SkyWater Technology, Inc Q1 FY2025 earnings call

Key Points - ThermaView Platform: Launched as a strategic milestone, driving over half of Q1 Wafer Services revenue, with strong traction from lead customers. - Acquisition of Infineon's Fab 25: A strategic step to meet U.S. semiconductor sovereignty needs, expected to unlock new foundry capacity and support various sectors. - D-Wave's Announcement: Demonstrated quantum supremacy, underscoring SkyWater's role in enabling quantum innovations. - Government Budget Impact: ATS has faced delays due to federal budget negotiations, but expects strong snapback in second half of 2025. - Capital Markets Day: Planned for early to mid-July at Fab 25 in Austin. - Tariff Policy: Overall tariff exposure is limited, with no significant impact expected on defense programs.

First quarter revenue was $61.3 million. Combined ATS and Wafer Services revenue was $60.1 million, with tools revenue at $1.2 million. Wafer Services had upside driven by the ThermaView platform, which accounted for over half of Q1 Wafer Services revenue. ATS was softer due to government budget delays in Washington, D.C. Wafer Services' ThermaView platform is a significant strategic milestone, being a dedicated 90-nanometer CMOS and MEMS platform for the advanced thermal imaging market. ATS has been impacted by prolonged U.S. federal budget negotiations delaying key program funding for A&D customers.

Q2 Guidance - Total revenues expected in the range of $55 million to $60 million. - ATS revenues expected in the $49 million to $53 million range, tools revenue just under $1 million, and Wafer Services revenues between $5 million to $6 million. ### Full Year - Full year revenue guidance range of 5% revenue growth for combined ATS and Wafer Services business, plus or minus 2%, back half weighted. - Expect significant expansion of gross margin profile in second half of 2025, aiming for positive non-GAAP EPS for the year, with adjusted EBITDA of at least 10% of total revenues.

Risks - Tariff policy uncertainty, although overall exposure is limited. - Prolonged U.S. federal budget negotiations impacting ATS revenue in the near term.

Q: Obviously, last quarter, looking into Q2, you expected a recovery in ATS, and that didn't happen. Now we're sort of looking for that ATS recovery to begin strongly in the second half. How do you have confidence that these programs and the budget will get approved at higher funding levels that support that second half?

A: The biggest thing giving confidence is almost $300 million of investment by the U.S. government over the last several years to create capability. Programs are aligned with national security agenda. By the end of Q2, will have good transparency on second half.

Q: You guys mentioned some of the work you're doing on the quantum computing space in advanced computing with D-Wave and Si-Quantum. How big is advanced computing as a percentage of the business? And any sense on the type of work with Si-Quantum?

A: Advanced compute market is about 10% of the business, 90% of that tied to quantum computing space. With Si-Quantum, part of their value chain, focusing on superconducting technology and other films technology they integrate, but no further detail provided.

Q: Just how should we think about the ramp of ThermaView business maybe compared to some of the other programs in Wafer Services this year? And potential sizing of that market over the next few years?

A: ThermaView is driving the ramp of Wafer Services. Last year legacy mix was 90%, this year expecting 60% new. See a $9 billion market for ThermaView, expecting to capture a percent of it.

Q: Maybe give us a view on the number of conversions that go from ATS to Wafer Services this year, delineating between A&D type of customers versus other markets?

A: Last year had 4 announced transitions, one into auto industrial sector, 3 into bio-diagnostic and medical device areas. Converts are smaller companies going through qualifications. Process varies by market, but collectively will become more predictable.

Q: Update on the RadHard program and impact from budgetary matters in Washington?

A: Technology continues to evolve towards qualification. Program is being reassessed in terms of priority. SkyWater is a national asset with unique capabilities, and investment in the program is expected to continue.