SkyWater(US:SKYT)2024-02-27 05:10Financial Data and Key Metrics Changes - Revenues reached a record $79 million, up 11% from Q3 and 22% year-over-year [4][19] - Non-GAAP operating income was $3.3 million, and adjusted EBITDA was $10.6 million, both exceeding expectations [21] - Non-GAAP gross margin for the quarter was 17.4%, impacted by tool sales [43] Business Line Data and Key Metrics Changes - ATS revenues totaled $67.1 million, up 17% from Q3 and 40% year-over-year, driven by strong demand in aerospace and defense [19][30] - Wafer Services revenues were $12 million, down 17% from Q3 due to softening demand in the industrial sector [5][15] - Tool revenues were nearly $10 million for the quarter, contributing to the overall revenue growth [4][19] Market Data and Key Metrics Changes - Aerospace and defense programs accounted for over 50% of total revenues in 2023, up from 40% in 2022 [30] - The industrial market is experiencing a prolonged inventory correction, impacting customer demand [40][97] Company Strategy and Development Direction - The company is focusing on transforming operations to improve efficiencies and increase outputs from its Bloomington fab [12][36] - Investments in advanced packaging technologies are aimed at establishing a comprehensive facility in the U.S. [33] - The strategy includes transitioning customers from ATS to Wafer Services, which is expected to be more profitable [17][37] Management's Comments on Operating Environment and Future Outlook - Management expects to achieve profitability in the second half of 2024, driven by strong customer-funded CapEx and ATS growth [14][47] - The company anticipates a decline in Wafer Services revenues by at least 50% in 2024 compared to 2023 levels [17][74] - There is confidence in achieving another year of revenue growth, with ATS development revenues expected to grow 10% to 20% [39][74] Other Important Information - The company completed a workforce reduction of approximately 10% to align resources with long-term growth strategy [36][44] - Customer-funded CapEx is expected to reach at least $60 million in 2024, minimizing internal capital requirements [16][75] Q&A Session Summary Question: Can you discuss the ramp into the second half of the year and the gross margin needed for profitability? - Management indicated that a gross margin in the mid- to low 20s could generate positive non-GAAP EPS in 2024, despite headwinds from tool revenues [53][54] Question: When do you expect Wafer Services revenue to bottom out? - Management expects Wafer Services revenue to bottom in the first half of the year, with recovery anticipated in the latter half [56] Question: What prompted the growth in the ATS business? - The growth is attributed to the company's transformation efforts and the acceleration of ATS programs through the development cycle [59] Question: What is the expected mix of revenues from aerospace and defense customers throughout the year? - Aerospace and defense are expected to continue growing, contributing significantly to revenues, while Wafer Services may decline due to market conditions [64][98] Question: What are the expected consulting fees in the upcoming quarters? - Consulting fees were $5.3 million for the quarter, with no expectation of recurring fees in 2024 [100] Question: How will tool sales impact gross margins? - Tool sales are expected to have a neutral or positive impact on gross profit, despite being a drag on gross margins [75][79]