SkyWater Technology, Inc Q3 FY2024 earnings call

• Record quarter with $94 million revenue, $0.08 positive non-GAAP EPS. - Tools revenue at an all-time record $31 million, ninth consecutive quarter of sequential growth. - ATS development revenue $56 million, up 5% y-o-y but down 9% from Q2 due to A&D customer funding constraints. - Wafer Services revenue ~$7M, exceeding expectations. - Delivered 22% gross margin, driven by operational efficiencies and recovery of $8M cost accrual from Q1. - New multiyear supply agreement with NanoDx for biosensor development. - Role in Microelectronics Commons Initiative for advancing microelectronics innovation. - Appointment of Bassel Haddad as senior vice president and general manager of advanced packaging.

SkyWater reported $94 million in revenue for the third quarter of 2024. Combined ATS and Wafer Services revenue totaled $63 million. Tools revenue, representing customer-funded capex investments, increased to an all-time record $31 million. ATS development revenue was $56 million, demonstrating year-over-year growth of 5% but declining 9% from Q2. Wafer Services revenue exceeded expectations at nearly $7 million. ATS and Wafer Services revenue contribution: combined they made up $63 million of the $94 million total, with ATS development at $56M (~59.9% of total revenue) and Tools at $31M (~33% of total revenue), Wafer Services at ~$7M (~7.4% of total revenue).

• Q4 total revenue expected $72M to $76M, with ATS revenue $58M to $61M, Wafer Services $3M to $4M, tools revenue $11M. - Expect double-digit revenue growth in ATS in 2024, returning to sequential growth in Q4. - 2025 tools revenue expected $40M to $50M, back-end loaded in second half. - Q4 gross margin expected 19% to 23%, midpoint 24% for combined ATS and Wafer Services business. - OpEx run rate likely higher in 2025 due to cost control initiatives and deferred spending. - 2025 tax expense expected nominal to none.

• ATS revenue softening due to funding constraints at some A&D customers near end of government fiscal year. - Tool delivery timing highly dependent on tool suppliers. - Government administration changes and their impact on program funding and commitment (though management remains confident in programs).

Q: On gross margin guidance for Q4, Steve was asked if it's mainly because ATS and Wafer Services revenue is flattish sequentially ex tools.

A: Yes, it's a flat quarter to quarter on ATS and Wafer Services revenue, so similar margin for that business in Q4.

Q: Nick Doyle asked about customers transitioning to Wafer Services, visibility on number of customers transitioning in 2025.

A: NanoDx has a long-term supply agreement, but timing of transition to production is dependent on their qualification schedules. However, confidence in conversions remains high with expected growth in Wafer Services in 2025.

Q: Richard Shannon asked about the accrual reversal and program involved.

A: The $8M accrual from Q1 was mostly reversed, related to a technology development program. Technical issues were resolved, platform stabilized, PDK to be released early next year with production still several years away but progress positive.

Q: Robert Aguanno asked about gross margin trajectory and 2025 drivers.

A: Q4 gross margin expected similar to Q3. In 2025, margins expected to increase due to lower tool revenue impact, ATS and Wafer Services business growth, and better than 55% flow-through on margin.