skyt-20240331

2024Q10001819974December 29falsehttp://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#AccruedLiabilitiesCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrentFair Value Measurements

Fair value represents the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. To determine fair value, the Company uses a fair value hierarchy categorized into three levels based on inputs used. Generally, the three levels are as follows:

•Level 1 – Quoted prices in active markets for identical assets or liabilities;

•Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying values of accounts receivable, accounts payable, accrued liabilities, and other financial working capital items approximate fair values at March 31, 2024 and December 31, 2023 due to the short maturity of these items. The carrying amount of the borrowing under the Revolver approximates its fair value due to the frequency of the floating interest rate resets on the debt. The fair value of the Revolver was determined based on inputs that are classified as Level 2 in the fair value hierarchy.

The Company’s non-financial assets, such as property and equipment and intangible assets, are recorded at fair value upon acquisition and are remeasured at fair value only if an impairment charge is recognized.

As of March 31, 2024 and December 31, 2023, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis.

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2024


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-40345

______________________

SkyWater Technology, Inc.

(Exact name of registrant as specified in its charter)

______________________


Delaware			37-1839853
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2401 East 86th Street, Bloomington, Minnesota 55425

(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

Common stock, par value $0.01 per share

SKYT

The Nasdaq Stock Market LLC

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

Accelerated filer

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 8, 2024, the number of shares of common stock, $0.01 par value, outstanding was 47,349,929.

Table of Contents

SkyWater Technology, Inc.

TABLE OF CONTENTS


		Page No.

Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION		4

Item 1.	Condensed Consolidated Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Shareholders ’ Equity	6

	Condensed Consolidated Statements of Cash Flows	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION		36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Table of Contents

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;

•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;

•changes in local, regional, national, and international economic or political conditions, including those resulting from rising 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 31, 2023 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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Balance Sheets

(Unaudited)


	March 31, 2024		December 31, 2023

	(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents	$	20,002	$	18,382
Accounts receivable (net of allowance for credit losses of $96 and $180, respectively)	57,895		65,961
Contract assets (net of allowance for credit losses of $62 and $99, respectively)	24,922		29,666
Inventory	15,558		15,341
Prepaid expenses and other current assets	24,528		16,853
Income tax receivable	82		172
Total current assets	142,987		146,375
Property and equipment, net	157,281		159,367
Intangible assets, net	6,320		5,672
Other assets	5,693		5,342
Total assets	$	312,281	$	316,756
Liabilities and shareholders’ equity
Current liabilities
Current portion of long-term debt	$	3,631	$	3,976
Accounts payable	25,919		19,614
Accrued expenses	30,512		48,291
Short-term financing, net of unamortized debt issuance costs	32,612		22,765
Contract liabilities	56,109		49,551
Total current liabilities	148,783		144,197
Long-term liabilities
Long-term debt, less current portion and net of unamortized debt issuance costs	35,665		36,098

Long-term contract liabilities	58,605		65,754
Deferred income tax liability, net	623		679
Other long-term liabilities	9,204		9,327
Total long-term liabilities	104,097		111,858
Total liabilities	252,880		256,055
Commitments and contingencies (Note 10)
Shareholders’ equity
Preferred stock, $0.01 par value per share (80,000,000 shares authorized; zero shares issued and outstanding as of March 31, 2024 and December 31, 2023)	—		—
Common stock, $0.01 par value per share (200,000,000 shares authorized; 47,338,069 and 47,028,159 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)	473		470
Additional paid-in capital	181,802		178,473
Accumulated deficit	(130,932)		(125,203)
Total shareholders’ equity, SkyWater Technology, Inc.	51,343		53,740
Noncontrolling interests	8,058		6,961
Total shareholders’ equity	59,401		60,701
Total liabilities and shareholders’ equity	$	312,281	$	316,756

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Operations

(Unaudited)


	Three-Month Period Ended
	March 31, 2024		April 2, 2023

	(in thousands, except share and per share data)
Revenue	$	79,636	$	66,094
Cost of revenue	66,656		49,626
Gross profit	12,980		16,468
Research and development expense	4,012		2,668
Selling, general, and administrative expense	11,169		14,895

Operating loss	(2,201)		(1,095)


Interest expense	(2,390)		(2,471)

Loss before income taxes	(4,591)		(3,566)
Income tax expense	41		—
Net loss	(4,632)		(3,566)
Less: net income attributable to noncontrolling interests	1,097		707
Net loss attributable to SkyWater Technology, Inc.	$	(5,729)	$	(4,273)
Net loss per share attributable to common shareholders, basic and diluted	$	(0.12)	$	(0.10)
Weighted average shares used in computing net loss per common share, basic and diluted	47,098,519		43,817,417

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Shareholders’ Equity

For the Three-Month Periods Ended March 31, 2024 and April 2, 2023

(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 January 1, 2023			—	$	—		43,705	$	437		$	147,304	$	(94,072)		$	53,669	$	308	$	53,977
Adoption of new accounting principle			—	—			—	—			—		(375)			(375)		—		(375)
Issuance of common stock under the ATM			—	—			245	3			2,693		—			2,696		—		2,696
Issuance of common stock pursuant to equity compensation plans			—	—			330	3			2,914		—			2,917		—		2,917
Equity-based compensation			—	—			—	—			1,853		—			1,853		—		1,853
Net distribution to VIE member			—	—			—	—			—		—			—		(30)		(30)
Net (loss) income			—	—			—	—			—		(4,273)			(4,273)		707		(3,566)
Balance at April 2, 2023			—	$	—		44,280	$	443		$	154,764	$	(98,720)		$	56,487	$	985	$	57,472

Balance at December 31, 2023			—	$	—		47,028	$	470		$	178,473	$	(125,203)		$	53,740	$	6,961	$	60,701




Issuance of common stock pursuant to equity compensation plans			—	—			310	3			1,257		—			1,260		—		1,260
Equity-based compensation			—	—			—	—			2,072		—			2,072		—		2,072

Net (loss) income			—	—			—	—			—		(5,729)			(5,729)		1,097		(4,632)
Balance at March 31, 2024			—	$	—		47,338	$	473		$	181,802	$	(130,932)		$	51,343	$	8,058	$	59,401

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three-Month Period Ended
	March 31, 2024		April 2, 2023

	(in thousands)
Cash flows from operating activities
Net loss	$	(4,632)	$	(3,566)
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization	5,065		7,352




Amortization of debt issuance costs included in interest expense	440		357
Long-term incentive and equity-based compensation	2,072		1,853



Deferred income taxes	(56)		—



Provision for credit losses	(121)		2,154


Changes in operating assets and liabilities
Accounts receivable and contract assets	12,933		(6,875)
Inventories	(217)		(969)
Prepaid expenses and other assets	(8,025)		(2,653)
Accounts payable and accrued expenses	(10,883)		(3,494)
Contract liabilities, current and long-term	(590)		(5,245)
Income tax receivable and payable	90		—
Net cash used in operating activities	(3,924)		(11,086)
Cash flows from investing activities
Purchase of software and licenses	(811)		(213)

Purchases of property and equipment	(1,259)		(2,851)
Net cash used in investing activities	(2,070)		(3,064)
Cash flows from financing activities


Draws on revolving line of credit	90,500		59,350
Paydowns of revolving line of credit	(81,930)		(63,310)


Proceeds from tool financings	920		494
Principal payments on long-term debt	(862)		(317)




Cash paid for principal on finance leases	(274)		(343)

Proceeds from the issuance of common stock pursuant to equity compensation plans	1,260		1,275
Proceeds from the issuance of common stock under the ATM	—		2,696

Cash paid on licensed technology obligations	(2,000)		(1,850)


Net distributions to noncontrolling interest	—		(30)
Net cash provided by (used in) financing activities	7,614		(2,035)
Net increase (decrease) in cash and cash equivalents	1,620		(16,185)
Cash and cash equivalents - beginning of period	18,382		30,025
Cash and cash equivalents - end of period	$	20,002	$	13,840

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SKYWATER TECHNOLOGY, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three-Month Period Ended
	March 31, 2024		April 2, 2023

	(in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest	$	1,372	$	1,286
Income taxes	7		—
Noncash investing and financing activity
Capital expenditures incurred, not yet paid	$	1,732	$	421

Equipment acquired through capital lease obligations	—		765
Intangible assets acquired, not yet paid	713		500

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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”).

Note 2 Basis of Presentation and Principles of Consolidation

The unaudited interim condensed consolidated financial statements as of March 31, 2024, and for the three-month periods ended March 31, 2024 and April 2, 2023, 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 31, 2023 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 31, 2024 and its consolidated results of operations, shareholders’ equity, and cash flows for the three-month periods ended March 31, 2024 and April 2, 2023.

The consolidated results of operations for the three-month period ended March 31, 2024 are not necessarily indicative of the results of operations to be expected for the fiscal year ending December 29, 2024, 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 31, 2024 and April 2, 2023, the Company incurred net losses attributable to SkyWater Technology, Inc. of $5,729 and $4,273, respectively. As of March 31, 2024 and December 31, 2023, the Company had cash and cash equivalents of $20,002 and $18,382, respectively.

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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 may require additional liquidity to continue its operations and maintain compliance with financial covenants for the next twelve months from the date these interim condensed consolidated financial statements are issued. The Company has identified specific actions it could take to reduce operating costs to improve cash flow, including reductions in spending and delays in hiring personnel. If such actions are taken, it may require the Company to decrease its level of investment in new products and technologies, or discontinue further expansion of its business. 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. The support letter expires March 18, 2026. Based upon SkyWater’s operating forecasts, its cash and cash equivalents on hand, available borrowings on the Revolver, potential cost reduction measures it could undertake, 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 interim condensed consolidated financial statements are issued.

Additionally, the Company could seek additional equity or debt financing, including a refinancing and/or expansion of the Revolver, however it cannot provide any assurance that additional funds will be available when needed or, if available, will be available on terms that are acceptable to the Company. The Company’s ability to access additional funds depends on prevailing economic conditions and other factors, many of which are beyond SkyWater’s control.

SkyWater has based this estimate on assumptions that may prove to be wrong, and its operating plan may change as a result of many factors currently unknown to it.

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 31, 2024 and April 2, 2023, 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 31, 2024 and April 2, 2023, there were restricted stock units and stock options totaling 996,726 and 2,949,000, 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 31, 2024 and April 2, 2023:


	Three-Month Period Ended
		March 31, 2024		April 2, 2023

		(in thousands, except per share data)
Numerator: net loss attributable to SkyWater Technology, Inc.		$	(5,729)	$	(4,273)


Denominator: weighted-average common shares outstanding, basic and diluted		47,099		43,817
Net loss per common share, basic and diluted		$	(0.12)	$	(0.10)

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

Reportable Segment Information

Operating segments are identified as components of an enterprise about which separate financial information is available for evaluation by the chief operating decision maker when making decisions regarding resource allocation and assessing performance. SkyWater operates and manages its business as one reportable segment.

Note 3 Summary of Significant Accounting Policies

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” later codified in Topic 326, “Financial Instruments – Credit Losses” (“Topic 326”). Topic 326 replaces the preexisting U.S. GAAP guidance that only required the recognition of credit losses when losses were probable and estimable. Topic 326 now requires recognition of credit losses based on SkyWater’s expectation of losses to be incurred while the financial instrument is held. Topic 326 was effective for most public business entities for fiscal years beginning after December 15, 2019. As an emerging growth company, SkyWater adopted Topic 326 on January 2, 2023 using the modified retrospective approach. Upon adoption, the Company increased its accumulated deficit by $375 for the effects of increasing its allowance for credit losses as of January 2, 2023. All other impacts to SkyWater’s consolidated financial position, results of operations, and cash flows were immaterial.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting.” The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. SkyWater will reflect the amended disclosure requirements of this update in its annual consolidated financial statements for its fiscal year ending December 29, 2024 and for the interim periods in its fiscal year ending December 28, 2025. Given that the Company reports as a single reportable segment, the impacts of adopting the provisions of this update will not be significant.

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes.” 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 currently anticipates that it will adopt the amendments in this update for its fiscal year ending January 3, 2027. If the Company ceases to qualify as an emerging growth company before the end of its fiscal year ending December 29, 2024, the Company will adopt this ASU at an earlier date. 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

The annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 include discussion of the significant accounting policies and estimates used in the preparation of the interim condensed consolidated financial statements. The Company did not make any significant changes to its accounting policies and estimates during the three-month periods ended March 31, 2024.

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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 our 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 31, 2023. 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 31, 2024
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue Per Topic 842		Total Revenue

ATS development
Time and materials contracts	$	—	$	42,496	$	—	$	42,496
Fixed price contracts	—		17,522		—		17,522
Other	—		—		1,167		1,167
Total ATS development	—		60,018		1,167		61,185
Tools	8,459		—		—		8,459
Wafer Services	1,145		8,847		—		9,992
Total	$	9,604	$	68,865	$	1,167	$	79,636


	Three-Month Period Ended April 2, 2023
	Topic 606 Revenue
	Point-in-Time		Over Time		Lease Revenue Per Topic 842		Total Revenue

ATS development
Time and materials contracts	$	—	$	27,295	$	—	$	27,295
Fixed price contracts	—		19,308		—		19,308
Other	—		—		1,167		1,167
Total ATS development	—		46,603		1,167		47,770
Tools	536		—		—		536
Wafer Services	3,950		13,838		—		17,788
Total	$	4,486	$	60,441	$	1,167	$	66,094

The following table discloses revenue for the three-month periods ended March 31, 2024 and April 2, 2023 by country as determined based on customer address:


	Three-Month Period Ended
		March 31, 2024		April 2, 2023

United States		$	76,224	$	58,202
Canada		2,233		2,388
Hong Kong		47		3,019
United Kingdom		285		104
All others		847		2,381
Total		$	79,636	$	66,094

Three customers each accounted for 10% or more of revenue, and in aggregate accounted for 58% and 54% of revenue for the three-month periods ended March 31, 2024 and April 2, 2023, respectively. The loss of a major customer could adversely affect the Company’s operating results and financial condition.

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

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 $172 and $746 for the three-month periods ended March 31, 2024 and April 2, 2023, respectively.

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 $24,922 and $29,666 at March 31, 2024 and December 31, 2023, respectively, and are presented net of allowances for expected credit losses of $62 and $99, respectively, and net of accrued contract liabilities arising from certain contracts expected to generate losses over the remaining period of performance. As of March 31, 2024 and April 2, 2023, the Company maintained liabilities of $8,004 and $0, respectively, arising from contracts expected to generate losses.

Contract Liabilities

The Company’s contract liabilities principally consist of deferred revenue on customer contracts and deferred lease revenue representing customer prepayments on a leasing arrangement in which the Company serves as lessor. Deferred revenue on customer contracts represents payments from customers for which performance obligations have not yet been satisfied. 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 31, 2024 and December 31, 2023 are as follows:


	March 31, 2024						December 31, 2023
	Contract Deferred Revenue (1)		Lease Deferred Revenue		Total Contract Liabilities		Contract Deferred Revenue (1)		Lease Deferred Revenue		Total Contract Liabilities

Current	$	51,441	$	4,668	$	56,109	$	44,883	$	4,668	$	49,551
Long-term	57,828		777		58,605		63,810		1,944		65,754
Total	$	109,269	$	5,445	$	114,714	$	108,693	$	6,612	$	115,305

__________________

(1)Contract deferred revenue includes $56,542 and $59,323 at March 31, 2024 and December 31, 2023, 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 31, 2024 and December 31, 2023, respectively.

The change in contract liabilities during the three-month periods ended March 31, 2024 and April 2, 2023 are as follows:


	Three-Month Period Ended
	March 31, 2024		April 2, 2023

Balance at beginning of period	$	115,305	$	96,153
Revenue recognized included in the balance at the beginning of the period	(12,686)		(6,020)
Increase due to payments received, excluding amounts recognized as revenue	12,095		775
Balance at end of period	$	114,714	$	90,908

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SKYWATER TECHNOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited in thousands, except share and per share data)

Remaining Performance Obligations