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  Title	SkyWater Technology Reports Third Quarter 2024 Results
  ID	3973828
  External ID	7283692517
  Author	Unknown
  Published Date	Nov. 7, 2024, 3:14 p.m.
  Summary	November 07, 2024 at 16:05 PM EST Record Revenues with Increased Gross Margin and Earnings SkyWater Technology, Inc. (NASDAQ: SKYT), the trusted technology realization partner, today announced finan
  Tags	press-release
  URL	http://business.theeveningleader.com/theeveningleader/article/bizwire-2024-11-7-skywater-technology-reports-third-quarter-2024-results
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  Content ID	2251308
  Key	1d6986fa-88af-489c-ad80-e03368d2ae24
  Content	November 07, 2024 at 16:05 PM EST Record Revenues with Increased Gross Margin and Earnings SkyWater Technology, Inc. (NASDAQ: SKYT), the trusted technology realization partner, today announced financial results for the third quarter 2024 ended September 29, 2024. Financial Highlights for Q3 2024: Revenue increased 31% year-over-year to a record $93.8 million. Gross margin increased to 21.6% on a GAAP basis, compared to 19.8% in Q3 2023, and increased to 22.3% on a non-GAAP basis, compared to 20.4% in Q3 2023. Net income to shareholders of $1.5 million, or $0.03 per diluted share on a GAAP basis, and net income to shareholders of $3.6 million, or $0.08 per diluted share on a non-GAAP basis, compared to net loss to shareholders of $7.6 million, or $(0.16) per diluted share on a GAAP basis, and net loss to shareholders of $2.2 million, or $(0.05) per diluted share on a non-GAAP basis in Q3 2023. Adjusted EBITDA of $11.0 million, or 11.7% of revenue, compared to $8.3 million, or 11.6% of revenue in Q3 2023. “I'm pleased to announce a strong third quarter for SkyWater, with new records achieved in both revenues and earnings,” commented Thomas Sonderman, CEO. “With further improvements in operational efficiencies and strong execution on a significant A&D program, we achieved upside in gross margins and adjusted EBITDA during the quarter. Looking ahead, we expect a return to sequential growth in Q4 in our Advanced Technology Services (ATS) business, which we expect will result in an overall robust revenue growth year for SkyWater in 2024. We are encouraged by a strong pipeline of A&D customer demand, increasing momentum in multiple emerging commercial programs, and a continued cadence of customer-funded CapEx investments. As we look ahead to 2025, with our current visibility we are forecasting year-over-year growth for our ATS business, an improving quarterly run rate for Wafer Services, and continued positive momentum in margins and operational leverage.” Recent Business Highlights: Achieved 9th straight record revenue quarter driven by over $30 million in customer-funded CapEx investments. This unprecedented level of investment by our customers is expected to significantly bolster our capabilities and capacity in both Minnesota and Florida, enabling strong future revenue growth potential in the years to come. Strong gross margin and earnings performance for Q3 exceeded expectations, driven by our continued focus on operational efficiencies and improved execution on a significant A&D program, which enabled us to deliver key milestones with lower-than-expected costs and recover the majority of the $8 million cost accrual recorded in Q1. Continuing our leadership in critical semiconductor technologies, SkyWater has been selected as a key performer on multiple Microelectronics (ME) Commons projects. These projects are focused on scalable low-power microtechnology technologies for AI hardware and other applications. The ME Commons is an important element of the CHIPS Act, supporting emerging technologies for national security. Continued momentum in our commercial ATS business culminated in a new multi-year supply agreement with NanoDx, Inc., a pioneer of in vitro diagnostic and biosensing applications. Exciting progress in Florida included the appointment of Bassel Haddad, SVP and GM of our advanced packaging business, where he is charged with building and scaling this important new growth vector for SkyWater. During the quarter, we continued to place orders for new tooling, funded by the $120 million award announced earlier in the year. Q3 2024 Summary: GAAP In millions, except per share data Q3 2024 Q3 2023 Y/Y * Q2 2024 Q/Q * ATS development revenue (1) Wafer Services revenue Combined ATS development and Wafer Services revenue Tools revenue (2) Total revenue * Gross profit * Gross margin * 180 bps 330 bps Net income (loss) to shareholders NM NM Basic income (loss) per share NM NM Diluted income (loss) per share NM NM Net income (loss) margin to shareholders 1,220 bps 360 bps __________________ NM - Not meaningful * Amounts calculated based on figures reported in thousands. ATS development revenue represents GAAP revenue primarily derived from process development services, tool installation and qualification services, facility and tool access, and security services. Tools revenue represents GAAP revenue primarily derived from the procurement and subsequent sale of equipment to our customers. While this equipment is owned by our customers, the equipment is retained in one of our fabs and is used to complete ATS customer programs. Non-GAAP In millions, except per share data Q3 2024 Q3 2023 Y/Y * Q2 2024 Q/Q * Non-GAAP gross profit Non-GAAP gross margin * 190 bps 340 bps Non-GAAP net income (loss) to shareholders NM Non-GAAP basic income (loss) per share NM Non-GAAP diluted income (loss) per share NM Adjusted EBITDA Adjusted EBITDA margin 10 bps 300 bps __________________ NM - Not meaningful * Amounts calculated based on figures reported in thousands. Q3 2024 Results: Revenue: Revenue of $93.8 million increased 31% year-over-year. ATS development revenue of $56.4 million increased 5% year-over-year. Wafer Services revenue of $6.7 million decreased 54% compared to the third quarter of 2023. Tools revenue was $30.7 million in the third quarter of 2024 compared to $3.2 million in the third quarter of 2023. Gross Profit: GAAP gross profit was $20.2 million, or 21.6% of total revenue, compared to gross profit of $14.1 million, or 19.8% of total revenue, in the third quarter of 2023. Non-GAAP gross profit was $20.9 million, or 22.3% of total revenue, compared to non-GAAP gross profit of $14.6 million, or 20.4% of total revenue, in the third quarter of 2023. In the third quarter of 2024 we successfully modified a significant customer contract that resulted in a decrease in our estimate of future costs to complete their program. Gross margin for the third quarter of 2024 benefited from the $5.6 million reversal of the remaining loss accrual, which was initially established at $8.0 million in the first quarter of 2024 for this program. Operating Expenses: GAAP operating expenses were $15.5 million, compared to $18.3 million in the third quarter of 2023. Non-GAAP operating expenses were $14.1 million, compared to $13.4 million in the third quarter of 2023. Net Income (Loss): GAAP net income to shareholders was $1.5 million, or $0.03 per diluted share, compared to a net loss to shareholders of $7.6 million, or $(0.16) per diluted share, in the third quarter of 2023. Non-GAAP net income to shareholders was $3.6 million, or $0.08 per diluted share, compared to a non-GAAP net loss to shareholders of $2.2 million, or $(0.05) diluted per share, in the third quarter of 2023. Adjusted EBITDA : Adjusted EBITDA was $11.0 million, or 11.7% of total revenue, compared to $8.3 million, or 11.6% of total revenue, in the third quarter of 2023. A reconciliation between GAAP and non-GAAP financial measures is contained in the tables included in the section titled “Non-GAAP Financial Measures.” Q4 2024 Financial Outlook For the fourth quarter of 2024, we expect total revenue to be in the range of $72 million to $76 million, of which approximately $11 million is expected to be tools revenue. We expect GAAP diluted EPS to be in the range of $(0.12) to $(0.06) and non-GAAP diluted EPS to be in the range of $(0.10) to $(0.04). This outlook for non-GAAP diluted EPS excludes anticipated equity-based compensation expense of approximately $2.0 million. Non-GAAP diluted EPS should be considered in addition to, but not as a substitute for, our financial information presented in accordance with GAAP. Investor Webcast SkyWater will host a conference call on Thursday, November 7, 2024, at 3:30 p.m. CT to discuss its third quarter 2024 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 Supplier. 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 U.S. facilities. This pioneering model enables innovators to co-create the next wave of technology within diverse categories including mixed-signal CMOS, read-out ICs, rad-hard ICs, MEMS, superconducting ICs, photonics and advanced packaging. SkyWater serves the growing markets of aerospace & defense, automotive, biomedical, industrial and quantum computing. For more information, visit: www.skywatertechnology.com Cautionary Statement Regarding Preliminary Results The Company's results for the third quarter ended September 29, 2024 are preliminary, unaudited and subject to the finalization of the Company's third 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 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; 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 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, 2024 and in other documents that the Company files with the SEC, which are available at http://www.sec.gov . The Company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release. SKYWATER TECHNOLOGY, INC. Condensed Consolidated Balance Sheets (Unaudited) September 29, December 31, (in thousands, except per share data) Assets Current assets Cash and cash equivalents Accounts receivable (net of allowance for credit losses of $378 and $180, respectively) Contract assets (net of allowance for credit losses of $42 and $99, respectively) Inventory Prepaid expenses and other current assets Income tax receivable — 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 Income taxes payable — 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 Shareholders' equity Preferred stock, $0.01 par value per share (80,000 shares authorized, zero shares issued and outstanding as of September 29, 2024 and December 31, 2023) — — Common stock, $0.01 par value per share (200,000 shares authorized; 47,643 and 47,028 shares issued and outstanding as of September 29, 2024 and December 31, 2023, respectively) Additional paid-in capital Accumulated deficit Total shareholders' equity, SkyWater Technology, Inc. Noncontrolling interests Total shareholders' equity Total liabilities and shareholders' equity SKYWATER TECHNOLOGY, INC. Condensed Consolidated Statements of Operations (Unaudited) Three-Month Period Ended Nine-Month Period Ended September 29, June 30, October 1, September 29, October 1, (in thousands, except per share data) Revenue Cost of revenue Gross profit Research and development expense Selling, general, and administrative expense Operating income (loss) Interest expense Income (loss) before income taxes Income tax expense (benefit) Net income (loss) Less: net income attributable to noncontrolling interests Net income (loss) attributable to SkyWater Technology, Inc. Net income (loss) per share attributable to common shareholders, basic Weighted average shares outstanding, basic Net income (loss) per share attributable to common shareholders, diluted Weighted average shares outstanding, diluted SKYWATER TECHNOLOGY, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) Nine-Month Period Ended September 29, October 1, (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 Gain on sale of property and equipment — Amortization of debt issuance costs included in interest expense Equity-based compensation expense Deferred income taxes Provision for credit losses Changes in operating assets and liabilities Accounts receivable and contract assets, net Inventories Prepaid expenses 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 technology licenses Proceeds from sale of property and equipment — 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 Repayment of tool financing advanced payments — 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 Proceeds from the issuance of common stock under the ATM — Cash paid on licensed technology obligations Contributions from noncontrolling interest — Distributions to noncontrolling interest Net cash provided by (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental Financial Information by Quarter Q3 2024 Q2 2024 Q1 2024 Q4 2023 Q3 2023 Q2 2023 Q1 2023 (in thousands) ATS development revenue (1) Wafer Services revenue Combined ATS development and Wafer Services revenue Tools revenue (2) Total revenue Tools revenue (2) Cost of tools revenue (2) Tools gross profit Revenue impact of modified customer contracts — — — — — — Cost of revenue impact of modified customer contracts (3) — — — — — — Favorable gross profit impact of modified customer contracts — — — — — __________________ ATS development revenue represents GAAP revenue primarily derived from process development services, tool installation and qualification services, facility and tool access, and security services. Tools revenue and cost of tools revenue represents GAAP revenue and cost primarily derived from the procurement and subsequent sale of equipment to our customers. While this equipment is owned by our customers, the equipment is retained in one of our fabs and is used to complete ATS customer programs. In the first quarter of 2024, we recorded a $8,004 charge to recognize future estimated losses for one significant customer program based on anticipated cost increases to complete the customer's program. In the third quarter of 2024 we successfully modified the customer contract, which resulted in a decrease in our estimate of future costs to complete their program. The remaining $5,616 loss accrual recorded at the time the contract was modified was released, which reduced cost of revenue for the three- and nine-months ended September 29, 2024. Non-GAAP Financial Measures We provide supplemental, non-GAAP financial information that our management regularly evaluates to provide additional insight to investors as supplemental information to our results reported using U.S. generally accepted accounting principles (GAAP). We provide non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP research and development expense, non-GAAP selling, general and administrative expense, non-GAAP net income (loss) to shareholders, non-GAAP net income (loss) to shareholders per basic share and non-GAAP net income (loss) per diluted share. Our management uses these non-GAAP financial measures to make informed operating decisions, complete strategic planning, prepare annual budgets, and evaluate Company and management performance. We believe these non-GAAP financial measures are useful performance measures to our investors because they provide a baseline for analyzing trends in our business and exclude certain items that may not be indicative of our core operating results. The non-GAAP financial measures disclosed in this earnings release should not be viewed as an alternative to, or more meaningful than, the reported results prepared in accordance with GAAP. In addition, because these non-GAAP financial measures are not determined in accordance with GAAP, other companies, including our peers, may calculate their non-GAAP financial measures differently than we do. As a result, the non-GAAP financial measures presented in this earnings release may not be directly comparable to similarly titled measures presented by other companies. We also provide earnings before interest, income taxes, depreciation and amortization (EBITDA), adjusted EBITDA and adjusted EBITDA margin as supplemental non-GAAP measures. We define adjusted EBITDA as net income (loss) 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; business transformation costs; management transition expense; the cost of severance, separation and other termination benefits; and the cost of CHIPS Act specialist fees. Our management uses EBITDA, adjusted EBITDA and adjusted EBITDA margin to make informed operating decisions, complete strategic planning, prepare annual budgets, and evaluate Company and management performance. We believe these non-GAAP financial measures are useful performance measures to our investors because they allow 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 (loss) in arriving at adjusted EBITDA and adjusted EBITDA margin because the amounts of these items 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. These non-GAAP financial measures should not be considered as an alternative to, or more meaningful than, the reported results prepared in accordance with GAAP. Certain items excluded from these non-GAAP financial measures 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 cost bases of depreciable assets, none of which are reflected in these non-GAAP financial measures. Our presentation of these non-GAAP financial measures should not be construed as an indication that our results will be unaffected by the items excluded from adjusted EBITDA and adjusted EBITDA margin. 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 these non-GAAP financial measures 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. SKYWATER TECHNOLOGY, INC. Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited) Three-Month Period Ended Nine-Month Period Ended September 29, June 30, October 1, September 29, October 1, (in thousands) GAAP revenue GAAP cost of revenue Equity-based compensation expense (1) Management transition expense (2) — — Non-GAAP cost of revenue GAAP gross profit GAAP gross margin Equity-based compensation expense (1) Management transition expense (2) — — Non-GAAP gross profit Non-GAAP gross margin GAAP research and development expense Equity-based compensation expense (1) Non-GAAP research and development expense GAAP selling, general, and administrative expense Equity-based compensation expense (1) Management transition expense (2) — — Business transformation costs (3) — — — CHIPS Act specialist fees (4) — — — — Non-GAAP selling, general, and administrative expense GAAP net income (loss) to shareholders Equity-based compensation expense (1) Management transition expense (2) — Business transformation costs (3) — — — CHIPS Act specialist fees (4) — — — — Non-GAAP net income (loss) to shareholders Three-Month Period Ended Nine-Month Period Ended September 29, June 30, October 1, September 29, October 1, (in thousands) Equity-based compensation expense allocation in the consolidated statements of operations (1): Cost of revenue Research and development expense Selling, general, and administrative expense Management transition expense allocation in the consolidated statements of operations (2): Cost of revenue — — Selling, general, and administrative expense — — — Three-Month Period Ended September 29, 2024 Nine-Month Period Ended September 29, 2024 GAAP Non-GAAP GAAP Non-GAAP Computation of net income (loss) per common share, basic and diluted: (in thousands, except per share data) Numerator: Net income (loss) attributable to SkyWater Technology, Inc. Denominator: Weighted-average common shares outstanding, basic Net income (loss) per common share, basic Weighted-average common shares outstanding, diluted Net income (loss) per common share, diluted Three-Month Period Ended June 30, 2024 GAAP Non-GAAP Computation of net income (loss) per common share, basic and diluted: (in thousands, except per share data) Numerator: Net income (loss) attributable to SkyWater Technology, Inc. Denominator: Weighted-average common shares outstanding, basic Net income (loss) per common share, basic Weighted-average common shares outstanding, diluted Net income (loss) per common share, diluted Three-Month Period Ended October 1, 2023 Nine-Month Period Ended October 1, 2023 GAAP Non-GAAP GAAP Non-GAAP Computation of net loss per common share, basic and diluted: (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 Three-Month Period Ended Nine-Month Period Ended September 29, June 30, October 1, September 29, October 1, (in thousands) Net income (loss) to shareholders (GAAP) Net income (loss) as a percentage of total revenue Interest expense Income tax (benefit) expense Depreciation and amortization expense EBITDA Equity-based compensation expense (1) Management transition expense (2) — Business transformation costs (3) — — — CHIPS Act specialist fees (4) — — — — Net income attributable to noncontrolling interests (5) Adjusted EBITDA Adjusted EBITDA as a percentage of total revenue __________________ Represents non-cash equity-based compensation expense. Represents the cost of severance, separation, and other termination benefits related to the reorganization of the manufacturing, sales, marketing, and operations leadership team. Represents expenses related to long-term transformation activities focused on improvement in automation and operational efficiency and includes project-based management consulting fees. Represents the costs of project-based specialist fees related to our CHIPS Act application process. 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) to shareholders 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. View source version on businesswire.com: https://www.businesswire.com/news/home/20241107883156/en/ Contacts SkyWater Investor Contact: Claire McAdams | claire@headgatepartners.com SkyWater Media Contact: Lauri Julian | Media@SkyWaterTechnology.com
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