Q4 2023 Skywater Technology Inc Earnings Call
Participants
Thomas Sonderman; Chief Executive Officer & Director; Skywater Technology Inc
Steve Manko; Chief Financial Officer; Skywater Technology Inc
Claire McAdams; IR; Headgate Partners LLC
Quinn Bolton; Analyst; Needham & Company LLC
Harsh Kumar; Analyst; Piper Sandler & Co
Richard Shannon; Analyst; Craig-Hallum Capital Group LLC
Presentation
Operator
Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the SkyWater Technology fourth quarter 2023 financial results conference call. Today's conference is being recorded. (Operator Instructions)
At this time, I'd like to turn the conference over to Claire McAdams, Investor Relations for SkyWater. Please go ahead.
Claire McAdams
Thank you, operator. Good afternoon, and welcome to SkyWater's Fourth Quarter Fiscal 2023 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 our IR website, we have also posted an investor slide presentation as well as a new financial supplement 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 and our fiscal 2022 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 Q3 earnings presentation, all three of which are posted on our IRwebsite.
And with that, I'll turn the call over to Tom.
Thomas Sonderman
Thank you, Claire, and good afternoon to everyone on the call today. We are pleased to report strong fourth quarter financial results. Revenues grew to a record $79 million, up 11% from Q3 and exceeded our expectations due to continued sequential growth in our ATS development business, which was up 6% from Q3. As expected, tool revenues totaled nearly $10 million for the quarter.
As we discussed on our last call, we are entering a new multiyear stage of increased levels of customer funded CapEx in support of our growing ATS business. The CapEx investments being made by our customers are targeted at building our platform development capability and putting the necessary capacity in place, providing production consistent with our expectations going into the quarter wafer Services revenues were $12 million, down 17% from Q3, driven by the continued softening in end market demand chiefly from the broader industrial sector. In spite of this end, market softness that continued strong customer demand for a TS development business has driven six straight quarters of sequential growth and record revenue performance.
For fiscal year 2023, we exceeded our long-term targets with total revenues growing 35% from fiscal 2022. The strength of ATS within a backdrop of an overall weak end market was reflected by the changing mix of revenues in 2023 with an 80 20 mix of total ACS revenues to wafer services compared to about two thirds third in 2022.
As we have demonstrated, ATS is the major growth driver for Skyworks business, both for 2023. And we believe for the next several years as we continue to develop new advanced technologies for the aerospace, defense and commercial markets. We believe the strong demand for ATS business demonstrates that our customers' innovation investments remained strong and that our unique business model offers a compelling value proposition for the accelerated development of new technology platforms and products.
The largest contributors to our total ACS revenue growth this year of over 60% have been multiple strategic aerospace and defense programs. These include our rad-hard 90 nanometer platform as well as multiple additional A. and D. programs that have also been moving forward aggressively over the past year. We believe this signifies the Department of Defense's increased commitment and investment in SkyWire to be the major trusted U.S. foundry providing a growing portfolio of technologies that are critical to national security. These are the same programs that are driving the majority of the anticipated growth and customer funded CapEx.
Altogether, our aerospace and defense programs in 2023 grew to comprise over half of our revenues compared to about 40% of our revenues in 2022. Our continued progress ramping our A&D technologies and platforms is also accelerating our engagement with new commercial customers and partners.
We expect to be able to leverage the R&D investments happening today at SkyWater to support numerous commercial use cases that require reliable, seamless performance and applications like advanced computing and medical diagnostics, which are next to fastest growing end markets.
Our focus on advanced medical diagnostics and sequencing applications has expanded significantly since our IPO. These applications require precise processing of fluids such as blood and leverage the electrical properties of semiconductors to enable groundbreaking advances in the sampling of biological materials.
These unique semiconductor devices require sophisticated process development and adherence with strict quality standards, which is what SkyWater offers through our ATS business. This investment in bio health is paying off as we are forecasting multiple medical technology companies to transition from ATS to Wafer Services in 2024.
Our recent announcement with NATO's biotechnology is just one example. We anticipate strong growth in the bio hub category in the coming years, and we look forward to sharing news of additional customer transitions to Wafer Services expected this year.
Progress also continues on our enhanced seamless platforms, including qualification efforts for our low noise performance, 90 nanometer CMOS technology, which supports numerous sensor applications such as thermal imaging. We are currently engaged with several of the customers as we work towards a baseline platform qualification and PDK. release planned for the second half of the year.
In the rad-hard category, we are currently adding incremental engineering resources to enhance our RH. 90 platform design enablement efforts. In parallel with our ongoing work with RRH. 90 qualification customer engagement remained strong across both of these new uniquely differentiated seamless platforms.
Now I'd like to provide an update on several recent developments that are allowing Skyworks to build a strong foundation for revenue growth and margin expansion for the years to come.
First in Florida, our recently announced award from the Department of Defense includes up to $190 million of funding over the next five years in order to advance our capabilities and capacity for what we believe will be the most comprehensive advanced packaging facility in the United States.
Advanced packaging represents a new growth vector for SkyWater today, devices incorporating the advanced packaging technologies are largely produced in Asia with a heavy concentration in Taiwan. In most cases, these technologies and processes are also tied directly to specific foundries as part of a closed ecosystem. The desire to onshore advanced vaccine production is a priority share by both defense and large commercial companies.
As evidence of this AMDA. leader in deploying advanced packaging solutions to deliver leading edge compute solutions, recently applauded our efforts in Florida and the recent DoD award, which is focused on exactly that, bringing world-class advanced packaging, technology development and production support to the United States.
Another important announcement since last quarter relates to the submission of our full chip application for Minnesota. Our application is focused on modernizing our Bloomington facility, adding the necessary tools, equipment and infrastructure that will further expand our development capabilities and production capacity over the next five years.
We have a multifaceted approach to obtaining outside investment in support of future growth and any shifts funding would be incremental to the significant level of customer funded investments received to date. All together, these outside funding opportunities enable us to accelerate our revenue growth while minimizing internal capital requirements.
Finally and major strategic initiative over the past year has been our decision to invest in the transformation of our operations in partnership with outside experts. These investments have been focused on improving the operational efficiencies needed in order to achieve even higher outputs from our Bloomington fab, enhanced the monetization of our unique value proposition and optimize the utilization of our workforce.
This approach is already starting to pay dividends. In the second half of 2023, we significantly increased wafer velocity, achieve record levels of ATS activities and realize more linear Wafer Services production. Our transformation effort culminated in a number of important developments as we close 2023 first during the fourth quarter, we completed a restructuring of the organization that included the reduction of approximately 10% of Skyworks' workforce across all levels of the Company to better align the Company's resources with our long-term growth strategy.
We believe that our newly highly integrated approach to R&D and manufacturing will manifest in greater efficiencies and operating leverage as we continue to scale our business 2024 hiring is specifically aimed at aligning select skill expertise around the needs of our emerging technology platforms. Second, by optimizing the Company's existing resources and leveraging the capabilities of our new executive talent, we were able to conclude the outside investment phase of the transformation process by year end.
And going forward, we are not planning on any additional transformation related consulting fees in 2024 and third, outcome of our process was the decision to focus the majority of the company's resources on accelerating the growth of our ATS business allowing us to continue to build a strong pipeline that we expect will drive us towards a higher gross margin Wafer Services business for the long run.
And lastly, we believe that the transformational process we have executed over the past year is enabling us to quickly turn the corner to profitability. And with our current visibility, we believe we will achieve this key milestone in the second half of 2024.
Now turning to our outlook for Q1 and the year ahead. We entered 2024 with strong momentum in our ATS business. Which we expect to continue with our current visibility, we expect Q1 revenues in the $80 million range. This reflects a similar level of ATS development revenues as Q4, which would represent nearly 20% growth over Q1 of 2023.
We also expect a high level of customer funded CapEx as we enter 2024 and estimate tool sales will increase to approximately $14 million in the first quarter. We expect that offsetting this sequential growth will be a further decline in Wafer Services revenues, which we expect will be down about 25% from Q4.
As we look ahead to our full year outlook for 2024, we expect the uniqueness of our ATS business model and strong customer funded CapEx will enable SkyWater to achieve another revenue growth year. First, we expect our ATS development revenues to show solid growth in the range of 10% to 20% after outperforming our growth objectives with greater than 50% growth in 2023. We also expect a record year of customer CapEx investments, and we believe total revenues will grow to at least $60 million.
Furthermore, this level of customer funded CapEx is expected to continue over the next few years with the investments planned by our customers in 2025 and 2026, expected to match or even exceed the strong levels forecasted for 2024. As previously stated, given the broad-based weakness in the industrial market and expectations for a prolonged inventory correction, customer demand with the broader industrial end market is expected to remain soft throughout 2024.
As a result, we are accelerating the pace at which we are phasing out. Our less profitable legacy programs as we redirect Wafer Services resources to ATS development. We expect that this will result in an increased mix of our ATS business in 2024 and advance of more material transitions of ATS development into Wafer Services in the future, which we again expect to be far more profitable than our legacy business. Altogether, we anticipate that our Wafer Services revenues will be down by at least 50% in 2024 compared to 2023 levels.
2024 is all about the continued acceleration of our business transformation as we aggressively prepare to launch our new secure seamless platforms, expand our ATS development business, convert existing ATS customers, Wafer Services, and build out the development and production capabilities of our two fabs in Minnesota and Florida through our demonstrated public-private partnership model.
Before turning the call over to Steve, I'd like to close by highlighting that since our IPO, nearly three years ago, the SkyWater team has outperformed our long-term annual revenue targets with a three year CAGR. exceeding 25%. We believe that the distinction of our business model, the highly differentiated, innovative technologies we are making available to the domestic IC market and the strong customer pipeline. We continue to build positions SkyWater for several years of above industry growth and strong operating leverage. I will now turn the call over to Steve.
Thank you, Tom.
Steve Manko
Before I begin my review of our fourth quarter results, I will direct you to the financial supplement available on our IR website, which summarizes our quarterly financial results for the last three years.
Starting in Q3, we changed our policy regarding a couple of our non-GAAP financial metrics and a helpful supplement on our IR website where you can find all comparable non-GAAP adjustments as well as the impact of tool sales on our gross margin.
Now turning to our Q4 results. Quarter revenues reached another record for us, exceeding our expectations to total $79.2 million, which was up 11% from Q3 and up 22% from the fourth quarter of 2020 to record ATS revenue of $67.1 million was up 17% from Q3 and up 40% year over year. ATS revenue included $9.9 million of tool sales compared to $3.2 million in Q3 and a nominal amount in Q4 of 2022.
Growth in ATS exceeded our earlier expectation due to another quarter of sequential growth in ETF development revenues. Offsetting this growth was the decline in Wafer Services revenue, which as expected was down 17% sequentially as a result of the softening demand environment in the broader industrial market.
Our non-GAAP gross margin for the quarter was 17.4%, a bit better than expected, primarily due to more favorable ATF development revenue compared to the forecast. The nearly $10 million of tool sales in the quarter impacted non-GAAP gross margin by 130 basis points. As a reminder, tool sales represent CapEx that is funded by our customers.
These enable us to increase our capacity and capabilities without requiring us to use our own capital. Additionally, since this CapEx is funded by our customers. There is no expansion of our fixed asset base and therefore no ongoing depreciation for us to carry.
And while tool sales will often reduce our overall gross margin, they typically have no negative impact on gross profit dollars. Non-gaap operating expenses declined to just $10.5 million, which was well below our guidance of $13 million to $14 million, primarily as a result of the recovery of approximately $4 million of prior bad debt expense.
Turning to our business transformation process, we completed the outside investment phase of our process with $5.3 million of management consulting fees in the quarter, we also completed a workforce reduction of approximately 10% of our headcount, which going forward is going to support our gross margin expansion strategies through decreased manufacturing costs and also better align the Company's resources with our long-term growth strategy.
Non-gaap operating income was $3.3 million and adjusted EBITDA was $10.6 million, both exceeding expectations due to the favorable gross margin performance and expense recovery mentioned earlier. Interest expense was $2.9 million and with a tax benefit of $0.5 million, the GAAP net loss was $0.22 per share and a non-GAAP net loss was $0.02 per share.
Turning to the balance sheet, we continue to improve upon our capital position in fiscal 2023, we consistently generated positive cash flows from the P&L prior to working capital changes and reduced our total indebtedness by $30 million compared to year-end 2022. Total proceeds from our ATM added $20 million of equity funding for the full year with all transactions taking place during the first seven months of the year. We minimize short-term borrowing as interest rates increase and our total cash at year end was $18 million with $78 million available on our revolving line of credit.
Turning to our outlook for Q1 and our expectations for various financial metrics as we enter 2024, as Tom mentioned, with our current visibility we expect Q1 revenue levels in the $80 million range. This reflects our assumption of a similar level of ATS development revenues, $14 million of tool sales and that Wafer Services will decline to less than $10 million. Given the expected revenue profile, we expect non-GAAP gross margin in Q1 in the low 19% range.
This reflects the greater contribution of tool sales which we expect will impact gross margin by 200 to 300 basis points. We expect non-GAAP operating expenses of approximately $14 million to $15 million for the first quarter and beyond Q1. We expect quarterly non-GAAP operating expenses will continue to remain in this range through fiscal 2024. For the full year, we are forecasting another year of revenue growth.
We expect customer funding tool investments of at least $60 million and solid growth in ATS development revenue in the range of 10% to 20%. We expect the resulting strong year-over-year growth for our overall ATS business in 2024 will be partially offset by a reduced level of Wafer Services business, which we expect will be down by at least 50% and potentially as much as 60%.
Significant changes in revenue mix for 2024 will impact our gross margin expansion objectives, including tools, but the trajectory is expected to continue to improve the cheap tailwinds for gross margin improvement include the expected continued strong flow through of over 50% for our ATS development business and the decrease in quarterly depreciation expense as the purchase accounting portion phases out toward the end of Q1.
Taking these into account, our expectation is that gross margin for the full year 2024 will increase slightly year over year. The higher tool mix is expected to have an estimated impact in the range of 300 to 400 basis points on full year gross margin. There's no doubt that our model is unique and that customer funded CapEx brings some complexities to modeling our forward looking financial performance.
However, it's important to come away from today's call with an understanding that there is absolutely nothing negative about our customers funding a significant portion of our CapEx needs. First tool sales to have either a neutral or positive impact on gross profit we also expect our quarterly depreciation will remain at these relatively low levels as we reach new levels of revenue growth and scale over the next few years with over 80% of our planned capital expenditures in 2024 expected to be funded by our customers.
Our foreseeable capital needs are extremely low and compared to typical foundry models with depreciation totaling at least 15% to 20% of revenues. For us we expect depreciation will shrink to less than 5% of our revenues as we move beyond Q1, which is one of the reasons we believe we can be so confident in our long-term margin target of 40%. We also expect to turn the corner to positive non-GAAP EPS in the second half of 2024 and look forward to discussing our success on this key milestone in future calls.
With that, I'll turn the call over to Q&A. Operator, please open the line for questions.
Question and Answer Session
Operator
(Operator Instructions)
Quinn Bolton, Needham & Company.
Quinn Bolton
Hey guys, thanks for taking my questions. Just to start, just on the gross margin outlook, obviously lots of puts and takes on I understand the tool revenue is a bit of a headwind and for $60 million of total revenue, I understand sort of the drag there.
You've talked about Wafer Services being down pretty significantly, and I know that's been sort of a fab filler and so and can you just kind of talk through the ramp that you see into the second half of the year? What kind of level of gross margins, would you expect you need to get to to hit that profitability target that you mentioned in the second half of the year thinking that I've got a couple of follow-on questions as well.
Thomas Sonderman
Yeah. So the wafer revenue for services revenue, obviously is feeling the effects of the overall industry softening. We, of course, have been in a transition mode over the last several years as we continue to bring in more of our ATS development programs, preparing them to go to volume production.
So as I mentioned in my prepared remarks, we are leaning hard into those transitions. We're doing this to prepare to not only ramp those into volume as this year unfolds, but more importantly, as we prepare for next year and beyond. And of course, we're taking into account the fact that lower utilization of our Wafer Services business does have an impact on gross margins, but that is somewhat being offset by the fact that we are bringing in new tools that while not like a typical ATS development margin does have a an overall positive impact.
So we believe that the work we're doing this year to position the business for continued ATS growth makes long-term sense. And we're doing that in a mode where we're still seeing gross margins performance at a level that is consistent with our previous discussions, Steve, anything to that.
Steve Manko
yes, would just highlight two things. So I'll address the tool revenue first. And again, I think you referred to it as a headwind. We still look at it, like we said in the opening remarks as a tailwind for the long term of our business are seeing this level of two investment coming in was much more than we probably could have ever imagined in the near term and seeing the significant investments coming through to continue building out not only technology programs but technology platforms, in my opinion, a significant sign of growth for the Company in the future and that being funded by our customers.
So to your point, on a margin perspective, it will have a headwind, if you will, but it does have some small contribution to profit. And even with the gross margin being impacted by the toll revenues over the course of next year, even a margin in the mid to low 20s. Could be something that could generate some positive non-GAAP EPS for us over the course of 2024. And so we really think that's something that we could obtain over the course of 2024.
Quinn Bolton
It sounds like with margin for the year is a little higher than I think you said that 22% for full year '23. It sounds like we probably are in that, yes, 23% to 25% kind of rate in the second half of the year to start the year at 19. That's just the way the math works, it sounds like that's kind of the range we should be thinking about?
Steve Manko
Yes, I don't think it has to be quite that high again, depending on the timing of when these tools come through. Again, we see significant opportunity for the tool investments. We communicated that we expect not only a record year, but something around the $60 million level on the tools now, again, given the significant contribution or the significant amount, I should say, of the total revenue coming in even a little bit of contribution margin coming from the tools can have an impact positively on the gross profit performance and the bottom line as well. So still staying within the low 20s on our margin with the tools coming in now should be something that could get us to breakeven point or slightly positive on a non-GAAP EPS.
Thomas Sonderman
And one of the add is we are positioned well, you know, if the market were to turn, of course, we could begin to take advantage of that as well.
Quinn Bolton
Yes, yes. Sorry, licensees. I'm just on that. The Wafer Services, obviously, I understand the the eight of the headwinds in the industrial side of the business with a legacy, you've talked about the bio bulk business starting to transition to Wafer Services. The premier when would you think that Wafer Services revenue bottoms, is that kind of business bottom middle of the year and starts to recover?
Yes, sequentially into the back half of the year, do you think is kind of just trending in a pretty flattish levels in your let's spend it you guys are expecting on on waste and services?
Thomas Sonderman
Yes. So we're expecting Neo in the first half of this year, maybe going into Q3 that we would see a bottom and then we would start to see recovery post that point. And again, the rate at which programs that have trends transition to Wafer Services, the rate at which they ramp is highly dependent on the customer and their ability to get their products to market. Our goal is to pair prepare them to wrap up, we are very excited about the number of new programs come into the pipeline and the pace that they will grow will depend on the customer. There is a J-curve effect that will come into play, but we believe the breadth and depth of the programs we have now will allow us to make that transition effectively.
Quinn Bolton
Got it. Thank you.
Operator
Harsh Kumar, Piper Sandler.
Harsh Kumar
Hey, guys. I had a couple of questions as well. I guess I was more curious about the sport in the ATS business. Was there anything that happened in the end market or maybe your own focus as a company, it prompted this kind of growth? And then my second one is kind of tied to it, so I'll just ask it anyways. Historically, the model has been that ATS drives wafer revenues, but wafer revenues are coming down. Is that mostly the industrial sort of, call it down flushing out this year? Or is there something else going on maybe a shift in strategy perhaps?
Thomas Sonderman
Yes. Well, so to answer the first question, it's all about transformation. We we clearly are doing everything we can to maximize our ability to move our ATS. programs as quickly as possible through the development cycle at the same time, delivering consistent Wafer Services output. That's what we really been doing. I think our ability to not only execute the transition while delivering solid financial performance is a good testament to the team and the the kind of positioning legacy products and phasing those out as we move towards these new programs has kind of always been the plan for SkyWater when we spun out of Cypress, we have never put a lot of energy into our legacy mature technologies. They're there to fill the fab to allow the new business to be developed and put into position to grow in the long term.
And that's exactly what we've been doing. And really, as we said, '23 was was driving that transformation. We've executed it. And now we're leaning into it hard and really taking advantage of maybe call it a weaker broad market to move some of these ATS programs at a faster pace and specifically the DoD programs, which as we've been talking all year already moving at a very fast pace.
Harsh?
Harsh Kumar
I'm sorry. My second one was regarding the of the Wafer Services fleshing out, I guess, and that's just basically certainly sounds like it's industrial, correct?
Thomas Sonderman
Yes. I mean, the a lot of the industrial products, our legacy products. I think there was a lot of inventory building in the industrial space. And I'd say our primary customer Infineon is has made very public out there. They're digesting that inventory and obviously, for those type of products, we feel the effect of that as well. And that's really what we see happening as this year unfolds. And in parallel, we're going to continue to drive these ATS transitions and get these new tools installed, which ultimately just drive a vast part of ATS transitions as well.
Harsh Kumar
Got it. Fair enough, guys. Thank you.
Operator
Robert Mertens, TD Cowen.
Hi, this is Rob Mertens on for Krish. Thanks for taking my questions. On the first one, you'd mentioned that the aero and defense customers were a big part of calendar year '23 revenues. What would you expect the mix? So sort of look like throughout this year? And will this material materially shift in calendar year 25 as Wafer Services start to recover? And I have one follow-up.
Thomas Sonderman
Yes. I mean, I think as I put my remarks, A. and D. is going to continue to grow. It was over 50% in '23. We expect that to increase further in '24. Again, there is there's a lot of focus on moving those programs very quickly. So we're taking advantage of that. And given the weakness and the broader Wafer Services market, as we just discussed and the pace of transition for some of our commercial programs. We expect eight, A. and D. to continue to be a strong contributor through this year and into next year as well.
Great, thanks. That's helpful. And then just a quick follow-up on I want to make sure I heard correctly that the consulting fees were they $3.5 million in the December quarter? And then just based on the March guide of $14 million to $15 million OpEx? Or do you sort of think in the consulting fees would look like there then in out-quarters?
Steve Manko
Yeah, the transformation costs is what we refer to and you can see those broken out in the non-GAAP tables in the supplement to the earnings release were $5.3 million for the quarter and again, went up to around $11.3 million for the year. And as Tom mentioned, there is not an expectation of those recurring again in the year 2024.
Okay. Thanks. That's helpful.
Operator
Richard Shannon, Craig-Hallum.
Richard Shannon
Yes, thanks for taking my questions as well. On your first question for Steve, I'm trying to observe all the numbers here in terms of the guide for the year and is just wanted to trying to ask a question I have here is really thinking about the exit rate of gross margins exiting this year, both with and without tool sales and tried to run all your numbers through here.
I wonder if you could just give us your thoughts here. You started with a 19.5% or 19% change -- or 19% number in the first quarter. Obviously get a lot of depreciation kicking off after that. And is this something where we get into the upper half of the 20s exiting this year? How should we think about that?
Steve Manko
Yes, good question. Again. It's going to depend on the level of the total revenues coming through we've been expecting and communicating that in 2024. The depreciation is falling off and coming down. We're seeing that take place, and we'll see that play out now starting really in the second quarter of this year. So that was a big tailwind that we've been looking forward to for quite some time.
It's really going to, like I said, though, impact be impacted by the tool revenues. I think as we talked about a few quarters ago, we still look at our base cost of doing business at around $45 million and excluding tool revenue, we still believe over the course of 2024, we'll continue to have better than a 50% contribution to the gross profit line coming through for incremental dollars on the revenue side above 45%. Now that's excluding tool revenue on again, that's going to be a bit of a drag on the gross margin number when you pull out the tools and talked about the growth that we expect over the course of this year, we still expect a better than 50% contribution margin for incremental revenue.
Richard Shannon
Okay. I'll turn to run through that math and run that through my model and trying to nail that down a little bit better here. Maybe a follow on question to sales here. I guess a couple of questions. You really I think, Tom, I heard your prepared remarks here about a $60 million company this year and then some more thoughts on years past this leasing a tool sales you expect to be at or even higher levels in 25 and 26?
Thomas Sonderman
Yes. Well, again, as I said, we're seeing similar levels for the next several years. So this year and next year and even through '26, so.
Richard Shannon
Okay. And then that kind of I think it was just I just want to make sure I get the magnitude right. That really follow-up question is the more important one here. Thinking about the contributors to that, to what degree is this government versus commercial customers? Obviously, announced it big government contracts earlier this year. That's obviously contributing to this visibility that now not only passed this year. But to what degree are we seeing contributions from commercial customers use multiple tools?
Thomas Sonderman
And yes, I would say the majority are within the A. and D. space, the majority these two investments there are some commercial customers, but the majority is definitely and then that in C&I, I would say that it would depend of the A. and D. model. They are investing to put capabilities in place and we plan on leveraging those where we can into the commercial sector. But the majority investor right now.
Steve Manko
And as we mentioned, these when you see tool investments of this size, which is again much larger than what we had in the past, surely not for one-off individual programs, although that can still be the case and is still part of our business model, buy one tool bar here or there for development purposes, when you see total revenues and contribution of this size, it's really to build out a platform and that will be a platform that could be offered to any customer down the road. So again, that's when you see significant investments of this size coming in, you good indication of growth in future years with a number of customers coming to development then manufacture off that platform.
Richard Shannon
Okay. Thanks for the detail, guys. I will jump it along.
Thomas Sonderman
Thanks, Richard.
Operator
And there are no further questions at this time. Mr. Sonderman. I'll turn the call back over to you for closing remarks.
Thomas Sonderman
Thank you, operator. I want to close today's call by conveying the strong confidence all of us at SkyWater have in our ability to execute successfully towards our long term growth and profitability objectives. Our amazing employees have now delivered a three year annual revenue growth rate since exceeding our long-term targets we intend to continue to build your confidence in our ability to execute on our future growth and profitability objectives. We look forward to talking to you again on our Q1 call in May. And with that, I will conclude today's earnings call.
Operator
Thank you, and again concludes today's conference call. Thank you for your participation. You may now disconnect in my one call.
