WOLF beats on top and bottom lines; Continues to incur losses from start-up costs
AInvestWednesday, Jan 31, 2024 9:33 pm ET
2min read
WOLF --

Wolfspeed, a leading provider of power and radio frequency (RF) solutions, has released its earnings report for the second quarter of fiscal 2024. The company reported a loss of $0.55 per share, $0.08 better than Consensus expectations. Revenues for the quarter fell 3.6% year-over-year to $208.4 million, slightly surpassing analyst estimates.

It is important to note that Wolfspeed is currently incurring significant factory start-up costs as part of its expansion plans to support future growth. These start-up costs, related to the construction or expansion of new facilities, are expensed as operating expenses in the statement of operations. However, once these facilities begin revenue generating production, the operating costs will be reflected as part of the cost of production within the cost of revenue, net line item.

In the second quarter of fiscal 2024, Wolfspeed incurred $10.5 million of factory start-up costs and $35.6 million of underutilization costs. Underutilization costs occur when the costs to operate a facility exceed the costs absorbed into inventory, and these costs are expensed as incurred to cost of revenue, net. It is expected that these costs will be substantial as the company ramps up its facilities to the expected utilization level.

Despite the challenges posed by start-up and underutilization costs, Wolfspeed achieved consolidated revenue of $208.4 million, compared to $173.8 million in the previous year's quarter. The Mohawk Valley Fab, a facility that began revenue generating production at the end of fiscal 2023, contributed $12 million in revenue, representing a threefold increase from the previous quarter.

Additionally, Wolfspeed reported power device design-ins of $2.1 billion and quarterly record design-wins of $2.9 billion, with over 75% of these wins related to automotive applications. This demonstrates the company's success in the electric vehicle (EV) sector, which is experiencing high demand across multiple original equipment manufacturers.

The GAAP gross margin for the second quarter of fiscal 2024 was 13.3%, a decrease from 32.6% in the same period last year. Similarly, the non-GAAP gross margin was 16.4%, compared to 35.8% in the prior year's quarter. These declines can be attributed to the underutilization costs, which had an impact of approximately 1,700 basis points on the gross margin.

Furthermore, Wolfspeed completed the sale of its RF Business to MACOM Technology Solutions Holdings, Inc. for $75 million in cash and 711,528 shares of MACOM common stock. This divestiture aligns with the company's strategic focus on power and RF solutions, and the proceeds from the sale will contribute to its continued growth and investment in key areas.

Looking ahead to the third quarter of fiscal 2024, Wolfspeed anticipates revenue from continuing operations in the range of $185 million to $215 million. The company projects a GAAP net loss from continuing operations of $134 million to $155 million, or $1.07 to $1.23 per diluted share. The non-GAAP net loss from continuing operations is targeted to be in the range of $71 million to $87 million, or $0.57 to $0.69 per diluted share. These targets exclude estimated expenses, primarily related to stock-based compensation expense and other costs. It is important to note that these targets do not include any estimated changes in the fair value of the shares of MACOM common stock acquired in connection with the RF Business Divestiture.

In summary, Wolfspeed's second-quarter earnings report reflects its ongoing efforts to expand its production footprint and meet the increasing demand for its power and RF solutions, particularly in the EV sector. Despite incurring significant start-up and underutilization costs, the company has achieved revenue growth and secured significant design-wins. With its strategic divestiture and future revenue projections, Wolfspeed remains well-positioned for future success.


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