Indie Semiconductor, Inc. annual report, FY2022

Indie Semiconductor, Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. Unless noted, amounts below are in U.S. dollars.

Business context

Indie develops automotive semiconductors and software for ADAS and autonomous driving, in-cabin systems, connected vehicles, and electrification. It sells primarily to automotive Tier 1 suppliers and relies on third parties for most manufacturing, assembly, and testing. The company reported more than 600 employees and one reportable operating segment.

Financial results and liquidity

MetricFY2022FY2021
Revenue$110.8 million$48.4 million
Product revenue$89.5 million$43.8 million
Contract revenue$21.3 million$4.6 million
Gross profit / gross margin$50.3 million / 45.4%$19.7 million / 40.7%
Operating loss$(119.1) million$(74.8) million
Net loss$(52.8) million$(118.6) million
Net loss attributable to indie$(43.4) million$(88.0) million
Net loss per share, basic and diluted$(0.37)$(1.26)
Cash used in operating activities$(76.7) million$(55.8) million
Cash and cash equivalents at year-end$321.6 million$219.1 million

Revenue increased 129%, reflecting higher product volumes, product mix and average selling prices, and a multi-year engineering project for a major customer. Gross margin improved, but operating loss widened as research and development spending rose 109% to $121.2 million—109% of revenue—and total operating expenses rose 87% to $229.9 million. Net loss narrowed substantially, chiefly because of non-cash fair-value gains, including a $55.1 million gain on warrants and a $9.5 million gain on contingent considerations; these gains do not indicate improved operating profitability.

At December 31, 2022, current assets were $373.9 million and current liabilities $64.0 million. Total liabilities were $289.0 million, including debt with a carrying value of $171.4 million; debt principal outstanding was $176.7 million. The balance sheet also included a $45.4 million warrant liability. Cash provided by financing activities was $192.7 million, including proceeds from convertible notes, the Wuxi capital raise, and the ATM equity offering.

Material changes and significant transactions

  • In November 2022, indie issued $160 million principal amount of 4.50% convertible senior notes due 2027. The initial conversion price was approximately $8.65 per share. The notes are senior unsecured obligations of indie and structurally junior to subsidiary liabilities.
  • The company sold 2.13 million Class A shares through its ATM program for $17.2 million gross proceeds, with approximately $132.8 million of offering capacity remaining at year-end.
  • Indie repurchased 1.11 million shares for $7.4 million at an average $6.65 per share under a board-authorized program of up to $50 million.
  • Wuxi raised approximately $42 million by issuing an equity interest to investors. Indie’s ownership fell from 45% to 38%, while it retained control and continued consolidating Wuxi. The agreement includes liquidation preferences and potential conversion into up to 6 million indie shares if Wuxi does not complete an IPO by December 31, 2027.
  • After year-end, indie repaid the $10 million Symeo promissory note in January 2023, acquired Silicon Radar for $9 million cash, about 980,000 shares and contingent consideration in February, and completed the GEO acquisition in March for $90 million cash, $90 million in shares and up to $90 million contingent on revenue targets.

Outlook, risks and unusual items

  • Management expects operating losses and negative operating cash flow to continue, with R&D, general and administrative expenses, and capital expenditures expected to increase. It believes existing cash, anticipated operating cash generation and available borrowing will meet working-capital needs for at least 12 months; the PacWest revolving line had expired and was not renewed.
  • As of year-end, $32.2 million of remaining engineering-service performance obligations had not been recognized as revenue; approximately 70% was expected to be recognized over the next 12 months. This is not a guarantee of product sales or profit.
  • Customer concentration is material: Aptiv represented 36.9% of FY2022 revenue, versus 39.0% in FY2021, and 38% of year-end accounts receivable. Greater China represented $44.0 million of FY2022 revenue by customer shipping location; 54% of product revenue was shipped to Asia.
  • Key risks include automotive and semiconductor cyclicality, price pressure, customer design-win and order uncertainty, dependence on outsourced manufacturing and constrained supply, geographic and customer concentration, acquisition integration and financing, dilution, foreign-exchange exposure, and China-related regulatory and remittance uncertainty.
  • Management identified material weaknesses in financial-reporting controls, including risk assessment for acquisitions and other non-routine transactions, IT/general and user-access controls, spreadsheet processes, and related process-level controls. Disclosure controls and procedures were concluded to be ineffective at year-end. Remediation was ongoing; KPMG did not audit or express an opinion on internal-control effectiveness.
  • KPMG issued an unqualified opinion on the consolidated financial statements. There were no material legal proceedings reported. The company adopted the lease standard in 2022, recognizing right-of-use assets and lease liabilities; the reported operating impact was not material.

Important facts for investors to verify

  • Whether revenue growth converts to improved operating margins and whether continued R&D spending produces commercial launches and profitable design wins.
  • Cash burn, post-year-end acquisition funding and contingent payments, and the ability to service or settle the 2027 notes without excessive dilution or pressure on liquidity.
  • Aptiv’s share of revenue and receivables, as well as the geographic concentration of shipments and exposure to China-related risks.
  • Progress and independent evidence of remediation of the disclosed material weaknesses, including whether controls operate effectively for a sufficient period.
  • Integration results and purchase accounting for GEO and Silicon Radar, and the terms and potential share impact of acquisition earn-outs and the Wuxi investor conversion provision.