SkyWater Technology Reports Second Quarter 2022 Results

·14 min read

Strong Progress Toward 2022 Revenue Growth Objectives; Continued Gross Margin Expansion

BLOOMINGTON, Minn., August 15, 2022--(BUSINESS WIRE)--SkyWater Technology (NASDAQ: SKYT), the trusted technology realization partner, today announced financial results for the second quarter of 2022, ended July 3, 2022.

  • Total revenue of $47.4 million, up 15% year over year.

  • Net loss to shareholders of $13.0 million, or (27)% of revenue.

  • Adjusted EBITDA of $(1.6) million, or (3.4)% of revenue.

"We are pleased to report second-quarter 2022 revenues of over $47 million and increasing momentum toward our margin expansion and profitability objectives," said Thomas Sonderman, SkyWater president and chief executive officer. "Our year-over-year revenue growth demonstrates both the recent successes in winning new ATS customers as well as the more favorable contract terms reflected in our wafer services business. Excluding tool sales, ATS revenues grew 20% year-over-year and wafer services revenue grew 23%, and with the continued growth of ATS along with better pricing and predictability in our wafer services business, we achieved very strong levels of flow-through and reported positive gross margins in the quarter. We also achieved sequential quarterly revenue growth with nearly every key ATS customer, offsetting the expected quarterly decline from wafer services, which came as a result of the accounting treatment pull-in of $8 million of WIP into our first-quarter wafer services revenues. Finally, since last quarter we have announced new awards and partnerships that provide meaningful revenue opportunities in support of our long-term growth and profitability targets. For 2022, our performance year to date and expected second-half revenue ramp in multiple ATS programs provides increasing confidence that we will achieve growth this year approaching our long-term annual target of 25%."

Recent Business Updates:

  • Announced partnership with the State of Indiana and Purdue University to build advanced $1.8 billion semiconductor fab on Purdue’s campus in the Discovery Park District

  • Significant progress in RH90 program, driving an expected second-half 2022 revenue ramp:

    • Successful Q2 completion of base prototype phase with the Department of Defense (DOD)

    • Recent award of additional $27 million Phase 1 option has been funded and launched in support of continued development

    • Continued progress toward anticipated Phase 2 productization and qualification

    • Recent partnership with Mobile Semiconductor to provide SRAM compilers, which will help our customers design new devices on our RH90 platform

  • Announced $15 million of investment from the DOD, funding the facilitation of open source design of SkyWater’s SKY90-FD process technology in partnership with Google, creating an IP pipeline and pathway to commercial volume manufacturing

  • In heterogeneous integration, entered license agreement with Xperi, providing our customers access to Adeia’s ZiBond® direct bonding and DBI® hybrid bonding technology and IP to enhance next-generation devices for commercial and government applications

  • Work with bio-health customer Rockley Photonics enabling their revolutionary wrist-worn biomarker sensor continues to progress towards a production ramp

  • Significant gross margin improvement in the quarter was driven primarily by favorable revenue mix, with another sequential increase in ATS revenues along with improved pricing in Wafer Services

  • Successful passage of the CHIPS and Science Act, which is landmark legislation that will strengthen the domestic semiconductor manufacturing ecosystem, within which we believe SkyWater will play an increasingly important role, across each of our existing and planned fab locations in Minnesota, Florida, and Indiana

  • Increased confidence in 2022 revenue expectations approaching long-term annual growth objective of 25%

Q2 2022 Summary:

GAAP

In USD millions, except per share data

Q2 22

Q2 21

Y/Y

Q1 22

Q/Q

Advanced Technology Services revenue

$29.8

$26.9

11%

$26.6

12%

Wafer Services revenue

$17.6

$14.3

23%

$21.5

(18)%

Revenue

$47.4

$41.2

15%

$48.1

(1)%

Gross profit (loss)

$2.1

$1.8

17%

$(0.9)

333%

Gross margin

4.4%

4.4%

(2.0)%

640 bps

Net loss to shareholders

$(13.0)

$(7.0)

(86)%

$(16.6)

22%

Basic loss per share

$(0.32)

$(0.20)

(60)%

$(0.42)

24%

Non-GAAP

In USD millions, except per share data

Q2 22

Q2 21

Y/Y

Q1 22

Q/Q

Non-GAAP gross profit (loss)

$2.6

$1.8

44%

$0.5

420%

Non-GAAP gross margin

5.6%

4.7%

90 bps

1.1%

450 bps

Non-GAAP net loss to shareholders

$(10.7)

$(5.1)

(110)%

$(13.0)

18%

Non-GAAP basic loss per share

$(0.27)

$(0.15)

(80)%

$(0.33)

18%

Adjusted EBITDA

$(1.6)

$(0.8)

(100)%

$(4.8)

67%

Adjusted EBITDA margin

(3.4%)

(2.0%)

(140) bps

(10.0%)

660 bps

Q2 2022 Results:

  • Revenue: Revenue of $47.4 million increased 15% year-over-year as a result of growth in ATS programs and improved pricing terms for wafer services. Advanced Technology Services revenue of $29.8 million increased 11% year-over-year, and after excluding tool revenue, ATS revenue growth was 20%, reflecting the momentum we are gaining with several key customers. Advanced Technology Services revenue contained $0.3 million of tool revenue in the second quarter of 2022 and $2.3 million in the second quarter of 2021. Wafer Services revenue of $17.6 million increased 23% compared to the second quarter of 2021 driven primarily by the more favorable pricing and contract terms finalized with our largest customer at the end of Q1 2022.

  • Gross Profit: GAAP gross profit was $2.1 million, or 4.4% of revenue, compared to GAAP gross profit of $1.8 million, or 4.4% of revenue, in the second quarter of 2021. Non-GAAP gross profit was $2.6 million, or 5.6% of revenue excluding tool sales, compared to non-GAAP gross profit of $1.8 million, or 4.7% of revenue excluding tool sales, in the second quarter of 2021. The improvement was primarily the result of more favorable revenue mix. Non-GAAP gross profit for the second quarter of 2022 excludes $0.7 million of equity-based compensation and Florida start-up costs, compared to $1.1 million in the second quarter of 2021. Cost of revenue in the second quarter of 2022 also contained $2.3 million for heterogeneous integration and $1.5 million in depreciation for the radiation hardened facility, compared to $1.6 million and $1.7 million, respectively, in the second quarter of 2021.

  • Net Loss: GAAP net loss to shareholders was $13.0 million, or $(0.32) per share, compared to a net loss to shareholders of $7.0 million, or $(0.20) per share, in the second quarter of 2021. Non-GAAP net loss to shareholders was $10.7 million, or $(0.27) per share, compared to a net loss to shareholders of $5.1 million, or $(0.15) per share, in the second quarter of 2021.

  • Adjusted EBITDA: Adjusted EBITDA was $(1.6) million, or (3.4)% of revenue, compared to $(0.8) million or (2.0)% of revenue in the second quarter of 2021.

  • Balance Sheet: Cash and cash equivalents were $11.0 million at quarter end, compared to $12.9 million as of January 2, 2022.

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

Investor Webcast

SkyWater will host a conference call today, Monday, August 15, 2022, at 3:30 p.m. CT to discuss its second quarter 2022 financial results. A live webcast of the call will be available online at IR.SkyWaterTechnology.com.

About SkyWater Technology

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

SkyWater Technology Forward-Looking Statements

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

Forward-looking statements are subject to risks, uncertainties and assumptions, which may cause the Company’s actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Key factors that could cause the Company’s actual results to be different than expected or anticipated include, but are not limited to: our goals and strategies; our future business development, financial condition and results of operations; our ability to continue operating our sole semiconductor foundry at full capacity; our ability to appropriately respond to changing technologies on a timely and cost-effective basis; our customer relationships and our ability to retain and expand our customer relationships; our ability to accurately predict our future revenues for the purpose of appropriately budgeting and adjusting our expenses; our expectations regarding dependence on our largest customers; our ability to diversify our customer base and develop relationships in new markets; the performance and reliability of our third-party suppliers and manufacturers; our ability to procure tools, materials, and chemicals amid industry-wide supply chain shortages; our ability to control costs, including our operating and capital expenses; the size and growth potential of the markets for our solutions, and our ability to serve and expand our presence in those markets; the level of demand in our customers’ end markets; our ability to attract, train and retain key qualified personnel in a competitive labor market; adverse litigation judgments, settlements or other litigation-related costs; changes in trade policies, including the imposition of tariffs; our ability to raise additional capital or financing; our ability to accurately forecast demand; the impact of the COVID-19 pandemic on our business, results of operations and financial condition and our customers, suppliers and workforce; the impact of the COVID-19 pandemic on the global economy; the level and timing of U.S. government program funding; our ability to maintain compliance with certain U.S. government contracting requirements; regulatory developments in the United States and foreign countries; our ability to protect our intellectual property rights; and other factors discussed in the "Risk Factors" section of the annual report on Form 10-K the Company filed with the SEC on March 10, 2022 and in other documents that the Company files with the SEC, which are available at http://www.sec.gov. The Company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

SKYWATER TECHNOLOGY, INC.

Consolidated Balance Sheets

(Unaudited)

July 3, 2022

January 2, 2022

(in thousands, except share data)

Assets

Current assets:

Cash and cash equivalents

$

10,974

$

12,917

Accounts receivable, net

49,906

39,381

Inventories

11,866

17,500

Prepaid expenses and other current assets

6,077

3,854

Income tax receivable

744

745

Total current assets

79,567

74,397

Property and equipment, net

187,141

180,475

Intangible assets, net

6,576

3,891

Other assets

3,363

4,835

Total assets

$

276,647

$

263,598

Liabilities and Shareholders’ Equity

Current liabilities:

Current portion of long-term debt

$

1,042

$

1,021

Accounts payable

13,848

7,637

Accrued expenses

25,094

17,483

Current portion of contingent consideration

441

816

Deferred revenue - current

24,339

20,808

Total current liabilities

64,764

47,765

Long-term liabilities:

Long-term debt, less current portion and unamortized debt issuance costs

77,190

58,428

Long-term incentive plan

3,636

4,039

Deferred revenue - long-term

79,392

88,094

Deferred income tax liability, net

858

995

Other long-term liabilities

13,178

4,350

Total long-term liabilities

174,254

155,906

Total liabilities

239,018

203,671

Commitments and contingencies

Shareholders’ equity:

Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero issued and outstanding)

Common stock, $0.01 par value per share (200,000,000 shares authorized; 40,449,776 and 39,836,038 shares issued and outstanding)

404

398

Additional paid-in capital

121,697

115,208

Accumulated deficit

(84,090

)

(54,479

)

Total shareholders’ equity, SkyWater Technology, Inc.

38,011

61,127

Non-controlling interests

(382

)

(1,200

)

Total shareholders’ equity

37,629

59,927

Total liabilities and shareholders’ equity

$

276,647

$

263,598

SKYWATER TECHNOLOGY, INC.

Consolidated Statements of Operations

(Unaudited)

Three Months Ended

Six Months Ended

July 3, 2022

July 4, 2021

July 3, 2022

July 4, 2021

(in thousands, except share and per share data)

Revenue

$

47,407

$

41,189

$

95,528

$

89,290

Cost of revenue

45,327

39,377

94,388

78,312

Gross profit

2,080

1,812

1,140

10,978

Research and development

2,361

3,339

4,643

5,266

Selling, general and administrative expenses

10,795

15,415

22,485

24,018

Change in fair value of contingent consideration

(942

)

(886

)

Operating loss

(11,076

)

(16,000

)

(25,988

)

(17,420

)

Other (expense) income:

Paycheck Protection Program loan forgiveness

6,453

6,453

Interest expense

(1,040

)

(912

)

(2,069

)

(1,970

)

Total other (expense) income

(1,040

)

5,541

(2,069

)

4,483

Loss before income taxes

(12,116

)

(10,459

)

(28,057

)

(12,937

)

Income tax expense (benefit)

63

(4,237

)

(131

)

(4,662

)

Net loss

(12,179

)

(6,222

)

(27,926

)

(8,275

)

Less: net income attributable to non-controlling interests

826

757

1,685

1,515

Net loss attributable to SkyWater Technology, Inc.

$

(13,005

)

$

(6,979

)

$

(29,611

)

$

(9,790

)

Net loss per share attributable to common shareholders, basic and diluted:

$

(0.32

)

$

(0.20

)

$

(0.74

)

$

(0.54

)

Weighted average shares used in computing net loss per common share, basic and diluted:

40,203,050

34,707,758

40,031,615

18,884,051

SKYWATER TECHNOLOGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

July 3, 2022

July 4, 2021

(in thousands)

Cash flows from operating activities:

Net loss

$

(27,926

)

$

(8,275

)

Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:

Depreciation and amortization

13,657

13,336

Gain on Paycheck Protection Program loan forgiveness

(6,453

)

Amortization of debt issuance costs included in interest expense

348

320

Long-term incentive and stock-based compensation

5,334

7,008

Change in fair value of contingent consideration

(886

)

Cash paid for contingent consideration in excess of initial valuation

(375

)

(6,114

)

Deferred income taxes

(137

)

(5,191

)

Non-cash revenue related to customer equipment

(2,481

)

Changes in operating assets and liabilities:

Accounts receivable

(1,024

)

(3,401

)

Inventories

(3,865

)

(1,998

)

Prepaid expenses and other assets

(751

)

5,672

Accounts payable and accrued expenses

6,047

(4,482

)

Deferred revenue

(5,170

)

(16,695

)

Income tax payable and receivable

(1,171

)

Net cash used in operating activities

(13,862

)

(30,811

)

Cash flows from investing activities:

Purchase of software and licenses

(400

)

(357

)

Purchases of property and equipment

(5,463

)

(12,898

)

Net cash used in investing activities

(5,863

)

(13,255

)

Cash flows from financing activities:

Proceeds from issuance of common stock pursuant to the initial public offering, net of underwriting discounts and commissions

104,212

Net proceeds on Revolver

18,946

382

Proceeds from the issuance of common stock pursuant to the employee stock purchase plan and a long term incentive plan

1,128

Cash paid for offering costs

(1,205

)

Cash paid for capital leases

(416

)

(288

)

Distributions to VIE member

(867

)

(1,373

)

Cash paid on license technology obligations

(500

)

Repayment of Financing

(509

)

(495

)

Net cash provided by financing activities

17,782

101,233

Net change in cash and cash equivalents

(1,943

)

57,167

Cash and cash equivalents - beginning of period

12,917

7,436

Cash and cash equivalents - end of period

$

10,974

$

64,603

Supplemental Revenue and Cost of Revenue Information by Quarter

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

(in thousands)

Wafer Services revenue