What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-05-02 · 111 added, 170 removed, 165 unchanged (63% of the section changed)

1 unchanged sentence

Information set forth in this Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

All information contained in this report relative to future markets for our products and trends in and anticipated levels of revenue, gross margins and expenses, as well as other statements containing words such as “believe,” “project,” “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect” and “intend” and other similar expressions constitute forward-looking statements.

All information contained in this report relative to future markets for our products, trends in and anticipated levels of revenue, gross margins and expenses, and ability to access funding as well as other statements containing words such as “believe,” “project,” “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect” and “intend” and other similar expressions constitute forward-looking statements.

These forward-looking statements are subject to business, economic and other risks and uncertainties, both known and unknown, and actual results may differ materially from those contained in the forward-looking statements.

17 unchanged sentences

The RF Business Divestiture represented a strategic shift that had a major effect on our operations and financial results.

As a result, we have classified the results and cash flows of the RF product line as discontinued operations in our consolidated statements of operations and consolidated statements of cash flows for all periods presented.

Additionally, the related assets and liabilities associated with the transaction are classified as held for sale in the consolidated balance sheets as of June 25, 2023.

Unless otherwise noted, discussion within this Quarterly Report to the consolidated financial statements relates to our continuing operations.

The majority of our products are manufactured at our production facilities located in North Carolina, New York and Arkansas.

We also use contract manufacturers, some of which include captive lines, for certain products and aspects of product fabrication, assembly and packaging.

We operate research and development facilities in North Carolina, Arkansas and New York.

Wolfspeed, Inc.

is a North Carolina corporation established in 1987, and our headquarters are in Durham, North Carolina.

For further information about our consolidated revenue and earnings, please see our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

Industry Dynamics and Trends

There are a number of industry factors that affect our business which include, among others:

• Supply Constraints.

The semiconductor industry has experienced supply constraints for certain items.

We have successfully managed through challenges relating to obtaining certain necessary production and processing equipment thus far and have continued to see supply availabilities and lead times stabilize across many direct materials.

In addition, although we have not experienced significant impacts to date, the ongoing military conflict between Russia and Ukraine and the ongoing conflicts in the Middle East may further exacerbate global supply constraints.

The current high demand for our products has also led to supply constraints for our customers.

We are working closely with our customer base to best match our supply to their demand.

We have taken steps to provide continuity to our customers to the extent possible, including entering into purchase agreements and providing capacity reserve deposits with our suppliers to secure future supply to us, although we expect that our production capacity constraints as we continue to bring additional capacity online may continue to limit our shipments to our customers.

• Overall Demand for Products and Applications Using Our Wolfspeed Materials and Devices .

3 unchanged sentences

Recently, we and other semiconductor companies have been experiencing softening demand for power products in industrial and energy applications.

Conversely, we continue to experience high demand for our power products designed for electrical vehicle applications.

We continue to experience increased mid- and long-term demand for our power products designed for electrical vehicle applications, and we are working closely with our customer base to best match our supply to their near-term demand.

We believe the increased demand for our power products reflects the value that the industry places on a transition to silicon carbide materials and devices while also evidencing the growing global focus on adopting higher efficiency energy solutions, including electric vehicle and related technologies.

We believe these trends could have a significant positive impact on revenues in future periods as we increase capacity to meet this increased demand.

• Supply Constraints.

The semiconductor industry has experienced supply constraints for certain items, although constraints appear to be alleviating in recent months.

We have successfully managed through challenges relating to obtaining certain necessary production and processing equipment thus far, and we have continued to see supply availabilities and lead times stabilize across many direct materials.

• Intense and Constantly Evolving Competitive Environment.

16 unchanged sentences

To enforce or protect intellectual property rights, litigation or threatened litigation is common.

Overview of the nine months ended March 31, 2024

The following is a summary of our continuing operations financial results as of and for the nine months ended March 31, 2024 compared to the nine months ended March 26, 2023, unless otherwise stated.

• Our year-over-year revenue increased $50.7 million to $606.5 million.

Overview of the three months ended September 29, 2024

The following is a summary of our continuing operations financial results as of and for the three months ended September 29, 2024 compared to the three months ended September 24, 2023, unless otherwise stated.

• Our year-over-year revenue decreased ($2.7) million to $194.7 million.

• Gross margin decreased to (18.6)% from 12.5%.

Gross profit decreased to ($36.2) million from $24.7 million.

Gross margin and gross profit for the nine months ended March 31, 2024 include the impacts of $100.4 million of underutilization costs primarily in connection with the start of production at our silicon carbide device fabrication

facility in New York (the Mohawk Valley Fab), which began revenue production in late fiscal 2023.

Costs related to the Mohawk Valley Fab for the nine months ended March 26, 2023 were classified as operating expenses within factory start-up costs.

Gross margin and gross profit include the impacts of underutilization costs primarily in connection with the start of production at the Mohawk Valley Fab and restructuring and closure-related costs associated with the Durham fab.

Underutilization was $26.4 million compared to $34.4 million.

• Operating loss was $230.1 million compared to $94.9 million.

• Diluted loss per share was $2.23 compared to $0.99.

• Combined cash, cash equivalents and short-term investments was $2,550.9 million at March 31, 2024 and $2,954.9 million at June 25, 2023.

• Long-term debt, net was $5,664.3 million at March 31, 2024 and $4,175.1 million at June 25, 2023.

• Combined cash, cash equivalents and short-term investments was $1,687.6 million at September 29, 2024 and $2,174.6 million at June 30, 2024.

• Long-term debt, net was $6,169.9 million at September 29, 2024 and $6,161.1 million at June 30, 2024.

• Cash used in operating activities was $132.0 million compared to $112.7 million.

4 unchanged sentences

We believe we are uniquely positioned as an innovator in the global semiconductor industry.

The strength of our balance sheet provides us the ability to invest in our business and increase production capacity, as indicated by the Mohawk Valley Fab, our new state-of-the-art, automated 200mm silicon carbide device fabrication facility, where we started revenue production in late fiscal 2023.

In addition, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the renovation of an epitaxy facility in Farmers Branch, Texas, and our plan to construct a new silicon carbide device fabrication facility in Saarland, Germany are all expected to increase our production capacity.

The strength of our balance sheet provides us the ability to invest in our business and increase production capacity, as indicated by the Mohawk Valley Fab, where we started revenue production in late fiscal 2023.

In addition, an expansion of our materials factory in Durham, North Carolina and the construction of a new materials manufacturing facility in Siler City, North Carolina are expected to increase our production capacity.

We are primarily focused on investing in our business to expand the scale of production, further develop the technologies, and accelerate the growth opportunities of silicon carbide materials, silicon carbide power devices and modules.

We are prioritizing the identification of opportunities to reduce operating costs and to optimize our capital structure in support of these investments in our business.

We believe these efforts will support our goals of delivering higher revenue and shareholder returns over time.

In addition, we are focused on improving the number of usable items in a production cycle (yield) as our manufacturing technologies become more complex.

Despite increased complexities in our manufacturing processes, we believe we are in a favorable position to improve yield levels to support our future growth, particularly as we transition more production to the Mohawk Valley Fab.

We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth to meet long-term demand, although demand in the short-term and mid-term appears to be ahead of the industry's supply capabilities.

For fiscal 2024, we have targeted approximately $2.0 billion of net capital investment.

Despite increased complexities in our manufacturing processes, we have improved yields significantly and expect that we will continue to improve yield levels to support our future growth, particularly as we transition more device production to the Mohawk Valley Fab.

During the first quarter of fiscal 2025, we initiated a headcount reduction and facility consolidation plan (the 2025 Restructuring Plan) intended to further optimize our cost structure as we accelerate our transition from 150mm to 200mm silicon carbide devices.

Refer to Note 13, "Restructuring," and Note 14, "Subsequent Events" to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for additional discussion of the financial impact of these activities.

We believe we have the ability to navigate the current environment while maintaining our capital expenditure plans to support future growth to meet long-term demand, although demand in the mid-term appears to be ahead of the industry's supply capabilities.

For fiscal 2025, we have targeted approximately $1.1 billion to $1.3 billion of net capital investment.

Design-ins are customer commitments to purchase our products and are one of the factors we use to forecast long-term demand and future revenue.

9 unchanged sentences

Occasionally, we have a 53-week fiscal year, and in those instances, one quarter within the fiscal year is comprised of 14 weeks instead of 13 weeks.

Fiscal 2024 is a 53-week fiscal year, and the second quarter of fiscal 2024 was a 14-week fiscal quarter.

Fiscal 2023 was a 52-week fiscal year.

Fiscal 2025 is a 52-week fiscal year.

Fiscal 2024 was a 53-week fiscal year, and the second quarter of fiscal 2024 was a 14-week fiscal quarter.

Results of Operations

Selected consolidated statements of operations data for the three and nine months ended March 31, 2024 and March 26, 2023 were as follows:

Three months ended Nine months ended

March 31, 2024 March 26, 2023 March 31, 2024 March 26, 2023

Selected consolidated statements of operations data for the three months ended September 29, 2024 and September 24, 2023 were as follows:

Three months ended

September 29, 2024 September 24, 2023

(in millions of U.S.

Dollars, except share data) Amount % of Revenue Amount % of Revenue Amount % of Revenue Amount % of Revenue

Dollars, except share data) Amount % of Revenue Amount % of Revenue

Revenue, net $194.7 100.0 % $197.4 100.0 %

8 unchanged sentences

Operating loss (230.1) (118.2) % (94.9) (48.1) %

Non-operating expense (income), net 42.4 21.1 % (2.9) (1.5) % 98.7 16.3 % (53.4) (9.6) %

Non-operating expense, net 51.7 26.6 % 28.5 14.4 %

Loss before income taxes (281.8) (144.7) % (123.4) (62.5) %

6 unchanged sentences

Discontinued operations — (2.17)

Revenue was as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Power Products $97.1 $101.2 ($4.1) (4) %

1 unchanged sentence

Revenue $194.7 $197.4 ($2.7) (1) %

Revenue for the three and nine months ended March 31, 2024 compared to the three and nine months ended March 26, 2023 increased primarily due to growth in our materials product line, where we improved output to meet strong demand.

Additionally, our power product line revenue increased primarily in connection with the addition of revenue from our Mohawk Valley Fab in fiscal 2024, partially offset by the impact of softening demand in industrial applications in Hong Kong.

Revenue for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 decreased due to the softening of demand in industrial and energy applications, which has been largely fulfilled from our North Carolina fab.

This decrease has been partially offset by growth in demand for automotive applications.

Gross Profit and Gross Margin

Gross profit and gross margin were as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Gross profit ($36.2) $24.7 ($60.9) (247) %

Gross margin (18.6) % 12.5 %

As explained further below in Factory Start-up Costs, the operating costs of each of our new facilities will largely be reflected in cost of revenue, net once each facility reaches revenue generating production.

During the period when revenue production begins, but before the facility is at its expected utilization level, we expect some of the costs to operate the facility will not be absorbed into the cost of inventory.

We expect that these costs will continue to be substantial as we ramp up the facility to the expected or normal utilization level.

The costs incurred to operate the facility in excess of the costs absorbed into inventory are referred to as underutilization costs and are expensed as incurred to cost of revenue, net.

We expect gross profit and gross margin to continue to be significantly impacted in future periods from these underutilization costs in connection with our new facility construction and expansion projects, the costs of which have solely been expensed as factory start-up costs prior to fiscal 2024.

The decrease in gross profit and gross margin for both periods presented as compared to the prior year periods was primarily due to underutilization costs incurred within cost of revenue in connection with the start of production at our Mohawk Valley Fab, which began revenue production in late fiscal 2023.

Underutilization costs were $30.4 million and $100.4 million for the three and nine months ended March 31, 2024, respectively.

Costs relating to the Mohawk Valley Fab for the three and nine months ended March 26, 2023 were expensed within factory start-up costs.

In addition, gross profit and gross margin for the nine months ended March 31, 2024 were impacted by a less favorable product mix, partially offset by an increase in revenue in both product lines.

Gross profit and gross margin were impacted by a less favorable product mix resulting from the softening of demand in industrial and energy applications.

Production capacity in the North Carolina fab shifted from industrial and energy products to automotive products, which have a higher production cost in that fab.

Gross profit for the three months ended September 29, 2024 includes restructuring costs of $11.7 million of non-cash asset-related charges from accelerated depreciation and $22.6 million of other exit costs for our restructuring plan adopted in the first quarter of fiscal 2025 as discussed in Note 13, "Restructuring," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Gross profit and gross margin for both periods include underutilization costs incurred within cost of revenue in connection with the start of production at our Mohawk Valley Fab.

Underutilization costs for the three months ended September 29, 2024 were $26.4 million as compared to $34.4 million for the three months ended September 24, 2023.

Research and Development

Research and development expenses include costs associated with the development of new products, enhancements of existing products and general technology research.

These costs consisted primarily of employee salaries and related compensation costs, occupancy costs, consulting costs and the cost of development equipment and supplies.

Research and development costs also include developing supporting technologies for the expansion of the Mohawk Valley Fab.

Our research and development expenses vary significantly from year to year based on a number of factors, including the timing of new product introductions and the number and nature of our ongoing research and development activities.

Research and development expenses were as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Research and development $50.9 $44.1 $6.8 15 %

Percent of revenue 26 % 22 %

The increase in research and development expenses was primarily due to our continued investment in our technologies, including the development of existing silicon carbide materials and fabrication technology for next generation platforms and expansion of our device product portfolio.

The increase in Research and development expenses for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 was primarily due to increases in product material costs.

Sales, General and Administrative

Sales, general and administrative (SG&A) expenses are comprised of costs primarily associated with our sales and marketing personnel and our executive and administrative personnel (for example, finance, human resources, information technology and legal) and substantially consist of salaries and related compensation costs, consulting and other professional services (such as litigation and other outside legal counsel fees, audit and other compliance costs), marketing and advertising expenses, facilities and insurance costs, and travel costs.

SG&A expenses were as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Sales, general and administrative $62.2 $64.1 ($1.9) (3) %

Percent of revenue 32 % 32 %

The increase in SG&A expenses for both periods presented was primarily due to increased salaries and benefits, including stock-based compensation, as well as increases in professional services, sponsorship costs, and travel expenses.

The decrease in Sales, general and administrative expenses for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 was primarily driven by a decrease in people costs.

Factory Start-up Costs

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Factory start-up costs $19.7 $8.4 $11.3 135 %

Factory start-up costs relate to facilities that have not yet started revenue generating production.

When a new facility begins revenue generating production, the operating costs of that facility previously expensed as start-up costs will instead be primarily expensed as part of the cost of the production within the cost of revenue, net line item in our statement of operations.

Start-up costs for the three and nine months ended March 31, 2024 primarily relate to costs incurred in connection with the construction of our new materials manufacturing facility in Siler City, North Carolina and various materials expansion activities at our Durham, North Carolina locations.

The decrease in factory start-up costs as compared to the prior year periods is due to the start of revenue generating production at our Mohawk Valley Fab in the fourth quarter of fiscal 2023 and the associated transition of factory operating expenses to cost of production.

The majority of start-up costs for the three and nine months ended March 26, 2023 related to the construction of this facility.

Amortization or Impairment of Acquisition-Related Intangibles

As a result of our acquisitions, we have amortizable intangible assets related to developed technology.

Amortization of intangible assets related to our acquisitions was as follows:

Three months ended Nine months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Amortization of acquisition-related intangibles $0.3 $0.2 $0.1 50 % $0.9 $1.3 ($0.4) (31) %

No significant acquisition-related intangible activity or impairments occurred between the periods presented.

Start-up costs increased for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 due to increased costs incurred in connection with the construction of our materials manufacturing facility in Siler City, North Carolina.

Loss on Disposal or Impairment of Other Assets

We operate a capital-intensive business.

As such, we dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes.

Due to the risk of technological obsolescence or changes in our production process, we regularly review our long-lived assets and capitalized patent costs for possible impairment.

Loss on disposal or impairment of other assets was as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Loss on disposal or impairment of other assets $0.6 $0.1 $0.5 500 %

1 unchanged sentence

Other Operating Expense

Other operating expense was as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Restructuring costs and other exit costs $ 52.8 $ — $ 52.8 100 %

Project, transformation and transaction costs $ 6.0 $ 2.6 $ 3.4 131 %

Executive severance costs — 0.6 (0.6) (100) % — 1.9 (1.9) (100) %

Restructuring costs — — — — % — 0.2 (0.2) (100) %

Other 1.4 — 1.4 100 %

Other operating expense $60.2 $2.6 $57.6 2,215 %

Other operating expense increased in both periods presented primarily due to increased professional service fees, which are associated with completed and potential strategic transactions, including divestitures, as well as work related to obtaining government incentives both in the United States and Europe, partially offset by decreases in severance and restructuring costs.

Non-Operating Expense (Income), net

Non-operating expense (income), net was comprised of the following:

Three months ended Nine months ended

Restructuring and other closure-related costs for the three months ended September 29, 2024 consist of:

• $36.5 million of employee severance and benefit costs;

• $7.1 million of non-cash asset-related charges from accelerated depreciation;

• $9.2 million of other closure-related costs related to our restructuring plan adopted in the first quarter of fiscal 2025 as discussed in Note 13, "Restructuring," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report.

Non-Operating Expense, net

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Interest income ($22.2) ($40.6) $18.4 45 %

Interest expense, net of capitalized interest 64.5 61.7 2.8 5 %

Loss (gain) on legal proceedings 7.7 — 7.7 100 % 7.7 (50.3) 58.0 115 %

Loss on Wafer Supply Agreement 6.9 4.8 2.1 44 % 20.4 7.3 13.1 179 %

Gain on equity investment (1.9) — (1.9) (100) % (7.3) — (7.3) (100) %

Other expense, net 9.4 7.4 2.0 27 %

Non-operating expense (income), net $42.4 ($2.9) $45.3 1,562 % $98.7 ($53.4) $152.1 285 %

Non-operating expense, net

$51.7 $28.5 $23.2 (81) %

Interest income.

The increase in interest income in both periods was primarily driven by increased short-term investment balances.

Our average short-term investment balances increased significantly from the net proceeds we received from the sale of our senior secured notes due 2030 (the 2030 Senior Notes) in the fourth quarter of fiscal 2023, as well as from the receipts of deposits from an Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with a customer, pursuant to which we received an initial deposit of $1 billion in the first quarter of fiscal 2024 and an additional deposit of $500 million in the third quarter of fiscal 2024.

The decrease in interest income for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 was primarily due to lower short-term investment balances.

Interest expense, net of capitalized interest .

The increase in interest expense was primarily due to interest from our 2030 Senior Notes and deposits under the CRD Agreement, which were not outstanding as of March 26, 2023.

Loss (gain) on legal proceedings .

In the third quarter of fiscal 2024, we accrued a liability for payment of customs duties totaling approximately $7.7 million for alleged undervalued duties related to transactions by our former Lighting Products business unit from 2012 to 2017.

In fiscal 2023, we received an arbitration award in relation to a former customer failing to fulfill contractual obligations to purchase a certain amount of product over a period of time.

The arbitration award is recognized as non-operating income, net of legal fees incurred.

Loss on Wafer Supply Agreement.

In connection with the completed sale of our former LED Products business unit to SMART Global Holdings, Inc.

(SGH) and its wholly owned subsidiary CreeLED, Inc.

(CreeLED and collectively with SGH, SMART) in fiscal 2021, we entered into a Wafer Supply and Fabrication Services Agreement (the Wafer Supply Agreement), pursuant to which we supply CreeLED with certain silicon carbide materials and fabrication services for up to four years.

We recognized a supply agreement liability in connection with this agreement, which fully amortized in the second quarter of fiscal 2023.

We expect losses from this agreement to continue through December 2025.

Gain on equity investment.

In connection with the completed RF Business Divestiture, we received shares of MACOM common stock as a portion of the overall consideration received for the sale.

The gain on equity investment for the three and nine months ended March 31, 2024 was due to MACOM's share price increasing from $85.41 at December 1, 2023, the last trading day before the closing date of the RF Business Divestiture, to $92.95 at December 29, 2023, the last trading day of the second fiscal quarter, and to $95.64 at March 28, 2024, the last trading day of the third fiscal quarter.

The increase in interest expense for the three months ended September 29, 2024 as compared to the three months ended September 24, 2023 was primarily due to higher average debt outstanding offset, in part, by increased interest capitalization in the three months ended September 29, 2024.

Refer to Note 9 "Long-term Debt," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report for the summary of outstanding debt.

Income Tax Expense

Income tax expense and our effective tax rate were as follows:

Three months ended Nine months ended

Three months ended

(in millions of U.S.

Dollars) March 31, 2024 March 26, 2023 Change March 31, 2024 March 26, 2023 Change

Dollars) September 29, 2024 September 24, 2023 Change

Income tax expense $0.4 $0.2 $0.2 100 %

Effective tax rate — % — %

The change in our effective tax rate for the three and nine months ended March 31, 2024 compared to the three and nine months ended March 26, 2023 was immaterial.

The change in our effective tax rate for the three months ended September 29, 2024 compared to the three months ended September 24, 2023 was immaterial.

In general, the variation between our effective income tax rate and the current U.S.

2 unchanged sentences

Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including the purchase of goods and services in the ordinary course of business such as raw materials, supplies and capital equipment, as well as outlays for research and development, strategic acquisitions and investments.

We require cash to fund our operating expenses, debt service costs, working capital requirements and capital expenditures, including the purchase of goods and services in the ordinary course of business such as raw materials, supplies and capital equipment, as well as outlays for research and development, strategic acquisitions and investments.

Our principal sources of liquidity are cash on hand and marketable securities.

Based on past performance and current expectations, we believe our current working capital and anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months.

With the strength of our working capital position, we believe that we have the ability to continue to invest in the near-term expansion of our production capacity, further develop our product portfolio and, when necessary or appropriate, make selective acquisitions or other strategic investments to strengthen our product portfolio or secure key intellectual properties.

However, even with our strong working capital position, we expect to need additional funding to fully complete all of our intended capacity expansions.

Based on past performance and current expectations, we believe our current working capital will be adequate to meet our cash needs for at least the next 12 months.

With the strength of our working capital position, we believe that we have the ability to continue to invest in the completion of our near-term expansion of our production capacity, further develop our product portfolio and, when necessary or appropriate, make selective acquisitions or other strategic investments to strengthen our product portfolio or secure key intellectual properties.

However, even with the strength of our working capital position, we expect to need additional funding to fully complete all of our intended capacity expansions.

We obtained additional funding of $250.0 million in October 2024 through the issuance of additional senior secured notes due 2030 (the 2030 Senior Notes) and have the ability to issue an additional $500.0 million of additional tranches under the Amended and Restated Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture), subject to certain conditions.

In accordance with the terms of the non-binding preliminary memorandum of terms (PMT) with the United States Department of Commerce that require us to restructure or refinance our outstanding 1.75% convertible senior notes due May 1, 2026 (2026 Notes), we are actively evaluating our options, including the refinancing of the 2026 Notes through the near-term issuance of equity-linked securities and/or other financing options, subject to market conditions and other considerations.

Sources of Liquidity

1 unchanged sentence

(in millions of U.S.

Dollars) March 31, 2024 June 25, 2023 Change

Dollars) September 29, 2024 June 30, 2024 Change

Cash and cash equivalents $726.1 $1,045.9 ($319.8)

2 unchanged sentences

The significant components of our working capital are liquid assets such as cash and cash equivalents, short-term investments, accounts receivable and inventories, partially reduced by accounts payable and accrued expenses.

In the first quarter of fiscal 2023, we received an early payment on an unsecured promissory note in the amount of $101.8 million issued to us in connection with the sale of certain assets and subsidiaries comprising our former LED Products business unit to SMART on March 1, 2021.

In the second quarter of fiscal 2023, we issued and sold a total of $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes), as discussed in Note 9, “Long-term Debt,” in our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

The total net proceeds of the 2029 Notes was $1,718.6 million, of which we used $273.9 million to fund the cost of entering into capped call transactions.

In the fourth quarter of fiscal 2023, we sold $1,250 million aggregate principal amount of 2030 Senior Notes, as discussed in Note 9, "Long-term Debt," in our unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

The total net proceeds of the 2030 Senior Notes was approximately $1,149.3 million.

In the first quarter of fiscal 2024, we entered into the CRD Agreement with a customer, pursuant to which the customer will provide us up to $2 billion in unsecured deposits, subject to certain conditions.

Under the CRD Agreement, we received an initial deposit of $1 billion in the first quarter of fiscal 2024 with the option to receive additional deposits up to $1 billion at our request, subject to certain conditions during the 2024 calendar year.

We received a second deposit of $500 million in the third quarter of fiscal 2024.

In the second quarter of fiscal 2024, we completed the sale of our RF product line and received approximately $75 million in cash.

As of March 31, 2024, we had unrealized losses on our short-term investments of $10.9 million.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at March 31, 2024 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes.

In the first quarter of fiscal 2024, we entered into the Unsecured Customer Refundable Deposit Agreement (the CRD Agreement) with Renesas Electronics America Inc.

(Renesas America), pursuant to which Renesas America agreed to provide us up to $2 billion in unsecured deposits, subject to certain conditions.

We received an initial deposit of $1 billion in the first quarter of fiscal 2024, a second deposit of $500 million in the third quarter of fiscal 2024 and the third and final deposit in the fourth quarter of fiscal 2024.

As discussed in Note 14, "Subsequent Events" to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, we entered into an amendment to the CRD Agreement in October 2024 to permit us to pay the accrued interest on the outstanding loans payable on the last business day of each of December 2024 and June 2025 by adding those amounts to the outstanding principal amount of the loans rather than in cash, reducing our expected cash interest payments in fiscal 2025 by $120.0 million.

As also discussed in Note 14, "Subsequent Events", to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, in the second quarter of fiscal 2025, we issued an additional $250.0 million aggregate principal amount of 2030 Senior Notes.

The 2030 Senior Notes Indenture permits us to issue additional tranches up to $500.0 million subject to certain conditions.

We are required to maintain a minimum amount of at least $630.0 million in unrestricted cash and cash equivalents as of the last day of any calendar month through March 31, 2025 and at least $750.0 million beginning on April 1, 2025, which amount will be reduced over time upon the fulfillment of certain conditions

In the second quarter of fiscal 2024, we completed the sale of the RF Business and received approximately $75 million in cash.

In the third quarter of fiscal 2024, we received a $57.5 million Land Acquisition Business Investment Grant from the North Carolina Department of Commerce.

As of September 29, 2024, we had unrealized losses on our short-term investments of $4.4 million.

All of our short-term investments had investment grade ratings, and any such investments that were in an unrealized loss position at September 29, 2024 were in such position due to interest rate changes, sector credit rating changes or company-specific rating changes.

We evaluate our short-term investments for expected credit losses.

We believe we are able and intend to hold each of the investments held with an unrealized loss as of March 31, 2024 until the investments fully recover in market value.

No allowance for credit losses was recorded as of March 31, 2024.

We believe we are able and intend to hold each of the investments held with an unrealized loss as of September 29, 2024 until the investments fully recover in market value.

No allowance for credit losses was recorded as of September 29, 2024.

From time to time, we evaluate strategic opportunities, including potential acquisitions, joint ventures, divestitures, spin-offs or investments in complementary businesses, and we have continued to make such evaluations.

We may also access capital

markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities or general corporate purposes.

We may also access capital markets through the issuance of debt or equity, which we may use in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities, debt restructuring or general corporate purposes.

Expected Uses of Liquidity

We opened the Mohawk Valley Fab in the fourth quarter of fiscal 2022 to expand capacity for production of our silicon carbide devices and started revenue generating production at the facility in the fourth quarter of fiscal 2023.

We now expect to invest approximately $2.0 billion in total construction, equipment and other related costs for the new facility, of which approximately $500 million is expected to be reimbursed over time by the State of New York Urban Development Corporation (doing business as Empire State Development) under a Grant Disbursement Agreement (the GDA).

As of March 31, 2024, we have spent approximately $1.1 billion and received $425.4 million in reimbursements.

Additionally, we recently started construction on a new materials manufacturing facility in Siler City, North Carolina.

Through fiscal 2024, we expect to invest approximately $1.3 billion in construction, equipment and other related costs for the new facility, net of estimated refundable federal investment tax credits and capital grants we expect to receive through the U.S.

CHIPS and Science Act of 2022 (the CHIPS Act).

The timing and amount of these estimated CHIPS Act incentives is uncertain and could happen, if at all, in fiscal 2025 or beyond.

In addition, the facility is further supported by an approximately $1.0 billion long-term incentive package from state, county and local governments, primarily in the form of property tax reimbursements and sales tax exemptions.

We announced in February 2023 the intention to build a highly automated, cutting-edge wafer fabrication facility in Saarland, Germany.

We are continuing to work with the European Union, German and Saarland governments on the incentive package for this facility.

The timing and amount of these incentives are uncertain and could happen, if at all, in fiscal 2025 or beyond.

We will not commence construction of this facility until we have finalized these incentives and we expect the vast majority of investment to occur after fiscal 2024.

For fiscal 2024, we target approximately $2.0 billion of net capital investment, which is primarily related to capacity and infrastructure projects to support longer-term growth and strategic priorities.

This target is highly dependent on the timing and overall progress on our Mohawk Valley Fab and the construction of our new materials manufacturing facility in Siler City, North Carolina.

Our target net capital investment figure is net of approximately $144 million of expected reimbursements from the GDA during the fiscal year, inclusive of $120.7 million received in the first three quarters of fiscal 2024.

Our target net capital investment figure is also net $57.5 million for a Land Acquisition Business Investment Grant from the State of North Carolina, which was received in the third quarter of fiscal 2024.

In addition, we may also apply for and potentially sell tax credits as part of the Inflation Reduction Act to further fund our expansion initiatives.

We have take-or-pay supplier agreements that require a minimum of $261.0 million of purchases over the next five years and a commitment to provide quarterly capacity reservation deposits with a remaining total of $28.1 million, as outlined further in Note 13, "Commitments and Contingencies," to our unaudited financial statements in Part I, Item 1 of this Quarterly Report.

Given our current cash position, we believe we will be able to fund daily operations for at least the next 12 months but we expect to need additional funding to fully complete all of our previously announced planned expansion initiatives described above.

We may seek to obtain funding through, among other avenues, government funding in both the United States and Europe, public or private equity offerings and debt financings (which may involve retiring some of our existing debt).

We expect to invest approximately $2.0 billion in total construction, equipment and other related costs for the new facility, of which approximately $500 million is expected to be reimbursed over time by the State of New York Urban Development Corporation (doing business as Empire State Development) under a Grant Disbursement Agreement (the GDA).

As of September 29, 2024, we have spent approximately $1.2 billion and received $467.2 million in reimbursements.

We started construction on a new materials manufacturing facility in Siler City, North Carolina in September 2022.

We expect to invest approximately $2.3 billion in total construction, equipment and other related costs for the facility through fiscal 2025.

As of September 29, 2024, we have spent approximately $1.6 billion.

For fiscal 2025, we target approximately $1.1 billion to $1.3 billion of capital investment, which is primarily related to capacity and infrastructure projects to support longer-term growth and strategic priorities.

This target is highly dependent on the timing and overall progress on the construction of the manufacturing facility in Siler City, North Carolina and the completion of the expansion of our Mohawk Valley Fab, as well as on the receipt of direct funding awards from the United States Department of Commerce and additional funding.

Compared to fiscal 2024, our capital investment related to these new facilities during the next 12 months will be significantly less and will continue to decrease substantially as we complete the majority of construction related to this phase of our expansion efforts.

As such, our ability to modulate capital investment up or down in response to expected production capacity demand requirements will continue to increase.

We have take-or-pay supplier agreements that require a minimum of $221.2 million of purchases over the next four years and a commitment to provide quarterly capacity reservation deposits with a remaining total of $15.1 million, as outlined further in Note 5, "Commitments and Contingencies," to our unaudited financial statements in Part I, Item 1 of this Quarterly Report.

Given our current cash position, we believe we will be able to fund daily operating expenses, debt service, working capital and capital requirements for at least the next 12 months, but we expect to need additional funding to complete our previously announced expansion initiatives.

As discussed in Note 14 "Subsequent Events," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, we have obtained additional funding of $250.0 million through the issuance of additional 2030 Senior Notes, and expect to pursue additional funding through the United States CHIPS and Science Act of 2022 (the CHIPS Act) in accordance with the terms of a definitive direct funding award agreement with the United States Department of Commerce as contemplated by the PMT, equity offerings or other non-debt capital sources, and debt financings (which may involve refinancing, modifying or retiring some of our existing debt).

In addition, we may also apply for and potentially sell tax credits as part of the IRA to further fund our expansion initiatives.

In summary, our cash flows were as follows:

Nine months ended

March 31, 2024 March 26, 2023 Change

Three months ended

in millions of U.S.

September 29, 2024 September 24, 2023 Change

Net cash used in operating activities of continuing operations ($132.0) ($112.7) ($19.3) (17) %

5 unchanged sentences

Cash Flows from Operating Activities

Net cash used in operating activities of continuing operations increased primarily due to an increased net loss and decreased working capital as a result of inventory growth, increased payments for supplier deposits and timing of payables.

Net cash used in operating activities of continuing operations decreased primarily due to increased working capital resulting from lower inventory growth and timing of payables.

Cash Flows from Investing Activities

Our investing activities of continuing operations primarily relate to short-term investment transactions, purchases of property and equipment, and property and equipment related reimbursements.

Cash used in investing activities of continuing operations increased primarily due to an increase in net property and equipment purchases of $1,057.4 million as we continue to build out additional expansion facilities.

This was partially offset by a decrease in net purchases of short-term investments of $508.5 million.

In addition, the nine months ended March 31, 2024 included $75.6 million in net cash received in connection with the completed RF Business Divestiture and the nine months ended March 26, 2023 included a $101.8 million earnout payment related to the divestiture of our former LED Products segment.

Cash used in investing activities of continuing operations decreased primarily due to decreases in net purchases of short term investments of $583.7 million and in net property and equipment purchases of $7.4 million.

Cash Flows from Financing Activities

For the nine months ended March 31, 2024, cash provided by financing activities primarily consisted of $1,454.0 million in net deposits from the CRD Agreement and $10.9 million of proceeds from the issuance of common stock, partially offset by $17.5 million in tax withholdings on vested equity awards.

For the nine months ended March 26, 2023, cash provided by financing activities primarily consisted of $1,718.6 million in net proceeds from the issuance of the 2029 Notes and $11.4 million of proceeds from the issuance of common stock, partially offset by $273.9 million in cash paid for capped call transactions in connection with the 2029 Notes and $17.7 million in tax withholdings on vested equity awards.

For the three months ended September 29, 2024, cash provided by financing activities primarily consisted of a $10.0 million refund of escrow deposit, partially offset by $3.6 million in tax withholdings on vested equity awards.

Off-Balance Sheet Arrangements

As of March 31, 2024, we did not have any off-balance sheet arrangements.

As of September 29, 2024, we did not have any off-balance sheet arrangements.

We do not use off-balance sheet arrangements with unconsolidated entities or related parties, nor do we use any other forms of off-balance sheet arrangements.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis