Indie Semiconductor, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
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, primarily in Asia. During the quarter, it integrated GEO Semiconductor and Silicon Radar, acquired in March and February 2023, respectively.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $52.1 | $25.8 | $92.6 | $47.8 |
| Gross profit / gross margin | $20.0 / 38.3% | $10.6 / 41.1% | $36.4 / 39.3% | $18.4 / 38.5% |
| Operating loss | $(40.7) | $(30.0) | $(77.7) | $(64.3) |
| Net income (loss), consolidated | $(13.6) | $(5.3) | $(95.5) | $8.4 |
| Net income (loss) attributable to indie | $(13.1) | $(4.2) | $(85.9) | $6.6 |
| Net loss per share attributable to indie, diluted | $(0.09) | $(0.04) | $(0.63) | $0.04 |
| Net cash used in operating activities | — | $(73.1) | $(36.9) |
Q2 revenue rose 102% year over year, led by higher product volume, product mix and average selling prices; contract revenue benefited from a large multi-year engineering project. First-half revenue increased 94%. Q2 gross margin declined from the prior-year quarter, while first-half margin improved modestly. R&D and SG&A rose as the company expanded staffing and product development and incurred acquisition-related amortization and costs.
Q2 net loss included a $25.0 million noncash gain from remeasuring warrant liabilities, partly offset by operating losses. For the first half, a $22.3 million noncash warrant remeasurement loss contributed to the reported loss; fair-value changes can substantially affect reported earnings.
Balance sheet and liquidity at June 30, 2023: Cash and cash equivalents were $180.7 million, down from $321.6 million at year-end 2022. Current assets were $279.5 million and current liabilities $104.1 million. Total debt carrying value was $159.9 million, including $160.0 million principal of 4.50% convertible notes due 2027 and a CIBC loan. Total stockholders’ equity was $385.2 million. Inventory increased to $40.9 million from $13.3 million at year-end.
First-half investing cash use was $105.0 million, including $98.4 million for acquisitions and $6.6 million of capital expenditures. Financing provided $35.7 million, mainly from $52.0 million of ATM equity proceeds, offset in part by debt repayments and financed-software payments. Cash declined by $141.2 million during the period.
Material changes and notable items
- GEO and Silicon Radar acquisitions expanded indie’s camera-processing and radar capabilities. The acquisitions added substantial goodwill and intangible assets; purchase price allocations remained preliminary at the filing date.
- The ATM program raised $53.1 million gross in the first half. At June 30, approximately $79.7 million remained available under its $150 million capacity.
- Warrant and acquisition-related contingent consideration liabilities are remeasured at fair value. The warrant liability was $67.7 million at June 30, versus $45.4 million at December 31, 2022.
- Customer A accounted for 14.5% of Q2 revenue and 14.8% of first-half revenue. Management states that losing major customers could materially affect results.
- Management expects R&D and SG&A to continue increasing with product-development activity, headcount and global expansion. It also expects operating losses and negative operating cash flows to continue.
Outlook, risks and controls
Management stated that existing cash, anticipated operating funds and available borrowing should meet working-capital needs for at least the next 12 months. No specific revenue or earnings guidance was provided. Management may seek additional equity or debt financing if anticipated liquidity proves insufficient.
Key risks include reliance on outsourced manufacturing and supply-chain capacity, competition and pricing pressure, dependence on design wins and customer acceptance, acquisition integration and realization of benefits, international and foreign-exchange exposure, and macroeconomic uncertainty. A substantial portion of product revenue is shipped to Asia. Acquisition earn-outs and holdbacks may require future cash or share payments; GEO earn-outs are tied to revenue milestones through 2024, and Silicon Radar earn-outs through 2025.
Management concluded disclosure controls were not effective at June 30, 2023 because previously reported material weaknesses in risk assessment of non-routine transactions and information controls persisted. Remediation is ongoing, and management did not state when it would be complete. The company also expected to lose emerging-growth-company status beginning December 31, 2023, with additional public-company disclosure requirements.
Important facts for investors to verify
- Whether product growth and gross margins persist as acquisition-related inventory step-up amortization and acquired intangible amortization affect costs.
- Cash burn, working-capital needs, and the assumptions behind management’s at-least-12-month liquidity assessment.
- Potential dilution from further ATM sales, convertible notes, warrants, acquisition earn-outs, holdbacks and equity awards.
- Progress integrating GEO and Silicon Radar, final purchase accounting, and performance against earn-out milestones.
- Remediation of the material weaknesses and the timing and implications of the expected change in filer status.