Q1 2022 Skywater Technology Inc Earnings Call
The recognition of all with revenue in Q1 does that effectively pull in of expected finished wafer sales from the next couple of quarters importantly, the new contract recognized.
And as a key element of our strategy.
G to drive permanent pricing expansion.
It also means that our overall business is being valued.
At a higher level than it was previously.
Legacy technology and products.
As we seek to diversify and grow.
So our customer portfolio.
To that end, we continue to work towards securing long term agreements across all market verticals as we create an increasingly robust sales pipeline in fact as we enter the second.
Which means we have effectively reached.
That our Recalibrated our reps.
We have also raised the revenue baseline from which to grow as we look to the second half of 2022 and beyond.
Into Q1, we expect to deliver.
Of our Unsequestered improvements in rates.
Revenue output throughout the forthcoming quarters.
As a result, our confidence has increased that we can achieve revenue.
The growth in 2022, near our long term annual growth target of 25%.
Further the pay as you go model.
Q1, we continued to win new business.
Signing three new ATM.
Best programs and three new wafer services customers.
Importantly for our consistent with our prior target.
Of achieving positive gross margin.
Since at the mid $40 million revenue level.
Key to our gross margin expansion that we expect to grow revenues from this.
Baseline without incurring this.
Given the fixed cost nature of our.
Our business.
non-GAAP gross margin was a positive one.
Negative six 1% in Q.
To aid in the comparability of our.
Gross margin adjusted for equity based.
Sure well before the IPO as well as the impact of unusual or episodic items.
As the inventory write off in Q4 and tool sales, which typically is pass through revenue, but unique to Q1 of last year was highly profitable.
We are pleased with the progress made in Q1 to show sequential improvement and return to positive gross margin.
The lower margin compared to the same period last year, primarily reflects the negative margin on the whip inventory pull in and hiring costs associated with manufacturing labor higher costs associated with managing through the industry.
And increased investments in our strategic platforms.
As demand for our technology as a service.
The higher at our Fabs to support increased activities and.
Late April Fed Chairman Jerome Powell described the job market is extremely tight and unsustainably high.
Wages is rising at their fastest pace.
During labor turnover continues to be a headwind to profitability.
The supply chain for substrates equipment.
The chemicals and gases remains congested with rising prices freight cost, especially our increasing above the already elevated rates we witnessed in Q4.
We have been able to resolve multiple supply chain issues by dual sourcing so we're seeing that.
<unk> applied our qualifying new vendors.
We have resolved the supply of neon helium nitrogen and hydrogen but prices are elevated while a small part of our overall material costs.
In case of neon prices are up 13 acts.
We are watching the market closely as other materials become issues to resolve gases chemicals parts wages hiring and other areas seeing price inflation will continue.
So you need to be a focus.
Our cost of revenue also contains strategic long term investments in our radiation hardened and heterogeneous integration platforms. In addition, we have continued R&D investments to build capabilities in our targeted growth platforms, including power adjusted EBITDA was a negative $4 8 million in the first quarter now starting with.
<unk> health.
Last quarter, we discussed our exciting partnership with rocket photonics.
Continued their momentum in Q1, they entered a development partnership with Medtronic.
To expand our biomarker <unk> sensing platform for wearable devices and the inpatient care market.
<unk> engaged with multiple wearable and medical device customers and continues to announce new products importantly for sky water. Our Rockne revenues grew sequentially in Q1, as we progress through our Minnesota, and our Florida location.
Our other bio health programs continue to progress and manufacturing readiness as several significant design milestones were completed in the quarter on the path towards upcoming regulatory approvals needed for production ramps anticipated to initiate later this year and our mixed signal and power management category Sky water Andy.
Infineon have fully executed new value manufacturing agreements extending our existing engagement for mixed signal ASIC production as I noted earlier. These include an adjustment to current market pricing on core and legacy platforms as well as more favorable manufacturing commitments through a new noncancelable order structure.
Improved pricing in our legacy business is an important milestone, but we continue to focus our efforts in strategic growth areas that are accretive to gross margin.
Our customer and technology partner applied novel devices, our A&D presented their breakthrough MOSFET technology at the annual APAC conference in Houston in March.
The technology has been recognized by numerous product design groups since that time, Fred's Gan like performance and ideal characteristics for enabling efficient power conversion.
We see growing engagement and several application areas for this technology as we March towards our production ramp this fall.
We continue to make good progress in all three elements of our heterogeneous integration technology roadmap, which we previously referred to as advanced packaging. This includes silicon enter posers fan out wafer level packaging and wafer bonding. Additionally, our Florida fab continues to progress towards production readiness as.
<unk> by the completion of our ISO 9001 qualification in the first quarter last quarter, we reported on the first silicon milestone for our Dod funded Ipass silicon.
And enter closer program. This continues to progress ahead of schedule phase one qualification lots are in line and expected to come out in the coming weeks, which will be a major milestone, enabling further customer engagement based on our qualified test vehicle demonstration subsequent program.
Milestones will focus on qualifying TSB, and incorporating backside redistribution layers and passive circuit devices, which will enhance our capabilities for more sophisticated multi chip module and high frequency solutions.
We also initiated a project to fabricate Deca technologies <unk> series test vehicles, which are a key aspect of our market and customer development efforts.
First vehicles will represent a basic architecture that leverages decades, disruptive adaptive patterning technology and is a key enabler for achieving state of the art fine pitch for fan out wafer level packaging integrations.
The current project plan is for the test vehicle data package to be completed and available for customers later this year.
Sky water is continuing to advance our capabilities and wafer to wafer bonding technology through a partnership with a major equipment vendor.
For bonding tool qualification in Q2 and begin supporting customer applications.
We view this as a critical pillar of our heterogeneous integration technology platform and a key building block that will enable our customers to develop secure.
Your state of the art, two five D and <unk> technology solutions Rad hard progress throughout Q1 set the conditions for the conclusion of the development phase at the beginning of Q2 with a highly anticipated award for the production and qualification phase beginning in Q3.
We continue to expect Rad hard revenues to begin to ramp at <unk>, we work with our industry partners to build a rad hard ecosystem, including the creation of a specific Rad hard IP library.
Barry and additional open source enabled designed at element solutions.
One major benefit we expect to realize as we move our Rad hard platform from development to production is the ability to leverage this date of the our capability in the commercial markets, specifically, those requiring radiation tolerant capabilities, which are not as stringent as our government sponsored programs are Leo are low earth.
<unk> strategy will be focused on civil and commercial space opportunities over the coming months. This is a notable example of how we will leverage our strategic Rad hard investments and manufacturing capacity to deliver high margin products into the commercial space.
Also in Q1, we announced the collaboration with quick logic for Rad hard FPGA is further expanding our design ecosystem for advanced extreme environment solutions.
Moreover, customers producing Rad hard devices ASCI water will benefit from our decades long heritage of commercially focused manufacturing for demanding end markets and high quality standards for low and high volume designs.
Finally, the continued commitment by the President of Senate majority leader the speaker of the house and members of the minority party to pass final legislation containing federal incentives has never been more important for our country. It is imperative for a balanced supply chain that the U S government enacted critical legislation promptly.
<unk>.
In addition to responding to recent inquiries from the Department of Congress on the administration of the Grant program. The Sky what our team has been collaborating with its partners in the Dod to respond to their requests for information as they contemplate activities to bolster to domestic semiconductor supply chain and strengthen the defense industrial base.
As the only U S. One pure play foundry elected officials and policymakers continue to reach out to Scott water to better understand our technologies. The workforce development initiatives, we are leading in Minnesota, and Florida and how their decisions will enable the successful re shoring of this crucial industry.
In recent weeks, we have met with members of Congress from Minnesota, Florida, and Texas as well as the Governor of Michigan to discuss how we can rebuild America's leadership in advanced manufacturing to summarize our 25% growth objective incorporates three elements of revenue appreciation.
Meeting technology development milestones in achieving better pricing transitioning more of our technology programs to volume production and achieving greater fab efficiency.
We made progress on all these fronts in Q1 and still have plenty of room for continued growth as we progress through the year. Our strategy is built around transitioning to higher value and higher margin per wafer business not solely peer volume increases our Q1 activities and results demonstrate progress towards this strategy.
While concerns around semiconductor industry softness are pervasive and incessant. It is important to note that the primary areas of softness such as consumer driven smartphone and PC demand are not material markets for sky water.
Our strategic growth areas, such as bio health extreme environment, microelectronics, and superconducting and automotive power and Iot are continuing to see strong and growing levels of investment and excitement.
The amazing work being done by the employees of Sky water is critical to our customers our shareholders and our nation. We will continue to decisively invest in our Rad hard power and heterogeneous integration platforms to fuel future growth and further our ability to co create the technologies other future with our customers in a post Moore's law.
Yes.
For 2020 to our progress in Q1 provides increased confidence for revenue growth near our long term goal of 25%.
This is supported by continued expansion of our sales pipeline important program design wins and the expected progress of our <unk> power management and radiation hardened platforms moving beyond development towards proposition there.
The expected revenue growth in 2022, coupled with our new baseline revenue level at improved pricing have established positive gross margins in the mid $40 million revenue range and positions us well for gross margin expansion later this year I.
I will now turn the call over to Steve for more information on Sky waters financial performance and our recently completed quarter.
Thank you Tom total.
Total revenue for the first quarter of 2022 was $48 1 million, which was essentially flat year over year and up 25% sequentially from the fourth quarter.
Advanced Technology services revenue was $26 $6 million and wafer services revenue was $21 $5 million.
There are a couple of important adjustments to make when comparing our revenue performance to prior periods first Ats revenue in the first quarter of 2022 included just $1 million of tool revenue compared to an unusually high $15 $4 million of tool revenue in the first quarter of 2021.
Second wafer services revenue in the first quarter of 2022 included the pull in of $8 2 million of revenue related to the new frame agreement with Infineon. This polymer revenue is due to an accounting adjustment in the first quarter related to the now noncancelable nature of purchase orders from this customer.
Effective April 1st of this year Sky water recognized as revenue over time as the wafers are being fabricated prior.
Prior to April one Sky water was recognizing wafer services revenue for this customer at a point in time, such as when the wafers were shifts.
Given the April 1st effective date, which was before our fiscal quarter end of April 3rd.
Necessitated a one time accounting adjustment to recognize over time revenue for the Infineon related work in process or with inventory.
Excluding the whip revenue adjustment, which was an acceleration of revenue from future quarters and at higher prices wafer services revenue would have been $13 2 million.
Up 33% year over year on a comparable basis.
Excluding tool revenues Ats revenue of $25 6 million was up 13% year over year.
Increased revenue in both Etfs and wafer services continues to track well against our revenue growth targets for 2022, as we continue to ramp production and with new customers and programs.
GAAP cost of revenue was $49 1 million, an increase of 26% year over year.
non-GAAP cost of revenue, which adjust for cost of tool sales equity based compensation and Florida startup costs as well as the inventory write down was $46 6 million in the first quarter of 2022 up 61% from $28 9 million in the first quarter of 2021.
So while GAAP gross loss was <unk> 9 million for a negative 2% gross margin non-GAAP gross profit in the quarter turned positive at $5 million.
For our non-GAAP gross margin of one 1%.
While we are pleased with our progress returning to positive gross margins our ongoing cost of revenue continued to be impacted by increased costs associated with both labor and supply chain constraints as well as our investments for long term growth. We continue to make investments for long term growth of the company by building out our Rad hard capabilities in Minnesota and heterogeneous.
<unk> integration capabilities in Florida.
Both programs are expected to be a long term growth drivers, but our near term headwinds to profitability.
In the first quarter of 2020 to depreciation related to the <unk> program was $1 5 million and we incurred $2 8 million and cost of revenue for Florida, when excluding tool cost.
This compares to a combined $4 4 million in the prior quarter and $1 7 million in the first quarter of 2021.
Despite these increases our first quarter gross margin improvement compared to fourth quarter 'twenty. One is consistent with our prior expectations for a return to gross profitability in the mid $40 million range for quarterly revenues.
Further we expect stronger gross profit flow through after this baseline as we progressed through the forthcoming quarters and years.
GAAP R&D for the first quarter was $2 3 million compared to $1 $9 million in the first quarter of 2021.
non-GAAP R&D was $2 million in the first quarter of 2022 compared to $1 9 million in the prior year's first quarter.
GAAP SG&A was $11 6 million compared to $8 6 million.
In the first quarter last year.
That increase was driven primarily by public company costs and stock based compensation.
non-GAAP SG&A was $9 $7 million in the first quarter of 2022 compared to $8 $2 million last year. Adjusted EBITA was a loss of $4 8 million.
Declining from a positive $5 6 million in the first quarter of last year and flat with the fourth quarter of last year, reflecting the increased cost of revenue and a negative gross margin on Infineon and was recognized in the first quarter 2021 revenue cash used in operations. During Q1 was $10 $7 million, we invested $4 4 million.
And Capex this quarter on fab maintenance and improvements.
We ended the quarter was $6 4 million in cash and cash equivalents.
Total debt outstanding was $69 million as of April three 2022, which includes $34 million for our revolver and 35 billion for our variable interest entities, excluding unamortized debt issuance costs.
Total inventory at the end of Q1 was $13 1 million compared.
Compared to $17 5 billion at year end 2021.
Q1, 2022, ending inventory reflects the $11 million adjustment for Infineon offset by increased inventory purchases in support of anticipated revenue growth.
As you update your kind of water models to following some additional color for our expected operating costs for the remainder of fiscal 2022.
Quarterly research and development expenses are anticipated in the $2 one to $2 $4 million range, excluding stock based compensation quarterly SG&A expenses are expected to be approximately $10 to $10 4 million excluding stock based compensation.
And finally, we anticipate annual stock based compensation to be approximately nine one to $9 4 million for fiscal 2022.
With that I'll turn the call back to Claire and welcome your questions on Sky water.
Thank you Steve.
Our upcoming investor activity.
Rachel emerging growth conference on May 10, the Cowen Technology Conference in New York on June <unk>.
And the CEO summit in San Francisco on July 15.
The release section of our website.
Our company presentation.
Later, please open the line for questions.
Thank you.
A reminder, if you'd like to ask a question. Please press Star then one on your telephone keypad.
Our first question is from Rajiv Gill with Needham <unk> Company. Your line is open.
Yes. Thank you.
Congrats on the progress on the on the gross margins turning positive on a non-GAAP basis, that's really good to see and as well as the.
Good progress on that.
Designed programs suggest.
A follow up on the wafer revenue in the $8 2 million revenue that was pulled in from the new agreement.
With Infineon. So so it seems like this is a combination of the new accounting.
Revenue recognition.
Policy to recognize the revenue over time in the current quarter as well as the higher asps related to the contract.
So when we look at them.
The wafer revenue going forward.
Do we think about that type of revenue.
Kind of on a quarterly basis.
If we take out the $8 million. The the wafer revenue was about $13 million. So do you expect the kind of sequential growth off that base.
Revenue just wanted some clarity there thank you.
Hey, good afternoon, Steve Mento here in Great question on that really want to make sure everyone understands what happened there and your understanding of the information is actually correct.
What happened was a combination of the timing of when the quarter ended.
This contract went into place kind of got the benefit of having some wafer shipping and also recognizing the upfront revenue for the wafers that were in process. So that you are looking at it for the second quarter. I think you are looking at it in the appropriate fashion looking at our Q1 wafer services revenue backing out the $8 $2 million, which was below one.
Onetime Poland and <unk>.
Facing growth for second quarter and beyond after that baseline of about 13, 2% or $13 3 million, obviously going forward off of that amount we would expect.
Creases from improved efficiency as well.
As the enhanced price that was built into the contract as well.
Got it that's helpful and then.
<unk>.
The gross margins inflect.
In selecting positive on a non-GAAP basis.
When you exclude the tool revenue and then yes, so et cetera.
You talked you mentioned that.
Mid 40 <unk>.
Have a positive gross margin.
As we kind of.
So it goes throughout the year.
What do you think is going to be the biggest driver to tenant gross profit fall through is it going to be continue continuation and just more wafer volume.
<unk>.
Better mix. So just if you could.
Walking you through some of those.
The drivers of gross profit fall through as we progress hopefully off this base of gross profit.
I think one thing to keep in mind is that we had a higher mix of wafer services this quarter because of the new pricing as well as the adjustment as we get into the.
Quarter, starting in Q2, youre going to see more of the traditional mix of two third one third two thirds being Etfs and obviously that will drive higher gross margins and then the other efficiencies that we'll get.
Once we break through.
The mid Forty's in.
Again more flow through of the revenue dollars to the bottom line.
Thank you.
Our next question is from Mark <unk> with Jefferies. Your line is open.
Yes.
Hi, Thanks for taking my question.
A follow up on the.
Revenue recognition for wafer services, so Steve or all the labor services revenues now.
Put into this bucket of noncancelable, and therefore recognizable as U S.
As we generate the web or is that just.
Portions of that business that fall into that bucket.
Great question, it would only be a portion of our wafer services revenue really what we can look at is if you look at the balance sheet. Given the fact that we really have inventory still reflected on the balance sheet. That's an indication that we are still recognizing revenue for the non infineon related wafers at a point in time. So it's really just related to this specific contract for these wafer.
With Infineon something we've been working for not only to get some market pricing on that product, but also gives us better visibility obviously negotiating for noncancelable features for those deals coming in is really a good step forward on our direction for the near term growth of the company.
And it is for all the products that we make.
I'm, sorry could you say that again, yes. It is for all of the Infineon products that we make gotcha. Okay.
So I mean, it seems to me that any any product that comes out of Etfs that would migrate to labor services that would be.
Those would be like highly customized way.
Winkers that.
<unk> may also be considered.
You'll not fungible or not cancer ball. So I'm wondering if that is.
A feature that you have with Infineon that you signed with Infineon.
<unk> two.
Kind of put to the rest of the year programs that run through Winker services.
Absolutely correct, Marc so remember going back to our take or pay with Cypress.
We were basically getting paid when the wafer shipped and then we had a period of around 18 months between when they take or pay in it and this new contract, which remained in that fashion the model for Sky water going forward is clearly.
Pay as you go approach, which supplied to not only wafer services, but also a lot of our new contracts for Ats.
Got you, Okay, that's helpful and Steve.
Another one on the on the accounting mechanics. So.
So the wafer in services were up $7 million.
<unk> revenues were up.
Two and a half million so.
Is that to make accounting mechanics, and does that imply that you actually shipped $4 $5 million of that yet.
That you recognize revenues or is there.
Is there a different.
We need to think about the accounting mechanics around that.
Wafers.
So so really the width that $8 to really what that means is at that point in time, when we closed our books on April 3rd none of that $8 to ship at that point in time that would just be with it is in various stages of process and the fab and all the way to think about it is now it gives us some flexibility that I can take one wafer and move that one step for us.
And also take five wafers and sorry, one wafer and move it five steps or five wafers and move it one step I kind of get the same revenue recognition. So it gives me a better visibility and better flexibility on how to optimize the mix of my fab and prioritize my time in the fab on moving Ats and wafer surfaces programs throughout.
Okay Gotcha alright.
And then last question for you.
Do you expect.
Optimism about the Rad hard ramp.
This year.
And you mentioned power products and heterogeneous.
Products. So the Rad hard grant this year is that going to be.
Production.
Yes.
Kind of.
Solutions that you're delivering to your customers that are going to use that internet production systems. For instance, I think has been paste fill and Lynn.
When would you expect to see power products heterogeneous products.
Hit your topline.
Thank you.
Greg Great question, Mark So on Rad hard what we're doing is we've completed the development phase and are going into privatization and qualification. So we expect revenue to ramp these won't be product wafers driving revenue, but program revenues as we move through.
The qualification sequence that our customers will be.
Putting the devices through as they go through their own qualifications into the final systems. So we are moving to what we consider the next phase in these.
Government funded programs, so very important phase because the the next round of investment is setting the stage for our actual products being put in systems, which will be occurring.
As we exit.
The 'twenty three time frame and go into 'twenty four and again there are some programs that are replacement parts. They have a longer qualification cycle. We do have some designs that we're anticipating to go into this platform that would actually be qualified earlier.
So the whole point of the next phase is to prepare for our product shipment of wafers.
And it's an important again milestone because the government is further investing in their program to prepared for production as far as power, we continue to see great traction with.
This platform the A&D platform in the market, we have samples going out to the Oems.
They are beginning to go through their own qualification processes. We do have a lead customer that's driving that and we anticipate to start ramping that in the second half of this year and then in heterogeneous integration.
Lot of that is still in the Ats side of the equation were made.
Making good progress on all three fronts. The Ibs program is again, the Dod funded initiative and that is <unk>.
Moving ahead of schedule on the Deca program is for wafer fan out packaging there will be doing test chips that will go out to customers in the second half of this year and then.
Mentioned, we're also working with rockley on their platform, which includes not only the wafer fabrication were doing up here, but also some additional processing down in Florida. That's the one that has the quick has potential to go to <unk>.
Deferred services revenue as we prepare to ramp that program based on their schedules and then finally, the wafer bonding technology, that's definitely still in the development phase, but we do have a lead target customer that we'll be talking more about zero unfolds that will will drive that program again through Ats and then.
As we get.
Into the early part of next year, we will start seeing bay for services revenue for that as well.
Okay. Thank you.
Again, Please press star one if you'd like to ask a question. Our next question is from Krish Shankar with Cowen Your line is open.
Yeah, Hi, Thanks for taking my question.
On that night.
The gross margin routine.
Yeah.
A couple of question disappointed by them.
Sequential revenue growth as the quarter.
Yes.
Also the baseline of 48 million loss.
$40 million, that's another $8 2 million.
Infineon.
Yes, it's definitely the latter so what we continue to do is drive.
Growth in our Ats business and of course, we.
We did pull in because we had to recognize all the way up there was a pull in of some of the revenue that would have materialized. In Q2 Q3, that's why we're targeting somewhere in the mid <unk> is what were anticipating so when you pull that out there will be sequential growth, but it won't be up to $48 million base.
Got it got it and then.
<unk> performed.
Does that still include the $15 million pushout from lots of the development funding.
Yes so.
And I want to make sure I hear that again say that last part again.
The 25% revenue growth.
Yes.
$10 million.
We start from lots of different government funding, yes, yes. It does.
Okay Alright.
Then one other little question I, just wanted to check that.
No.
On the Florida.
Like.
You said it.
And then you are working on that integration and everything I'm just kind of curious like when you spoke about the depreciation on the floor.
The fab, which will actually lower in the March quarter compared to the prior quarter.
How should we think about it that keeps that land.
<unk> being an example, the lethal bonding I'm excited that Nathan.
Activity.
I'm going to start increasing the.
The capex related.
In Florida.
Yes, so when we talked about that the depreciation again really relates to the Rad hard a fab that we have up here and Scott what our Minnesota. So both elements are investments the Rad hard as an investment heterogeneous integration and afford us an investment both going through my cost of revenue the difference being the Rad hard as depreciation where the heterogeneous into.
Gration costs are more sort of operating costs flowing through so thats not depreciations wanted to remind you of that but really those are at baseline levels in Florida for heterogeneous integration as we continue to ramp that I would expect those costs to increase as there's more programs moving into Florida more revenue visibility and like we said those those programs.
Other it's in Minnesota, our Florida to Ats programs start off small and ramp over time, so as they ramp they would mean more head count focusing on them and growing as well so as the revenues grow with heterogeneous heterogeneous integration I would expect those expense those expenses and cost of revenue to grow as well.
Got it.
One last question.
Can you just remind us again on the FY 'twenty year, working guidance for R&D, and G&A and stock comp I didn't get it completely.
Yes, let me go back to that.
A copy of the script for me.
Yes.
Sure.
The stock comp for the year was $19 9 million.
R&D on slide 22.
For FY 'twenty two for the year.
Yes.
Sure.
On the R&D was $2 one to two per quarter or one to two four per quarter.
I got to make sure I'm backing out the stock based compensation from the SG&A.
One second.
SG&A was 10.0 to $10 four for the quarter.
And that's I believe a model.
Over the next few quarters, yes.
Yes that would be my expectation.
Got it. Thank you very much really appreciate it.
No problem.
The next question is from Richard Shannon with Craig Hallum. Your line is open.
Okay.
Well, thanks, guys for taking my questions glad to be here on the call and graduations a good quarter.
Sure a couple of questions here I think I'll start off with.
New frame agreement with Infineon.
I will characterize the.
The levels of appreciation in Asps and kind of characterize in terms of of margins here fully baked or using the depreciation you have in place is this something thats.
Now close to.
Close to zero percent gross margins are still a little bit negative here in any way to characterize that would be great.
Yeah, when we look at it from an overall perspective, we focus on activities in margin per activity. So we really don't look at it from one individual component again with what we're doing in opening up our fab for the ETF services. There is ats programs going through that don't allow us to run a full fab just focusing on high volume.
In manufacturing so really what we do is we focus on how can we get each activity to be the most profitable activity in the fab. That's why as I mentioned earlier, having us be able to recognize revenue on that activity takes the burden off of making sure we get the wait for all the way through to production in that quarter to recognize the revenue that can really just focus on Mac.
<unk> now the revenue productivity and the margin productivity.
With that now and the costs that we saw come through pulling in $10 eight of costs on $8 two of revenue because of that that would have a fully baked cost with all of our depreciation as it currently stands flowing through and a lot of the depreciation that goes back to the acquisition back in 2017 that will start to come off towards the edge.
End of 2013 and into the first quarter of 2014.
Sorry, 2024, so opportunities to expand our margins at that point in time, so with that pricing and what that costs. It does have our depreciation fully baked into that as you mentioned.
And I'll just add certainly went after more aggressive pricing.
On those legacy platforms, and we achieved that.
But our business is really to drive not only our ats programs underway for services, but.
Waiting a much richer mix within wafer services, because all those ats programs, where the single source.
Provider, they're all on new platforms that are just becoming products in the market.
And over time, we expect the concentration of the legacy platforms to decrease.
Okay perfect. Thanks for that perspective.
Question here on the growth for this year and I just wanted to make sure that I caught your comments accurately and I think Tom here in your remarks.
And have a baseline the mid Forty's and then are you are you characterizing the rest of the year of sequential growth.
That's where every quarter past that or could there be some variability in that.
Yes.
Put in my remarks, I think we will see sequential growth, we are expecting things to continue to move up into the right as the year unfolds.
<unk> of course is the lumpiness to our business and we are dependent on certain government contracts coming in so that that contingency hasnt hasnt been removed with our statements, but there clearly is.
A lot of positive.
Feelings within the company and with our customer base that the programs, we're working on they're moving in the right direction.
And we feel confident that the 25% targeted growth rate is achievable. This year as we've said at the beginning of the year and continue to say.
And this strong.
Movement towards that in the first quarter increases our confidence.
Okay perfect. Thanks for that confirmation maybe last question for me on.
On the pipeline here ankles, it's probably more related to warrant to Etfs here, but can you. If you could just characterize kind of the early stage part of that pipeline, where youre getting attraction here can you characterize both by the technologies that you have.
Okay.
The applications and customers.
Platforms, and Cmos, which allow you to kind of integrate those together and almost a Lego block fashion.
He has given us a lot of traction in that space those programs tend to move quickly.
Through through the development cycle. So we are seeing.
I would say a a.
Faster pace.
That side of the equation and then of course, you have power Rad hard with very extensive qualification.
Cycles that were were.
Learning about as we get further into this space and so those tend to take longer.
The whole.
Perspective around extreme environment electronics.
Is it good.
Its into the commercial space is also something that is that is relatively new to us but.
The pipeline conversion typically.
Initial contact with the customer to we begin working for them.
Between three to six months and as Steve has alluded to before there is a slow ramp the ats programs start out slow.
Slow cycles of learning and then as the program progresses it picks up.
It picks up speed, but we have a very strong pipeline. We believe as we continue to grow our backlog that that that confidence is part of where I get.
We're really excited about our statement alluding to the 25% growth because the pipeline is strong we're building a good backlog we have a secure a partner for the higher volume portion of our business that gives us better predictability and we think all of that.
Really bodes well for <unk> future.
[music].
Okay.
No.
Okay.