Earnings call transcript: Skywater Technology Q1 2025 results disappoint

Skywater Technology Inc. reported its Q1 2025 earnings, revealing an EPS of -$0.08, which fell short of the anticipated -$0.06. This modest miss, combined with a revenue shortfall of $61.3 million against a forecast of $66.46 million, led to a 4.83% decline in the company’s stock during aftermarket trading, settling at $6.9. According to InvestingPro data, the stock has shown significant volatility with a beta of 3.4, indicating sharper price movements compared to the broader market. The current analysis suggests the stock is trading below its Fair Value.

Key Takeaways

• Skywater Technology missed both EPS and revenue forecasts for Q1 2025.
• The company’s stock fell 4.83% in aftermarket trading.
• Strong adjusted EBITDA and cash position were positive highlights.
• Product innovations like ThermoView show potential for future growth.

Company Performance

Skywater Technology’s Q1 2025 performance showed mixed results. While the company struggled with lower-than-expected earnings and revenue, it demonstrated strength in operational areas such as adjusted EBITDA and cash reserves. The company’s focus on innovation, particularly in thermal imaging and quantum computing, positions it well for future growth, despite the current challenges.

Financial Highlights

• Revenue: $61.3 million, below the forecast of $66.46 million.
• Earnings per share: -$0.08, missing the forecast of -$0.06.
• Gross Margin: 24.2%, exceeding expectations.
• Adjusted EBITDA: $4 million, stronger than forecast.

- Cash Position: $51 million, a $32 million increase from year-end.

InvestingPro analysis reveals several important insights about Skywater’s financial position. The platform has identified 11 additional ProTips that could help investors make more informed decisions about SKYT stock. Notably, while analysts anticipate a sales decline in the current year, they also predict the company will return to profitability.

Earnings vs. Forecast

Skywater Technology’s Q1 results fell short of expectations, with a $0.02 miss on EPS and a $5.16 million shortfall in revenue. While this represents a modest deviation from forecasts, it is significant enough to influence investor sentiment negatively, as evidenced by the stock’s aftermarket decline.

Market Reaction

Following the earnings release, Skywater Technology’s stock fell by 4.83% in aftermarket trading, reflecting investor disappointment with the earnings miss and revenue shortfall. This decline places the stock closer to its 52-week low of $5.63, highlighting market concerns. InvestingPro data shows analyst consensus remains bullish with a mean price target of $12.50, suggesting significant upside potential. The company maintains an overall Financial Health score of "GOOD" despite recent challenges.

Outlook & Guidance

Skywater Technology projects a 5% growth in ATS and Wafer Services for the full year, with Q2 revenue expected between $55 million and $60 million. The company aims for positive non-GAAP EPS by year-end and anticipates gross margins in the mid-20s range. These projections suggest optimism for the latter half of the year.

Executive Commentary

CEO Thomas Saunderman emphasized the company’s strategic positioning, stating, "We believe Skywater is uniquely positioned in this dynamic landscape." He also highlighted the importance of their technology-as-a-service model, which "provides a critical bridge for lab to fab breakthroughs."

Risks and Challenges

• Continued earnings and revenue shortfalls could affect investor confidence.
• Market volatility and economic conditions may impact growth projections.
• Dependence on government funding presents potential budgetary risks.
• Competitive pressures in the semiconductor industry remain a challenge.

Q&A

During the earnings call, analysts focused on the company’s ability to secure government program funding amid budget uncertainties. Management expressed confidence in their strategic focus on quantum computing and advanced computing, indicating these areas as key growth drivers.

Full transcript - Skywater Technology Inc (SKYT) Q1 2025:

Conference Call Operator: Good afternoon, and welcome to Skywater Technologies First Quarter twenty twenty five Financial Results Conference Call. All participants are in a listen only mode. After the speakers’ remarks, we will conduct a question and answer session. 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.

Claire McAdams, Investor Relations, Skywater Technologies: Thank you, operator. Good afternoon, and welcome to Skywater’s first quarter twenty twenty five conference call. With me on the call today from Skywater are Thomas Saunderman, 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. 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 eight ks today and our fiscal twenty twenty four Form 10 ks.

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 website. 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 Hallum in Minneapolis, and TD Cowen in New York.

We are also in the early stages of planning our Capital Markets Day at Fab twenty five in Austin, ideally this summer before Q2 reporting season. Please feel free to contact me directly for any investor follow-up request. With that, I’ll turn the call over to Tom.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: 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 $4,000,000 The upside achieved in wafer services during Q1 was driven by strong traction from our recently launched ThermoView platform. This launch represents a significant strategic milestone for our company. ThermoView is a dedicated 90 nanometer CMOS 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 in twenty twenty four’s ’90 percent legacy mix. Despite potential ThermoView 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 DC 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 twenty twenty five. 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 foundry capacity in The U.

S. Through the pending acquisition of Infineon’s flagship Fab twenty five in Austin, Texas and discuss the unique value Skywater brings to this opportunity. Semiconductor sovereignty in The US 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, Fab 20 5 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 twenty five 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 $1,000,000,000 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 onshoring and industrial resilience strategy. We continue to proceed to an expected midyear closing and we currently anticipate holding our planned Capital Markets Day at Fab twenty five in Austin in early to mid July. Now moving to our partner D Wave’s historic announcement made during Q1 demonstrating quantum supremacy and 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 US 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 CyQuantum. 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, Skywire’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 and 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 5% revenue growth for our combined ATS and Wafer Services business plus or minus 2%.

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 far or 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 or our outlook for 2025. For Q2 specifically, we expect total revenues in the range of $55,000,000 to $60,000,000 We expect ATS revenues in the 49,000,000 to $53,000,000 range and tools revenue just under $1,000,000 With Q1 wafer services exceeding our expectations, we anticipate some lumpiness in Q2 as these new programs begin their production ramp, leading to between 5,000,000 to $6,000,000 of expected wafer services revenues in the current quarter. We expect a stronger second half of twenty twenty five 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.

Steve Manko, Chief Financial Officer, Skywater Technologies: Thank you, Tom. First quarter revenue of $61,300,000 came in just above the midpoint of our guidance range. Combined ATS and Wafer Services revenue was $60,100,000 and Tools revenue was $1,200,000 Upside in Wafer Services more than offset the temporary softening in ATS as a result of government budget delays in Washington DC. Our Q1 gross margin exceeded our expectations at 24.2% and the impact of tools in the quarter was less than 20 basis points. Q1 gross margin benefited from a roughly $2,000,000 favorable reversal of a warranty accrual recorded last year.

Adjusted EBITDA of $4,000,000 was stronger than forecast as a result of favorable gross margin performance as well as lower OpEx. Q1 OpEx was $15,200,000 and with continued close management of spending levels, we currently expect the increase in operating expenses for the full year will be at the lower end of the 10% to 15% increase expected for 2025 communicated previously. Turning to the balance sheet. We ended the quarter with $51,000,000 in cash, an increase of $32,000,000 from year end. The majority of the increase was driven by advanced payments to fund tool purchases that we anticipate will be made over the course of 2025.

The accounting for tools for this customer program is different than some of our other programs and that we own the tools and the funding goes through the cash flow statement rather than being recorded as tools revenue on the P and L. Cash flow generated by the P and L was slightly positive for the quarter and working capital changes net of the customer advance added approximately $4,000,000 to operating cash flow. The majority of capital expenditures of $15,000,000 were customer funded. We also paid down approximately $7,000,000 on our revolver during the quarter to finish Q1 with approximately $60,000,000 in total debt. Before I talk about guidance, let me give you a little more color on the impact of tariffs and trade on Skywater.

The situation is very dynamic, potentially increasing macroeconomic risk and making longer term financial projections difficult and subject to change. However, we believe that Skywater is relatively well positioned. From a revenue perspective, our customers have made no downward revisions to their forecast response tariffs. From a cost perspective, we are taking actions to mitigate any potential financial impacts, which for us would primarily come in the form of higher cost for materials sourced outside of The U. S.

And higher cost for tools. As things stand right now, our tooling purchases are all considered 84, 80 six items which are exempt from tariffs. The larger concern we are focused on at the moment is any ancillary equipment purchases that are not exempt from tariffs. We do have some exposure on spend, but it is relatively small, about $2,000,000 a quarter, some of which can be mitigated by simply canceling that spend or sourcing from other countries. We also could have some unknown exposure due to potential price increases from suppliers who source materials from countries affected by tariffs.

We believe we should have more clarity on overall financial impact at our next earnings call. Turning to our outlook, which is all before any contribution from the pending acquisition of Fab twenty five. Based on the full year revenue expectations Tom discussed earlier, reflecting modest growth in both ATS and Wafer Services or approximately 5% growth from both businesses combined, we expect significant expansion of our gross margin profile in the second half of twenty twenty five. As you recall, our combined ATS and Wafer Services business generated nearly 26% gross profit margin in 2024. Our gross margin model demonstrates strong flow through or incremental gross margin above the breakeven level of $45,000,000 in quarterly revenue excluding tools.

In Q2, the midpoint of our ATS and Wafer Services revenue guidance is about $12,000,000 above breakeven. Given that our EPS breakeven level is about $70,000,000 the implication is that we expect to drop at least 70% of incremental revenues directly to gross profit. Provided that ATS funding comes through as expected in the second half, our current forecast reflects gross margins on the core ATS and Wafer Services business expanding into the 30s in the second half in order to result in high 20s gross margin for the full year. Again, this is the expected range for the combined ATS and waiver services portion of our revenues. We expect a little to no gross profit on the $30,000,000 of tools revenue in 2025, most of which will be recorded in the second half.

We expect close to a 300 basis point negative impact of tools revenue on our gross margin for the full year. Therefore, our expectation for reported non GAAP gross margin in the full year is in the mid-20s or the 23% to 27% range. We expect the expansion of our gross margin profile as we move through 2025 will result in profitability in the second half and for the full year positive non GAAP EPS and strong adjusted EBITDA of at least 10% of total revenues. For the full year, we expect a similar level of combined interest, and VIE as we reported in 2024, which altogether are in the range of 13,000,000 to $14,000,000 annually. Given the forecast for profitable results in the second half and the impact of deferred taxes, we currently estimate tax expense of approximately $1,500,000 in 2025 and slightly lower interest expense for the year in the $8,000,000 range.

Turning to Q2 guidance. Given the dynamics Tom discussed earlier, we are taking a conservative view to the quarter with an expected range of 55,000,000 to $60,000,000 in total revenue consisting of $5,000,000 to $6,000,000 in wafer services revenue, just under $1,000,000 in tool revenue and a range of 49,000,000 to $53,000,000 in ATS revenues in advance of a rebound in Q3. Given these assumptions, our gross margin guidance for Q2 is in the range of 16% to 19%, with about a 30 basis point impact from tools. We expect Q2 operating expenses of approximately $15,700,000 plus or minus $200,000 approximately $2,000,000 in interest expense, dollars 400,000 in tax and $1,000,000 in income from variable interest entities or an expected EPS loss for the quarter in the range of $0.16 to $0.22 per share. Based on our outlook for the full year, we expect a strong rebound in financial results for Q3 and continued sequential improvement in Q4.

And with that, I’ll turn the call over to Q and A. Operator, please open the line for questions.

Conference Call Operator: Thank Our first question comes from Quinn Bolton from Needham and Company. Please go ahead. Your line is open.

Quinn Bolton, Analyst, Needham and Company: Hey, guys. Thanks for taking my question. I guess my first question is, obviously, last quarter looking into Q2, you expected a recovery in ATS and that didn’t Now we’re sort of looking for that ATS recovery to begin strongly in the second half. I understand these are key programs, but there’s a lot of volatility going on in Washington right now. How do you have confidence that these programs and the budget will get approved at higher funding levels that support that second half?

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yes. Thanks for the question. Clearly, that’s the issue that a lot of us are wrestling with as the dynamics unfold in DC. The biggest thing that gives us confidence is the almost $300,000,000 of investment that has been made by the US government over the last several years to create capability. We believe the programs that that investment drives are very much aligned with the national security agenda, kind of irrespective of the administration.

But we are going through the dynamics of a change in administration. The continuing resolution that was passed as we were in the middle of the quarter essentially held spending at 24 levels. So given that we obviously had to adapt. But as the quarter has unfolded, we’ve had multiple dialogues with our end customers within the U. S.

Government as part of their exercise, which is ongoing to look at government efficiency, how they can drive out waste and the program reviews that we’re undertaking. We feel very strong about not only the commitment coming from the customer, but our ability to execute with speed once the funding issues are resolved. So it’s really the backdrop of a change in administration, but more importantly, the criticality of the programs we have and the long standing investment and commitment we’ve seen over multiple years with all these initiatives.

Quinn Bolton, Analyst, Needham and Company: And I guess, Tom, maybe just a follow-up to that. I don’t know off the top of my head how far or how long the current continuing resolution fund of the government. Is there a date by which we’ve got to either get another continuing resolution or to pass a budget that lands in Q2? Or could this could we be continue to be funded by CRs well into the summer? Again, just trying to get some sense of what visibility you may have into that funding recovery in the second half?

Robert Merton, Analyst, TD Securities: And then I’ve got a

Quinn Bolton, Analyst, Needham and Company: follow-up on a different topic.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So clearly, we’re looking by the end of Q2 to have very good transparency in terms of what we expect the second half will look like, and that will be reflected in our Q3 forecast. So much like again the rest of us we’re watching what’s happening in D. C. The discussions driving towards a omnibus type of bill over the summer is what we’re hearing and that’s what we’re marching towards.

But I would say by the end of Q2, we’ll have good transparency.

Quinn Bolton, Analyst, Needham and Company: Got it. And then just you guys mentioned some of the work you’re doing on the quantum computing space and advanced computing with D Wave and say quantum. I guess maybe two quick questions there. How big? You mentioned it’s 90% of your advanced computing.

Roughly how big is advanced computing as a percentage of the business? And can you give us any sense on the type of work you’re doing with Cyclone? Are you manufacturing silicon photonics wafers for them? Are you doing signal and control devices? There’s any comment because I think you’ve previously said what you’re doing with D Wave.

Thank you.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So the advanced compute market is about 10% of the business today. And as we’ve alluded to, 90% of that is tied to the quantum computing space. With regard to SciQuantum, think of SciQuantum as a very complicated product that they’re putting together. We’re part of their value chain and our focus is around obviously our expertise in superconducting technology and other films technology that they integrate.

Photonics is another component that is unique within the SiQuantum solution and that’s another area of expertise. But beyond that, we don’t really wanna provide any more detail.

Quinn Bolton, Analyst, Needham and Company: Got it. And looking forward to coming down to CFAP twenty five in Austin over the summer. Thank you.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. I I apologize for the fact it’ll be the middle of, July when the heat is gone, but look forward to seeing you there.

Quinn Bolton, Analyst, Needham and Company: I’ll bring a cool drink.

Richard Shannon, Analyst, Craig Hallum: Thanks. Our

Conference Call Operator: next question comes from Robert Merton from TD Securities. Please go ahead. Your line is open.

Robert Merton, Analyst, TD Securities: Hi, this is Robert Merton on the line for Chris Sankar. Thanks for taking my question. Just if I’m doing the math right here, it seems like ThermaView represented a mid single digit million revenue amount for the March. Just how should we think about the ramp of that business maybe compared to some of the other programs and wafer services this year? And just if you have any sort of potential sizing of what that market could be over the next few years?

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So, you know, ThermoView is driving the ramp of our wafer services business. This was, you know, really been our plan all along, just given the traction that we have with our lead customers and their ability to take our products and put them into in state systems, feel like that will be the main driver of growth in wafer services this year. We do have other converts that we talked about last year. They’re coming together at somewhat of a different pace.

Again, some of those are tied to the medical device rapid diagnostic space. And so their timeline to ramp is a little bit different. And I think we have the most clarity around the ThermoBuse space. As far as the size, ultimately, we see this and this is in the deck that we provided, a $9,000,000,000 market. Obviously, we’re expecting to capture a percent of that as we grow our solution into the space.

But overall, we feel like this is going to be a good growth, you know, growth driver for us. And it’s also a market where we’re entering into DOD, but we expect, to, you know, continue to propagate that into the automotive space as well as the medical device space. As far as the ratio of, you know, traditional, what our legacy last year was 90% legacy, 10% new. We are expecting this year to be 60% new, 40% legacy as we exit this year. And that was the run rate we had in the first quarter as well.

Robert Merton, Analyst, TD Securities: Great. Thank you. That’s very helpful.

Conference Call Operator: Our next question comes from Robert Iguano from Piper Sandler. Please go ahead. Your line is open.

Robert Iguano, Analyst, Piper Sandler: Hey, guys. Thanks for, taking the call doing the call here. Just to expand on that, you guys mentioned new products driving half of wafer services. Can you maybe just double click on some of maybe other opportunities that you might have and, ultimately, how big, do you think you can expand that business going forward, here in the near future?

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So, again, we have two lead customers that we’re providing product for today. So this is Wafer Services product that are then being put into, you know, their systems that are going through additional qualifications. We have several other designs that, these are design wins. Think of it as, products that will immediately move into wafer services.

This is really, how we’re driving with, you know, with our platform as you leverage the work to create the platform and then every subsequent tape out is relatively straightforward. Of course, the two lead customers are major primes that we’ve been working with for several years. We generated a lot of ATS revenue from those customers as we built the platform. Those customers are obviously the lead customers that are bringing the product into volume ramp and then we will subsequently put in other customers as they complete their design process. So I’m not really in a position to say how big do we think the market we can go after, but we feel like the traction we’re getting already is significant.

And the fact that we do have these two lead customers is certainly allowing us to have a robust process that we believe will be able to bring new designs in relatively efficiently.

Robert Iguano, Analyst, Piper Sandler: Fair enough. And just one more for me on the expectations around, the packaging facility. You know, you guys mentioned a little bit of, revenues coming in this year, more of a second half story. Can you talk about any sort of KPIs or any other metrics that we could use for how much impact that’s gonna have this year, or is it more of a 26 story?

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So I I think this year, impact is gonna be around tools revenue. The majority of tools revenue in 2025 is coming into Florida. Again, this is coming in the second half. If you recall, we talked about the first half.

We’ve had some infrastructure products tied to a Build Back Better grant we got in 2022 that are gating the tool move ins. Those two move ins will begin in the second half and then we’ll start generating traditional, we’ll call it ATS revenue through the engineering efforts first as we basically hook up the equipment, get the tools qualified, and then as we start executing the program, which will really be driven mainly in 2026. So mainly tool revenue in 2025, traditional ATS revenue in 2026.

Richard Shannon, Analyst, Craig Hallum: Thank you.

Conference Call Operator: Our next question comes from Richard Shannon from Craig Hallum. Please go ahead. Your line is open.

Richard Shannon, Analyst, Craig Hallum: Thomas. Thanks for taking my questions as well. Maybe let’s just look broadly in the transition towards wafer services. Obviously, the last couple of questions have been about specific ones in term review. But maybe give us a view here, Tom.

How do we look at the number of conversions that go from ATS to wafer services this year? Maybe you can delineate that between A and D type of customers versus other markets.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yeah. So again, last year, if you recall, we had, I believe, four announced transitions. One was into the auto industrial sector. The other three were into into the, biodiagnostic and other medical device areas. And I think those again are relatively smaller companies that are again going through the necessary qualifications.

Typically, once the technology gets qualified, you’re not making process adjustments. What you’re doing is producing product that initially is going into samples that our customers would be putting in front of their in state OEMs trying to get them to buy into the new products and then ultimately ramp those up. So I think we’re in that process right now. Certainly in the bio space this is relatively new to us. So we’re learning how the sequencing of those kind of align with our ramp strategies.

And the ThermoView side, we have obviously a lot of experience working with the DoD. In the case of these products, they are going into systems that exist today. These are enhanced capabilities that our solution provides. So the testing and qualification sequencing is a little bit different there versus when they go into a new system, which we also expect to get designs design wins for. So overall, we can do what we can do, which is develop the process, get it qualified, get the samples in the hands of our customers and then their ramp rate of course depends on their qualification cycles.

As we get more converts, of course this year we expect to have converts happening as well. Each individual conversion will have less of an effect on our overall business because they’ll all be operating at different kind of speeds. But collectively, they will become much more predictable. This is really if you think about last year, that was the first year that converts. This year, we’re getting more converts.

But every year we should just expect to be converting new programs out of ATS in the way for services. And then the other thing that’s going on as well is we’re getting new design wins in the ATS. So in addition to design wins on the ThermoBee platform this year, for example, we expect to have other design wins that are coming into ATS to kind of backfill the programs that are moving into volume production.

Richard Shannon, Analyst, Craig Hallum: Okay. Thanks for those thoughts, Tom. And my second question is another program we haven’t heard about in a few quarters here, and that’s the RadHard program. Obviously, funded a number of years ago. I wonder if you could give us an update there on how that’s going?

And is there any impact from the budgetary stalemate in Washington on that program?

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Yes. So I would say the technology continues to evolve, leading to qualification. I think the technology itself continues to gain in robustness as we drive towards meeting the customer requirements. Again, in the defense industry and especially in the environment we’re in today, even the requirements are changing as you move through program initiation, which in this case started at the beginning of this decade. And and now as we prepare to actually put them into the end state systems, you know, you’re beginning to refine the requirements, and we want to make sure that our in state capability matches the majority of the requirements coming from the customer base that we’ll be serving.

So we’re expecting as this year unfolds and going into next year, we’re getting to the point where we get a qualified process. But to your point about government funding, this is certainly one of the programs along with really all programs that are being reassessed in terms of priority. One thing I think it’s important to understand is that our model is a foundry model. And I think the DoD is going through a similar process that the commercial spaces went to and that they’re embracing the movement to foundries and leveraging this type of approach. Our technology foundry approach having a common source that all the primes can access is really what we’re enabling.

And if you think about government efficiency, the goal of moving from primes running labs to foundries running fabs is really what Skywater is intending to demonstrate. And I think we are a national asset and we expect that investment not only for the programs that I alluded to earlier, but this specific program to continue to come to Skywire because of the unique capabilities that literally the government’s been investing in since we were created back in 2017.

Richard Shannon, Analyst, Craig Hallum: That’s a great detail, Kamala. Thanks a lot. For all that, I will jump out of line.

Conference Call Operator: We have no further questions. I would like to turn the call back over to Thomas Saunderman for closing remarks.

Thomas Saunderman, Chief Executive Officer, Skywater Technologies: Thank you, operator. At Skywater, we are confident in our ability to execute our long term growth and profitability goals, and we aim to strengthen your trust in our performance. We look forward to providing updates at our Capital Markets Day in Austin or our Q2 earnings call in early August. With that, I conclude today’s call.

Conference Call Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.