Record Revenues and Continued Year-over-Year Increase in Gross Margin

SkyWater Technology (NASDAQ: SKYT), the trusted technology realization partner, today announced financial results for the second quarter of 2023, ended July 2, 2023.

Highlights for Q2 2023:

• Revenue increased 47% year-over-year to a record $69.8 million.
• Gross margin increased to 23.9% on a GAAP basis, compared to 4.4% in Q2 2022, and increased to 24.7% on a non-GAAP basis, compared to 5.6% in Q2 2022.
• Net loss to shareholders of $8.6 million, or $(0.19) per share on a GAAP basis, and net loss to shareholders of $6.4 million, or $(0.14) per share on a non-GAAP basis, compared to net loss to shareholders of $13.0 million, or $(0.32) per share on a GAAP basis, and net loss to shareholders $10.8 million, or $(0.27) per share on a non-GAAP basis in Q2 2022.
• Adjusted EBITDA of $6.5 million, or 9.3% of revenue, compared to $(1.6) million, or (3.4)% of revenue in Q2 2022.

“We are pleased to report continued momentum in the second quarter and strong financial results, including another record revenue quarter, which exceeded our expectations and approached the $70 million level,” commented Thomas Sonderman, SkyWater president and chief executive officer. “Testament to our improved operating performance and execution over the last several quarters, our trailing-twelve-month revenues now total $253 million, an increase of 50% over the prior 12-month period. Now a little more than halfway through the year, it’s evident that our ATS revenue growth is proving itself to be relatively decoupled from the macro weakness affecting the overall semiconductor industry, and our diversified portfolio of products, customers, and end markets, as well as improved operational execution, provides us with increased confidence in our ability to achieve our long-term annual revenue growth objective of 25% in 2023.”

Q2 Business Highlights:

• Record revenues exceeded expectations due to continued strong customer demand, the expansion of multiple key Advanced Technology Services (ATS) programs year to date, and a $3.6 million pull-in of revenues that resulted from the restructuring of one ATS contract.
• Gross margin expansion continues to reflect strong flow-through performance on the year-on-year revenue growth.
• Continued progress on the productization and qualification of SkyWater’s 90nm RadHard platform, in preparation for the planned production ramp in 2025.
• Growing engagement with multiple commercial ATS customers, particularly in the bio-health and advanced computing end markets, each of which could contribute multiple-$M of revenue for SkyWater in 2023.
• Continued progress proceeding through the application process for CHIPS Act funding, as we believe we are well-positioned to be a major beneficiary in the years to come, both at our existing sites in Minnesota and Florida, as well as our innovative and transformative partnership with Purdue University and the State of Indiana.

Q2 2023 Summary:

Q2 2023 Results:

• Revenue: Revenue of $69.8 million increased 47% year-over-year. Advanced Technology Services revenue of $53.0 million increased 78% year-over-year driven primarily by continued momentum with key customers in the Aerospace & Defense sector, as well as a $3.6 million revenue pull-in following the restructuring of an ATS program with a commercial customer. Advanced Technology Services revenue contained $0.9 million of tool revenue in the second quarter of 2023 and $0.3 million in the second quarter of 2022. Wafer Services revenue of $16.8 million decreased (4)% compared to the second quarter of 2022.
• Gross Profit: GAAP gross profit was $16.7 million, or 23.9% of revenue, compared to gross profit of $2.1 million, or 4.4% of revenue, in the second quarter of 2022. Non-GAAP gross profit was $17.0 million, or 24.7% of revenue, compared to non-GAAP gross profit of $2.6 million, or 5.6% of revenue, in the second quarter of 2022. With no associated costs related to the $3.6 million revenue pull-in referenced above, the restructuring of this commercial customer contract benefited Q2’23 gross margin by approximately 400 bp.
• Operating Expenses: GAAP operating expenses were $20.2 million, compared to $13.2 million in the second quarter of 2022, and included $3.8 million of project-based consulting fees that were not a component of operating expenses in the second quarter of 2022. These project-based consulting fees included $2.5 million of management consulting transformation fees related to long-term improvement in automation and operational efficiency and $1.3 million of specialist fees related to the CHIPS Act application process. GAAP operating expenses also included $1.4 million of additional bad debt accrual that was not a component of operating expenses in the second quarter of 2022.
• Net Loss: GAAP net loss to shareholders of $8.6 million, or $(0.19) per share, compared to a net loss to shareholders of $13.0 million, or $(0.32) per share, in the second quarter of 2022. Non-GAAP net loss to shareholders of $6.4 million, or $(0.14) per share, compared to a non-GAAP net loss to shareholders of $10.8 million, or $(0.27) per share, in the second quarter of 2022.
• Adjusted EBITDA: Adjusted EBITDA was $6.5 million, or 9.3% of revenue, compared to $(1.6) million, or (3.4)% of revenue, in the second quarter of 2022. The benefit of the $3.6 million revenue pull-in was more than offset by the additional $5.2 million of operating expenses referenced above, which resulted in a net negative impact on EBITDA margin of approximately 200 bp.

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

Investor Webcast

SkyWater will host a conference call on Monday, August 7, 2023, at 3:30 p.m. CT to discuss its second quarter 2023 financial results. A live webcast of the call will be available online at IR.SkyWaterTechnology.com.

About SkyWater Technology

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

Cautionary Statement Regarding Preliminary Results

The Company’s results for the fiscal quarter ended July 2, 2023 are preliminary, unaudited and subject to the finalization of the Company’s second quarter review and full-year audit and should not be viewed as a substitute for full financial statements prepared in accordance with GAAP. The Company cautions that actual results may differ materially from those described in this press release.

SkyWater Technology Forward-Looking Statements

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

Forward-looking statements are subject to risks, uncertainties and assumptions, which may cause the Company’s actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Key factors that could cause the Company’s actual results to be different than expected or anticipated include, but are not limited to: our goals and strategies; our future business development, financial condition and results of operations; our ability to continue operating our sole semiconductor foundry at full capacity; our ability to appropriately respond to changing technologies on a timely and cost-effective basis; our customer relationships and our ability to retain and expand our customer relationships; our ability to accurately predict our future revenues for the purpose of appropriately budgeting and adjusting our expenses; our expectations regarding dependence on our largest customers; our ability to diversify our customer base and develop relationships in new markets; the performance and reliability of our third-party suppliers and manufacturers; our ability to procure tools, materials, and chemicals amid industry-wide supply chain shortages; our ability to control costs, including our operating and capital expenses; the size and growth potential of the markets for our solutions, and our ability to serve and expand our presence in those markets; the level of demand in our customers’ end markets; our ability to attract, train and retain key qualified personnel in a competitive labor market; adverse litigation judgments, settlements or other litigation-related costs; changes in trade policies, including the imposition of tariffs; our ability to raise additional capital or financing; our ability to accurately forecast demand; the 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; our ability to meet our long-term growth targets; and other factors discussed in the “Risk Factors” section of the annual report on Form 10-K the Company filed with the SEC on March 15, 2023 and in other documents that the Company files with the SEC, which are available at http://www.sec.gov. The Company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

Supplemental Revenue Information by Quarter

Non-GAAP Financial Measures

We provide supplemental, non-GAAP financial information that our management utilizes to evaluate our ongoing financial performance and provide additional insight to investors as supplemental information to our results reported using U.S. generally accepted accounting principles (GAAP). We provide non-GAAP gross profit, non-GAAP gross margin, non-GAAP net loss to shareholders, and non-GAAP net loss per share. We provide these non-GAAP financial measures because we believe this non-GAAP presentation provides a baseline for analyzing trends in our business and to exclude certain items that may not be indicative of our core operating results. The non-GAAP financial measures disclosed in this earnings press release should not be viewed as an alternative to, or more meaningful than, the reported results prepared in accordance with GAAP. In addition, because our non-GAAP measures are not determined in accordance with GAAP, these measures are susceptible to differing calculations, and not all comparable or peer companies may calculate their non-GAAP measures in the same manner. As a result, the non-GAAP financial measures presented in this earnings press release may not be directly comparable to similarly titled measures presented by other companies.

We also provide adjusted earnings before interest, income taxes, depreciation and amortization (EBITDA) and adjusted EBITDA margin as supplemental non-GAAP measurements. We define adjusted EBITDA as net income (loss) before interest expense, income tax provision (benefit), depreciation and amortization, equity-based compensation and certain other items that we do not view as indicative of our ongoing performance, including SkyWater Florida start-up costs, management transition expense, and net income attributable to non-controlling interests. We believe adjusted EBITDA is a useful performance measure because it allows for an effective evaluation of our operating performance when compared to our peers, without regard to our financing methods or capital structure. We exclude the items from net income or loss in arriving at adjusted EBITDA because the amounts of these items can vary substantially within our industry depending upon accounting methods, book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income determined in accordance with GAAP. Certain items excluded from adjusted EBITDA are significant components in understanding and assessing financial performance, including, but not limited to, the cost of capital, income taxes, and the historic cost bases of long-lived 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.

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

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