Indie Semiconductor, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited. Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected cars, user experience and electrification; it relies on outsourced manufacturing, largely in Asia.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $22.0 million | $8.1 million |
| Gross profit / gross margin | $7.8 million / 35.5% | $3.3 million / 40.2% |
| Operating loss | $34.3 million | $8.1 million |
| Net income attributable to Indie | $10.8 million | $10.8 million |
| Net cash used in operating activities | $15.7 million | $9.1 million |
| Cash, cash equivalents and restricted cash at quarter-end | $193.4 million | $8.9 million |
- Product revenue rose 142% to $18.1 million; contract revenue rose to $3.9 million, primarily reflecting a large non-recurring engineering project. Total revenue increased 171%, driven by higher product volumes, mix and average selling prices.
- Gross margin declined to 35.5%. Cost of goods sold increased 193%, including acquired-intangible amortization and higher product costs.
- Research and development expense rose to $29.5 million and selling, general and administrative expense to $12.6 million. Increases included hiring, share-based compensation and acquisition-related amortization.
- Reported net income included a $47.4 million noncash gain from the change in fair value of warrants. The company nevertheless recorded a $34.3 million operating loss. The prior-year comparison included a $19.1 million gain from remeasurement of SAFEs.
- Cash declined $26.1 million during the quarter. Operating cash outflow was $15.7 million; investing outflow was $9.3 million, mainly for the Symeo acquisition.
Financial position and material changes
- At March 31, cash and cash equivalents were $193.0 million; total current assets were $227.1 million and total assets $487.2 million.
- Total debt was $17.6 million, including a $10.0 million interest-free Symeo promissory note due January 2023. Current debt obligations were $12.3 million. The $20 million PacWest revolving facility had no outstanding balance; borrowing availability is subject to conditions and collateral requirements.
- Current liabilities were $57.0 million and total liabilities $170.0 million. The balance sheet also included $53.1 million of warrant liabilities, down from $100.5 million at year-end; the fair-value change generated the quarter’s warrant gain.
- Indie acquired Symeo in January 2022 for cash consideration, a promissory note and a potential share-based earn-out. Purchase-price allocations for recent acquisitions remained preliminary and could change.
- Indie adopted lease accounting standard ASC 842 on January 1, 2022, recognizing $12.7 million of lease liabilities at quarter-end.
Outlook, risks and unusual items
- Management said existing cash, anticipated operating funds and available revolving-credit borrowing should cover working capital needs for at least the next 12 months. It also expects continued operating losses and negative operating cash flows, with R&D, G&A and capital spending expected to increase. No quantified revenue or earnings guidance was provided.
- Management identified COVID-related semiconductor and supply-chain constraints as ongoing uncertainties. Other stated risks include reliance on outsourced manufacturing, trade restrictions, geopolitical instability, competition and the ability to win design selections.
- Customer concentration is significant: one customer generated 36% of Q1 revenue and represented 41% of quarter-end accounts receivable. Management said losing major customers could materially affect results.
- Management concluded disclosure controls and internal control over financial reporting were not effective at March 31, 2022, citing material weaknesses in staffing and accountability, risk assessment, information and communication, monitoring, and process-level controls. Remediation includes hiring and training, implementing an ERP system, engaging specialists and establishing internal audit; completion may extend into 2023.
- The filing cover page marks “No” for whether all required reports had been filed during the preceding 12 months. This status merits verification. The company reported no material legal proceedings and no material changes to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether the cover-page “No” response regarding prior required filings reflects a filing-compliance issue and, if so, its scope and status.
- Underlying operating performance apart from noncash warrant remeasurement gains, including gross-margin trends and cash burn.
- Customer concentration, supply availability and the timing and economics of contracted engineering work and remaining performance obligations.
- Acquisition integration, final purchase-price allocations, earn-out milestones and the Symeo note repayment due in 2023.
- Progress and testing of remediation actions for the material weaknesses in financial reporting controls.