Q3 2022 Skywater Technology Inc Earnings Call
Paul.
During the call any statements made about our future financial results and business are forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause our actual results to differ materially.
For a discussion of these risks and uncertainties. Please refer to our filings with the Securities and Exchange Commission, including our earnings release filed on form 8-K today and our fiscal 2021 10-K filed on March 10th.
All forward looking statements are made as of today and we assume no obligation to update any such statements.
During this call we will discuss non-GAAP financial measures you can find a reconciliation of these non-GAAP financial measures to GAAP financial measures on our earnings release as well as in our Q3 earnings presentation, both of which are available on our Investor Relations website.
And with that I'll turn the call over to Tom.
Thank you Claire and good afternoon to everyone on the call.
Today, we are pleased to report record quarterly revenue of over $52 million.
Which reflects 10% sequential growth from Q2, and approximately 50% growth over Q3 of last year.
The Ats business was the primary driver of our growth in Q3 with sales up 18% sequentially and 57% year over year, reflecting the continued momentum we are gaining with multiple key customers in 2022.
Wafer services sales were similar to Q2 and up 36% year over year.
With quarterly revenues now exceeding the $50 million level, our gross margin performance in Q3 demonstrates that we are delivering significant flow through to margins and profitability on the incremental revenue we have achieved since Q1 as.
As we've been communicating all year with the Etfs being the driver of our incremental revenue growth our revenue flow through to gross margin is well above 50% in fact, we significantly exceeded our gross margin forecast for the quarter as Steve will detail in his prepared remarks.
We also have been communicating each quarter. This year that the improved pricing terms with our legacy wafer services customer raised our quarterly revenue baseline from which to grow and we have been delivering on sequential quarterly improvements in revenue despite the weakening macro environment.
With our strong performance in Q3 and current outlook for Q4, we expect we will achieve or exceed our long term revenue growth target of 25% this year.
We are very pleased with the progress made in Q3, achieving sequential improvement in our revenue pipeline, increasing fab efficiency and output and significantly improving gross margins. A highlight of Q3 was not only did we turned the corner to generate positive adjusted EBITDA, but it was a very healthy three.
$8 million equal to 7% of revenue.
But this level of performance against our stated objectives. This year, we are delivering on our promises for better predictability in our results increased visibility and more consistent execution towards our stated financial and business objectives.
Since our last call. We've made several important announcements that build upon the momentum we've been gaining throughout 2020 to strengthening the foundation for consistent quarterly revenues above the $50 million level and further establishing sky water is a critical player in the future of our country's semiconductor supply. These.
These important announcements included the Rad hard Phase two award progress on multiple fronts towards chips Act funding for the Purdue fab and other growth projects to build back better Regional Challenge Award funding our expansion in Florida as well as a number of important partnerships and collaborations announced with Google The Nash.
<unk> Institute of standards, and technology, nano Dx trusted semi and more.
Which brings me to a discussion on our primary strategic growth areas, starting with extreme environment microelectronics throughout 2022, we've been reporting on the progress and achievements in our Rad hard program, but the ongoing successes in phase one leading up to the anticipated Phase II Award on our August earnings call. We.
Indicated that the Phase II award was eminent and we are pleased to make this important announcement in September .
You didn't nearly $100 million. This award demonstrates the competitive strengths of our age 90 platform and the commitment of the Dod to continue its significant investment in sky water as we successfully execute the program. This award funds the privatization and qualification phase, which will continue for the next two years leading up.
The volume production.
The additional phase One award announced last quarter. The Phase II Award has been funded and launched and was a significant driver of our sequential revenue growth in Q3 as well as the additional more modest uptick in sales expected in Q4.
Last quarter I focused on several aspects of the arch 90 platform that make our technology the strongest option available for strategic extreme environment applications.
They are in the <unk> 90 based program Phase, we worked with our partners to firmly establish key components of the growing are each 90 ecosystem.
This included an initial PDK, a multi project wafer our MPW shuttle capability, coupled with our early access partner program and the engagement with IP providers to develop SRAM compilers and the embedded FPGA IP needed to make designing into our each 90 more efficient.
Our partners.
The next phase is a rigorous effort that includes radiation and reliability testing and further development of IP design libraries that will enable our design and manufacturing ecosystem partners to produce processors security engines memory devices interface Asics and other mission critical strategic solutions.
Last month, we were pleased to host Congresswoman bedroom, a column and the Dod is under Secretary of Defense for research and engineering, Miss Heidi shoe at our headquarters in Bloomington.
This discussion focused on our companys value proposition for both the Dod and commercial technologies and how we are leveraging public private partnerships in several states and multiple programs. We discussed how our success with the artist 90 program is a Prime example of our differentiated approach for strengthening the domestic semiconductor.
Dr manufacturing ecosystem.
Also last month, we announced that the <unk> is funded $12 million from the Phase One award announced last quarter for further IP ecosystem development, highlighting the importance of our partnerships with trusted semiconductor solutions and case, both are critical collaborators for the evolution of our H 90 platform.
With trusted semi driving the development of the PDK and associated IP libraries, encase, providing their qualification expertise for DSD systems, both of which we expect to accelerate practice <unk> for our age 90 platform ensuring it meets the rigorous demands of mission critical extreme environment applications.
As I detailed last quarter. We also have multiple programs that complement our aged 90, allowing us to provide solutions and to less stringent defense and commercial applications. These include the growing pipeline for robotics are readout Ics for infrared imaging and our planned expansion into low Earth orbit satellite solutions.
All of these announcements and developments demonstrate the importance of public private partnerships play towards furthering our unique semiconductor manufacturing model, both commercially and for the U S government.
Which brings me to an update on our strategies related to the chipset, including our partnership with Purdue University in the state of Indiana.
I'll start with the recent appointment of Brian Lenihan as our Vice President of Government Relations Bryan is based in Washington D. C and brings extensive public policy experience, having served in a variety of public and private roles within the government Affairs realm.
Brian is charged with further deepening sky waters relationships within all levels of government.
Last quarter, we reported on our historic partnership with Purdue and the state of Indiana to build a new 300 millimeter semiconductor fab Unproduced campus.
September I attended produce annual career day with multiple federal and state government officials to discuss the role of universities like Purdue and creating the workforce of the future, which is a crucial component of chips Act funding.
My visit included a live and virtual keynote to over 600 engineering students to discuss Skywatchers unique position in the semiconductor industry and our future plans in west Lafayette.
Last month, we returned to Purdue to host and executive Ron table with customers and suppliers discussing how we intend to leverage our unique technology as a service business model to create long term strategic partnerships in Indiana that will enable synergistic innovation.
<unk> tracked secure manufacturing strengthen domestic supply chains and foster national security.
The Purdue Fabs, serving as a cornerstone of our country's strategy to enable the resurgence of semiconductor manufacturing in the United States. We believe that we are uniquely positioned to leverage all four pillars of chips funding as we continue to build momentum not only in Indiana, but also in Minnesota in Florida.
This August at our Bloomington headquarters Senator Amy Klobuchar held a press conference highlighting the importance of key technology providers and Minnesota.
Senator club with Shar has long lead efforts to boost American economic competitiveness and self sufficiency and our visit to Bloomington was yet another proof point that we are a critical player in our nation's semiconductor resurgence and well positioned to be a prime recipient of future chips Act funding.
Which brings me to our strategy for continued growth in our heterogeneous integration operations in Florida, and the exciting developments announced since our last earnings call first in August we hosted Senator Marco Rubio at our Sky water, Florida facility to discuss the importance of IP protection and secure semiconductor manufacturing and <unk>.
United States.
Then in September we announced a $36 million grant from the department of Commerce to expand our heterogeneous integration facility in Kissimmee and partnership with Osceola County, and bridge. This was an incredible accomplishment for our Florida team and partners and provides the vast majority of funding required to expand the capabilities and.
Capacity at our Florida Fab.
As the only semiconductor company recipient of the EDA build back better Regional Challenge. This award was another example of our unique ability to leverage public private partnerships to expand domestic semiconductor production, while not directly related to the chips Act being the only semiconductor recipient of the build back better chat.
<unk> is yet another illustration that we're uniquely positioned to receive additional government awards.
Just on our demonstrated success in prominent profile building with between Senator club assurance visit to Bloomington continued momentum building and Purdue Senator Rubio visit in Kissimmee, and our strong relationship with the department of Commerce in Defense. We believe we are in excellent position to be in a central player in the rebirth of the semiconductor industry.
History and our country.
As a reminder, there are three elements of our technology roadmap underway in Florida.
Deca and our work with audio.
For <unk>, we completed phase one of the government funded and a poser technology development program, establishing a proven capability to support bridge enterprise or fabrication to strengthen national security for critical emerging technologies. This program has now moved into the phase II and phase III stages of platform.
<unk> with completion expected in early 2023.
We're continuing our preparations to offer deck as M series fan out wafer level packaging technology, working with external equipment and service suppliers to support the fabrication of our initial demonstration vehicles working with Deca. We have also completed installation of our adaptive patterning engine, which is a key enabler.
Milling capability far the Deca process technology.
As part of our build back better award, we expect to be placing orders for our first key pieces of equipment within the next few months to support the M series capability in Florida.
We continue our technology transfer efforts with audio for XI bond in DPI hybrid wafer bonding technologies. In addition, we are working with an alpha customer on our first hybrid bonding Etfs engagement demand for domestically source hybrid bonding technology solutions to enable more compact and powerful heterogeneously any.
Great and micro systems continues to be extremely high and we expect additional customer engagements in Q4 and beyond.
Now ill turn to our strategic growth initiatives, and bio health and high performance connectivity.
In August we and our partner Nano Dx announced the first commercially ready nano biosensor to yield a protein response. This is a critical step towards commercializing a revolutionary new product for onsite diagnosis of traumatic brain injuries.
Additionally, we have several other bio health customers all of which continue to receive development funding and strong customer interest. We believe the Bayou health market remains an important growth area for sky water and we look forward to discussing it in more detail in upcoming calls.
A series of innovative technology engagements are driving new product introductions and expanded platform capabilities and the connectivity space.
Our work in collaboration with Google to create an open source derivative of the 90 nanometer FD Soi technology is underway and is expected to trigger a new wave of design activity as it has with our existing Sky win 30 open source initiative, the new offering will provide a differentiated domestically source high perform.
<unk> 200 millimeter platform that we expect to generate significant commercial interest for a range of low power industrial embedded and automotive applications and.
In addition, we believe the recent announcement highlighting the Google collaboration for open source designs for researchers targeting these types of solutions will further accelerate the adoption of these platforms.
Finally, I am pleased to announce a recent milestone for one of our emerging memory solutions. We've re Ram test chips have been fully integrated with Sky waters S. $1 30 platform and are now entering the qualification phase. This is an important step towards establishing a performance differentiated next generation memory technology onshore.
For a broad range of Iot power management and advanced computing architectures.
For 2022, our considerable progress in revenue growth in the first nine months substantially de risks our 25% growth objective. This is supported by important program design wins and awards, including the recent RH 90 Phase II Award and the additional Phase One award, which are driving a sizable portion of our <unk>.
Both in the second half of this year.
Therefore, we expect we can meet or potentially exceed our long term revenue growth target of 25% in 2022, while we build a strong pipeline for continued robust growth in 2023 and beyond.
Furthermore, now that we have demonstrated significant gross margin improvement in 2022 and have turned the corner to positive EBITDA. We expect to continue executing upon the improvements necessary for sustained profitability as we achieve incremental revenue growth above Q3 levels in the current quarter.
While concerns around overall macro weakness in specific downward revisions in semiconductor industry demand forecasts are apparent sky water remains relatively decoupled from these trends last quarter I detailed how we believe our business is uniquely buffered from industry downturns and that two thirds of our revenue comes from.
R&D budgets on today's call I communicated multiple examples to demonstrate sky was prominent in the future of our country's semiconductor ecosystem, which we expect to provide the foundation for above industry growth in the years to come.
I'll now turn the call over to Steve for more information on <unk> financial and operational performance in the third quarter Steve. Thank.
Thank you Tom total revenue for the third quarter of 2022 was $52 3 million, which was up 10% from Q2 and up 49% from the third quarter of last year.
Advanced technology services or Ats revenue drove the majority of the growth and was $35 $2 million.
Up 18% from Q2 and up 57% from Q3 of last year wait.
Wafer services revenue was $17 2 million down slightly from Q2 and up 36% from Q3 of last year.
The increased revenue levels, and both Etfs and wafer services continuing to support our revenue growth targets for 2022.
The higher level of legacy wafer services business is providing a higher base from which to grow and we started several new products and designs with our 7% wafer services customers. We also continued to extend our current ETS programs, leading to increased ETS revenues in the quarter.
Importantly, these incremental and more profitable customer programs are resulting in a significant flow through to gross profit.
GAAP gross profit increased significantly in Q3 to $8 3 million or 15, 8% of revenues. This reflects a total cost of revenue declined to $44 million in Q3, which benefited from a onetime cost reversal of $800000.
This reversal was for an estimated expense we had been recording through 2022 related to insurance on our employee benefit program, which was refunded in Q3, and which positively impacted gross margin by 140 basis points on a non-GAAP basis, which adjusts for the impact of episodic tool sales equity based comp.
<unk> and <unk> to startup cost gross margin improved to 16, 8%.
Significantly higher than our expectations, even after subtracting the nonrecurring reversal benefit of 140 basis points on an ongoing basis, you should look at our Q3 non-GAAP gross margin performance as improving to 15, 4%.
Last quarter, we indicated that our gross margins would likely be limited to around 10% for the second half of this year given the inflationary cost headwinds the last stage of our hiring ramp towards full operator head count in our Minnesota Fab and your expected margin profile. During the initial phases of the recent Rad hard awards and.
In Q3, we exceeded our gross margin forecast, primarily due to continued improvements in fab efficiency. The commencement of phase two of the Rad hard program, which began earlier in the quarter than expected and execution of our cost reduction plan late Q2, we achieved a higher level overall ats wafer moves in the quarter, which allowed us to achieve better.
Fab utilization and margin performance.
We were also progressing in our efforts to stabilize fab operations, which includes completing our additions to manufacturing head count in Q3, adding more automation and increasing tool availability all of which resulted in increases in fab efficiency, which makes moving wafers through this app steadier and more predictable.
We also started to see the benefit of our cost reduction plan in the quarter as we were able to reduce our spend on outside services given our achievement of target head count in certain areas of the organization as well as a decrease in our nitrogen expenses as our upgraded nitrogen plant was fully operational during the third quarter after being shut down in the <unk>.
Quarter of 2022 for upgrades as expected gross margin also benefited from a more favorable revenue mix given that Ats revenue increased to 67% of sales.
The resulting flow through to gross margin on the incremental revenues above the mid $40 million breakeven level was well above 50%.
To illustrate how our model reflects such higher level of operating leverage and flow through last quarter I broke out our cost structure into three major components first we have our legacy wafer services business, which represents the majority of our fab utilization absorbing most of our fixed cost, but generating little margin.
Our Acs programs on the other hand are quite profitable as we move more and more etfs wafers through the fab business contributes an increasing amount of gross profit dollars.
While Ats R&D wafer volumes are relatively low compared to the overall fab output they generate far more revenue per wafer, which is resulting in significant gross margin accretion as we ramp our growing pipeline of Etfs programs.
The third component of our cost structure related to the significant amount of unabsorbed fixed costs that reflect the investments we are making for the long term growth of the company as we built out our Rad hard capabilities in Minnesota, and heterogeneous integration capabilities in Florida, both of which are expected to drive significant future revenue growth our total cost of <unk>.
Revenue in Q3 included approximately $4 $6 million of Unabsorbed cost.
Depreciation related the Rad hard program was $1 $4 million and Scott water, Florida incurred $3 2 million of cost of revenues in Q3 <unk>.
Additionally, as a reminder, our acquisition accounting related depreciation of about $4 million per quarter will phase out beginning in early 2024.
As you consider these three components of our cost structure wafer services, keeping this out for Etfs, adding significant accretion to margin as we increase the volume of R&D wafers, moving through the fab and $8 million to $9 million per quarter of tough that will either phase out or become absorbed as we grow. These programs in the next few years you can see how.
We quickly ramped gross margins toward our long term targets and we expect Q4 gross margin performance to be at a similarly strong level as Q3.
Moving now to operating expenses on a GAAP basis operating expenses of $13 $4 million were relatively consistent from Q2 on.
On a non-GAAP basis, which excludes equity based compensation and Florida startup costs operating expenses were $12 1 million compared to $11 5 million in Q2. The increase over Q2 was fairly evenly split between R&D and SG&A.
Given the significant improvement in gross margin and relatively consistent operating expenses adjusted EBITDA turned positive in Q3, as we indicated last quarter and was favorable to forecast at $3 $8 million. We expect continued strong EBITDA ahead for Q4.
Interest expense was $1 $3 million in the quarter with no tax benefit GAAP net loss was <unk> 17 per share and a non-GAAP net loss was <unk> 13 per share now.
Now I will turn to the balance sheet.
We ended the quarter with $9 $3 million in cash and cash equivalents total debt outstanding was $77 $8 million, including $47 million on our revolver and $37 1 million for our variable interest entities, excluding unamortized debt issuance costs.
Since our last call we have put into place additional funding alternatives at our disposal as we continue our plans for growth in August we filed a universal shelf registration statement for up to $250 million now that we are over a year past. The IPO. We view this filing as part of our holistic approach to capital planning and as one.
Component of various alternatives to fund strategic growth initiatives.
We see this shelf is increasing the funding flexibility available to us with our current capitalization structure and enabling us to be nimble and act quickly when strategic opportunities arise.
In September we commenced an at the market program for up to $100 million under the shelf and we sold $2 $7 million of equity through that program at an average price of $9 92 per share in Q3.
On the debt side apart from the $37 $1 million of debt for our variable interest entities. Our primary facility is a revolver that was put in place nearly two years ago. In December 2020, when we were a private company now.
Now that we are a public company with access to the capital markets have grown the assets on our balance sheet through additional tool and equipment acquisitions and increased our accounts receivable as a result of our increased revenues and returned to positive adjusted EBITDA. We are actively engaged with several lending institutions and effort to refinance and <unk>.
Expand our credit facilities, given our larger borrowing base.
As you update your Scott what our models the following us some additional color for various components of our P&L for the remainder of fiscal 2022 in early 2023.
We expect continued incremental revenue growth in Q4 will be primarily driven by the Rad hard program as well as other ETS programs contributing to our revenue momentum, albeit with the uptick expected to be more modest than what we reported in Q3.
This reflects the impact of sweep funding at the end of the government's fiscal year that resulted in strong sequential growth in Q3.
As you look at 2023, you should continue to model a similar seasonality profile with our current visibility. We expect the first quarter of 2023 will show strong year over year growth. However, on a sequential basis. We currently expect Q1 2023 will be similar to the Q4 2022.
Quarterly research and development expenses are anticipated in the two three to $2 $5 million range, excluding stock based compensation.
Quarterly SG&A expenses are expected to be approximately $10 to $10 4 million excluding stock based compensation.
We anticipate annual stock based compensation to be approximately $9 million for fiscal 2022 and continue at that run rate into 2023.
Total depreciation for the year is expected to be approximately $26 million to $28 million.
Of which $6 7 million as.
Is it related to the Rad hard program and approximately $15 million is associated with the acquisition purchase accounting.
And cost of revenues associated with our Florida operations, we expect approximately $100000 in Q4 startup costs after $700000 recorded year to date.
We expect total investments in Florida cost of revenue will continue to average approximately $2 $5 million per quarter.
We expect neutral to no benefit from our tax assets in 2022 or 2023.
With that I'll turn the call back to Claire and welcome your questions on Scott water.
Thank you Steve.
Our upcoming Investor activities include the Craig Hallum Alpha Select conference next week.
Eric City Summit on December 13th.
And the Needham growth conference in January .
Please visit the Investor Relations section of our website for other upcoming presentations.
Operator, please open the line for questions.
Thank you.
And at this time I would like to remind everyone in order to ask a question.
Alright, then the number one on your telephone keypad.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Rajiv Gill with Needham <unk> Company. Your line is open.
Yes, Thank you and congratulations on great results and positive momentum across all the metrics that's great to see.
So Steve just a question on the on the cost structure breakout and that's really helpful.
I understand.
So my first question is really on the Unabsorbed fixed cost for us over the long term investments since you outlined whether it's from Minnesota for Florida, and the Rad hard.
Facility.
What timeframe do you think that those fixed costs will be offset EBIT by the current volume and revenue that you see now and then kind of the new revenue that you're anticipating from the Florida facilities.
Im going to be basically absorbed in sometime in the first half of 2023 Im just curious.
How about those fixed cost.
Ultimately, we will get absorbed and you can.
Really see even even more leverage in the gross profit gross margin model.
Yes sounds good and thanks for the question.
Adjusted in two ways out to talk about.
Amount related to the RH 90 program and I'll have Tom talk a little bit more about how that will be absorbed as the sky water, Florida offer integrations go and heterogeneous integration. So the way that we look at it we look at the depreciation that we're incurring right now relate to the RH 90 program.
That is not being absorbed right now while there is some development work. That's currently taking place we separate that from the manufacturing cost we put the depreciation is a manufacturing cost.
That being absorbed starting in 2025, as we talk about getting our RH 90 programs into production at that point in time. That's when you can expect to see and we believe that those costs will start to be absorbed when it goes to predict <unk> manufacturing in 2025 on the RH 90, I'll, let Tom talk about Scott what are Florida and heterogeneous integration.
Yes, Hi Raj.
Florida team continues to execute well on multiple fronts zile on three of them.
Really creating enabling technology around inner poseurs fan out.
And.
Hybrid bonding all of those are still very much in an ats mode.
The team is also preparing to go into production.
As we've talked one of our bio health customers continues to move.
Towards their production ramp, which we believe will happen sometime over the next 12 to 18 months that of course will be a driver of some of that absorption.
Other is as the fab begins to exercise more of the Ats engine Youll see some of that cost be absorbed just because there'll be more activity going on which of course generates more revenue as we as we always talk.
Use the currency.
Activities to define how our business is running and we're continuing to see increased activities in the Florida operation, which again will help us absorb some of the fixed costs as we prepared to go into more volume production, primarily on the 22004 timeframe.
I appreciate that and my follow up.
Thanks for the details on the chipset.
Wondering.
How we should think about capex.
In relationship to the kits that you are getting grants to expand the Florida facility I think you mentioned the $36 million grant.
Youre getting funding I believe from the Minnesota Fab to help expand and then obviously you have the longer term.
Build out with Indiana.
So.
You have funding coming from the government to help expand these facilities, which ultimately are going to generate volume and revenue for you.
Which the Capex.
Is being helped by.
By the U S government.
Just curious how long should we be thinking about the chipset relative to kind of your internal kind of capex projects. Thank you.
Yes, so first on the Florida build back better regional challenge that is not at all tied to the chips Act. So that has been awarded that is in flight.
That's $36 million of government investment, we also complement that with $9 million of our AUM investment.
So that's a cost share model, we expect that to materialize over the next 24 to 30 months, depending upon again.
<unk> tools arrive when projects get initiated as far as the Minnesota facility that would be the one that would go after initial chips funding. The most aggressively because it is an existing facility, we would look at adding capacity.
All of that has to be.
B define and has to be awarded we don't expect any of the awards to start until sometime mid next year.
Department of Commerce is same February is when some metals will be due so you can look at Florida, taking immediate advantage of the build back better.
Grant, but thats independent of chips, and then Minnesota and then even further out with Purdue is all going to be gated on when the chips proposals are being submitted being approved.
Begin to move into execution execution.
As I've also said, there's four elements to chips. There is the building of Fabs, which is $39 billion Theres 2 billion tied to Commons. The Commons program has been launched by the Department of Defense. We are actively involved with that this is to create innovation centers around the fab.
Lab to Fab concept and then there's 11 billion far.
Indy and innovation. This is the national semiconductor Technology Center.
<unk>, which $5 billion is tied to.
Advanced packaging and heterogeneous integration. So I believe we're well positioned for both of those and then the last is the investment tax credit which is 25%.
For all equipment procured starting.
In the next fiscal year, which began in October so that could be an immediate benefit for sky water as well.
Thank you.
Yes.
And we will take our next question from Krish Shankar with Cowen Your line is open.
Hi, guys, taking my questions.
<unk>, calling on behalf of Krish.
Congratulations on the strong results and also the.
Strong execution in the quarter.
First question I wanted to ask about.
Either Tom or Steve.
Into the 90 program.
Okay.
Again I understand that you guys are embarking on this $200 million program with total.
Hello, gentlemen.
Okay.
Just going back to the phase one portion.
The funding for that one.
Now is there still another quarter or two funding from that that still making its way through the P&L and also related to that too long.
As it progressed over the next two years I think you mentioned.
Until our production revenues.
That $100 million continues to be spread evenly over the next few quarters or is there a certain ramp profiles.
Yeah, So I'll start and Steve can add additional color.
The original program was $170 million total award.
For the development phase.
All of that is being consumed except for around $33 million, we announced a $27 million option, what we called the option Grant for that first award. This is tied to two programs. We've announced one is Google through 15 million. That's the open source initiative and then another $12 million for <unk>.
IP development. This is with our partners. So Google is one partner trusted semi solutions in case are the other partners and this is all around creating the design ecosystem far they are aged 90.
Platform in the case of Google, It's a derivative of that Rad hard platform and then as far as the $99 million. This was far in the second phase. So first phase was development second phases.
<unk> and qualification Theres a base program amount and then there's a series of options again much like the first award.
The.
Way to model that I'll, let Steve provide more detail, but I wouldn't say it would be something you just linearize over the next two years, that's going to have ebbs and flows we were able to execute.
It very quickly once the award was received because a lot of that work was already in.
In progress because we've been doing the development.
For multiple years now so the movement into privatization is really about getting to a frozen process of which then you go through extensive qualification and continued.
Work towards yield entitlements, so that when we begin to exit 'twenty four and go into 25, we can begin to actually start producing product on this platform and that would be going away from Etfs derived dollars to wafer services dollars, Steve anything to add on the.
Lumpiness in terms of the RH 90 funding yes.
It doesn't work that either we can just take it in evenly divided over the next eight quarters, there's going to be a component of tool purchases that come through and some of that $99 million will go to tool purchases will also be using some subcontractors just like we did in phase one of the programs. So at certain times in quarters, where we're getting two different phases.
There could be other parties that are engaged in moving faster, which could increase our revenue and cost for that quarter, but it is going to be over the course of the next bill will call two two years and a quarter all the way up into production in 2025, and a portion of that like I mentioned, we'll be using subcontractors and tool vendors with that new nine.
Funding as well.
Great.
Is that correct.
The second question is.
It's opex.
EBIT. Thanks, so much for.
The guidance for the current quarter.
I'm wondering in terms of.
Staffing levels would you say that currently.
And I guess appropriately sized given the R&D team.
Revenue opportunity to hedge.
And with the services.
It's more head count.
We'll be looking at it given loan.
The decline was that look and go into next year.
Yes, we still believe that there is opportunity for significant growth going forward in 2023, we've talked about some of the challenges that we've had but also the positive results in overcoming those challenges like we mentioned from an operator standpoint in our manufacturing facility last quarter, we were able to achieve close to our targeted head count for those <unk>.
Operators, but we also talked about some of the challenges with ongoing maintenance technicians at our facility. So we still do have open requisitions for our maintenance techs within organization I expect that to continue over the course of 2023.
Given our strong Etfs pipeline, we will be recruiting and looking to hire additional engineers into our organization.
Those are typically revenue generating engineers. So they typically have a really nice return on investment it will just get more Soviet competition for talent and how quickly we can hire those engineers over the course of 2023 and to keep growing our business and not only growing our business, but to move faster with our current programs that we have.
Yes, I would just say that the attrition has stabilized.
Below our levels pre IPO and that's really important because now as we hire people we're getting them trained.
They're wanting to stay at Sky water in.
Our ability to get to what we call employee effectiveness.
As the cycle time is getting much shorter because we've also been investing in how we do training, making them more effective in allowing people to move through that process.
At a faster pace than previously so overall, we're feeling really good about where we're at with the head count situation.
Okay. Thanks, Dan. Thank you congrats again.
Thanks.
And we will take our next question from harsh Kumar with Piper Sandler Your line is open.
Yeah, Hey, guys, let me add my congratulations as well on this increased momentum here recently.
Guys I had a quick question you guys talked about increased momentum with customers. We're seeing some of that in the numbers could you talk about non government activity here.
Our commercial customers are responding to.
So what's going on at the fab in <unk>.
Also included in the activity along with the government and then I had a follow up.
Yes, great question and good to hear your voice harsh.
The way I would put it is the government is just.
We have multiple development programs again, we've talked about over 50 active etfs engagements and a large percentage of them actually are nongovernment, we have the <unk>.
<unk> space, we've talked about the connectivity space.
Also the high performance computing space.
There is there is a lot of.
Energy around and having been in the industry as long as I have you see these ups and downs and one of the things that always happens is when you go into these contractions.
<unk> that want to get new products to market hit the accelerator and that way they're positioned for the next upswing and Thats exactly what were seeing the other is and Steve has talked about this before as each of these ats programs tend to start out at a relatively small spend rate and then they ramp.
As you get into the.
Kind of two years and beyond timeframe and Thats exactly what were seeing is multiple programs ramping in parallel.
That's why we continue to hire more engineers that allows us to.
Accelerate those programs and then as I've also talked about we've been working very hard as a company to integrate our Ats and wafer services business. So that they run seamlessly inside the fab.
And.
The level of activities that we can generate for etfs doesn't really affect our overall wafer output.
But it's significantly drives our revenue and profitability and that's really what we've been focused on is making those programs move faster.
Yeah.
Hey that was a great update thank you so much.
A follow up.
The world, assuming this chip back money coming in.
Increased geopolitical political tension as a result.
I guess <unk> in the U S. I've seen a lot of tension in its action from the government.
This along with what's going on in the commercial activity.
SaaS how comfortable are you.
But at 25% <unk> 2023, as well do you feel that with all thats going on.
In a relatively stable position from here on it.
Online coupon is putting yet.
Yes so.
We're cautiously optimistic with the business as we're running right now, but we're also cognizant of the fact that we're in a.
Inflationary environment, there's a lot of unpredictability as you just outlined.
Politically with the economy and so we're going to continue to execute the business at the pace. We've been executing we believe we have a lot of committed customers that want to continue to to grow with us that both of our historical customer infineon and some of our new volume customers as well as Ali.
Of our Ats partners and obviously, we're not going to provide specific targets at this point.
But I will say that.
We're optimistic about where we sit as a company and most importantly, our ability to really fine tune. This model that we're creating with this blended.
R&D Bayou manufacturing capability and I think it is.
Going to put us in a very nice position.
As the decade unfolds in a lot of the chips dollars begin to become realized but it's important to note that for the next couple of years, we arent expecting any chips dollars R. R. Our plan of attack is to execute the business, we have but I think when you.
If you look at chips to just de risk the long term because there is a commitment within our country now to do more.
And I think our model is uniquely positioned to take advantage of that.
Thank.
Thank you and congratulations again.
Okay.
And we will take our next question from Mark <unk> with.
Jefferies. Your line is open.
Hi, great. Thanks for taking my question Steve.
<unk> seen that maybe it maybe for you could you describe the.
Counting treatment.
That you would.
We anticipate applying.
Four.
In the event that you received grants or funding or investment tax credits.
Does this all go against Capex and then you have assets put on your balance sheet at a lower level than your depreciation is lower is that the right way to think about it or is there a different treatments for different.
Relief that you get.
Chip side. Thank you.
Yes, Hi, Mark good question.
I would say, it's pretty open ended right now really the only clarity that we would have would be anything that we would do what I'll call somewhat separate from shifts on the 25% tax credit that one's a little bit more tangible on how that goes from there, though it depends on how the monies flow and what other partnerships we have on really.
Financing whatever growth would come through chips, whether we're talking about doing something to our current location in Minnesota, Florida or something different with a larger scale like we have plan for Indiana. So I would say at this point in time, it's really hard to say, specifically, how that accounting would flow and the timing of when that would occur given that we're still trying to.
And how the money flows what partners, we would use and what the construct of those contracts with truly look like at this point.
Fair enough. Okay. Thank you that's all I had.
Thanks Mark.
Sure.
And there are no further questions at this time, ladies and gentlemen. This concludes today's conference call and we thank you for your participation you may now disconnect.
Okay.
Okay.
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