SkyWater Technology, Inc.

ladies and gentlemen thank you for standing by my name is krista and i will be your conference operator today at this time i would like to welcome everyone to skywater technology third quarter 2024 financial results conference call all lines have been placed on mute to prevent any background noise and 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 star, followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. I would now like to turn the conference over to Claire McAdams, Investor Relations for Skywater. Claire, you may begin.

Thank you, Operator. Good afternoon, and welcome to Skywater's third quarter 2024 conference call. With me on the call today from Skywater are Thomas Sonderman, 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 have posted a slide presentation to accompany today's call. as well as a financial supplement summarizing our quarterly and annual financial results for the last three years, including all non-GAAP adjustments and comparisons to our GAAP results, as well as the impact of tool sales on our gross margins. 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 2023 Form 10K. 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, our financial supplement, and in our Q3 earnings presentation, all three of which are posted on our Investor Relations website. Also on our Investor Relations website events page, you will see that we plan to participate in two investor events between now and our next earnings calls. the New York Summit on December 17th, and the Needham Growth Conference on January 15th. With that, I'll turn the call over to Tom.

Thank you, Claire, and good afternoon to everyone on the call. I'm pleased to announce another record quarter for Skywater with $94 million in revenue driven by unprecedented levels of customer co-investment and $0.08 positive non-GAAP EPS. Combined ATS and WAFER services revenue totaled $63 million. Tools revenue, which represents customer-funded CapEx investments, increased to an all-time record $31 million, driving our ninth consecutive quarter of sequential growth and record revenue. ATS development revenue of $56 million demonstrated year-over-year growth of 5%, but declined 9% from our record Q2. ATS activity was a bit softer than we expected, largely due to funding constraints at some of our A&D customers as we near the end of the government's fiscal year. Our ability to quickly balance ATS activity requirements with wafer services demand allowed us to move more production wafers through the FAB, which resulted in wafer services revenue exceeding our expectations at nearly $7 million. We delivered 22% gross margin for the quarter, well above expectations. This was driven by our continued focus on operational efficiencies and improved execution on a significant A&D program, which enabled us to deliver key milestones with lower than expected costs and recover the majority of the $8 million cost accrual recorded in Q1. Steve will provide greater detail on our strong gross margin performance during his remarks. In all, Q3 was an important quarter of execution on key programs, resulting in significant gross margin and earnings upside in spite of the temporary softening in ATS revenue. Now I will highlight several positive developments in our business and provide our current outlook within the overall customer demand environment. First, consistent with our expectations throughout the year, we expect to deliver double-digit revenue growth in our ATS business this year. We expect to return to sequential growth in ATS revenue in the fourth quarter after the temporary decline in Q3, which we expect will result in a record ATS year for us in 2024. This anticipated robust growth year for ATS underscores the strategic importance of multiple aerospace and defense programs underway at Skywater, as well as several emerging growth technologies being developed for our commercial customers. At the midpoint of Q4 expectations, our three-year CAGR for ATS revenue exceeds 35%. At the same time, we are demonstrating steady improvements in our operational execution. which is an important outcome from the business transformation process we undertook last year. We believe the added revenue tailwind of record-level CapEx co-investment is yet another proof point of our customers' confidence in Skywater as a trusted domestic source of critical semiconductor technology. Next, we're pleased to announce a multi-year supply agreement with NanoDX, a pioneer of in vitro diagnostics and biosensor applications. They are currently completing the development of a revolutionary biosensor that is the foundation of their rapid point of care diagnostic platform. NanoDx is initially focused on traumatic brain injury applications with a clear path to various other disease states including stroke and infectious disease. This agreement marks an important step forward reflecting our progress and readiness to support NanoDx on their path towards commercialization. We continue to believe that these types of customer partnerships build a strong foundation for the future growth of our commercial wafer services business, where in addition to advanced biomedical, we see strong potential for our advanced compute and thermal imaging platforms. Next, expanding our leadership in critical semiconductor technologies is our growing role within the Microelectronics Commons Initiative, an important element of the CHIPS Act. Established under the National Defense Authorization Act, the Microelectronics RME Commons initiative is designed to accelerate U.S. innovation in microelectronics and strengthen national security. Skywater has been selected as a key performer for multiple RME Commons projects spearheaded by the Southwest Advanced Packaging Hub and the Northwest AI Hardware Hub. These projects and the initial round of funded programs aimed to advance scalable low-power microtechnology solutions that support AI hardware development and other high-impact national security applications. Another highlight since last quarter is the appointment of Basil Haddad as Senior Vice President and General Manager of Advanced Packaging. Basil is charged with building and scaling Skywater's advanced packaging business, serving both the defense and commercial market sectors. His commercial sector experience will be pivotal in cultivating key new customers and partnerships to build a strong, scalable manufacturing presence in the United States. His proven track record at Intel, where he effectively managed large scale business lines and engineering projects, highlights his ability to rapidly translate strategies into operational success. During the quarter, we continue to place new tooling purchase orders funded by the $120 million award announced earlier this year. As Moore's Law is slowing down, 2.5D and 3D advanced packaging becomes the next frontier of semiconductor technology innovation. The unprecedented demand for computation in the AI era makes heterogeneous integration a pivotal capability fueling the next phase of semiconductor growth. We believe Skywater is uniquely positioned to be a leading domestic supplier of advanced packaging solutions, serving both defense and commercial customers. Now turning to our outlook for the fourth quarter. With our current visibility, we expect total revenue of $72 to $76 million, of which approximately $11 million is expected to be tools revenue. Therefore, we expect combined ATS and wafer services revenue to be $63 million plus or minus $2 million. Within this range, we expect sequential growth for ATS with revenue in the range of $58 to $61 million and wafer services revenue in the range of $3 to $4 million. Looking ahead to 2025, we are encouraged by a robust pipeline of secure A&D demand growing momentum across multiple commercial programs and the initial ramp of our advanced packaging business. Growth in our ATS segment is expected to be driven by strong, continued momentum across various A&D programs and new well-funded commercial initiatives. We expect these advancements to be bolstered by substantial new tooling capabilities funded by our customers during this unprecedented period of co-investment. Additionally, we plan to accelerate our advanced packaging ATS development as we ramp our new fan-out platform. We expect revenue from our Florida fab in 2025 will be a mix of ATS and tools. In our wafer services segment, we anticipate increasing demand from commercial programs that have and will transition from ATS to production. together we believe these factors position us well for continued expansion of our combined ats and wafer services business in 2025. finally for tools we continue to expect approximately 200 million dollars of total customer co-investment between 2024 and 2026. our tool delivery schedule indicates a current estimate of $40 to $50 million for 2025 as we continue to ramp our advanced packaging business in Florida and incorporate new tooling in Minnesota. We expect that these capabilities will greatly enhance the solutions we can provide to our customers, driving growth long into the future. Altogether, our outlook for 2025 supports continued top line growth and gross margin expansion as we progress through the year. I will now turn the call over to Steve.