SkyWater(US:SKYT)2023-11-09 02:25Financial Data and Key Metrics Changes - SkyWater reported record quarterly revenues of nearly $72 million for Q3 2023, marking a 3% increase from Q2 and a 37% increase year-over-year [6][46] - Year-to-date total revenues reached $208 million, representing a 40% year-over-year growth [8] - Non-GAAP operating income was $1.2 million, with adjusted EBITDA at $8.3 million [47] - The company ended the quarter with $17.3 million in cash and cash equivalents, a net increase of about $1 million from Q2 [23] Business Line Data and Key Metrics Changes - ATS revenue reached a record $57.1 million, up 8% from Q2 and 62% year-over-year, including $3.2 million from tool sales [46] - Wafer services revenue declined by 14% sequentially due to softening demand in automotive and industrial markets [22][16] - The company expects Q4 tool revenue to increase significantly, potentially reaching $10 million, while wafer services revenue is projected to decline sequentially by 15% to 20% [48][24] Market Data and Key Metrics Changes - The aerospace and defense (A&D) sector has been a significant driver of ATS growth, with over 50% growth attributed to strategic programs [9] - The company anticipates a shift in revenue mix from a 66% ATS and 34% wafer services split in 2022 to an expected 80% ATS for fiscal 2023 [32] Company Strategy and Development Direction - SkyWater aims to develop advanced RadHard and imaging platforms, leveraging unique technology enablement and product realization models [10] - The company is focused on expanding its two existing fabs and establishing a new facility in partnership with Purdue, with customer-funded investments expected to cover over 80% of planned capacity expansion in 2024 [11][26] - The company is transitioning to a CapEx light model, where customers fund tool purchases, reducing financial risk for SkyWater [76][78] Management's Comments on Operating Environment and Future Outlook - Management noted a robust R&D environment despite macroeconomic challenges, with expectations for continued growth in ATS activities [31][34] - The company anticipates a decline in wafer services revenue due to inventory corrections in the automotive and industrial sectors, but expects strong growth in ATS and tool investments to drive overall revenue growth [16][49] - Management expressed confidence in achieving above-industry growth rates in 2024, despite anticipated declines in wafer services [41][88] Other Important Information - The company has changed its non-GAAP financial metrics to include tool revenues and margins, reflecting their increasing importance to the business model [43][45] - Management consulting fees related to long-term transformation activities were incurred, with expectations for these fees to taper off in 2024 [20][105] Q&A Session Summary Question: Outlook for ATS business growth in 2024 - Management remains optimistic about ATS growth, expecting continued program expansion and new programs to drive revenue [53] Question: Duration of inventory digestion in wafer services - Management indicated that the automotive and industrial sectors are experiencing inventory corrections, and the timeline for recovery will depend on the macro environment [66][67] Question: Drivers of increased tool revenue - The shift to a CapEx light model allows customers to invest in tools, securing their supply chains and enabling faster ramp-up of production [76][78] Question: Expected tool revenue in 2024 - Management anticipates potential for higher tool revenue in 2024 than in previous years, with significant contributions expected from government and A&D programs [87][93] Question: Impact of consulting fees on operational efficiency - Management noted that transformation investments are yielding benefits in operational efficiency, with expectations for consulting fees to decrease as internal processes are institutionalized [102][105]