SkyWater(US:SKYT)2022-11-08 04:02Financial Data and Key Metrics Changes - The company reported record quarterly revenue of over $52 million, reflecting a 10% sequential growth from Q2 and approximately 50% growth over Q3 of the previous year [8][45] - Gross profit increased significantly in Q3 to $8.3 million, representing 15.8% of revenues, aided by a one-time cost reversal of $800,000 [48][45] - Adjusted EBITDA turned positive at $3.8 million, equal to 7% of revenue, indicating improved profitability [13][59] Business Line Data and Key Metrics Changes - Advanced Technology Services (ATS) revenue was $35.2 million, up 18% from Q2 and 57% year-over-year, driving the majority of growth [45][8] - Wafer Services revenue was $17.2 million, down slightly from Q2 but up 36% year-over-year [45] - The improved pricing terms with legacy wafer services customers raised the revenue baseline, contributing to sequential quarterly improvements despite a weakening macro environment [11] Market Data and Key Metrics Changes - The company is experiencing strong momentum with multiple key customers, particularly in the ATS segment, which is expected to continue driving revenue growth [8][41] - The Rad-Hard Phase 2 award, valued at nearly $100 million, is a significant driver of sequential revenue growth in Q3 and expected modest growth in Q4 [17][41] Company Strategy and Development Direction - The company is focused on strategic growth areas, including extreme environment microelectronics and partnerships with organizations like Google and the National Institute of Standards and Technology [15][20] - The establishment of a new 300-millimeter semiconductor fab on Purdue's campus is a cornerstone of the company's strategy to strengthen domestic semiconductor manufacturing [25][27] - The company aims to leverage public-private partnerships to enhance its semiconductor manufacturing model and capitalize on CHIPS Act funding opportunities [23][28] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding business growth, acknowledging the unpredictability of the macroeconomic environment while highlighting strong customer commitments [110][112] - The company expects to meet or potentially exceed its long-term revenue growth target of 25% in 2022, supported by significant program design wins and awards [41][42] Other Important Information - The company ended the quarter with $9.3 million in cash and cash equivalents, with total debt outstanding at $77.8 million [60] - A universal shelf registration statement for up to $250 million was filed to enhance funding flexibility for strategic growth initiatives [61] Q&A Session Summary Question: What is the time frame for absorbing unabsorbed fixed costs related to long-term investments? - Management indicated that costs related to the RH90 program would start being absorbed in 2025, while costs from Florida operations would be absorbed as production ramps up in 2024 [75][79] Question: How should CapEx be viewed in relation to the CHIPS Act? - Management clarified that the $36 million grant for Florida is independent of the CHIPS Act, while the Minnesota facility would pursue CHIPS funding aggressively [81][82] Question: What is the status of the RH90 program funding? - The original Phase 1 funding is nearly complete, with a remaining $33 million, while the Phase 2 funding of $99 million will not be evenly distributed over the next two years [90][92] Question: Are current staffing levels appropriate for revenue opportunities? - Management noted that while staffing levels are close to targets, there are still open positions for maintenance technicians and additional engineers will be recruited to support growth [96][99] Question: How are commercial customers responding to the increased activity? - Management reported that a significant percentage of ATS engagements are non-governmental, with commercial customers ramping up their activities in anticipation of future growth [104][106]