SkyWater Technology Reports Second Quarter 2022 Results

Q2 2022 Results:

Revenue: Revenue of $47.4 million increased 15% year-over-year as a result of growth in ATS programs and improved pricing terms for wafer services. Advanced Technology Services revenue of $29.8 million increased 11% year-over-year, and after excluding tool revenue, ATS revenue growth was 20%, reflecting the momentum we are gaining with several key customers. Advanced Technology Services revenue contained $0.3 million of tool revenue in the second quarter of 2022 and $2.3 million in the second quarter of 2021. Wafer Services revenue of $17.6 million increased 23% compared to the second quarter of 2021 driven primarily by the more favorable pricing and contract terms finalized with our largest customer at the end of Q1 2022.
Gross Profit: GAAP gross profit was $2.1 million, or 4.4% of revenue, compared to GAAP gross profit of $1.8 million, or 4.4% of revenue, in the second quarter of 2021. Non-GAAP gross profit was $2.6 million, or 5.6% of revenue excluding tool sales, compared to non-GAAP gross profit of $1.8 million, or 4.7% of revenue excluding tool sales, in the second quarter of 2021. The improvement was primarily the result of more favorable revenue mix. Non-GAAP gross profit for the second quarter of 2022 excludes $0.7 million of equity-based compensation and Florida start-up costs, compared to $1.1 million in the second quarter of 2021. Cost of revenue in the second quarter of 2022 also contained $2.3 million for heterogeneous integration and $1.5 million in depreciation for the radiation hardened facility, compared to $1.6 million and $1.7 million, respectively, in the second quarter of 2021.
Net Loss: GAAP net loss to shareholders was $13.0 million, or $(0.32) per share, compared to a net loss to shareholders of $7.0 million, or $(0.20) per share, in the second quarter of 2021. Non-GAAP net loss to shareholders was $10.7 million, or $(0.27) per share, compared to a net loss to shareholders of $5.1 million, or $(0.15) per share, in the second quarter of 2021.
Adjusted EBITDA: Adjusted EBITDA was $(1.6) million, or (3.4)% of revenue, compared to $(0.8) million or (2.0)% of revenue in the second quarter of 2021.
Balance Sheet: Cash and cash equivalents were $11.0 million at quarter end, compared to $12.9 million as of January 2, 2022.

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 today, Monday, August 15, 2022, at 3:30 p.m. CT to discuss its second quarter 2022 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. investor-owned semiconductor manufacturer and a DMEA-accredited Category 1A Trusted Foundry. SkyWater’s Technology as a Service^SMmodel 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.

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 impact of the COVID-19 pandemic on our business, results of operations and financial condition and our customers, suppliers and workforce; the impact of the COVID-19 pandemic on the global economy; 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; 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 10, 2022 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)

	July 3, 2022			January 2, 2022
	(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents	$	10,974		$	12,917
Accounts receivable, net		49,906			39,381
Inventories		11,866			17,500
Prepaid expenses and other current assets		6,077			3,854
Income tax receivable		744			745
Total current assets		79,567			74,397
Property and equipment, net		187,141			180,475
Intangible assets, net		6,576			3,891
Other assets		3,363			4,835
Total assets	$	276,647		$	263,598
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	1,042		$	1,021
Accounts payable		13,848			7,637
Accrued expenses		25,094			17,483
Current portion of contingent consideration		441			816
Deferred revenue - current		24,339			20,808
Total current liabilities		64,764			47,765
Long-term liabilities:
Long-term debt, less current portion and unamortized debt issuance costs		77,190			58,428
Long-term incentive plan		3,636			4,039
Deferred revenue - long-term		79,392			88,094
Deferred income tax liability, net		858			995
Other long-term liabilities		13,178			4,350
Total long-term liabilities		174,254			155,906
Total liabilities		239,018			203,671
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero issued and outstanding)		—			—
Common stock, $0.01 par value per share (200,000,000 shares authorized; 40,449,776 and 39,836,038 shares issued and outstanding)		404			398
Additional paid-in capital		121,697			115,208
Accumulated deficit		(84,090	)		(54,479	)
Total shareholders’ equity, SkyWater Technology, Inc.		38,011			61,127
Non-controlling interests		(382	)		(1,200	)
Total shareholders’ equity		37,629			59,927
Total liabilities and shareholders’ equity	$	276,647		$	263,598

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

	Three Months Ended						Six Months Ended
	July 3, 2022			July 4, 2021			July 3, 2022			July 4, 2021
	(in thousands, except share and per share data)
Revenue	$	47,407		$	41,189		$	95,528		$	89,290
Cost of revenue		45,327			39,377			94,388			78,312
Gross profit		2,080			1,812			1,140			10,978
Research and development		2,361			3,339			4,643			5,266
Selling, general and administrative expenses		10,795			15,415			22,485			24,018
Change in fair value of contingent consideration		—			(942	)		—			(886	)
Operating loss		(11,076	)		(16,000	)		(25,988	)		(17,420	)
Other (expense) income:
Paycheck Protection Program loan forgiveness		—			6,453			—			6,453
Interest expense		(1,040	)		(912	)		(2,069	)		(1,970	)
Total other (expense) income		(1,040	)		5,541			(2,069	)		4,483
Loss before income taxes		(12,116	)		(10,459	)		(28,057	)		(12,937	)
Income tax expense (benefit)		63			(4,237	)		(131	)		(4,662	)
Net loss		(12,179	)		(6,222	)		(27,926	)		(8,275	)
Less: net income attributable to non-controlling interests		826			757			1,685			1,515
Net loss attributable to SkyWater Technology, Inc.	$	(13,005	)	$	(6,979	)	$	(29,611	)	$	(9,790	)
Net loss per share attributable to common shareholders, basic and diluted:	$	(0.32	)	$	(0.20	)	$	(0.74	)	$	(0.54	)
Weighted average shares used in computing net loss per common share, basic and diluted:		40,203,050			34,707,758			40,031,615			18,884,051

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

	Six Months Ended
	July 3, 2022			July 4, 2021

	(in thousands)
Cash flows from operating activities:
Net loss	$	(27,926	)	$	(8,275	)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:
Depreciation and amortization		13,657			13,336
Gain on Paycheck Protection Program loan forgiveness		—			(6,453	)
Amortization of debt issuance costs included in interest expense		348			320
Long-term incentive and stock-based compensation		5,334			7,008
Change in fair value of contingent consideration		—			(886	)
Cash paid for contingent consideration in excess of initial valuation		(375	)		(6,114	)
Deferred income taxes		(137	)		(5,191	)
Non-cash revenue related to customer equipment		—			(2,481	)
Changes in operating assets and liabilities:
Accounts receivable		(1,024	)		(3,401	)
Inventories		(3,865	)		(1,998	)
Prepaid expenses and other assets		(751	)		5,672
Accounts payable and accrued expenses		6,047			(4,482	)
Deferred revenue		(5,170	)		(16,695	)
Income tax payable and receivable		—			(1,171	)
Net cash used in operating activities		(13,862	)		(30,811	)
Cash flows from investing activities:
Purchase of software and licenses		(400	)		(357	)
Purchases of property and equipment		(5,463	)		(12,898	)
Net cash used in investing activities		(5,863	)		(13,255	)
Cash flows from financing activities:
Proceeds from issuance of common stock pursuant to the initial public offering, net of underwriting discounts and commissions		—			104,212
Net proceeds on Revolver		18,946			382
Proceeds from the issuance of common stock pursuant to the employee stock purchase plan and a long term incentive plan		1,128			—
Cash paid for offering costs		—			(1,205	)
Cash paid for capital leases		(416	)		(288	)
Distributions to VIE member		(867	)		(1,373	)
Cash paid on license technology obligations		(500	)		—
Repayment of Financing		(509	)		(495	)
Net cash provided by financing activities		17,782			101,233
Net change in cash and cash equivalents		(1,943	)		57,167
Cash and cash equivalents - beginning of period		12,917			7,436
Cash and cash equivalents - end of period	$	10,974		$	64,603

Supplemental Revenue and Cost of Revenue Information by Quarter

		Q1 2021		Q2 2021		Q3 2021		Q4 2021		Q1 2022		Q2 2022
	(in thousands)
Wafer Services revenue		$	10,019	$	14,312	$	12,652	$	14,174	$	21,546	$	17,584
Advanced Technology Services revenue			38,082		26,877		22,373		24,359		26,575		29,823
Revenue		$	48,101	$	41,189	$	35,025	$	38,533	$	48,121	$	47,407

Tool revenue (included in ATS revenue)		$	15,405	$	2,346	$	281	$	1,127	$	984	$	313
Tool cost of revenue		$	9,873	$	1,223	$	281	$	701	$	984	$	200
Revenue impact of new contract with significant customer			—		—		—		—		8,230	$	—
Cost of revenue impact of new contract with significant customer			—		—		—		—		10,887	$	—

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