SkyWater Technology, Inc.

Ladies and gentlemen, good afternoon. My name is Abby and I will be your conference operator today. I would like to welcome everyone to the Skywater Technology third quarter 2022 financial results conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. Thank you, and I will turn the conference over to Claire McAdams, Investor Relations for Skywater. Ms. McAdams, you may begin your conference.

Thank you, operator. Good afternoon, and welcome to Skywater's third quarter fiscal 2022 conference call. With me on the call today from Skywater are Thomas Sonderman, President and Chief Executive Officer, and Steve Manco, 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. On our IR website, we also have posted an investor slide presentation to accompany today's call. 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 today and our Fiscal 2021 10K filed on March 10th. 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 on our earnings release as well as in our Q3 earnings presentation, both of which are available on our Investor Relations website. And with that, I'll turn the call over to Tom.

Thank you, Claire, and good afternoon to everyone on the call. Today we are pleased to report record quarterly revenue of over $52 million, which reflects 10% sequential growth from Q2 and approximately 50% growth over Q3 of last year. Our ATS business was the primary driver of our growth in Q3, with sales up 18% sequentially and 57% year-over-year, reflecting the continued momentum we are gaining with multiple key customers in 2022. Wafer services sales were similar to Q2 and up 36% year over year. With quarterly revenues now exceeding the $50 million level, our gross margin performance in Q3 demonstrates that we are delivering significant flow through to margins and profitability on the incremental revenue we've achieved since Q1. As we've been communicating all year, with ATS being the driver of our incremental revenue growth, our revenue flow through to gross margin is well above 50%. In fact, we significantly exceeded our gross margin forecast for the quarter as Steve will detail in his prepared remarks. We also have been communicating each quarter this year that the improved pricing terms with our legacy Wafer Services customer raised our quarterly revenue baseline from which to grow, and we have been delivering on sequential quarterly improvements in revenue despite the weakening macro environment. With our strong performance in Q3 and current outlook for Q4, we expect we will achieve or exceed our long-term revenue growth target of 25% this year. We are very pleased with the progress made in Q3, achieving sequential improvement in our revenue pipeline, increasing FAB efficiency and output, and significantly improving gross margins. A highlight of Q3, was not only did we turn the corner to generate positive adjusted EBITDA, but it was a very healthy $3.8 million equal to 7% of revenue. With this level of performance against our stated objectives this year, we are delivering on our promises for better predictability in our results, increased visibility, and more consistent execution towards our stated financial and business objectives. Since our last call, we've made several important announcements that build upon the momentum we've been gaining throughout 2022, strengthening the foundation for consistent quarterly revenues above the $50 million level and further establishing Skywater as a critical player in the future of our country's semiconductor supply. These important announcements included the Radhart Phase II award, progress on multiple fronts towards CHIPS Act funding for the Purdue Fab and other growth projects, the Build Back Better Regional Challenge Award funding our expansion in Florida, as well as a number of important partnerships and collaborations announced with Google, the National Institute of Standards and Technology, NanoDX, Trusted Semi, and more. Which brings me to a discussion on our primary strategic growth areas, starting with extreme environment microelectronics. Throughout 2022, we've been reporting on the progress and achievements in our RadHard program, with the ongoing successes in phase one leading up to the anticipated phase two award. On our August earnings call, we indicated that the phase two award was imminent and we are pleased to make this important announcement in September. Valued at nearly $100 million, this award demonstrates the competitive strengths of our H90 platform and the commitment of the DoD to continue its significant investment in Skywater as we successfully execute the program. This award funds the prioritization and qualification phase, which will continue for the next two years leading up to volume production. Like the additional Phase I award announced last quarter, the Phase II award has been funded and launched and was a significant driver of our sequential revenue growth in Q3, as well as the additional more modest uptick in sales expected in Q4. Last quarter, I focused on several aspects of the RH90 platform, that make our technology the strongest option available for strategic extreme environment applications. During the RH90 base program phase, we worked with our partners to firmly establish key components of the growing RH90 ecosystem. This included an initial PDK, a multi-project way for our NPW shuttle capability, coupled with our early access partner program, and the engagement with IP providers to develop SRAM compilers, and the embedded FPGA IP needed to make designing into RH90 more efficient for our partners. The next phase is a rigorous effort that includes radiation and reliability testing and further development of IP design libraries that will enable our design and manufacturing ecosystem partners to produce processors, security engines, memory devices, interface ASICs, and other mission-critical strategic solutions. Last month, we were pleased to host Congresswoman Betty McCollum and the DOD's Under Secretary of Defense for Research and Engineering, Ms. Heidi Hsu, at our headquarters in Bloomington. This discussion focused on our company's value proposition for both the DOD and commercial technologies and how we are leveraging public-private partnerships in several states and on multiple programs. We discussed how our success with the RH-90 program is a prime example of our differentiated approach for strengthening the domestic semiconductor manufacturing ecosystem. Also last month, we announced that the DoD is funding $12 million from the Phase I award announced last quarter for further IP ecosystem development, highlighting the importance of our partnerships with trusted semiconductor solutions and CASE. Both are critical collaborators for the evolution of our H90 platform. with trusted SEMI driving the development of the PDK and associated IP libraries, and CASE providing their qualification expertise for DoD systems, both of which we expect to accelerate productization for our H90 platform, ensuring it meets the rigorous demands of mission-critical extreme environment applications. As I detailed last quarter, we also have multiple programs that complement our H90, allowing us to provide solutions into less stringent defense and commercial applications. These include the growing pipeline for Rolex, our readout ICs for infrared imaging, and our planned expansion into low Earth orbit satellite solutions. All these announcements and developments demonstrate the importance that public-private partnerships play towards furthering our unique semiconductor manufacturing model, both commercially and for the U.S. government. which brings me to an update on our strategies related to the CHIPS Act, including our partnership with Purdue University and the state of Indiana. I'll start with the recent appointment of Brian Linehan as our Vice President of Government Relations. Brian is based in Washington, D.C., and brings extensive public policy experience, having served in a variety of public and private roles within the government affairs realm. Brian is charged with further deepening Skywater's relationships within all levels of government. Last quarter, we reported on our historic partnership with Purdue and the state of Indiana to build a new 300 millimeter semiconductor fab on Purdue's campus. In September, I attended Purdue's annual career day with multiple federal and state government officials to discuss the role of universities like Purdue in creating the workforce of the future, which is a crucial component of CHPSAC funding. My visit included a live and virtual keynote to over 600 engineering students to discuss Skywater's unique position in the semiconductor industry and our future plans in West Lafayette. Last month, we returned to Purdue to host an executive roundtable with customers and suppliers discussing how we intend to leverage our unique technology as a service business model to create long-term strategic partnerships in Indiana that will enable synergistic innovation, fast-track secure manufacturing, strengthen domestic supply chains, and foster national security. With the Purdue fab serving as a cornerstone of our country's strategy to enable the resurgence of semiconductor manufacturing in the United States, we believe that we are uniquely positioned to leverage all four pillars of CHIPS funding as we continue to build momentum, not only in Indiana, but also in Minnesota and Florida. This August, at our Bloomington headquarters, Senator Amy Klobuchar held a press conference highlighting the importance of key technology providers in Minnesota. Senator Klobuchar has long led efforts to boost American economic competitiveness and self-sufficiency, and her visit to Bloomington was yet another proof point that we are a critical player in our nation's semiconductor resurgence and well-positioned to be a prime recipient of future CHIPS Act funding. Which brings me to our strategy for continued growth in our heterogeneous integration operations in Florida and the exciting developments announced since our last earnings call. First, in August, we hosted Senator Marco Rubio at our Skywater, Florida facility to discuss the importance of IP protection and secure semiconductor manufacturing in the United States. Then in September, we announced a $36 million grant from the Department of Commerce to expand our heterogeneous integration facility in Kissimmee in partnership with Osceola County and Bridge. This was an incredible accomplishment for our Florida team and partners and provides the vast majority of funding required to expand the capabilities and capacity at our Florida FAB. As the only semiconductor company recipient of the EDA's Build Back Better Regional Challenge, this award was another example of our unique ability to leverage public-private partnerships to expand domestic semiconductor production. While not directly related to the CHIPS Act, being the only semiconductor recipient of the Build Back Better Challenge is yet another illustration that we're uniquely positioned to receive additional government awards. Based on our demonstrated success and prominent profile building between Senator Klobuchar's visit to Bloomington, continued momentum building in Purdue, Senator Rubio's visit in Kissimmee, and our strong relationship with the Departments of Commerce and Defense, we believe we are in excellent position to be an essential player in the rebirth of the semiconductor industry in our country. As a reminder, there are three elements of our technology roadmap underway in Florida. IBAS, DECA, and our work with Audia. For IBAS, we completed phase one of the government-funded interposer technology development program, establishing a proven capability to support bridge interposer fabrication to strengthen national security for critical emerging technologies. This program has now moved into the phase two and phase three stages of platform development with completion expected in early 2023. We are continuing our preparations to offer DECA's M-Series fan-out wafer-level packaging technology, working with external equipment and service suppliers to support the fabrication of our initial demonstration vehicles. Working with DECA, we have also completed installation of our adaptive patterning engine, which is a key enabling capability for the DECA process technology. As part of our Build Back Better award, we expect to be placing orders for our first key pieces of equipment within the next few months to support the M-Series capability in Florida. We continue our technology transfer efforts with Audia for Zybon and DBI hybrid wafer bonding technologies. In addition, we are working with an Alpha customer on our first hybrid bonding ETS engagement. Demand for domestically sourced hybrid bonding technology solutions to enable more compact and powerful heterogeneously integrated microsystems continues to be extremely high, and we expect additional customer engagements in Q4 and beyond. Now I'll turn to our strategic growth initiatives and biohealth and high-performance connectivity. In August, we and our partner NanoDx announced the first commercially-ready nanobiosensor to yield a protein response. This is a critical step towards commercializing a revolutionary new product for onsite diagnosis of traumatic brain injuries. Additionally, we have several other BioHealth customers, all of which continue to receive development funding and strong customer interest. We believe the BioHealth market remains an important growth area for Skywater, and we look forward to discussing it in more detail in upcoming calls. A series of innovative technology engagements are driving new product introduction and expanded platform capabilities in the connectivity space. Our work in collaboration with Google to create an open source derivative of the 90 nanometer FDSOI technology is underway and is expected to trigger a new wave of design activity as it has with our existing Sky 130 open source initiative. The new offering will provide a differentiated domestically sourced high performance 200 millimeter platform that we expect to generate significant commercial interest for a range of low power industrial embedded and automotive applications. In addition, we believe the recent announcement highlighting the NIST Google collaboration for open source design for researchers targeting these types of solutions will further accelerate the adoption of these platforms. Finally, I'm pleased to announce a recent milestone for one of our emerging memory solutions. WeBit's ReRAM test chips have been fully integrated with Skywater's S130 platform and are now entering the qualification phase. This is an important step towards establishing a performance differentiating next generation memory technology onshore for a broad range of IoT, power management, and advanced computing architectures. For 2022, our considerable progress and revenue growth in the first nine months substantially de-risk our 25% growth objective. This is supported by important program design wins and awards, including the recent RH-90 Phase II award and the additional Phase I award, which are driving a sizable portion of our growth in the second half of this year. Therefore, we expect we can meet or potentially exceed our long-term revenue growth target of 25% in 2022 while we build a strong pipeline for continued robust growth in 2023 and beyond. Furthermore, now that we have demonstrated significant gross margin improvement in 2022 and have turned the corner to positive EBITDA, we expect to continue executing upon the improvements necessary for sustained profitability as we achieve incremental revenue growth above Q3 levels in the current quarter. While concerns around overall macro weakness and specific downward revisions in semiconductor industry demand forecasts are apparent, Skywater remains relatively decoupled from these trends. Last quarter, I detailed how we believe our business is uniquely buffered from industry downturns and that two-thirds of our revenue comes from R&D budgets. On today's call, I have communicated multiple examples to demonstrate Skywater's prominence and the future of our country's semiconductor ecosystem, which we expect to provide the foundation for above industry growth in the years to come. I'll now turn the call over to Steve for more information on Skywire's financial and operational performance in the third quarter. Steve?