0001819974-25-000052
SEC filingSkyWater's Q3 2025 revenue surged 61% YoY to $150.7M, driven by the Fab 25 acquisition, but Legacy SkyWater revenue fell 32%.
SkyWater's third quarter of 2025 saw total revenue of $150.7 million, a 61% increase compared to $93.8 million in the third quarter of 2024. This growth was almost entirely attributable to the June 30, 2025 acquisition of Fab 25, which established the SkyWater Texas segment and contributed $86.6 million in wafer services revenue. Excluding this acquisition, Legacy SkyWater revenue declined 32% to $64.1 million, driven by a $27.0 million reduction in Tools revenue (as customer-funded capital investments completed) and a $2.2 million decrease in ATS development revenue, primarily from aerospace and defense end markets due to U.S. government policy shifts and delayed contract awards. Legacy SkyWater Wafer Services revenue also fell $0.5 million, mainly from lower demand from a key automotive customer.
Gross profit rose 79% to $36.2 million, and gross margin expanded to 24.0% from 21.6% in the prior year quarter. This margin improvement reflected favorable revenue mix from lower-margin tool sales, a $6.1 million release of a contract loss reserve in the prior year period (which reduced the current period's comparative base), and cost reductions in the Legacy SkyWater segment. Partially offsetting these benefits were higher costs from Fab 25 operations. Operating income increased 67% to $7.9 million, while net income attributable to SkyWater Technology, Inc. surged to $144.0 million from $1.5 million, primarily due to a $110.8 million bargain purchase gain recognized on the Fab 25 acquisition and a $27.5 million discrete tax benefit from releasing a valuation allowance against deferred tax assets. Adjusted EBITDA improved 135% to $25.8 million.
Legacy SkyWater revenue decreased 32% in Q3 2025. Within that segment, Tools revenue fell $27.0 million, ATS development revenue declined $2.2 million (impacted by defense spending headwinds, partially offset by $5.1 million growth in advanced compute), and Wafer Services revenue slipped $0.5 million. Despite the top-line decline, gross margin within the segment improved to 29.6% from 21.6%, reflecting the low-margin nature of Tools revenue and the prior year's loss reserve release. Net income for the segment was $26.5 million, largely due to the bargain purchase gain and tax benefit.
SkyWater Texas, the new segment from the Fab 25 acquisition, contributed $86.6 million in wafer services revenue (including $8.6 million in non-cash purchase accounting adjustments) and $17.3 million in gross profit (19.9% margin). Net income for this segment was $118.7 million, driven by the same bargain purchase gain and tax benefit.
Management's discussion focused on the strategic benefits of the Fab 25 acquisition, which enhances SkyWater's manufacturing capacity and positions it to serve the automotive industry. The company expects customer-funded capital investment to remain a significant growth driver, though the current period saw a decline in such investments. Government funding under the CHIPS Act (up to $16 million) and state incentives ($19 million) are delayed due to the U.S. government shutdown, and management cannot predict when these funds will be received. The company's liquidity position is supported by a $350.0 million revolving credit facility (amended in June 2025) with $65.0 million available as of September 28, 2025. Management expressed confidence that current liquidity and expected cash flows are sufficient to meet obligations for at least the next twelve months. Guidance on specific future revenue or earnings was not provided.
Cash and equivalents were not explicitly disclosed in the Notes, but the balance sheet shows $30.9M (not from Notes). Inventory totaled $36.0M, split between current ($20.3M) and non-current ($15.6M) spare parts. Remaining performance obligations on contracts with original durations over one year were $127.6M, expected to be satisfied within 4 years. Contract liabilities ballooned to $255.8M, driven by a $120.0M off-market component from the Fab 25 supply agreement recorded in purchase accounting.
The Company had $24.5M in outstanding capital expenditure commitments as of September 28, 2025, primarily for semiconductor tool purchases and installation, all expected to be paid within 12 months. Additionally, SkyWater has obligations under the Center for NeoVation lease, including $3.6M for water capacity charges payable through early 2028, and a matching contribution commitment of up to $9.1M for the Build Back Better grant, with $1,000 quarterly limits.
No share buybacks or dividends were disclosed. Debt details from Note 7 show the Revolver balance of $155.0M (classified as short-term due to lockbox), VIE financing of $33.8M, and tool financing loans of $8.5M. Total long-term debt (including current portion) was $40.4M. The Company financed the Fab 25 acquisition through the Revolver, increasing short-term borrowings. No explicit capex figure was provided in the Notes; the $24.5M commitment represents future spending.
As a result of the Fab 25 acquisition, SkyWater now operates two reportable segments: Legacy SkyWater and SkyWater Texas. For the three-month period ended September 28, 2025, Legacy SkyWater generated $64.1M in revenue (down 32% YoY) and an operating loss of $3.5M, while SkyWater Texas contributed $86.6M in revenue and $11.3M in operating income. Geographically, revenue was heavily concentrated in the United States ($144.7M of $150.7M total). Two customers accounted for 75% of revenue in the quarter.
Operating cash flow (CFO) of $7.1M was well below net income of $130.1M, primarily due to a $110.8M bargain purchase gain and $8.6M revenue from off-market supply agreement – both non-cash items. Excluding these, cash from operations was supported by $21.5M in D&A, $6.8M in stock compensation, and working capital inflows from contract liabilities (+$37.3M) and accounts payable (+$28.5M), partially offset by large outflows in accounts receivable/contract assets (-$38.6M) and prepaids (-$30.1M). Capex intensity increased significantly: capex of $18.2M (including $10.0M unpaid at period-end) plus $86.5M for the Fab 25 acquisition drove investing cash use to $107.0M. Financing activities provided $111.9M, mainly from net revolver borrowings ($120.7M) and sale-leaseback proceeds ($4.6M), offset by debt issuance costs ($10.1M) and distributions to noncontrolling interest ($2.9M). No share repurchases or dividends were paid. The negative free cash flow (CFO minus capex) of -$11.1M was funded by debt. Overall, cash generation from operations is weak relative to earnings quality, with heavy reliance on working capital and financing to support expansion.