SKYT 10-Q
SkyWater Technology, LLC (SKYT)
10-Q
2025-05-08
For: 2025-03-30
View Original
Added on
April 08, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
______________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended: March 30, 2025
| 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
______________________
(Exact name of registrant as specified in its charter)
______________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of registrant’s principal executive offices and zip code)
Registrant’s telephone number, including area code: (952 ) 851-5200
______________________
Securities registered under Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer | ¨ | x | ||||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 17(a)(2)(B) of the Securities Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
On May 5, 2025, the number of shares of common stock, $0.01 par value, outstanding was 48,037,024 .
SkyWater Technology, Inc.
TABLE OF CONTENTS
| Page No. | ||||||||
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that SkyWater Technology, Inc. (“SkyWater,” the “Company,” “we,” “us,” or “our”) believes to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including, without limitation, our expectations regarding our business, results of operations, financial condition and prospects, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “target,” “seek,” “potential,” “believe,” “will,” “could,” “should,” “would,” and “project” or the negative thereof or variations thereon or similar words or expressions that convey the uncertainty of future events or outcomes are generally intended to identify forward-looking statements.
Our forward-looking statements are subject to a number of risks, uncertainties, and assumptions. Key factors that may affect our results include, among others, the following:
•our goals and strategies;
•our future business development, financial condition, and results of operations;
•our ability to continue operating our fabrication facilities 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;
•our ability to complete our acquisition of Infineon’s Fab 25 facility on anticipated timing and terms;
•upon completion of such acquisition, our ability to integrate the operations of the Fab 25 facility with our operations and risks associated with operating the Fab 25 facility;
•the performance and reliability of our third-party suppliers and manufacturers;
•our ability to procure tools, materials, and chemicals;
•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;
•adverse litigation judgments, settlements, or other litigation-related costs;
•changes in trade policies, including the imposition of or increase in tariffs;
•our ability to raise additional capital or financing;
•our ability to accurately forecast demand;
•changes in local, regional, national, and international economic or political conditions, including those resulting from increases in inflation and interest rates, a recession, or intensified international hostilities;
•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 disclosed in the section entitled “Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2024 and this Quarterly Report on Form 10-Q.
Moreover, our business, results of operations, financial condition, and prospects may be affected by new risks that could emerge from time to time. In light of these risks, uncertainties and assumptions, the forward-looking events and outcomes discussed in this Quarterly Report on Form 10-Q may not occur and our actual results could differ materially and adversely from those expressed or implied in the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should not rely on forward-looking statements as predictions of future events or outcomes. Although we believe that the expectations reflected in the forward-looking statements are reasonable, the results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements may not be achieved or occur.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views only as of the date hereof. We anticipate that subsequent events and developments will cause our views to change. However, we undertake no obligation to update publicly any forward-looking statements to conform such statements to changes in expectations or to actual results, or for any other reason, except as required by law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date hereof.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
| March 30, 2025 | December 29, 2024 | ||||||||||
(in thousands, except per share data) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable (net of allowance for credit losses of $ | |||||||||||
Contract assets (net of allowance for credit losses of $ | |||||||||||
| Inventory | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and shareholders’ equity | |||||||||||
| Current liabilities | |||||||||||
| Current portion of long-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses | |||||||||||
| Short-term financing, net of unamortized debt issuance costs | |||||||||||
| Contract liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term liabilities | |||||||||||
| Long-term debt, less current portion and net of unamortized debt issuance costs | |||||||||||
| Long-term contract liabilities | |||||||||||
| Deferred income tax liability, net | |||||||||||
| Other long-term liabilities | |||||||||||
| Total long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 10) | |||||||||||
| Shareholders’ equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total shareholders’ equity, SkyWater Technology, Inc. | |||||||||||
| Noncontrolling interests | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
(in thousands, except per share data) | |||||||||||
| Revenue | $ | $ | |||||||||
| Cost of revenue | |||||||||||
| Gross profit | |||||||||||
| Research and development expense | |||||||||||
| Selling, general, and administrative expense | |||||||||||
| Operating loss | ( | ( | |||||||||
| Interest expense | |||||||||||
| Loss before income taxes | ( | ( | |||||||||
| Income tax expense | |||||||||||
| Net loss | ( | ( | |||||||||
| Less: net income attributable to noncontrolling interests | |||||||||||
| Net loss attributable to SkyWater Technology, Inc. | $ | ( | $ | ( | |||||||
| Net loss per share attributable to common shareholders, basic and diluted | $ | ( | $ | ( | |||||||
| Weighted average shares used in computing net loss per common share, basic and diluted | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Shareholders’ Equity
For the Three-Month Periods Ended March 30, 2025 and March 31, 2024
(dollars and shares in thousands)
(Unaudited)
| Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Equity, SkyWater Technology, Inc. | Noncontrolling Interests | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity compensation plans | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Contribution from noncontrolling interest | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 29, 2024 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to equity compensation plans | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Contribution from noncontrolling interest | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at March 30, 2025 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities | |||||||||||
| Depreciation and amortization | |||||||||||
| Accretion of investment tax credits | ( | ||||||||||
| Amortization of debt issuance costs included in interest expense | |||||||||||
| Equity-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Provision (allowance) for credit losses | ( | ||||||||||
| Changes in operating assets and liabilities | |||||||||||
| Accounts receivable and contract assets | |||||||||||
| Inventory | ( | ||||||||||
| Prepaid expenses, other current assets, and other assets | ( | ||||||||||
| Accounts payable and accrued expenses | ( | ( | |||||||||
| Contract liabilities, current and long-term | ( | ||||||||||
| Income tax receivable and payable | |||||||||||
| Net cash provided by (used in) operating activities | ( | ||||||||||
| Cash flows from investing activities | |||||||||||
| Purchase of software and licenses | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from draws on the revolving line of credit | |||||||||||
| Repayment of draws on the revolving line of credit | ( | ( | |||||||||
| Proceeds from tool financings | |||||||||||
| Principal payments on long-term debt | ( | ( | |||||||||
| Cash paid for principal on finance leases | ( | ( | |||||||||
| Proceeds from the issuance of common stock pursuant to equity compensation plans | |||||||||||
| Cash paid on licensed technology obligations | ( | ||||||||||
| Contributions from noncontrolling interest | |||||||||||
| Distributions to noncontrolling interest | ( | ||||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SKYWATER TECHNOLOGY, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | |||||||||||
| Noncash investing and financing activity | |||||||||||
| Capital expenditures incurred, not yet paid | $ | $ | |||||||||
Investment tax credit not received | |||||||||||
| Intangible assets acquired, not yet paid | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 1 Nature of Business
SkyWater Technology, Inc., together with its consolidated subsidiaries (collectively, “SkyWater,” the “Company,” “it,” or “its”), is a U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from its fabrication facility, or fab, in Minnesota and advanced packaging services from its Florida facility. SkyWater’s technology-as-a-service model leverages a foundation of proprietary technology to co-develop process technology intellectual property with its customers that enables disruptive concepts through its Advanced Technology Services (“ATS”) for diverse microelectronics (integrated circuits (“ICs”)) and related micro and nanotechnology applications. In addition to these differentiated technology development services, SkyWater supports customers with volume production of ICs for high-growth markets through its Wafer Services.
SkyWater is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
On February 25, 2025, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Spansion LLC (“Seller”), an affiliate of Infineon Technologies AG, pursuant to which, subject to the satisfaction or waiver of the conditions contained therein, the Company will acquire all of the issued and outstanding memberships interests of a limited liability company that will be formed prior to closing and that will receive, pursuant to a pre-closing restructuring, certain assets and liabilities related to Infineon Technologies AG’s 200 mm fab in Austin, Texas (the “Transaction”). The base purchase price for the Transaction is $80,000 , $55,000 of which will be paid at closing. The payment of the remaining $25,000 of the base purchase price will be deferred for four years and will be paid by wafer credits under a wafer supply agreement with an affiliate of Seller, which agreement will be executed at the closing of the Transaction pursuant to the Purchase Agreement. The purchase price for the Transaction will be adjusted for a payment at closing for working capital.
The Transaction is subject to the satisfaction or waiver of certain customary closing conditions, including, among other things: (1) the accuracy of the representations and warranties of each party to the Purchase Agreement; (2) the performance by each party of its obligations and covenants in all material respects; (3) the absence of a material adverse effect between the signing of the Purchase Agreement and the closing of the Transaction; (4) the absence of any applicable order or law prohibiting the Transaction; and (5) obtaining U.S. regulatory approval.
Under the Purchase Agreement, the closing of the Transaction shall occur no earlier than May 30, 2025, unless otherwise agreed mutually by the parties. The Purchase Agreement may be terminated by mutual written agreement of the Company and Seller or by either the Company or Seller in limited circumstances, including, among other things, (i) certain uncured breaches of any representation, warranty, covenant or obligation in the Purchase Agreement by the other party; (ii) failure to complete the Transaction by September 30, 2025; and (iii) the existence of an order by a governmental authority prohibiting the Transaction.
The Company intends to finance the purchase price for the Transaction through debt financing.
Note 2 Basis of Presentation and Principles of Consolidation
The unaudited interim condensed consolidated financial statements as of March 30, 2025, and for the three-month periods ended March 30, 2025 and March 31, 2024, are presented in thousands of U.S. dollars (except share and per share information), are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all financial information and disclosures required by U.S. GAAP for annual consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with SkyWater’s annual consolidated financial statements and the related notes thereto as of December 29, 2024 and for the fiscal year then ended. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, including normal and recurring adjustments, necessary for the fair presentation of the Company’s consolidated financial position as of March 30, 2025 and its consolidated results of operations, shareholders’ equity, and cash flows for the three-month periods ended March 30, 2025 and March 31, 2024.
9
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
The consolidated results of operations for the three-month period ended March 30, 2025 are not necessarily indicative of the results of operations to be expected for the fiscal year ending December 28, 2025, or for any other interim period, or for any other future fiscal year.
Principles of Consolidation
The interim condensed consolidated financial statements include the Company’s assets, liabilities, revenues, and expenses, as well as the assets, liabilities, revenues, and expenses of subsidiaries in which it has a controlling financial interest, SkyWater Technology Foundry, Inc. (“SkyWater Technology Foundry”), SkyWater Federal, LLC (“SkyWater Federal”), SkyWater Florida, Inc. (“SkyWater Florida”), and Oxbow Realty Partners, LLC (“Oxbow Realty”), a variable interest entity (“VIE”) for which SkyWater is the primary beneficiary and an affiliate of the Company’s principal shareholder. All intercompany accounts and transactions have been eliminated in consolidation.
Liquidity and Cash Requirements
The accompanying interim condensed consolidated financial statements have been prepared on the basis of the realization of assets and the satisfaction of liabilities and commitments in the normal course of business and do not include any adjustments to the recoverability and classifications of recorded assets and liabilities as a result of uncertainties.
For the three-month periods ended March 30, 2025 and March 31, 2024, the Company incurred net losses attributable to SkyWater Technology, Inc. of $7,345 and $5,729 , respectively. As of March 30, 2025 and December 29, 2024, the Company had cash and cash equivalents of $51,234 and $18,844 , respectively.
10
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
SkyWater’s ability to execute its operating strategy is dependent on its ability to maintain liquidity and continue to access capital through the Revolver (as defined in Note 6 – Debt), and other sources of financing. The current business plans indicate that the Company maintains sufficient liquidity to continue its operations and maintain compliance with financial covenants for the next twelve months from the date the consolidated financial statements are issued. As a result of amendments made on November 19, 2024, the Revolver matures on December 31, 2028 and provides for a maximum revolving facility amount of $130,000 . The Company has also obtained a support letter from Oxbow Industries, LLC (“Oxbow Industries”), an affiliate of the Company’s principal stockholder, to provide funding in an amount up to $12,500 , if necessary, to enable the Company to meet its obligations as they become due through March 18, 2026. Based upon SkyWater’s operational forecasts, cash and cash equivalents on hand, available borrowings on the Revolver, and the support letter from Oxbow Industries, as needed, management believes SkyWater will have sufficient liquidity to fund its operations for the next twelve months from the date these consolidated financial statements are issued.
Use of Estimates
The preparation of the interim condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods then ended. Management evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, third-party evaluations, and various other assumptions that management believes are reasonable under the circumstances. Actual results could differ from those estimates.
Net Loss Per Share
Basic net loss per common share is calculated by dividing the net loss attributable to SkyWater Technology, Inc. by the weighted-average number of shares outstanding during the reporting periods, without consideration for potentially dilutive securities. Diluted net loss per common share is computed by dividing the net loss attributable to SkyWater Technology, Inc. by the weighted-average number of shares and potentially dilutive securities outstanding during the reporting periods determined using the treasury-stock method. Because the Company reported a net loss attributable to SkyWater Technology, Inc. for the three-month periods ended March 30, 2025 and March 31, 2024, the number of shares used to calculate diluted net loss per common share is the same as the number of shares used to calculate basic net loss per common share because the potentially dilutive shares would have been anti-dilutive if included in the calculation. At March 30, 2025 and March 31, 2024, there were restricted stock units and stock options totaling 1,144,534 and 996,726 , respectively, excluded from the computation of diluted weighted-average shares outstanding because their inclusion would have been anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per common share for the three-month periods ended March 30, 2025 and March 31, 2024:
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands, except per share data) | |||||||||||
| Numerator: net loss attributable to SkyWater Technology, Inc. | $ | ( | $ | ( | |||||||
| Denominator: weighted-average common shares outstanding, basic and diluted | |||||||||||
| Net loss per common share, basic and diluted | $ | ( | $ | ( | |||||||
Reportable Segment Information
11
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 3 Summary of Significant Accounting Policies
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (“ASU 2023-09”). The amendments in this update improve existing income tax disclosures, notably with respect to the income tax rate reconciliation and income taxes paid disclosures, and are effective for annual periods beginning after December 15, 2025. As an emerging growth company, SkyWater will adopt the amendments in ASU 2023-09 for its fiscal year ending January 3, 2027. The Company is evaluating the impacts of the amendments on its consolidated financial statements and the accompanying notes to the financial statements.
Significant Accounting Policies
12
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 4 Revenue
Disaggregated Revenue
The Company recognizes ATS development, tools, and Wafer Services revenues pursuant to its revenue recognition policies as described in Note 3 – Summary of Significant Accounting Policies to the annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2024. The following tables disclose revenue by product type and the timing of recognition of revenue for transfer of goods and services to customers:
| Three-Month Period Ended March 30, 2025 | ||||||||||||||||||||
| Topic 606 Revenue | ||||||||||||||||||||
| Point-in-Time | Over Time | Lease Revenue Per Topic 842 | Total Revenue | |||||||||||||||||
| ATS development | ||||||||||||||||||||
| Time-and-materials and cost-plus-fixed-fee contracts | $ | $ | $ | $ | ||||||||||||||||
| Fixed price contracts | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total ATS development | ||||||||||||||||||||
| Wafer Services | ||||||||||||||||||||
| Combined ATS development and Wafer Services | ||||||||||||||||||||
| Tools | ||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||
| Three-Month Period Ended March 31, 2024 | ||||||||||||||||||||
| Topic 606 Revenue | ||||||||||||||||||||
| Point-in-Time | Over Time | Lease Revenue Per Topic 842 | Total Revenue | |||||||||||||||||
| ATS development | ||||||||||||||||||||
| Time-and-materials and cost-plus-fixed-fee contracts | $ | $ | $ | $ | ||||||||||||||||
| Fixed price contracts | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total ATS development | ||||||||||||||||||||
| Wafer Services | ||||||||||||||||||||
| Combined ATS development and Wafer Services | ||||||||||||||||||||
| Tools | ||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||
Deferred Contract Costs
The Company recognizes an asset for the incremental cost of obtaining a contract with a customer (i.e., deferred contract costs) when costs are considered recoverable and the duration of the contract is in excess of one year. Deferred contract costs are amortized as the related revenue is recognized. The Company recognized amortization of deferred contract costs totaling $0 and $746 for the three-month periods ended March 30, 2025 and March 31, 2024, respectively. There were no
13
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Contract Assets
Contract assets represent SkyWater’s rights to payments for services it has transferred to its customers, but has not yet billed to its customers. Contract assets were $20,466 and $20,890 at March 30, 2025 and December 29, 2024, respectively, and are presented net of allowances for expected credit losses of $16 and $42 , respectively.
Contract Liabilities
The Company’s contract liabilities principally consist of deferred revenue which represents payments from customers for which performance obligations have not yet been satisfied and deferred lease revenue which represents prepayments on a leasing arrangement in which the Company serves as lessor. In some instances, cash may be received, or payment may be contractually due by a customer before the related revenue is recognized. The contract liabilities and other significant components of contract liabilities at March 30, 2025 and December 29, 2024 are as follows:
| March 30, 2025 | December 29, 2024 | ||||||||||||||||||||||||||||||||||
| Contract Deferred Revenue (1) | Lease Deferred Revenue | Total Contract Liabilities | Contract Deferred Revenue (1) | Lease Deferred Revenue | Total Contract Liabilities | ||||||||||||||||||||||||||||||
| Current contract liabilities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Long-term contract liabilities | |||||||||||||||||||||||||||||||||||
| Total contract liabilities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1)Contract deferred revenue includes $45,419 and $48,200 at March 30, 2025 and December 29, 2024, respectively, related to material rights provided to a significant customer in exchange for funding additional manufacturing capacity. Of these amounts, $11,123 and $11,123 were classified as current in the interim condensed consolidated balance sheets as of March 30, 2025 and December 29, 2024, respectively.
The change in contract liabilities during the three-month periods ended March 30, 2025 and March 31, 2024 are as follows:
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Revenue recognized included in the balance at the beginning of the period | ( | ( | |||||||||
| Increase due to payments received, excluding amounts recognized as revenue | |||||||||||
| Balance at end of period | $ | $ | |||||||||
Remaining Performance Obligations
At March 30, 2025, the Company had $257,230 of remaining performance obligations that had not been fully satisfied on contracts with original expected durations of one year or more, which were primarily related to ATS development and tools revenue contracts. The Company expects to recognize those revenues as it satisfies its performance obligations, which is not expected to exceed 4.3 years.
The Company does not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less. Further, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between when it transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
14
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 5 Balance Sheet Information
Certain significant amounts included in the Company’s interim condensed consolidated balance sheets are summarized in the following tables:
| Three-Month Period Ended | |||||||||||
| Allowance for credit losses - Accounts Receivable | March 30, 2025 | March 31, 2024 | |||||||||
| Balance at beginning of period | $ | $ | |||||||||
| Add | |||||||||||
| Provision for credit losses | ( | ||||||||||
| Deduct | |||||||||||
| Less recoveries of accounts charged-off | ( | ||||||||||
| Net account charge-offs (recoveries) | ( | ||||||||||
| Balance at end of period | $ | $ | |||||||||
| Inventory | March 30, 2025 | December 29, 2024 | |||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Supplies and spare parts | |||||||||||
| Finished goods | |||||||||||
| Total inventory, current | |||||||||||
| Inventory, non current (1) | |||||||||||
| Total inventory | $ | $ | |||||||||
15
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Prepaid expenses and other current assets | March 30, 2025 | December 29, 2024 | |||||||||
| Prepaid expenses | $ | $ | |||||||||
| Tools purchased for customers (1) | |||||||||||
| Deferred contract costs | |||||||||||
| Investment tax credit receivable | |||||||||||
| Total prepaid assets and other current assets | $ | $ | |||||||||
__________________
Property and equipment, net | March 30, 2025 | December 29, 2024 | |||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Property and equipment placed in service, at cost (1) | |||||||||||
| Less: accumulated depreciation (1) | ( | ( | |||||||||
| Property and equipment placed in service, net (1) | |||||||||||
| Property and equipment not yet in service | |||||||||||
| Total property and equipment, net | $ | $ | |||||||||
__________________
(1)Includes $10,594 and $10,805 of cost and $2,289 and $2,398 of accumulated depreciation associated with capital assets subject to financing leases at March 30, 2025 and December 29, 2024, respectively. In addition, the March 30, 2025 balance reflects a $337 reduction of the cost basis of machinery and equipment arising from an investment tax credit on qualifying capital expenditures recognized during the three-month periods ended March 30, 2025. The December 29, 2024 balance reflects a $4,824 reduction of the cost basis of machinery and equipment arising from an investment tax credit on qualifying capital expenditures recognized in fiscal year 2024.
Depreciation expense was $4,029 and $4,690 for the three-month periods ended March 30, 2025 and March 31, 2024, respectively.
Intangible assets, net | March 30, 2025 | December 29, 2024 | |||||||||
| Software and licensed technology | $ | $ | |||||||||
| Less: accumulated amortization | ( | ( | |||||||||
| Intangible assets placed in service, net | |||||||||||
| Intangible assets not yet in service | |||||||||||
| Total intangible assets, net | $ | $ | |||||||||
Intangible assets consist primarily of payments made under software and technology licensing arrangements with third parties, in addition to internally developed software costs. For the three-month periods ended March 30, 2025 and March 31, 2024, amortization of software and licenses was $329 and $375 , respectively.
16
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Remaining estimated aggregate annual amortization expense for intangible assets placed in service is as follows for future fiscal years:
| Amortization Expense | |||||
| Remainder of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total | $ | ||||
| Other Assets | March 30, 2025 | December 29, 2024 | |||||||||
| Inventory, non-current (1) | $ | $ | |||||||||
| Investment tax credit receivable | |||||||||||
| Other assets | |||||||||||
| Total other assets | $ | $ | |||||||||
__________________
(1)Inventory, non-current consists of spare parts that will not be used within twelve months
| Accrued Expenses | March 30, 2025 | December 29, 2024 | |||||||||
| Accrued compensation | $ | $ | |||||||||
| Accrued commissions | |||||||||||
| Accrued royalties | |||||||||||
| Accrued inventory | |||||||||||
| Accrued warranty (1) | |||||||||||
| Accrued vendor purchase commitments (2) | |||||||||||
| Accrued accounts payable | |||||||||||
| Accrued accounts payable - customer | |||||||||||
| Accrued utilities | |||||||||||
| Other accrued expenses | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
__________________
(1)The Company accrued provisions for warranties of $2,687 and $3,752 as of March 30, 2025 and December 29, 2024, respectively. Warranty expense for the three-month period ended March 30, 2025 was $239 , and warranty credits for the three-month period ended March 30, 2025 were $1,304 . Warranty expense for the three-month period ended March 31, 2024 was $426 , and warranty credits for the three-month period ended March 31, 2024 were $925 .
17
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
| Other long-term liabilities | March 30, 2025 | December 29, 2024 | |||||||||
| $ | $ | ||||||||||
| Liability for uncertain tax positions | |||||||||||
| Total other long-term liabilities | $ | $ | |||||||||
18
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 6 Debt
The components of debt outstanding at March 30, 2025 and December 29, 2024 are as follows:
| March 30, 2025 | December 29, 2024 | ||||||||||
| Short-term financing | |||||||||||
| Revolver | $ | $ | |||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Total short-term financing, net of unamortized debt issuance costs | |||||||||||
| Long-term debt | |||||||||||
| VIE Financing | |||||||||||
| Tool financing loans (1) | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Total long-term debt, including current maturities | |||||||||||
| Less: Current portion of long-term debt | ( | ( | |||||||||
| Total long-term debt, excluding current portion | $ | $ | |||||||||
__________________
(1)Tool financing advance payments represent proceeds received from equipment lenders prior to the Company placing the tools into service. When the tools are placed into service, financing agreements are executed to repay the equipment lenders the financed acquisition cost of the tools, and any advance payments received from the equipment lenders are converted to tool financing loans and classified as long-term debt in the Company’s condensed consolidated balance sheets. Tool financings are often accounted for as failed sale and leasebacks.
Revolver
On December 28, 2022, we entered into a Loan and Security Agreement with Siena Lending Group LLC (“Siena”), which was amended on November 19, 2024 (as amended, the “Loan Agreement”). The Loan Agreement provides for a revolving line of credit with a borrowing limit of up to $130,000 with a scheduled maturity date of December 2028 (the “Revolver”). The outstanding balance of the Revolver was $23,881 as of March 30, 2025 at an interest rate of 9.1 %. Borrowing under the Revolver is limited by a borrowing base of specified advance rates applicable to billed accounts receivable, contract assets, inventory and equipment, subject to various conditions and limits as provided in the Loan Agreement. The remaining availability under the Revolver was $106,119 as of March 30, 2025. As of March 30, 2025, the Company was in compliance with all applicable financial covenants of the Revolver.
VIE Financing
On September 30, 2020, Oxbow Realty, the Company’s consolidated VIE entered into a loan agreement for $39,000 (the “VIE Financing”) to finance the acquisition of the building and land of the SkyWater Minnesota facility (see Note 10 – Related Party Transactions and Note 11 – Variable Interest Entity). The VIE Financing is repayable in equal monthly installments of $194 over 10 years, with the remaining balance payable at the maturity date of October 6, 2030. The interest rate under the VIE Financing is fixed at 3.44 %. The VIE Financing is guaranteed by Oxbow Industries, who is also the sole equity holder of Oxbow Realty. The VIE financing is not subject to financial debt default covenants.
The terms of the VIE Financing include provisions that grant the lender several protective rights when certain triggering events defined in the loan agreement occur, including events tied to SkyWater’s occupancy of the SkyWater Minnesota facility and SkyWater’s financial performance. The occurrence of a triggering event does not represent a default event as per the loan agreement, nor does it result in the VIE Financing becoming callable, rather the protective rights become enforceable by the lender. As defined in the loan agreement, a triggering event occurred beginning in the three-month period ended January 1, 2023 based on the level of earnings before interest, taxes, depreciation, amortization and rent, as defined in the loan agreement, reported by SkyWater historically. Pursuant to its protective rights, the lender retained in a restricted account amounts paid by SkyWater to Oxbow Realty that were in excess of the scheduled debt payments paid by Oxbow Realty to the lender. The triggering event was cured during the three-month period ended June 30, 2024 and the funds held in the restricted
19
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
account were remitted back to Oxbow Realty. No triggering events as defined in the loan agreement existed as of March 30, 2025.
The VIE Financing is secured by a security interest in the land and building which was the subject of the sale-leaseback transaction (see Note 10 – Related Party Transactions). The Company and Oxbow Realty, the Company’s VIE, incurred third-party transaction costs of $3,487 and $65 , respectively, which have been capitalized as debt issuance costs, presented as a reduction of the outstanding loan balance, and are being amortized as additional interest expense over the remaining maturity of the VIE Financing.
Maturities
Future principal payments of the Company’s long-term debt, excluding unamortized debt issuance costs, are as follows:
| Remainder of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 7 Income Taxes
Note 8 Equity-Based Compensation
Equity-based compensation expense was recorded in the interim condensed consolidated statements of operations as follows:
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Cost of revenue | $ | $ | |||||||||
| Research and development expense | |||||||||||
| Selling, general and administrative expense | |||||||||||
| Total equity-based compensation expense | $ | $ | |||||||||
20
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 9 Commitments and Contingencies
Litigation and Other Asserted Claims
From time to time, the Company is involved in legal proceedings and subject to other asserted claims arising in the ordinary course of its business. Although the results of litigation and asserted claims cannot be predicted with certainty, the Company currently believes that the resolution of these ordinary-course matters will not have a material adverse effect on its business, operating results, financial condition or cash flows. Even if any particular litigation is resolved in a manner that is favorable to the Company’s interests, such litigation can have a negative impact on the Company because of defense and settlement costs, diversion of management resources from its business, and other factors. There were no material litigation-related or other asserted claim contingencies recognized at either March 30, 2025 or December 29, 2024.
Capital Expenditures
The Company has various contracts outstanding with third parties which primarily relate to semiconductor tool purchases and installation. The Company has $26,880 and $24,979 of contractual commitments outstanding as of March 30, 2025 and December 29, 2024, respectively, that it expects to be paid in the next twelve months using cash on hand and operating cash flows.
Center for NeoVation
On January 25, 2021 the Company entered into a technology and economic development agreement (the “TED Agreement”), and a lease agreement (the “CfN Lease”) with the government of Osceola County, Florida (“Osceola”) and ICAMR, Inc., a Florida non-profit corporation doing business as BRIDG (“BRIDG”), to lease and operate the Center for NeoVation (the “CfN”), a semiconductor research and development and manufacturing facility in Kissimmee, Florida. Under the CfN Lease, the Company agrees to bring the plant to full production capacity within five years , and then to operate the plant at full capacity for an additional 15 years At the end of the lease, SkyWater will take ownership of the facility. The Company is responsible for taxes, utilities, insurance, maintenance, operation of the assets, and making capital investments in the facility to bring the facility to its full production capacity. Investments and costs required to bring the facility to its full capacity will be substantial. The Company may terminate the TED Agreement and CfN Lease with 18 months’ notice. In the event the Company terminates the agreements, it is required to continue to operate the CfN until the earlier of either a replacement operator is found, or the 18 -month notice period expires, and it may be required to make a payment of up to $15,000 to Osceola upon termination.
As part of entering into the TED Agreement, the Company agreed to operate the advanced wastewater treatment facility (“AWT Facility”), a separate building located on the same leased premise as the CfN and subject to the CfN Lease. The AWT Facility was financed in substantial part by funds provided by the Tohopekaliga Water Authority (“TWA”) to house the acid waste neutralization, pH adjustment, and reverse osmosis water treatment systems. In connection with entering into the CfN Lease, the Company agreed that development of the CfN requires the payment of water, wastewater, and reuse water capacity charges imposed by TWA monthly over the remaining period of six years . The Company also agreed that TWA shall be entitled to recover the capital contribution of TWA for construction of the AWT Facility through a capital reimbursement surcharge monthly over the remaining period of six years . As of March 30, 2025, the Company expects future payments on these commitments of approximately $3,700 which the Company expects will be paid in full by the first quarter of 2028.
Build Back Better Grant
21
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 10 Related Party Transactions
In August 2022, SkyWater entered into a support letter with Oxbow Industries to provide funding in an amount up to $12,500 , if necessary, to enable the Company to meet its obligations as they become due. In March 2024, the agreement was amended to extend the term through March 18, 2026. No amounts have been provided to the Company under this agreement.
In August 2023, SkyWater entered into a consulting agreement with Oxbow Industries pursuant to which an employee of Oxbow Industries provides certain consulting services to the Company. Expense associated with this agreement totaled $204 and $141 for the three-month periods ended March 30, 2025 and March 31, 2024, respectively.
Sale-Leaseback Transaction
On September 29, 2020, SkyWater entered into an agreement to sell the land and building of its Bloomington, Minnesota facility to Oxbow Realty. In the fourth quarter of 2020, SkyWater entered into an agreement to lease the land and building from Oxbow Realty for initial payments of $394 per month over 20 years. The monthly payments are subject to a 2 % increase each year during the term of the lease. Since September 29, 2024, the monthly rental payment to Oxbow Realty has been $426 . The Company is also required to make certain customary payments constituting “additional rent,” which relate to monthly leasing and replacement reserves, insurance, and tax payments in accordance with the terms of the lease agreement. Future minimum lease commitments to Oxbow Realty as of March 30, 2025 were as follows (such amounts are eliminated from the consolidated financial statements due to the consolidation of Oxbow Realty, see Note 11 – Variable Interest Entity).
| Remainder of 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | ( | ||||
| Total | $ | ||||
22
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 11 Variable Interest Entity
Oxbow Realty was established for the purpose of holding real estate and facilitating real estate transactions on behalf of Oxbow Industries. This included facilitating the purchase of the land and building of SkyWater’s Minnesota facility with proceeds from a bank loan (see Note 6 – Debt) and managing the leaseback of the land and building to SkyWater (see Note 10 – Related Party Transactions). Management determined that Oxbow Realty meets the definition of a VIE under Accounting Standards Codification Topic 810, “Consolidations” (“Topic 810”), because it lacks sufficient equity to finance its activities. Furthermore, the Company is the primary beneficiary of Oxbow Realty as it has the power over those activities that most significantly affect Oxbow Realty’s economic performance, mainly activities focused on the operation and maintenance of the Minnesota facility. As the primary beneficiary, the Company consolidates the assets, liabilities, and results of operations of Oxbow Realty pursuant to Topic 810, eliminating any transactions between the Company and Oxbow Realty, and recording a noncontrolling interest for the economic interest in Oxbow Realty attributable to parties other than the Company’s common stock shareholders. In addition, the assets of Oxbow Realty can only be used to settle its liabilities, and the creditors of Oxbow Realty do not have recourse to the general credit of SkyWater.
The following table shows the carrying amounts of assets and liabilities of Oxbow Realty that are consolidated by the Company as of March 30, 2025 and December 29, 2024. The assets and liabilities are presented prior to the elimination of intercompany balances.
| March 30, 2025 | December 29, 2024 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses | |||||||||||
| Finance receivable | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Contract liabilities | |||||||||||
| Debt | |||||||||||
| Total liabilities | $ | $ | |||||||||
The following table shows the revenue and expenses of Oxbow Realty for the three-month periods ended March 30, 2025 and March 31, 2024. These results of Oxbow Realty are presented prior to the elimination of intercompany transactions.
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| Revenue | $ | $ | |||||||||
| General and administrative expenses | |||||||||||
| Interest expense | |||||||||||
| Total expenses | |||||||||||
| Net income | $ | $ | |||||||||
Note 12 Leases
SkyWater as the Lessor
23
SKYWATER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements
(unaudited in thousands, except share and per share data)
Note 13 Reportable Segment and Geographic Information
Three-Month Period Ended | ||||||||||||||
| March 30, 2025 | March 31, 2024 | |||||||||||||
(in thousands, except per share data) | ||||||||||||||
| Revenue | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||
| Labor | ||||||||||||||
| Direct expenses | ||||||||||||||
| Cost of tool revenue | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Total cost of revenue | ||||||||||||||
| Gross profit | ||||||||||||||
| Research and development expense | ||||||||||||||
| Selling, general, administrative expense | ||||||||||||||
| Labor | ||||||||||||||
| Direct expenses | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Total selling, general, and administrative expense | $ | $ | ||||||||||||
| Operating loss | ( | ( | ||||||||||||
| Other expense: | ||||||||||||||
| Interest expense | ||||||||||||||
| Total other expense | $ | $ | ||||||||||||
| Loss before income taxes | ( | ( | ||||||||||||
| Income tax expense (benefit) | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
The following table discloses revenue for the three-month periods ended March 30, 2025 and March 31, 2024 by country as determined based on customer address:
| Three-Month Period Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| United States | $ | $ | |||||||||
| Canada | |||||||||||
| Hong Kong | |||||||||||
| United Kingdom | |||||||||||
| All others | |||||||||||
| Total | $ | $ | |||||||||
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the interim condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and the Company’s audited annual consolidated financial statements and related notes, included in its Annual Report on Form 10-K for the fiscal year ended December 29, 2024. In addition to historical financial information, the following discussion contains forward-looking statements that reflect the Company’s current expectations, estimates and assumptions concerning events and financial trends that may affect the Company’s future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in the Company’s forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Forward-Looking Statements” herein and elsewhere in its Annual Report on Form 10-K.
SkyWater refers to the three-month periods ended March 30, 2025 and March 31, 2024 as the first quarter of 2025 and first quarter of 2024, respectively. Each of these three-month periods includes 13 weeks. All percentage amounts and ratios presented in this management’s discussion and analysis were calculated using the underlying data in thousands. Unless otherwise indicated, all changes identified for the current period results represent comparisons to results for the prior corresponding period.
For purposes of this section, the terms “we,” “us,” “our,” and “SkyWater” refer to SkyWater Technology, Inc. and its subsidiaries collectively.
Overview
We are a U.S.-based, independent, pure-play technology foundry that offers advanced semiconductor development and manufacturing services from our fabrication facility, or fab, in Minnesota and advanced packaging services from our Florida facility. Our Technology-as-a-Service model leverages a foundation of proprietary technology, engineering know-how capabilities, and microelectronics manufacturing capacity to co-develop process technology intellectual property (“IP”) with our customers that enables disruptive concepts through our Advanced Technology Services (“ATS”) for diverse microelectronics (integrated circuits (“ICs”)) and related micro- and nanotechnology applications. In addition to differentiated technology development services, we support customers with volume production of ICs for high-growth markets through our Wafer Services.
The combination of semiconductor development and manufacturing services we provide our customers is not available to them from a conventional fab. In addition, we believe our status as a publicly-traded, U.S.-based, U.S. headquartered pure-play technology foundry with Defense Microelectronics Activity Category 1A Trusted Accreditation from the U.S. Department of Defense positions us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and secure access to a U.S. domestic supply chain.
We primarily focus on serving diversified, high-growth end users in numerous vertical markets, including (1) advanced compute, (2) aerospace and defense, (3) automotive, (4) bio-health, and (5) industrial. By housing both development and manufacturing in a single operation, we rapidly and efficiently transition newly-developed processes to high-yielding volume production, eliminating the time it would otherwise take to transfer production to a third-party fab. Through our ATS model, we specialize in co-creating advanced solutions with our customers that directly serve our end markets, such as infrared imaging, superconducting ICs for quantum computing and sensing, Rad-hard complementary metal oxide semiconductor (“CMOS”), integrated photonics, microelectromechanical systems (“MEMS”), technologies for biomedical and imaging applications, and advanced packaging. Our Wafer Services include the manufacture of silicon-based analog and mixed-signal ICs for our end markets. Our focus on the differentiated analog and CMOS markets supports long product life-cycles and requirements that value performance over cost-efficiencies, and leverages our portfolio IP.
25
Factors and Trends Affecting our Business and Results of Operations
The following trends and uncertainties either affected our financial performance during the first quarters of 2025 and 2024 or are reasonably likely to impact our results in the future.
•Macroeconomic and competitive conditions, including cyclicality and consolidation, as well as government funding in semiconductor technology and manufacturing, create unique challenges and opportunities for the semiconductor industry and SkyWater.
•Changes in trade policies, including the imposition of or increase in tariffs and changes to existing trade agreements, could negatively impact our business, financial condition and results of operations.
•In August 2022, the U.S. enacted the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “CHIPS Act”) pursuant to which the United States has committed to a renewed focus on providing incentives and funding for onshore companies to develop and advance the latest semiconductor technologies, supporting onshore manufacturing capabilities, and on strengthening key onshore supply chains. The CHIPS Act authorizes the U.S. Department of Commerce to enable execution of awards under the CHIPS Act and provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development, including $39 billion in financial assistance to build, expand, or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, or research and development. In December 2023, we submitted an application to the CHIPS Program Office of the U.S. Department of Commerce for funding through the CHIPS and Science Act for modernization and equipment upgrades to enhance production at our Minnesota facility. In December 2024, we signed a preliminary memorandum of terms that provides for up to $16 million pursuant to the CHIPS and Science Act, which is in addition to $19 million in incentives from the State of Minnesota. The federal funding is expected to be received in 2026, and the state incentives are expected to be received starting in the fourth quarter of 2025
•We project customer-funded capital investment to be a significant driver of the success of our business model, as we expect customers to invest in our capabilities and enable us to develop technology platforms that will drive our future growth.
•Our overall level of indebtedness from our revolving credit agreement, which we refer to as the Revolver (as defined below and in Note 6 – Debt), financing arising from the sale and leaseback of the land and building of our Minnesota facility, which we refer to as the VIE Financing, financing arrangements with lenders to finance the purchase of manufacturing tools and other equipment, which we refer to as the Tool Financing Loans, and the corresponding interest rates charged to us by our lenders, are key components of maintaining capital funding that allow us to continue to grow our business.
Pending Acquisition
On February 25, 2025, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Spansion LLC (“Seller”), an affiliate of Infineon Technologies AG, pursuant to which, subject to the satisfaction or waiver of the conditions contained therein, the Company will acquire all of the issued and outstanding memberships interests of a limited liability company that will be formed prior to closing and that will receive, pursuant to a pre-closing restructuring, certain assets and liabilities related to Infineon Technologies AG’s 200 mm fab in Austin, Texas (the “Transaction”). The purchase price for the Transaction is expected to be approximately $110 million, comprised of a base purchase price for the Transaction of $80 million ($55 million of which will be paid at closing), plus a payment at closing for working capital, estimated to be approximately $30 million, subject to adjustment. The payment of the remaining $25 million of the base purchase price will be deferred for four years and will be paid by wafer credits under a wafer supply agreement with an affiliate of Seller, which agreement will be executed at the closing of the Transaction pursuant to the Purchase Agreement.
The Transaction is subject to the satisfaction or waiver of certain customary closing conditions, including, among other things: (1) the accuracy of the representations and warranties of each party to the Purchase Agreement; (2) the performance by each party of its obligations and covenants in all material respects; (3) the absence of a material adverse effect between the signing of the Purchase Agreement and the closing of the Transaction; (4) the absence of any applicable order or law prohibiting the Transaction; and (5) obtaining U.S. regulatory approval.
Under the Purchase Agreement, the closing of the Transaction shall occur no earlier than May 30, 2025, unless otherwise agreed mutually by the parties. The Purchase Agreement may be terminated by mutual written agreement of the Company and Seller or by either the Company or Seller in limited circumstances, including, among other things, (i) certain uncured breaches of any representation, warranty, covenant or obligation in the Purchase Agreement by the other party; (ii) failure to complete the Transaction by September 30, 2025; and (iii) the existence of an order by a governmental authority prohibiting the Transaction. The Company anticipates closing the Transaction mid-2025.
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The Company intends to finance the purchase price for the Transaction through debt financing.
Financial Performance Metrics
Our senior management team regularly reviews certain key financial performance metrics within our business, including:
•Revenue and gross profit;
•Net loss; and
•Earnings before interest, taxes, depreciation and amortization, as adjusted (“adjusted EBITDA”), which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), that excludes certain items that may not be indicative of our core operating results, as well as items that can vary widely across different industries or among companies within the same industry. For information regarding our non-GAAP financial measure, see the section entitled “—Non-GAAP Financial Measure” below.
Results of Operations
First Quarter of 2025 Compared to the First Quarter of 2024
The following table summarizes certain financial information relating to our operating results for the first quarter of 2025 and 2024.
| First Quarter Ended | Percentage Change | ||||||||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||||||||
| (in thousands) | |||||||||||||||||
Consolidated statement of operations data: | |||||||||||||||||
| Revenue | $ | 61,296 | $ | 79,636 | (23) | % | |||||||||||
| Cost of revenue | 47,039 | 66,656 | (29) | % | |||||||||||||
| Gross profit | 14,257 | 12,980 | 10 | % | |||||||||||||
Research and development expense | 3,249 | 4,012 | (19) | % | |||||||||||||
Selling, general, and administrative expense | 15,030 | 11,169 | 35 | % | |||||||||||||
| Operating loss | (4,022) | (2,201) | 83 | % | |||||||||||||
| Interest expense | 1,812 | 2,390 | (176) | % | |||||||||||||
| Loss before income taxes | (5,834) | (4,591) | 27 | % | |||||||||||||
| Income tax expense | 384 | 41 | 837 | % | |||||||||||||
| Net loss | (6,218) | (4,632) | 34 | % | |||||||||||||
| Less: net income attributable to noncontrolling interests | 1,127 | 1,097 | 3 | % | |||||||||||||
| Net loss attributable to SkyWater Technology, Inc. | $ | (7,345) | $ | (5,729) | 28 | % | |||||||||||
Revenue
Revenue was $61.3 million for the first quarter of 2025 compared to $79.6 million for the first quarter of 2024, a decrease of $18.3 million, or 23%. The decrease in revenue was primarily driven by a decrease in Tool and ATS revenue.
The following table shows revenue by service type for the first quarter of 2025 and 2024:
| First Quarter Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| ATS development | $ | 52,535 | $ | 61,185 | |||||||
| Tools | 1,234 | 8,459 | |||||||||
| Wafer Services | 7,527 | 9,992 | |||||||||
| Total | $ | 61,296 | $ | 79,636 | |||||||
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ATS development revenue decreased $8.7 million, or 14%, from the first quarter of 2024 to the first quarter of 2025. The decrease was primarily driven by a $8.8 million decrease in Aerospace & Defense revenue. The decline in our Aerospace & Defense revenue is largely driven by recent changes in U.S. government policy and defense spending. Shifts in U.S. federal budget priorities and delayed contract awards have impacted program funding and slowed our pipeline. We expect to fulfill these contracts in the second half of fiscal 2025. Of the Aerospace & Defense decline, $2.7 million is attributable to programs that have transitioned from ATS to Wafer Services, upon successful completion of critical development steps. Additional declines included a $0.7 million decrease in medical revenue and a $0.3 million decrease in industrial revenue. These were partially offset by growth in other areas, including a $0.9 million increase in revenue from cloud computing customers and a $0.2 million increase in consumer market revenue.
Tools revenue decreased $7.2 million from the first quarter of 2024 to the first quarter of 2025 driven by completion of several investment efforts by our customers to acquire tools that advance our capabilities for their ATS development programs.
The decrease in Wafer Services revenue of $2.4 million, or 25%, from the first quarter of 2024 to the first quarter of 2025 was primarily driven by a $4.2 million decline in demand from a key automotive customer facing oversupply challenges. Revenue from a medical customer also declined by $1.0 million. These decreases were partially offset by a $2.4 million increase (of which $2.7 million was attributable to the ATS to Wafer Services transition) in revenue from an aerospace and defense customer and a $0.4 million increase from a consumer customer.
Cost of revenue
Cost of revenue decreased $19.6 million to $47.0 million for the first quarter of 2025 from $66.7 million for the first quarter of 2024. The decrease was primarily driven by a $7.2 million decrease from completion of procurement of several tools on behalf of our customers to advance our capabilities for their ATS development programs, in addition to $7.8 million incurred during the first quarter of 2024 for anticipated additional costs to complete certain development milestones for a significant aerospace and defense program. Through contract modification that reduced the program scope, we released $6.7 million of the $7.8 million reserved during the first quarter of 2024 later in fiscal 2024. As of March 30, 2025, there have been no significant modifications to the program.
Research and development expense
Research and development expense decreased $0.8 million to $3.2 million for the first quarter of 2025. The decrease was primarily driven by commercialization of the S90 platform, as well as decreased U.S. government funding for the RH90 platform.
Selling, general and administrative expense
Selling, general and administrative expense increased to $15.0 million for the first quarter of 2025, from $11.2 million for the first quarter of 2024. The increase of $3.9 million was primarily attributable to $1.8 million in expenses related to the acquisition of Infineon’s Fab 25 facility. These expenses primarily consisted of consulting fees associated with the acquisition.
Interest expense
Interest expense decreased to $1.8 million for the first quarter of 2025 from $2.4 million for the first quarter of 2024. The decrease of ($0.6) million was the result of lower amounts outstanding on our lending facility.
Net Loss
Net loss increased $1.6 million, or 28% from $5.7 million for the first quarter of 2024 to $7.3 million for the first quarter of 2025. The increase was the result of the net impacts of the changes described above related to the components of our results of operations.
Adjusted EBITDA
Adjusted EBITDA decreased $0.9 million, or 18%, to $4.0 million for the first quarter of 2025 from $4.9 million in the first quarter of 2024. The decrease in adjusted EBITDA was a result of headwinds experienced in our ATS business as a result of U.S. government policy impacts on defense spending. For a discussion of adjusted EBITDA as well as reconciliation to the most directly comparable U.S. GAAP measure, see the section below entitled “Non-GAAP Financial Measure.”
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Liquidity and Capital Resources
General
For the three-months ended March 30, 2025, and fiscal year ended December 29, 2024 the Company incurred net losses attributable to SkyWater Technology, Inc. of $7.3 million and $6.8 million, respectively. As of March 30, 2025 and December 29, 2024, the Company held cash and cash equivalents of $51.2 and $18.8 million, respectively.
SkyWater’s ability to execute its operating strategy is dependent on its ability to maintain liquidity and continue to access capital through the Revolver (as defined in Note 6 – Debt), and other sources of financing. The current business plans indicate that the Company maintains sufficient liquidity to continue its operations and maintain compliance with financial covenants for the next twelve months from the date the consolidated financial statements are issued. As a result of amendments made on November 19, 2024, the Revolver matures on December 31, 2028 and provides for a maximum revolving facility amount of $130 million. In regard to the Transaction, SkyWater intends to finance the purchase price for the Transaction through a new debt arrangement which is expected to be executed in connection with closing of the acquisition.
The Company has also obtained a support letter from Oxbow Industries, LLC (“Oxbow Industries”), an affiliate of the Company’s principal stockholder, to provide funding in an amount up to $12.5 million, if necessary, to enable the Company to meet its obligations as they become due through March 18, 2026. Based upon SkyWater’s operational forecasts, cash and cash equivalents on hand, available and expected additional borrowings on the Revolver, and the support letter from Oxbow Industries, as needed, management believes SkyWater will have sufficient liquidity to fund its operations for the next twelve months from the date these consolidated financial statements are issued.
We had $51.2 million in cash and cash equivalents, not including cash held by a VIE that we consolidate, and availability under our Revolver of $82.2 million at March 30, 2025. We are subject to certain liquidity and EBITDA covenants under our Loan Agreement, as outlined in the section below entitled “Indebtedness.”
Open Market Sale Agreement
On September 2, 2022, SkyWater entered into an Open Market Sale Agreement with Jefferies LLC with respect to an at the market offering program (the “ATM Program”). Pursuant to the agreement, the Company may, from time to time, offer and sell up to $100.0 million in shares of the Company’s common stock. During the three-month period ended March 30, 2025 and March 31, 2024, the Company did not sell shares under the ATM Program. From the date of the ATM Program through March 30, 2025, the Company has cumulatively sold 2,516,586 shares at an average sale price of $9.96 per share, resulting in gross proceeds of approximately $25.1 million before deducting sales commissions and fees of approximately $1,212. The Company used the net proceeds to pay down the Revolver and fund its operations.
As of March 30, 2025, the Company was authorized to sell an additional $74.9 million in shares under the ATM Program.
Capital Expenditures
For the first quarter of 2025 and 2024, we spent approximately $15.2 million and $4.1 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to improvements at our Minnesota facility and the development of our advanced packaging capabilities at our Center for NeoVation in Florida. We anticipate our cash on hand and the availability under the Revolver will provide the funds needed to meet our customer demand and anticipated capital expenditures for the remainder of fiscal 2025.
We have approximately $26.9 million of contractual commitments relating to various anticipated capital expenditures outstanding at March 30, 2025 that we expect to pay during the remainder of 2025 through cash on hand and operating cash flows.
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Working Capital
Historically, we have depended on cash on hand, funds available under our Revolver and, in the future, we may need to depend on additional debt and equity financings to fund our growth strategy, working capital needs, and capital expenditures. We believe that these sources of funds will be adequate to provide cash, as required, to support our strategy, ongoing operations, capital expenditures, lease obligations, and working capital for at least the next twelve months. However, we cannot be certain that we will be able to obtain future debt or equity financings on commercially reasonable terms sufficient to meet our cash requirements.
At March 30, 2025, the outstanding balance of our Revolver was $23.9 million, and our remaining availability under the Revolver was $82.2 million.
The following table sets forth general information derived from our interim condensed consolidated statement of cash flows for the first quarter of 2025 and 2024:
| First Three Months Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by (used in) operating activities | $ | 55,967 | $ | (3,924) | |||||||
| Net cash used in investing activities | $ | (15,183) | $ | (2,070) | |||||||
Net cash provided by (used in) financing activities | $ | (8,394) | $ | 7,614 | |||||||
Cash and Cash Equivalents
At March 30, 2025 and December 29, 2024, we had $51.2 million and $18.8 million of cash and cash equivalents, respectively. A discussion of the change in cash and cash equivalents can be found below.
Operating Activities
Cash flow from operations is driven by changes in the working capital needs associated with the various goods and services we provide, and expenses related to the infrastructure in place to support revenue generation. Working capital is primarily affected by changes in accounts receivable, contract assets, accounts payable, accrued expenses, and contract liabilities, all of which are partially correlated to and impacted by changes in the timing and volume of activities performed in our facilities. Net cash provided by (used in) operating activities was $56.0 million during the first quarter of 2025, an increase of $59.9 million from $3.9 million of cash used in operating activities during the first quarter of 2024. The increase in cash provided by operating activities during the first quarter of 2025 was driven primarily by an increase in contract liabilities of $52.0 million from a large cash receipt from a customer, which we will use to install a tool over the next three quarters. Other increases to operating cash flows were driven by a $8.9 million decrease in customer prepayments due to reduction in balance of deferred costs related to undelivered tools and in process installation, qualification and automation services, as well as a decrease in accounts receivable of $2.4 million due to improved cash collection efforts as a result of a higher quality customer mix and timing on invoicing for unbilled work and contract assets. These positive impacts were partially offset by a $1.6 million decrease in our earnings after non-cash adjustments, as well as decreases in accounts payable of $2.0 million due to the timing of the payment amounts owed to vendors.
Investing Activities
Our investments in capital expenditures are intended to enable revenue growth in new and expanding markets, help us meet product demand, and increase our manufacturing efficiencies and capacity. Net cash used in investing activities was $15.2 million during the first quarter of 2025, a increase of $13.1 million from $2.1 million during the first quarter of 2024. The increase in cash used in investing activities during the first quarter of 2025 reflects the increased capital spending on property and equipment compared to the same period in 2024.
Financing Activities
Net cash used by financing activities was $8.4 million during the first quarter of 2025 from net cash provided by financing activities of $7.6 million during the first quarter of 2024. The decrease in net cash provided by financing activities during the first quarter of 2025 was primarily driven by the decrease in net draws on our Revolver of $14.9 million.
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Indebtedness
Sale Leaseback Transaction
In 2020, we entered into an agreement to sell the land and building of our Minnesota facility to Oxbow Realty, an affiliate of our principal stockholder, for $39.0 million, less applicable transaction costs of $1.5 million and transaction services fees paid to Oxbow Realty of $2.0 million, and paid a guarantee fee to our principal stockholder of $2.0 million. We subsequently entered into an agreement to leaseback the land and building from Oxbow Realty for initial payments of $0.4 million per month over 20 years. The monthly payments are subject to a 2% increase each year during the term of the lease. We are also required to make certain customary payments constituting “additional rent,” including certain monthly reserve, insurance, and tax payments, in accordance with the terms of the lease. Due to our continuing involvement in the property, we are accounting for the transactions as a failed sale leaseback. Under failed sale leaseback accounting, we are deemed the owner of the land and building with the proceeds received recorded as a financial obligation.
Revolving Credit Agreement
On December 28, 2022, we entered into a Loan and Security Agreement with Siena Lending Group LLC (“Siena”), which was amended on November 19, 2024 (as amended, the “Loan Agreement”). The Loan Agreement provides for a revolving line of credit of up to $130 million with a scheduled maturity date of December 31, 2028 (the “Revolver”). The Company has incurred $4.4 million of debt issuance costs in connection with the Loan Agreement, which will be amortized as additional interest expense over the term of the Revolver. At March 30, 2025, we had borrowings of $23.9 million under the Revolver.
Borrowing under the Loan Agreement is limited by a borrowing base of specified advance rates applicable to billed accounts receivable, contract assets, inventory and equipment, subject to various conditions, limits and any availability block as provided in the Loan Agreement. The Loan Agreement also provides for borrowing base sublimits applicable to each of contract assets and equipment. Under certain circumstances, Siena may from time to time establish and revise reserves against the borrowing base and/or the maximum revolving facility amount.
Borrowings under the Loan Agreement bear interest at a rate that depends upon the type of borrowing, whether a term secured overnight financing rate (“SOFR”) loan or base rate loan, plus the applicable margin. The term SOFR loan rate is a forward-looking term rate based on SOFR for a tenor of one month on the applicable day, subject to a minimum of 2.5% per annum. The base rate is the greatest of the prime rate, the Federal funds rate plus 0.5% and 7.0% per annum. The applicable margin is an applicable percentage based on the fix charged coverage ratio that ranges from 4.00% to 5.00% per annum for term SOFR loans and ranges from 3.00% to 4.00% per annum for base rate loans.
The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions. Subject to certain cure rights, the Loan Agreement requires $10.0 million in minimum EBITDA (as defined in the Loan Agreement) calculated as of the last day of each calendar month commencing April 30, 2023 for the preceding twelve calendar months, prohibits unfunded capital expenditures in excess of $15.0 million calculated as of the last day of each calendar month commencing April 30, 2023 for the preceding twelve calendar months, and requires a minimum fixed charge coverage ratio, measured on a trailing twelve month basis, of not less than 1.00 to 1.00 if our liquidity is less than $15.0 million. In addition, the Loan Agreement places certain restrictions on our ability to incur additional indebtedness (other than permitted indebtedness), to create liens or other encumbrances (other than liens relating to permitted indebtedness), to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to our stockholders. As of March 30, 2025, we were in compliance with applicable covenants of the Loan Agreement and expect to continue to be in compliance with applicable financial covenants over the next twelve months.
Due to a lockbox clause in the Loan Agreement, the outstanding loan balance is required to be serviced with working capital, and the debt is classified as short-term on the interim condensed consolidated balance sheets in accordance with U.S. GAAP.
VIE Financing
On September 30, 2020, Oxbow Realty, the Company’s consolidated VIE, entered into a loan agreement for $39.0 million (the “VIE Financing”) to finance the acquisition of the building and land of the SkyWater Minnesota facility. The VIE Financing is repayable in equal monthly installments of $0.2 million over 10 years, with the balance payable at the maturity date of October 6, 2030. The interest rate under the VIE Financing is fixed at 3.44%. The VIE Financing is guaranteed by Oxbow Industries, who is also the sole equity holder of Oxbow Realty. The VIE Financing is not subject to financial covenants.
The terms of the VIE Financing include provisions that grant the lender several protective rights when certain triggering events defined in the loan agreement occur, including events tied to SkyWater’s occupancy of the SkyWater
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Minnesota facility and SkyWater’s financial performance. The triggering events are not financial covenants and the occurrence of these triggering events do not represent events of default, nor do they result in the VIE Financing becoming callable, rather the protective rights become enforceable by the lender. Based on the level of SkyWater’s earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs relative to gross rents paid from SkyWater to Oxbow Realty, as defined in the loan agreement, a triggering event existed and the lender’s protective rights were enforceable during the first half of fiscal year 2024. Pursuant to its protective rights, the lender had retained in a restricted account amounts paid by SkyWater to Oxbow Realty pursuant to the Company’s related party lease agreement that were in excess of the scheduled debt payments paid by Oxbow Realty to the lender. The triggering event was cured during the three-month period ended June 30, 2024 and the funds held in the restricted account were remitted back to Oxbow Realty. No triggering events as defined in the loan agreement existed as of March 30, 2025.
The VIE Financing is secured by a security interest in the land and building which was the subject of the sale-leaseback transaction described above. The Company’s VIE incurred third-party transaction costs of $0.1 million, which are recognized as debt issuance costs and are amortizing as additional interest expense over the life of the VIE Financing. The Company incurred additional third-party transaction costs of $3.5 million, which are recognized as debt issuance costs and are being amortized as additional interest expense over the life of the VIE Financing.
Tool Financing Loans
We, from time to time, enter into financing arrangements with lenders to finance the purchase of manufacturing tools and other equipment. In the first quarter of fiscal year 2025, we did not enter into any new arrangements to sell manufacturing tools and other equipment to financing lenders. In fiscal year 2024, these arrangements totaled $6.3 million. These agreements include bargain purchase options at the end of the lease terms, which we intend to exercise. These transactions represent failed sale leasebacks with the associated equipment recorded in property and equipment, net and the proceeds received, net of scheduled repayments of the financings, recorded as debt on the consolidated balance sheets.
Material Cash Requirements
Our material cash requirements from known contractual and other obligations primarily relate to the following, for which information on both a short-term and long-term basis is provided in the indicated notes to the consolidated financial statements:
•Debt—Refer to Note 6.
•Capital expenditure commitments—Refer to Note 9.
•Capital lease commitments—Refer to Note 12 .
•Sale leaseback obligation—Refer to Note 10.
•Income Taxes—Refer to Note 7.
•Other commitments and contingencies—Refer to Note 9.
Recent Accounting Developments
For information on new accounting pronouncements, see Note 3 to the consolidated financial statements.
Emerging Growth Company and Smaller Reporting Company Status
We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory “say-on-pay” votes on executive compensation, and shareholder advisory votes on golden parachute compensation.
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period for complying with new or revised accounting standards and therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.
We are also a “smaller reporting company.” If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent
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fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Critical Accounting Policies and Estimates
In connection with preparing our interim condensed consolidated financial statements in accordance with U.S. GAAP, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expense, and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes are relevant at the time we prepared our interim condensed consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our interim condensed consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from our assumptions and estimates.
On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, valuation of long-lived assets, valuation of inventory, equity-based compensation, and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions or conditions.
There have been no changes to our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 29, 2024.
Non-GAAP Financial Measure
Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our interim condensed consolidated financial statements presented in accordance with U.S. GAAP, an additional non-GAAP financial measure is provided and reconciled in the table below.
We provide supplemental non-GAAP financial information that our management regularly evaluates to provide additional insight to investors as supplemental information to our U.S. GAAP results. Our management uses adjusted EBITDA to make informed operating decisions, complete strategic planning, prepare annual budgets, and evaluate the Company’s and our management’s performance. We believe that adjusted EBITDA is a useful performance measure to our investors because it provides a baseline for analyzing trends in our business and excludes certain items that may not be indicative of our core operating results. The use of non-GAAP financial information should not be considered as an alternative to, or more meaningful than, the comparable U.S. GAAP measure. In addition, because this non-GAAP financial measure is not determined in accordance with U.S. GAAP, other companies, including our peers, may calculate their non-GAAP financial measures differently than we do. As a result, the non-GAAP financial measure presented in this Quarterly Report on Form 10-Q may not be directly comparable to similarly titled measures presented by other companies.
Adjusted EBITDA
Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. We define adjusted EBITDA as net (loss) income before interest expense, income tax (benefit) expense, depreciation and amortization, equity-based compensation, and certain other items that we do not view as indicative of our ongoing performance, including net income attributable to noncontrolling interests, equity-based compensation expense and transaction costs.
We believe adjusted EBITDA is a useful performance measure to our investors because it allows for an effective evaluation of our operating performance when compared to other companies, including our peers, without regard to financing methods or capital structures. We exclude the items listed above from net income or loss in arriving at adjusted EBITDA because these amounts can vary substantially within our industry depending on the accounting methods and policies used, book values of assets, capital structures, and the methods by which assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net (loss) income determined in accordance with U.S. GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are reflected in adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an indication that our results will be unaffected by the items excluded from adjusted EBITDA. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items. Accordingly, the exclusion of these items and other similar items in our non-GAAP presentation should not be interpreted as implying that these items are non-recurring, infrequent or unusual, unless otherwise expressly indicated.
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The following table presents a reconciliation of net loss attributable to SkyWater Technology, Inc. to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
| First Quarter Ended | |||||||||||
| March 30, 2025 | March 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net loss attributable to SkyWater Technology, Inc. | $ | (7,345) | $ | (5,729) | |||||||
Interest expense | 1,812 | 2,390 | |||||||||
| Income tax expense | 384 | 41 | |||||||||
Depreciation and amortization, net | 4,358 | 5,065 | |||||||||
| EBITDA | (791) | 1,767 | |||||||||
Equity-based compensation expense (1) | 1,879 | 2,072 | |||||||||
Transaction costs (2) | 1,810 | — | |||||||||
Net income attributable to noncontrolling interests (3) | 1,127 | 1,097 | |||||||||
| Adjusted EBITDA | $ | 4,025 | $ | 4,936 | |||||||
__________________
(1)Represents non-cash equity-based compensation expense.
(2)Represents costs associated with the Company's anticipated acquisition of Fab 25 in mid-2025, including fees for consultants, professional services fees and other costs to effectuate the closing of the transaction.
(3)Represents net income attributable to noncontrolling interests arising from our variable interest entity (VIE), which was formed for the purpose of purchasing the land and building of our primary operating facility in Bloomington, Minnesota. Since interest expense is added back to net income (loss) attributable to SkyWater Technology, Inc. in our adjusted EBITDA financial measure, we also add back the net income attributable to noncontrolling interests as its net income is derived from interest the VIE charges SkyWater.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. Currently, our market risks relate to potential changes in the fair value of our debt due to fluctuations in applicable market interest rates. In the future, our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.
Credit Risk
Financial instruments that potentially subject us to credit risk are cash and cash equivalents, accounts receivable, and contract assets. Cash balances are maintained in financial institutions, which at times exceed federally insured limits. We monitor the financial condition of the financial institutions in which our accounts are maintained and have not experienced any losses in such accounts. We perform ongoing credit evaluations as to the financial condition of our customers with respect to trade receivables and contract assets. Generally, no collateral is required as a condition of sale. Our consideration of the need for an allowance for credit losses is based upon current market conditions and other factors.
Interest Rate Risk
At March 30, 2025, the outstanding balance of our Revolver was $23.9 million, which bears interest at a variable rate. At March 30, 2025, the rate in effect was 9.10% . Based on the outstanding balance of our Revolver at March 30, 2025, a 100 basis point increase in the interest rate would increase interest expense by $0.2 million annually.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial and accounting officer) as appropriate, to allow for timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, our principal executive officer and principal financial officer, respectively, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 30, 2025. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 30, 2025 due to the material weakness in our internal control over financial reporting described below.
In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and, notwithstanding the material weakness in internal control over financial reporting, has concluded that our condensed consolidated balance sheets as of March 30, 2025 and December 29, 2024, the related condensed consolidated statements of operations, shareholders’ equity, and cash flows for the three-month periods ended March 30, 2025 and March 31, 2024, present fairly, in all material respects, our financial position, results of our operations and our cash flows for the periods presented in this Quarterly Report on Form 10-Q, in conformity with GAAP.
Previously Reported Material Weakness
As disclosed in Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 29, 2024, we identified a material weakness in our internal control over financial reporting. As of March 30, 2025, we have a material weakness in our revenue accounting process. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Remediation Plans
Remediation of the material weakness in the revenue accounting process will require the Company to design and implement system improvements to either remove the privileged access to the manufacturing application and its databases or develop and implement controls from which changes processed via the privileged access are monitored and evaluated.
As we continue to evaluate and work to remediate the control deficiencies that gave rise to the material weakness in the revenue accounting process, we may determine that additional measures or time are required to address the issues fully, or that we need to modify or otherwise adjust the remediation actions described above. We will also continue to assess the effectiveness of our remediation efforts in connection with our evaluation of our internal control over financial reporting. The material weakness in the revenue accounting process cannot be considered remediated until our remediation plans have been completed and the effectiveness of the remedial actions have been validated.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three-month period ended March 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.
Item 1A. Risk Factors
This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2024. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 29, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) During the three-month period ended March 30, 2025, no director or Section 16 officer of the Company adopted terminated
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Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
| Exhibit Number | Description | |||||||
| 2.1 | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 10.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
__________________
+ Indicates a management contract or any compensatory plan, contract or arrangement.
* The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SkyWater Technology, Inc. | ||||||||
| Date: May 8, 2025 | By: | /s/ Thomas Sonderman | ||||||
| Thomas Sonderman Chief Executive Officer (Principal Executive Officer) | ||||||||
| By: | /s/ Steve Manko | |||||||
| Steve Manko Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||||||||
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