Mobix Labs, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2024. Financial figures below are in thousands of dollars unless stated otherwise. The filing was signed May 15, 2024.
Business context
Mobix Labs develops wireless mmWave 5G and C-Band semiconductor products and sells connectivity and electromagnetic-interference filtering products for high-reliability markets. The December 2023 reverse merger brought the company public and raised $21.0 million gross, including a $19.75 million PIPE. The company also acquired EMI Solutions in December 2023; its results are included from the acquisition date.
Financial results
| Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Six months ended March 31, 2024 | Six months ended March 31, 2023 |
|---|---|---|---|---|
| Revenue | $1,145 | $32 | $1,430 | $711 |
| Gross profit (loss) | $193 | $(177) | $149 | $(192) |
| Operating loss | $(8,562) | $(11,839) | $(25,831) | $(21,065) |
| Net loss | $(1,753) | $(13,142) | $(818) | $(22,532) |
| Net loss per share, basic / diluted | $(0.09) / $(0.21) | $(0.94) / $(0.94) | $(0.06) / $(0.10) | $(1.71) / $(1.71) |
Gross margins, calculated from reported revenue and cost of revenue, were approximately 17% for the quarter and 10% for the six-month period. Revenue growth reflected EMI filtering sales and, in the quarter, higher active optical cable sales versus a very low prior-year quarter. For the six months, lower active optical cable sales partly offset EMI revenue; management attributed the decrease to reduced demand from its largest customer.
Quarterly operating loss narrowed year over year as research and development and SG&A expenses fell. Six-month operating loss widened, including higher SG&A and merger-related costs. The much smaller reported net loss reflects, in substantial part, non-cash fair-value gains on the earnout liability ($29.9 million for six months) and PIPE make-whole liability ($0.4 million), plus a $1.3 million tax benefit. These items do not indicate improved operating cash generation.
Stock-based compensation was $14.1 million for the six months, including a merger-related catch-up charge for awards. The filing reports $33.9 million of unrecognized RSU compensation expense at March 31, 2024.
Cash flow, debt and liquidity
- Six-month operating cash outflow was $11.7 million; investing cash outflow was $1.2 million, principally related to the EMI acquisition; financing provided $15.7 million.
- Cash was $3.0 million at March 31, 2024, compared with $89,000 at September 30, 2023. Current assets were $4.4 million and current liabilities $18.0 million, a $13.6 million working-capital deficit.
- Total debt was $3.2 million, all classified as current. This includes $2.8 million of 7% related-party notes that had matured in July 2023 and remained due, and $400,000 of other notes payable. The company also reported $1.6 million of deferred EMI purchase consideration, payable through June 2025.
- Management stated that available liquidity was insufficient to meet operating needs and obligations beyond approximately 90 days, and concluded substantial doubt existed about the company’s ability to continue as a going concern. It expects continued operating losses and negative operating cash flows and says it needs additional financing.
Material changes, outlook and risks
- Cost reductions: The company reduced headcount by approximately 35% in January 2024 after earlier furloughs, and reduced outside services and discretionary spending. Management linked lower R&D costs to these actions.
- Financing and dilution: A March 2024 committed equity facility gives Mobix the option, subject to conditions and limits, to sell up to 9.5 million Class A shares to B. Riley at a 3% discount to the applicable VWAP. No shares had been sold by March 31. The $1.5 million commitment fee and related fees were expensed; proceeds are uncertain and depend on sales and market conditions.
- Acquisition subsequent to quarter-end: On May 8, 2024, Mobix agreed to acquire RaGE Systems for stated consideration of $12 million, including $10 million in stock and $2 million in cash, plus potential earnouts of up to $8 million. Closing remains subject to conditions, including due diligence.
- Supply chain and margins: Management said reliance on higher-cost manufacturers, shipping and components has weighed on gross margin, with continued impact expected. Inflation, offshore supplier dependence and geopolitical or trade disruption are identified risks.
- Customer concentration: One customer represented 26% of quarterly revenue; three customers represented 48% of six-month revenue. Two customers accounted for 48% of accounts receivable at quarter-end.
- Controls and reporting: Management concluded disclosure controls were not effective due to multiple material weaknesses in accounting staffing, risk assessment, transaction accounting, financial close and IT general controls. A remediation plan is underway, but the weaknesses were not yet remediated.
- Contingency: A law firm lawsuit seeks approximately $700,000 in fees relating to the Cosemi acquisition. Mobix intends to defend the claim and says the amount is recorded in accounts payable; it cannot predict the outcome.
- The filing provides no quantified revenue or earnings guidance. Management’s stated outlook includes continued losses and negative cash flows; it cautions that results depend on financing, product demand, customer qualification, manufacturing capacity and successful execution of acquisitions and cost measures.
Important facts for investors to verify
- Whether Mobix secures enough financing to address the stated roughly 90-day liquidity concern, and the actual availability, terms and dilution from the B. Riley facility.
- Repayment status and terms for the overdue $2.8 million related-party notes and other current obligations.
- Whether revenue growth is sustainable, given customer concentration, lower six-month AOC sales and continuing cost pressures on gross margin.
- Actual cash requirements, integration results and final purchase accounting for EMI Solutions, and closing, consideration and earnout terms for the proposed RaGE acquisition.
- Progress in remediating material weaknesses, including whether new controls operate effectively and whether further financial statement adjustments are required.