Q2 2023 SkyWater Technology Inc Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Sky water technologies second quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. Please be advised that this call is being recorded.
After the Speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time press star one on your telephone keypad.
At this time I'll turn things over to MS. Claire Mcadams Investor Relations of Sky water Ms. Mcadams. Please go ahead.
Okay.
Yeah.
Thank you operator, good afternoon, and welcome to <unk> second quarter fiscal 2023 conference call with me on the call. Today first time Warner are Thomas Palmer, President and Chief Executive Officer, and Steve Madden Girl Chief Financial Officer.
I'd like to remind you that our call is being webcast live on <unk> Investor Relations website at IR Best High water technology Dot com.
Webcast will be available for replay shortly after the call concludes.
On our IR website, we have also posted an investor slide presentation to accompany today's call.
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 on our fiscal 2022 10-K filed on March 15th of this year.
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 in our earnings release as well as in our Q2 earnings presentation.
Both of which are available on our Investor Relations website.
With that I'll turn the call over to Tom.
Thank you Claire and good afternoon to everyone on the call.
We were pleased to report strong second quarter financial results as we set another record for quarterly revenues of $69 8 million.
Q2 revenues exceeded our expectations going into the quarter and market unprecedented four straight quarter of sequential quarterly growth.
Revenues were 6% higher than the previous record set in Q1 and grew 47% from Q2 of last year.
The strong revenue performance in Q2 exceeded our forecasts chiefly due to the restructuring of an existing contract with one of our commercial Ats customers. We concluded certain aspects of our development work with this customer and entered into new terms going forward. This resulted in a pool in a $3 6 million.
Revenue that previously was expected to be recognized over time.
Even absent this pull in Q2 revenues were at the upper end of our forecast due to continued strong momentum on multiple Etfs programs, where we continue to demonstrate our ability to execute on our rapidly growing demand from our customers.
Q2 marked our fourth straight quarter of strong gross margin performance and positive adjusted EBITDA generation, our trailing 12 month revenue of $253 million demonstrates growth of 50% over the prior 12 month period, we are achieving gross margin flow through well above 50% on these incremental revenues.
And are making solid progress towards our target financial model.
We have generated $29 million of adjusted EBITDA over the last four quarters equal to 11% of total revenues are.
Our strong performance year to date also provides us with greater clarity for the whole year and increased confidence that our long term annual growth objective with 25% is achievable in 2023, despite the overall macro concerns and softening and worldwide semiconductor demand.
Underlying sky, what a strong growth profile this year as our unique positioning within the semiconductor ecosystem. Our company is growing rapidly through this challenging macro environment due to our differentiated business model and diversified customer and end market portfolio. This includes a strong A&D component as well as a number of <unk>.
First of all R&D programs that continue to drive forward with the funding in place to support critical innovation, particularly for new technology advancements within the Bayou health and advanced computing markets.
Reflecting on the significant improvements in Sky was operational execution and financial performance over the past four quarters, we are demonstrating important progress towards achieving the strong revenue growth and operational leverage objectives communicated since our IPO a little over two years ago.
Now a little more than halfway through this year. It is evident that our Ats revenue growth is proving itself to be relatively decoupled from the macro weakness affecting the overall semiconductor industry.
A vital component of our strong revenue growth trajectory as the U S. Government's continued commitment to sky water with this strategic Rad hard investments.
In Q2, we made additional progress on the privatization and qualification of Sky waters 90 nanometer Rad hard platform to prepare for the planned production ramp in 2025.
The increased momentum we are achieving on this and other strategic government initiatives helped drive another record revenue quarter in Q2.
Last quarter, we announced an increased sense of urgency and desire to accelerate the delivery of key development milestones not only for Rad hard but on multiple defense programs, our A&D customers increase the scope of multiple key programs in Q1 and with these trends continued through the second quarter, we again have greater clarity.
And increased confidence in our overall revenue growth objectives. Furthermore, we believe our successful partnership with the Dod and positions us to be a major beneficiary of impending federal government funding akin to the 2022 economic development administration build back better award to accelerate the growth of specialized <unk>.
Arctic cluster at New York City, Florida.
In the commercial space customer R&D investments continue through this period of overall industry tightening. We believe this is an opportunity for us to partner with the customers that are best positioned to succeed in the long run, allowing us to prioritize these specific programs accordingly.
Two commercial end markets, where we are seeing particularly strong investment and urgency or the Bayou health and advanced computing markets. We have multiple ats programs underway addressing multiple applications and device technologies in each of these areas and bio health, we have several customers that could each contribute millions of dollars of revenue and <unk>.
<unk> thousand 23.
These programs are pursuing emerging and large market opportunities in the areas of rapid diagnostics genetic sequencing and health wearable devices. These exciting fields are demonstrating a strong demand for innovation services, where there is a growing need for micro fabrication to enable technologies that have a strong value proposition for enhancing healthcare.
Services and outcomes, while small today these applications have a path towards high volume production as early as next year.
Skywatchers leadership supported a superconducting nympho tonics technology flows in a 200 millimeter production fab remains a strong value proposition for the nascent and accelerating quantum computing industry.
<unk> existing programs in these categories continued to expand and additional programs are expected to kick off in the next two quarters. We are seeing increased interest in funding for advanced computing technologies, such as those incorporating superconducting films Silicon Photonics and quantum bids are cubits, which are the building blocks for the future.
<unk> of artificial intelligence or AI enabled systems. Some of these advanced computing programs could exceed multi millions of dollars in revenue for us this year.
In response to those who express concerned over the early stage and venture back profile that reflects the majority of our commercial Ats customers. It's important to remind everyone that this is the very nature of <unk> business model, our task business model, our technology as a service continues to attract innovators with long tail applications.
In large Tam opportunities, we are a technology foundry and naughty conventional especially foundry. This means our business is about developing next generation technologies that are high value and relatively low value we.
We are not chasing the high volume low mix foundry business from large fabless chip companies, that's the conventional foundry model not sky waters.
As these commercial Ats programs continue to gain momentum and is the strongest and best position customers redoubled their efforts to accelerate the time to market for their solutions, we believe the uniqueness and strength of our business model will play out through our ability to achieve revenue growth outpacing the overall foundry market and strong operational leverage.
Chiefly driven by gross margin flow through exceeding 50% we.
We believe that our differentiated approach, which sets us up to potentially outgrow the industry and deliver a near doubling of gross margins over the next two to three years truly set skywalker part as an investable option within the foundry space with particularly high earnings growth potential.
Of course expectations of strong demand and expanding opportunities for growth require ever increasing efficiency gains, which were driving aggressively through our automation and modernization efforts. This includes.
The installation of a variety of new software metrology capabilities that we're bringing online to accelerate improvements in our productivity and yields of our two fabs.
We are listening to support from third party resources to help drive efficiency gains, which is a key investment we are making today with the expectation of significant long term gains in the future Sky water has engaged outside consultants to help craft or operational execution to further optimize our test business model by selectively applying industry.
Practices, we expect to build the operational foundation that will drive future revenue growth and margin expansion. The result of these and other operational excellence efforts gives us strong confidence in our ability to extract more margin from the business as we start to turn the corner to profitability.
As Steve will also detail in his remarks, our adjusted EBITDA generation and cash flow profile means that we are generating positive free cash flow above the mid $60 million revenue level, excluding the investments in working capital and thus our growth objectives do not require any significant new influx of capital.
We intend to further strengthen the balance sheet through strong operational execution.
Looking forward to Sky water continues to remain confident in our ability as a secured chips funding to expand the capabilities at our existing sites in Minnesota in Florida, while transforming the industry with our unique partnership with Purdue and the state of Indiana.
We believe the momentum we built in 2023, including the expected efficiency gains. We are now institutionalizing in our Fabs will position us for another strong year in 2024, as we continue to grow revenue and expand our gross margin profile, we anticipate that several ats programs will transition to production in 2024 and.
We expect our active initiatives focusing on enhancing productivity and ongoing improvements in pricing will also drive the wafer services business next year.
Furthermore, we will continue to emphasize our differentiated capabilities in the market and expect to secure new and improved long term contracts to further strengthen our wafer services business.
We anticipate gross margin acceleration to continue as a result of higher revenue volumes driving greater absorption of our fixed cost positioning sky water in the high <unk> to low <unk> gross margin level in 2024, and we expect to be nearing our target gross margin objective of 40% by 2025.
In summary, we believe the distinction of our business model and a strong customer pipeline position sky water for several years of above industry growth and strong operating leverage. This belief is independent of the macro weakness currently facing the semiconductor industry, we remain confident that the strategic investments being made.
Towards the onshoring of critical semiconductor device manufacturing in part due to the chipsets will ignite accelerated growth in our company as we aggressively drive towards our long term revenue objective to be a $1 billion peer play semiconductor technology foundry within a decade.
To be clear, we do not require chips funding to achieve our long term model, but we do intend to aggressively pursue it since that we believe it will be an accelerant to our growth as the decade unfolds I will now turn the call over to Steve.
Thank you Tom revenues for the second quarter of 2023 achieved another record for us exceeding our expectations and totaled $69 8 million, which.
Which was 6% higher than Q1 and up 47% in the second quarter of last year.
With the upside primarily driven by $3 $6 million pull in of revenue due to the restructuring of our commercial Ats contract. We also saw stronger demand from our strategic aerospace and defense Ats programs. These resulted in record Q2, Ats revenue of $53 million up 10% from Q1 and up sell.
<unk>, 8% compared to Q2 last year.
Wafer services revenue was $16 8 million down, 6% sequentially and 4% year over year.
non-GAAP gross margin for the quarter was 24, 7%.
Given that the $3 $6 million revenue Poland had no associated cost. This revenue recognition event benefited gross margin by approximately 400 basis points. Therefore, our gross margin performance was consistent with our model of strong flow through exceeding 50% as well as our expectations shared last quarter that.
We will expect gross margins in the high teens to low twenties as we progress through 2023.
As a reminder, we do expect a component of tool in pass through revenue to occur in the second half of the year, which will have a lower contribution margin compared to our core Ats revenues received for services.
Moving now to operating expenses on a GAAP basis operating expenses were $22 million. However, these included several costs that are either noncash nonrecurring are not reflective of our underlying cost structure. Our non-GAAP operating expenses of $18 4 million exclude $1 7 million.
Equity based compensation and a small portion of our management transition expense as we implemented changes to our technology and manufacturing leadership during the quarter. However.
However included in our non-GAAP operating expenses are over $5 million of additional expenses incurred in Q2, which are not reflective of our underlying cost structure.
Similar to Q1, the recent accounting change related to accruing bad debt on a perspective basis added an additional one $4 million of expense in the quarter and when you would not expect this to repeat going forward.
Other significant factor that drove operating expenses above forecast was $3 8 billion of.
A third party consulting fees in support of longer term growth initiatives.
As Tom mentioned earlier, we are continuing our transformation program and making increased investments related to long term improvements in automation and operational efficiency to enable quicker execution on our Ats programs and also expand our fab throughput and capacity.
In Q2, these management consulting fees were $2 5 billion.
And we expect to incur additional fees at a similar level in Q3. Ultimately we believe these investments will have a significant impact on our revenue growth and we may begin to see the impact as early as Q4.
We expect the funding of this transformation program will be fully accretive to 2020 for earnings.
We have multiple high growth ETS programs in the pipeline and our entire transformation will optimize our ability to execute on Acs at scale in pace, while also positioning the wafer services business for greater revenue volumes.
Additionally, we incurred a $1 $3 million of project based consulting fees related to the specialists, we have engaged to support the chips Act application process while.
While we do not expect these fees to continue in the third quarter, there could be additional payments made in the future leading to securing chips Act funding.
So just to summarize our operating expense profile for the second quarter. We believe the underlying expense structure of the business was reflected by the net amount of $13 2 million of operating expenses. Excluding these additional items adjusted.
Adjusted EBITDA for the quarter was $6 5 million or nine 3% of revenues the benefits of the $3 $6 million revenue pool and was more than offset by the additional $5 2 million of operating expenses, which resulted in a net negative impact on EBITDA margin of approximately 200 basis points.
Interest expense was $3 million in the quarter and with nominal tax the GAAP net loss was <unk> 19 per share and the non-GAAP net loss was <unk> 14 per share as.
As we begin to approach non-GAAP breakeven last quarter, we added another metric to our presentation related to free cash flow, we'd like to emphasize to those listening to our call today that our operations are generating cash for the P&L above the mid $60 million revenue level and any declines in cash quarter to quarter are typically the result of either.
Changes in working capital or Paydowns on our revolving credit line.
The simplest way to view the ongoing cash flow generation of the business as it take adjusted EBITDA, and then subtract interest expense and Capex in Q2, our adjusted EBITDA less interest expense and Capex grew to $3 2 million compared to $2 6 million in Q1 in both cases this calculation reflects the positive.
Free cash flow being generated by the business prior to changes in working capital and debt repayments, which brings us to the balance sheet. We ended the quarter with $16 2 million in cash and cash equivalents up about $2 3 million from Q1.
The higher cash balance compared to Q1 reflects just over $3 million of positive cash flow generated by the P&L $9 million in proceeds from our ongoing ATM equity program plus a net additional draw on our revolver of $1 5 million.
Which were mostly offset by a small amount of capex and a net investment in working capital of approximately $11 million as a result of increases in accounts receivable.
Total debt outstanding increased slightly to $91 million.
That included $54 million on our revolver $34 million on our variable interest entity and $3 million for tool financing.
As you update your Sky water models. The following some additional color for various components of our P&L for the forthcoming quarters.
We expect Q3 revenues to be similar to Q2, after excluding the $3 $6 million, Poland or roughly that mid to upper $60 million level.
Within this outlook, we expect the tool revenue components to increase to approximately 5% to 10% of revenues.
As to revenues carry a little to no margin, we expect gross margins for the third quarter to be in the high teens to 20% range, which is about 100 basis point impact compared to the normalized Q2 level.
We expect sequential revenue growth in the tool component continuing as we look ahead to Q4.
Research and development expenses are anticipated to remain in the two two to $2 $5 million range, excluding stock based compensation.
Ongoing quarterly SG&A expenses are expected to remain in the range of $11 million to $12 million, excluding stock based compensation that being said for Q3, specifically, we expect to incur a third party consulting fees in the range of $2 5 million to $4 million.
We anticipate stock based compensation to range from approximately one nine to $2 $4 million per quarter.
We expect our quarterly depreciation and amortization expense to continue to range between seven to seven $5 million through the first quarter of 2024 of this amount approximately $1 4 million as it related to the <unk> program.
After Q1 of 2020 for approximately $3 $7 million of quarterly depreciation from purchase accounting will phase out of our cost of revenue, reducing our total depreciation expense by about half.
Total cost of revenue investments in Florida were $3 2 million in Q2, and we expect that these will range between three two to $3 6 million per quarter through the remainder of 2023.
We continue to expect a neutral to no benefit from our tax assets in 2023.
With that I will turn the call back declared.
Thank you Steve.
That's kind of Investor activities include the Jefferies semiconductor summit in Chicago on August 31.
Please visit the Investor Relations section of our website for other upcoming programs.
As always please feel free to reach out to me directly with turnarounds a call or meeting.
Operator, please open the lines for questions.
Thank you. Thank you have a question. Please press star one on your telephone keypad.
If you wish to withdraw your question Press Star one.
Please for your first question.
Your first question comes from the line of Chris <unk> with Keybanc. Your line is open.
Hi, Thanks, so much for taking my questions. This is Steven calling in behalf of Krish.
Tom maybe first question for you.
In terms of the Ats customer.
The pipeline was wondering about how the cross selling opportunities.
Goodyear, Florida advanced packaging operations are currently.
Are there any metrics that you may have.
Existing penetration rates.
The future expectations for <unk>.
In cross selling this.
Cognizant services current ETF customers that'd be helpful.
How you doing Steve.
Great question, and I think various students and recognizing why exactly we had the Florida facility. There are a lot of customers that are very interested in consolidating their supply chains around sky water of course, having wafer fabrication and advanced packaging capabilities within the same company.
Is allowing us to pursue that not only with existing customers, but as we secure future engagements. So I would say today, we have multiple.
Of these kind of cross site interactions underway and you should expect to see many more to come as this year and next year unfolds.
There are a lot of customers are coming to us with that intent.
Alright Thats helpful.
Follow up question was on <unk>.
Two year compound semi.
Manufacturing processes.
Given some of the recent headlines regarding.
China.
Kind of shifting policy towards gallium lawsuit germanium exports in the future I was wondering if you could talk about how your gallium and germanium our supply is coming along.
What if any impact on Nike on your business from China's cell topology changes.
Yes.
Hey, good evening, Steve Mento here.
We've done an analysis from our procurement on that obviously that was a big concern that was coming out a month or so ago. When it was announced for a lot of the industry now based upon what we're currently doing we think we have a handle on our supply coming through our continuing to watch that closely and just like rewarded with all of our camels chemicals and materials coming from various components in the <unk>.
World I would not see a significant impact on Scott what are the near term based upon that.
Yes, and I'll, just add that our germanium and gallium levels are probably lower than other companies. So not a big impact on us at this time.
Okay. Thanks, Tom Thanks, Steven and nice job on the quarter.
Thank you.
Your next question comes from the line of Nick Doyle with Needham Your line is open.
Hey, guys, just piggybacking a little bit off of Stephen's question, just curious about the advanced packaging.
The enter Poser program I think in the past you've talked about three new technologies stemming from that could you just expand on what those are and any update in the in the quarter.
Yes. Good question, Nick Thanks for joining the call.
The way we're positioning in Florida is really with three different AP platforms. One is enter poser.
That's the technology that came to the facility be imac. We also have a wafer bonding technology hybrid wafer bonding coming from Adia and then we have a third wafer fan out technology coming from Deca.
All of those are being implemented.
I would say in a poser is the furthest along the hybrid bonding technology.
We're actively engaged with a couple of customers on that and so that is moving on at a fairly good pace and then we've been putting enabling capability in the.
Florida Fab far our fan out.
Technology, and we expect to be talking more about that as the year unfolds. This clearly is targeted towards the high performance compute market would allow us to have a fan out technology that does not currently exist in the U S. So we're very excited about getting the deca platform up and running and not only the one.
That exists today, let's call. It Gen. One, but also moving it to gen two and beyond.
All here based in the U S.
Great. Thanks for that and then can you really you called out advanced computing in the opening remarks I was just curious if anything.
And he has a lot of headlines about this al Qaeda 99 anything related to super conducting driving any sort of interest from customers. Thanks.
So clearly it was a.
And a very exciting opportunity will come out with <unk> 99.
But having been in this industry for many years I think it's going to take a lot of work to turn that initial discovery into something that will be hitting the market. So to speak I think if you look at other superconducting photonics platforms geared towards AI and quantum computing.
<unk> momentum is being made every day, so we're going to pay attention of course to all elements.
There are there are many different avenues to reaching a quantum computing capability and sky what it feels like we're uniquely positioned to help our customers enable that.
AI really is about quantum that's where you begin to really see the benefits and we're very excited to be right at the heart of that.
Thank you.
Once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
Your next question comes from the line of Natalia Winkler with Jefferies. Your line is open.
Hi, Thank you so much for taking my question.
Wanted to follow up on.
The consulting fees.
Would you mind kind of explaining a little bit more on dose and how should we think about them going forward as well in EMEA.
Maybe beyond this year.
Yes, Sir good evening.
Mentioned in the call earlier, we had $2 $5 billion of fees that came through this quarter, which Tom had been talking about over the course of the year looking at our business model trying to ramp our model and the mix that we have with high volume as well as the ETF, we've been focusing on bringing a more protected mix and model to the market so too.
$2 5 million of fees or transformation fees were incurred during this quarter.
I also mentioned I would expect that we would incur similar fees in the third quarter as we keep progressing with this transformation for the company leading into 2024 to taking full advantage of the opportunities that are before us.
Another component separate from that where we incurred $1 $3 million of fees and those fees were going towards what I'll I'll generalize as chips application processing.
We don't expect that $1 $3 million to occur again in the third quarter. However, the chips application process is a new process for all of US as we get more information coming through with the various applications that are are potentially out there as well as follow up questions coming through.
May incur additional fees in the future, but we do not expect that to be recurring in the third quarter of 2003.
This is Kevin let me add just one comment I think.
Again, having spent a lot of time in industry. If you look at Steve's comment were looking at about two two to two five and Capex.
If you add that another two and a half for this business transformation that is underway, that's $5 million at 7% of our overall quarterly revenue and when you look at other semiconductor companies to have that level of investment, especially given our strong etfs component.
I think we are.
Very nice position to not only transform the business, but continue to exploit this model. This capex light model by leveraging.
The investments we are getting from our Etfs customers, so relatively speaking spending $5 million to create the capability.
That we have to really differentiate in the industry.
Continue to outgrow the industry and really capture the irreversible momentum we believe we have at Sky water.
<unk> is something that.
It's got water, we're very proud of.
Thank you that's very helpful. Tom. Thank you and then just as a follow up I wanted to ask one more question on the advanced computing, if he could possibly help us understand.
What would be like what would be the competition is from if your customers are not using your if somebody's not using sky what are like what are the options.
So for those customers would that be developed in house or would the larger foundries also be pursuing this market given kind of the lucrative nature of the opportunities relate to AI.
Yes, I mean I think.
Youre going to see there is certainly a lot of internal activity going on in the quantum space.
I'll call it a lab level, where sky water really comes in as the lab to fab concept and that's what we're doing the competition.
It's.
There are companies out there doing it I'm not going to rattle off the smaller ones, but there are certainly companies out there doing different types of quantum solutions.
There's various forms that are coming together what makes us unique is that we have a a very.
Solid Cmos 90, and 130 nanometer platform that we can then build these quantum and photonic solutions on top of that gives us a real value proposition because we're not just again doing lab level development. We're turning these into viable commercial platforms and if you look at D. Wave is an example.
Again, <unk> been working with us for many years.
These platforms are being put in systems in there they are selling that solution as quantum as a service. So there's there's many different types of avenues that people are going to pursue we believe we have a differentiated capability and multiple years of experience running these types of platforms and I think thats what.
<unk> Sky what are clearly a leader.
Certainly center of excellence for quantum base solutions in the photonics and the superconducting space.
Thank you that's very helpful.
Yeah.
Your next question comes from the line of Richard Shannon with Craig Hallum. Your line is open.
Hi, Tom Thanks for taking my questions as well my first one is on the topic of efficiency and I guess, possibly.
Transformation as well this quarter in the past couple of you've talked about focus on efficiency gains. We've certainly seen some some great progress here in both sales and I think gross margins as well.
And then you've talked today about these consulting fees are helping a business transformation what to what degree are these business transformation goals you have are related to efficiency.
And then also if you can characterize how high.
And in terms of.
Baseball analogy, how far down the road here or we are getting the benefits of these efficiency gains are hoping for.
Yes, so I would say clearly the efficiencies and we've been talking about them for.
Multiple quarters now that we are bringing in.
Natalie.
Modernized capabilities in terms of automation software, new metrology capabilities, but also just the way we run our business I've talked before about the relative percent of Ats activities compared to the overall is small and it's an opportunity for us to extract more value not only out of the business.
But more value for our customers. If we can increase the percent of Ats that we do.
As a whole in terms of the number of activities.
Run inside of our Fab. We're also of course preparing to have the customers that are in Etfs today moved to volume manufacturing as this year and next year unfolds and so we want to be able to serve all their needs. We're running multiple programs in parallel being able to not only capture the efficiencies.
With how we run the task model, but institutionalizing a lot of the business processes and the associated dynamics in terms of how we just manage.
This complicated manufacturing model on a day by day basis is what this is all about it goes back to what I was speaking in Natal you about we have something unique here. So we are investing in think of it is that steroids were putting into the business to accelerate our growth, but long term, we don't expect to always.
Be on steroids, we are using this as an injection into.
Into the business to capture again, the irreversible momentum that I believe we have certainly as you think about injecting chips funding other opportunities we want to be able to capture all of that and the business demand is very strong.
We want to certainly position ourselves for the next up cycle and semi which we all know what's coming and all of this is really about just getting there as fast as possible. So again think of it as an accelerant to the business.
Okay fair enough. Thanks for that all that detail there Tom.
My second question is just looking at the wafer services business here specifically.
Seen it kind of flattish over the last few quarters, if I'm looking at my numbers correctly here and thinking your biggest customer maybe mainland perhaps seeing some impact of the traditional assembly after cycle and maybe if you can characterize what youre seeing biker services. The rest of the year not only the business that exist today, but any contributions you may see from Hs customers that that could transition.
Wafer surface look like sure.
Yes, so again very student Richard we've been running somewhat flat and wafer services, we have been prioritizing Ats, obviously within Ats, we have our Dod programs, which I alluded to there's a lot of desire to move quickly as possible on those and of course, we are.
Dealing in a macro environment, where smbs are soft and so we believe we've been able to maintain a consistent level of wafer services output plus or minus $1 million I'll call. It on a quarter by quarter basis.
But what we're doing in the meantime is accelerating the growth in Etfs, and so and it really goes back to your prior question our ability to link all that together so that when the demand does come across the board.
With the recovery that we can take advantage of that and grow and scale. The volume portion of the business, but do it in a way where it's complementary to our Ats business, which isn't slowing down at all the demand.
If our Ats services has never been higher and so the ability to do both of those is exactly why we're.
We're investing with some outside help to ensure that we can take advantage of.
The capabilities and the opportunities that we have before us.
Okay excellent.
It's a great answer and I think Thats all from me congrats on the great start configured.
Thank you Richard.
Okay.
There are no further questions at this time I will turn the call to you Thomas Sandy Sonderman sorry.
Sorry.
Thank you operator.
I want to close todays call by conveying the strong confidence all of us at Sky water have and our ability to execute successfully towards our long term growth and profitability objectives. Our amazing employees have now delivered consistent execution for several quarters.
We intend to continue to build your confidence as well and look forward to talking with you again on our Q3 call in early November .
That I'll conclude our Q2 2023 earnings call.
This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Okay.
Yeah.
This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Yeah.