Indie Semiconductor, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Dollar amounts below are in millions unless otherwise stated. Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected cars, user experience, and electrification.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $40.5 | $22.0 | +84% |
| Product revenue | $33.7 | $18.1 | +86% |
| Contract revenue | $6.8 | $3.9 | +74% |
| Gross profit / gross margin | $16.4 / 40.5% | $7.8 / 35.5% | Margin +5.0 points |
| Operating loss | $(37.0) | $(34.3) | Loss widened $2.6 |
| Net income (loss), consolidated | $(82.0) | $13.7 | Decrease $95.7 |
| Net income (loss) attributable to indie | $(72.7) | $10.8 | EPS: $(0.55), versus $0.10 basic |
Revenue growth reflected higher product volume, changes in product mix and average selling prices, and recent acquisitions; contract revenue benefited from a multi-year engineering project. Cost of goods sold included $2.5 million of acquisition-related inventory step-up amortization. R&D rose 24% to $36.6 million, and SG&A rose 33% to $16.8 million.
The net loss included a $47.3 million noncash loss from remeasurement of warrant liabilities, versus a $47.4 million gain in Q1 2022. The warrant liability increased to $92.7 million from $45.4 million at year-end, primarily as the share price rose. Interest expense increased to $2.1 million, mainly due to the 2027 convertible notes; interest income was $2.4 million.
Cash flow, balance sheet, and liquidity
- Cash and cash equivalents were $207.4 million at March 31, down from $321.6 million at December 31, 2022. Operating cash use was $32.9 million, investing cash use was $101.6 million, and financing provided $21.1 million. Investing outflows included $98.4 million for acquisitions; financing inflows included $34.2 million from the ATM share offering.
- Current assets were $290.4 million and current liabilities $115.0 million; total assets were $793.6 million and total liabilities $435.4 million.
- Total debt carrying value was $160.6 million, including $160.0 million principal of 4.50% senior convertible notes due 2027. The notes are unsecured and potentially convertible into cash, shares, or both, at the company’s election.
- Management said existing cash, expected operating funds, and available revolving credit were expected to meet working capital needs for at least the next 12 months. The company also reported a $150 million ATM facility, with approximately $97.9 million remaining available at quarter-end.
Material changes, acquisitions, and outlook
- Indie completed its GEO Semiconductor acquisition on March 3 and Silicon Radar acquisition on February 21. The acquisitions added $141.8 million of goodwill and substantially increased intangible assets. Preliminary aggregate consideration included $93.4 million cash and $75.6 million of GEO shares issued at closing, plus GEO holdback shares and earn-outs; Silicon Radar consideration included $9.2 million cash, $9.8 million of shares, and contingent consideration.
- GEO earn-outs had a $63.1 million acquisition-date fair value and depend on revenue targets through September 2024; Silicon Radar contingent consideration had a $10.0 million fair value and depends on revenue targets through February 2025. Final purchase-price allocations remained preliminary and could change.
- Management expects continued operating losses and negative operating cash flow, with R&D, SG&A, and capital expenditures expected to increase as the business expands. It also expects R&D spending to rise with headcount and product development. No specific revenue or earnings guidance was provided in the filing.
- Risks include reliance on outsourced manufacturing and Asian supply chains, customer concentration (two customers represented 15.8% and 11.9% of Q1 revenue), competitive and design-win pressures, macroeconomic and foreign-exchange exposure, and acquisition integration and earn-out obligations. Approximately 65% of product revenue was shipped to customer locations in Asia.
Controls, contingencies, and unusual items
- Management concluded disclosure controls and procedures were not effective as of March 31, 2023 because previously reported material weaknesses in risk assessment for non-routine transactions and in information and process controls persisted. Remediation is ongoing; the acquisitions also required new consolidation and acquisition-accounting controls.
- The filing reports no material legal proceedings and no material changes to the risk factors in the 2022 Form 10-K. Acquisition-related fair-value remeasurements and warrant liability volatility materially affected reported earnings.
- Foreign currency translation resulted in a $2.2 million comprehensive loss in Q1 2023. The company held $4.0 million of currency forward contracts to sell U.S. dollars and buy Canadian dollars.
Important facts for investors to verify
- Whether revenue growth converts into improving gross margins, operating performance, and operating cash flow.
- Cash burn, acquisition integration, and the company’s ability to fund operations without additional equity or debt financing.
- Final acquisition purchase-price allocations and the magnitude and settlement form of earn-outs, holdbacks, and other contingent obligations.
- Potential dilution from ATM sales, acquisition shares, convertible notes, warrants, and other equity-linked obligations.
- Progress and effectiveness of remediation for the disclosed material weaknesses in internal controls.
- Customer concentration and exposure to Asian manufacturing, customers, and supply-chain conditions.