SkyWater Technology, Inc.

Good afternoon and welcome to Skywater Technologies' first quarter 2025 financial results conference call. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Claire McAdams, Investor Relations for Skywater. Please go ahead.

Thank you, Operator. Good afternoon and welcome to Skywater's first quarter 2025 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 the events page of our IR website, we have posted a slide presentation that accompanies today's call. Also posted is our financial supplement, which summarizes 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 discussion of these risks and uncertainties, please refer to our filings with the Securities and Exchange Commission, including our earnings release filed on Form 8-K today and our fiscal 2024 Form 10-K. 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 Q1 earnings presentation, all three of which are posted on our investor relations websites. Also on our IR website events page, you'll see that we plan to participate in three investor conferences in Q2. B. Riley in LA, Craig Hallam in Minneapolis, and T.D. Cowan in New York. We are also in the early stages of planning our capital markets day at Fab 25 in Austin, ideally this summer before Q2 reporting season. please feel free to contact me directly for any investor follow-up requests. With that, I'll turn the call over to Tom.

Thank you, Claire, and good afternoon to everyone on the call. Our revenues for the first quarter were closely aligned with the outlook provided in February and just above the midpoint of our guidance range. Gross margin and non-GAAP EPS both exceeded guidance and adjusted EBITDA performance was stronger than forecast at over $4 million. The upside achieved in wafer services during Q1 was driven by strong traction from our recently launched ThermaView platform. This launch represents a significant strategic milestone for our company. ThermaView is a dedicated 90 nanometer CMOS and MEMS platform focused on the rapidly growing advanced thermal imaging market. The initial traction we are seeing from our lead customers is an important indicator that underscores both the relevance of this highly differentiated technology and the strength of our operating model for co-creating technologies and transitioning them efficiently to production. New products drove over half of Q1's wafer services revenue led by ThermaView as well as recent ATS to wafer services conversions. A meaningful shift from 2024's 90% legacy mix Despite potential thermal lumpiness during ramp-up, new products will fuel most of Wafer Services' growth in 2025, supporting sustainable, innovation-driven growth at our Minnesota FAB, further increasing its long-term revenue contribution. Offsetting the strength in Wafer Services was a slightly softer quarter for ATS compared to our expectations going into the quarter. The continued budget delays and extended negotiations occurring in Washington, D.C. are impacting our near-term revenue outlook, while the U.S. government continues to operate at 2024 spending levels. Once resolved, we are prepared to execute aggressively and expect a strong snapback in ATS revenue in the second half of 2025. Skywater's full-year outlook remains largely unchanged from our last earnings call. On today's call, I want to reiterate the strategic rationale for expanding 200 millimeter boundary capacity in the U.S. through the pending acquisition of Infineon's flagship Fab 25 in Austin, Texas, and discuss the unique value Skywater brings to this opportunity. Semiconductor sovereignty in the U.S. isn't a one-size-fits-all equation. It requires increased domestic capacity across both advanced and foundational nodes, as well as the establishment of a comprehensive domestic packaging and test infrastructure. The future manufacturing landscape will include a mix of form factors, 200-millimeter, 300-millimeter, and panel-based technologies, each occupying distinct and essential roles in the broader value chain. Skywater's acquisition of FAD25 is a strategic step to meet this multidimensional need. Recognized as one of the most advanced 200-millimeter CMOS fabs in the Western Hemisphere, FAB25 is expected to unlock new domestically sourced founder capacity, creating customer opportunities for both new product development and the dual sourcing of critical foundational semiconductors. The 200-millimeter format remains the optimal manufacturing base for a wide range of specialty technologies, including analog and mixed signal ICs, power management, RF, MEMS, sensors, and high voltage CMOS. These technologies are critical to high growth sectors such as automotive, in particular autonomous driving and EV power control, industrial automation and sensing, medical devices, and defense systems. We believe Fab 25 occupies a strategic sweet spot in capabilities. delivering the output scale, quality standards, and process flexibility needed to meet the evolving demands of these markets, all while remaining aligned with secure U.S.-based supply chain goals. Supported by a four-year supply agreement valued at over $1 billion, this acquisition will provide immediate revenue and positive cash flow to our company. The acquisition will further enhance our ability to extend our differentiated technology as a service model to a broader range of customers, diversifying our revenue base and advancing our mission as an essential enabler of America's semiconductor on-shoring and industrial resilience strategy. We continue to proceed to an expected mid-year closing, and we currently anticipate holding our planned capital market stay at Fab25 in Austin in early to mid-July. Now moving to our partner D-Wave's historic announcement made during Q1, demonstrating quantum supremacy in simulation, an industry-defining milestone proving that quantum systems can outperform classical computers on targeted problems. We believe this breakthrough underscores Skywater's vital role in enabling real-world quantum innovations through its secure U.S.-based manufacturing capabilities. The demand for quantum computing innovation is both strong and accelerating, fueled by intense global competition for mind share, market share, and technical leadership. Momentum continues to build around this technology space as commercial and government stakeholders alike race to capitalize on its transformational potential. We believe Skywater is uniquely positioned in this dynamic landscape. In 2024, Advanced Compute grew to become our second largest end market after Aerospace and Defense. Over 90% of our revenues from the Advanced Compute segment last year were related to quantum technology development, with key customers including D-Wave and PsyQuantum. Our technology-as-a-service model provides a critical bridge for lab-to-fab breakthroughs, leading to scalable, production-ready solutions, offering support for superconducting photonic and other qubit technologies. Skywater's superconducting technology leverages proprietary process integration schemes cryogenic testing capabilities, and advanced packaging platforms. When coupled with the highest levels of quality and reliability, Skywater's approach ensures rapid innovation and trusted onshore scaling. These capabilities make our company an instrumental partner in unlocking the advancements that quantum computing promises to deliver, enabling further AI leadership and enhancing our national security. We congratulate D-Wave on this important accomplishment and look forward to communicating our continued success in quantum technology enablement as our revenue growth in this nascent but important segment continues to gain traction. Turning to the current demand environment, our ATS business, which drives the majority of the revenue for the company, has continued to face challenges from prolonged U.S. federal budget negotiations, delaying the timing of key program funding for our A&D customers. Last quarter, we expected improved visibility and a strong ATS recovery in Q2. However, the resulting continuing resolution has shifted several anticipated program spending level increases into the second half of the year. Importantly, this is not a matter of program viability or customer demand. These are strategic mission critical initiatives that remain fully supported by our partners and the administration. In most cases, we continue to execute our ATS programs at 2024 spending levels with anticipated funding releases later in 2025. Based on today's visibility, we continue to expect that increased program funding will drive solid ATS growth beginning in Q3. The fundamentals of these programs remain strong, our execution readiness is high, and we continue to see clear customer alignment on the need for rapid progress once funding is approved we also expect our florida advanced packaging platform development to further contribute to ats revenue adding additional momentum to the second half given our current visibility and customer commitments to second half funding we are maintaining our full year revenue guidance range of five percent revenue growth for our combined ats and wafer services business plus or minus two percent Due to funding delays, we expect the year will be more back half-weighted than originally forecast. We believe we will achieve year-over-year growth in both ATS and wafer services in 2025. Now I'd like to say a few words about the current uncertainty regarding tariff policy. So far, we have seen no downward revisions in the demand forecast from our major customers in response to the new tariffs. Although we cannot eliminate all tariff risk, As an exclusively domestic U.S. semiconductor manufacturer, we believe our overall tariff exposure is limited, especially in comparison to most multinational manufacturers in our industry. Importantly, we do not expect any significant impact to our business in defense, which is our primary end market. While we use some imported materials in our defense programs, these products are entirely manufactured in the U.S., We do not anticipate that the impact of potentially higher input costs will have an adverse effect on the demand for the long-term profitability of these important programs. During this period, we are proactively managing costs and aligning our execution plans to help ensure we are well positioned to capitalize on the anticipated second half ramp. Overall, we believe these temporary periods of uncertainty do not diminish the long-term strategic value of our defense programs are our outlook for 2025. For Q2 specifically, we expect total revenues in the range of $55 to $60 million. We expect ATS revenues in the $49 to $53 million range and tools revenue just under $1 million. With Q1 wafer services exceeding our expectations, We anticipate some lumpiness in Q2 as these new programs begin their production ramp, leading to between $5 to $6 million of expected wafer services revenues in the current quarter. We expect a stronger second half of 2025 with significant sequential growth in both Q3 and Q4, driven in part by the ongoing ramp of our advanced packaging business. Skywater continues to aim for positive non-GAAP EPS for the year. I will now turn the call over to Steve.