8-K: SkyWater Technology Reports Record Third Quarter Revenue and Earnings

SkyWater Technology announced record revenues of $93.8 million and positive net income for the third quarter of 2024, driven by strong performance in its Advanced Technology Services (ATS) business and customer-funded capital investments.

Summary

• SkyWater Technology reported a strong third quarter in 2024, achieving record revenues of $93.8 million, a 31% increase year-over-year.
• The company's gross margin improved to 21.6% on a GAAP basis and 22.3% on a non-GAAP basis.
• Net income to shareholders was $1.5 million, or $0.03 per diluted share on a GAAP basis, and $3.6 million, or $0.08 per diluted share on a non-GAAP basis, a significant improvement from the net loss in Q3 2023.
• Adjusted EBITDA reached $11.0 million, or 11.7% of revenue, compared to $8.3 million in Q3 2023.
• The company saw a 5% year-over-year increase in ATS development revenue, while Wafer Services revenue decreased by 54%.
• Tools revenue was a significant contributor, reaching $30.7 million, compared to $3.2 million in the same quarter last year.
• SkyWater expects a return to sequential growth in its ATS business in Q4 2024, leading to robust revenue growth for the year.
• The company anticipates year-over-year growth for its ATS business in 2025, an improving quarterly run rate for Wafer Services, and continued positive momentum in margins and operational leverage.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record revenue, improved profitability, and strong customer demand. However, the projected loss in Q4 and the preliminary nature of the results temper the overall optimism.

Positives

• The company achieved its 9th consecutive record revenue quarter.
• Strong gross margin and earnings performance exceeded expectations.
• SkyWater successfully modified a significant customer contract, resulting in a $5.6 million reversal of a loss accrual.
• The company is experiencing strong customer demand and increasing momentum in commercial programs.
• SkyWater is continuing to receive customer-funded CapEx investments, which will bolster future growth.
• The company is making progress in its advanced packaging business in Florida.

Negatives

• Wafer Services revenue decreased by 54% compared to Q3 2023.
• The company expects total revenue to be in the range of $72 million to $76 million in Q4 2024, a decrease from Q3.
• GAAP diluted EPS is expected to be in the range of $(0.12) to $(0.06) in Q4 2024, indicating a projected loss.
• Non-GAAP diluted EPS is expected to be in the range of $(0.10) to $(0.04) in Q4 2024, also indicating a projected loss.

Risks

• The company's Q3 results are preliminary and subject to finalization.
• Future results may differ materially from the forward-looking statements due to various risks and uncertainties.
• The company's ability to maintain full capacity at its fabrication facilities is a risk.
• Dependence on large customers and the ability to diversify the customer base are ongoing risks.
• The company faces risks related to third-party suppliers, material procurement, and cost control.
• The company's ability to attract and retain qualified personnel is a risk.
• The company is subject to risks related to litigation, trade policies, and regulatory developments.

Future Outlook

SkyWater expects a return to sequential growth in its ATS business in Q4 2024, leading to robust revenue growth for the year. The company anticipates year-over-year growth for its ATS business in 2025, an improving quarterly run rate for Wafer Services, and continued positive momentum in margins and operational leverage. Q4 2024 revenue is expected to be between $72 million and $76 million, with a GAAP diluted EPS between $(0.12) and $(0.06) and non-GAAP diluted EPS between $(0.10) and $(0.04).

Management Comments

• Thomas Sonderman, CEO, stated that the company achieved new records in both revenues and earnings.
• He also noted improvements in operational efficiencies and strong execution on a significant A&D program.
• He mentioned the expectation of a return to sequential growth in the ATS business in Q4.

Industry Context

SkyWater's results reflect a strong demand environment for semiconductor manufacturing services, particularly in the aerospace and defense sector. The company's participation in the ME Commons projects under the CHIPS Act highlights its role in supporting emerging technologies for national security. The multi-year supply agreement with NanoDx indicates growing opportunities in the biomedical sector.

Comparison to Industry Standards

• SkyWater's 31% year-over-year revenue growth is strong compared to the broader semiconductor industry, which has seen mixed results in recent quarters. Companies like GlobalFoundries and TSMC have reported varying growth rates, with some segments experiencing slower growth due to inventory corrections.
• The gross margin improvement to 21.6% (GAAP) and 22.3% (non-GAAP) is competitive, though some larger foundries like TSMC often report higher margins due to their scale and technology leadership.
• The company's focus on customer-funded CapEx is a positive differentiator, as it reduces the financial burden on SkyWater while expanding capacity. This is in contrast to some foundries that rely more heavily on their own capital investments.
• SkyWater's participation in the CHIPS Act projects positions it well for future growth in the US market, aligning with the government's push for domestic semiconductor manufacturing. This is a strategic advantage compared to companies that are more reliant on overseas production.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the improved financial performance and positive outlook.
• Employees may see increased job security and opportunities due to the company's growth.
• Customers will benefit from the expanded capacity and capabilities resulting from customer-funded CapEx investments.
• Suppliers may see increased business opportunities due to the company's growth.

Next Steps

• SkyWater will host a conference call on November 7, 2024, to discuss the Q3 2024 financial results.
• The company will continue to focus on operational efficiencies and execution on customer programs.
• SkyWater will continue to place orders for new tooling in Florida, funded by the $120 million award.
• The company will work to achieve sequential growth in its ATS business in Q4 2024.

Key Dates

Keywords

semiconductor manufacturing, advanced technology services, wafer services, gross margin, EBITDA, CHIPS Act, microelectronics, capital expenditure, revenue, net income