SkyWater Technology, Inc.

Second quarter 2025 financial results. All lines been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star and one. Please limit comments to one question and one follow-up. I would now like to turn the call over to Claire McAdams, Investor Relations for Skywater. You may begin.

Thank you, Operator. Good afternoon, and welcome to Skywater's second quarter 2025 conference call. With me on the call today from Skywater are Thomas Sonderman, 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. 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. Another important comment about our financial supplement this quarter is that we have revised it to reflect the expected revenue and gross margin disclosures we plan to report starting in Q3 to clarify the financial contributions of FAB25, which will serve as a helpful template as you update your models in anticipation of our Q3 report. 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 2024 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 Q2 earnings presentation, all three of which are posted on our IR website. Also on our IR website events page, you'll see that we plan to participate in four investor conferences in Q3, the virtual Needham Semis Conference, Jefferies in Chicago, B. Reilly TMT in New York, and Piper Sandler in Nashville. please feel free to contact me directly for any investor follow-up requests. And with that, I'll turn the call over to Tom.

Thank you, Claire, and good afternoon to everyone on the call. Revenues for the second quarter came in at the upper end of our outlook provided in May at just over $59 million. With close management of costs and expenses, we delivered upside to our gross margin adjusted EBITDA, and non-GAAP EPS expectations for the quarter. We successfully completed Skywater's first transformative acquisition, acquiring Infineon's FAB25 in Austin, Texas. The transaction was finalized with an upfront payment of $93 million, fully funded through our new debt facility with no future payments required This acquisition is bolstered by multi-year supply agreement with Infineon projected to exceed $1 billion and is further strengthened by the IP license agreement announced last week. With the acquisition closing on the first day of fiscal Q3, our report today reflects entirely Skywater's standalone performance without any contribution from FAB25. This also means that our outlook for the third quarter reflects a full quarter of contribution from Texas. FAB25 brings Skywater a number of significant benefits, both strategic and financial. Strategically, the acquisition of FAB25 firmly establishes Skywater as the largest exclusively US-based pure play foundry service provider, offering dual source support for a foundational node 200 millimeter foundry capacity. Incorporating FAB25 within Skywater increases our 200 millimeter foundry business capacity by four hex here in the US, which we believe provides a long and meaningful growth path into the future. We believe FAB25 occupies a strategic sweet spot in capabilities, delivering the output scale, quality standards, including automotive, and process flexibility needed to meet the evolving semiconductor needs required for a secure U.S.-based supply chain. We expect the acquisition to further enhance our ability to extend our differentiated technology-as-a-service model to a broader range of customers while diversifying our revenue base and advancing our mission as an essential enabler of America's semiconductor on-shoring and industrial resilience strategy. Moving to the financial benefits of FAB25, we expect the acquisition to enable us to roughly double our revenue scale and adjusted EBITDA immediately, with strong free cash flow generation from the outset. With a four-year supply agreement with Infineon, we have an expectation for consistent, steady financial contributions over the next several years. Our goal is to gradually bring in a higher margin mix of products through a combination of product transfers from semiconductor companies seeking to expand their domestic capacity, as well as new platform design wins and ATS development revenue. Additionally, we expect to leverage cost optimization across our Minnesota and Texas fabs by driving synergies in both engineering and operations. As for the expected revenue trajectory ahead for Skywater, there are multiple growth vectors to be excited about today. The first is quantum computing. As we've been reporting for several quarters, we're currently seeing strong momentum in quantum computing applications, a domain of growing strategic importance to both the economy and national security. We are building on a solid foundation in this space by expanding our capabilities in superconducting zone development, interposers, and chip operation enablement, all critical building blocks for scalable quantum systems. Through targeted investments, Skywater has transformed our legacy node fab in Minnesota into a high-value production-capable asset that now serves as a center of excellence for quantum technology development. Since last quarter, we've made meaningful progress engaging with additional new quantum customers, further building upon our unique position as a trusted enabler of early-stage quantum solutions within a secure U.S.-based environment. In the second half of the year, we plan to announce new customer engagements and communicate our plans to release a superconducting design platform for quantum and supercomputing hardware development, which we expect to enable customers to accelerate their time to market. Looking ahead, we expect continued growth in this segment as demand for quantum technology continues to expand and proliferate. Next, exciting progress ramping our advanced packaging operation in Florida continues to build momentum towards more meaningful ATS revenues towards year end. Our overall advanced packaging program has progressed ahead of schedule, despite some ongoing tariff uncertainties, which have delayed the installation of a small number of tools. As we have previously communicated, we expect Florida Tools revenue to be back half loaded in 2025 and we currently expect the majority of this year's tools revenue recognition in Q4. We also expect that increasing ATS revenues from Florida will help drive sequential growth for our ATS business in Q4. In our wafer services business, MIX continues to develop favorably as customers make progress with their designs and system-level qualifications. While Therma V business will continue to be uneven during ramp-up, as we have previously guided, We expect it to be the engine for continued momentum in waiver services through year end and into 2026 before the contribution from PADD 25. Turning to the current environment for our aerospace and defense programs, ATS continues facing headwinds given the government funding picture in Washington, D.C. This is not a reflection of the strong partnership we have established with the Department of Defense where we are developing multiple new products and platforms that are of high strategic value for the U.S. government. However, the government continues to operate at 2024 spending levels, which has created continued funding delays in Washington. Despite our optimism last quarter that these funding issues would be resolved by the second half of the year, we now believe our DOD programs will continue to operate around current revenue levels through 2025. We continue to view these challenges as transitory as our current programs directly support strategic mission-critical national security initiatives across key U.S. Department of Defense priorities. The current administration has clearly outlined its strategic focus areas, including microelectronics, quantum, AI, missile defense, and hypersonics, all domains which align with Skywater's engineering services, security infrastructure, and technology platforms, reinforcing our role as a critical partner in advancing defense technology base. For a couple of DoD programs, we have executed development activities at a pace above the currently funded level, which means that some ATS revenue will immediately be recognized if funding level increases are approved. Until we have better visibility, however, we are not including these releases into our current outlook for the remainder of the year. which brings us to our outlook for the second half of 2025. We are currently forecasting Q3 ATS revenues of approximately $50 million before adding at least $5 million of incremental revenue from Florida in Q4. Quantum computing, our second largest end market, is expected to generate revenue growth exceeding 30% in 2025. We expect quantum momentum to continue into 2026 with a new platform and additional customer engagements. We expect both quantum and advanced packaging to be two key areas of ATS growth as we move into 2026. Within wafer services, we expect to continue to gain incremental traction in new platforms such as ThermaView within our Minnesota operations and continue to expect year-over-year revenue growth for our organic wafer services business in fiscal 2025. The addition of our Texas FAB is expected to add $75 to $80 million of revenue from Infineon for the third quarter and continue at these levels through the next several years, altogether positioning Skywater for significant top line growth in 2025 as well as 2026. Given that we completed the acquisition just over one month ago, today we are not in the position to provide forward guidance for our fiscal 26. However, given the meaningful contributions ahead from our new acquisition, today we will communicate some broad parameters to help shape your expectations for our financial performance in the coming year. In particular, our outlook for the Q4 run rate as we exit 2025 provides a solid baseline from which we can further improve and expand upon as the demand environment begins to take shape for 2026. Our expected revenue profile in the fourth quarter reflects our expectation for total wafer services revenue in the mid $80 million range and ATS revenue in the mid $50 million range. We expect this revenue mix to generate adjusted EBITDA margins of at least 10% in the fourth quarter. When coupled with high levels of confidence for incremental ATS revenue momentum next year in areas such as quantum computing and advanced packaging, Expectations for $600 million of revenue and at least $60 million of adjusted EBITDA in 2026 would be a solid base to expect from Skywater's financial profile in the coming year. Before I hand the call over to Steve, I want to briefly step back and reflect on the broader strategic landscape and why Skywater's momentum aligns so directly with what the market, our customers, and the country now recognize as critical. There's growing consensus that the U.S. needs a stronger, more resilient semiconductor base, not just at the leading edge, but at foundational nodes that power everything from defense systems to vehicles to industrial infrastructure. These mature node chips are essential, yet much of their production remains offshore, often in areas with significant geopolitical risk. Over $5 billion of semiconductors used annually in U.S. defense applications are sourced from China and Taiwan, a clear vulnerability for national security and industrial resilience. The federal government is responding. The Section 232 investigation launched earlier this year and Secretary Letnick's recent remarks suggesting a near-term White House action plan reflect a decisive policy shift. It's no longer a question of if domestic capacity is needed. but how fast it can be established. At the same time, the private sector is undergoing its own transformation. Many IDMs and mature nodes are transitioning to hybrid or fabulous models, focusing internal investment where they have differentiation and outsourcing where utilization is lower. Our external options are now viable. We believe this shift, combined with customer demand for regional diversification and onshoring, creates a clear and sustained signal. The market needs more US-based foundry options for mature node production. Skywater is answering that need. Our strategy focuses on enabling this industry evolution through scaled open access 200 millimeter manufacturing paired with high value IP and specialized process capabilities. We help customers accelerate new product launches, support existing designs onshore and diversify global supply chains. BAB25 is a major step forward, expanding our 200-millimeter capacity by more than 4X and unlocking over $300 million in annual revenue potential. It's purpose-built to serve real, multidimensional demand, from defense programs requiring trusted U.S. production to auto and industrial customers regionalizing their supply chains. to IDMs and fabless firms rethinking their manufacturing models. Beyond that, we're executing across high-impact growth vectors. ThermaView is modernizing defense sensing platforms. Our quantum initiatives are advancing future state compute. And our Florida-based advanced packaging operation is addressing one of the final integration gaps in US-based chip production. These aren't isolated wins. They're components of a long-term infrastructure strategy. As we look towards 2026, Skywater is emerging not just as a growth story, but as a strategic cornerstone in reshaping the U.S. semiconductor landscape, where national interest, customer demand, and technology execution converge. With that, I'll turn it over to Steve.