SkyWater Technology’s Earnings Call: Record Growth Amid Challenges

Skywater Technology Inc ((SKYT)) has held its Q3 earnings call. Read on for the main highlights of the call.

SkyWater Technology Inc. recently held its earnings call, revealing a strong quarter characterized by record revenues and significant growth in its Quantum computing segment. The integration of Fab 25 has been successful, contributing positively to the company’s performance. However, there are challenges ahead, particularly in the Aerospace and Defense (A&D) sector, with potential additional costs in Q4 posing some risks.

Record Q3 Revenues

SkyWater reported record Q3 revenues of nearly $151 million, surpassing expectations by more than $9 million. This impressive performance underscores the company’s robust growth trajectory and its ability to exceed market expectations.

Strong Performance in Quantum Computing

The company experienced its strongest-ever quarter for quantum computing-related revenue. With expectations to exceed 30% revenue growth in this segment by fiscal 2025, SkyWater is positioning itself as a leader in the burgeoning quantum computing industry.

Successful Acquisition of Fab 25

The acquisition of Fab 25 in Texas has been a strategic success, contributing nearly $87 million in wafer services revenue for Q3. This figure was well ahead of expectations, highlighting the acquisition’s positive impact on SkyWater’s financial performance.

Four New Quantum Customer Engagements

SkyWater signed four new Quantum customer engagements, including partnerships with Silicon Quantum Computing (SQC) and QuamCore. These engagements are expected to drive further growth and innovation in the company’s quantum computing endeavors.

Positive Adjusted EBITDA Performance

SkyWater reported a Q3 adjusted EBITDA of $25.8 million, significantly exceeding the expected range of $10 million to $12 million. This strong performance reflects the company’s effective cost management and operational efficiency.

Challenges in Aerospace and Defense (A&D) Revenue

The company faces challenges in its A&D-related ATS revenues, which are expected to decline in Q4 due to government budget dynamics and a potential shutdown of the U.S. government. This sector poses a risk to SkyWater’s otherwise strong financial outlook.

Potential Tools Charge in Q4

There is a risk of a tools charge in Q4 if additional funding is not secured to cover inflation-related cost charges. This potential charge could impact SkyWater’s financial results, adding an element of uncertainty to its future performance.

Increased Operating Expenses

SkyWater’s total operating expenses exceeded expectations by $4.5 million, reflecting increased overhead costs following the acquisition of Fab 25. Managing these expenses will be crucial for maintaining profitability in the coming quarters.

Forward-Looking Guidance

SkyWater Technology’s forward-looking guidance is optimistic, with anticipated revenues between $155 million and $165 million for Q4, and a gross margin of 17% to 20%. Adjusted EBITDA is projected between $16 million and $22 million. The company expects to exceed prior conservative estimates for the upcoming year, leveraging strategic investments and customer engagements to drive growth.

In summary, SkyWater Technology Inc. has delivered a strong earnings call, marked by record revenues and significant advancements in quantum computing. While challenges in the A&D sector and potential cost charges in Q4 pose risks, the company’s strategic acquisitions and customer engagements position it well for future growth. Investors will be keen to see how SkyWater navigates these challenges and capitalizes on its growth opportunities.