Financial Data and Key Metrics Changes - Total revenue for Q4 2022 was $65.1 million, a 24% increase from Q3 and a 69% increase year-over-year [10] - Gross profit for Q4 increased to $16.6 million, representing 25.4% of revenues, with a non-GAAP gross margin of 26.2% [26] - Adjusted EBITDA reached a record $10.3 million in Q4, including a $4.7 million profit from a revenue recognition event [12][26] Business Line Data and Key Metrics Changes - Wafer Services revenues were $17.2 million, consistent with the prior two quarters and reflecting a 21% year-over-year growth [10] - ATS revenues totaled $47.9 million, including a $4.7 million nonrecurring revenue event, with a nearly 50% year-over-year growth in ATS business net of tool sales [22][10] Market Data and Key Metrics Changes - The semiconductor industry is experiencing a downturn; however, demand for innovation remains strong, particularly in R&D investments from customers [7][23] - The company expects to benefit from strategic government programs, which are well-funded and considered low-risk for revenue growth [23][87] Company Strategy and Development Direction - The company aims for annual revenue growth approaching 25% in 2023, driven by established ATS and Wafer Services programs [4][94] - Strategic partnerships with organizations like Google and the National Institute of Standards and Technology are expected to support growth [5] - The company anticipates a diversified and profitable Wafer Services business as ATS customers transition to volume production [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued revenue growth despite macroeconomic challenges, citing secured funding for government programs [23][88] - The company expects gross margins to range between 15% and 20% in 2023, with potential for improvement as productivity increases [20][11] Other Important Information - Total debt outstanding increased to $92.9 million, with new funding alternatives in place to support growth [13] - The company has a clear path to gross margins approaching 40% by the end of 2025 [9] Q&A Session Summary Question: What is the expected growth in revenue for Wafer Services and ATS? - Management indicated that both Wafer Services and ATS are expected to grow, with ATS growing at a faster pace [32] Question: How is the relationship with Infineon evolving? - The strategic relationship with Infineon is expected to enhance pricing and commitment, with a focus on automotive and industrial sectors [33] Question: What are the growth drivers for 2024? - Management highlighted the ramping of multiple commercial programs and diversification of the customer base as key growth drivers [18] Question: How does the company plan to manage pricing and volume? - Management noted that the unique technologies being developed with customers allow for better pricing and negotiation leverage [40] Question: What is the status of the long-term CapEx program? - The CapEx program is ongoing and supports expansion and growth, with investments expected to continue into 2024 [41] Question: How confident is the company in the funding of commercial programs? - Management expressed high confidence in the funding of commercial programs due to the maturity of technologies and commitment from investors [69]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________ FORM 10-Q ______________________ x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: October 2, 2022 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 001-40345 ______________________ SkyWater Technology, Inc. (E ...

Financial Data and Key Metrics Changes - The company reported record quarterly revenue of over $52 million, reflecting a 10% sequential growth from Q2 and approximately 50% growth over Q3 of the previous year [8][45] - Gross profit increased significantly in Q3 to $8.3 million, representing 15.8% of revenues, aided by a one-time cost reversal of $800,000 [48][45] - Adjusted EBITDA turned positive at $3.8 million, equal to 7% of revenue, indicating improved profitability [13][59] Business Line Data and Key Metrics Changes - Advanced Technology Services (ATS) revenue was $35.2 million, up 18% from Q2 and 57% year-over-year, driving the majority of growth [45][8] - Wafer Services revenue was $17.2 million, down slightly from Q2 but up 36% year-over-year [45] - The improved pricing terms with legacy wafer services customers raised the revenue baseline, contributing to sequential quarterly improvements despite a weakening macro environment [11] Market Data and Key Metrics Changes - The company is experiencing strong momentum with multiple key customers, particularly in the ATS segment, which is expected to continue driving revenue growth [8][41] - The Rad-Hard Phase 2 award, valued at nearly $100 million, is a significant driver of sequential revenue growth in Q3 and expected modest growth in Q4 [17][41] Company Strategy and Development Direction - The company is focused on strategic growth areas, including extreme environment microelectronics and partnerships with organizations like Google and the National Institute of Standards and Technology [15][20] - The establishment of a new 300-millimeter semiconductor fab on Purdue's campus is a cornerstone of the company's strategy to strengthen domestic semiconductor manufacturing [25][27] - The company aims to leverage public-private partnerships to enhance its semiconductor manufacturing model and capitalize on CHIPS Act funding opportunities [23][28] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding business growth, acknowledging the unpredictability of the macroeconomic environment while highlighting strong customer commitments [110][112] - The company expects to meet or potentially exceed its long-term revenue growth target of 25% in 2022, supported by significant program design wins and awards [41][42] Other Important Information - The company ended the quarter with $9.3 million in cash and cash equivalents, with total debt outstanding at $77.8 million [60] - A universal shelf registration statement for up to $250 million was filed to enhance funding flexibility for strategic growth initiatives [61] Q&A Session Summary Question: What is the time frame for absorbing unabsorbed fixed costs related to long-term investments? - Management indicated that costs related to the RH90 program would start being absorbed in 2025, while costs from Florida operations would be absorbed as production ramps up in 2024 [75][79] Question: How should CapEx be viewed in relation to the CHIPS Act? - Management clarified that the $36 million grant for Florida is independent of the CHIPS Act, while the Minnesota facility would pursue CHIPS funding aggressively [81][82] Question: What is the status of the RH90 program funding? - The original Phase 1 funding is nearly complete, with a remaining $33 million, while the Phase 2 funding of $99 million will not be evenly distributed over the next two years [90][92] Question: Are current staffing levels appropriate for revenue opportunities? - Management noted that while staffing levels are close to targets, there are still open positions for maintenance technicians and additional engineers will be recruited to support growth [96][99] Question: How are commercial customers responding to the increased activity? - Management reported that a significant percentage of ATS engagements are non-governmental, with commercial customers ramping up their activities in anticipation of future growth [104][106]

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section provides a standard safe harbor statement, cautioning that forward-looking statements are subject to risks and uncertainties and actual results may differ [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section provides a standard safe harbor statement, cautioning that forward-looking statements are subject to risks and uncertainties and actual results may differ - The report identifies several key factors and risks that could affect future results, including business goals, foundry capacity, customer relationships, supply chain risks, the impact of COVID-19, and U.S. government funding levels[9](index=9&type=chunk)[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Condensed Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Financial%20Statements%20(unaudited)) Presents SkyWater Technology's unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and notes for periods ended July 3, 2022 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 3, 2022, total assets increased to **$276,647 thousand** while total liabilities rose to **$239,018 thousand**, leading to a decrease in total shareholders' equity to **$37,629 thousand** Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | July 3, 2022 | January 2, 2022 | | :--- | :--- | :--- | | **Total current assets** | $79,567 | $74,397 | | **Total assets** | $276,647 | $263,598 | | **Total current liabilities** | $64,764 | $47,765 | | **Total liabilities** | $239,018 | $203,671 | | **Total shareholders' equity** | $37,629 | $59,927 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2022 revenue increased to **$47,407 thousand** but net loss widened to **$13,005 thousand**, with year-to-date revenue at **$95,528 thousand** and net loss at **$29,611 thousand** Key Operating Results (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $47,407 | $41,189 | $95,528 | $89,290 | | **Gross Profit** | $2,080 | $1,812 | $1,140 | $10,978 | | **Operating Loss** | $(11,076) | $(16,000) | $(25,988) | $(17,420) | | **Net Loss Attributable to SkyWater** | $(13,005) | $(6,979) | $(29,611) | $(9,790) | | **Net Loss Per Share** | $(0.32) | $(0.20) | $(0.74) | $(0.54) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended July 3, 2022, net cash used in operating activities improved to **$13,862 thousand**, while net cash provided by financing activities significantly decreased to **$17,782 thousand** Six-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended July 3, 2022 | Six Months Ended July 4, 2021 | | :--- | :--- | :--- | | **Net cash used in operating activities** | $(13,862) | $(30,811) | | **Net cash used in investing activities** | $(5,863) | $(13,255) | | **Net cash provided by financing activities** | $17,782 | $101,233 | | **Net change in cash and cash equivalents** | $(1,943) | $57,167 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide critical context to the financial statements, detailing liquidity needs, revenue recognition changes, balance sheet components, debt, and major customer concentrations - The company's business plans indicate a need for additional liquidity to continue operations for the next 12 months, and management has obtained a support letter from an affiliate of its principal stockholder for up to **$12,500 thousand** in funding[41](index=41&type=chunk) - In March 2022, a new contract with a significant wafer services customer led to a change in revenue recognition from point-in-time to over-time, resulting in an **$8,230 thousand** revenue recognition in the first six months of 2022 for in-process wafers[55](index=55&type=chunk) Major Customer Revenue Concentration | Customer | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Customer A | 21% | 19% | 20% | 28% | | Customer B | 28% | 28% | 34% | 23% | | Customer C | * | 15% | * | 11% | | **Total** | **49%** | **62%** | **54%** | **62%** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial performance, liquidity, and capital resources for Q2 and H1 2022, including a reconciliation of Adjusted EBITDA [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Q2 2022 revenue increased **15%** to **$47,407 thousand**, with six-month revenue up **7%** to **$95,528 thousand**, but gross profit declined to **$1,140 thousand** due to lower-margin revenue and inflation Revenue by Service Type (in thousands) | Service Type | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | **Wafer Services** | $17,584 | $14,312 | $39,130 | $24,331 | | **Advanced Technology Services** | $29,823 | $26,877 | $56,398 | $64,959 | | **Total** | **$47,407** | **$41,189** | **$95,528** | **$89,290** | - The six-month gross profit decline of **$9,900 thousand** was primarily due to a **$6,500 thousand** (**98%**) decrease in gross profit from tool revenues and increased inflationary costs for materials and labor[152](index=152&type=chunk) - Selling, general and administrative expenses for Q2 2022 decreased by **$4,600 thousand** (**30%**) year-over-year, mainly due to a **$3,000 thousand** reduction in equity-based compensation and a **$1,800 thousand** decrease in labor expense related to a 2021 IPO bonus program[154](index=154&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company requires additional financing for liquidity, holding **$10,700 thousand** in cash and **$17,600 thousand** available under its Revolver, with a **$12,500 thousand** support letter and ongoing capital investments - Management has concluded that additional liquidity is required to continue operations for the next 12 months and has obtained a support letter from an affiliate of its principal stockholder for up to **$12,500 thousand** in funding[160](index=160&type=chunk) - As of July 3, 2022, the company had **$10,700 thousand** in cash and cash equivalents (excluding VIE) and **$17,600 thousand** in availability under its Revolver[162](index=162&type=chunk) - In July 2021, the Board approved a **$56,000 thousand** strategic capital investment to expand manufacturing capacity and technology capabilities, with contractual commitments of approximately **$12,000 thousand** for capital expenditures for the remainder of 2022[164](index=164&type=chunk)[167](index=167&type=chunk) [Non-GAAP Financial Measure](index=38&type=section&id=Non-GAAP%20Financial%20Measure) The company uses Adjusted EBITDA as a non-GAAP measure, which was negative **$1,602 thousand** in Q2 2022 and negative **$6,437 thousand** for the first six months of 2022 Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | **Net loss attributable to SkyWater** | $(13,005) | $(6,979) | $(29,611) | $(9,790) | | Interest expense | 1,040 | 912 | 2,069 | 1,970 | | Income tax (benefit) expense | 63 | (4,237) | (131) | (4,662) | | Depreciation and amortization | 7,198 | 6,854 | 13,657 | 13,336 | | Other adjustments | 3,102 | 8,023 | 7,579 | 10,771 | | **Adjusted EBITDA** | **$(1,602)** | **$(804)** | **$(6,437)** | **$4,825** | [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate fluctuations on variable-rate debt and credit risk from cash balances and accounts receivable - The company's main market risk is from potential changes in the fair value of its debt due to fluctuations in market interest rates[206](index=206&type=chunk) - Credit risk exists from cash and cash equivalents held in financial institutions and from trade accounts receivable, with the company performing ongoing credit evaluations of customers to manage this risk[207](index=207&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of July 3, 2022, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of July 3, 2022, due to material weaknesses in internal control over financial reporting[210](index=210&type=chunk) - Material weaknesses exist in the control environment and risk assessment due to limited accounting resources, and in control activities related to revenue recognition[211](index=211&type=chunk) - A remediation plan is underway, including hiring new personnel with Sarbanes-Oxley experience and completing the design of internal controls for financial reporting and revenue, though the operating effectiveness of these new controls has not yet been tested over a sustained period[212](index=212&type=chunk)[213](index=213&type=chunk) [PART II. OTHER INFORMATION](index=40&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any litigation expected to have a material adverse effect on its business or financial condition - As of the filing date, SkyWater is not involved in any material legal proceedings[217](index=217&type=chunk) [Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since its Annual Report on Form 10-K for the fiscal year ended January 2, 2022 - No material changes to risk factors have occurred since the company's 2021 Annual Report on Form 10-K[218](index=218&type=chunk) [Other Part II Items](index=41&type=section&id=Other%20Part%20II%20Items) This section covers standard disclosures including no unregistered equity sales, no defaults on senior securities, and a list of filed exhibits - Item 2: No unregistered sales of equity securities[219](index=219&type=chunk) - Item 3: No defaults upon senior securities[220](index=220&type=chunk) - Item 6: A list of exhibits filed with the Form 10-Q is provided[223](index=223&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $47.4 million, up 50% year-over-year, with wafer services revenue increasing by 23% and ATS revenue growing by 11% [7][48] - Gross profit turned positive at just over $2 million, representing 4.4% of revenues, with non-GAAP gross margin improving to 5.6% [54][56] - The company is on track to achieve revenue growth in 2022 approaching the long-term annual growth target of 25% [9][46] Business Line Data and Key Metrics Changes - Wafer services revenue was $17.6 million, while ATS revenue was $29.8 million, with ATS revenue accounting for 63% of total sales [48][54] - ATS revenues grew 20% year-over-year when excluding tool revenues, effectively offsetting the decline in wafer services revenue due to prior accounting adjustments [52][54] - The company added five new ATS program wins in Q2, increasing the total number of wafer services customers to seven [53] Market Data and Key Metrics Changes - The company is positioned to benefit from the CHIPS Act, which allocates $52 billion over five years for domestic semiconductor manufacturing and R&D [19][20] - The Indiana facility, a $1.8 billion investment, aims to enhance domestic semiconductor supply and is expected to drive significant revenue growth in the second half of the decade [12][18] Company Strategy and Development Direction - The company aims to address the global semiconductor shortage and enhance U.S. innovation in semiconductor manufacturing through strategic partnerships and investments [15][16] - Focus areas include Rad-Hard technology, biohealth, and heterogeneous integration, with ongoing investments to support long-term growth [21][31][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued sequential revenue growth and gross margin expansion despite potential economic headwinds [45][46] - The company noted that two-thirds of its revenue comes from R&D budgets, which tend to be more resilient during economic downturns [43][44] Other Important Information - The company is experiencing historically low labor turnover, which is improving fab efficiency and cycle times [57] - Inflationary costs are impacting margins, with expectations of continued pressure from labor and material costs [80][124] Q&A Session Summary Question: Clarification on near-term gross margin headwinds - Management acknowledged inflationary costs impacting margins and indicated that while gross margins are expected to remain in single digits for 2022, improvements are anticipated in 2023 as revenue and utilization increase [76][80] Question: Update on the CHIPS Act and Indiana fab - Management confirmed the Indiana fab is a $1.8 billion project, with funding dynamics still being determined, and emphasized the importance of innovation funding tied to the CHIPS Act [83][84][86] Question: Long-term growth rate and customer conversations post-CHIPS Act - Management clarified that the 25% growth commitment is independent of the CHIPS Act, but the act provides a risk reduction and potential for additional funding [95][96] Question: Breakdown of revenue growth drivers - Management indicated that growth is driven by higher average selling prices (ASPs) and increased productivity, with a mix of two-thirds ATS and one-third wafer services [108][110] Question: CapEx outlook for the next couple of years - Management expects CapEx for core business to remain in the $10 million to $20 million range annually, with additional customer-funded CapEx on top of that [113][116] Question: Ability to pass on inflationary costs - Management discussed the challenges of passing on inflationary costs but noted that price increases have been implemented across various contracts [121][128]

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to numerous risks and uncertainties [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to numerous risks and uncertainties - The report contains forward-looking statements that are not guarantees of future performance and are subject to a number of risks, uncertainties, and assumptions[8](index=8&type=chunk)[9](index=9&type=chunk) - Key factors that may affect results include customer relationships, ability to respond to changing technologies, supply chain shortages, cost control, the impact of the COVID-19 pandemic, and the level of US government program funding[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for the quarter ended April 3, 2022 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of April 3, 2022, total assets were $271.7 million, total liabilities increased to $224.2 million, and total shareholders' equity decreased to $47.5 million Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | April 3, 2022 | January 2, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$271,676** | **$263,598** | | Cash and cash equivalents | $6,435 | $12,917 | | Accounts receivable, net | $47,698 | $39,381 | | Property and equipment, net | $187,364 | $180,475 | | **Total Liabilities** | **$224,167** | **$203,671** | | Long-term debt | $67,727 | $58,428 | | Deferred revenue - long-term | $82,944 | $88,094 | | **Total Shareholders' Equity** | **$47,509** | **$59,927** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue was flat at $48.1 million, but increased cost of revenue led to a gross loss of $0.9 million and a net loss of $16.6 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :--- | :--- | :--- | | Revenue | $48,121 | $48,101 | | Cost of revenue | $49,061 | $38,935 | | **Gross profit (loss)** | **$(940)** | **$9,166** | | Operating loss | $(14,912) | $(1,420) | | **Net loss attributable to SkyWater** | **$(16,606)** | **$(2,811)** | | Net loss per share, basic and diluted | $(0.42) | $(1.04) | [Condensed Consolidated Statements of Shareholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Deficit)) Total shareholders' equity decreased by $12.4 million to $47.5 million, primarily due to a net loss of $16.6 million for the period - Total shareholders' equity decreased by **$12.4 million** during the quarter, from **$59.9 million** on January 2, 2022, to **$47.5 million** on April 3, 2022. The decline was mainly due to a net loss of **$16.6 million** attributable to the company[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to $10.8 million, resulting in a $6.5 million decrease in cash and cash equivalents during the quarter Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended April 3, 2022 | Three Months Ended April 4, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,792) | $(8,424) | | Net cash used in investing activities | $(4,814) | $(5,397) | | Net cash provided by financing activities | $9,124 | $10,601 | | **Net change in cash and cash equivalents** | **$(6,482)** | **$(3,220)** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, liquidity concerns, revenue recognition changes, and significant customer concentrations - The company states it will require additional liquidity to continue operations for the next 12 months and is implementing a plan to reduce operating costs, which may include reducing spending and delaying personnel increases[36](index=36&type=chunk) - In March 2022, a new contract with a significant wafer services customer changed revenue recognition to 'over time', resulting in an immediate recognition of **$8.2 million** for work-in-process wafers[50](index=50&type=chunk) - For Q1 2022, two major customers accounted for **56% of revenue** (Customer A: **16%**, Customer B: **40%**), compared to **66%** from three customers in Q1 2021[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 financial performance, highlighting flat revenue, a gross loss, and a widened net loss, alongside liquidity and capital resource needs [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Revenue remained flat at $48.1 million, with Wafer Services growing 115% while Advanced Technology Services declined 30%, leading to a gross loss due to increased costs Revenue by Service Type (in thousands) | Service Type | Q1 2022 | Q1 2021 | Dollar Change | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Wafer Services | $21,546 | $10,019 | $11,527 | 115% | | Advanced Technology Services | $26,575 | $38,082 | $(11,507) | (30)% | | **Total** | **$48,121** | **$48,101** | **$20** | **0%** | - Gross profit decreased by **$10.1 million (110%)** to a loss of **$0.9 million**, driven by increased cost of revenue from higher labor costs, wage inflation, and higher prices for materials and parts due to supply chain challenges[142](index=142&type=chunk) - Selling, general and administrative expenses increased by **$3.1 million (36%)** primarily due to a **$1.8 million** increase in equity-based compensation, a **$1.2 million** increase in insurance expense, and higher personnel costs[144](index=144&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company requires additional liquidity for the next 12 months, implementing cost reduction plans, and has $6.2 million in cash with $29.1 million available under its Revolver - Management states that additional liquidity will be required to continue operations for the next 12 months and is implementing a plan to reduce operating costs[150](index=150&type=chunk) - As of April 3, 2022, the company had **$6.2 million** in cash and cash equivalents and **$29.1 million** in availability under its Revolver, but must maintain at least **$15 million** in availability to avoid triggering financial covenants[152](index=152&type=chunk) - The Board of Directors approved a **$56 million** strategic capital investment for expanding manufacturing capacity. Approximately **$15.8 million** was invested during 2021 and Q1 2022[154](index=154&type=chunk) [Non-GAAP Financial Measure](index=36&type=section&id=Non-GAAP%20Financial%20Measure) Adjusted EBITDA, a non-GAAP measure, was a loss of $4.8 million for Q1 2022, a significant decrease from a positive $5.6 million in Q1 2021 Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net loss attributable to SkyWater | $(16,606) | $(2,811) | | Interest expense | 1,029 | 1,058 | | Income tax (benefit) expense | (194) | (425) | | Depreciation and amortization | 6,458 | 6,482 | | **EBITDA** | **(9,313)** | **4,304** | | Adjustments | 4,477 | 1,325 | | **Adjusted EBITDA** | **$(4,836)** | **$5,629** | - Adjusted EBITDA decreased by **$10.5 million**, or **186%**, to **$(4.8) million** for Q1 2022 from **$5.6 million** for Q1 2021, primarily due to decreased gross profit[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk stems from interest rate fluctuations on variable-rate debt and credit risk associated with cash balances and accounts receivable - The company's main market risk is from potential changes in the fair value of its debt due to fluctuations in market interest rates[192](index=192&type=chunk) - Credit risk is present in cash balances held in financial institutions, which may exceed federally insured limits, and in trade receivables from customers[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of April 3, 2022, due to material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of April 3, 2022, due to material weaknesses in internal control over financial reporting[197](index=197&type=chunk) - Material weaknesses were identified in the control environment and risk assessment due to limited accounting resources, and in control activities related to revenue recognition[198](index=198&type=chunk) - A remediation plan is in progress, which includes hiring additional qualified accounting and finance personnel and developing a Sarbanes-Oxley 404 Remediation Plan[199](index=199&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not presently a party to any litigation that is expected to have a material adverse effect on its business[202](index=202&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended January 2, 2022[203](index=203&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities during the period - None[204](index=204&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[206](index=206&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[207](index=207&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) The company reports no other information - None[208](index=208&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and a new material contract - A list of exhibits filed with the report is provided, including a Frame Agreement for the Purchase of Wafers and Services with Infineon Technologies AG, dated March 29, 2022[209](index=209&type=chunk)

SkyWater Technology, Inc. (NASDAQ:SKYT) Q1 2022 Earnings Conference Call May 3, 2022 4:30 PM ET Company Participants Claire McAdams - IR Thomas Sonderman - President and CEO Steve Manko - CFO Conference Call Participants Raji Gill - Needham & Company Mark Lipacis - Jefferies Krish Sankar - Cowen Richard Shannon - Craig-Hallum Operator Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SkyWater Technology First Quarter 2022 Financial R ...

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements Disclosure](index=3&type=section&id=Forward-Looking%20Statements%20Disclosure) This section clarifies that the Annual Report on Form 10-K contains forward-looking statements, which are subject to various risks, uncertainties, and assumptions, cautioning readers not to rely on them as guarantees of future performance - The report contains forward-looking statements, identified by words like 'may,' 'expect,' 'anticipate,' 'estimate,' 'intend,' 'plan,' 'target,' 'seek,' 'potential,' 'believe,' 'will,' 'could,' 'should,' 'would,' and 'project'[12](index=12&type=chunk) - Forward-Looking statements are subject to risks, uncertainties, and assumptions, meaning actual results could differ materially and adversely from expectations[13](index=13&type=chunk) - The company does not undertake to update publicly any forward-looking statements to conform to changes in expectations or actual results, except as required by law[14](index=14&type=chunk) [Summary of Our Risk Factors](index=3&type=section&id=SUMMARY%20OF%20OUR%20RISK%20FACTORS) [Key Risk Factors Overview](index=3&type=section&id=Key%20Risk%20Factors%20Overview) This section summarizes primary risks affecting the company's business, financial condition, and operations, including operational vulnerabilities, market challenges, and external factors - Operational risks include potential damage or inoperability of the **sole semiconductor foundry**, defects or performance problems in products, and failure to achieve satisfactory yields or quality[18](index=18&type=chunk)[97](index=97&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - Market and growth strategy risks involve difficulty in accurately predicting future revenues, customer order cancellations or quantity changes, inability to diversify the customer base, and inherent risks in expansion strategies[18](index=18&type=chunk)[19](index=19&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk) - Supply chain and competitive risks highlight dependence on successful parts and materials procurement, reliance on a limited number of third-party suppliers, and intense competition from larger, more resourced competitors[19](index=19&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[120](index=120&type=chunk) - External and regulatory risks include the **highly cyclical** nature of the semiconductor industry, potential financial crises, changes in trade policies (e.g., tariffs), and specific risks associated with U.S. Government contracts and compliance requirements[19](index=19&type=chunk)[20](index=20&type=chunk)[119](index=119&type=chunk)[127](index=127&type=chunk)[129](index=129&type=chunk)[149](index=149&type=chunk)[153](index=153&type=chunk) - Risks related to public company operations include increased costs and expenses, challenges in maintaining effective internal control over financial reporting, and volatility in common stock price[20](index=20&type=chunk)[23](index=23&type=chunk)[142](index=142&type=chunk)[146](index=146&type=chunk)[179](index=179&type=chunk) [Explanatory Note](index=5&type=section&id=EXPLANATORY%20NOTE) [Corporate Conversion Details](index=5&type=section&id=Corporate%20Conversion%20Details) This section explains the corporate conversion of CMI Acquisition, LLC into SkyWater Technology, Inc. on April 14, 2021, detailing conversion ratios for preferred and common units into common stock - On April 14, 2021, CMI Acquisition, LLC converted into SkyWater Technology, Inc., a Delaware corporation[22](index=22&type=chunk) - **18,000,000 Class B preferred units** converted into **27,995,400 shares of common stock** (approx. **1:1.56 ratio**)[22](index=22&type=chunk) - **2,105,936 common units** converted into **3,060,343 shares of common stock** (approx. **1:1.45 ratio**)[22](index=22&type=chunk) [PART I](index=6&type=section&id=PART%20I) [ITEM 1. Business](index=6&type=section&id=ITEM%201.%20Business) SkyWater is a U.S. independent technology foundry providing advanced semiconductor development and manufacturing services through a 'technology as a service' model for high-growth markets - SkyWater is a U.S. investor-owned, independent, pure-play technology foundry providing advanced semiconductor development and manufacturing services[25](index=25&type=chunk) - The company operates under a 'technology as a service' model, offering Advanced Technology Services for IP co-development and Wafer Services for volume production[25](index=25&type=chunk)[38](index=38&type=chunk) - Key competitive advantages include **DMEA Category 1A Trusted Foundry accreditation**, enhanced IP security, and a U.S. domestic supply chain, positioning it well for aerospace and defense markets[26](index=26&type=chunk)[46](index=46&type=chunk) - Growth strategy involves diversifying the customer base, expanding into new end markets (e.g., rad-hard, advanced packaging), leveraging U.S. government investments, and co-developing next-generation technologies[48](index=48&type=chunk) Customer Revenue Concentration (Fiscal Years 2022 & 2021) | Customer | FY2022 Revenue % | FY2021 Revenue % | | :--------- | :--------------- | :--------------- | | Cypress | 25% | 29% | | Other 1 | 24% | 16% | | Other 2 | <10% | 14% | [Overview](index=6&type=section&id=Overview) [Our Industry](index=6&type=section&id=Our%20Industry) [Our Business Model](index=7&type=section&id=Our%20Business) [Advanced Technology Services](index=8&type=section&id=Advanced%20Technology%20Services) [Wafer Services](index=8&type=section&id=Wafer%20Services) [Our Competitive Strengths](index=9&type=section&id=Our%20Competitive%20Strengths) [Our Growth Strategy](index=10&type=section&id=Our%20Growth%20Strategy) [Our Customers](index=11&type=section&id=Our%20Customers) [Our Platform Technologies](index=11&type=section&id=Our%20Platform%20Technologies) [Manufacturing](index=13&type=section&id=Manufacturing) [Our Competition](index=14&type=section&id=Our%20Competition) [Sales and Marketing](index=14&type=section&id=Sales%20and%20Marketing) [Intellectual Property and Research and Development](index=15&type=section&id=Intellectual%20Property%20and%20Research%20and%20Development) [Environmental, Safety and Quality Matters](index=15&type=section&id=Environmental,%20Safety%20and%20Quality%20Matters) [Human Capital Resources](index=16&type=section&id=Human%20Capital%20Resources) [Emerging Growth Company Status](index=16&type=section&id=Emerging%20Growth%20Company%20Status) [Available Information](index=16&type=section&id=Available%20information) [ITEM 1A. Risk Factors](index=16&type=section&id=ITEM%201A.%20RISK%20FACTORS) SkyWater faces significant risks from operational vulnerabilities, market challenges, supply chain disruptions, and stock volatility - The company's **sole semiconductor foundry** in Minnesota is a critical asset; damage or inoperability would severely impact business[97](index=97&type=chunk) - Dependence on two major customers (Cypress and one other) for a significant portion of sales (**25%** and **24%** respectively in FY2022) poses a risk if these relationships are lost or volumes decrease[110](index=110&type=chunk) - The semiconductor industry is **highly cyclical**, characterized by rapid technological change, price erosion, and fluctuating supply and demand, which can lead to unpredictable operating results[119](index=119&type=chunk)[141](index=141&type=chunk) - Supply chain disruptions for raw materials (substrates, chemicals, spare parts) and increased labor costs due to a tight market have negatively impacted operations and profitability[114](index=114&type=chunk)[236](index=236&type=chunk) - The company has identified **material weaknesses** in internal control over financial reporting due to limited accounting and finance resources, impacting documentation and execution of controls[148](index=148&type=chunk)[515](index=515&type=chunk) - Significant risks are associated with U.S. Government contracts, including funding appropriations, fixed-price contract cost overruns, audits, and compliance with regulations like ITAR and EAR[149](index=149&type=chunk)[150](index=150&type=chunk)[153](index=153&type=chunk) - The company relies on trade secrets and non-patent IP rights, and currently owns **no patents**, which could put it at a competitive disadvantage and increase litigation risk[159](index=159&type=chunk)[160](index=160&type=chunk) [Risks Relating to Our Business and Our Industry](index=16&type=section&id=Risks%20Relating%20to%20Our%20Business%20and%20Our%20Industry) [Risks Relating to Government Regulation](index=25&type=section&id=Risks%20Relating%20to%20Government%20Regulation) [Risks Relating to Intellectual Property](index=27&type=section&id=Risks%20Relating%20to%20Intellectual%20Property) [Risks Relating to Ownership of our Common Stock](index=29&type=section&id=Risks%20Relating%20to%20Ownership%20of%20our%20Common%20Stock) [ITEM 1B. Unresolved Staff Comments](index=32&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[201](index=201&type=chunk) [ITEM 2. Properties](index=32&type=section&id=ITEM%202.%20PROPERTIES) SkyWater's primary operations are conducted at its leased headquarters and fabrication facility in Bloomington, Minnesota, with expanded operations at the Center for NeoVation in Kissimmee, Florida - Corporate headquarters and fabrication facility are located in Bloomington, Minnesota, occupying approximately **356,000 square feet**, leased from Oxbow Realty, LLC[203](index=203&type=chunk) - Expanded operations in January 2021 with the Center for NeoVation in Kissimmee, Florida, a 200 mm advanced packaging facility (**109,000 sq ft**, **36,000 sq ft cleanroom space**), through a public-private partnership with Osceola County[26](index=26&type=chunk)[204](index=204&type=chunk) [ITEM 3. Legal Proceedings](index=33&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is occasionally involved in ordinary course legal proceedings, which management believes will not materially adversely affect its financial position or operations - The company is involved in legal proceedings and claims in the ordinary course of business[206](index=206&type=chunk) - Management believes current legal matters will not materially adversely affect business, operating results, financial condition, or cash flows[206](index=206&type=chunk) - Litigation can negatively impact the company due to defense/settlement costs and diversion of management resources[206](index=206&type=chunk) [ITEM 4. Mine Safety Disclosures](index=33&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[207](index=207&type=chunk) [Information About Our Executive Officers](index=33&type=section&id=INFORMATION%20ABOUT%20OUR%20EXECUTIVE%20OFFICERS) This section provides biographical information for SkyWater Technology, Inc.'s executive officers as of March 9, 2022, including Thomas Sonderman (President, CEO) and Steve Manko (CFO) Executive Officers as of March 9, 2022 | Name | Age | Position | | :-------------- | :-- | :------------------------------------- | | Thomas Sonderman | 58 | President, Chief Executive Officer and Director | | Steve Manko | 41 | Chief Financial Officer | - Thomas Sonderman has been President and CEO since December 2020, and President of SkyWater Technology Foundry since October 2017, with prior roles at Rudolph Technologies and Globalfoundries[211](index=211&type=chunk) - Steve Manko has been CFO since December 2020, previously serving as a Managing Director at Riveron Consulting and Ernst & Young[212](index=212&type=chunk) [PART II](index=34&type=section&id=PART%20II) [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=34&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) SkyWater's common stock began trading on Nasdaq in April 2021, with approximately **three holders of record** as of March 2022, and IPO proceeds were used for debt reduction and capital expenditures - SkyWater's common stock began trading on the Nasdaq Stock Market under the symbol 'SKYT' on April 21, 2021[215](index=215&type=chunk) - As of March 7, 2022, there were approximately **three holders of record** of the company's common stock[216](index=216&type=chunk) - The company has never declared or paid cash dividends and does not expect to in the foreseeable future, intending to retain earnings for business operations and expansion[217](index=217&type=chunk) - Net proceeds from the IPO (approx. **$100.2 million**) were used to pay down the revolving credit agreement (**$45 million**), fund capital expenditures (**$28 million**), and support operating activities (**$27 million**)[221](index=221&type=chunk) [ITEM 6. [Reserved]](index=34&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes SkyWater's financial condition and results, covering revenue growth, gross profit decline, and IPO-driven liquidity - The company completed its IPO on April 23, 2021, issuing **8,004,000 shares** of common stock and receiving net proceeds of approximately **$100.2 million**[228](index=228&type=chunk)[229](index=229&type=chunk) - Revenue increased by **$22.4 million (16%)** to **$162.8 million** in fiscal 2021, driven by Advanced Technology Services, particularly in aerospace and defense[243](index=243&type=chunk) - Gross profit decreased by **$30.2 million (133%)** to **$(7.5) million** in fiscal 2021, primarily due to a **$13.4 million inventory write-down**, increased labor costs, and investments in rad-hard and advanced packaging capabilities[246](index=246&type=chunk)[247](index=247&type=chunk) - Net loss attributable to SkyWater Technology, Inc. increased to **$(50.7) million** in fiscal 2021 from **$(20.6) million** in fiscal 2020[330](index=330&type=chunk) - Adjusted EBITDA decreased by **$17.0 million (118%)** to **$(2.6) million** in fiscal 2021, reflecting decreased gross profit and increased operating costs[257](index=257&type=chunk) - The company approved **$56 million** in strategic capital investments in July 2021 to expand manufacturing capacity (expected **40% increase**) and technology capabilities, including entry into the gallium nitride (GaN) market[262](index=262&type=chunk) - **Material weaknesses** in internal controls were identified due to limited accounting and finance resources, impacting documentation and execution of controls[515](index=515&type=chunk) [Corporate Conversion and Initial Public Offering](index=35&type=section&id=Corporate%20Conversion%20and%20Initial%20Public%20Offering) [Overview](index=35&type=section&id=Overview) [Factors and Trends Affecting our Business and Results of Operations](index=35&type=section&id=Factors%20and%20Trends%20Affecting%20our%20Business%20and%20Results%20of%20Operations) [Financial Performance Metrics](index=36&type=section&id=Financial%20Performance%20Metrics) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) [Fiscal 2021 Compared to Fiscal 2020](index=37&type=section&id=Fiscal%202021%20Compared%20to%20Fiscal%202020) [Revenue](index=37&type=section&id=Revenue) [Gross Profit (Loss)](index=38&type=section&id=Gross%20profit%20(loss)) [Inventory Write-down](index=38&type=section&id=Inventory%20Write-down) [Research and Development](index=38&type=section&id=Research%20and%20development) [Selling, General and Administrative Expenses](index=38&type=section&id=Selling,%20general%20and%20administrative%20expenses) [Change in Fair Value of Contingent Consideration](index=38&type=section&id=Change%20in%20fair%20value%20of%20contingent%20consideration) [Change in Fair Value of Warrant Liability](index=39&type=section&id=Change%20in%20fair%20value%20of%20warrant%20liability) [Loss on Debt Extinguishment](index=39&type=section&id=Loss%20on%20debt%20extinguishment) [Interest Expense](index=39&type=section&id=Interest%20expense) [Income Tax Expense (Benefit)](index=39&type=section&id=Income%20tax%20expense%20(benefit)) [Net Income Attributable to Non-Controlling Interests](index=39&type=section&id=Net%20income%20attributable%20to%20non-controlling%20interests) [Adjusted EBITDA](index=39&type=section&id=Adjusted%20EBITDA) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) [General](index=39&type=section&id=General) [Initial Public Offering](index=40&type=section&id=Initial%20Public%20Offering) [Capital Expenditures](index=40&type=section&id=Capital%20Expenditures) [Contingent Consideration](index=40&type=section&id=Contingent%20Consideration) [Working Capital](index=40&type=section&id=Working%20Capital) [Cash and Cash Equivalents](index=41&type=section&id=Cash%20and%20Cash%20Equivalents) [Operating Activities](index=41&type=section&id=Operating%20Activities) [Investing Activities](index=41&type=section&id=Investing%20Activities) [Financing Activities](index=41&type=section&id=Financing%20Activities) [Indebtedness](index=41&type=section&id=Indebtedness) [Material Cash Requirements](index=42&type=section&id=Material%20Cash%20Requirements) [Recent Accounting Developments](index=42&type=section&id=Recent%20Accounting%20Developments) [JOBS Act](index=42&type=section&id=JOBS%20Act) [Critical Accounting Policies and Estimates](index=42&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) [Revenue Recognition](index=43&type=section&id=Revenue%20Recognition) [Inventory](index=43&type=section&id=Inventory) [Income Taxes](index=44&type=section&id=Income%20Taxes) [Long-lived Assets](index=44&type=section&id=Long-lived%20Assets) [Non-GAAP Financial Measure](index=45&type=section&id=Non-GAAP%20Financial%20Measure) [Adjusted EBITDA](index=45&type=section&id=Adjusted%20EBITDA) [ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines the company's exposure to market risks, primarily credit and interest rate risks, and how they are managed - The company's market risks primarily relate to potential changes in the fair value of its debt due to fluctuations in market interest rates[312](index=312&type=chunk) - Credit risk is managed by monitoring financial institutions for cash balances and performing ongoing credit evaluations for trade receivables, with **no allowance for doubtful accounts** recorded as of January 2, 2022, or January 3, 2021[313](index=313&type=chunk)[315](index=315&type=chunk)[368](index=368&type=chunk) - Interest rate risk stems from the variable-rate Revolver; a **100 basis point increase** in the interest rate would increase annual interest expense by **$0.3 million** based on the outstanding balance as of January 2, 2022[316](index=316&type=chunk) [ITEM 8. Financial Statements and Supplementary Data](index=48&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents SkyWater's audited consolidated financial statements for fiscal years 2022 and 2021, including balance sheets, statements of operations, cash flows, and detailed notes - The financial statements were audited by Deloitte & Touche LLP, who issued an **unqualified opinion**, stating the financial statements present fairly the financial position and results of operations in conformity with U.S. GAAP[320](index=320&type=chunk) Consolidated Balance Sheet Highlights (in thousands) | Metric | January 2, 2022 | January 3, 2021 | | :---------------------- | :-------------- | :-------------- | | Total Assets | $263,598 | $263,209 | | Total Liabilities | $203,671 | $264,793 | | Total Shareholders' Equity (Deficit) | $59,927 | $(1,584) | Consolidated Statements of Operations Highlights (in thousands) | Metric | Year Ended Jan 2, 2022 | Year Ended Jan 3, 2021 | | :---------------------- | :--------------------- | :--------------------- | | Revenue | $162,848 | $140,438 | | Gross profit (loss) | $(7,472) | $22,692 | | Operating loss | $(57,104) | $(8,642) | | Net loss | $(47,403) | $(19,714) | | Net loss attributable to SkyWater Technology, Inc. | $(50,696) | $(20,617) | Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Year Ended Jan 2, 2022 | Year Ended Jan 3, 2021 | | :-------------------------------------- | :--------------------- | :--------------------- | | Net cash (used in) provided by operating activities | $(55,680) | $96,195 | | Net cash used in investing activities | $(29,823) | $(88,177) | | Net cash provided by (used in) financing activities | $90,984 | $(5,187) | [Report of Independent Registered Public Accounting Firm](index=49&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) [Consolidated Balance Sheets](index=50&type=section&id=Consolidated%20Balance%20Sheets) [Consolidated Statements of Operations](index=51&type=section&id=Consolidated%20Statements%20of%20Operations) [Consolidated Statements of Shareholders' Equity (Deficit)](index=52&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20(Deficit)) [Consolidated Statements of Cash Flows](index=54&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) [Notes to Consolidated Financial Statements](index=56&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 Nature of Business](index=56&type=section&id=Note%201%20Nature%20of%20Business) [Note 2 Basis of Presentation and Principles of Consolidation](index=56&type=section&id=Note%202%20Basis%20of%20Presentation%20and%20Principles%20of%20Consolidation) [Note 3 Summary of Significant Accounting Policies](index=59&type=section&id=Note%203%20Summary%20of%20Significant%20Accounting%20Policies) [Note 4 Revenue](index=62&type=section&id=Note%204%20Revenue) [Note 5 Balance Sheet Information](index=65&type=section&id=Note%205%20Balance%20Sheet%20Information) [Note 6 Debt](index=67&type=section&id=Note%206%20Debt) [Note 7 Income Taxes](index=69&type=section&id=Note%207%20Income%20Taxes) [Note 8 Warrant Liability](index=71&type=section&id=Note%208%20Warrant%20Liability) [Note 9 Shareholders' Equity](index=72&type=section&id=Note%209%20Shareholders'%20Equity) [Note 10 Share-Based Compensation](index=72&type=section&id=Note%2010%20Share-Based%20Compensation) [Note 11 Benefit Plans](index=74&type=section&id=Note%2011%20Benefit%20Plans) [Note 12 Fair Value Measurements](index=75&type=section&id=Note%2012%20Fair%20Value%20Measurements) [Note 13 Commitments and Contingencies](index=76&type=section&id=Note%2013%20Commitments%20and%20Contingencies) [Note 14 Major Customers and Concentration Risk](index=77&type=section&id=Note%2014%20Major%20Customers%20and%20Concentration%20Risk) [Note 15 Related Party Transactions](index=77&type=section&id=Note%2015%20Related%20Party%20Transactions) [Note 16 Inventory Write-down](index=77&type=section&id=Note%2016%20Inventory%20Write-down) [Note 17 Variable Interest Entities](index=78&type=section&id=Note%2017%20Variable%20Interest%20Entities) [Note 18 Condensed Financial Information (Parent Company Only)](index=78&type=section&id=Note%2018%20Condensed%20Financial%20Information%20(Parent%20Company%20Only)) [ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=81&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[511](index=511&type=chunk) [ITEM 9A. Controls and Procedures](index=81&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) SkyWater's disclosure controls were **not effective** as of January 2, 2022, due to **material weaknesses** in internal control over financial reporting, though financial statements are fairly presented, and a remediation plan is underway - Disclosure controls and procedures were deemed **not effective** as of January 2, 2022, due to **material weaknesses** in internal control over financial reporting[514](index=514&type=chunk) - **Material weaknesses** are attributed to limited accounting and finance resources, leading to inappropriate preparation, review, and maintenance of critical documentation and inconsistent execution of internal controls[515](index=515&type=chunk) - Despite the **material weaknesses**, management concluded that the consolidated financial statements **fairly present** the financial position, results of operations, and cash flows[514](index=514&type=chunk) - A remediation plan is in progress, involving hiring additional qualified accounting and finance personnel and developing a 2022 Sarbanes Oxley 404 Remediation Plan for policies, procedures, and controls[516](index=516&type=chunk) [ITEM 9B. Other Information](index=82&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The company reported no other information required to be disclosed in this item - There is no other information to report[520](index=520&type=chunk) [ITEM 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=82&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to the company - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the registrant[521](index=521&type=chunk) [PART III](index=83&type=section&id=PART%20III) [ITEM 10. Directors, Executive Officers and Corporate Governance](index=83&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This section incorporates by reference information on directors, executive officers, and corporate governance from the definitive proxy statement, including the company's adopted codes of ethics and conduct - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement[524](index=524&type=chunk) - The company has adopted a code of ethics for its chief executive officer and senior financial officers, and a code of conduct for all employees, officers, and directors, both available on its website[525](index=525&type=chunk) [ITEM 11. Executive Compensation](index=83&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) This section incorporates by reference information regarding executive compensation from the company's definitive proxy statement - Information on executive compensation is incorporated by reference from the definitive proxy statement[526](index=526&type=chunk) [ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=83&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section incorporates by reference information on security ownership from the definitive proxy statement and details shares authorized for issuance under equity compensation plans as of January 2, 2022 - Information on security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement[527](index=527&type=chunk) Equity Compensation Plan Information as of January 2, 2022 | Plan Category | Number of shares to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of shares remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | | :----------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------------------------ | :------------------------------------------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by our shareholders | 986,000 | $14.29 | 4,164,000 | | Equity compensation plans not approved by our shareholders | N/A | N/A | N/A |\ | Total | 986,000 | $14.29 | 4,164,000 | [ITEM 13. Certain Relationships and Related Transactions, and Director Independence](index=83&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) This section incorporates by reference information regarding certain relationships and related transactions, and director independence, from the company's definitive proxy statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the definitive proxy statement[530](index=530&type=chunk) [ITEM 14. Principal Accounting Fees and Services](index=84&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) This section incorporates by reference information regarding principal accounting fees and services from the company's definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement[533](index=533&type=chunk) [PART IV](index=85&type=section&id=PART%20IV) [ITEM 15. Exhibits and Financial Statement Schedules](index=85&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K, confirming their inclusion or omission and providing a comprehensive exhibit list - All financial statements and supplemental information are included in Part II, Item 8 of this Annual Report on Form 10-K[536](index=536&type=chunk) - All financial statement schedules are omitted as they are not required[537](index=537&type=chunk) - A detailed list of exhibits, including the Certificate of Incorporation, Bylaws, Equity Incentive Plans, Credit Agreements, and various certifications, is provided[538](index=538&type=chunk)[539](index=539&type=chunk)[540](index=540&type=chunk)[543](index=543&type=chunk) [ITEM 16. Form 10-K Summary](index=87&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The company reported no Form 10-K summary - There is no Form 10-K Summary[542](index=542&type=chunk)

SkyWater Technology, Inc. (NASDAQ:SKYT) Q4 2021 Earnings Conference Call February 23, 2022 10:00 AM ET Company Participants Heather Davis - IR Thomas Sonderman - President and CEO Steve Manko - CFO Conference Call Participants Krish Sankar - Cowen & Company Raji Gill - Needham & Company Natalia Winkler - Jefferies Harsh Kumar - Piper Sandler Operator Good morning. My name is David and I'll be your conference operator today. At this time, I'd like to welcome everyone to the SkyWater Technology Fourth Quarter ...

Financial Performance - For the three months ended October 3, 2021, revenue was $35,025,000, an increase of 6.1% compared to $33,003,000 for the same period in 2020[20] - Gross profit for the three months ended October 3, 2021, was a loss of $1,827,000, compared to a gross profit of $7,278,000 for the same period in 2020[20] - The net loss attributable to SkyWater Technology, Inc. for the three months ended October 3, 2021, was $13,870,000, compared to a net loss of $1,654,000 for the same period in 2020[20] - For the nine months ended October 3, 2021, the net loss was $21,238 thousand, compared to a net loss of $8,319 thousand for the same period in 2020, representing an increase in loss of 155%[30] - Revenue for the first nine months of 2021 rose by $23.6 million, or 23%, to $124.3 million from $100.7 million in the same period of 2020, primarily due to growth in Advanced Technology Services[165] - Net loss attributable to SkyWater Technology, Inc. for Q3 2021 was $(13.9) million, a decrease of $12.2 million, or 739%, from $(1.7) million in Q3 2020[165] Expenses and Losses - Research and development expenses increased to $2,253,000 for the three months ended October 3, 2021, from $1,088,000 in the same period in 2020, representing a 107.5% increase[20] - Selling, general and administrative expenses for Q3 2021 rose by $3.9 million, or 67%, to $9.6 million, driven by increased equity-based compensation and personnel expenses[171] - Operating loss for Q3 2021 was $(12.0) million, compared to an operating income of $0.6 million in Q3 2020, marking a decline of $12.7 million[169] - Adjusted EBITDA for Q3 2021 was $(2.7) million, a decline of $8.0 million, or 151%, from $5.3 million in Q3 2020[165] Assets and Liabilities - Total current assets as of October 3, 2021, were $78,325,000, compared to $76,572,000 as of January 3, 2021, reflecting a 2.3% increase[18] - Total assets increased to $271,685,000 as of October 3, 2021, from $263,209,000 as of January 3, 2021, marking a 3.3% increase[18] - Total liabilities decreased to $186,628,000 as of October 3, 2021, from $264,793,000 as of January 3, 2021, indicating a reduction of 29.6%[18] - Total long-term debt, including current maturities, was $35,601,000, down from $72,600,000 as of January 3, 2021[6] Cash Flow - Cash flows from operating activities resulted in a net cash used of $37,241 thousand for the nine months ended October 3, 2021, compared to net cash provided of $91,669 thousand in the same period of 2020[30] - Cash and cash equivalents increased to $8,458,000 as of October 3, 2021, from $7,436,000 as of January 3, 2021, representing a 13.8% increase[18] - Net cash used in operating activities was $37.2 million for the first nine months of 2021, a decrease of $128.9 million from $91.7 million provided in the same period of 2020[194] Capital Investments - Strategic capital investments of $56 million were approved by the Board of Directors for expanding manufacturing capacity and technology capabilities at the Minnesota facility[40] - The company invested approximately $10,700 thousand during the three months ended October 3, 2021, as part of its multi-year strategic capital investment plan[40] IPO and Financing - The company completed its initial public offering (IPO) on April 23, 2021, issuing 8,004,000 shares at an initial offering price of $14.00 per share, resulting in net proceeds of approximately $100,162 thousand[38] - The company received net proceeds of approximately $100.2 million from its IPO, enhancing its financial position[146] Accounting and Compliance - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP and reflect all necessary adjustments for a fair statement of financial position[45] - The company plans to adopt new accounting standards related to leases and credit losses in 2022 and 2023, respectively, without expecting a material impact on financial statements[62][63] - The company qualifies as an "emerging growth company" under the JOBS Act, allowing it to take advantage of certain exemptions from reporting requirements applicable to other public companies[210] Market and Operational Challenges - The company has experienced supply chain disruptions impacting revenue, particularly for substrates and chemicals[156] - The company has not experienced a shutdown of manufacturing facilities due to COVID-19, but acknowledges potential vulnerabilities to future outbreaks[47]