Navitas Semiconductor Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Navitas designs GaN and SiC power semiconductors, silicon controllers, and digital isolators. It uses a fabless model, outsourcing manufacturing, assembly, and testing.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $22.0 million | $10.2 million | $53.4 million | $25.6 million |
| Gross profit / margin | $7.1 million / 32.3% | $0.4 million / 3.8% | $20.1 million / 37.6% | $6.9 million / 27.1% |
| Operating loss | $(28.6) million | $(37.4) million | $(91.3) million | $(92.4) million |
| Net income (loss) | $7.5 million | $(32.8) million | $(113.4) million | $80.8 million |
| Operating cash flow | Not stated separately | Not stated separately | $(17.4) million | $(35.5) million |
Q3 diluted earnings were $0.04 per share; nine-month diluted loss was $0.68 per share. Q3 net income included a $34.5 million gain from remeasuring earnout liabilities; the nine-month period included a $25.5 million earnout remeasurement loss. The comparable 2022 nine-month results also included $51.8 million in warrant fair-value gains and $112.2 million in earnout fair-value gains. These noncash items materially affect period-to-period net income.
At September 30, 2023, cash and cash equivalents were $176.7 million, current assets $214.7 million, and current liabilities $45.4 million. Total liabilities were $90.6 million, including a $38.6 million earnout liability; the term loan had been paid in full. The company reported no material off-balance-sheet arrangements. Nine-month investing cash use was $4.4 million and financing cash provided was $88.2 million, primarily from the May 2023 stock offering. The offering generated $86.5 million of net proceeds. Shares outstanding were 178.6 million at quarter-end, versus 153.6 million at December 31, 2022.
Changes and management commentary
- Revenue increased 115% in Q3 and 109% year to date, attributed to customer growth, a shift toward higher-volume customers, and GeneSiC acquisition revenue.
- Cost of revenue rose more slowly than revenue, but included a $2.0 million inventory reserve, primarily related to exiting product lines, and higher wafer costs after a TSMC price increase. R&D expense rose 44% in Q3 and 48% year to date; management expects it to continue increasing as the company expands into new applications.
- SG&A declined year over year, partly due to lower transaction costs and stock-based compensation. Management expects SG&A to increase as the business grows and public-company infrastructure expands.
- Management expects operating and capital expenditures to rise and anticipates continued operating losses and negative operating cash flow. It believes cash on hand is sufficient for operations, working capital, and capital expenditures for the foreseeable future; no quantified revenue or earnings guidance is provided.
Risks, contingencies, and unusual items
- Customer and geographic concentration: one distributor represented 53% of Q3 revenue and 58% of receivables at quarter-end. China accounted for 61% of Q3 revenue.
- Supply-chain exposure: the company relies on a single wafer foundry for GaN and a separate single foundry for SiC wafers, plus a limited number of suppliers and subcontractors; many are in Taiwan.
- Disclosure controls were deemed ineffective at September 30, 2023 because of unremediated material weaknesses, including insufficient technical accounting expertise and inadequate segregation of duties. Remediation was ongoing.
- Management highlighted potential foreign-investment review and restrictions, including CFIUS scrutiny, given the company’s GaN and SiC technologies and global operations, including China.
- The company reported no material pending legal proceedings and no material subsequent events through November 9, 2023. A potential GeneSiC earnout of up to $25 million was not achieved, and no liability was recorded.
Important facts for investors to verify
- Whether revenue growth and gross-margin improvement persist, and how much is attributable to acquired GeneSiC sales versus underlying demand.
- Cash burn, expected spending growth, and the adequacy of cash to fund operations without further financing or dilution.
- The effect of the Q3 inventory reserve, wafer-cost increases, and product-line exits on future margins and inventory.
- Progress in remediating material weaknesses and whether controls operate effectively for a sufficient period.
- Exposure to major distributors, China, and concentrated foundry and manufacturing suppliers, including relevant regulatory developments.
- The sensitivity of reported earnings and the $38.6 million earnout liability to changes in Navitas’s share price and valuation assumptions.