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: April 2, 2023 ¨ 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. Regi ...

SkyWater Technology, Inc. (NASDAQ:SKYT) Q1 2023 Earnings Conference Call May 8, 2023 4:30 PM ET Company Participants Claire McAdams - IR Thomas Sonderman - President and CEO Steve Manko - CFO Conference Call Participants Raji Gill - Needham & Company Natalia Winkler - Jefferies Richard Shannon - Craig Hallum Operator Good afternoon, ladies and gentlemen. Welcome to the SkyWater Technology First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. And plea ...

Financial Performance - SkyWater achieved record revenues of $66.1 million[4] - ATS (Advanced Technology Services) revenue reached $48.3 million, an 82% increase compared to $26.6 million in Q1 2022[16,44] - Excluding tool sales, ATS revenue increased 87% year-over-year[47] - Wafer Services revenue was $17.8 million, a 17% decrease compared to $21.5 million in Q1 2022, which included an $8 million pull-in due to revised contract terms[16,44] - Non-GAAP gross margin improved significantly to 25.8%, compared to 1.1% in Q1 2022[16,44] - Adjusted EBITDA was $8.1 million, representing 12% of quarterly revenues, a substantial improvement from $(4.8) million in Q1 2022[13,44] Business Highlights and Future Outlook - SkyWater expanded its development agreement with PsiQuantum for silicon photonic chips[9] - The company expresses confidence in securing CHIPS Act funding for expansion in Minnesota and Florida[14] - SkyWater anticipates annual revenue growth approaching its long-term goal of 25% in 2023[51] - Continued progress is being made on the productization and qualification of SkyWater's 90nm RadHard platform, with planned production ramp in 2025[38,50]

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 ...