Mobix Labs, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended December 31, 2023. Unless otherwise stated, amounts below are in U.S. dollars and millions. The company is a fabless semiconductor and connectivity business serving communications, aerospace, military and high-reliability markets.
Financial performance and liquidity
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Revenue | $0.285 | $0.679 |
| Gross profit (loss) | $(0.044) | $(0.015) |
| Operating loss | $(17.269) | $(9.226) |
| Net income (loss) | $0.935 | $(9.390) |
| Net cash used in operations | $(3.596) | $(5.472) |
- Revenue fell 58%, principally because connectivity sales to the largest customer declined; $0.068 million of revenue came from EMI after its December 18 acquisition. Gross margin was approximately negative 15%.
- Reported net income did not reflect operating profitability: it included a $24.764 million noncash gain from revaluing the earnout liability and a $1.280 million income-tax benefit. The company still reported a $17.269 million operating loss.
- SG&A rose 170% to $15.663 million, including $12.705 million of stock-based compensation, of which $10.858 million related to merger-contingent awards. Merger-related costs expensed were $4.009 million. R&D fell 54% to $1.562 million amid cost reductions.
- Cash was $14.796 million at quarter-end, up from $0.089 million, chiefly reflecting merger and PIPE financing. Financing provided $18.418 million; operating activities used $3.596 million.
- Working capital remained in deficit at $5.575 million. Total liabilities were $37.090 million; all $4.952 million of reported debt was current. This excludes lease obligations, which totaled $1.521 million.
Material changes and transactions
- The December 21 merger with Chavant was accounted for as a reverse recapitalization. The company received $21.014 million in gross merger and PIPE proceeds and began Nasdaq trading as MOBX and MOBXW.
- Mobix acquired EMI Solutions on December 18 for consideration valued at $10.897 million, including $8.856 million in shares and cash consideration. The acquisition added $6.4 million of customer-relationship, backlog and trade-name intangibles and $5.542 million of goodwill; acquired EMI revenue in the quarter was not material.
- Intangible assets increased to $11.550 million and goodwill to $10.759 million, mainly due to EMI. The quarter also included $12.705 million of stock-based compensation, compared with $3.856 million a year earlier.
Outlook, risks and unusual items
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern: it expects ongoing operating losses and negative operating cash flows and says it lacks adequate liquidity for at least 12 months from issuance of the financial statements. Additional financing is needed; availability and terms are uncertain and equity financing could dilute shareholders.
- Management expects semiconductor product sales to begin in calendar 2025, subject to obtaining additional capital. The filing provides no numerical revenue or earnings guidance.
- Management cited supply-chain constraints, higher-cost manufacturing alternatives and inflation as continuing pressure on connectivity margins. The company also reported reduced demand from its largest customer; two customers represented 67% of quarterly revenue.
- In January 2024, the company permanently reduced headcount by approximately 35%, comprising employees previously furloughed. A 7% related-party promissory-note balance of $3.349 million was past due at quarter-end. Certain other notes were repaid in January or February 2024.
- Earnout and PIPE make-whole liabilities totaled $13.770 million at quarter-end and are expected to be settled in shares, not cash. Their fair values can change materially with the stock price. Outstanding warrants, make-whole shares, earnout shares and equity awards create potential dilution.
- Disclosure controls were deemed ineffective due to material weaknesses in accounting staffing, risk assessment, transaction accounting, financial-close and IT controls. The filing says adjustments were made to the interim statements, and management has begun a remediation plan.
- A law firm is seeking approximately $0.7 million in legal fees related to the Cosemi acquisition; the amount is recorded in accounts payable. The company intends to defend the matter and pursue separate arbitration. Management does not expect a material impact.
Key investor verification points
- Whether new financing is secured, its terms and the resulting cash runway, given management’s going-concern warning.
- Revenue trends, order visibility and customer concentration, particularly demand from the largest connectivity customer.
- EMI integration, performance and cash purchase obligations, including deferred consideration.
- Progress in remediating material weaknesses and the reliability of future financial reporting.
- Debt repayment status, especially the past-due related-party notes, and any new borrowing terms.
- Potential dilution and earnings volatility from warrants, equity awards, earnout and make-whole provisions.