Indie Semiconductor, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected cars, user experience, and electrification. It relies on outsourced manufacturing, with most subcontractors in Asia.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $25.8m | $9.2m | $47.8m | $17.3m |
| Gross profit / margin | $10.6m / 41.1% | $3.9m / 42.1% | $18.4m / 38.5% | $7.1m / 41.2% |
| Operating loss | $(30.0)m | $(18.5)m | $(64.3)m | $(26.6)m |
| Net income (loss), consolidated | $(5.3)m | $13.0m | $8.4m | $23.3m |
| Net income (loss) attributable to Indie | $(4.2)m | $6.1m | $6.6m | $17.0m |
| Cash from operations | Not separately presented for the quarter | $(36.9)m | $(22.1)m |
Revenue growth: Q2 revenue rose 181% year over year, led by higher product volumes, product mix and average selling prices, plus increased contract revenue from a large multi-year engineering project. Six-month revenue increased 176%. Research and development and selling, general and administrative costs also rose substantially as the company expanded product development, headcount and operations.
Liquidity and debt: Cash and cash equivalents were $163.7m at June 30, down from $219.1m at year-end 2021. Total debt was $18.0m, including a $10.0m Symeo promissory note due January 2023; current debt obligations were $13.2m. The $20m PacWest revolving facility had no outstanding balance. Management said existing cash, anticipated operating funds and available borrowing should cover working capital needs for at least 12 months.
Material changes and unusual items
- Operating loss widened despite strong revenue growth; gross margin fell to 41.1% for the quarter and 38.5% for the half-year.
- Reported net income included noncash gains from warrant remeasurement of $20.3m in Q2 and $67.7m for the six months. The warrant liability declined to $32.8m from $100.5m at year-end, largely reflecting a lower share price. These gains do not represent operating cash generation.
- A $3.6m Q2 gain on contingent consideration included reversal of approximately $3.9m of ON Design Israel milestone liabilities after the company replaced the product design tied to those milestones.
- Six-month investing cash use was $10.6m, including $8.7m for the Symeo acquisition, net of cash acquired. Financing activities used $7.8m, including acquisition-related and other payments.
- Adoption of lease accounting on January 1, 2022 added about $10.3m of right-of-use assets and lease liabilities. Foreign currency translation generated a $7.0m loss in other comprehensive income for the first half.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expects R&D and SG&A expenses to continue increasing, and expects ongoing net operating losses and negative operating cash flows.
- COVID-19-related supply constraints remain uncertain. Risks also include reliance on contract manufacturers and Asian supply chains, customer demand and design wins, competition, and macroeconomic and geopolitical conditions.
- Customer concentration is significant: one customer represented 39.2% of Q2 revenue and 43% of accounts receivable at June 30. Management warns that losing major customers could materially affect results.
- Material weaknesses in internal control over financial reporting remained unremediated at June 30, 2022; management concluded disclosure controls were not effective. Remediation includes adding finance resources, implementing an ERP system, engaging specialists and establishing internal audit. The company said remediation may extend into 2023.
- Acquisition purchase-price allocations remain preliminary and may change. Symeo includes a $10m note due in 2023 and a potential stock-based earn-out; other contingent acquisition payments also remain possible. The filing reports no material pending legal proceedings.
Important facts for investors to verify
- Whether revenue growth converts to improved gross margins and lower operating losses.
- How much reported earnings depend on noncash warrant and contingent-consideration revaluations versus core operations.
- Cash burn, working-capital needs, and capacity to meet near-term debt and acquisition obligations.
- Customer concentration, supply availability, and progress on product design wins and the multi-year engineering project.
- Progress and testing of internal-control remediation, and any updated conclusions on control effectiveness.