SkyWater (SKYT) Piper Sandler's Growth Frontiers Conference summary

Key growth drivers and business model

• Advanced Technology Services (ATS) is a monetized R&D platform, with growth led by aerospace & defense, biosensing, advanced compute, and advanced packaging.

• Customer-funded CapEx model is expected to reach $320M from 2020-2026, keeping capital expenditures low and enabling capacity expansion and new capabilities.

• Tool revenue is recognized upon installation, often preceding ATS and eventual wafer services revenue.

• Advanced packaging facility in Florida is a major initiative, targeting both defense and commercial markets, with a $120 million Department of Defense contract for domestic 300mm wafer fan-out capability.

• The company is uniquely positioned as a U.S.-owned foundry, serving critical applications in defense, quantum, and biosensing.

Financial performance and margin outlook

• Q2 2024 revenue reached $93.3M, with record ATS and customer co-investment; 2023 annual revenue was $286.7M, up from $212.9M in 2022.

• Core business (ATS and wafer services) achieved nearly 25% gross margin in Q2, with tools revenue being margin-dilutive.

• Q3 guidance is for mid- to high-teens gross margin overall, but 24% for core business excluding tools.

• Break-even is reached at $70 million in quarterly revenue, with incremental revenue above that flowing efficiently to profit.

• Long-term targets are $100 million+ quarterly revenue and 40% gross margin, with a $400 million annual revenue goal.

Strategic initiatives and market opportunities

• Advanced packaging in Florida aims to provide a foundry-agnostic U.S. solution for high-volume, high-productivity applications, including AI and GPUs.

• CHIPS Act funding application is pending, focused on Minnesota fab modernization and automation.

• Wafer services business is expected to recover modestly, with most growth coming from ATS-to-wafer services conversions in biosensing and thermal imaging.

• Quantum computing and biomedical applications are key growth areas, with unique capabilities in superconducting interconnects and biosensing chips.

• Partnerships with startups in DNA/protein sequencing and diagnostics are expected to drive future volume as these companies scale or are acquired.