Thank you for standing by, and welcome to the Navitas Semiconductor Q2 '25 Earnings Call. [Operator Instructions] Now, I would like to turn the call over to Lori Barker, Investor Relations. Lori, please go ahead.

Good afternoon, everyone. I'm Lori Barker, Investor Relations for Navitas. Thank you for joining Navitas Semiconductor's Second Quarter 2025 Results Conference Call. I'm joined today by Gene Sheridan, our President, CEO and Co-Founder; and Todd Glickman, CFO. A replay of this webcast will be available on our website approximately 1 hour following this conference call, and available for 30 days. Additional information related to our business is also posted in the Investor Relations section of our website. Our earnings release includes non-GAAP financial measures. Reconciliations of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our second quarter earnings release, and also posted on our website in the Investor Relations section. Non-GAAP expenses and operating margin excludes stock-based compensation, amortization of intangible assets, and other non-recurring items. In this conference call, we will make forward-looking statements about future events or about the future financial performance of Navitas. You can identify these statements by words like "we expect" or "we believe" or similar terms. We wish to caution you that such forward-looking statements are subject to risks and uncertainties, that could cause actual events or results to differ materially from expectations expressed in our forward-looking statements. Important factors that can affect Navitas' business, including factors that could cause actual results to differ from our forward-looking statements, are described in our earnings release. Please also refer to the risk factors sections in our most recent 10-K and 10-Q. Our estimates or other forward-looking statements may change, and Navitas assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law. And now over to Gene Sheridan, CEO.

Thanks, Lori. And thanks to all of you for joining our Q2 2025 earnings call. I am pleased to announce Q2 revenues of $14.5 million which are in line with our guidance, despite a number of headwinds that continue to challenge near-term results. Our industry is in a classic semiconductor downturn with a slowdown in projections for solar, industrial, EV sectors, the continued impact of tariff conflicts, and now, the removal of tax credits for the solar and EV industry. Despite these short-term industry headwinds, Q2 was a very strategic quarter for our company. We have decided to more aggressively transition and invest in a leadership position for AI data centers. AI data centers represents an extraordinary opportunity and one that Navitas is uniquely positioned to capitalize on. In Q2, we announced that NVIDIA has selected Navitas to support their vision for next-generation 800-volt data centers. We also raised nearly $100 million of new capital in the quarter, providing additional cash flow to support our plans for growth, including investments needed to execute on development milestones over the coming quarters to support a significant ramp expected in late '26. Furthermore, in Q2, we announced our new GaN foundry partner, Powerchip, which is enabling our next-generation 8-inch, low-cost manufacturing platform to support our cost and capacity goals for this expanded AI data center opportunity. Our existing high-voltage GaN supplier is TSMC, which is utilizing 6-inch wafers. Over the next 2 plus years, we expect our high-voltage customers to transition to Powerchip's 8-inch factory, which can produce nearly 80% more chips per wafer compared to 6-inch for little incremental cost. We expect this will yield more attractive price points for our customers and higher gross margins for Navitas. We are already planning to ramp our medium voltage 80- to 200-volt GaN from…

Thank you, Gene. In my comments today, I will take you through our second quarter 2025 financial results, and then I'll walk you through our outlook for the third quarter and explain further on the financial implications of some of the important Q2 achievements, market dynamics and announcements that Gene has described. Revenue in the second quarter of 2025 was at the midpoint of guidance at $14.5 million. As expected, revenue and the industry environment remained relatively static compared to the first quarter of 2025. The decline compared to a year-ago quarter was primarily the result of lower revenues in the China EV and industrial markets as semiconductor customers wait for improved economic indicators. Before addressing gross profit and expenses, I'd like to refer you to the GAAP to non-GAAP reconciliations in our press release. In the rest of my commentary, I will refer to non-GAAP measures. Gross margin in the second quarter was 38.5%, which was up sequentially compared to 38.1% in the first quarter, primarily due to a slight favorable change in product mix. In the second quarter, we executed on further synergies and operational efficiencies associated with prior acquisitions as we reduced operating expenses sequentially from $17.2 million to $16.1 million. Operating expenses were comprised of SG&A expenses of $6.9 million and R&D expenses of $9.2 million. Expenses were slightly higher than projected as we incurred additional second quarter only R&D expenses related to our high power GaN development. Consolidating certain support groups and sites, and further streamlining day-to-day functions has allowed us to significantly reduce SG&A by 17% or $1.4 million from the first quarter, while we continue investing in next-generation GaN and SiC technology platforms to serve the increasing power consumption across AI data center and energy infrastructure markets. Adding all this together, the second-quarter…

[Operator Instructions] And your first question comes from the line of Ross Seymore with Deutsche Bank.

Gene, in this transition, I guess let's get the bad news out of the way first. How do you expect the revenues to behave between now and the time in, it sounds like, second half of next year where the bigger ramp will occur in the data center side. So as we drop down first before we go back up on the other side, how should we think that shape looks?

Yes. Thanks, Ross. Good question, the obvious question, right? So as we make the transition, we're going to both reduce dependency on mobile, as Todd and I described, which does involve reducing some revenues being more selective in that market. At the same time, we're layering in all new design wins from other sectors and even the 48-volt data centers. So I think those net out to some softer quarters over the next 1 or 2 quarters, but sets us up well as we shift all of our investment or heavy investment into the AI data center, first 48-volt, but much bigger as we described with the 800-volt. So it will be a transitionary period, but some softer quarters in the near term, but setting us up well for big growth as we get into '26.

And then I guess that's the perfect transition to the good side of the equation. When you get into '26 and you say most of these ramps are late '26, are you talking second half or fourth quarter? And then looking even further beyond that, what's the sort of margin structure you think this business could offer? Especially on your gross margin line, it seems like it would have significantly less pressure from competitors perhaps, but inherently a more performance- centric market. So what sort of gross margin do you think that could deliver?

Yes. Let me, so covering the first part, recognize the 800-volt data center is heavily a 2027 play. That's a pretty extraordinary one with really high content, we believe, GaN and silicon carbide across those 3 stages we talked about. 48-volts are still ramping, right? We previously announced 70 customer projects, over 40 wins. They're not as big. They're not as significant, but those will be contributing and layering into growth and help offset some of that reduced mobile dependency we talked about throughout '26. So I think that's the dynamic for '26 on the top line. I think on margin, we still have our same long-term margin model north of 50 points. As you point out, the AI data center and the energy infrastructure markets should be very high-value markets. They're really driven around performance, efficiency, density, Cost is secondary, even supply chain output is a higher issue than cost. And that's also, obviously, part of what we're doing with mobile and reducing that dependency being more selective. So I think all that sets us up well. I'd add in another factor, which is a big announcement in the quarter, Powerchip, low-cost 8-inch, that's also going to be layering in over the next 12 to 24 months. That's going to drive great cost reduction for us, better price points in the market, better upside on growth, but also add to the incremental gross margin as we go from high 30s, low 40s and head towards that longer-term model of 50% and beyond.

And your next question comes from the line of Blayne Curtis with Jefferies.

Maybe just following up on Ross. I just want to understand the -- what portion of your mobile business historically are you deeming that kind of lower gross margin business you're walking away? You said a continued headwind. I'm just trying to understand, does the absolute amount per quarter go lower from here? Or is the remainder stuff you'll stick with for a little bit longer?

Yes. Yes. Good questions, Blayne. And so we've often highlighted how the value of GaN in chargers and in other application goes up as you go up in power. Ultrafast chargers we've talked about in the past are really north of 100 watts. We participated in things below that 45 watts, 65 watts. Those are popular power levels even with silicon chargers. There's a lot of volume there. A lot of that volume is in China, but we don't love the price points, we don't love the margin profile, and we don't love the price kind of profile going forward. So we're going to really refocus on those ultrafast chargers, 100- watt and plus. Case in point, we just announced a 90-watt Xiaomi aftermarket charger. That's a great. One in China that's with a great brand and a great partner and an incredible power density. It's the power that is on the upper end of most notebooks, but in the size of a typical 12-watt silicon charger. So that's the kind of things we'll keep going with. We're going to like that margin profile better. But admittedly, it's going to be less revenue base. The mainstream where we're reducing is more China, more 65-watt and 45-watt, and we see that being far more than offset as we start to ramp AI data centers later in '26.

And then I just was curious on the transition to Powerchip. I guess, can you just walk us through in terms of your ability to get any kind of volumes before Powerchip ramps? Is that -- is there any impact from that transition in your revenue outlook?

Yes. And you can kind of break it into 2 pieces. We've actually got the, what we call, the mid-voltage GaN that's brand new, 80- to 200-volts. That's very important for 48-volt data centers today and 800-volt data centers tomorrow in this, what I call, the Stage 3. That's starting out straight away from Powerchip. We're already sampling that next quarter from Powerchip. That will start ramping production in early '26. The high-voltage GaN, we're already shipping today from TSMC, we'll start sampling that to customers, if not late this year, early next year. That will start ramping in late '26, and we expect a lot of our customers to migrate quite quickly from TSMC to Powerchip given the big advantages in technology cost and capacity.

Okay. So I guess in short, there's no supply issue. This is more -- the revenue headwind is purely because of where pricing and margin went in mobile.

Yes. Yes, exactly. Yes. Thanks for clarifying. No supply at all. In fact, by bringing up 8-inch, that gets you 80% more die per wafer. We'll have a lot of capacity. No shortages or supply chain issues on our mobile decisions in the short term.

And your next question comes from the line of Kevin Cassidy with Rosenblatt Securities.

Since the announcement from NVIDIA, have you seen any adoption increase just in the 48-volt data centers today for moving to gallium nitride? It seemed like they were a little hesitant in the past, but is this -- does that help break a logjam?

Yes. It's a good thought, Kevin. And I think -- well, it's a little too early to call it fully, but it brings up an important point. While we see GaN designs already underway for the 48-volt system of an 800-volt data center, that same, what I was calling Stage 3, that 48- volt converter using GaN can also be used in 48-volt data centers. So we're hopeful that as we prove it out with an eye towards 800-volt, we could get some upside next year, putting it in place even before the 800-volt ramp-up with 48-volt data centers. But it's a little too early to call it, and we'll sort of see how that plays out and obviously do what we can to support it.

Okay. I see. And then also on the transition from TSMC to Powerchip, should we expect to see inventory build? Are you going to get a safety supply of TSMC wafers before making the transition?

Yes. Yes. So TSMC is committed to at least a 2-year supply through mid of '27. That might get extended. But even if it doesn't, we can do additional last time buys as you're implying. So our message to our customers, if it takes them a little bit longer to transition to Powerchip, we can supply them through all of '27, probably even into '28 if it's needed. I don't think it will take anybody that close. And there are so many big advantages on cost capacity and tech to make that move, but that gives us a nice cushion and a high confidence on supply chain.

And your next question comes from the line of Jack Egan with Charter Equity Research.

So just on the near term, I was hoping you could kind of go through the drivers for the big sequential decline in September. So I mean, you have a weaker demand environment, some tariff headwinds and then the narrowing of your products portfolio. So how much did each of those kind of contribute to the guidance for September?

Yes. That's -- you summarized it really well, Jack. And so they're almost equal weight. In the short term, we knew silicon carbide was a risk for us in China on the tariffs. We're one of the few guys that does U.S. manufacturing. And that's a risk that is turning into reality. That same risk of having U.S. manufacturing, of course, becomes a great strength as we look at AI data centers and energy infrastructure over time because our customers, which are heavily U.S.-based, love the idea of a U.S. supply chain. But in the short term, that's caused us some impact. I think that's mostly a Q3 impact, maybe a little bit Q4. The other is the intention to be more selective in mobile, reduce our dependency. That's going to be a multi-quarter effort, as Todd applied. And then we've not seen ramp-ups of new design wins given the industry slowdowns continuing, I think, for a couple of quarters more. It's a little hard to predict even by our larger competitors. So I'd kind of give them equal weight on driving some of the sequential decline in Q3.

Okay. That's helpful. And then on the data center side, has the 800-volt announcements with NVIDIA led to more engagement with other data center customers? And I mean, would Navitas have the design and support resources to handle those additional products? Or I mean, would NVIDIA really just take the bulk of your focus for the foreseeable future?

Yes. It's definitely open doors. We thought we're well positioned already. There's -- a lot of these customers, we know very well around the world. Many of them are doing power supplies in markets where we're already serving, whether it's notebook or desktop or even early server work that we've already done. So we know the customers well, especially on SST, that's the newest field, solid-state transformers. So we've had a lot of inbound there, and it's opening up a lot of doors, which is exciting. To your point about opening doors, too, we should mention NVIDIA is hugely influential, and we're super excited about their vision. They're not the only guys looking to drive this move towards higher voltage data centers. And those are opportunities that are also emerging. Nothing really to announce yet, but I think there's other players that are going to be pushing in the same direction, expanding the market opportunity.

And your next question comes from the line of Joe Moore with Morgan Stanley.

I wonder if you could talk about the competition for these NVIDIA products. I mean, you've had 10 different companies announce their participation in this partnership. Obviously, you guys have a wider range of wide band-gap products to address it with. But can you just talk about -- when you talk about that SAM, your position within that SAM?

Yes, definitely, Joe. And you touched on the first point, which is, this is a pretty extraordinary challenge from grid power at tens of thousands of volts to step it all the way down to GPU power at sub 1 volt. And each of these 3 stages has a big demand on high efficiency and high density. So you're going to need the best high-performance, high reliability and high-efficiency technology in each stage. We feel like we're starting from a great place, having it, not just having the range, but on the silicon carbide, what we call ultra-high voltage, 2.3 kilovolt, all the way up to 6.5 kilovolt, very few suppliers in that space. We have the best performance, the best reliability, in our opinion, gives us a great starting point. And we're investing aggressively to expand that lead generationally and in packages and portfolio. You go to that second stage of high-voltage GaN, which companies have high-voltage GaN, high-voltage silicon carbide, and it may take a combination of those 2 in the second stage and the output of that, the mid-voltage GaN, 80- to 200-volt. Very, very few, even of the named suppliers that are participating have that combination. And then that third stage is all mid-voltage GaN, 80- to 200-volt GaN with a 40-volt converter, demanding the highest efficiency, highest density. And part of our strategic decision to defocus and reduce some of our dependency on mobile is shifting aggressively to accelerate that R&D, push that technology advantage, push the focus, and increase the customer intimacy. So I think those are all positives. Another big positive for us is our size. While we're up against some big guys, I think our small size is our advantage, speed, flexibility, innovation, risk taking and focus. It all comes back to focus. And so a lot of what you heard today is us really doubling down and increasing the focus in this critical fast-moving market.

And your next question comes from the line of John Tanwanteng with CJS Securities.

I was wondering, since there's, obviously, no design wins as part of the announcement, there's a long time until you get there. You're announcing this transition away from your core bread and butter markets. Are you getting any design and engineering revenue along the way? Or is it really just risking it all with the knowledge that you do think you have a performing product before we get there? And how should we think about the cash flows along the way as well? Obviously, nice to see that you do raise the capital, but what should we expect before the cash flows start ramping again?

Yes. Yes, it is an important point. And I don't -- as much as the 800-volt is exciting, and there's a lot to do, and we're off to a good start, and we think we're well positioned. And it's -- but it's mainly a 2027 play. 2026 is still ramping on 48-volt data centers. We've already announced the 40 design wins, over 70 in total customer projects that will be ramping. Yes, those are being offset by some of this reduction in mobile dependency, but you're going to see those shine through as we ramp up in '26. So you're going to see those, I think, great announcements, great design wins. We didn't put a big spotlight on pipeline this quarter just because we had so much else to cover to better explain the AI data center opportunity. But you'll definitely see those design wins and see those growth sort of proof points along the way throughout '26. And then there was another, I think, question, Todd, for you.

Yes, John, I think you mentioned something about cash flow. Yes, this last quarter, our operating cash flow was around $11 million. With the $106 million on our balance sheet today, we expect to maintain cash flow usage of around $10 million to $11 million going forward. So that's our profile going forward because we expect to also keep operating expenses pretty flat.

Okay. Great. And just to clarify, Gene, when you say things improving through '26, are you talking about just data center? Or are you expecting other markets to recover as well?

Yes. I think that depends somewhat on the markets. We did enter this year with a strong pipeline, strong design wins. Some of those forecasts have come down or delayed a bit with the continued softness in the market. But I would certainly expect to see recovery, as I think most do going into '26, and that's going to add to some tailwinds for us.

[Operator Instructions] And your next question comes from the line of Richard Shannon with Craig-Hallum Capital Group.

A couple of questions here. Gene, curious to understand kind of the change in focus here and what's driving this. Have we had a material change in pricing trends in certain markets here? I know you've got a fairly aggressive competitors, specifically in China with mobile, but wondering if there's been any change here in the last quarter or 2 that's dictated this? Or is it just a continuing trend that's been made it harder?

Yes. No, I think you nailed it on the head, Richard. No big announcements here. We've seen this trend for a while. We've talked about the importance of ultrafast charging and where we bring the real value. We participated in some of the more mainstream price sensitive, as I said, 45, 65-watt, decent volume there in China. But those trends continue. And when the market is soft, people kind of get more aggressive on price, it's sort of normal. But we don't like that pricing trend. We don't like the margin profile. And frankly, we're getting ready for a much more attractive pricing margin profile and where we really want to put our investment and focus as you're hearing throughout the call.

Okay. Fair enough. And if I missed this, I apologize. But I just want to get a sense of how you're thinking of the trajectory in gross margins over the near term. I think it was an earlier question about what to expect from a revenue perspective, which seems kind of maybe bumping along the bottom or whatever phrase you'd like to use. But how do we think about gross margins here, particularly as we deemphasize some of these lower-margin markets? Will we get up to bump above 40% here fairly soon? Or does that really take the revenue inflection to make that happen?

Yes. It's actually going to take the revenue inflection to make that happen. To your point, we've delivered 38.5%. We're guiding to 38.5% in Q3, and we expect it to remain that level as some of the other businesses are experiencing some tariff pressure on their margins, mainly in our silicon carbide business. So you're not going to see that gross margin profile increase until the other sectors kick in.

There's no further question at this time. That concludes today's call. Thank you all for joining. You may now disconnect.