SkyWater(US:SKYT)2021-11-06 16:50Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $35 million, a 6% increase compared to Q3 2020. Advanced Technology Services (ATS) revenue declined by 8% to $22.4 million, while Wafer Services revenue increased by 44% to $12.7 million [48][49]. - Cost of revenue increased by 43% year-over-year to $36.9 million, resulting in a gross loss of $1.8 million and a gross margin of negative 5.2%, down from 22.1% in the prior year [52][53]. - Adjusted EBITDA was a loss of $2.7 million, down from a positive $5.3 million in the previous year [58]. Business Line Data and Key Metrics Changes - Wafer output increased nearly 60% compared to the prior year, contributing to the 44% increase in Wafer Services revenue [51][45]. - ATS revenue was impacted by a significant multiyear program that is now expected to be completed in early 2022, which previously contributed $4.3 million in Q3 2020 [49][50]. Market Data and Key Metrics Changes - The company is experiencing supply chain challenges that have affected both its operations and those of its customers, leading to delays in revenue recognition [13][42]. - The company has entered into multiple long-term agreements to secure supply for the future, addressing ongoing supply chain constraints [42]. Company Strategy and Development Direction - The company emphasizes its role in enabling disruptive technologies and aims to support the U.S. semiconductor sovereignty initiative [10][11]. - SkyWater's business model combines traditional volume manufacturing with advanced technology services, allowing for a unique engagement model with customers [18][20]. - The company is focused on long-term growth areas, including biomedical applications, advanced packaging, and power management technologies [29][33][35]. Management's Comments on Operating Environment and Future Outlook - Management acknowledges ongoing challenges with supply chain and labor constraints but remains optimistic about long-term revenue growth opportunities [39][40]. - The company expects to continue facing near-term headwinds but believes in the potential for significant long-term shareholder value [39][62]. Other Important Information - The company ended the quarter with $8.4 million in cash and cash equivalents and paid down $30.3 million on its revolver, leaving total debt at $35.6 million [59][110]. - Significant investments in capital expenditures were made, totaling $17 million in Q3 2021, aimed at increasing capacity and efficiency [58][110]. Q&A Session Summary Question: Can you break down the additions to your fixed cost structure in COGS? - The increase in cost structure is attributed to volume, labor, and long-term investments, including $2 million in depreciation and $4.9 million related to rad-hard technology and advanced packaging [67][69][73]. Question: What is the visibility on the $15 million of revenue pushed into 2022? - The $15 million includes $3.5 million from government delays and the rest from supply chain constraints affecting wafer services and ATS programs [76][78][116]. Question: Is the long-term gross margin target of 40% still realistic? - Management maintains that the long-term target of 40% gross margin is achievable, despite current headwinds from investments in rad-hard and advanced packaging [83][84]. Question: How much of the 25% long-term revenue growth target is dependent on ATS and wafer services? - Currently, the business is two-thirds ATS and one-third wafer services, with ATS expected to drive future wafer services growth [90][92]. Question: What are the implications of the CHIPS Act for the company? - The CHIPS Act is expected to provide funding for new manufacturing capacity, which will complement state investments and industry contributions, enhancing the company's growth potential [98][99].