SkyWater Technology Reports Record-Breaking Second Quarter

SkyWater Technology has reported impressive results for the second quarter of 2024, achieving record revenues of $93 million and its first positive non-GAAP earnings per share (EPS). The growth was largely driven by the aerospace and defense sector, with revenue from Advanced Technology Services (ATS) reaching nearly $62 million—a significant 18% increase from the previous year. While the broader industrial segment faced challenges, Wafer Services revenues met slightly higher expectations, though they still fell short of previous performance levels. Tool revenues, however, surpassed predictions, reaching $26 million.

For the remainder of the year, SkyWater anticipates revenue growth of 10-20% in ATS development, while Wafer Services revenues are projected to decline significantly. The company also emphasized strong free cash flow generation and a reduction in debt during this quarter.

### Key Highlights
– Generated record revenue of $93 million in Q2 and achieved non-GAAP positive EPS for the first time.
– ATS development revenue rose 18% year-over-year to nearly $62 million.
– Wafer Services revenue was better than expected, though still lower than previous levels.
– Tool revenues outperformed forecasts at $26 million.
– Revenue projections for the full year estimate a growth of 10-20% for ATS development, with Wafer Services expected to decline by 60-65%.
– Customer-funded capital expenditures (CapEx) are projected to be around $80 million for 2024.
– Free cash flow stood at $9.3 million, alongside a $5.6 million decline in overall debt.

### Future Outlook
– Expected Q3 total revenues are in the mid $90 million range.
– Anticipated non-GAAP gross margin is expected to be in the mid to high teens.
– Revenue forecasts for the year remain largely stable.
– The company is focusing on aerospace and defense projects, thermal imaging, and advanced packaging development in its Florida facility.
– Revenue growth is anticipated from new ATS customers moving to Wafer Services in late 2025 and into 2026.

### Bearish Points
– Significant decline in Wafer Services revenue estimated at 60-65%.
– Broader industrial segment weakness impacting Wafer Services.

### Bullish Points
– Record revenue in ATS development.
– Successful customer transition from ATS to Wafer Services with QuantumPsi.
– Installation of a high-productivity direct write patterning system.
– First tool delivery for a new fan-out wafer level packaging platform.

### Challenges
– Wafer Services revenue continues to lag behind earlier run rates due to industrial segment weakness.

SkyWater Technology’s strong Q2 performance indicates resilience and strategic focus, especially within the aerospace and defense sectors. The company’s investments and transitions suggest a promising pipeline for future growth, even as challenges persist within the Wafer Services segment. With a clear emphasis on long-term growth and profitability, SkyWater is positioning itself as a significant player in the semiconductor industry.

SkyWater’s market capitalization is currently at approximately $384.97 million, indicating its mid-sized position in the semiconductor sector. Despite recent revenue growth, the company’s profitability remains a concern, as evidenced by its negative P/E ratio, although this has shown improvement over the last twelve months. Analyst outlooks have been cautiously adjusted downward, revealing potential challenges ahead, while recent stock performance has declined notably over the past month and quarter.

Despite certain difficulties, SkyWater Technology’s robust free cash flow yield is promising, yet its gross profit margins remain low, raising questions about its operational efficiency and pricing strategies. Investors may find interest in the company’s potential for cash generation against the backdrop of its financial health and market positioning.

### Conference Call Summary
During the financial results conference call, CEO Thomas Sonderman detailed the company’s agricultural and defense-focused strategies, emphasizing expected future revenue growth from various programs. The call highlighted the positive developments, challenges, and the outlook for SkyWater’s business segments. The company’s management reiterated its commitment to long-term growth and engagement with shareholders while showcasing comprehensive plans for emerging technologies and customer partnerships.

SkyWater continues to focus on executing its growth strategy, aiming for profitability and capitalizing on advancing technology trends in the semiconductor sphere.