Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWater Technology Second Quarter 2025 Financial Results. [Operator Instructions] I would now like to turn the call over to Claire McAdams, Investor Relations for SkyWater. You may begin.

Thank you, operator. Good afternoon, and welcome to SkyWater's Second Quarter 2025 Conference Call. With me on the call today from SkyWater are Thomas Sonderman, Chief Executive Officer; and Steve Manko, Chief Financial Officer. I'd like to remind you that our call is being webcast live on SkyWater's Investor Relations website at ir.skywatertechnology.com. The webcast will be available for replay shortly after the call concludes. On the Events page of our IR website, we have posted a slide presentation that accompanies today's call. Also posted is our financial supplement, which summarizes our quarterly and annual financial results for the last 3 years, including all non-GAAP adjustments and comparisons to our GAAP results as well as the impact of tool sales on our gross margins. Another important comment about our financial supplement this quarter is that we have revised it to reflect the expected revenue and gross margin disclosures we plan to report starting in Q3 to clarify the financial contributions of Fab 25. which will serve as a helpful template as you update your models in anticipation of our Q3 report. 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 2024 Form 10-K. 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, our financial supplement and in our Q2 earnings presentation, all 3 of which are posted on our IR website. Also on our IR website Events page, you'll see that we plan to participate in 4 investor conferences in Q3: the Virtual Needham Semis Conference, Jefferies in Chicago, B. Riley TMT in New York and Piper Sandler in Nashville. Please feel free to contact me directly for any investor follow-up request. And with that, I'll turn the call over to Tom.

Thank you, Claire, and good afternoon to everyone on the call. Revenues for the second quarter came in at the upper end of our outlook provided in May at just over $59 million. With close management of costs and expenses, we delivered upside to our gross margin, adjusted EBITDA and non-GAAP EPS expectations for the quarter. We successfully completed SkyWater's first transformative acquisition, acquiring Infineon's Fab 25 in Austin, Texas. The transaction was finalized with an upfront payment of $93 million, fully funded through our new debt facility with no future payments required. This acquisition is bolstered by a multiyear supply agreement with Infineon projected to exceed $1 billion and is further strengthened by the IP license agreement announced last week. With the acquisition closing on the first day of fiscal Q3, our report today reflects entirely SkyWater's stand-alone performance without any contribution from Fab 25. This also means that our outlook for the third quarter reflects a full quarter of contribution from Texas. Fab 25 brings SkyWater a number of significant benefits, both strategic and financial. Strategically, the acquisition of Fab 25 firmly establishes SkyWater as the largest exclusively U.S.-based pure-play foundry service provider, offering dual-source support for foundational node 200-millimeter foundry capacity. Incorporating Fab 25 within SkyWater increases our 200-millimeter foundry business capacity by 4x here in the U.S., which we believe provides a long and meaningful growth path into the future. We believe FA25 occupies a strategic sweet spot in capabilities delivering the output scale, quality standards, including automotive and process flexibility needed to meet the evolving semiconductor needs required for a secure U.S.-based supply chain. We expect the acquisition to further enhance our ability to extend our differentiated technology as-a-service model to a broader range of customers by diversifying our revenue base and advancing our mission…

Thank you, Tom. Second quarter revenue of $59.1 million came in at the upper end of our guidance range, primarily due to stronger ATS revenues versus forecast. Our Q2 gross margin exceeded the top of expectations at 19.5%, and the impact of tools in the quarter was 10 basis points. Adjusted EBITDA of $2.3 million was also stronger than forecast, as a result of favorable gross margin performance as well as lower operating expenses. Q2 OpEx was flat to Q1 at $13.5 million. And with continued close management of spending levels, we currently expect our operating expenses for the full year will increase approximately 5% organically compared to the 10% to 15% increase previously forecast for 2025. Our Q2 EPS was favorable to guidance at a loss of $0.11 per share and included a tax expense for the quarter that was higher than forecast at over $700,000. Turning to the balance sheet. We ended the quarter with $49.4 million in cash, roughly flat to Q1, and total debt outstanding at quarter end was $65.7 million. The net increase in borrowings during the quarter was $5.5 million, which funded the slightly negative cash flow from operations as well as $3.6 million in CapEx. On June 30th, we completed the acquisition of Fab 25 and the associated adjustments to our cash, debt and PPE balances are provided in a supplemental table in today's earnings release, as well as our Q2 earnings presentation. Concurrent with the announcement of the closing of the acquisition, we announced our new $350 million revolving credit facility. The total debt outstanding as of June 30th was $137 million, of which $113 million was used to fund the purchase price plus working capital assumed as well as all transaction and closing costs. $24 million replaced the existing balance of…

Your first question comes from the line of Quinn Bolton with Needham & Company.

This is actually Neil Young on for Quinn Bolton. Regarding margins for Fab 25, I was wondering, are there any future milestones that can unlock future margin expansion? And if so, what are the timing regarding those?

Yes. Let me start, and Steve can add a little color. Obviously, there's multiple activities underway to expand margins. One, of course, would be bringing in ATS engineering revenue. That's something we'll start immediately. And then, of course, as we bring in new products, new platforms, we'll be charging market prices for those, and that will also give us good levers to further expand margin, while we're executing the take-or-pay. Steve, anything to add?

No, I think we started talking about Fab 25 acquisition back in February. We've been pretty clear since that time that the near-term gross margin will be compressed compared to historic levels for the company. While the GM basis points will be compressed in the near term, it is important to remember that we found a very economical way to acquire assets in a down market. We doubled the revenue. We increased the gross profit dollars. So if you remember, going back to Q1 or Q2 of 2024, we were around the $70 million revenue line, excluding tools, we were on a path to non-GAAP gross margin of around 30%. So I believe we have a path to exceed gross margin for other foundries looking at our total business put together, but the near-term compression on gross margin will exist with Fab25 acquisition.

Yes. And just one other component to keep in mind is we are expecting to drive synergies through cost optimization now that we have multiple fabs, and we'll be looking at how across both operations and engineering, we can drive efficiencies to not only optimize costs, but drive more output out of Fab 25.

And your next question comes from the line of Krish Sankar with TD Cowen.

This is Steven calling on behalf of Krish. I guess a couple of questions as well from my side. I guess, first off with the Fab 25. Just wondering like in terms of the revenue guidance and expectations going forward from the Infineon business, what does that imply for, I guess, fab loadings? And how much capacity is there for external customers to bring in incremental wafer demand? And how soon could that start?

Yes. So obviously, the fab as it stands today, running Infineon product, the fab is running at close to what they would consider their target utilization. We expect, as we move the fab from an IDM model to a foundry model, drive our own efficiencies and bring in, again, new capabilities, as I just alluded to, we will have the bandwidth to be able to maintain the output needed for Infineon and drive new customers. One of the things to keep in mind, and we announced this last week is we licensed some high-voltage IP from Infineon that runs on our 130 HB platform. We'll start talking to customers about transfers into Fab 25 regarding that kind of IP immediately as we integrate it into our design enablement capability. And then, of course, we've discussed before, the fab does have advanced capabilities for 200-millimeter. It's 65-nanometer capable, and we'll be looking at opportunities to bring in that kind of capability, which doesn't really exist here in the U.S. So across all those different vectors, we believe there's room for upside, while we execute the take-or-pay and continue to expand our business in Florida with our AP build-out as well as executing the programs we already have in flight here in Minnesota. And all that will drive margin expansion.

And Tom, I just to want to follow-up on regarding that IP license agreement with Infineon. Can you talk a little bit about how that came about? Was it interest from your side and you approach them? Or was it the other way around? And as far as the time and maybe the cost to develop the PDK on your S130 platform, can you help us understand how long that might take depending on whether there's customer interest on it?

Yes. So for sure, we believe there's customer interest. I think -- think of it as we already have the PDK and the design and infrastructure. What we'll be doing is integrating the new IP blocks, both high voltage and copper. That's an important distinction. The capabilities we had in Minnesota were for aluminum. Now we'll have copper for S8, S130. And our ability to get those integrated, I think, will happen as this year unfolds, and we'll be talking to customers in parallel. So the expectation would be as we get into '26, we would be able to start doing what you would typically do in a foundry, which are people taping out to your IP, putting them on multi-project wafers, running those shuttles to the line and then assuming functionality is as expected, you can begin to transition those to volume products. Again, that typical window is around 2 years, but the fact that we don't have to bring in new capabilities, we can leverage the current manufacturing basis plus the new IP that we got will be important. And then to your question about who brought it up, it was always part of the strategy to get access to that IP so that there could be an immediate avenue for new products into the fab, as we define our longer-term strategies.

And your next question comes from the line of Richard Shannon with Craig-Hallum.

I'm going to ask both of my questions right upfront here as in your prepared remarks, Tom, you talked about 2 growth drivers as we go into next year, packaging and quantum here. So on the packaging side, I would love to understand what -- where we are in terms of business development there. Do we have contracts or strong leads into filling that up here as we get into next year. And then on the quantum side, I think you mentioned supporting superconducting as one modality. I would love to get a sense of the degree to which you see other modalities as contributing to your long-term contributions in quantum as well?

Yes. So on the advanced packaging front, clearly, a lot of the focus over the last year has been preparing for the wave of tools that are now coming into Florida. That is underway as we speak. Our goal is to be able to have prototype availability a year from now that would allow customers to start creating packaging solutions based on our technology. The focus, obviously, coming out of the box is with the defense industrial base. That's why the DoD funded the standup of this platform. So there's interactions that are ongoing with that community. Many of those customers are the same ones we deal with for our ThermaView platform as well as our Rad-Hard platform. I also -- and we've talked about this before, but we also expect the commercial segment to be very interested in this technology, and we continue to engage with them. And then the last thing I'll remind everyone is we did have a technology, an interposer technology that we stood up that was in flight when we took over back in 2021. That capability is now also being marketed to the defense industrial base. So overall, I would say the traction is there, and we continue to build momentum with that community in the AP space, where we believe we have the only true foundry solution that is available with capabilities that not only exist today with our bonding and interposer, but in the future with our fan-out technology. And then in quantum, obviously, our focus is around superconducting base film technology. But we've also, as we've alluded to before, been engaged with SiQuantum, and that's a combination of superconducting technology and waveguide technology via photonics. And so, we see those 2 vectors continuing. Obviously, there's technologies like ion trap that also get discussed a lot in the quantum space. That is an area that we continue to look at in terms of viability. I think capability-wise, we certainly have that as an option. It's just a question of what the right combination of our capabilities coupled with customer need. One thing that we are very proud of is that we not only have our front-end capabilities with superconducting films, but we also have some very strong capabilities now with our interposers and chiplet strategies. And these are foundational, as I alluded to in my remarks, to building out quantum computing capabilities. And so all these will come into play, and we expect to not only discuss later this year our new platform for supercomputing, quantum computing, but also talk about some new customers. Does that answer your question, Richard?

It looks like Richard removed from the queue. [Operator Instructions] Our next question comes from the line of Robert Aguanno with Piper Sandler.

This is Robert on for Harsh. Congrats on the Fab 25 acquisition closure. Just was wondering what kinds of customers you're going to be targeting to fill that fab outside of Infineon and if those conversations have begun to happen just yet. I know you guys just took control of the fab, but any color on what else you guys think can go into that fab?

Yes. I mean, obviously, the fab is targeted towards foundational semiconductors. So these are power management ICs, other ASICs, microcontrollers, embedded memory. These are all capabilities that exist or could exist in the fab. In terms of target customers, the group we're really looking at what are referred to as the hybrid semiconductor manufacturers. These are companies like Infineon that have both their own fabs as well as outsourced capabilities. NXP, STMicroelectronics companies that value or will value having sourcing out of the U.S., especially when you look at some of the trade discussions going on. There's other companies like ROHM and Renesas from Japan that would be looking for sourcing out of the U.S. So it's really companies that value having their products made in the U.S. that are geared towards our industrial and automotive target verticals. And of course, we'll be looking at, as I alluded to, moving more DoD-centric products into our fabs here in the U.S. as the DoD begins to reduce its dependency on foreign-made silicon, specifically China and Taiwanese-based silicon. I think that's a national imperative. So we believe there's going to be a strong market. You also have companies like Microchip and others that are relooking at their manufacturing strategies, even considering going to more of a fabless model. So we think there's going to be a lot of demand. There's a major megatrend underway in domestic sourcing, and we believe having 200-millimeter foundry capacity for foundational nodes will be what customers are looking for as the -- a lot of the administrative level decision-making begins to unfold in terms of action and execution inside the semiconductor ecosystem.

And at this time, I would like to turn the call back over to Tom Sonderman.

Thank you, operator. To close today's call, I want to convey the strong confidence we at SkyWater have in executing towards our long-term growth and profitability goals and our commitment to build your confidence in us. report Q3 results in early November. With that, I'll conclude today's earnings call.

This concludes today's conference call. You may now disconnect.