Indie Semiconductor, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected cars, in-cabin user experience and electrification. It relies on outsourced manufacturing, with most subcontractors in Asia. The June 10, 2021 reverse recapitalization with Thunder Bridge Acquisition II brought Indie public; historical financials continue to reflect Indie’s predecessor for accounting purposes.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $12.2 | $7.6 | $29.5 | $16.0 |
| Product revenue | $11.1 | $5.7 | $27.5 | $13.3 |
| Gross profit / margin | $5.2 / 43.0% | $3.9 / 51.7% | $12.4 / 41.9% | $7.2 / 45.2% |
| Operating loss | $(21.3) | $(3.2) | $(47.9) | $(12.3) |
| Net loss | $(108.2) | $(22.2) | $(84.8) | $(34.5) |
| Net loss attributable to Indie | $(79.6) | $(22.0) | $(62.7) | $(33.9) |
| Operating cash flow | Not separately presented | Not separately presented | $(36.9) | $(14.5) |
Q3 diluted loss per share was $0.83, versus $0.70 a year earlier; nine-month diluted loss per share was $1.07, versus $1.09. At September 30, cash and cash equivalents were $323.9 million, total current assets were $341.9 million and current liabilities were $16.8 million. Total debt was $2.3 million, all current; long-term debt was zero. Stockholders’ equity was $79.3 million.
Nine-month investing cash outflow was $2.5 million and financing cash inflow was $344.3 million, principally reflecting the reverse recapitalization. Cash increased by $305.2 million from year-end 2020. The filing reports approximately $341.3 million of net cash proceeds from the transaction in MD&A.
Changes versus prior comparable periods
- Revenue rose 60% in Q3 and 85% for the first nine months, primarily from higher product volumes; Q3 product mix and average selling prices also contributed. Contract revenue declined as a significant prior-year project was completed.
- Gross margin contracted year over year in both periods. Management attributed higher cost of goods sold to increased shipments and material costs, partly offset by product mix.
- Research and development and selling, general and administrative expenses rose substantially, reflecting added personnel and development activity, share-based compensation, acquisition-related costs and the costs of being a public company.
- Q3 net loss included $40.4 million of warrant remeasurement loss and $45.5 million of earn-out liability remeasurement loss. These fair-value charges were noncash. For the nine months, warrant and earn-out remeasurement losses were partly offset by a $21.6 million SAFE remeasurement gain.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management expects continued operating losses and negative operating cash flows, and expects R&D, G&A and capital expenditures to increase as the company expands. It also expects R&D and G&A costs to rise with acquisitions and staffing growth.
- Management cited automotive semiconductor shortages and supply constraints, extended lead times, higher production and expedite costs, and potential delays in meeting demand. COVID-19 impacts remain uncertain; the company placed orders based on anticipated demand to seek manufacturing capacity.
- Customer and geographic concentration are notable: one customer represented 25.7% of Q3 revenue and 39.3% of nine-month revenue; Greater China accounted for $7.6 million of Q3 revenue and $17.8 million for nine months. Management says loss of major customers could materially affect results.
- At September 30, warrant liabilities were $103.5 million and earn-out liabilities were $147.3 million, both subject to fair-value remeasurement. Neither earn-out milestone had been achieved by quarter-end; the filing says the first milestone was achieved on November 9, 2021.
- Subsequent acquisitions: TeraXion closed October 12 for approximately $80 million cash, 5.8 million Indie shares and assumed options; ON Design Israel closed October 1 for $5 million upfront, with additional cash consideration possible; the proposed Symeo acquisition was pending German government approval and included cash payments and a potential equity earn-out.
- Disclosure controls were deemed ineffective because of an unremediated material weakness involving segregation of accounting duties. Management added finance staff and began evaluating a new ERP system, but remediation and effectiveness testing were ongoing.
- On November 5, the company amended its PacWest facility: maximum revolving capacity increased to $20 million, maturity extended to November 4, 2022, and interest reduced to 2.1%. Borrowings require cash collateral equal to 102.5% of the drawn amount.
Important facts for investors to verify
- Whether revenue growth can be sustained while gross margins recover, given material costs and manufacturing constraints.
- Actual operating cash burn, acquisition-related cash needs and the cash available after subsequent acquisitions and other commitments.
- The dilution and potential accounting volatility associated with warrants, earn-outs, escrow shares, equity awards and acquisition consideration.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- Customer concentration, Asia-related supply exposure and the financial and integration outcomes of the recent acquisitions.