SkyWater Technology, Inc.

Good day. Thank you for standing by and welcome to Skywater Technologies' second quarter fiscal year 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star 1 on your telephone. Please be advised that today's conference is being recorded. In addition, if you require any further assistance, please press the star 0. Thank you. I would now like to hand the conference over to your speaker today, Ms. Heather Davis. Ma'am, please go ahead.

Good morning, and welcome to Skywater's second quarter fiscal 2021 conference call. With me on the call today from Skywater are Thomas Sonderman, President and Chief Executive Officer, and Steve Manko, Chief Financial Officer. I'd like to remind you that our call is being webcast live on Skywater's Investor Relations website at ir.skywatertechnology.com. The webcast will be available for replay shortly after the call concludes. During the call, any statements made about our future financial results and business are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. For a discussion of these risks and uncertainties, please refer to our filings with the Securities and Exchange Commission, including our earnings release filed on Form 8K yesterday and a prospectus filed April 22, 2021. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our earnings release, which is available on our investor relations website. Unless noted, all comparables referenced today are versus the prior year or second quarter of fiscal 2020. With that, let me turn the call over to Tom.

Thank you, Heather, and good morning to everyone on the call. Today, I'll briefly cover last quarter's financial results and then have a broader review of our exciting growth strategy. I'll also start providing a deeper dive into a specific area of our business to further your knowledge of Skywater's disruptive capabilities. This quarter, I'll focus on Skywater, Florida and our new advanced packaging path. Steve will then go into further details on our financials. In the second quarter, net sales grew 34% to $41.2 million compared to last year, driven by solid increases in both advanced technology services and wafer services. Gross margin was 4.4%, net loss attributable to shareholders was $7 million, and adjusted EBITDA was negative $800,000. Skywater made solid progress executing on multiple fronts during the quarter, but also experienced some revenue recognition delays. This included U.S. government funding tied to existing programs that we expect to occur, but the timing remains difficult to forecast. We also experienced a delay in the recognition of the majority of the revenue for wafers produced and put in inventory for a temperature monitoring wearable for early COVID-19 detection due to the market dynamics tied to the rapid introduction of new vaccines. These wafers are now being repurposed for an alternative health-related wearable application. Lastly, an ATS program that generated significant revenue for the company in 2020 and was forecasted for 2021 is being restructured with the customer. We expect it to resume in 2022. I am very pleased with Skywater's year-over-year top-line performance and remain confident in our long-term revenue growth target of approximately 25% for 2021 and beyond. Our vision at Skywater is to improve the world by revolutionizing technology realization because we're impatient waiting for the promise of tomorrow, so we're focused on making it happen faster today. Our industry-transforming technology-as-a-service, our task business model, allows us to co-create next-generation technologies with our customers, accelerating their time to market with the confidence of automotive quality manufacturing and extensive IP protection. As the market potential continues to expand for artificial intelligence, quantum computing, power management, and various sensing technologies, we expect to see a corresponding growth in demand for our unique task offering. During the quarter, we began the transition of multiple ATS customers to volume wafer manufacturing, a key attribute of the task business model. This achievement has literally been years in the making because of the multi-year characteristics of microelectronics R&D and is a testament to the long-term intimate relationships we have established with our customers. While we expect these transitions will drive significant long-term shareholder value, they do create a J-curve effect in the near term. We also continue to see strong pipeline growth in ATS and Wafer Services as multiple companies engage with us on new program scopings and shuttle runs. Skywater continues to make substantial progress on RH-90, our radiation-hardened technology, to address the U.S. government's needs for extreme environment microelectronics, which are necessary for satellite and mission-critical defense systems. We recently announced the launch of our first multi-project wafer shuttle using the RH-90 platform with our existing aluminum interconnect technology. We anticipate future RH-90 shuttles will leverage copper interconnects to deliver further enhancements in speed and performance for the mixed-in-road devices enabled by this leading-edge RadHard technology. We also announced our strategic partnership with CASE to support the development of the design ecosystem necessary to enable market access to our RR90 technology platform. Through this engagement, we will work together to achieve key design enablement milestones that support the productization and qualification of radiation-hardened applications. We are very excited to be working with an industry leader like CASE as they bring their extensive experience in rad-hard ASIC product realization to Skywater's RH-90 platform. Skywater also continues to execute against our RH-90 technology qualification milestones as we prepare for rad-hard testing. We expect investments in our Rad Heart program to be a long-term growth driver for our skywater, but they are a near-term drag on gross margins as we continue to develop and qualify this critically important technology platform for our nation. In the second quarter, we continue to win new ATS business in the biomedical space. Customers are seeking to co-develop MEMS-based microfluidic protein sequencing and genome technologies with Skywater. This area of the business is anticipated to be a strong performer over the next several years as demand for rapid diagnostics and other disease screening technologies proliferate across the healthcare industry. During the quarter, Skywater aggressively ramped our Minnesota FAF to support the growing IOT and automotive segments of the business. In addition, we made significant progress transitioning multiple ATS programs into wafer services, including our differentiated silicon-based power management platform, which will begin to ramp in the second half of the year. Skywater expanded its entry into the high-growth advanced packaging space in February as the operators of the Center for Neovation in Kissimmee, Florida. This fab was built by Osceola County and the University of Central Florida in 2018. After the COVID-19 related business slowdown in 2020 and funding priority changes at UCF, Osceola County searched for a new operator, ultimately selecting Skywater after a highly competitive bid process. This created a great opportunity for our company to expand our reach across the semiconductor value chain by offering customers a comprehensive, domestically sourced, advanced packaging platform. Today, advanced packaging is done primarily overseas. Our FAB is one of the few dedicated advanced packaging facilities in the United States and is anticipated to be part of our nation's solution to create a secure domestic supply chain. We also plan to move existing advanced packaging programs from Minnesota to our Florida FAB. I am also excited to announce that two current customers are expanding their engagements with us with new programs at Skywater Florida, including our long-term technology partner, Rockley Photonics. Skywater's capabilities will enable both 2.5D and 3D heterogeneous integration architectures, enabling customer improvements and component density, which reduces die size while improving product performance. It is our intent to bring the most advanced capabilities in the industry to our Florida fab. In addition, there is currently open cleanroom space in Florida, allowing us to aggressively expand as we co-create new advanced packaging solutions with our customers. We expect this offering to be a key differentiator for Skywater. In the second quarter of this year, we focused on restarting the Center for Neovation facility, qualifying the existing tools in the FAB, and hiring key talent with proven advanced packaging expertise. An operations director with deep foundry experience is now in place, and we continue to build out the FAB operations organization. Our Florida team is now executing on the three existing programs held with multiple DOD contractors. By leveraging our existing business infrastructure, including sales, marketing, and finance, we have been able to efficiently expand further into the advanced packaging space. The cost incurred in the first half of the year have put pressure on our gross margins as we started up and began to ramp our advanced packaging facility, but we expect these investments will translate into another high-margin revenue stream for our company over the long term. Skywater has a long history of successfully executing public-private partnerships. We remain highly confident about the long-term potential for these types of engagements to further increase the production capabilities of microelectronics in our country. We applaud the Senate's passage of the U.S. Innovation and Competition Act. Skyworker recently hosted Senator Klobuchar and Representative Phillips at our Minnesota FAB to discuss solutions to resolve supply chain constraints and improve long-term domestic semiconductor output. In addition, we've spoken with multiple U.S. government officials about how best to increase the capabilities of U.S.-owned and operated foundries that are focused on enabling the required innovation and production of microelectronic technologies for the automotive, industrial, defense, and medical device markets. Much remains to be decided as to how and when the U.S. government will implement its plans to co-invest with private sector companies to improve our nation's domestic R&D and manufacturing capabilities. But we strongly believe that the passage of the USICA is an important first step toward regaining U.S. leadership in microelectronics production. In addition to our interactions with Washington, Skywater continues to engage with multiple state governments, including Minnesota, Florida, and Indiana, to discuss co-investment models, an important component to secure the future of public-private partnerships that are being discussed in our nation's capital. And finally, last week we announced that our Board of Directors approved $56 million in strategic capital investments to expand capacity at our Minnesota fab and to accelerate our entry into the high-growth 200-millimeter gallium nitride market. It is our belief that the fastest way to address the current global chip shortage is to rapidly increase the capacity at existing fabs with qualified manufacturing processes. This is especially true in the automotive sector, where new product qualifications can take multiple years. The majority of our $56 million of investment will be targeted towards the purchase of new equipment, allowing us to quickly repurpose existing cleaning room space from wafer-level testing to expanded wafer production. This investment and our ongoing efficiency improvements are expected to increase the overall output of our Minnesota fat by at least 40%, further accelerating our revenue growth and gross margin expansion as we exit 2022. A portion of the $56 million in strategic investment is also targeted towards expediting Skywater's entry into the 200-million-year GAN market. As the White House's 100-day supply chain review noted, there is a significant need for a U.S. foundry to offer technology services for GAN. GaN is a promising emerging technology for electric vehicles, 5G, and consumer electronics, among others. Its unique properties enable higher charging efficiencies, smaller die sizes, and lighter weights for many applications. Your development estimates that the GaN power device market alone is expected to grow at a compounded annual growth rate of 70% through 2026, reaching $1.1 billion. I firmly believe Skywater is the right boundary to offer domestically sourced GAN-based technology development and scale manufacturing, leveraging our technology-as-a-service model. Fast-tracking our entry into the GAN market is anticipated to further enhance our position in the aerospace and defense, computation, industrial, and automotive markets, creating another disruptive technology platform that Skywater can use to rapidly grow over the long term. These strategic investments to swiftly increase the production output in our Minnesota fab and hasten our entry in the GAM market are expected to enable Skywater to continue to deliver substantial top-line growth and gross margin expansion well into the future. It is important to note that our capital commitments are in addition to the previously announced $170 million of funding from the U.S. Department of Defense to establish our RADHAR platform and the $133 million of facilities and tools from Osceola County that we are leveraging to expand our advanced packaging offerings. In summary, we are winning new business, aggressively ramping our Minnesota and Florida fabs, securing key supply arrangements with collaborative partners like Rocklea Photonics, and building our rad-hard and advanced packaging capabilities while investing strategically to drive industry-leading, long-term profitable growth for our company. I couldn't be more excited about Skywater's future as America's foundry. I will now turn the call over to Steve for further information on our financial performance in our recently completed quarter. Steve?