SkyWater Technology Reports Third Quarter 2023 Results

Non-GAAP Financial Measures

We provide supplemental, non-GAAP financial information that our management regularly evaluates to provide additional insight to investors as supplemental information to our results reported using U.S. generally accepted accounting principles (GAAP). We provide non-GAAP gross profit, non-GAAP gross margin, non-GAAP net loss to shareholders, and non-GAAP net loss to shareholders per share. Our management uses these non-GAAP financial measures to make informed operating decisions, complete strategic planning, prepare annual budgets, and evaluate Company and management performance. We believe these non-GAAP financial measures are useful performance measures to our investors because they provide a baseline for analyzing trends in our business and exclude certain items that may not be indicative of our core operating results. The non-GAAP financial measures disclosed in this earnings press release should not be viewed as an alternative to, or more meaningful than, the reported results prepared in accordance with GAAP. In addition, because these non-GAAP financial measures are not determined in accordance with GAAP, other companies, including our peers, may calculate their non-GAAP financial measures differently than we do. As a result, the non-GAAP financial measures presented in this earnings press release may not be directly comparable to similarly titled measures presented by other companies.

We also provide adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin as supplemental non-GAAP measures. We define adjusted EBITDA as net (loss) income before net interest expense, income tax (benefit) expense, depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including net income attributable to noncontrolling interests, certain management consulting fees, CHIPS Act specialist fees, management transition expense, and SkyWater Florida start-up costs. Our management uses adjusted EBITDA and adjusted EBITDA margin to make informed operating decisions, complete strategic planning, prepare annual budgets, and evaluate Company and management performance. We believe adjusted EBITDA is a useful performance measure to our investors because it allows for an effective evaluation of our operating performance when compared to other companies, including our peers, without regard to financing methods or capital structures. We exclude the items listed above from net income or loss in arriving at adjusted EBITDA because the amounts of these items can vary substantially within our industry depending on the accounting methods and policies used, book values of assets, capital structures, and the methods by which assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net (loss) income determined in accordance with GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost bases of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from adjusted EBITDA. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP financial measures should not be interpreted as implying that these items are non-recurring, infrequent or unusual, unless otherwise expressly indicated.

We continuously evaluate the non-GAAP financial measures we use, the manner in which non-GAAP financial measures are calculated, and the adjustments we make to GAAP results to derive our non-GAAP financial measures. In the third quarter of 2023, we made the following changes to our non-GAAP financial measures and revised prior period non-GAAP financial measures to conform the calculation of non-GAAP financial measures across all periods and provide comparability:

  • Tool sales have historically been infrequent and viewed by management as secondary to ATS development programs. Accordingly, we previously excluded the margin on tool sales when calculating non-GAAP gross profit, non-GAAP gross margin, non-GAAP earnings to shareholders and non-GAAP earnings to shareholders per basic share. Recently, our ATS customers have increasingly sought us to purchase tools on their behalf and we expect this trend to continue going forward. Accordingly, we no longer believe tool sales are infrequent and therefore do not exclude the impact of tool revenue and tool cost of revenue in the calculation of our non-GAAP financial measures.
  • Since the second quarter of 2023, we have incurred project-based, management consulting fees related to long-term transformation activities focused on improvement in automation and operational efficiency. Similarly, we have also incurred project-based specialist fees associated with our CHIPS Act application. Neither of these types of fees are required to run our business and, therefore, are incremental to our ongoing operations and are not a normal operating expense. Beginning in the third quarter of 2023, we began excluding these fees in the calculation of non-GAAP earnings, non-GAAP earnings to shareholders per share, and adjusted EBITDA.

The following tables present a reconciliation of the most directly comparable financial measures, calculated and presented in accordance with GAAP, to our non-GAAP financial measures.

SKYWATER TECHNOLOGY, INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(Unaudited)

 

 

Three-Month Period Ended

 

October 1,
2023

 

July 2, 2023
(Revised)

 

October 2,
2022
(Revised)

 

(in thousands)

GAAP revenue

$

71,624

 

 

$

69,811

 

 

$

52,326

 

 

 

 

 

 

 

GAAP cost of revenue

$

57,477

 

 

$

53,144

 

 

$

44,049

 

Equity-based compensation (1)

 

(438

)

 

 

(291

)

 

 

(456

)

Management transition expense (2)

 

 

 

 

(705

)

 

 

 

SkyWater Florida start-up costs (3)

 

 

 

 

 

 

 

(114

)

Non-GAAP cost of revenue

$

57,039

 

 

$

52,148

 

 

$

43,479

 

 

 

 

 

 

 

GAAP gross profit

$

14,147

 

 

$

16,667

 

 

$

8,277

 

GAAP gross margin

 

19.8

%

 

 

23.9

%

 

 

15.8

%

Equity-based compensation (1)

$

438

 

 

$

291

 

 

$

456

 

Management transition expense (2)

 

 

 

 

705

 

 

 

 

SkyWater Florida start-up costs (3)

 

 

 

 

 

 

 

114

 

Non-GAAP gross profit

$

14,585

 

 

$

17,663

 

 

$

8,847

 

Non-GAAP gross margin

 

20.4

%

 

 

25.3

%

 

 

16.9

%

 

 

 

 

 

 

GAAP research and development expense

$

2,233

 

 

$

2,396

 

 

$

2,580

 

Equity-based compensation (1)

 

(218

)

 

 

(217

)

 

 

(115

)

Non-GAAP research and development expense

$

2,015

 

 

$

2,179

 

 

$

2,465

 

 

 

 

 

 

 

GAAP selling, general, and administrative expense

$

16,105

 

 

$

17,820

 

 

$

10,778

 

Equity-based compensation (1)

 

(1,197

)

 

 

(1,459

)

 

 

(1,128

)

Management transition expense (2)

 

 

 

 

(130

)

 

 

 

Management consulting fees (4)

 

(3,522

)

 

 

(2,500

)

 

 

 

CHIPS Act specialist fees (5)

 

 

 

 

(1,320

)

 

 

 

Non-GAAP selling, general, and administrative expense

$

11,386

 

 

$

12,411

 

 

$

9,650

 

 

Three-Month Period Ended

 

October 1,
2023

 

July 2, 2023
(Revised)

 

October 2,
2022
(Revised)

 

(in thousands)

GAAP net loss to shareholders

$

(7,568

)

 

$

(8,590

)

 

$

(6,939

)

Equity-based compensation (1)

 

1,853

 

 

 

1,967

 

 

 

1,699

 

Management transition expense (2)

 

 

 

 

835

 

 

 

 

SkyWater Florida start-up costs (3)

 

 

 

 

 

 

 

114

 

Management consulting fees (4)

 

3,522

 

 

 

2,500

 

 

 

 

CHIPS Act specialist fees (5)

 

 

 

 

1,320

 

 

 

 

Non-GAAP net loss to shareholders

$

(2,193

)

 

$

(1,968

)

 

$

(5,126

)

 

 

 

 

 

 

Equity-based compensation allocation in the consolidated statements of operations (1):

 

 

 

 

 

Cost of revenue

$

438

 

 

$

291

 

 

$

456

 

Research and development expense

 

218

 

 

 

217

 

 

 

115

 

Selling, general, and administrative expense

 

1,197

 

 

 

1,459

 

 

 

1,128

 

 

$

1,853

 

 

$

1,967

 

 

$

1,699

 

 

 

 

 

 

 

Management transition expense allocation in the consolidated statements of operations (2):

 

 

 

 

 

Cost of revenue

$

 

 

$

705

 

 

$

 

Selling, general, and administrative expense

 

 

 

 

130

 

 

 

 

 

$

$

835

— 

 

 

Three-Month Period Ended
October 1, 2023

 

GAAP

 

Non-GAAP

Computation of net loss per common share, basic and diluted:

(in thousands, except per share data)

Numerator:

 

 

 

Net loss attributable to SkyWater Technology, Inc.

$

(7,568

)

 

$

(2,193

)

Denominator:

 

 

 

Weighted-average common shares outstanding, basic and diluted

 

46,445

 

 

 

46,445

 

Net loss per common share, basic and diluted

$

(0.16

)

 

$

(0.05

)

 

 

 

 

 

Three-Month Period Ended
July 2, 2023 (Revised)

 

GAAP

 

Non-GAAP

Computation of net loss per common share, basic and diluted:

(in thousands, except per share data)

Numerator:

 

 

 

Net loss attributable to SkyWater Technology, Inc.

$

(8,590

)

 

$

(1,968

)

Denominator:

 

 

 

Weighted-average common shares outstanding, basic and diluted

 

44,743

 

 

 

44,743

 

Net loss per common share, basic and diluted

$

(0.19

)

 

$

(0.04

)

 

 

 

 

 

Three-Month Period Ended October 2, 2022

 

GAAP

 

Non-GAAP

Computation of net loss per common share, basic and diluted:

(in thousands, except per share data)

Numerator:

 

 

 

Net loss attributable to SkyWater Technology, Inc.

$

(6,939

)

 

$

(5,126

)

Denominator:

 

 

 

Weighted-average common shares outstanding, basic and diluted

 

40,669

 

 

 

40,669

 

Net loss per common share, basic and diluted

$

(0.17

)

 

$

(0.13

)

 

Three-Month Period Ended

 

Nine-Month Period Ended

 

October 1,
2023

 

July 2, 2023
(Revised)

 

October 2,
2022

 

October 1,
2023

 

October 2,
2022

 

(in thousands)

Net loss to shareholders (GAAP)

$

(7,568

)

 

$

(8,590

)

 

$

(6,939

)

 

$

(20,431

)

 

$

(36,550

)

Net loss margin to shareholders

 

(10.6

)%

 

 

(12.3

)%

 

 

(13.3

)%

 

 

(9.8

)%

 

 

(24.7

)%

Interest expense (6)

$

2,507

 

 

$

2,950

 

 

$

1,331

 

 

$

7,928

 

 

$

3,400

 

Income tax (benefit) expense

 

(96

)

 

 

25

 

 

 

87

 

 

 

(71

)

 

 

(44

)

Depreciation and amortization

 

7,092

 

 

 

7,207

 

 

 

7,083

 

 

 

21,651

 

 

 

20,740

 

EBITDA

 

1,935

 

 

 

1,592

 

 

 

1,562

 

 

 

9,077

 

 

 

(12,454

)

Equity-based compensation (1)

 

1,853

 

 

 

1,967

 

 

 

1,699

 

 

 

5,673

 

 

 

7,033

 

Management transition expense (2)

 

 

 

 

835

 

 

 

 

 

 

835

 

 

 

 

SkyWater Florida start-up costs (3)

 

 

 

 

 

 

 

114

 

 

 

 

 

 

674

 

Management consulting fees (4)

 

3,522

 

 

 

2,500

 

 

 

 

 

 

6,022

 

 

 

 

CHIPS Act specialist fees (5)

 

 

 

 

1,320

 

 

 

 

 

 

1,320

 

 

 

 

Net income attributable to noncontrolling interests (7)

 

966

 

 

 

2,066

 

 

 

440

 

 

 

3,739

 

 

 

2,125

 

Adjusted EBITDA

$

8,276

 

 

$

10,280

 

 

$

3,815

 

 

$

26,666

 

 

$

(2,622

)

Adjusted EBITDA margin

 

11.6

%

 

 

14.7

%

 

 

7.3

%

 

 

12.8

%

 

 

(1.8

)%

__________________

(1)

Represents non-cash equity-based compensation expense.

(2)

Represents severance and other costs related to the reorganization of the manufacturing and operations leadership team.

(3)

Represents start-up costs associated with our 200 mm heterogeneous integration facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards and facility start-up expenses. These expenses are not representative of our expected ongoing costs. Effective 2023, our Kissimmee, Florida plant is up and running and no longer in its start-up phase.

(4)

Represents project-based management consulting fees related to long-term transformation activities focused on improvement in automation and operational efficiency.

(5)

Represents project-based specialist fees related to our CHIPS Act application process.

(6)

Includes losses related to the extinguishment of our revolving credit agreement in 2022.

(7)

Represents net income attributable to our VIE, which was formed for the purpose of purchasing the land and building of our primary operating facility in Bloomington, Minnesota. Since depreciation and interest expense are excluded from net loss in our adjusted EBITDA financial measure, we also exclude the net income attributable to the VIE.


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