SkyWater Technology, Inc (SKYT)

ITEM 7.    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 Company’s audited annual consolidated financial statements and related notes in Item 8 of this Annual Report on Form 10-K. Item 7 in this Form 10-K discusses the Company's fiscal year 2024 and fiscal year 2023 results and the year-over-year comparisons between fiscal year 2024 and fiscal year 2023. Discussion of the fiscal year 2023 results and the year-over-year comparisons between fiscal year 2023 and fiscal year 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024, and incorporated by reference in this Form 10-K. 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 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 “Special Note Regarding Forward-Looking Statements” and elsewhere herein.

SkyWater's fiscal year ends on the Sunday closest to the end of the twelfth calendar month. We refer to the fiscal years ended December 29, 2024 and December 31, 2023 as fiscal year 2024 and fiscal year 2023, respectively. Fiscal years 2024 and 2023 each include 52 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 TaaS model leverages a strong foundation of proprietary technology to co-develop process technology IP with our customers that enables disruptive concepts through our ATC for diverse microelectronics (“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 pure-play technology foundry with DMEA Category 1A Trusted Accreditation from the DoD 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) A&D, (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 with our customers advanced solutions that directly serve our end markets, such as infrared imaging, superconducting ICs for quantum computing, CMOS, integrated photonics, 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.

44

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance in fiscal year 2024 and fiscal year 2023, 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.

•In August 2022, the U.S. enacted the CHIPS and Science 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.

•Our overall level of indebtedness from our revolving credit agreement, which we refer to as the Revolver (as defined in Note 6 – Debt to the consolidated financial statements), 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 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.

45

Results of Operations

This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations.

Fiscal Year 2024 Compared to Fiscal Year 2023

The following table summarizes certain financial information relating to our operating results for the fiscal years ended December 29, 2024 and December 31, 2023.

Revenue

Revenue increased $55.6 million, or 19%, to $342.3 million for fiscal year 2024, from $286.7 million for fiscal year 2023. The increase for fiscal year 2024 was primarily driven by an increase in customer-funded tool revenue.

The following table shows revenue by service type for fiscal year 2024 and fiscal year 2023:

46

ATS development revenue increased $27.7 million, or 13%, from $210.9 million for fiscal year 2023 to $238.6 million for fiscal year 2024. Of this increase, $39.9 million was primarily driven by continued momentum in U.S. government programs to bolster the domestic semiconductor supply chain and strengthen the defense industrial base. Offsetting these gains, revenue from consumer customers decreased by $5.6 million and revenue from cloud computing customers declined by $5.3 million due to the cyclicality of the stages of our customers’ development programs.

Tools revenue increased $62.1 million, or 424%, from $14.7 million for fiscal year 2023 to $76.8 million for fiscal year 2024 driven by increased investment by our customers to acquire tools that advance our capabilities of their ATS development programs.

Wafer Services revenue decreased $34.3 million, or 56%, from $61.1 million for fiscal year 2023 to $26.9 million for fiscal year 2024. The decrease was primarily driven by decreased activity within the automotive segment as a result of higher inventory levels and softening demand in our automotive customers’ end markets.

Cost of revenue

Cost of revenue increased $45.3 million, or 20%, from $227.4 million for fiscal year 2023 to $272.6 million for fiscal year 2024. The increase was primarily driven by a $60.5 million increase in the cost of tools revenue arising from increased tools revenue as we procure tools on behalf of our customers to advance our capabilities for their ATS development programs. This was partially offset by a $10.5 million decrease in depreciation expense on manufacturing equipment, as assets from the 2017 acquisition were fully depreciated in the first quarter of fiscal year 2024. The remaining $4.7 million decrease was related to labor costs primarily due to lower variable compensation expense and temporary labor.

Research and development expense

Research and development expense increased $4.9 million, or 48%, from $10.2 million for fiscal year 2023 to $15.0 million for fiscal year 2024. The increase was driven by an incremental $6.3 million investment in enhancing platform capabilities, particularly for the RH90 and SL90 initiatives.

Selling, general and administrative expense

Selling, general and administrative expense decreased $15.9 million, or 25%, from $63.9 million for fiscal year 2023 to $48.0 million for fiscal year 2024. The decrease was primarily attributable to significant one-time expenses incurred in 2023, including $11.4 million in project-based external management operations consulting services related to long-term transformation activities focused on improvement in automation and operational efficiency and $1.2 million in project-based specialist fees related to submission of our CHIPS Act application. The remaining $2.7 million decline was attributable to a combination of reduced variable costs, aligned with lower production volumes, and improvements in automation and operational efficiency.

Interest expense

Interest expense decreased $2.0 million, or 18%, from $10.8 million for fiscal year 2023 to $8.8 million for fiscal year 2024. The decrease was primarily the result of decreased amounts outstanding under the Revolver and tool financing loans, as well as a renegotiated, lower interest rate on outstanding borrowings under the Revolver in fiscal year 2024 as compared to fiscal year 2023.

Income tax expense (benefit)

Income tax expense was $0.2 million for fiscal year 2024 compared to income tax benefit of $0.5 million for fiscal year 2023. The effective income tax rate was (10.5)% for fiscal year 2024 compared to 2.0% for fiscal year 2023. The effective income tax rates for fiscal years 2024 and 2023 differ from the U.S. statutory tax rate of 21% primarily due to application of a valuation allowance against our net deferred tax assets resulting from our assessment of our ability to utilize those deferred tax assets in future periods.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests decreased to $4.3 million for fiscal year 2024 from $5.7 million for fiscal year 2023. Net income attributable to noncontrolling interests reflects the net income of Oxbow Realty, the variable interest entity (“VIE”), that we consolidate and represents the economic interest in the profits and losses of the VIE that the owners of our shareholders’ equity do not legally have rights or obligations to. The decrease in the net income attributable to noncontrolling interests primarily relates to timing differences in the recognition of rental income related to the failed sale leaseback of the Minnesota facility.

Net loss

Net loss decreased $22.6 million, or (90)% from $(25.1) million for fiscal year 2023 to $(2.5) million for fiscal year 2024. The decrease was the result of the net impacts of the decreases and increases described above related to the components of our results of operations.

47

Adjusted EBITDA

Adjusted EBITDA decreased $3.0 million, or (8)%, to $34.3 million for fiscal year 2024 from $37.2 million for fiscal year 2023. The decrease in adjusted EBITDA was a result of the significant increase in customer-funded tool revenue in 2024, which has a lower margin profile due to costs associated to procure and install, as well as increased labor and infrastructure costs as we continue to scale our business to meet the demands of our customers. For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see the section below entitled “—Non-GAAP Financial Measure.”

Liquidity and Capital Resources

General

For the fiscal years ended December 29, 2024, December 31, 2023, and January 1, 2023, the Company incurred net losses attributable to SkyWater Technology, Inc. of $6.8 million, $30.8 million, and $39.6 million, respectively. As of December 29, 2024 and December 31, 2023, the Company held cash and cash equivalents of $18.8 million and $18.4 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 pay the base purchase price of $80 million through new senior secured debt financing that we have not secured as of the date of this filing.

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 $18.5 million in cash and cash equivalents, not including cash held by a VIE that we consolidate, and availability under our Revolver of $99.8 million at December 29, 2024. 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, the Company entered into an Open Market Sale Agreement with Jefferies LLC (the “Open Market Sale Agreement”) with respect to an at the market offering program (the “ATM Program”) under which 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 fiscal year ended December 20, 2024, the Company did not sell shares under the ATM Program. During the fiscal year ended December 31, 2023, the Company sold 2,081,167 shares under the ATM Program. From the date of the Open Market Sale Agreement through December 29, 2024, the Company sold 2,516,586 shares under the Open Market Sale Agreement 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 $1.2 million. The Company used the net proceeds of approximately $23.9 million to pay down its Revolver and fund its operations. As of December 29, 2024, approximately $74.9 million in shares were available for issuance under the Open Market Sale Agreement.

48

Capital Expenditures

For fiscal years 2024 and 2023, we spent approximately $14.3 million and $12.8 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the 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 in fiscal year 2025.

We have approximately $25.0 million of contractual commitments related to various anticipated capital expenditures outstanding as of December 29, 2024 that we expect to be paid in fiscal year 2025 through cash on hand and operating cash flows.

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 December 29, 2024, the outstanding balance of our Revolver was $30.2 million, and our remaining availability under the Revolver was $99.8 million.

The following table sets forth general information derived from our consolidated statements of cash flows for fiscal years 2024 and 2023:

49

Cash and Cash Equivalents

At December 29, 2024 and December 31, 2023, we had $18.8 million and $18.4 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 operating activities was $18.5 million during fiscal year 2024, an increase of $8.3 million from $10.1 million of net cash provided by operating activities during fiscal year 2023. The increase in cash provided by operating activities in fiscal year 2024 was driven primarily by an increase in our earnings after non-cash adjustments of $8.4 million and a decrease in accounts receivable and contract assets of $20.2 million as a result of the timing of cash receipts from customers against revenue earned on customer contracts. These positive impacts were partially offset by decreases in accounts payable and accrued expenses of $10.4 million during fiscal year2024, due to the timing of the payment of amounts owed to our 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 $11.2 million during fiscal year 2024, a increase of $0.7 million from $10.5 million in fiscal year 2023. The increase in cash used in fiscal year 2024 reflects increased capital spending on property and equipment compared to fiscal year 2023.

Financing Activities

Net cash used in financing activities was $6.8 million during fiscal year 2024, a decrease of $4.4 million from $11.2 million during fiscal year 2023. The decrease was primarily driven by net draws of our Revolver of $4.2 million compared to net paydowns of $38.3 million in the prior year, a $20.4 million decline in net proceeds from the ATM Program, an $8.6 million decline in net proceeds from tool financing, increased principal payments on long-term debt of $2.5 million, and a $6.4 million change in noncontrolling interest activity from net contributions of $1.0 million in fiscal year 2023 to net distributions of $5.4 million in fiscal year 2024.

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 lease 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 from the sale recorded as a financial obligation.

Revolving Credit Agreement

On December 28, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Siena Lending Group LLC (“Siena”). The Loan Agreement originally provided for a revolving line of credit of up to $100.0 million with an original scheduled maturity date of December 28, 2025 (the “Revolver”). On November 19, 2024, we and Siena entered into an amendment to the Loan Agreement, which, among other changes, increased the maximum revolving facility amount to $130.0 million and extended the maturity date to December 31, 2028. The Company has incurred $4.3 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 December 29, 2024, we had borrowings of $30.2 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.

50

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 fixed charge 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 December 29, 2024, we were in compliance with applicable financial covenants of the Loan Agreement and expect 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 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 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 December 29, 2024.

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. Between the fourth quarter of fiscal year 2023 and the fourth quarter of fiscal year 2024, we entered into arrangements to sell manufacturing tools and other equipment to financing lenders. In fiscal year 2024, these arrangements totaled $3.8 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.

51

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 12.

•Capital lease commitments—Refer to Note 14.

•Sale leaseback obligation—Refer to Note 15.

•Income Taxes—Refer to Note 7.

•Other commitments and contingencies—Refer to Note 12.

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 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 Estimates

In connection with preparing our 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, 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 consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our 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.

52

Revenue Recognition

Revenue is recognized when control of promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the customer contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the customer contract, and (5) recognize revenues when or as we satisfy a performance obligation. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of transaction price is probable. At contract inception, we apply judgment in determining customers’ abilities and intentions to pay amounts entitled to us when due based on a variety of factors including customers’ historical payment experience.

We primarily derive revenue from the performance of ATS wafer manufacturing process development services and the manufacture and delivery of wafers via Wafer Services.

ATS Development

ATS development contracts are focused on the performance of process development services, the output of which is a manufacturing plan that defines the steps and activities needed to produce customer wafers at high volumes and with high yields. Wafer manufacturing development services do not include services to manufacture customer wafers at scale. ATS development contracts are complex and wafer manufacturing development services are often either the lone performance obligation in an ATS development contract, or the performance obligation to which the majority of the contract value is allocated. The Company has fixed price, time-and-materials and cost-plus-fixed-fee contracts with its ATS development customers. The Company’s ATS development customers receive the benefits of these services, and revenue from performance of these services are largely recognized over time as they are performed.

Revenue on fixed price contracts is recognized using either an output or input method based upon the method that best measures the value of the services performed for the Company’s customers. Whether an input or output method is selected requires judgment and is subject to thorough analysis of the terms of each fixed price contract. The Company consistently uses either its output method or input method for similar performance obligations and in similar circumstances.

The Company’s output method of revenue recognition evaluates the steps and activities needed to complete manufacturing development services and relies on surveys of steps and activities completed as of the reporting date in relation to the then current manufacturing development plans to measure the level of progress on the service. There are many steps and activities included in the Company’s manufacturing development plans. The time and effort to complete the steps and activities are very similar, which demonstrates a level of uniformity. This uniformity accurately conveys the steps and activities successfully validated during development in relation to the development plan and therefore provides a faithful representation of the progress achieved on wafer manufacturing development services. Based on the level of progress, the Company records the proportion of the transaction price allocated to wafer manufacturing development services as revenue in the period. Manufacturing development plans are subject to change as data is analyzed and the plans are revised. Development of production plans are technical endeavors and adjustment to manufacturing development plans may impact the percentage of progress achieved and result in cumulative adjustments of revenue.

The Company uses the input method of revenue recognition for larger customer programs that are focused on development of new applications, or whose manufacturing processes will rely on new or emerging technologies. Wafer manufacturing development services for these customers is inherently more complex and requires more changes to manufacturing development plans over the period of service performance. Given the level of technical complexity and the expectation that there will be more changes to manufacturing plans as compared to other customer programs, the Company measures progress by comparing costs incurred to date to estimated total cost required to complete wafer manufacturing development services. The Company records that proportion of the transaction price allocated to wafer manufacturing development services as revenue in the period. Costs include labor costs, manufacturing costs, material costs, and other direct costs incurred while performing the services. The estimation of total costs requires significant judgment and any adjustment to estimates of total cost may impact the percentage of progress achieved and could result in cumulative adjustments of revenue.

When contracts are fixed price, the Company completes an evaluation of onerous ATS development contracts as of the reporting date for each separate contract, not for separate performance obligations in each contract. The Company recognizes losses on onerous ATS development contracts depending on whom the customer is based on the following:

•U.S. Federal Government – The Company designates all ATS development contracts with the U.S. Federal Government as production-type service contracts; accordingly, it accrues liabilities for onerous contracts in the period it becomes evident the contract will result in a loss.

•Customers other than the U.S. Federal Government – As the Company generally develops wafer manufacturing plans for its customers under ATS development contracts, ATS development contracts with non-U.S. Federal Government ATS development customers do not represent production-type service contracts; accordingly, the Company recognizes losses as the losses are incurred; it does not accrue liabilities for anticipated future losses.

In addition, ATS development revenue includes lease revenue consistent with Topic 842 (as defined below). SkyWater executed a contract with a customer that includes an operating lease for the right to use a specified portion of the Company’s Minnesota facility to produce wafers using the customer’s equipment. The contractual amounts that relate to revenue from an operating lease are recorded as deferred revenue, and are recognized over the estimated lease term.

53

Tools

SkyWater procures tools on behalf of certain customers. Tool revenue is recognized at the point in time when control of the tool transfers to the customer. The point in time when control of a tool transfers to the customer is determined by customer contract terms. For some customers, control transfers when the tool is shipped or delivered to a SkyWater facility, while for other customers, control transfers when the tool is installed, qualified, and placed into service at a SkyWater facility.

Wafer Services

Wafers are goods that are generally customer specific, highly customized and have no alternative use to the Company. Wafer Services customers contract with the Company to manufacture wafers based on their manufacturing design specifications. The terms of Wafer Services contracts dictate when control over wafers is transferred to the Company's customers.

For contracts where orders are non-cancelable and the Company thereby maintain enforceable rights to customer performance, including rights to payment for partially completed wafers at reasonable margins, control over wafers transfers to its customers as wafers are manufactured. For these contracts, the Company recognizes revenue using an input method. This method measures the percentage of completion of wafers still in the manufacturing process by comparing total costs incurred to date to the total estimated costs to manufacture the wafers. The Company records that proportion of the transaction price as revenue in the period. The input method provides the best method of progress as it considers the steps and activities needed to manufacture a wafer and the costs associated with those steps. Costs include labor costs, manufacturing costs, material costs, and other direct costs required to manufacture the customer’s wafers. The estimation of total costs requires judgment and any adjustment to estimates of cost to complete manufacturing may impact the percentage of completion achieved and could result in cumulative adjustments of revenue.

When the Company’s contracts allow for orders to be canceled and it does not maintain enforceable rights to customer performance on canceled orders, including a right to payment for partially completed wafers at reasonable margins, control of wafers transfers to its customers at the point in time when wafer manufacturing is complete, and control of the wafers transfers to the customer pursuant to the customer contract and shipping terms.

The Company has a long-standing relationship with a significant Wafer Services customer. The terms and conditions of this relationship have evolved over time and have impacted the manner in which the Company has recognized revenue. In March 2022, the Company signed a new contract with this customer pursuant to which orders are non-cancelable and the customer maintains rights to specific performance, including an enforceable right to payment for the cost of partially completed orders plus a reasonable profit margin. Given that the wafers produced for this customer are for customer-specific applications with no alternative use to the Company, control of the wafers transfers to the customer over time as the wafers are manufactured.

Prior to March 2022, this customer’s agreement allowed it to operate under a bill and hold arrangement where completed wafers it purchased were shipped to them at a later date of their choosing. Pursuant to the terms of this arrangement, transfer of control of the wafers, and revenue recognition occurred as wafers completed post-manufacturing electrical testing and became available for shipment to the customer. Prior to March 2022, wafers manufactured while bill and hold provisions were in place, were separately identified as belonging to this customer, the wafers were denoted as ready for shipment to this customer in their then current form, and the Company did not have the ability to direct or sell the wafers to different customers. Upon completion of post-manufacturing electrical testing, the Company had the right to invoice this customer. This customer also obtained legal title and the risks and rewards of ownership at that point.

In March 2022 as a result of entering into the new contract with this customer, the Company transitioned away from its point in time method of revenue recognition to its over-time input method of revenue recognition and recorded a one-time, cumulative adjustment to revenue of $8,290 for wafers still being manufactured at the time the new contract became enforceable.

Long-lived Assets

We review long-lived assets, including property and equipment, lease right-of-use assets and intangible assets with definite lives, for impairment whenever events or changes in circumstances, known as triggering events, indicate that the asset group’s carrying amount may not be recoverable. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset group, negative changes in industry conditions, a significant change in an asset group’s use or physical condition, and the introduction of competing technologies. When assessing an asset group for impairment, we complete a two-step process. In the first step, we assess the recoverability of the asset group by comparing the carrying amount of the asset group against the sum of the undiscounted future cash flows expected to be generated by the asset group. If the sum of the undiscounted future cash flows expected to be generated by an asset group exceed the carrying amount of the asset group, the carrying amount of the asset group is recoverable and not impaired. If the carrying amount of an asset group exceeds the sum of the undiscounted future cash flows expected to be generated by the asset group, further analysis is required in step two. In the second step, the fair value of the asset group is determined. If the fair value of the asset group exceeds the carrying amount of the asset group, the asset group is not impaired. If the carrying amount of the asset group exceeds the fair value of the asset group, an impairment loss is recognized in the consolidated statements of operations to the extent the carrying amount of the asset group exceeds the estimated fair value of the asset group, not to exceed the carrying amount of the asset group.

54

For purposes of impairment testing, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The undiscounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset or asset groups over its remaining useful life. These estimated cash flows are inherently subjective and include significant assumptions, specifically forecasted revenue and operating margins that require estimates based upon historical experience and future expectations.

We use various approaches to determine fair values of our long-lived assets, including the income approach, the sales comparison approach, and the cost approach. Each approach is inherently subjective and includes significant assumptions, specifically the comparability of similar assets, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates.

Due to our history of operating losses, we estimated the fair value of our long-lived assets as of December 29, 2024. The estimated fair value of our long-lived assets significantly exceeded their carrying amounts. As such, we did not recognize an impairment loss against our long-lived assets despite our fiscal year 2024 operating losses.

Income Taxes

In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions regarding the reversal of temporary differences. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business.

We currently have recorded a valuation allowance that we will maintain until, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of a decrease in our valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings. Because the determination of the amount of deferred tax assets that can be realized is based, in part, on our forecast of future profitability, it is inherently uncertain and subjective. Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.

55

Non-GAAP Financial Measure

Our consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our 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 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 Annual Report on Form 10-K 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 attributable to SkyWater Technology, Inc. before interest expense, income tax expense (benefit), 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, CHIPS Act specialist fees, management transition expense, restructuring costs, severance costs and other non-recurring consulting fees.

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 the assets were acquired. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net (loss) income attributable to SkyWater Technology, Inc. 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.

We continuously evaluate the non-GAAP financial measures we use, the manner in which non-GAAP financial measures are calculated, and the adjustments we make to GAAP results to derive our non-GAAP financial measures.

56

The following table presents a reconciliation of net loss to adjusted EBITDA attributable to SkyWater Technology, Inc., our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

__________________

(1)Includes losses related to the extinguishment of the revolving credit agreement in 2022.

(2)Represents non-cash equity-based compensation expense.

(3)Represents severance and other costs related to the reorganization of our resources.

(4)Represents expenses related to long-term transformation activities focused on improvement in automation and operational efficiency and includes project-based management consulting fees and the write-off of abandoned software assets.

(5)Represents severance and other costs related to the reorganization of the manufacturing and operations leadership team.

(6)Represents project-based specialist fees related to our CHIPS Act application process.

(7)Represents the cost of consulting and professional services incurred to evaluate significant transactions that may, or may not, be executed by SkyWater.

(8)Represents net income attributable to our 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 loss to shareholders in our adjusted EBITDA financial measure, we also add back the net income attributable to the VIE as its net income is derived from interest the VIE charges SkyWater.

57

ITEM 7.    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 Company’s audited annual consolidated financial statements and related notes in Item 8 of this Annual Report on Form 10-K. Item 7 in this Form 10-K discusses the Company's fiscal year 2023 and fiscal year 2022 results and the year-over-year comparisons between fiscal year 2023 and fiscal year 2022. Discussion of the fiscal year 2022 results and the year-over-year comparisons between fiscal year 2022 and fiscal year 2021 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Annual Report on Form 10-K for the year ended January 1, 2023, filed with the SEC on March 15, 2023, and incorporated by reference in this Form 10-K. 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 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 “Special Note Regarding Forward-Looking Statements” and elsewhere herein.

SkyWater's fiscal year ends on the Sunday closest to the end of the twelfth calendar month. We refer to the fiscal years ended December 31, 2023 and January 1, 2023 as fiscal year 2023 and fiscal year 2022, respectively. Fiscal years 2023 and 2022 each include 52 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 TaaS model leverages a strong foundation of proprietary technology to co-develop process technology IP with our customers that enables disruptive concepts through our ATC for diverse microelectronics (“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 pure-play technology foundry with DMEA Category 1A Trusted Accreditation from the DoD 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) A&D, (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 with our customers advanced solutions that directly serve our end markets, such as infrared imaging, superconducting ICs for quantum computing, CMOS, integrated photonics, 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.

41

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance in fiscal year 2023 and fiscal year 2022, 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.

•In August 2022, the U.S. enacted the CHIPS and Science 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.

•Our overall level of indebtedness from our revolving credit agreement, which we refer to as the Revolver (as defined in Note 6 – Debt to the consolidated financial statements), 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.

Financial Performance Metrics

Our senior management team regularly reviews certain key financial performance metrics within our business, including:

•Revenue and gross profit; 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.

42

Results of Operations

This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations.

Fiscal Year 2023 Compared to Fiscal Year 2022

The following table summarizes certain financial information relating to our operating results for the fiscal years ended December 31, 2023 and January 1, 2023.

Revenue

Revenue increased $73.7 million, or 35%, to $286.7 million for fiscal year 2023, from $212.9 million for fiscal year 2022. The increase for fiscal year 2023 was primarily driven by an increase in ATS development revenue.

The following table shows revenue by service type for fiscal year 2023 and fiscal year 2022:

43

ATS development revenue increased $73.0 million, or 53%, from $137.9 million for fiscal year 2022 to $210.9 million for fiscal year 2023. Of this increase, $64.6 million was primarily driven by continued momentum in U.S. government programs to bolster the domestic semiconductor supply chain and strengthen the defense industrial base and $8.4 million was due to increased activity in the cloud and computing end markets.

Tools revenue increased $13.1 million, or 848%, from $1.5 million for fiscal year 2022 to $14.7 million for fiscal year 2023 driven by increased investment by our customers to acquire tools that advance our capabilities of their ATS development programs.

Wafer Services revenue decreased $12.4 million, or 17%, from $73.5 million for fiscal year 2022 to $61.1 million for fiscal year 2023. The decrease was primarily driven by $8.3 million of incremental one-time revenue related to a new contract signed with a customer in the first quarter of fiscal year 2022. In addition, $3.7 million of the decrease was attributable to lower demand and volume in the automotive and consumer industry end-markets.

Cost of revenue

Cost of revenue increased $40.4 million, or 22%, from $187.0 million for fiscal year 2022 to $227.4 million for fiscal year 2023. The increase was primarily attributable to increases in labor costs of $17.0 million, including $0.7 million of restructuring costs related to the reorganization of our resources, outside services costs of $3.1 million, warranty maintenance of $3.0 million, raw material costs of $2.7 million, and asset write-offs of $1.1 million. Cost of revenue related to the cost of services to qualify customer funded tool technologies increased $11.4 million year-over-year as customers invest in our capabilities to expand our technology platforms. Additionally, in the first quarter of fiscal year 2022, a change in contract terms with a significant Wafer Services customer resulted in an additional $10.9 million in cost of revenue recognized during fiscal year 2022, partially offset by a $4.1 million adjustment to the net realizable value of wafer inventory, which lowered cost of revenue in fiscal year 2022 relative to fiscal year 2023. The remaining $8.9 million increase was related to costs incurred due to increased demand from our U.S. governmental programs.

Research and development expense

Research and development expense increased $0.7 million, or 8%, from $9.4 million for fiscal year 2022 to $10.2 million for fiscal year 2023. The increase was primarily attributable to $0.7 million of restructuring costs related to the reorganization of our resources.

Selling, general and administrative expense

Selling, general and administrative expense increased $17.6 million, or 38%, from $46.3 million for fiscal year 2022 to $63.9 million for fiscal year 2023. The increase was primarily attributable to $11.4 million in project-based management consulting services related to long-term transformation activities focused on improvement in automation and operational efficiency, $1.3 million in project-based specialist fees related to submission of our CHIPS Act application, and an increase of $5.5 million in labor costs, including $0.6 million of restructuring costs related to the reorganization of our resources as we continued our long-term transformation activities focused on improvement in automation and operational efficiency.

Loss on debt extinguishment

In fiscal year 2022, we expensed $1.1 million of unamortized debt issuance costs and fees in connection with the extinguishment of debt in December 2022. There was no loss on debt extinguishment in fiscal year 2023.

Interest expense

Interest expense increased $5.6 million, or 108%, from $5.2 million for fiscal year 2022 to $10.8 million for fiscal year 2023. The increase was primarily the result of increased amounts outstanding under the Revolver and tool financing loans and a higher average interest rate on the Revolver in fiscal year 2023 as compared to fiscal year 2022.

Income tax (benefit) expense

Income tax benefit was $0.5 million for fiscal year 2023 compared to income tax expense of $0.8 million for fiscal year 2022. The effective income tax rate was 2.0% for fiscal year 2023 compared to (2.2)% for fiscal year 2022. The effective income tax rates for fiscal years 2023 and 2022 differ from the U.S. statutory tax rate of 21% primarily due to application of a valuation allowance against our net deferred tax assets resulting from our assessment of our ability to utilize those deferred tax assets in future periods.

Net income attributable to noncontrolling interests

Net income attributable to noncontrolling interests increased to $5.7 million for fiscal year 2023 from $2.7 million for fiscal year 2022. Net income attributable to noncontrolling interests reflects the net income of Oxbow Realty, the variable interest entity (“VIE”) that we consolidate and represents the economic interest in the profits and losses of the VIE that the owners of our shareholders’ equity do not legally have rights or obligations to. The increase in the net income attributable to noncontrolling interests primarily relates to increased interest income from the failed sale leaseback transaction with SkyWater.

44

Adjusted EBITDA

Adjusted EBITDA increased $29.5 million, or 383%, to $37.2 million for fiscal year 2023 from $7.7 million for fiscal year 2022. The increase in adjusted EBITDA primarily reflects increased revenues at higher margins as a result of the overall growth in our ATS development revenue, partially offset by increased labor and infrastructure costs as we continue to scale our business to meet the demands of our customers. For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see the section below entitled “—Non-GAAP Financial Measure.”

Fiscal Year 2022 Compared to Fiscal Year 2021

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2023, filed with the SEC on March 15, 2023, for a discussion of the Company’s results of operations during the fiscal year 2022 compared to fiscal year 2021.

Liquidity and Capital Resources

General

Our ability to execute our operating strategy is dependent on our ability to maintain liquidity and continue to access capital through our Revolver (as defined in Note 6 – Debt to the consolidated financial statements) and other sources of financing. Our current business plans indicate that we may require additional liquidity to continue our operations and maintain compliance with financial covenants for the next twelve months from the date the consolidated financial statements are issued. We have identified specific actions that we could take to reduce operating costs and improve cash flows, including reductions in spending and delays in hiring personnel. If such actions are taken, it may require us to decrease our level of planned investment in new products and technologies, or discontinue further expansion of our business. We have also obtained a support letter from Oxbow Industries, an affiliate of our principal stockholder, to provide funding in an amount up to $12.5 million, if necessary, to enable us to meet our obligations as they become due. The support letter expires March 18, 2026. Based upon our operational forecasts, our cash and cash equivalents on hand, our available borrowings on the Revolver, potential cost reduction measures we could take, and the support letter from Oxbow Industries, as needed, we believe we will have sufficient liquidity to fund our operations for the next twelve months from the date of issuance of the consolidated financial statements in this Annual Report on Form 10-K.

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

We have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us.

We had $18.4 million in cash and cash equivalents, not including cash held by a VIE that we consolidate, and availability under our Revolver of $78.2 million at December 31, 2023. 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, the Company entered into an Open Market Sale Agreement with Jefferies LLC (the “Open Market Sale Agreement”) with respect to an at the market offering program (the “ATM Program”) under which the Company may, from time to time, offer and sell up to $100 million in shares of the Company’s common stock. From the date of the Open Market Sale Agreement through December 31, 2023, the Company sold 2,081,167 shares under the Open Market Sale Agreement at an average sale price of $10.10 per share, resulting in gross proceeds of approximately $21.0 million before deducting sales commissions and fees of approximately $0.6 million. The Company used the net proceeds of approximately $20.4 million to pay down its Revolver and fund its operations. As of December 31, 2023, approximately $74.9 million in shares were available for issuance under the Open Market Sale Agreement.

Common Stock Offering

On November 17, 2022, we completed a public offering (the “Offering”) and issued 1,916,667 shares of common stock, including the underwriter’s exercise of its right to purchase additional shares at a price per share of $9.00 to the public, less underwriting discounts and commissions. We received net proceeds of $16.1 million from the Offering, after deducting the underwriting discounts and commissions. We used the net proceeds from the Offering primarily for general corporate purposes, which included, among other things, funding of operations, repayment of indebtedness, additions to working capital, and/or capital expenditures.

45

Capital Expenditures

For fiscal years 2023 and 2022, we spent approximately $12.8 million and $18.6 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the 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 in fiscal year 2024.

We have approximately $7.9 million of contractual commitments related to various anticipated capital expenditures outstanding as of December 31, 2023 that we expect to be paid in fiscal year 2024 through cash on hand and operating cash flows.

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 December 31, 2023, the outstanding balance of our Revolver was $21.8 million, and our remaining availability under the Revolver was $78.2 million.

The following table sets forth general information derived from our consolidated statements of cash flows for fiscal years 2023 and 2022:

46

Cash and Cash Equivalents

At December 31, 2023 and January 1, 2023, we had $18.4 million and $30.0 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 operating activities was $10.1 million during fiscal year 2023, an increase of $24.4 million from $14.3 million of net cash used in operating activities during fiscal year 2022. The increase in cash provided by operating activities in fiscal year 2023 was driven primarily by an increase in our contract liabilities of $19.2 million and accounts payable and accrued expenses of $21.3 million during the period, due to the timing of the payment of amounts owed to our vendors. These increases in liabilities were partially offset by an increase in accounts receivable and contract assets of $33.4 million as a result of the timing of cash receipts from customers against revenue earned on customer contracts.

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 $10.5 million during fiscal year 2023, a decrease of $7.0 million from $17.5 million in fiscal year 2022. The decrease in cash used in fiscal year 2023 reflects decreased capital spending on property and equipment compared to fiscal year 2022.

Financing Activities

Net cash used in financing activities was $11.2 million during fiscal year 2023, a decrease of $60.1 million from net cash provided by financing activities of $48.9 million during fiscal year 2022. The decrease was primarily driven by net pay downs of our Revolver of $38.3 million, partially offset by proceeds from the issuance of common stock under our ATM Program of $20.4 million and proceeds from tool financing of $9.0 million.

Fiscal Year 2022 Compared to Fiscal Year 2021

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2023, filed with the SEC on March 15, 2023, for a discussion of the Company’s consolidated cash flows during the fiscal year 2022 compared to fiscal year 2021.

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 lease 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 (the “Loan Agreement”) with Siena Lending Group LLC (“Siena”). The Loan Agreement provides for a revolving line of credit of up to $100.0 million with a scheduled maturity date of December 28, 2025 (the “Revolver”). The Company incurred $4.3 million of debt issuance costs, which will be amortized as additional interest expense over the term of the Revolver. At December 31, 2023, we had borrowings of $21.8 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.

47

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 fixed charge coverage ratio that ranges from 5.25% to 6.25% per annum for term SOFR loans and ranges from 4.25% to 5.25% 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 December 31, 2023, we were in compliance with applicable financial covenants of the Loan Agreement and expect 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 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 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 trigger event exists and the lender’s protective rights are currently enforceable. Pursuant to its protective rights, the lender has retained in a restricted account amounts paid by SkyWater to Oxbow Realty pursuant to the Company’s related party lease agreement that are in excess of the scheduled debt payments paid by Oxbow Realty to the lender. The funds held in the restricted accounts become remittable back to Oxbow Realty once the trigger event is cured. As of December 31, 2023, Oxbow Realty maintained a $7.9 million receivable for the cumulative amount of excess payments held by the lender in the restricted account.

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. Between the fourth quarter of fiscal year 2022 and the fourth quarter of fiscal year 2023, we entered into arrangements to sell manufacturing tools and other equipment to financing lenders. In the fourth quarter of fiscal year 2022, these arrangements totaled $3.1 million and for fiscal year 2023, these arrangements totaled $5.2 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. Additionally, advance payments of $3.8 million have been made to a tool vendor on the Company’s behalf by a lender. When the tool is placed into service, the Company anticipates a financing agreement will be executed to repay the lender the outstanding financial liability over a period of time. The advance payments are recorded as short-term financing on the Company’s consolidated balance sheets.

48

Material Cash Requirements

Our material cash requirements from known contractual and other obligations primarily relate to 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 12.

•Capital lease commitments—Refer to Note 14.

•Sale leaseback obligation—Refer to Note 16.

•Tax obligations—Refer to Note 7.

•Other commitments and contingencies—Refer to Note 12.

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 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 Estimates

In connection with preparing our 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, 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 consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates, and judgments to ensure that our 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.

49

Revenue Recognition

Revenue is recognized when control of promised goods or services are transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. To recognize revenues, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the customer contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the customer contract, and (5) recognize revenues when or as we satisfy a performance obligation. We account for a contract when it has approval and commitment from all parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of transaction price is probable. At contract inception, we apply judgment in determining customers’ abilities and intentions to pay amounts entitled to us when due based on a variety of factors including customers’ historical payment experience.

We primarily derive revenue from the performance of ATS wafer manufacturing process development services and the manufacture and delivery of wafers via Wafer Services.

ATS Development

ATS development contracts are focused on the performance of process development services, the output of which is a manufacturing plan that defines the steps and activities needed to produce our customers’ wafers at high volumes and with high yields. Wafer manufacturing development services do not include services to manufacture wafers for our customers at scale. ATS development contracts are complex and wafer manufacturing development services are often either the lone performance obligation in an ATS development contract, or the performance obligation to which the majority of the contract value is allocated. We have both fixed price and time-and-materials contracts with our ATS development customers. Our ATS development customers receive the benefits of these services, and revenue from performance of these services are recognized, over time as we perform them.

Revenue on fixed price contracts is recognized using either an output or input method based upon the method that best measures the value of the services performed for our customers. Whether we use an input or output method requires judgment and is subject to thorough analysis of the terms of each fixed price contract. We consistently use either our output method or our input method for similar performance obligations and in similar circumstances.

Our output method of revenue recognition evaluates the steps and activities needed to complete manufacturing development services and relies on surveys of steps and activities completed and partially completed as of the reporting date in relation to the current manufacturing development plans to measure the level of progress on the service. There are many steps and activities included in our manufacturing development plans. The time and effort to complete the steps and activities are very similar, which demonstrates a level of uniformity. This uniformity accurately conveys the steps and activities successfully validated during development in relation to the development plan and therefore provides a faithful representation of the progress achieved on wafer manufacturing development services. Based on the level of progress, we record the proportion of the transaction price allocated to wafer manufacturing development services as revenue in the period. Our manufacturing development plans are subject to change as data is analyzed and the plans are revised. Development of production plans are technical endeavors and adjustment to manufacturing development plans may impact the percentage of progress achieved and result in cumulative adjustments of revenue.

We use the input method of revenue recognition for larger customer programs that are focused on development of new applications or whose manufacturing processes will rely on new or emerging technologies. Wafer manufacturing development services for these customers is inherently more complex and requires more changes to manufacturing development plans over the period we perform the services. Given the level of technical complexity and the expectation that there will be more changes to manufacturing plans as compared to other customer programs, we measure progress for larger customer programs by comparing costs incurred to date to estimated total cost required to complete wafer manufacturing development services. We record that proportion of the transaction price allocated to wafer manufacturing development services as revenue in the period. Costs include labor costs, manufacturing costs, material costs, and other direct costs incurred while performing the services. The estimation of total costs requires significant judgment and any adjustment to our estimates of total cost may impact the proportion of progress achieved and could result in cumulative adjustments of revenue.

When contracts are fixed price, we complete the evaluation of onerous ATS development contracts as of the reporting date for each separate contract, not for separate performance obligations in each contract. We recognize losses on onerous ATS development contracts depending on whom our customer is based on the following:

•U.S. Federal Government – We designate all ATS development contracts with the U.S. Federal Government as production-type service contracts; accordingly, we accrue liabilities for onerous contracts in the period it becomes evident the contract will result in a loss.

•Customers other than the U.S. Federal Government – As we generally develop wafer manufacturing plans for our customers under ATS development contracts, our ATS development contracts with our non-U.S. Federal Government ATS development customers do not represent production-type service contracts; accordingly, we recognize losses as the losses are incurred; we do not accrue liabilities for anticipated losses.

50

Tools

SkyWater procures tools on behalf of certain customers. Tool revenue is recognized at the point in time when control of the tool transfers to the customer. The point in time when control of a tool transfers to the customer is determined by customer contract terms. For some customers, control transfers when the tool is shipped or delivered to a SkyWater facility, while for other customers, control transfers when the tool is installed, qualified, and placed into service at a SkyWater facility.

Wafer Services

Wafers are goods that are generally customer specific, highly customized, and have no alternative use to us. Our Wafer Services customers contract with us to manufacture wafers based on their manufacturing design specifications. The terms of our Wafer Services contracts dictate when control over wafers is transferred to our customers.

For contracts where orders are non-cancelable and we thereby maintain enforceable rights to customer performance, including rights to payment for partially completed wafers at reasonable margins, control over wafers transfers to our customers as we manufacture wafers. For these contracts, we recognize revenue using an input method. This method measures the percentage of completion of wafers still in the manufacturing process by comparing total costs incurred to date to the total estimated costs to manufacture the wafers. We record that proportion of the transaction price as revenue in the period. Our input method provides the best method of progress as it considers the steps and activities needed to manufacture a wafer and the costs associated with those steps. Costs include labor costs, manufacturing costs, material costs, and other direct costs required to manufacture our customers’ wafers. The estimation of total costs requires significant judgment and any adjustment to our estimates of cost to complete manufacturing may impact the proportion of completion achieved and could result in cumulative adjustments of revenue.

When our contracts allow for orders to be canceled and we do not maintain enforceable rights to customer performance on canceled orders, including a right to payment for partially completed wafers at reasonable margins, control of wafers transfers to our customers at the point in time when wafer manufacturing is complete, and wafers have been shipped to the customer. In these instances, we recognize revenue based on the agreed shipping terms with our customers.

We have a long-standing relationship with a significant Wafer Services customer. The terms and conditions of this relationship have evolved over time and have dictated the manner in which we recognized revenue for the manufacture of their wafers. Prior to fiscal year 2021, transfer of control of wafers, and revenue recognition occurred, as completed wafers were shipped to the customer. In fiscal year 2021, this customer requested that it be able to purchase wafers and for those wafers to be shipped to them at a later date of their choosing. With the introduction of these bill and hold terms, transfer of control of the wafers, and revenue recognition occurred, as wafers completed post-manufacturing electrical testing and became available for shipment to the customer. In March 2022, we signed a new contract with this customer pursuant to which orders became non-cancelable and thus there was a right to specific performance by the customer, including an enforceable right to payment for the cost of partially completed orders plus a reasonable profit margin. Given that the wafers produced for this customer are for customer-specific applications with no alternative use, the introduction of these contract terms demonstrated that control of the wafers transfers to the customer over time as the wafers are manufactured pursuant to Topic 606. Accordingly, our revenue recognition method for wafers produced for this customer transitioned from point in time to over-time using our input method of revenue recognition. In March 2022, we recorded a one-time cumulative adjustment to revenue of $8.3 million for wafers still being manufactured at the time the new contract became enforceable.

Between fiscal year 2021 and March 2022, wafers manufactured while bill and hold provisions were in place, were separately identified as belonging to this customer, the wafers were denoted as ready for shipment to this customer in their then current form, and we did not have the ability to direct or sell the wafers to a different customer. Upon completion of post-manufacturing electrical testing, we had the right to invoice this customer. This customer also obtained legal title and the risks and rewards of ownership at this point.

Long-lived Assets

We review long-lived assets, including property and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances, known as triggering events, indicate that the asset’s or asset group’s carrying amount may not be recoverable. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset or asset group, negative changes in industry conditions, a significant change in an asset’s or asset group’s use or physical condition, and the introduction of competing technologies. When assessing an asset or asset group for impairment, we complete a two-step process. In the first step, we assess the recoverability of the asset or asset group by comparing the carrying amount of the asset or asset group against the sum of the undiscounted future cash flows expected to be generated by the asset or asset group. If the sum of the undiscounted future cash flows expected to be generated by an asset or asset group exceed the carrying amount of the asset or asset group, the carrying amount of the asset or asset group is recoverable and not impaired. If the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to be generated by the asset or asset group, further analysis is required in step two. In the second step, the fair value of the asset or asset group is determined. If the fair value of the asset or asset group exceeds the carrying amount of the asset or asset group, the asset or asset group is not impaired. If the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group, an impairment loss is recognized in the consolidated statements of operations to the extent the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group, not to exceed the carrying amount of the asset or asset group.

51

For purposes of impairment testing, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The undiscounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset or asset groups over its remaining useful life. These estimated cash flows are inherently subjective and include significant assumptions, specifically forecasted revenue and operating margins that require estimates based upon historical experience and future expectations.

We use various approaches to determine fair values of our long-lived assets, including the income approach, the sales comparison approach, and the cost approach. Each approach is inherently subjective and includes significant assumptions, specifically the comparability of similar assets, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates.

Due to our history of operating losses, we estimated the fair value of our long-lived assets as of December 31, 2023. The estimated fair value of our long-lived assets significantly exceeded their carrying amounts. As such, we did not recognize an impairment loss against our long-lived assets despite our fiscal year 2023 operating losses.

Income Taxes

In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including our past operating results, the existence of cumulative losses in the most recent years, and our forecast of future taxable income. In estimating future taxable income, we develop assumptions regarding the reversal of temporary differences. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business.

We currently have recorded a valuation allowance that we will maintain until, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of a decrease in our valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings. Because the determination of the amount of deferred tax assets that can be realized is based, in part, on our forecast of future profitability, it is inherently uncertain and subjective. Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.

52

Non-GAAP Financial Measure

Our consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our 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 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 Annual Report on Form 10-K 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, business transformation costs, CHIPS Act specialist fees, management transition expense, SkyWater Florida start-up costs, and restructuring 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 the 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.

We continuously evaluate the non-GAAP financial measures we use, the manner in which non-GAAP financial measures are calculated, and the adjustments we make to GAAP results to derive our non-GAAP financial measures.

53

The following table presents a reconciliation of net loss to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

__________________

(1)Includes losses related to the extinguishment of the our revolving credit agreement in 2022.

(2)Represents non-cash equity-based compensation expense.

(3)Represents start-up costs associated with our 200 mm heterogeneous integration facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards, and facility start-up expenses. These expenses are not representative of our expected ongoing costs. Effective in fiscal year 2023, our Kissimmee, Florida plant is up and running and no longer in its start-up phase.

(4)Represents severance and other costs related to the reorganization of our resources.

(5)Represents expenses related to long-term transformation activities focused on improvement in automation and operational efficiency and includes project-based management consulting fees and the write-off of abandoned software assets.

(6)Represents severance and other costs related to the reorganization of the manufacturing and operations leadership team.

(7)Represents project-based specialist fees related to our CHIPS Act application process.

(8)Represents net income attributable to our 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 loss to shareholders in our adjusted EBITDA financial measure, we also add back the net income attributable to the VIE as its net income is derived from interest the VIE charges SkyWater.

54

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes in Item 8 of this Annual Report on Form 10-K. Item 7 in this Form 10-K discusses our fiscal 2022 and fiscal 2021 results and the year-over-year comparisons between fiscal 2022 and fiscal 2021. Discussion of our fiscal 2021 results and the year-over-year comparisons between fiscal 2021 and fiscal 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended January 2, 2022, filed with the SEC on March 10, 2022, and incorporated by reference in this Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in our forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and elsewhere herein.

Our fiscal year ends on the Sunday closest to the end of the twelfth calendar month. We refer to the fiscal years ended January 1, 2023 and January 2, 2022 as fiscal 2022 and fiscal 2021, respectively. Fiscal years 2022 and 2021 each include 52 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,” “CMI Acquisition” and “SkyWater” refer to CMI Acquisition, LLC and its subsidiaries collectively before the corporate conversion discussed below and to SkyWater Technology, Inc. and its subsidiaries collectively after the corporate conversion.

Corporate Conversion and Initial Public Offering

On April 14, 2021, in connection with the IPO of our common stock, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc., which we refer to as the corporate conversion. As part of the corporate conversion, holders of Class B preferred units and common units of CMI Acquisition, LLC received shares of our common stock for each unit held immediately prior to the corporate conversion using an approximate one-to-1.56 conversion ratio for Class B preferred units and one-to-1.45 conversion ratio for common units.

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. Shares of our common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”.

We received net proceeds from the IPO of approximately $100.2 million, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million. We utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.

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. In our technology-as-a-service model, we leverage a strong foundation of proprietary technology to co-develop process technology IP with our customers that enables disruptive concepts through our Advanced Technology Services for diverse microelectronics (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, our status as a publicly-traded, U.S.-based pure-play technology foundry with DMEA Category 1A Trusted Accreditation from the DoD, positions us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy 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 computation, (2) A&D, (3) automotive and transportation, (4) bio-health, (5) consumer and (6) industrial/ IoT. 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

38

production to a third-party fab. Through our Advanced Technology Services, we specialize in co-creating with our customers advanced solutions that directly serve our end markets, such as superconducting ICs for quantum computing, integrated photonics, CNTs, 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.

Before we began independent operations, our fab was owned and operated by Cypress as a captive manufacturing facility for 26 years. We have leveraged the Cypress system, manufacturing technology and process development capabilities to advance our product offerings. We became an independent company in March 2017 when we were acquired by Oxbow, as part of a divestiture from Cypress. Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon Technologies AG, or Infineon.

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance in fiscal 2022 and fiscal 2021, or are reasonably likely to impact our results in the future.

•Macroeconomic and competitive conditions, including cyclicality and consolidation, as well as the global availability of significant incentives in semiconductor technology and manufacturing, affecting the semiconductor industry.

•The global economic climate, including the impact on the economy from geopolitical issues and the ongoing COVID-19 pandemic. Because we have a manufacturing facility, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. The effects of such an outbreak could include the temporary shutdown of our facilities, disruptions or restrictions on the ability to ship our products to our customers, as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products or of the ability of our suppliers to delivery key components on a timely basis could have material adverse effect on our revenue and operating results. See “Risk Factors—The ongoing COVID-19 pandemic has adversely affected and could continue to adversely affect our business, results of operations and financial condition.” and our consolidated financial statements for further information regarding the effects of the COVID-19 pandemic on our business.

•On August 9, 2022, President Biden signed into law the Creating Helpful Incentives to Produce Semiconductors, or CHIPS, and Science Act, in 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 act authorizes the U.S. Department of Commerce to enable execution of CHIPS awards 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.

•Our overall level of indebtedness from our revolving credit agreement for up to $100 million, which we refer to as the Revolver, and a $37 million financing from the sale of the land and building representing our headquarters in Minnesota, which we refer to as the Financing, the corresponding interest rates charged to us by our lenders and our ability to access borrowings under the Revolver.

•Identification and pursuit of specific product and geographic market opportunities that we find attractive both within and outside the United States. We will continue to more effectively address these opportunities through research and development and allocation of additional revenue and marketing resources.

•Material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate inflation. We expect the current economic environment will result in continuing price volatility and inflation for many of our raw materials. In addition, the labor market for skilled manufacturing remains tight and our labor costs have increased as a result.

•Supply chain disruptions impacting our business. We have experienced, and may continue to experience, supply chain disruption for substrates, chemicals and spare parts in addition to customer supply chain constraints that have negatively impacted our revenue.

Financial Performance Metrics

Our senior management team regularly reviews certain key financial performance metrics within our business, including:

•revenue and gross profit; and

•earnings before interest, taxes, depreciation and amortization, as adjusted, or adjusted EBITDA, which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States, or U.S. 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.

39

Results of Operations

This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations.

Fiscal 2022 Compared to Fiscal 2021

The following table summarizes certain financial information relating to our operating results for the fiscal years ended January 1, 2023 and January 2, 2022.

nm - Not meaningful

______________________

(1)The consolidated statements of operations are for fiscal 2022 and fiscal 2021. Our fiscal year ends on the Sunday closest to the end of the calendar year. Fiscal 2022 and fiscal 2021 each contained 52 weeks.

(2)See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.

Revenue

Revenue increased $50.1 million, or 31%, to $212.9 million for fiscal 2022, from $162.8 million for fiscal 2021. The increase for fiscal 2022 was driven by continued momentum in revenue for both our Wafer Services and Advanced Technology Services, primarily in the aerospace and defense industry.

The following table shows revenue by services type for fiscal 2022 and fiscal 2021:

40

Wafer Services revenue increased $22.3 million, or 44%, year-over-year, from $51.2 million in fiscal 2021 to $73.5 million in fiscal 2022. The increase was primarily driven by a $13.3 million contract modification with one of our primary customers. During the first quarter of fiscal 2022, we signed a new contract with an existing customer that included increased pricing terms and modified other terms, whereby revenue is recognized over time. As a result, we recognized additional non-recurring revenue of $8.3 million in the first quarter of fiscal 2022 to account for recognition of wafer services activities in process at the date the contract was signed, and an additional $5.0 million over the remainder of 2022.

Advanced Technology Services revenue increased $27.8 million, or 25%, year-over year, from $111.7 million in fiscal 2021 to $139.4 million in fiscal 2022. The increase was driven by continued program expansion with existing customers and new program additions. Additionally, in fiscal 2022 and fiscal 2021, Advanced Technology Services revenue included revenue of $1.5 million and $19.2 million, respectively, related to services we provide to qualify customer funded tool technologies as our customers invest in our capabilities to expand our technology platforms. In the fourth quarter of fiscal 2022, we had a significant contract modification with a customer pursuant to which the customer’s option to purchase discounted services expired, resulting in a recognition of $4.7 million of revenue previously recorded as a contract liability. During the third and fourth quarter of fiscal 2021, our Advanced Technology Services experienced supply chain challenges, hiring constraints, and continued delays in the funding of existing United States government programs. This resulted in delayed revenue for certain Advanced Technology Services and Wafer Services programs in the amount of approximately $15 million for the third and fourth quarter of fiscal 2021. This included a revised schedule for a significant complex multi-year Advanced Technology Services program originally estimated to be completed in 2021 to early 2022, causing revenue to be pushed from 2021 into 2022.

Gross profit (loss)

Gross profit (loss) increased $33.4 million, to $26.0 million for fiscal 2022, from $(7.5) million for fiscal 2021. The increase was due to increased top line revenue outpacing the increase in Cost of revenue as our Advanced Technology Services and Wafer Services functions continued to mature and gain efficiencies. The increase in Cost of revenue was primarily due increased labor costs, which increased $13.6 million year-over-year as we continued to hire at our Minnesota and Florida facilities to support increased activities. Year-over-year, our full time labor population increased 16%. We experienced wage inflation due to an increasingly competitive labor market in 2022, similar to others in the semiconductor industry, as well as the labor market in general. In addition, direct spend increased by $15.8 million year-over-year primarily due to increases in customer costs related to the RH90 program, utility rates, and equipment maintenance costs.

Inventory Write-down

In the fourth quarter of fiscal 2021, we recorded a full inventory write-down of $13.4 million to cost of revenue for inventory which we were contracted to manufacture for a customer. The customer's financing for its COVID-19-related business was not obtained and the customer was unable to meet it contractual payment obligations. We have filed a claim against the customer for full payment. We explored alternative sales channels, such as partnering with a customer, to sell the inventory. However, our sales efforts have not progressed and it is not probable we will recover the value of the inventory.

Research and development

Research and development costs increased to $9.4 million for fiscal 2022, from $8.7 million for fiscal 2021. The increase of $0.7 million, or 8%, was attributable to increased personnel expense of $0.9 million and increased software expense of $0.7 million, partially offset by decreased equity-based compensation expense of $0.7 million.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $46.3 million for fiscal 2022, from $43.6 million for fiscal 2021. The increase of $2.7 million, or 6%, was attributable to increased personnel expense of $1.4 million, as well as an increase in direct expenses, including increases in insurance expense of $1.5 million; government relations expense of $0.5 million; technology-related expenses of $0.8 million; and other direct expenses of $1.4 million. These increases were partially offset by a decrease in equity-based compensation expense of $2.9 million.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was $0.0 for fiscal 2022, compared to a decrease of $2.7 million for fiscal 2021. The contingent consideration is based on estimated royalties owed on Advanced Technology Services revenues, with respect to which we paid a quarterly royalty through 2022. In connection with our acquisition of the

41

business from Cypress, we recorded a contingent consideration liability for the future estimated earn-out/royalties owed on Advanced Technology Services revenues. For each reporting period thereafter, we revalued future estimated earn-out payments and record the changes in fair value of the liability in our consolidated statements of operations.

Loss on debt extinguishment

In fiscal 2022, we expensed $1.1 million of unamortized debt issuance costs and fees in connection with the extinguishment of debt in December 2022. There was no loss on debt extinguishment in 2021.

Interest expense

Interest expense increased to $5.2 million for fiscal 2022, from $3.5 million for fiscal 2021. The increase of $1.7 million, or 47%, was due to increases in both the average outstanding balance and the average interest rate for the Revolver from 2021 to 2022.

Income tax expense (benefit)

Income tax expense increased to $0.8 million for fiscal 2022 from a benefit of $6.8 million for fiscal 2021. The effective income tax rate was (2.2)% for fiscal 2022 compared to 12.5% for fiscal 2021. The effective income tax rate was lower for fiscal 2022 and fiscal 2021 than our statutory tax rate of 21% primarily due to a deferred tax asset valuation allowance. The income tax benefit for fiscal 2021 included the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation. Refer to Note 7 – Income Taxes in the notes to our consolidated financial statements for further discussion of income taxes.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests decreased to $2.7 million for fiscal 2022 from $3.3 million for fiscal 2021. Net income attributable to non-controlling interests reflects the net income of the variable interest entity, or VIE, that we consolidate, representing the economic interest in the profits and losses of Oxbow Realty that the owners of our shareholders’ equity do not legally have rights or obligations to.

Adjusted EBITDA

Adjusted EBITDA increased $10.3 million, to $7.7 million for fiscal 2022 from $(2.6) million for fiscal 2021. The increase in adjusted EBITDA primarily reflects increased gross profit as top line revenue in both Advanced Technology Services and Wafer Services revenue continues to grow, while cost of revenue stays relatively stable. For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see “—Non-GAAP Financial Measure.”

Liquidity and Capital Resources

General

Our ability to execute our operating strategy is dependent on our ability to maintain liquidity and continue to access capital through our Revolver and other sources of financing. Our current business plans indicate that we may require additional liquidity to continue our operations for the next 12 months from the issuance of the consolidated financial statements. We have identified specific actions we could take to reduce operating costs to improve cash flow, which include a reduction in spending and a delayed increase in certain personnel, and may require us to decrease our level of investment in new products and technologies, or discontinue further expansion of our business. We also obtained a support letter from Oxbow Industries, LLC, an affiliate of our principal stockholder, to provide funding in an amount up to $12.5 million, if necessary, to enable us to meet our obligations as they become due through at least one year beyond the issuance of the consolidated financial statements. Management believes that based upon the Company's operational forecasts, cash and cash equivalents on hand, available borrowings on our Revolver, potential cost reduction measures and the support letter from an affiliate of our principal stockholder, as needed, will provide sufficient liquidity to fund its operations for the next 12 months from the issuance of the consolidated financial statements.

Additionally, we could raise additional capital through the ATM Program (as defined below) and seek additional equity or debt financing, including a refinancing and/or expansion of the Revolver; however we cannot provide any assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

The Company 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. To the extent that our current resources and plans to reduce expenses are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control.

We had $30.0 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of $22.0 million as of January 1, 2023. We are subject to certain liquidity and EBITDA covenants under our Loan Agreement, as outlined in the Indebtedness section of Item 7. Management's Discussion and Analysis below.

42

Initial Public Offering

We received net proceeds from the IPO of approximately $100.2 million in fiscal 2021, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million. Refer to "Corporate Conversion and Initial Public Offering" earlier in this section for further information on our Initial Public Offering.

Open Market Sale Agreement

On September 2, 2022, the Company entered into an Open Market Sale Agreement with Jefferies LLC with respect to an at the market offering program under which the Company may, from time to time, offer and sell up to $100 million in shares of the Company’s common stock. From the date of the Open Market Sale Agreement through January 1, 2023, the Company sold 435,419 shares under the Open Market Sale Agreement at an average sale price of $9.28 per share, resulting in gross proceeds of approximately $4.0 million before deducting sales commissions and fees of approximately $0.6 million. The Company used the net proceeds of approximately $3.5 million to pay down its Revolver and fund its operations. As of January 1, 2023, approximately $96 million in shares were available for issuance under the Open Market Sale Agreement.

Common Stock Offering

On November 17, 2022, we completed a public offering (the “Offering”) and issued 1,916,667 shares of common stock, including the underwriter's exercise of its right to purchase additional shares, at a price per share of $9.00 to the public, less underwriting discounts and commissions. We received net proceeds of $16.1 million from the Offering, after deducting the underwriting discounts and commissions. We used the net proceeds from the Offering primarily for general corporate purposes, which included, among other things, funding of operations, repayment of indebtedness, additions to working capital and/or capital expenditures.

Capital Expenditures

On July 26, 2021, we announced that our board of directors approved $56 million in strategic capital investments for expanding manufacturing capacity and technology capabilities at our Minnesota facility. The majority of this investment is targeted to expand capacity and capabilities at our Minnesota fab which is expected to increase overall output by at least 40% and to enable accelerated revenue growth. The remainder is focused on expediting our entry into the gallium nitride, or GaN market, a promising technology for electric vehicles, 5G and consumer electronics, among others due to its properties that enable higher charging efficiencies, smaller ship size, and lighter weight for many applications. We believe SkyWater can fill the need for a US-based 200 mm foundry to offer technology services for GaN-based solutions expanding the serviceable market for our technology-as-a-serviceSM model and we are in the process of identifying a partner to commercialize this technology. The strategic capital investment is a multi-year strategy and we invested approximately $11.1 million and $13.8 million during fiscal 2022 and 2021, respectively, substantially all of which was for expanding capacity and capabilities at our Minnesota fab.

For fiscal 2022 and 2021, we spent approximately $18.6 million and $32.0 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the 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 in fiscal 2023.

We have various contracts outstanding with third parties in connection with expansion of our manufacturing capabilities at our Minnesota fab and Center for NeoVation in Florida. We have approximately $4.8 million of contractual commitments outstanding as of January 1, 2023 that we expect to be paid in fiscal 2023 through cash on hand and operating cash flows. During 2022, the Company executed a capital lease to replace the existing nitrogen plant with a larger and more modern nitrogen generator. The capital lease has a lease term of 15 years for total payments of $14 million.

Contingent Consideration

For fiscal 2022 and 2021, we made cash payments of $0.8 million and $7.4 million, respectively, related to our contingent consideration royalty liability. There are no future cash payments to be made related to this liability, as the amount has been settled.

Working Capital

Historically, we have depended on cash on hand, funds available under our Revolver and, more recently, net proceeds from sales of our common stock pursuant to the ATM Program and the Offering, and in the future may depend on additional debt and equity financings to finance our expansion 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 12 months. However, we cannot be certain that we will be able to obtain future debt or equity financings adequate for our cash requirements on commercially reasonable terms or at all.

As of January 1, 2023, we had available aggregate undrawn borrowing capacity of approximately $22.0 million under our Revolver. For the periods presented, our use of cash was primarily driven by our operating and investing activities, and specifically by our investments in capital expenditures.

43

The following table sets forth general information derived from our statement of cash flows for fiscal 2022 and 2021:

Cash and Cash Equivalents

At January 1, 2023 and January 2, 2022, we had $30.0 million and $12.9 million of cash and cash equivalents, respectively, including cash of $0.0 million and $0.5 million held by a variable interest entity that we consolidate.

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, accounts payable, accrued expenses, and deferred revenue, all of which tend to be related and are affected by changes in the timing and volume of work performed. Net cash used in operating activities was $14.3 million during fiscal 2022, a decrease of $41.4 million from $55.7 million of net cash used in operating activities during fiscal 2021. The decrease in cash used in operating activities in fiscal 2022 was driven primarily by an increase in accounts payable of $21.0 million in fiscal 2022 compared to a decrease in accounts payable of $6.5 million in fiscal 2021. Our accounts payable and accrued expenses increased during fiscal 2022 due to the timing of cash payments to our suppliers and vendors.

Investing Activities

Capital expenditures are a significant use of our capital resources. These investments are intended to enable sales 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 $17.5 million during fiscal 2022, a decrease of $12.3 million from $29.8 million in fiscal 2021. The decrease in cash used in fiscal 2022 reflects decreased capital spending on property and equipment as we fully completed our foundry expansion project in 2021 to increase manufacturing capacity at our Minnesota facility and decreased capital spending on software.

Financing Activities

Net cash provided by financing activities was $48.9 million during fiscal 2022, a decrease of $42.1 million from net cash provided by financing activities of $91.0 million during fiscal 2021. The decrease was driven by proceeds of over $100.0 million from the IPO in fiscal 2021, partially offset by proceeds from the issuance of common stock and net proceeds from our new revolver in fiscal 2022.

Indebtedness

Sale Leaseback Transactions

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty for $39 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 lease 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 (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

On October 20, 2022, we entered into an agreement to sell a semiconductor manufacturing tool to an equipment financing lender for $3.1 million. We subsequently entered into an agreement to lease the tool from the lender for monthly payments of $0.1 million over 42 months. The agreement provides for a bargain purchase option at the end of the lease term, which we intend to exercise. Because control of the asset did not transfer to the lender, and due to our intent to exercise the bargain purchase option at the end of the lease term, we accounted for the transaction as a failed sale leaseback (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

44

Revolving Credit Agreement

On December 28, 2022, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Siena Lending Group LLC ("Siena"). The Loan Agreement provides for a revolving line of credit of up to $100 million with scheduled maturity date of December 28, 2025 (the "Revolver"). The Company incurred $4.3 million of debt issuance costs, which will be amortized as additional interest expense over the life of the Revolver. In connection with the entry into the Loan Agreement, the Company drew $60.0 million on the Revolver and repaid $43.5 million in outstanding indebtedness under, and terminated, our lending agreement with Wells Fargo and recognized a $1.1 million write-off of unamortized debt issuance costs. As of January 1, 2023, we had borrowings of $60.1 million under the Revolver.

Borrowing under the Loan Agreement is limited by a borrowing base of specified advance rates applicable to billed accounts receivable, unbilled accounts receivable, 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 unbilled accounts receivable 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.% per annum. The applicable margin is an applicable percentage based on the fix charged coverage ratio that ranges from 6.25% to 5.25% per annum for term SOFR loans and ranges from 5.25% to 4.25% 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 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 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 12 month basis, of not less than 1.00 to 1.00 if our liquidity is less than $15 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. We were in compliance with the covenants of the Loan Agreement as of January 1, 2023.

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 consolidated balance sheet in accordance with Accounting Standards Codification ("ASC") 470-10-45-5.

Material Cash Requirements

Our material cash requirements from known contractual and other obligations primarily relate to 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 13.

•Capital lease commitments—Refer to Note 16.

•Sale leaseback obligation—Refer to Note 18.

•Tax obligations—Refer to Note 7.

•Other commitments and contingencies—Refer to Note 13.

Recent Accounting Developments

For information on new accounting pronouncements, see Note 3 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

JOBS Act

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

45

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.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with preparing our consolidated financial statements, 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 to be relevant at the time we prepare our consolidated financial statements. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our 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 and inventory, share-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.

Revenue Recognition

Revenue is recognized either over time as work progresses using an output measure or at a point-in-time, depending upon contract-specific terms and the pattern of transfer of control of the product or service to the customer. Due to the nature of our contracts, there can be judgement involved in determining the performance obligations that are included in the related contract. We analyze each contract to conclude what enforceable rights and obligations exist between us and our customers. In doing so, we determine our unit of account by identifying the promises within the contract that are both (1) considered to be distinct and (2) distinct within the context of each contract

Advanced Technology Services - We have both fixed price and time-and-materials contracts. The customer receives the benefits provided by our performance as we complete them, and revenue is recognized from our fixed price and time-and-materials contracts over time as we perform. Revenue on fixed price contracts is recognized either over time as work progresses using the input or output method based upon which method we believe represents the best indication of the overall progress toward satisfying our performance obligation. Over time revenue recognition using the output method relies on surveys of performance completed to date to satisfy our performance obligation. This can require judgment to determine the related measure of progress that will be assigned to the respective contract. Over time revenue recognition using the input method, is based on costs incurred to date on performance obligations compared to estimated total cost required to complete the performance obligation as of the reporting date. We measure progress on these performance obligations by comparing total costs incurred to-date to the total estimated costs for the performance obligation, and record that proportion of the total performance obligation transaction price as revenue in the period. Costs include labor, manufacturing costs, materials and other direct costs related to the customer contract. During the third quarter of 2022, we signed new contracts with a significant Advanced Technology Services customer that we are recording revenue based upon the input method using a cost-based measure of progress. We believe this method of recognizing revenue is consistent with our progress in satisfying our contract obligations. The estimation of total costs for the performance obligation can require significant judgment and any adjustment to estimated total cost may have an impact on proportion of progress achieved resulting in a cumulative catch-up of revenue.

Wafer Services - In March 2022, we signed a new contract with a significant wafer services customer. Under the contract, orders are non-cancellable and we have an enforceable right to complete the orders and to payment for any finished or in-process wafers plus a reasonable margin. The wafers produced for that customer are highly customized and have no alternative use to us. Control of these wafers is deemed to transfer to the customer over time during the fabrication process, using the same measure of progress toward satisfying the promise to deliver the units to the customer. Consequently, the transaction price is recognized as revenue over time based on actual costs incurred in the fabrication process to date relative to total expected costs to produce all wafers beginning in March 2022. The contract terms and pricing is applicable to all in-process and future wafers. We recorded revenue of $13.3 million for the twelve months ended January 1, 2023 to account for recognition of Wafer Services activities. Additionally, this change in the timing of revenue recognition reduced our work-in-process inventory and increased our unbilled receivables (contract assets) and cost of revenue.

The terms of a contract and historical business practices can, but generally do not, give rise to variable consideration. We estimate variable consideration at the most likely amount we will receive from customers. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. In general, variable consideration in our contracts relates to the entire contract. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current, and forecasted) that is reasonably available to us at contract inception and require judgment. We have no significant instances where variable consideration is

46

constrained and not recorded at the initial time of sale. In addition, we have not experienced significant changes to our estimates and judgments related to variable consideration in our contracts.

If we make material changes to our assumptions, we may have to make cumulative catch-up adjustments in the financial statements related to revenue previously recognized. No material gross favorable or unfavorable changes to our material long-term contracts existed for fiscal 2022 or fiscal 2021.

Long-lived Assets

We review long-lived assets, including property and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances, known as triggering events, indicate that the asset's carrying amount may not be recoverable. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset or asset group, negative changes in industry conditions, a significant change in a long-lived asset's use or physical condition and the introduction of competing technologies. For purposes of impairment testing, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not exceed the carrying value of the long-lived asset or asset group, the asset group is not recoverable and impairment is recognized to the extent the carrying amount exceeds the estimated fair value of the asset or asset group. The undiscounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset over its remaining useful life. These estimated discounted cash flows are inherently subjective and include significant assumptions, specifically the forecasted revenue, forecasted operating margins, and require estimates based upon historical experience and future expectations. Due to our history of operating losses and uncertainty with forecasts, we utilized third party appraisers to assess the estimated fair value of our long-lived asset group. The estimated fair value of our long-lived assets exceeded the carrying value. As such, we did not experience an impairment of our long-lived assets despite having triggering events during fiscal 2022 and fiscal 2021.

Appraisals utilize various approaches to determine fair value, including the income approach, the sales comparison approach and the cost approach. Each appraisal approach is inherently subjective and includes significant assumptions, specifically the comparability of similar properties or equipment, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates.

Income Taxes

In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions regarding the reversal of temporary differences. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business.

We currently have recorded a valuation allowance that we will maintain until, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of a decrease in our valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings. Because the determination of the amount of deferred tax assets that can be realized is based, in part, on our forecast of future profitability, it is inherently uncertain and subjective. Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.

Non-GAAP Financial Measure

Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our audited consolidated financial statements presented in accordance with U.S. GAAP, an additional non-GAAP financial measure is provided and reconciled in the following table.

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 U.S. GAAP results. We use adjusted EBITDA to provide a baseline for analyzing trends in our business and to exclude 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 our non-GAAP measure is not determined in accordance with U.S. GAAP, it is 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 measure

47

presented in this Annual Report on Form 10-K may not be directly comparable to similarly titled measures presented by other companies.

This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP.

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. 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 fair value changes in contingent consideration, management fees, inventory write-down, corporate conversion and IPO related costs, Paycheck Protection Program Loan forgiveness, SkyWater Florida start-up costs, net income attributable to non-controlling interests, and management transition expense.

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 listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and 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 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.

The following table presents a reconciliation of net income (loss) to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

__________________

(1)Represents a full write-down for inventory which we were contracted to manufacture for a specific customer. See Note 17 – Inventory Write Down in the notes to our consolidated financial statements for additional information.

(2)Represents expenses directly associated with the corporate conversion and IPO, such as professional, consulting, legal and accounting services. This also includes bonus awards granted to employees upon the completion of the IPO. These expenses are not indicative of our ongoing costs and were discontinued following the completion of our initial public offering.

(3)Represents start-up costs associated with our 200 mm advanced packaging facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards and facility start-up expenses. These expenses are not indicative of our ongoing costs and will be discontinued following completion of the start-up of SkyWater Florida.

48

(4)Represents expense for the departure of our former Chief Administrative Officer, which includes primarily severance benefits.

(5)Represents non-cash valuation adjustment of contingent consideration to fair market value during the period.

(6)Represents non-cash equity-based compensation expense.

(7)Represents a related party transaction with Oxbow, our principal stockholder. As these fees are not part of the core business, will not continue after our IPO and are excluded from management’s assessment of the business, we believe it is useful to investors to view our results excluding these fees.

(8)Represents net income attributable to our VIE, which was formed for the purpose of purchasing our land and building with the proceeds of a bank loan. Since depreciation and interest expense are excluded from net loss in our adjusted EBITDA financial measure, we also exclude the net income attributable to the VIE.

(9)Includes losses related to the extinguishment of our revolving credit agreement.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes in Item 8 of this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those discussed or implied in our forward-looking statements due to a number of factors, including those described in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and elsewhere herein.

Our fiscal year ends on the Sunday closest to the end of the twelfth calendar month. We refer to the fiscal years ended January 2, 2022 and January 3, 2021 as fiscal 2021 and fiscal 2020, respectively. Fiscal years 2021 and 2020 include 52 and 53 weeks, respectively. 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,” “CMI Acquisition” and “SkyWater” refer to CMI Acquisition, LLC and its subsidiaries collectively before the corporate conversion discussed below and to SkyWater Technology, Inc. and its subsidiaries collectively after the corporate conversion.

34

Corporate Conversion and Initial Public Offering

On April 14, 2021, in connection with the IPO of our common stock, CMI Acquisition, LLC filed a certificate of conversion, whereby CMI Acquisition, LLC effected a corporate conversion from a Delaware limited liability company to a Delaware corporation and changed its name to SkyWater Technology, Inc., which we refer to as the corporate conversion. As part of the corporate conversion, holders of Class B preferred units and common units of CMI Acquisition, LLC received shares of our common stock for each unit held immediately prior to the corporate conversion using an approximate one-to-1.56 conversion ratio for Class B preferred units and one-to-1.45 conversion ratio for common units.

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. Shares of our common stock began trading on the Nasdaq Stock Market on April 21, 2021 under the symbol “SKYT”.

We received net proceeds from the IPO of approximately $100.2 million, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million. We estimate that we have utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.

Overview

We are a U.S. investor-owned, 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. In our technology-as-a-service model, we leverage a strong foundation of proprietary technology to co-develop process technology IP with our customers that enables disruptive concepts through our Advanced Technology Services for diverse microelectronics (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, our status as a publicly-traded, U.S.- based, U.S. investor-owned pure-play technology foundry with DMEA Category 1A accreditation from the DoD, is expected to position us well to provide distinct, competitive advantages to our customers. These advantages include the benefits of enhanced IP security and easy access to a U.S. domestic supply chain. In September 2019, we entered into a contract with the DoD to receive up to $170 million to expand and upgrade our manufacturing capabilities, specifically to build next-generation rad-hard wafer solutions for the aerospace and defense sector which will have significant benefits for other commercial markets. Our fab expansion supporting this project began operations in October 2020. In January 2021, we entered into an agreement with Osceola County, Florida to take over operation of the Center for NeoVation facility in Kissimmee, Florida to accelerate pure-play advanced packaging services for differentiated technologies.

We primarily focus on serving diversified, high-growth, end users in numerous vertical markets, including (1) advanced computation, (2) A&D, (3) automotive and transportation, (4) bio-health, (5) consumer and (6) industrial/ IoT. 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 Advanced Technology Services, we specialize in co-creating with our customers advanced solutions that directly serve our end markets, such as superconducting ICs for quantum computing, integrated photonics, CNTs, 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.

Before we began independent operations, our fab was owned and operated by Cypress as a captive manufacturing facility for 20 years. We have leveraged the Cypress system, manufacturing technology and process development capabilities to advance our product offerings. We became an independent company in March 2017 when we were acquired by Oxbow, as part of a divestiture from Cypress. Our multi-year foundry services agreement with Cypress, which ended in June 2020, created a runway for us to operate the foundry at a high utilization rate while continuing to expand and diversify the customer base transferred by Cypress. Cypress was acquired in April 2020 by Infineon.

Factors and Trends Affecting our Business and Results of Operations

The following trends and uncertainties either affected our financial performance in fiscal 2021 and fiscal 2020 or are reasonably likely to impact our results in the future.

•Macroeconomic and competitive conditions, including cyclicality and consolidation, affecting the semiconductor industry.

•The global economic climate, including the impact on the economy from geopolitical issues and the ongoing COVID-19 pandemic. Our business has been adversely affected by the effects of the COVID-19 pandemic. We implemented modifications to employee travel and employee work locations, as required in some cases by federal, state and local authorities, which has had a negative impact on our employee productivity. As a result of the COVID-19 pandemic, one customer reduced its research and development expenditures with us, and a second customer experienced facility shutdowns which resulted in delays in project milestones, in each case negatively

35

affecting our revenues. Because we have a manufacturing facility, we may be vulnerable to an outbreak of a new coronavirus or other contagious diseases. The effects of such an outbreak could include the temporary shutdown of our facilities, disruptions or restrictions on the ability to ship our products to our customers, as well as disruptions that may affect our suppliers. Any disruption of our ability to manufacture or distribute our products or of the ability of our suppliers to delivery key components on a timely basis could have material adverse effect on our revenue and operating results. See “Risk Factors—The effects of the COVID-19 outbreak could adversely affect our business, results of operations, and financial condition” and our consolidated financial statements for further information regarding the effects of the COVID-19 pandemic on our business.

•The impact of vaccine mandates on our workforce. In the U.S., the Food and Drug Administration issued emergency use authorization for COVID-19 vaccines and the government began extensive efforts to administer them. We have taken various steps to encourage and facilitate vaccination access for our employees, in accordance with federal guidance. We have provided flexibility for employees to get vaccinated, and strongly encouraged our workforce to take care of themselves and their colleagues. In September 2021, the White House issued an executive order and guidance from the Safer Federal Workforce Task Force broadly requiring many U.S.-based federal contractors to be fully vaccinated by December 8, 2021 (or to have an approved accommodation). In early November 2021, the federal government extended that deadline to January 18, 2022. On December 7, 2021, a federal district judge issued an order, temporarily suspending the government from enforcing the federal contractor mandate. That order is on appeal. State and local governments are also taking actions related to the pandemic, imposing additional and varying requirements on industry. We have taken, and are continuing to take, steps to encourage our employees to be fully vaccinated (or to have an approved accommodation) to protect our workplace and to position us to comply with the executive order, guidance, and related contract terms, if and as necessary, as we continue to evaluate the evolving situation and our customers’ requirements. Evolving government requirements, including regarding a vaccine mandate, along with the broader impacts of the continuing pandemic, could significantly impact our workforce and performance, as well as those of our suppliers, and result in costs that we may not be able to recover fully. We continue to take robust actions to protect the health, safety and well-being of our employees, and to serve our customers with continued performance. See “Risk Factors—Vaccination or testing mandates could have a material adverse impact on our business and results of operations” for discussion of risks associated with the potential adverse effects on our business.

•On April 18, 2020, we received proceeds of $6.5 million pursuant to a loan under the Paycheck Protection Program, or PPP, under the terms of the Coronavirus Aid, Relief, and Economic Security Act. On June 10, 2021, our PPP loan was forgiven.

•The Creating Helpful Incentives to Produce Semiconductors, or CHIPS, for America Act, in 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 U.S. Senate passed broad competitiveness legislation on June 8, 2021, through the U.S. Innovation and Competition Act, which includes $52 billion in federal investments for the domestic semiconductor research, design and manufacturing provisions in the CHIPS Act. The U.S. House of Representatives passed competitiveness legislation on February 4, 2022, through the America COMPETES Act, which also includes $52 billion in CHIPS Act investments. Both legislative chambers must reach agreement on, and pass, the joint competitiveness legislation before it can be signed into law by the President.

•Our overall level of indebtedness from our revolving credit agreement for up to $65 million, which we refer to as the Revolver, and a $39 million financing from the sale of the land and building representing our headquarters in Minnesota, which we refer to as the Financing, the corresponding interest rates charged to us by our lenders and our ability to access borrowings under the Revolver.

•Identification and pursuit of specific product and geographic market opportunities that we find attractive both within and outside the United States. We will continue to more effectively address these opportunities through research and development and allocation of additional revenue and marketing resources.

•Material and other cost inflation. We strive for productivity improvements, and we implement increases in selling prices to help mitigate inflation. We expect the current economic environment will result in continuing price volatility and inflation for many of our raw materials. In addition, the labor market for skilled manufacturing remains tight as the United States continues to restart the economy after the COVID-19 pandemic and our labor costs have increased as a result.

•Supply chain disruptions impacting our business. We have experienced, and may continue to experience, supply chain disruption for substrates, chemicals and spare parts in addition to customer supply chain constraints that have negatively impacted our revenue.

Financial Performance Metrics

Our senior management team regularly reviews certain key financial performance metrics within our business, including:

•revenue and gross profit; and

•earnings before interest, taxes, depreciation and amortization, as adjusted, or adjusted EBITDA, which is a financial measure not prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, that excludes certain items that may not be indicative of our core operating results, as well as items

36

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

This section contains an analysis of our results of operations presented in the accompanying consolidated statement of operations. Discussions of fiscal 2020 compared to fiscal year 2019 can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Registration Statement on Form S-1, filed with the Securities and Exchange Commission on April 12, 2021.

Fiscal 2021 Compared to Fiscal 2020

The following table summarizes certain financial information relating to our operating results for the years ended January 2, 2022 and January 3, 2021.

__________________

(1)The consolidated statements of operations are for fiscal 2021 and fiscal 2020. Our fiscal year ends on the Sunday closest to the end of the calendar year. Fiscal 2021 and fiscal 2020 contained 52 and 53 weeks, respectively.

(2)See “—Non-GAAP Financial Measure” for the definition of adjusted EBITDA and reconciliation to the most directly comparable GAAP measure.

Revenue

Revenue increased $22.4 million, or 16%, to $162.8 million for fiscal 2021, from $140.4 million for fiscal 2020. The increase for fiscal 2021 was driven by continued momentum in revenue for our Advanced Technology Services, primarily in the aerospace and defense industry.

37

The following table shows revenue by services type for fiscal 2021 and fiscal 2020:

The Wafer Services revenue increase for fiscal 2021 reflected the continued rebound from 2020 levels, driven primarily by demand in the IoT and automotive industries. The Advanced Technology Services revenue increase during fiscal 2021 was driven by continued program expansion with existing customers and new program additions. Additionally, fiscal 2021 included $19.2 million of revenue recognized related to services we provide to qualify customer funded tool technologies as our customers invest in our capabilities to expand our technology platforms. During the third and fourth quarter of fiscal 2021, our Advanced Technology Services experienced supply chain challenges, hiring constraints, and continued delays in the funding of existing United States government programs. This resulted in delayed revenue for certain Advanced Technology Services and Wafer Services programs in the amount of approximately $15 million for the third and fourth quarter of 2021. This included a revised schedule for a significant complex multi-year Advanced Technology Services program originally estimated to be completed in 2021 to early 2022, causing revenue to be pushed from 2021 into 2022.

Gross profit (loss)

Gross profit (loss) decreased $30.2 million, or 133%, to $(7.5) million for fiscal 2021, from $22.7 million for fiscal 2020. The decrease was due to increased cost of revenue. The cost of revenue increase was driven by an inventory charge of $13.4 million for inventory which we were contracted by a customer to manufacture (see below for more information); increased labor costs as we ramped up our Minnesota and Florida facilities; increased wafer output which typically has a lower margin than Advanced Technology Services; increased utility and freight costs; the supply chain challenges related to supply chain disruption for substrates, chemicals, and spare parts; and investments made for long-term growth to build out our rad-hard and advanced packaging capabilities. The labor market for skilled manufacturing remained tight as the United States continued to restart the economy after the COVID-19 pandemic and we increased our average starting wage in our fabs to attract the best talent in the market. The cost of revenue increases for fiscal 2021 also reflect the additional depreciation expense related to our foundry expansion in Minnesota.

Inventory Write-down

In the fourth quarter of fiscal 2021, we recorded a full inventory write-down of $13.4 million to cost of revenue for inventory which we were contracted to manufacture for a customer. The customer's financing for its COVID-19-related business was not obtained and the customer was unable to meet it contractual payment obligations. We have filed a claim against the customer for full payment. We explored alternative sales channels, such as partnering with a customer, to sell the inventory. However, our sales efforts have not progressed and it is not probable we will recover the value of the inventory.

Research and development

Research and development costs increased to $8.7 million for fiscal 2021, from $4.2 million for the fiscal 2020. The increase of $4.5 million, or 108%, was attributable to increased personnel expense of $2.4 million; increased equity-based compensation expense of $1.1 million; and increased equipment, parts and supplies expense of $0.7 million.

Selling, general and administrative expenses

Selling, general and administrative expenses increased to $43.6 million for the first twelve months of 2021, from $25.0 million for fiscal 2020. The increase of $18.6 million, or 74%, was attributable to increased equity-based compensation expense of $7.4 million; increased personnel expense of $4.7 million due to the increase in headcount due to public company requirements and build out of strategic sales and business leadership during fiscal 2021; increased insurance expense of $2.6 million; corporate conversion and IPO related costs of $1.9 million, which includes bonus awards granted to employees upon the completion of the IPO; increased information technology expense of $1.4 million; and executive transition expense of $0.4 million.

Change in fair value of contingent consideration

Change in fair value of contingent consideration was $(2.7) million for fiscal 2021, compared to $2.1 million for fiscal 2020. The contingent consideration is based on estimated royalties owed on Advanced Technology Services revenues, with respect to which we pay a quarterly royalty through 2022. In connection with our acquisition of the business from Cypress, we recorded a contingent consideration liability for the future estimated earn-out/royalties owed on Advanced Technology Services revenues. For each reporting period thereafter, we revalued future estimated earn-out payments and record the changes in fair value of the liability in our consolidated statements of operations. The decrease for fiscal 2021 was driven by lower revenue than previously forecasted.

38

Change in fair value of warrant liability

Change in fair value of warrant liability was $0.8 million for fiscal 2020. We had no similar expense during 2021 as the related warrants were repurchased in December 2020.

Loss on debt extinguishment

In fiscal 2020, we expensed $1.4 million of unamortized debt issuance costs and fees in connection with the extinguishment of a term loan in September and December 2020. There were no such charges in fiscal 2021.

Interest expense

Interest expense decreased to $3.5 million for fiscal 2021, from $5.5 million for fiscal 2020. The decrease in interest expense were a result of lower debt balances and lower interest rates on our Revolver and the Financing during the fiscal 2021 compared to the interest rates charged on our previous line of credit and term loan during fiscal 2020.

Income tax expense (benefit)

Income tax expense decreased to a benefit of $6.8 million for fiscal 2021 from an expense of $4.9 million for fiscal 2020. The effective income tax rate was 12.5% for fiscal 2021 compared to (33.2)% for fiscal 2020. The effective income tax rate applied to our pre-tax loss was lower for fiscal 2021 than our statutory tax rate of 21% primarily due to a deferred tax asset valuation allowance. The income tax benefit for fiscal 2021 included the tax impact from the gain on the PPP Loan forgiveness, which is exempt from federal income taxation. The effective income tax rate applied to our pre-tax loss for fiscal 2020 differed from our statutory tax rate of 21% primarily due to the disallowed loss from the sale-leaseback transaction with Oxbow Realty and the valuation allowance on deferred tax assets, partially offset by an income tax benefit for excess tax benefits recorded for stock-based compensation vesting. Refer to Note 7 – Income Taxes in the notes to our consolidated financial statements for further discussion of income taxes.

Net income attributable to non-controlling interests

Net income attributable to non-controlling interests increased to $3.3 million for fiscal 2021 from $0.9 million for fiscal 2020. Net income attributable to non-controlling interests reflects the net income of the variable interest entity, or VIE, that we consolidate, representing the economic interest in the profits and losses of Oxbow Realty that the owners of our shareholders’ equity do not legally have rights or obligations to. Since we began consolidating Oxbow Realty in the fourth quarter of 2020, fiscal 2020 included one quarter of financial results compared to four quarters for fiscal 2021.

Adjusted EBITDA

Adjusted EBITDA decreased $17.0 million, or 118%, to $(2.6) million for fiscal 2021 from $14.4 million for fiscal 2020. The decrease in adjusted EBITDA primarily reflects decreased gross profit due to increased labor and infrastructure costs as we continue to scale our business to meet the increased demands of our customers and the requirements of being a public company. For a discussion of adjusted EBITDA as well as a reconciliation to the most directly comparable U.S. GAAP measure, see “—Non-GAAP Financial Measure.”

Liquidity and Capital Resources

General

We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to the expansion of our operations, payment of amounts due under our contingent consideration liability, lease obligations and the normal operation of our business. Our ability to meet these working capital needs and grow our business will depend on many factors, including our future working capital needs, the evolution of our operating cash flows and our ability to secure additional sources of financing.

We had $12.4 million in cash and cash equivalents, not including cash held by a variable interest entity that we consolidate, and availability under our Revolver of $38.6 million as of January 2, 2022. However, we must maintain availability under the Revolver of at least $15 million in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 2, 2023. In fiscal 2022, we expect to use cash in operations but anticipate the use of cash to decrease as revenue grows and realize a return from the capital investments made in fiscal 2021. We believe our operating cash flows, together with our cash on hand and current availability under the Revolver will be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of this Annual Report on Form 10-K. We may, however, need additional cash resources due to changed business conditions or other developments, including significant acquisitions and competitive pressures. We expect our capital expenditures and working capital requirements to continue to increase in the immediate future, as we seek to expand our business. To the extent that our current resources, including our ability to generate operating cash flows, are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new products and technologies, discontinue further

39

expansion of our business, or scale back our existing operations, which could have an adverse impact on our business and financial prospects.

Initial Public Offering

On April 23, 2021, we completed our IPO and issued 8,004,000 shares of common stock, including the underwriter’s exercise of their right to purchase additional shares, at an initial offering price to the public of $14.00 per share. We received net proceeds from the IPO of approximately $100.2 million, after deducting underwriting discounts and commissions and offering costs of approximately $11.9 million. We estimate that we have utilized approximately $45 million of our IPO proceeds to pay down our revolving credit agreement, approximately $28 million of our IPO proceeds to fund capital expenditures, and approximately $27 million of our IPO proceeds to fund our operating activities.

Capital Expenditures

On July 26, 2021, we announced that our board of directors approved $56 million in strategic capital investments for expanding manufacturing capacity and technology capabilities at our Minnesota facility. The majority of this investment is targeted to expand capacity and capabilities at our Minnesota fab which is expected to increase overall output by at least 40% and to enable accelerated revenue growth. The remainder is focused on expediting our entry into the gallium nitride, or GaN, market, a promising technology for electric vehicles, 5G and consumer electronics, among others due to its properties that enable higher charging efficiencies, smaller ship size, and lighter weight for many applications. We believe SkyWater can fill the need for a US-based 200 mm foundry to offer technology services for GaN-based solutions expanding the serviceable market for our technology-as-a-serviceSM model. The strategic capital investment is a multi-year strategy and we invested approximately $13.8 million during fiscal 2021.

For fiscal 2021 and 2020, we spent approximately $32.0 million and $89.9 million, respectively, on capital expenditures, including purchases of property, equipment and software. The majority of these capital expenditures relate to our foundry expansion in Minnesota, as discussed below, and the development of our advanced packaging capabilities at the 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 in fiscal 2022.

We have various contracts outstanding with third parties in connection with the completion of a building expansion project to increase manufacturing capacity at our Minnesota facility. We have approximately $8.2 million of contractual commitments outstanding as of January 2, 2022 that we expect to be paid in fiscal 2022 through cash on hand and operating cash flows. As of January 2, 2022, the Company had executed a capital lease, which had not yet commenced, to replace the existing nitrogen plant with a larger and more modern nitrogen generator. The capital lease has a lease term of 15 years for total payments of $14 million and is expected to commence during the first half of 2022.

Contingent Consideration

For fiscal 2021 and 2020, we made cash payments of $7.4 million and $11.3 million, respectively, related to our contingent consideration royalty liability. We expect total future cash payments to be approximately $0.8 million for contingent consideration related to this liability in the future. We anticipate our cash on hand and cash flows from operations will provide the funds necessary to settle the contingent consideration royalty liability.

Working Capital

Historically, we have depended on cash on hand, funds available under our Revolver, funds from the sale of our land and building in Minnesota, cash flows from operations, and in the future may depend on additional debt and equity financings, similar to our IPO, to finance our expansion 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 12 months. However, we cannot be certain that we will be able to obtain future debt or equity financings adequate for our cash requirements on commercially reasonable terms or at all.

As of January 2, 2022, we had available aggregate undrawn borrowing capacity of approximately $38.6 million under our Revolver. However, we must maintain availability under the Revolver of at least $15 million in order to not have to comply with the leverage ratio and fixed charge coverage ratio financial covenants contained in the Revolver with respect to the fiscal quarters ending on or prior to July 2, 2023. For the periods presented, our use of cash was primarily driven by our investing activities, and specifically by our investments in capital expenditures.

The following table sets forth general information derived from our statement of cash flows for fiscal 2021 and 2020:

40

Cash and Cash Equivalents

At January 2, 2022 and January 3, 2021, we had $12.9 million and $7.4 million of cash and cash equivalents, respectively, including cash of $0.5 million and $0.9 million held by a variable interest entity that we consolidate.

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, accounts payable, accrued expenses, and deferred revenue, all of which tend to be related and are affected by changes in the timing and volume of work performed and our increased expenditures as a public company. Net cash used in operating activities was $55.7 million during fiscal 2021, a decrease of $151.9 million from $96.2 million of net cash provided by operating activities during fiscal 2020. The decrease in cash provided by operating activities in fiscal 2021 was driven primarily by the change in our working capital accounts, specifically deferred revenue and accounts receivable, and our increased net loss, reflecting higher post-IPO costs as a public company. During the fiscal 2021, we recognized revenue from customers who funded our building expansion during fiscal 2020, which resulted in lower operating cash inflows in the current year. Additionally, accounts receivable increased during fiscal 2021 due to the timing of cash collected from customers, which also resulted in lower operating cash inflows compared to the prior year.

Investing Activities

Capital expenditures are a significant use of our capital resources. These investments are intended to enable sales growth in new and expanding markets, help us meet product demand and increase our manufacturing efficiencies and capacity. We had various contracts outstanding with third parties in connection with the construction of a building expansion project to increase manufacturing capacity at our Minnesota fab.

Net cash used in investing activities was $29.8 million during fiscal 2021, a decrease of $58.4 million from $88.2 million in fiscal 2020. The decrease in cash used in fiscal 2021 reflects decreased capital spending on property and equipment as we fully complete our foundry expansion project to increase manufacturing capacity at our Minnesota facility and decreased capital spending on software.

Financing Activities

Net cash provided by financing activities was $91.0 million during fiscal 2021, an increase of $96.2 million from net cash used in financing activities of $5.2 million during fiscal 2020. The increase in fiscal 2021 was driven by the proceeds from the IPO. The increase was partially offset by net repayments on the Revolver of $6.1 million and cash paid for offering costs and distributions to our VIE of $2.9 million.

Indebtedness

Sale Leaseback Transaction

On September 29, 2020, we entered into an agreement to sell the land and building representing our primary operating location in Bloomington, Minnesota to Oxbow Realty for $39 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 lease 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 (a financing transaction). Under failed sale leaseback accounting, we are deemed the owner of the property with the proceeds received recorded as a financial obligation.

Revolving Credit Agreement

On December 28, 2020, we entered into our Revolver with Wells Fargo of up to $65 million that replaced our previous line of credit and term loan. Under the agreement, the facility is available on a revolving basis, subject to availability under a borrowing base consisting of a percentage of eligible accounts receivable, inventory and owned equipment. The Revolver can be repaid and borrowed again at any time without penalty or premium until the maturity date of December 28, 2025. The Revolver is available for issuance of letters of credit to a specified limit of $10 million.

Under the Revolver, we can elect the base rate (greatest of the federal funds rate plus 0.5%, LIBOR for a one-month period plus 1%, or the institution’s prime rate) or LIBOR for a period of one, two, three or six months as selected by us, plus a margin depending on the amount of borrowings outstanding. We will also pay a commitment fee equal to 0.25% to 0.375% of the average commitment not utilized, depending on the amount not utilized. Interest payments are due monthly.

On November 3, 2021, we entered into an amendment to the Revolver, effective as of October 1, 2021, to eliminate the requirement for us to comply with the leverage ratio financial covenant contained therein with respect to the fiscal quarters ending on or prior to July 2, 2023, so long as the remaining availability under the Revolver has equaled or

41

exceeded $15 million. Certain financial covenants, including a fixed charge coverage ratio and leverage ratio, become applicable only if unused remaining availability falls below $15 million. As of January 2, 2022, our unused remaining availability was $38.6 million and we were in compliance with applicable financial covenants of the Revolver and expect to be in compliance with applicable financial covenants over the next twelve months. The fixed charge coverage ratio financial covenant requires us to maintain a fixed charge coverage ratio of at least 1.1 to 1.0 on a rolling twelve-month basis. The fixed charge coverage ratio included in our credit agreement is defined as (A) earnings before interest, taxes, depreciation and amortization (“EBITDA”), less unfinanced capital expenditures, divided by (B) fixed charges, which are generally defined as cash interest and income taxes, scheduled principal payments on loans and contingent consideration arrangements, and restricted payments such as dividends. EBITDA, as defined, includes adjustments for such items as unusual gains or losses, equity-based compensation and management fees, as well as other adjustments. The leverage ratio financial covenant requires us to maintain a leverage ratio of no greater than 3.0 to 1.0 on a rolling twelve-month basis measured quarterly. The leverage ratio included in our credit agreement is defined as our funded indebtedness as of the measurement date divided by our EBITDA for the twelve-month period as of the measurement date.

The Revolver contains covenants, including restrictions on indebtedness, liens, mergers, consolidations, investments, acquisitions, disposition of assets, and transactions with affiliates. Dividends, redemptions and other payments on equity (restricted payments) are limited to (1) restricted payments to the loan parties, and (2) declaring and making dividend payments or other distributions payable solely in capital stock. Customary events of default (with customary grace periods, notice and cure periods and thresholds) include payment default, breach of representation in any material respect, breach of certain covenants, default to material indebtedness, bankruptcy, ERISA violations, material judgments, change in control and termination or invalidity of guaranty or security documents.

The Revolver is secured by a security interest in substantially all of our accounts receivable, inventory and equipment. In connection with the Revolver, we repaid all outstanding amounts owed under our Term Loan totaling $28.2 million of principal, accrued interest and prepayment penalties. Amounts owed under our Line of Credit totaling $2.8 million of principal and accrued interest were rolled over into the Revolver and our Line of Credit was discontinued.

Material Cash Requirements

Our material cash requirements from known contractual and other obligations primarily relate to 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 13.

•Capital lease commitments—Refer to Note 13.

•Sale leaseback obligation—Refer to Note 15.

•Tax obligations—Refer to Note 7.

•Other commitments and contingencies—Refer to Note 13.

Recent Accounting Developments

For information on new accounting pronouncements, see Note 3 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

JOBS Act

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.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with preparing our consolidated financial statements, 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 to be relevant at the time we prepare our consolidated financial statements. On a regular basis, management

42

reviews the accounting policies, assumptions, estimates and judgments to ensure that our 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 and inventory, share-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.

Revenue Recognition

Revenue is recognized either over time as work progresses using an output measure or at a point-in-time, depending upon contract-specific terms and the pattern of transfer of control of the product or service to the customer. Due to the nature of our contracts, there can be judgment involved in determining the performance obligations that are included in the related contract. We analyze each contract to conclude what enforceable rights and obligations exist between us and our customers. In doing so, we determine our unit of account by identifying the promises within the contract that are both (1) considered to be distinct and (2) distinct within the context of each contract.

Our performance obligations generally result in a custom product with no alternative use. This could result in over time revenue recognition to the extent there is an enforceable right to payment for work completed plus a reasonable margin. In some cases, our contracts may require judgment to conclude if this enforceable right to payment plus a reasonable margin is present and thus would result in over time revenue recognition. Generally, our contracts to provide wafers do not have an enforceable right to payment for cost plus a reasonable margin and therefore revenue from such contracts are recognized at a point in time. For a significant wafer services customer due to a change in contract terms, we began recognizing revenue under a bill and hold arrangement in fiscal 2021, whereby the customer requested and agreed to purchase product to be delivered at a later date. Under this arrangement, control transfers to the customer when the product is ready for delivery, which occurs upon completion of electrical testing, but prior to shipment to the location, and at the timing, designated by the customer. The product is separately identified as belonging to the customer, the product is ready for shipment to the customer in its current form, and we do not have the ability to direct the product to a different customer. Upon completion of electrical testing, we have the right to invoice the customer, the customer obtains legal title, and the customer has the significant risks and rewards of ownership. Our fixed price and time-and-materials contracts generally do not create an asset with alternative use, but we have an enforceable right to payment for performance completed to date plus a reasonable profit margin. For certain of our fixed price and time-and-materials contracts, the customer receives the benefits provided by our performance as we complete it. In both cases, the revenue from our fixed price and time-and-materials contracts are recognized over time as we perform.

For the majority of our fixed price contracts, revenue is recognized over time using an output method based on surveys of performance completed to date to satisfy our performance obligation. This can require judgment to determine the related measure of progress that will be assigned to the respective contract.

The terms of a contract and historical business practices can, but generally do not, give rise to variable consideration. We estimate variable consideration at the most likely amount we will receive from customers. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. In general, variable consideration in our contracts relates to the entire contract. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at contract inception and require judgment. We have no significant instances where variable consideration is constrained and not recorded at the initial time of sale. In addition, we have not experienced significant changes to our estimates and judgments related to variable consideration in our contracts.

If we make material changes to our assumptions, we may have cumulative catch-up adjustments to make in the financial statements related to revenue previously recognized. No material gross favorable or unfavorable changes to our material long-term contracts existed for fiscal 2021 or fiscal 2020.

Inventory

We produce inventory against specific customer purchase orders. Inventory is stated at the lower of cost or net realizable value, cost being determined under the first-in, first-out method. The total carrying value of our inventory is reduced for any difference between cost and estimated net realizable value, calculated as the estimated selling price less estimated costs of completion. Determining net realizable value of inventories involves significant judgments, including projecting future average selling price, future sales volumes, and estimated costs of completion.

When estimated net realizable values are below our manufacturing costs or excess, obsolete or unsellable inventory exists, we record a write-down to cost of revenue in advance of when inventories are actually sold. As a result, the timing of when product costs are charged to costs of goods sold can vary significantly. Once the carrying value of inventory is reduced, it is maintained until the product to which it relates to is sold or otherwise disposed of.

We also regularly review inventory quantities on hand to determine whether we are holding inventory that is excess, obsolete or unsellable based upon assumptions about future demand.

43

Although we manufacture against specific purchase orders, our customers may not be able to fulfill their contractual obligations. In fiscal 2021, we recorded a full inventory write-down of $13.4 million for inventory which we were contracted to manufacture for a specific customer. The customer's financing for its COVID-19 related business was not obtained and the customer was unable to meet it contractual payment obligations. We filed a claim against the customer for full payment and explored alternative sales channels, such as partnering with a customer, to sell the inventory. However, our sales efforts have not progressed. Given the nature of this arrangement and type of inventory, the valuation is uncertain and it is not probable we will recover the value of the inventory. The write-down of inventory manufactured for this specific customer is recorded separately in our consolidated statement of operations within cost of revenue. All other write-downs of our inventory are recorded within the caption Cost of revenue.

Income Taxes

In determining taxable income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expenses. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future taxable income, we develop assumptions regarding the reversal of temporary differences. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business.

We currently have recorded a valuation allowance that we will maintain until, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Our income tax expense recorded in the future may be reduced to the extent of a decrease in our valuation allowance. The realization of our remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income may require that we record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance could result in additional income tax expense in such period and could have a significant impact on our future earnings. Because the determination of the amount of deferred tax assets that can be realized is based, in part, on our forecast of future profitability, it is inherently uncertain and subjective. Changes in market conditions and our assumptions may cause the actual future profitability to differ materially from our current expectation, which may require us to increase or decrease the valuation allowance. As of January 2, 2022 and January 3, 2021, our net deferred tax assets (liabilities) prior to the valuation allowance were $8.8 million and $(6.4) million, respectively. The increase in the net deferred tax asset in fiscal 2021 was mainly due to additional temporary differences involving revenue recognition, inventory valuation and our generation of net operating loss carryforwards. Our valuation allowance as of January 2, 2022 and January 3, 2021, was $9.8 million and $1.6 million, respectively, and increased primarily due to the increase in the net deferred tax asset.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management records the effect of a tax rate or law change on our deferred tax assets and liabilities in the period of enactment. Future tax rate or law changes could have a material effect on our financial condition, results of operations or cash flows.

Long-lived Assets

We review long-lived assets, including property and equipment and intangible assets with definite lives, for impairment whenever events or changes in circumstances, known as triggering events, indicate that the asset's carrying amount may not be recoverable. Triggering events include, but are not limited to, reduced or expected sustained decreases in cash flows generated by an asset or asset group, negative changes in industry conditions, a significant change in a long-lived asset's use or physical condition and the introduction of competing technologies. For purposes of impairment testing, we group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not exceed the carrying value of the long-lived asset or asset group, the asset group is not recoverable and impairment is recognized to the extent the carrying amount exceeds the estimated fair value of the asset or asset group. The undiscounted cash flow analysis consists of estimating the future cash flows that are directly associated with, and are expected to arise from, the use and eventual disposition of the asset over its remaining useful life. These estimated discounted cash flows are inherently subjective and include significant assumptions, specifically the forecasted revenue, forecasted operating margins, and require estimates based upon historical experience and future expectations. Due to our history of operating losses and uncertainty with forecasts, we utilized third party appraisers to assess the estimated fair value of our long-lived asset group. The estimated fair value of our long-lived assets exceeded the carrying value. As such, we did not experience an impairment of our long-lived assets despite having triggering events during fiscal 2021 and fiscal 2020.

Appraisals utilize various approaches to determine fair value, including the income approach, the sales comparison approach and the cost approach. Each appraisal approach is inherently subjective and includes significant assumptions, specifically the comparability of similar properties or equipment, the potential income and expenses that would be derived or incurred to rent those long-lived assets, obsolescence factors, and capitalization and discount rates.

44

Non-GAAP Financial Measure

Our audited consolidated financial statements are prepared in accordance with U.S. GAAP. To supplement our audited consolidated financial statements presented in accordance with U.S. GAAP, an additional non-GAAP financial measure is provided and reconciled in the following table.

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 U.S. GAAP results. We use adjusted EBITDA to provide a baseline for analyzing trends in our business and to exclude 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 our non-GAAP measure is not determined in accordance with U.S. GAAP, it is 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 measure presented in this Annual Report on Form 10-K may not be directly comparable to similarly titled measures presented by other companies.

This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net income determined in accordance with U.S. GAAP.

Adjusted EBITDA

Adjusted EBITDA is not a financial measure determined in accordance with U.S. GAAP. 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 fair value changes in contingent consideration, fair value changes in warrants and management fees, inventory write-down, corporate conversion and IPO related costs, Paycheck Protection Program Loan forgiveness, SkyWater Florida start-up costs, net income attributable to non-controlling interests, and management transition expense.

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 listed above from net income in arriving at adjusted EBITDA because these amounts can vary substantially within our industry depending upon accounting methods and 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 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.

The following table presents a reconciliation of net income (loss) to adjusted EBITDA, our most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.

45

__________________

(1)Represents a full write-down for inventory which we were contracted to manufacture for a specific customer. See Note 16 – Inventory Write-down in the notes to our consolidated financial statements for additional information.

(2)Represents expenses directly associated with the corporate conversion and IPO, such as professional, consulting, legal and accounting services. This also includes bonus awards granted to employees upon the completion of the IPO. These expenses are not indicative of our ongoing costs and were discontinued following the completion of our initial public offering.

(3)Represents start-up costs associated with our 200 mm advanced packaging facility in Kissimmee, Florida, which includes legal fees, recruiting expenses, retention awards and facility start-up expenses. These expenses are not indicative of our ongoing costs and will be discontinued following completion of the start-up of SkyWater Florida.

(4)Represents expense for the departure of our former Chief Administrative Officer, which includes primarily severance benefits.

(5)Represents non-cash valuation adjustment of contingent consideration to fair market value during the period.

(6)Represents non-cash equity-based compensation expense.

(7)Represents non-cash valuation adjustment of warrants to fair market value during the period.

(8)Represents a related party transaction with Oxbow, our principal stockholder. As these fees are not part of the core business, will not continue after our IPO and are excluded from management’s assessment of the business, we believe it is useful to investors to view our results excluding these fees.

(9)Represents net income attributable to our VIE, which was formed for the purpose of purchasing our land and building with the proceeds of a bank loan. Since depreciation and interest expense are excluded from net loss in our adjusted EBITDA financial measure, we also exclude the net income attributable to the VIE.