Skywater's Q3 2025: Contradictions Emerge on Quantum Computing Growth, 2026 Guidance, Fab 25 Integration, and Profitability

Business Commentary:

* Record Revenue and ATS Performance: - SkyWater Technology reported record revenue of nearly $151 million for Q3, exceeding the high-end of the guidance range by $9 million. - The strong performance was driven by purchase accounting for FAB25's revenue in Texas and ATS revenues, which reached over $54 million, surpassing expectations. - The increase in ATS revenues was due to the timing of program execution and approximately $4 million of A&D business that was recorded in Q3 instead of Q4.

• Quantum Computing Momentum:
• SkyWater's quantum computing-related revenue set a new record, positioning the company to exceed 30% revenue growth in fiscal 2025.
  
• This was supported by signing four new quantum customer engagements and exceeding expectations for ATS revenues.

• The growth is attributed to increased activity and investment across the quantum ecosystem and the strategic importance of this market for SkyWater.

• Strategic Acquisition Impact:

• SkyWater's acquisition of FAB25 contributed nearly $87 million of wafer services revenue in Q3, surpassing expectations.
• The favorable financial contribution from FAB25 was due to a higher level of work-in-process wafers and purchase accounting items.

• This acquisition expands SkyWater's scale, diversifies its customer and technology mix, and strengthens its competitive position.

• Florida Operations and Packaging Expansion:

• SkyWater is anticipating initial customer prototypes through the Florida FAB by the second half of next year, due to the ramp-up of tool installations expected to be completed by the end of Q1.
• The company is expanding its advanced packaging platform in Florida, with a focus on supporting the defense and industrial base.
• This expansion aligns with the growing demand for system integration and advanced packaging solutions in the global market.
  

Contradiction Point 1

Quantum Computing Revenue Growth Expectations

It involves differing expectations for the growth rate in the quantum computing segment, which is a strategic area for the company.

How sustainable is the segment's >30% revenue CAGR next year, and does the revenue exceed the original $600M forecast? - Brian Chen (Siegel)

2025Q3: The expected revenue growth for quantum customers of around 30% in 2025 and a similar pace in 2026 is sustainable. - Steve Manko(CFO)

What portion of the business is advanced computing, and what work are you doing with Si-Quantum? - Quinn Bolton (Needham & Company)

2025Q1: Advanced compute market is about 10% of the business today, with 90% tied to the quantum computing space. - Thomas Sonderman(CEO)

Contradiction Point 2

2026 Revenue and EBITDA Guidance

It involves changes in financial forecasts for the following year, which are critical for investor expectations.

Why might the previous guidance of $600 million revenue and $60 million EBITDA prove conservative? - Richard Shannon (Craig-Hallum Capital Group)

2025Q3: For 2026, our expectations have increased to mid to upper teens, considering some costs returning and higher OpEx in Texas. - Steve Manko(CFO)

How confident are you that the budget and programs will be approved with increased funding for the second half? - Quinn Bolton (Needham & Company)

2025Q1: For 2025, we're still expecting about $550 million to $600 million in revenue, driven by a ramp in Wafer Services. - Thomas Sonderman(CEO)

Contradiction Point 3

Fab 25 Integration and Performance

It highlights differing expectations regarding the integration and performance of Fab 25, which impacts operational efficiency and strategic decision-making.

The ownership transition of FAB25 has exceeded expectations. What factors contributed to this improved performance and any unexpected challenges in operating the new fab? - Quinn Bolton (Needham & Company)

2025Q3: The integration of FAB25 has been smoother than expected due to the existing level of WIP in the fab, which provided immediate benefits. - Steve Manko(CFO)

Are there future milestones that could unlock margin expansion for Fab 25, and if so, what are the timings for these milestones? - Neil Young (Needham & Company)

2025Q2: We did see some delays in integrating Fab 25. That's now been resolved. - Thomas Sonderman(CEO)

Contradiction Point 4

Revenue Growth Expectations

It involves changes in financial forecasts, specifically regarding revenue growth expectations, which are critical indicators for investors.

Given the strong new quantum customer growth, how sustainable is the segment's revenue CAGR above 30% next year, and will it exceed the original $600 million revenue forecast? - Brian Chen (Siegel)

2025Q3: The expected revenue growth for quantum customers of around 30% in 2025 and a similar pace in 2026 is sustainable. - Steve Manko(CFO)

What was Quantum's revenue in Q4 2024? - Sreekrishnan Sankarnarayanan (TD Cowen)

2024Q4: With the acquisition of Fab 25, we are well-positioned to drive growth in 2025 in both wafer services and ATS, targeting a 20% growth rate for 2025 on a pro forma basis. - Thomas Sonderman(CEO)

Contradiction Point 5

Quantum Computing Revenue Stream Profitability

It involves changes in company statements regarding the profitability of the quantum computing revenue stream, which impacts investor perceptions of the company's financial health and strategic positioning.

Given the recent quantum customer growth, how sustainable is the >30% CAGR in the quantum segment next year? Will the quantum segment's revenue exceed the $600M forecast for next year? Is quantum compute more profitable than the ATS average? - Brian Chen (Siegel)

2025Q3: Our ATS model is well-aligned with customer needs, which supports our growth in quantum computing. - Steve Manko(CFO)

How much revenue was from Quantum in Q4 2024? - Sreekrishnan Sankarnarayanan (TD Cowen)

2024Q4: Quantum revenue will be slightly negative on a GAAP basis but slightly positive on a non-GAAP basis. - Steve Manko(CFO)