SkyWater Technology, Inc Q4 FY2023 earnings call

Key Points

• ATS development business had six straight quarters of sequential growth and record revenue in 2023, with major contributions from aerospace and defense programs like the RadHard 90-nanometer platform.
• Announcements included a $190 million DoD award in Florida for advanced packaging, a CHIPS application for Minnesota to modernize the Bloomington facility, and operational transformation efforts such as workforce restructuring and improved efficiencies.
• Progress on CMOS platforms, including qualification efforts for low noise performance 90-nanometer CMOS technology and expansion in bio health applications with medical technology companies transitioning to Wafer Services.
• Enhanced RadHard platform with added engineering resources for design enablement.

In the fourth quarter of 2023, SkyWater's revenues reached a record $79 million, up 11% from Q3. The ATS development business saw sequential growth of 6% from Q3, with tool revenues totaling nearly $10 million for the quarter. Wafer Services revenues were $12 million, down 17% from Q3 due to softening end market demand, chiefly in the industrial sector. For fiscal year 2023, total revenues grew 35% from fiscal 2022, with ATS revenues making up 80% of total revenues and Wafer Services accounting for 20%.

Q1 and Full Year Outlook

• Q1 2024 revenue expected in the $80 million range, with similar ATS development revenues to Q4, tool sales ~$14 million, and Wafer Services down ~25% from Q4.
• Full year 2024: ATS development revenue growth 10-20%, tool revenues at least $60 million, Wafer Services down at least 50% compared to 2023. Expectation to turn profitable in the second half of 2024, with gross margin expected to improve year-over-year due to tool mix and reduced depreciation.

• Risks associated with forward-looking statements, including market uncertainties that could affect actual results.
• Impact of the broad-based weakness in the industrial market and prolonged inventory correction on Wafer Services revenues.
• Complexities in modeling financial performance due to customer-funded CapEx and its impact on gross margin.

Q: Good question about gross margin outlook, specifically regarding tool revenue impact and Wafer Services bottoming.

A: Steve Manko and Thomas Sonderman discussed that tool revenue has a short-term headwind but long-term tailwind, and Wafer Services is expected to bottom in the first half of 2024 with recovery post-Q3.

Q: Question about the spurt in ATS business and Wafer Services decline.

A: Thomas Sonderman attributed ATS growth to transformation efforts and focus on phasing out legacy programs, while Wafer Services decline is due to industrial market softening and transition to ATS development.

Q: Question about A&D mix, consulting fees, and tool sales visibility.

A: Thomas Sonderman stated A&D will continue to grow, Steve Manko mentioned transformation consulting fees were $5.3 million in Q4 with no recurring in 2024, and tool sales expected to be at similar levels in 2025 and 2026, mostly from A&D customers.