SkyWater Technology Reports First Quarter 2023 Results

Q1 2023 Results:

Revenue: Revenue of $66.1 million increased 37% year-over-year. Advanced Technology Services revenue of $48.3 million increased 82% year-over-year driven by continued momentum with key customers in the Aerospace & Defense sector. Advanced Technology Services revenue contained $0.5 million of tool revenue in the first quarter of 2023 and $1.0 million in the first quarter of 2022. Wafer Services revenue of $17.8 million decreased (17)% compared to the first quarter of 2022 driven by the GAAP accounting treatment of a revised large customer contract, which resulted in immediate revenue recognition of $8.2 million of work-in-process wafer inventory in the first quarter of 2022.
Gross Profit (Loss): GAAP gross profit was $16.5 million, or 24.9% of revenue, compared to gross loss of $0.9 million, or (2.0)% of revenue, in the first quarter of 2022. Non-GAAP gross profit was $16.9 million, or 25.8% of revenue, compared to non-GAAP gross profit of $0.5 million, or 1.1% of revenue, in the first quarter of 2022.
Net Loss: GAAP net loss to shareholders of $4.3 million, or $(0.10) per share, compared to a net loss to shareholders of $16.6 million, or $(0.42) per share, in the first quarter of 2022. Non-GAAP net loss to shareholders of $2.5 million, or $(0.06) per share, compared to a non-GAAP net loss to shareholders of $13.0 million, or $(0.33) per share, in the first quarter of 2022.
Adjusted EBITDA: Adjusted EBITDA was $8.1 million, or 12.3% of revenue, compared to $(4.8) million, or (10.0)% of revenue, in the first quarter of 2022.
Balance Sheet: Cash and cash equivalents of $13.8 million compared to $30.0 million on January 1, 2023.

A reconciliation between historical GAAP and non-GAAP information is contained in the tables below in the section titled, “Non-GAAP Financial Measures.”

Investor Webcast

SkyWater will host a conference call on Monday, May 8, 2023, at 3:30 p.m. CT to discuss its first quarter 2023 financial results. A live webcast of the call will be available online at IR.SkyWaterTechnology.com.

About SkyWater Technology

SkyWater (NASDAQ: SKYT) is a U.S.-based semiconductor manufacturer and a DMEA-accredited Category 1A Trusted Foundry. SkyWater’s Technology as a Service model streamlines the path to production for customers with development services, volume production and heterogeneous integration solutions in its world-class U.S. facilities. This pioneering model enables innovators to co-create the next wave of technology with diverse categories including mixed-signal CMOS, ROICs, rad-hard ICs, power management, MEMS, superconducting ICs, photonics, carbon nanotubes and interposers. SkyWater serves growing markets including aerospace & defense, automotive, biomedical, cloud & computing, consumer, industrial and IoT. For more information, visit: www.skywatertechnology.com.

Cautionary Statement Regarding Preliminary Results

The Company’s results for the fiscal quarter ended April 2, 2023 are preliminary, unaudited and subject to the finalization of the Company’s first quarter review and full-year audit and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. The Company cautions that actual results may differ materially from those described in this press release.

SkyWater Technology Forward-Looking Statements

This press release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements that are based on the Company’s current expectations or forecasts of future events, rather than past, events and outcomes, and such statements are not guarantees of future performance. Forward-looking statements include all statements other than statements of historical fact contained in this presentation, including information or predictions concerning the Company’s future business, results of operations, financial performance, plans and objectives, competitive position, market trends, and potential growth and market opportunities. In some cases, you can identify forward-looking statements by words such as “intends,” “estimates,” “predicts,” “potential,” “continues,” “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will,” “targets,” “projects,” “seeks” or the negative of these terms or other comparable terminology.

Forward-looking statements are subject to risks, uncertainties and assumptions, which may cause the Company’s actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Key factors that could cause the Company’s actual results to be different than expected or anticipated include, but are not limited to: our goals and strategies; our future business development, financial condition and results of operations; our ability to continue operating our sole semiconductor foundry at full capacity; our ability to appropriately respond to changing technologies on a timely and cost-effective basis; our customer relationships and our ability to retain and expand our customer relationships; our ability to accurately predict our future revenues for the purpose of appropriately budgeting and adjusting our expenses; our expectations regarding dependence on our largest customers; our ability to diversify our customer base and develop relationships in new markets; the performance and reliability of our third-party suppliers and manufacturers; our ability to procure tools, materials, and chemicals amid industry-wide supply chain shortages; our ability to control costs, including our operating and capital expenses; the size and growth potential of the markets for our solutions, and our ability to serve and expand our presence in those markets; the level of demand in our customers’ end markets; our ability to attract, train and retain key qualified personnel in a competitive labor market; adverse litigation judgments, settlements or other litigation-related costs; changes in trade policies, including the imposition of tariffs; our ability to raise additional capital or financing; our ability to accurately forecast demand; the level and timing of U.S. government program funding; our ability to maintain compliance with certain U.S. government contracting requirements; regulatory developments in the United States and foreign countries; our ability to protect our intellectual property rights; our ability to meet our long-term growth targets; and other factors discussed in the “Risk Factors” section of the annual report on Form 10-K the Company filed with the SEC on March 15, 2023 and in other documents that the Company files with the SEC, which are available at http://www.sec.gov. The Company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

SKYWATER TECHNOLOGY, INC.
Consolidated Balance Sheets
(Unaudited)

	April 2, 2023			January 1, 2023
	(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	13,840		$	30,025
Accounts receivable, net		67,016			62,670
Inventories		14,366			13,397
Prepaid expenses and other current assets		12,457			10,290
Income tax receivable		169			169
Total current assets		107,848			116,551
Property and equipment, net		175,368			179,915
Intangible assets, net		5,324			5,608
Other assets		4,286			3,690
Total assets	$	292,826		$	305,764
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt	$	2,021		$	1,855
Accounts payable		13,931			21,102
Accrued expenses		26,264			25,212
Short-term financing, less unamortized debt issuance costs		52,213			55,817
Deferred revenue - current		28,168			28,186
Total current liabilities		122,597			132,172
Long-term liabilities:
Long-term debt, less current portion and net of unamortized debt issuance costs		35,194			35,181
Long-term incentive plan		—			1,643
Deferred revenue - long-term		62,740			67,967
Deferred income tax liability, net		1,239			1,239
Other long-term liabilities		13,584			13,585
Total long-term liabilities		112,757			119,615
Total liabilities		235,354			251,787
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value per share (80,000,000 shares authorized, zero shares issued and outstanding)		—			—
Common stock, $0.01 par value per share (200,000,000 shares authorized; 44,280,198 and 43,704,876 shares issued and outstanding)		443			437
Additional paid-in capital		154,764			147,304
Accumulated deficit		(98,720	)		(94,072	)
Total shareholders’ equity, SkyWater Technology, Inc.		56,487			53,669
Non-controlling interests		985			308
Total shareholders’ equity		57,472			53,977
Total liabilities and shareholders’ equity	$	292,826		$	305,764

SKYWATER TECHNOLOGY, INC.
Consolidated Statements of Operations
(Unaudited)

	Three Months Ended
	April 2, 2023			January 1, 2023			April 3, 2022
	(in thousands, except share data)
Revenue	$	66,094		$	65,087		$	48,121
Cost of revenue:
Cost of revenue		49,626			48,536			49,061
Total cost of revenue		49,626			48,536			49,061
Gross profit (loss)		16,468			16,551			(940	)
Research and development		2,668			2,208			2,282
Selling, general and administrative expenses		14,895			13,040			11,690
Operating income (loss)		(1,095	)		1,303			(14,912	)
Other income (expense):
Loss on debt extinguishment		—			(1,101	)		—
Interest expense		(2,471	)		(1,794	)		(1,029	)
Total other income (expense)		(2,471	)		(2,895	)		(1,029	)
Income (loss) before income taxes		(3,566	)		(1,592	)		(15,941	)
Income tax expense (benefit)		—			852			(194	)
Net income (loss)		(3,566	)		(2,444	)		(15,747	)
Less: net income attributable to non-controlling interests		707			597			859
Net income (loss) attributable to SkyWater Technology, Inc.	$	(4,273	)	$	(3,041	)	$	(16,606	)
Net income (loss) per share attributable to common shareholders, basic and diluted:	$	(0.10	)	$	(0.07	)	$	(0.42	)
Weighted average shares used in computing net income (loss) per common share, basic and diluted:		43,817,417			42,612,763			39,861,688

SKYWATER TECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(Unaudited)

	Three Months Ended
	April 2, 2023			April 3, 2022

	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	(3,566	)	$	(15,747	)
Adjustments to reconcile net income (loss) to net cash flows used in operating activities:
Depreciation and amortization		7,352			6,458
Amortization of debt issuance costs included in interest expense		357			172
Long-term incentive and stock-based compensation		1,853			3,216
Deferred income taxes		—			(197	)
Cash paid for operating leases		(12	)		(12	)
Cash paid for finance leases		(212	)		(88	)
Provision for credit losses		2,154			—
Changes in operating assets and liabilities:
Accounts receivable		(6,875	)		(86	)
Inventories		(969	)		(3,843	)
Prepaid expenses and other assets		(2,653	)		(2,139	)
Accounts payable		(3,270	)		4,157
Deferred revenue		(5,245	)		(2,684	)
Income tax receivable and payable		—			1
Net cash used in operating activities		(11,086	)		(10,792	)
Cash flows from investing activities:
Purchase of software and licenses		(213	)		(400	)
Purchases of property and equipment		(2,851	)		(4,414	)
Net cash used in investing activities		(3,064	)		(4,814	)
Cash flows from financing activities:
Draws on revolving line of credit		59,350			—
Paydowns of revolving line of credit		(63,310	)		—
Net (repayment) proceeds on Revolver		—			9,392
Net proceeds from tool financing		494			—
Repayment of VIE financing		(317	)		(256	)
Cash paid for finance leases		(343	)		(334	)
Proceeds from the issuance of common stock pursuant to the employee stock purchase plan		1,275			659
Proceeds from the issuance of common stock, net of commissions		2,696			—
Cash paid on license technology obligations		(1,850	)		—
Net distributions to VIE member		(30	)		(337	)
Net cash (used in) provided by financing activities		(2,035	)		9,124
Net change in cash and cash equivalents		(16,185	)		(6,482	)
Cash and cash equivalents - beginning of period		30,025			12,917
Cash and cash equivalents - end of period	$	13,840		$	6,435

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