Transphorm, Inc.
Q1 2022 Earnings Call Transcript

Published: 16 Aug 2021

[Operator:]

Good afternoon. My name is Sarah and I will be your conference operator. I would like to welcome everyone to today’s Transphorm, Inc. Business Update Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ prepared remarks there will be a question-and-answer session. I would like to turn the call over to Brett Perry of Shelton Group, Investor Relations. Brett, please go ahead.

[Brett Perry:]

Good afternoon. And welcome to Transphorm’s quarterly business update conference call. Joining us today from Transphorm are Mario Rivas, Chief Executive Officer, Primit Parikh, Co-Founder, President and Chief Operating Officer; and Cameron McAulay, Chief Financial Officer. Before we begin, I'd like to point out that there is a slide presentation associated with today's call, which management will be referencing during the conference call. These slides can be accessed through the webcast link in the Investor Relations section of Transphorm's website where they will also be posted and available as a linked PDF subsequent to today’s live conference call. Additionally, during the course of this call, the company may make forward-looking statements regarding the company's financial position, strategy and plans, future operations, specific end markets and other areas of discussion. It's not possible for the company or management to predict all risks, nor can the company assess the potential impact of all factors on its business or the extent to which any factors or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking statements discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. Any projections as to the company's future performance represent management's estimates as of today, August 16, 2021. Neither the company nor any person assumes responsibility for the accuracy or completeness of the forward-looking statements. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform such statements to actual results or to changes in the company's expectations. For more detailed information on risks associated with the company's business, we refer you to the risk factors described in Transphorm's S-1, 10-KT and other subsequent filings with the SEC. With that said, it's now my pleasure to turn the call over to Transphorm's CEO, Mario Rivas for opening remarks. Mario, please go ahead.

[Mario Rivas:]

Thank you, Brett. Thank you everybody for joining us today. First, we look forward to report on our continued progress during the first half of the year. Revenue for the fiscal first quarter of 2022 increased 33% sequentially to $3.2 million, driven by record product sales. Operating expenses on a non-GAAP basis in fiscal first quarter of 2022 were $4.6 million. On a non-GAAP basis, the net loss for the fiscal quarter of 2022 was $5.3 million, or $0.13 per share. Along with the strong operating performance, the company remains committed to its previously communicated ambition to uplist on the NASDAQ later in the calendar year. In that I remind, in July, we were also excited to strengthen our Board, with the addition of Ms. Kelly Smales as an Independent Director, and she comes to us with an extensive semiconductor finance background. With that and for more details, I pass the call to Primit Parikh.

[Primit Parikh:]

Thank you, Mario. And good afternoon, everyone. Transphorm, TGAN is leading the gallium nitride revolution with commercially revamping disruptive technology in the marketplace backed by best-in-class GaN technology solutions and the industry’s strongest IP position, addressing large and growing markets like the adapters and chargers for 5G and electric vehicles, technology and solutions validated by strong blue chip partners and customers, and all of this made possible by our exceptionally talented and experienced team. We've made very rapid strides in the last quarter and the recent months, particularly market penetration and ramping up the product revenue. After the end of the fiscal first quarter and recently in August, we also completed two important milestones. First, the completion of our AFSW wafer fab joint venture transaction to move forward strongly with our asset-light vertically integrated model. And second also closing off a $5 million equity investment from an international public company, like we just announced in today's news. For those new to Transphorm, I will first reiterate some of the overall GaN value and market and business opportunities in front of us, along with Transphorm’s solid value proposition, including phenomenal technology and IP with strong manufacturing and capability, that is the backbone of our growth. Then we will review our key achievements in the quarter and execution priorities. So, the reason GaN is on its way to becoming the future of the multi-billion-dollar power semiconductor industry is because existing silicon has reached physical limits. In powering the so-called Moore's law of power conversion as we term it, intrinsically gallium nitride performs at higher efficiency and lowest losses versus silicon or silicon carbide. TGAN is leading in delivering on this intrinsic performance potential of GaN, along with other GaN companies. In terms of cost and scalability, GaN on silicon is both cost-effective and compatible with downstream silicon wafer fab manufacturing, having already achieved lower system cost solutions versus silicon power today, and a strong roadmap for gallium nitride approaching silicon like device cost. The end result for our power conversion customers is highly efficient, cooler, compact, and cost-effective systems. At the core of our architecture is the TGAN normally of GaN FET platform, which is addressing applications today from adapters and charges around 45 to 200 plus watts to server, enterprise, industrial and automotive solutions at 10 kilowatts, packing both high performance with high reliability, with a unique integrated combination of a high voltage gallium nitride device with a lower voltage silicon device. As a result, the TGAN normally off transistor or a FET achieves the best high-voltage switching of gallium nitride, delivering efficiency, compact size, more robust outside world interface with the silicon FET by the way, compatible with standard drivers such as those that already come with modern analog controllers, no need for anything special demonstrated quality reliability in high volume with a vertically integrated production environment. Some of the metrics we have achieved is installed power base over 350 megawatts device hours in excess of 15 billion field operating hours with excellent field reliability performance. Another quick recap, TGAN has the capability of complete control and innovation across the value chain with what we call our asset-light vertically-integrated model, we own the key portions of the manufacturing, the core epiwafer technology, which is a must in our opinion, to own and control, the wafer fab in which we are a joint venture partner with a strong new partner now in place package manufacturing through subcontractors, but with the control of IP, for example, how to make high power gallium nitride work in industry standard, thermally robust packages, which others cannot do so, and a strong emphasis on application driven resources, both internally and with quality partners, as you saw in press releases last week for our Qualcomm QC 5 compatible 100 watt adapter solution. Overall, we are addressing a tremendous market opportunity in front of us with gallium nitride for power conversion, a $3 billion, GaN TAM as we call it, in 2023 with a further inflection point through the EV powertrain segment to reach $10 billion by the end of the decade. In the near term, our revenues are being derived from power adapters, chargers, computing, data center, infrastructure, crypto mining power supplies followed by broad industrial and energy applications in the near- to mid-term to the growth of these large automotive electric vehicles and charging markets in the mid- to long-term. All of this with strong and growing GaN TAMs. Across the gamut of these applications, transformed gallium nitride solutions delivered higher efficiency, compact systems, and do so reliably with easy to use products by customers with proven performance benefits against silicon, silicon carbide and other GaN solutions. Dissecting this market opportunity further off the total discrete power semiconductor TAM, which we looked at in this case, the GaN TAM, which is the potion reasonably addressed with current and future plan GaN device offerings is $1.8 billion today out of which, as you can see, the biggest segment by far is the power adapters and chargers. While all the segments are growing with the GaN TAM growing at a much faster rate than the general power market, the largest market growth opportunity is five years from today is expected from the EV segment going to well over $2 billion or 10x from what is available today in 2026. So now let's turn our attention to how we are penetrating this market today and how we are driving our growth. We are pleased to report a 12-month quarterly CAGR of unit shipments of over 130% with doubling of power product unit shipments over the last few quarters and meeting our goal of more than tripling this quarter completed in June. What we are aiming for the second half of the calendar year combined, which is from July to December of this year is a 3x growth in unit shipments over the first half of the calendar year, combined. We have to do this, keeping in mind, supply chain challenges facing everyone in the semiconductor industry and we watch our external packaging and associated bomb supply with that value chain closely. This rapid growth for Transphorm has been driven by our growth in the adapter and charger market, as we continue to capture share there with superior technology and sustained shipments also in the higher power segments, which has been always our unique forday for quite a while. We have outlined before that adapters and charger customers for GaN adapters and chargers are appreciating TGAN’s reliability, robustness, smaller die size, as much as 50% smaller in some cases, higher figure of merit and performance leading to an increased pace of design ins, since we fully entered the segment last year. We attempt to capture some of these attributes here in this graphic. First off to note, is all GaN products in the market today, are normally off contrary to any confusion that some companies may be causing. How normally off is realized is of course each company's own solution, but completely transparent to the customer. In case of Transphorm, with our architecture, our GaN FETs can be paired with a multitude of controllers and drivers. By the way, most controllers at this power level, such as required in the adapters and chargers already have driver ICs integrated for free. So, the so-called, IC GaN approach sometimes can be redundant or even problematic in such cases. Most gallium nitride operates at higher speed versus silicon, and it's used smaller size and good efficiency, which is why new adopters and chargers are migrating to gallium nitride solution from the leading gallium nitride companies today, including Transphorm. Our super GaN FETs have shown some of the best efficiency and power density, i.e. compactness, combinations, in standard adapter architecture like the QRF, the quasi-resonant flyback or the an flat back or the ACF, the active clamp flyback, compared to other GaN solutions with a good BOM cost as other gallium, nitride does not need any external biasing networks or bias rail matching networks needed for the e-mode GaN, which is also doing well in the market. One strong benefit of Transphorm’s GaN FET is the proven ability of delivering higher power and furthermore doing so internally robust packages. Some of the competing e-mode GaN device due to inherent gate weakness are frankly difficult to offer in standard leaded package, which are demanded, especially as we go to higher power. Equally important is the quality and reliability and not suffering from any failures or degradation over time, such as having reported in literature for some of the e-mode gallium nitride devices. Simultaneously, we have to, and we have grown our base of IC and solutions partners. For example, companies, leading companies offering integrated controller and driver solutions. This has allowed us to drive optimal solutions versus silicon, and other gallium nitride to increase our pace of adoption. We announced the Silana ACF 65-watt design last quarter. And last week we announced our Qualcomm QC-5 compatible, 100-watt big charger design with Salom a reputed adapter manufacturer. Our wins for the would have been for the adapter chargers range from 35 watts wall clock to 65 watts ultra slim, highly efficient compact phone and notebook chargers to 160 watts, and 240 watts for higher power adopters. One particular BoM teardown reported reveals that Transphorm GaN can do more with less high efficiency with a smaller GaN device versus a larger e-mode GaN device and that is because of the fundamentally better device technology. Another customer found it easier to pass thermal requirements with Transphorm solutions. We aim to continue to grow this pipeline. The higher power space is equally important, and again here we have higher performance and higher reliability products. In this space we also compete with some of the silicon carbide offerings as e-mode GaN is not quite ready for reliable high power in high volume manufacturing, specifically in thermally robust packages like the TO247, like due to the inherent device weakness I mentioned. An example shown here is our highest power 15 million product, which is to the best that we can tell, the lowest are on for a 650-volt qualified gallium nitride in a discreet TO247 package. As shown here in an apples-to-apples comparison, it outperforms silicon carbide, MOSFETs and JFETs that score both in a standard package, in a standard bridge circuit, realizing 25% to 38% lower loss and able to deliver 10-kilowatt class power levels from a single part in our lab testing. Customers have selected our higher power products. For example, the Gen 4, 35 million – Gen 3 and Gen 4, 35 million and 50 million parts over the last several years now. For robust 1.5 kilowatt to 4 kilowatt solutions for diverse applications ranging from gaming, crypto mining servers, industrial and military applications for the reliability, ease of use and high efficiency, power conversion. And all of is always backed by TGAN's strongest IP portfolio with patents spending materials, devices, design, fab, and packaging equally importantly, the use of this devices in applications such as ACF adopters or server crypto power supplies, for example, or for that matter automotive power converters and inverters. This patent portfolio is several times stronger, both in number and quality of IP than many of the standalone culminated companies, as well as some of the large power semiconductor companies vying to offer again in the market. Shifting gears, a quick word on our AFSW joint venture transaction that we closed recently as per our previously announced plans. This transition was planned for many months now and we completed it after finalizing a strong partner last year and completing the regulatory process this July. With the financial and strategic partner, JCP Capital, we formed a new joint venture GaNovation with the goal of accelerating GaN adoption. And GaNovation is the entity that acquired 100% of AFSW. It also brings in financial as well as ecosystem resources, especially in the area of adapters and chargers into GaNovation and AFSW. Transphorm owns 25% of AFSW now through its 25% ownership of GaNovation enabling us an overall more efficient P&L going forward. It should be noted that the team and the manufacturing operations at AFSW is pretty much the same and this move is completely transparent to our customers and partners with AFSW remaining one of the premier high quality manufacturing fabs for gallium nitride power. Next, I will talk about some of the specifics of the last quarter and current business. We achieved $3.2 million of revenue based on record product revenue in the June quarter. A lot of this growth was fueled by superior GaN products and solutions in the area of fast chargers and adopters, where we grew to now 30 plus design ins with around 20 in production. We inked new MOU for calendar year 2022, where our customers are targeting 1 million unit per month ramp in the mid- to second half of next year. And in one of these programs, we have already secured the first high volume purchase order from one such customer. We released new adopter solutions on target, including our own designs and with partners as exemplified by the 65-watt QRF, 65-watt ACF and the recent 100-watt Qualcomm QC-5 compatible reference design. We aim to remain focused on our growth trajectory in the second half of the calendar year. On course, for our target to achieve supply capacity of more than 1 million units a month in the adopter area in the October to December quarter. And with previously announced plans of qualifying our second source facility in packaging, as well as ramping up our own epi wafer supply. The high-power area is important to us. Again, a unique TGAN's strength versus other GaN providers and this is not just talk for the future as we doubled our TO247 ships again; with now 10 plus higher power design ins with our customer in production. Our Gen 5 is a leader in power level of GaN products, and it was released for commercial application in the calendar Q3 having finished qualification on target at the end of June. Next, our goal is to secure design wins with this 5-kilowatt plus class product. And an overall ambition, our focus clearly remains on scaling product revenues fast and targeting 200% or 3X growth over the next two years from this year to 2022 and 2023 year-over-year. Continuing on the execution focus such growth will be enabled by continued high quality manufacturing scale-up and impactful new technology products and solutions. To this end, we met our plan for two new Gen 4 products that we did in both surface mount as well as leaded packages. We have two to three more releases coming up in this area before end of the year, including both lower power and higher power offerings. Thanks to the designability and drivability of our gallium nitride effects and the strong underlying efficiency performance leading controller companies are now partnering with us for solutions, an area we will aim to be even more aggressive in going forward. And we remain focused on the automotive qualification of our Gen 5 part with the Gen 4 already sampling in, in a couple of design-in activities for the automotive. On the partnerships and key strategic coalition front with our customer partners, we made very strong around progress. Our technology team made the June quarter milestones on the key Yaskawa development program and secured the $0.75 million of funding that was received in July. As announced previously in mid-May we were very pleased to complete the extension of our long-term co-operative agreements with Nexperia, and we also completed a key technology set of milestones to achieve the 8 million in licensing revenue recognition that will actually be effective in the current July quarter. We also kicked off targeted product development phase in automotive with Marelli, our customer partner and also a transformative investor. Our government program revenue and epi revenue remains solidly on track. We now have five plus repeat customers for epi sales, for DoD applications, based on unique fundamental TPH Transphorm GaN IP, and also we have sample to commercial GaN RF customers with the goal of a design win, by end of the year. Revenue from our Navy contract remains stable and on-track to exceed $3 million for calendar year 2021. Additionally, we are in process of finalizing on a DARPA program that has emphasis on newer types of RF epi, and in total can be up to $1.4 million. We value the strong public private partnerships that Transphorm has successfully deployed while being very synergistic to our business goals. To summarize, I'm pleased to say we had another very strong quarter in the start of our new fiscal year achieving record product revenues, a 3X scaling in unit shipments, accelerating design wins, continued rollout of products and reference with design with solid progress with our partners and in epi business and government programs. All of this in terms of technology innovation, product shipped and revenue achieved. We also closed the pending AFSW fab transaction bringing in a strong new partner and very recently secured the $5 million of equity funding from a large public company. I will now hand over the call to Cameron, our CFO who will take you through our financial metrics.

[Cameron McAulay:]

Thank you, Primit, and hello to everyone joining us today. Let me start with a brief recap of our most recently completed quarter. From my remarks, I want to say both to GAAP and non-GAAP results, which are reconciled to GAAP in our press release table. Non-GAAP results exclude stock-based compensation, accommodation and adjustments to the fair value of our convertible note. Turning to income Q1 of our fiscal year 2022 so our continuation of our strong revenue growth. Total GAAP and non-GAAP revenue comprising product new government was $3.2 million in the quarter. This is an excess of our target and represents a 33% sequential increase from the prior three months and over 200%, with competing to the same quarter last year. Focusing specifically on product revenue, the three months to June 30th saw successive quarter of at least doubling shipments. Fueling continued growth and resulting on a highest quarterly production revenue number to date. This is our sixth successive quarter of revenue growth. This growth as Primit mentioned is being driven primarily by strong traction in the customer adaptor space, where we're also seeing increased traction and higher power segments, including data centers in crypto-mining. Turning to expenses, cost of goods sold decreased in the quarter, driven in large part by the 33% growth in our quarterly revenue number. For other OpEx, GAAP spend for the June quarter was 1% higher in the March quarter, all the areas of OpEx were substantially flat. This despite being the first two quarter with an increased footprint across manufacturing, sales applications and G&A together with expenditures tied to a recent change in fiscal year. For EPS, I will focus my remarks here on the non-GAAP results. As a reminder, non-GAAP excludes non-cash items such as stock based comp, amortization and fair value adjustments allowing for easier operational comparables. A non-GAAP EPS loss for the quarter was $0.13; this is flat to the prior quarter and represents $0.02 improvement in non-GAAP EPS relative to the same quarter in 2020, when excluding licensing revenue. Turning now to the balance sheet on the next slide. Net current assets decreased $4.5 million in the quarter. Cash bond was higher in the prior quarter due to some annual insurance payments, continued investment and our inventory and CapEx to support our growth. Strong collections in early July together with reduced G&A expenditure are rebalancing the bond rate in the current quarter and positioning it for significant reduction. Additionally, the company completed another component of our ongoing development program with Yaskawa, securing $750,000 in funding in the coming quarter. On the liability side, we extended the maturity of our existing revolver facility to 2023 with other assets and liabilities remaining, largely stable. We're also happy to report two important developments that have come this quarter both contributing to strengthening of our balance sheet as we move forward. From a funding perspective, the company released an 8-K earlier today narrating the conclusion of a $5 million equity investment at $5 per share from a multi-billion dollar international public semiconductor company in Asia, solidifying our mid-term cash position. On liabilities we have successfully executed on deliverables with respect to ongoing partnership next year. This execution means the development loan is no considered forgiven and licensing revenue will be recognized in the current quarter. Business developments extend our financial runway, enabling us to continue to invest in the company's growth engine. As Mario mentioned, the company continues to target a near-term up list on to Nasdaq. Several steps have been taken from both compliance and governance perspective, and the company continues to perform due diligence timely, as we walk towards this goal. Turning next on the next slide. From the current year to reiteration of our long-term business model. We are in the process of building a high growth product driven cash generative business, and the company has three distinct revenue streams

[Operator:]

Your first question comes from the line of Craig Ellis from B. Riley Securities. Your line is open.

[Craig Ellis:]

Thanks for taking the question guys. And congratulations on what seems to be some growing momentum in the business. Primit, I wanted to start with you just on that topic and see if you could take a little bit deeper into the 30 charger design ins that have with 20 and production. Little bit more color on maybe customer dynamics there, regional color and with respect to those that are in production, where are we in terms of scaling into targeted volume for the higher volume wins that you have? Thank you.

[Primit Parikh:]

Sure. Thank you, Craig. And for our doctors, we are very excited now to having scaling this rapidly. So, a lot of our customer mix we have to look at it as customer and then sometimes the end user of the customer. A lot of the direct customers are Asia-based as you can imagine, but some in the U.S. and Europe as well. And the end users of this are really worldwide U.S., Europe, some in Japan and obviously in Asia as well. So that's the kind of dynamics, some of these are achieved directly by transforming a lot of these, some are with our partners that we have put in place all contributing to our growth of revenue. And this is primarily the sort of the high volumes have been in our 65-watt offerings, like, although, like I said, we have had it from 35-watt, wall plug sockets all the way up to 160-watt adopters. And the volumes are increasing now. We are also amongst the design inset we are working on I mentioned which also we are increasing day by day. There we are working on some inbox opportunities as well. And some of these targeted opportunities have kind of shipped already several hundred K which has contributed to our tripling, the unit volumes. And a lot of that was driven from the last quarter to this quarter with adapter volumes.

[Craig Ellis:]

That's really helpful. And then as a follow-up question in a different part of the business for a few financial questions for Cameron. You mentioned in your prepared remarks and it's in the slide deck that there's potential for a commercial win near the end of calendar 2021 in the epi business. Can you just talk about the financial and the strategic implications of that potential win?

[Primit Parikh:]

Yes, so our Epi would be business as you know we're doing our DoD customers where really transform Epi’s, exclusive ID we have, and for certain flavors of GaN technology, the commercial GaN RF customer, a lot of these, what we are trying to do is get in as companies, the leading companies who are there getting either as a second source to that internal Epi development efforts or increasing their sources of supply. So, we will find out more on the executive volumes of that actual win will manifest more in 2022. But as you can imagine the RF market itself is a very strong existing market and about 20% or 15% to 20% of the revenue of the RF market can be attributed to the epi wafer born portion. So that's the segment that that we are going after.

[Craig Ellis:]

Got it. And then Cameron flipping to you great to see the company looking at the potential to increase second half unit volumes, 3x, half on half. Can you talk a little bit about the ASP dynamics half on half, because if we were looking at similar ASP, it would seem that that could mean that product revenue could be in the $9 million range, which seems high? So just provide some color on what's going on underneath that very large triage and potential unit shipments?

[Cameron McAulay:]

Sure, no problem Craig. Thank you. I think as we mentioned a lot of the revenue growth itself is in that consumer adaptor space and kind of typically the ESPs, there are lower than the ESPs that we see in our higher power opportunities in the data mining space and in the industrial space. So, the volume from a unit perspective, is definitely high as Primit mentioned, 2x to 3x but that doesn't translate fully into revenue just because of the fact that a lot of the growth is in areas where the ESPs are lower due to kind of lower power applications.

[Craig Ellis:]

Got it. And then just to…

[Primit Parikh:]

And also, to add one thing Craig.

[Craig Ellis:]

Go ahead.

[Primit Parikh:]

One thing to add to that is like we’ve achieved record product revenue this quarter, which is excellent and that's an amazing growth vector the company is on. But the total revenue of $3.2 million also included contribution from the other segments. So that's where your $3 million to $9 million translation could be a little bit off.

[Craig Ellis:]

Yes, right. There is some nice Gen 4 help in some of the higher voltage applications in the quarter. Right. I got it. And then just moving to the last one before I hop in the queue, Cameron, it looked like gross margin was more mid-20s versus, I think, the 40% target model. Were there any one-time items in the quarter or is that just some of the transition to higher volume consumer? And if it is then what's the implication for gross margin in the back half there?

[Cameron McAulay:]

Sure. No, thank you. No, I think, there are one or two smaller adjustments in the quarter, Craig this level there's kind of a one or two readjustments pertaining to government business. But I think this volume is hard to read too much into the percentages. I think as we look at the margins going forward, you'll see a mixed change in the next quarter with licensing as well. So, overall, as the margins remained solid over the course of the coming quarters. And again, we continue to work, I think, with the greater volume and greater manufacturing efficiency into higher long-term margins in the 40s.

[Craig Ellis:]

Great. I'll hop back into the queue. Thanks guys.

[Operator:]

Your next question comes from line of Sam Peterman from Craig-Hallum Capital. Your line is open.

[Sam Peterman:]

Hi guys. Thanks for taking my question. I guess first just on the private placement that you announced. I think it said this was a public company in Asia. Could you talk about if this was a strategic partner to any extent or any color on what that relationship looks like? Thanks.

[Primit Parikh:]

Sure, no. Yes, we're very excited to have this in place and we would be looking to drive strategic relationships with such partners in the future.

[Sam Peterman:]

Okay. Second one for me on some of your Gen 4 products and higher power stuff in the data center, you said you are seeing some success there this quarter as well. I think last quarter; you said you had five key customers in production. Was growth there driven by those customers you already had, or were there new customers? Could you kind of quantify how that broke down?

[Primit Parikh:]

Yes, no, that's great, it actually both some of the existing customer proliferated into more designs, which we always like to see. And then we added into converted from design in process to production several new customers also. So, it was a mix of both, some of that with existing customer increasing, and then some addition of a couple of brand-new customers that went from design ins to production.

[Sam Peterman:]

Got it. And then were those new customers primarily in a data center rather than crypto mining, or have you seen crypto mining pick up kind of, I think, prices in that space we've gone up again?

[Primit Parikh:]

Actually, across in three, in gaming, in data center and in crypto mining.

[Sam Peterman:]

Got it. Okay. Thanks. I wanted to get, clarify on your comment on wanting to convert one of your commercial, RF epi engagements to a customer by year end. I think last quarter, you said there were two of those engagements and you are hoping to convert one. I think use a different word is this quarter, I'm not sure if it was first quarter or a few is I guess, are you engaged with more than those two at this point? Is there any way to characterize what you're engaged with there or who you are engaged with?

[Primit Parikh:]

Yes, we continue to sample to more and the couple we – the one I mentioned that again, that we look to see if we can take it to commercial production, high volume production, right now it's a lower volume sampling or initial characterization type of things. So, that's the one that we can – we believe as you can imagine this is our qualification cycles and more. So that's when we target this year, others would be for next year.

[Sam Peterman:]

Got you. Okay. And then one more and then I'll hop back in queue. Just on automotive, I think, you talked about some design wins – workouts and design wins with your Gen 4 products and targets the Gen 5 qualified. Curious, where – could you characterize where you're seeing the most success in the vehicle? I know there's some different spots that you've highlighted can be opportunities for you, whether that's on-board chargers or DC/DC, or the inverter, are you seeing more traction than any areas in another, or could you just give some color on that?

[Primit Parikh:]

Yes, the first activity we have seen right now in the onboard charges and DC/DC converter that's where they're designing in is, the first design in going though is DC/DC converters, the next one is onboard chargers. And for inventors, we are working with partners who are looking at the long-term inverter architectures that could be enabled by, GaN, both standard as well as new architecture that GaN, can meaningfully impact.

[Sam Peterman:]

Gotcha. Okay. That's it for me. Thanks guys.

[Operator:]

Your next question comes from the line of David Williams from Benchmark. Your line is open.

[David Williams:]

Hey, good afternoon. Thanks for taking my question and congrats on the solid progress.

[Primit Parikh:]

Thank you.

[Mario Rivas:]

Thank you.

[David Williams:]

If I can, you just kind of thinking about the benefits associated with the JV Now you've got about a half, you cut your burn about half in terms of your fixed cost there. Can you kind of talk may be through what that means for the P&L and how you think about the benefits of that and maybe does it create any constraints for you in terms of just your ongoing operations within that facility?

[Mario Rivas:]

Sure. I'll let Primit address the constraints from an operational perspective. I think financially, the percentage ownership went from 14% to 25% and obviously has short term cash benefits for us. David we'll see the burn reduce by pretty much on that percentage from the August timeframe. So, at my P&L you'll see, while in the line and P&L that number reducing in a corresponding manner. So, from a cash perspective, from a P&L perspective, it's a positive development, and I think operationally very positive as well, but I'll let Primit provide a little bit more color on that.

[Primit Parikh:]

Well, personally, it, actually, we set ourselves up for more growth. In fact, it will help as we need to – we already have reasonable scale in place in the wafer fab facility, as we have talked before. But as we need to bring in more scale and expand that actually this relationship because our goals are synergistic to grow the GaN ecosystem, it will actually help us operationally to have a renewed focus on delivering GaN powered products from that fab.

[Operator:]

We have a follow-up question comes from the line, Craig Ellis from B. Riley Securities. Your line is open.

[Craig Ellis:]

Yes, thanks for taking the follow-up question. What I wanted to dig into a little bit guys was some of the high-volume wins that you have in the hopper for next year. So, I think Primit, you mentioned that there was an MoU for a $1 million unit a month ramp. And the question is, do you have any operating requirements, either qualifying additional packaging capability or other operating requirements that you need to check off as milestones before you can start moving ahead with that type of brand. And because I'm often asked if there's anything that shipping and box, would that be for something that would be potentially a charger that would be off-the-shelf, or could that be an inbox related item?

[Primit Parikh:]

With a partner that aims to do both those kinds of things and again, this is an MoU and like I said, we got the first order of in hand pertaining to that MoU. So, the start of the – sort of the pilot start off that, which is also forces large opportunities, the pilots are also reasonably decent quantities. In terms of the requirements from our side, we want to make sure and like we have also announced before is we have two sources of packaging not so much a new package, our package and product is very solid in that area. But having two sources of packaging is important for us to – for diversification.

[Craig Ellis:]

And then the follow-up question Primit, it seems like there was a real strong inflection and design wins in the quarter. What changed with market engagement or in terms of how you're engaging with partners that develop such a strong increase quarter-on-quarter? And how should we think about those dynamics as they can play out, not just through the back half of this year, but continued to add design wins to your pipeline as we go through 2022?

[Primit Parikh:]

So, on the adapters and charges one thing we have done definitively is work with solutions provider. Like I said our GaN FET architecture is unique in the sense that it's completely flexible to use controllers from multi companies, right? It's not limited. If you kind of put everything in one box, then it's limited to one particular controller. It's not like that. Or if certain e-mode solutions it has to work with specific drivers, it's not like that. So actually, as we have increased this outreach innovative and well-established, well-reputed companies, and you'll see some of these announcements in future as, and when they happen have also come to us and partnering with us with our gallium nitride, with their controller and integrated driver IC. So that's been one important point and we hope and we target firmly to have that drive our adaptor design ins. On the higher power side, it's been the, like I said, the steady growth in the data center applications. And then the crypto mining is something to be honest we’ve not been able to predict very well in past. And it's strong now, and we are seeing more demand because our parts work well. And now it's proven with more than a handful of crypto mining customers that we have. So as of now, that continues to look very promising.

[Craig Ellis:]

That's very helpful. Thanks, Primit. Good luck.

[Primit Parikh:]

Thank you.

[Operator:]

We have a follow-up question from David Williams from Benchmark. Your line is open.

[David Williams:]

Hey guys, thanks for taking the follow-up. I dropped off there. But I just wanted to ask, maybe in terms of the demand that you saw this quarter, was there anything unusual that maybe was pulled ahead, obviously you've got strong demand that you're forecasting for the next few quarters. Is there anything unusual here? Is this simply just that inflection point of your outreach and just the demand transit you are seeing?

[Primit Parikh:]

No, I would not say there is anything unusual. Like I said it’s continued results of our well-established products and its proven performance with our increasingly providing solutions, especially in the adapter space, working closely with our customers and partners in the higher power space. And then we continue to watch very carefully also on the supply side, constraints, certain constraints, especially in packaging that we are not immune to. So, we continue to work very closely with our partners there. So those are the kinds of mix that we juggle the advanced solutions, winning more design wins with more products and solid performance of our products. And then making sure we match our supply capacity growth with that.

[David Williams:]

Okay. And then maybe just one last one, if I can on the Experian engagement has there been any changes there or anything, I guess, different there, have you seen pushback or just kind of thinking about some of the trade restrictions and some of the ongoing issues there? Is there anything there that you would speak to?

[Primit Parikh:]

No, no particular restrictions like we said, we extended our long-term cooperation agreements independently from the licensed technology we have and Nexperia builds on that due to their own gallium nitride offerings in the market, which you can see which we are also very pleased to see, especially they amplify, our message and our brand of architecture of gallium nitride in automotive with a larger reach. So that's very exciting and we hope to see more of that. No particular restrictions as such to that I am aware of.

[David Williams:]

Okay. Thanks so much. Best of luck on the quarter.

[Primit Parikh:]

Thank you.

[Operator:]

There are no further question at this time, I would like to turn the conference back to the management for any closing remarks.

[Mario Rivas:]

Thank you, operator. For closing out today's call, I want to highlight that we plan to participate at the upcoming Jefferies Semiconductor’s Hardware on Communication Summit from September 1. For those interested in meeting with us at this virtual conference or another upcoming event, we will encourage you to contact the hosting firm or search out to the Shelton Group in order to schedule a meeting. I want to thank you again for joining us on today's call and we look forward to reporting on our continued progress during the second half of the year. Operator, you may now disconnect the call.

[Operator:]

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