10-Q: SkyWater Technology Reports First Quarter 2024 Results, Revenue Up 20% Year-Over-Year

SkyWater Technology's first quarter 2024 revenue increased by 20% year-over-year, driven by growth in advanced technology services and tools revenue, while the company continues to address material weaknesses in internal controls.

Summary

• SkyWater Technology reported a 20% increase in revenue for the first quarter of 2024, reaching $79.6 million compared to $66.1 million in the same period last year.
• The revenue growth was primarily driven by a 28% increase in Advanced Technology Services (ATS) revenue, which reached $61.2 million, and a significant increase in tools revenue to $8.5 million.
• Wafer Services revenue decreased by 44% to $10 million, primarily due to reduced activity from automotive and bio-health customers.
• The company's cost of revenue increased by 34% to $66.7 million, partly due to higher costs associated with procuring tools for customers and additional costs for a specific aerospace and defense program.
• SkyWater reported a net loss attributable to SkyWater Technology, Inc. of $5.7 million, or $0.12 per share, compared to a net loss of $4.3 million, or $0.10 per share, in the first quarter of 2023.
• The company's operating loss widened to $2.2 million from $1.1 million in the prior year.
• SkyWater's adjusted EBITDA was $4.9 million, compared to $8.1 million in the first quarter of 2023.
• The company had $20 million in cash and cash equivalents and $62.7 million available under its revolving credit facility as of March 31, 2024.
• SkyWater is addressing material weaknesses in its internal control over financial reporting, specifically in control activities and revenue accounting.

Sentiment

Score: 4

Explanation: The document presents mixed results with strong revenue growth offset by increased losses and concerns about internal controls. The need for potential capital raises and the material weaknesses in internal controls are significant negative factors, while the revenue growth and support letter from Oxbow Industries are positive.

Positives

• SkyWater experienced a significant 20% increase in overall revenue year-over-year.
• The company's Advanced Technology Services (ATS) segment saw substantial growth, increasing by 28%.
• Tools revenue increased significantly, indicating strong customer investment in SkyWater's capabilities.
• The company has access to $62.7 million under its revolving credit facility, providing financial flexibility.
• SkyWater has a support letter from Oxbow Industries for up to $12.5 million, if needed, to meet obligations.

Negatives

• SkyWater reported a net loss of $5.7 million for the quarter, an increase from the $4.3 million loss in the same period last year.
• The company's cost of revenue increased by 34%, outpacing revenue growth.
• Wafer Services revenue decreased by 44%, indicating weakness in certain customer segments.
• The company is addressing material weaknesses in its internal control over financial reporting.
• The company's operating loss widened to $2.2 million from $1.1 million in the prior year.

Risks

• SkyWater's ability to execute its operating strategy depends on maintaining liquidity and accessing capital.
• The company may require additional liquidity to continue operations and maintain compliance with financial covenants.
• The company is addressing material weaknesses in its internal control over financial reporting, which could impact the reliability of financial reporting.
• The company's reliance on a few major customers poses a risk to its revenue stream.
• The company's ability to access additional funds depends on prevailing economic conditions and other factors beyond its control.

Future Outlook

SkyWater anticipates that its cash on hand and the availability under the Revolver will provide the funds needed to meet customer demand and anticipated capital expenditures for the remainder of fiscal 2024. The company may require additional liquidity to continue operations and maintain compliance with financial covenants for the next twelve months. SkyWater could seek additional equity or debt financing, including a refinancing and/or expansion of the Revolver.

Management Comments

• Management believes SkyWater will have sufficient liquidity to fund its operations for the next twelve months based on operating forecasts, cash on hand, available borrowings, potential cost reduction measures, and a support letter from Oxbow Industries.
• Management has identified specific actions it could take to reduce operating costs to improve cash flow, including reductions in spending and delays in hiring personnel.
• Management is evaluating the impact of the CHIPS Act on its business.

Industry Context

The semiconductor industry is experiencing both challenges and opportunities due to macroeconomic conditions, cyclicality, consolidation, and government funding. The CHIPS Act is a significant factor, providing incentives and funding for onshore companies to develop and advance semiconductor technologies. SkyWater's focus on advanced technology services and its U.S.-based operations position it to potentially benefit from these trends.

Comparison to Industry Standards

• SkyWater's revenue growth of 20% is a positive sign, but the decrease in gross profit and the net loss indicate challenges in profitability.
• Compared to other pure-play foundries, SkyWater's focus on advanced technology services and co-development with customers is a differentiator.
• The company's reliance on a few major customers is a common risk in the foundry business, but SkyWater's diversification efforts are important.
• The material weaknesses in internal controls are a concern and need to be addressed to ensure the reliability of financial reporting.
• The company's adjusted EBITDA of $4.9 million is lower than the $8.1 million in the same period last year, indicating a need to improve operational efficiency.

Related Party Transactions

• SkyWater has a support letter from Oxbow Industries, an affiliate of its principal stockholder, to provide funding up to $12.5 million, if necessary.
• SkyWater leases its Minnesota facility from Oxbow Realty, a consolidated variable interest entity (VIE) and affiliate of its principal stockholder.
• Oxbow Realty maintains arrangements with other Oxbow affiliated entities.

Stakeholder Impact

• Shareholders are impacted by the increased net loss and the material weaknesses in internal controls.
• Employees may be affected by potential cost reduction measures, including delays in hiring.
• Customers may benefit from the company's focus on advanced technology services and the potential for increased capacity.
• Suppliers may be impacted by potential changes in spending and capital expenditures.
• Creditors are impacted by the company's debt levels and the need for potential additional financing.

Next Steps

• SkyWater will continue to execute its operating strategy and focus on maintaining liquidity.
• The company will work to remediate the material weaknesses in its internal control over financial reporting.
• SkyWater will continue to evaluate the impact of the CHIPS Act on its business.
• The company will monitor its financial performance and may seek additional financing if needed.

Key Dates

Keywords

semiconductor, foundry, advanced technology services, wafer services, manufacturing, revenue, financial results, internal controls, CHIPS Act, capital expenditures