As we look forward, technology leadership can continue to be Wolfspeed's competitive advantage, and it's essential to our ability to deliver profitable growth. We are aligning R&D priorities, customer programs and our manufacturing footprint to strengthen that lead.

Our third priority is driving operational excellence, improving quality, cost and speed across every factory and process. This means executing with precision at our facilities and ensuring that every site in our network is aligned around throughput, yield and reliability.

Operational excellence also means matching output to demand and tightening our supply chain. The steps we've already taken, expanding our product portfolio, optimizing our footprint and embedding sound manufacturing principles position us well to improve efficiency and enhance customer delivery performance in the quarters ahead.

To achieve these priorities, we are rebuilding and strengthening the leadership team that can drive Wolfspeed's future. Over the past several months, we have made meaningful progress, bringing in proven leaders with deep semiconductor and operational experience across every part of the business.

We're pairing new perspective with the experience of long-term leaders who know Wolfspeed's DNA. Together, we are creating a team that balances innovation with execution discipline, critical as we move from recovery into growth. This includes Gregor as our CFO; Dave Emerson as Chief Operating Officer; Matthias Buchner as Senior Vice President of Global Sales and Chief Marketing Officer; and Cengiz Balkas, who has been with Wolfspeed for several years, was appointed to Chief Business Officer, bringing greater focus and accountability to how we align our product road map and commercial strategy with the evolving needs of our customers.

These leaders are driving a renewed focus on customer centricity and the performance culture, underpinned by deep experience in scaling complex businesses and managing cost structures with rigor. Equally important, we're seeing strong interest from top talent who want to be part of Wolfspeed's mission. We are attracting people who understand the magnitude of what's ahead, the opportunity to redefine the compound semiconductor industry and establish Wolfspeed as the backbone of the global transition to electrification.

We've also reorganized Wolfspeed business around the markets where our technology delivers the greatest impact, automotive, industrial, energy, aerospace and defense and materials. In automotive, silicon carbide remains at the heart of next-generation electric vehicles. And our customer pipeline includes major global OEMs focused on EV performance and efficiency. Demand in the broader EV market has moderated near term, but the long-term fundamentals are intact.

And Wolfspeed's more efficient 200-millimeter devices are well-positioned to lead the industry transition from silicon to silicon carbide. In Industrial & Energy, we're focused on data center power, renewable energy infrastructure and energy storage applications, areas where we have a clear and defined value proposition, even as customers work through elevated inventory levels, which moderates demand, interest in silicon carbide power solutions for high-efficiency systems continues to build.

In aerospace and defense, Wolfspeed's high voltage devices are enabling mission-critical systems where performance and reliability matters most. These programs can diversify our revenue base and highlight the strategic importance of U.S.-based semiconductor manufacturing.

Finally, in materials, Wolfspeed's vertically integrated model remains a key differentiator. The quality and scale of our materials output gives us a distinct advantage as we ramp 200-millimeter production.

The John Palmer manufacturing center in Siler City, North Carolina provides a significant capacity to meet future customers' demand. Together, these segments give us diversified foundation, multiple growth engines built on one technology platform. Over time, the structure can limit our dependency on any single end market.

As we execute this transformation, we're also exercising disciplined stewardship, making every decision with a long-term value mindset. We are taking a fresh look at every dollar we spend, prioritizing projects that directly advance our 3 priorities, moderating capital intensity where appropriate and aligning production to market demand.

The transition to 200-millimeter manufacturing is central to this effort. By accelerating that conversion and consolidating production from legacy 150-millimeter lines, we expect to increase throughput and improve die cost. The previously planned transfer of remaining RTP operations completed in Q1 as part of the previously announced sale of our RF business to MACOM and the closure of our Durham 150-millimeter wafer fab facility targeted for Q2 are deliberate steps towards a leaner, more efficient manufacturing footprint.

We're also strengthening our relationship across our supply base and maintaining clear communication with customers as we navigate a still uneven demand environment. Our objective is to emerge from this period stronger, more efficient and better positioned to capture share as markets recover.

Finally, stewardship isn't just about cost, it's about accountability. We're measuring progress against clear milestones, financial, operational and technology and holding ourselves to those standards. Wolfspeed's mission has always been to pioneer and scale what's next in power semiconductors. That hasn't changed. We're simply approaching it now with a sharper focus and a greater discipline.

Before I hand this to Gregor, I want to reiterate, Wolfspeed enters 2026 with a stronger foundation, a clear set of priorities and the right team to execute. Our focus on profitability, technology leadership and operational excellence will guide every decision we make.

Gregor will now walk you through our financial performance for the quarter and provide more detail on the path forward.

Thanks, Robert, and good afternoon, everyone. We had a very productive start to fiscal year 2026 as we completed our financial restructuring. The team delivered strong revenue for the first quarter while taking steps to reduce inventory and operating expenses.

Before we get into the quarter's results, I want to provide some additional context on an important upcoming change in how we report our financials. We expect to adopt fresh-start accounting next quarter as part of our emergence from Chapter 11. This will result in a new basis of accounting and a reset of our financial statements. This includes a revaluation of assets and liabilities, which will represent noncash adjustments.

The results we're reporting today represent the final quarter under our historical reporting structure. Starting next quarter, our financials will reflect the reorganized company. And as a result, prior period comparison can no longer be done 1:1. We'll provide all necessary disclosures and walk-throughs at that time to help you understand the new starting point.

From an investor perspective, this is more than just a technical reset. It's a defining inflection point. Fresh-start accounting provides a clean slate to align our financials with a restructured business, a more sustainable capital structure and a focused operating model. It allows the market to evaluate the new Wolfspeed on its own merits with transparency, comparability and a forward-looking lens.

We will be focused on becoming a self-funded business by thoughtfully preserving our cash and carefully considering future investments. We ended the quarter with $926 million in cash and short-term investments, maintaining a strong liquidity position, giving us ample runway to execute our plans.

The cash balance also reflects approximately $91 million of cash proceeds from the sale of MACOM equity that's received as part of the previously announced sale of our RF business to MACOM.

Next, it will be very important to be highly disciplined in how we deploy capital with a clear focus on maximizing the return on the capacities we have already built. Our priority is to drive additional volume through our existing manufacturing footprint, improving asset utilization and enhancing financial performance over time.

At the same time, we are continuing to invest in R&D to extend our technology leadership. This remains a core priority for the company as we balance near-term execution with long-term innovation. This means growing top line revenue wherever we can, efficiently and reliably. We see this as the most effective way to unlock scale benefits, drive operating leverage and building a stronger, more resilient business over the long term.

Finally, we can ensure that in every decision we make, we are doing so with a view towards long-term sustainable success of the business. Consistent with this approach, we are aligning production with near-term demand to optimize efficiency whilst preserving flexibility at all of our sites. We also believe this action can help us address the ongoing softness in the market that we and our peers are currently experiencing. We anticipate this weakness may continue through the remainder of fiscal 2026.

We're also on track to close our 150-millimeter Durham device fab by the end of this calendar year, further consolidating our device production around the next-generation 200-millimeter manufacturing we've installed at our Mohawk Valley Fab in Upstate New York.

Now I'd like to discuss our first quarter results in more detail. Fiscal first quarter results reflected the combination of a soft demand environment and several onetime items associated with our restructuring and leadership transitions.

Revenue for the first quarter came in at $197 million, flat sequentially and up slightly compared to the same period a year ago and consistent with our expectations.

Non-GAAP gross margin was negative 26%, including approximately $29 million in specific inventory reserves and other onetime charges related to realignment of our manufacturing footprint and transition costs. This also includes the impact of approximately $47 million in underutilization costs from both Mohawk Valley and the JP materials factory, where the latter was previously included as start-up costs and reported as part of OpEx.

GAAP operating expenses were $84 million, which included $15 million of restructuring and transition-related items. As noted previously, our operating expenses included start-up costs related to the JP previously. Excluding these start-up costs related to the JP and restructuring-related and other charges, our operating expenses have declined $4 million sequentially and approximately $44 million compared to the same period a year ago. This reflects the impact of our cost efficiency actions we have already taken.

In line with GAAP, all costs associated with the bankruptcy process prior to our emergence have been classified as reorganization items.

On a GAAP basis, we have reported a net loss of $4.12 per share. Our GAAP loss per share includes $504 million of reorganization items related to our Chapter 11 proceeding. This includes $28 million of professional fees, along with $476 million of noncash debt-related adjustments, primarily in the form of the write-off of original issue discounts and deferred financial costs on debt that was restructured during the Chapter 11 process. These charges are nonrecurring and will be replaced by fresh-start accounting beginning at the start of fiscal Q2.

On a non-GAAP basis, the net loss was $0.55 per share, an improvement of $0.36 per share compared to the same period last year. Inventory levels were $385 million at the end of Q1, down approximately $50 million sequentially. We are taking further steps to reduce our inventory and improve working capital over time with our effort to align production with current customer demand and the ramp down and closure of the 150-millimeter device fab in Durham.

Capital expenditures were $104 million, directed primarily towards closing out former capital commitments. We've continued to reduce our capital expenditures as construction of the initial phase of the JP construction is complete, having decreased gross CapEx spend by $108 million sequentially and $333 million year-over-year, and we expect these to be substantially reduced going forward.

Turning to the second quarter outlook. We expect fiscal second quarter revenue in the range of $150 million to $190 million. This quarter-over-quarter decline is driven primarily by accelerated customer purchase in our fiscal Q1 as certain customers build up inventory by placing last-time buy orders from the Durham fab prior to its closure at year-end as well as by certain customers pursuing second sourcing of products during the period Wolfspeed bankruptcy process was ongoing.

As I mentioned earlier, we expect to adopt fresh-start accounting next quarter, which is why we are not providing specific guidance on profitability at this time. The company has not completed its fresh-start accounting procedures and is unable to sufficiently and accurately confirm the impact that emergence from Chapter 11 can have on its financial condition and results of operations.

Having said that, we do expect to record material adjustments related to our plan of reorganization and the application of fresh-start accounting during the second quarter of fiscal 2026. We can provide full details and reconciliations when we report Q2 results to ensure transparency and comparability going forward.

Now moving to our long-term outlook. We are seeing meaningful shift across several of our key end markets. In response, we are developing a new sustainable long-term plan built from the ground up with a fresh and realistic perspective. We are taking a disciplined approach to execution.

As we complete our strategic and operational plan review, we can ensure that our plans are tightly aligned with the realities of the market and the scale of the opportunity in front of us. We can share further updates once we've completed this strategy process. And above all, we are focused on making decisions that continue to create long-term value for our shareholders.

We expect to unveil our comprehensive long-range plan in the first half of calendar 2026, providing financial and operational milestones to measure our progress. We expect to provide a timing update for this release of the long-range plan during our next quarter earnings call in February.

In summary, we are executing with discipline in a soft demand environment while laying a strong foundation for future profitable growth. The actions we are taking to streamline operations, align production and preserve cash can position us well as market conditions improve.

I'll now turn it back to Robert for closing remarks.

Yes. Thank you, Gregor. Gregor and I are fully aligned in our commitment to delivering a long-term view of the business that's grounded, provides a clear basis for measuring progress and is flexible enough to adapt as market conditions evolve. Developing that level of rigor takes time, and we believe it's worth doing right.

The long-term demand for energy-efficient power solutions remains one of the most compelling opportunities in the compound semiconductor, and we are well-positioned to lead it. I'm proud of the resilience of our team and the progress we've made in a short period of time. We are focused on our customers and earning back their trust through consistent delivery. We have work ahead of us, but we have the people, the technology and the mindset to deliver sustained value for our customers and shareholders.

Thank you for joining us today, and thank you for your continued confidence in Wolfspeed.