SkyWater(US:SKYT)2022-08-16 00:50Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $47.4 million, up 50% year-over-year, with wafer services revenue increasing by 23% and ATS revenue growing by 11% [7][48] - Gross profit turned positive at just over $2 million, representing 4.4% of revenues, with non-GAAP gross margin improving to 5.6% [54][56] - The company is on track to achieve revenue growth in 2022 approaching the long-term annual growth target of 25% [9][46] Business Line Data and Key Metrics Changes - Wafer services revenue was $17.6 million, while ATS revenue was $29.8 million, with ATS revenue accounting for 63% of total sales [48][54] - ATS revenues grew 20% year-over-year when excluding tool revenues, effectively offsetting the decline in wafer services revenue due to prior accounting adjustments [52][54] - The company added five new ATS program wins in Q2, increasing the total number of wafer services customers to seven [53] Market Data and Key Metrics Changes - The company is positioned to benefit from the CHIPS Act, which allocates $52 billion over five years for domestic semiconductor manufacturing and R&D [19][20] - The Indiana facility, a $1.8 billion investment, aims to enhance domestic semiconductor supply and is expected to drive significant revenue growth in the second half of the decade [12][18] Company Strategy and Development Direction - The company aims to address the global semiconductor shortage and enhance U.S. innovation in semiconductor manufacturing through strategic partnerships and investments [15][16] - Focus areas include Rad-Hard technology, biohealth, and heterogeneous integration, with ongoing investments to support long-term growth [21][31][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued sequential revenue growth and gross margin expansion despite potential economic headwinds [45][46] - The company noted that two-thirds of its revenue comes from R&D budgets, which tend to be more resilient during economic downturns [43][44] Other Important Information - The company is experiencing historically low labor turnover, which is improving fab efficiency and cycle times [57] - Inflationary costs are impacting margins, with expectations of continued pressure from labor and material costs [80][124] Q&A Session Summary Question: Clarification on near-term gross margin headwinds - Management acknowledged inflationary costs impacting margins and indicated that while gross margins are expected to remain in single digits for 2022, improvements are anticipated in 2023 as revenue and utilization increase [76][80] Question: Update on the CHIPS Act and Indiana fab - Management confirmed the Indiana fab is a $1.8 billion project, with funding dynamics still being determined, and emphasized the importance of innovation funding tied to the CHIPS Act [83][84][86] Question: Long-term growth rate and customer conversations post-CHIPS Act - Management clarified that the 25% growth commitment is independent of the CHIPS Act, but the act provides a risk reduction and potential for additional funding [95][96] Question: Breakdown of revenue growth drivers - Management indicated that growth is driven by higher average selling prices (ASPs) and increased productivity, with a mix of two-thirds ATS and one-third wafer services [108][110] Question: CapEx outlook for the next couple of years - Management expects CapEx for core business to remain in the $10 million to $20 million range annually, with additional customer-funded CapEx on top of that [113][116] Question: Ability to pass on inflationary costs - Management discussed the challenges of passing on inflationary costs but noted that price increases have been implemented across various contracts [121][128]