Indie Semiconductor, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in millions of dollars unless stated otherwise. Indie develops automotive semiconductors and software for ADAS, LiDAR, connected-car, user-experience and electrification applications. The company relies on outsourced manufacturing, primarily in Asia.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $9.2 | $3.7 | $17.3 | $8.4 |
| Gross profit / margin | $3.9 / 42.1% | $1.5 / 40.7% | $7.1 / 41.2% | $3.3 / 39.3% |
| Operating loss | $(18.5) | $(4.6) | $(26.6) | $(9.2) |
| Net income (loss), consolidated | $13.0 | $(7.0) | $23.3 | $(12.4) |
| Net income (loss) attributable to Indie | $6.1 | $(6.9) | $17.0 | $(12.0) |
| Cash used in operating activities | Not separately stated | Not separately stated | $(22.1) | $(10.7) |
Revenue rose 148% in Q2 and 107% in the first half, primarily on higher product volumes, with product mix and average selling price also contributing. Operating expenses grew faster than revenue, notably R&D and selling, general and administrative costs. Approximate gross margins above are calculated from reported revenue and cost of goods sold.
Reported net income included substantial noncash fair-value gains: $2.5 million on SAFEs, $11.3 million on warrants and $17.8 million on earn-out liabilities in Q2; first-half gains were $21.6 million, $11.3 million and $17.8 million, respectively. These gains did not represent operating profitability. The six-month diluted loss per share was $(0.10), versus basic earnings per share of $0.43, reflecting the filing’s dilution calculation, including SAFE-related adjustments.
- Cash and liquidity: Cash and cash equivalents were $354.2 million at June 30, versus $18.7 million at December 31, 2020. The June 10 business combination generated substantial financing proceeds; the filing reports $377.7 million of net cash acquired in financing cash flows and approximately $354.9 million of net cash proceeds in MD&A.
- Debt: Total debt was $2.3 million at quarter-end, all current, compared with $20.8 million at year-end. The Trinity term loan was repaid and the PPP loan was forgiven; the remaining balance included a $1.7 million revolving credit line and $0.6 million of short-term loans. The filing states long-term debt was paid off.
- Balance sheet: Total assets were $386.0 million and total stockholders’ equity was $180.0 million. Warrant and earn-out liabilities were $63.1 million and $101.8 million, respectively.
Material changes and significant events
- On June 10, 2021, Indie completed its reverse recapitalization with Thunder Bridge Acquisition II and began trading on Nasdaq as INDI. The transaction included a $150 million PIPE. The company recorded approximately $44.5 million in transaction costs; about $29.8 million had been paid by June 30, with the remainder expected in Q3.
- Indie’s cash increased substantially and it repaid its Trinity term loan. SAFEs converted into equity at the transaction closing; their fair-value remeasurement gains will not recur after conversion.
- Share-based compensation of approximately $8.0 million was recognized in the first half, including charges associated with the transaction. Unrecognized compensation cost was $19.5 million at June 30.
- Revenue remained concentrated: one customer accounted for 38.5% of Q2 revenue and 45.8% of first-half revenue. Approximately 66% of first-half product revenue was from shipments to customers in Asia.
Outlook, risks and controls
- No specific revenue or earnings guidance is provided. Management expects operating expenses and capital expenditures to increase as it expands R&D, headcount, product offerings and public-company infrastructure. It also expects continuing operating losses and negative operating cash flow.
- Management reported automotive semiconductor shortages and supply constraints, extended lead times, higher production and expedite costs, and delays in meeting customer demand. The company placed orders based on anticipated demand to seek production capacity, but the duration and effect of constraints remain uncertain.
- Other identified risks include COVID-19 effects, reliance on contract manufacturers and outsourced supply chains, customer concentration, competitive pricing and design-win execution, and geopolitical and trade uncertainty.
- Disclosure controls were deemed ineffective as of June 30 because of unremediated material weaknesses related to segregation of accounting duties. Management added finance personnel and began evaluating a new ERP system; remediation and testing were ongoing.
- The company reported no material legal proceedings and no material changes to the risk factors disclosed in its July 2021 Form S-1.
Important facts for investors to verify
- Whether revenue growth converts into improved operating results and operating cash flow, given the continuing operating losses and rising expenses.
- Whether supply constraints ease and Indie can obtain manufacturing capacity to meet customer demand without materially higher costs or delivery delays.
- The sustainability of liquidity after remaining transaction costs, planned investment and continued cash burn; also confirm the status and terms of the remaining revolving credit line and short-term loans.
- The potential dilution and earnings volatility from warrants, earn-out shares, escrow shares, equity awards and the ADK LLC minority-interest exchange rights.
- Progress in remediating the material weakness and establishing effective disclosure and financial-reporting controls.