Navitas Semiconductor Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial statement figures below are in millions unless otherwise noted. Navitas develops GaN power ICs and, following its August 15 acquisition of GeneSiC, also operates in SiC power devices. It uses a fabless manufacturing model.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $10.2 | $5.6 | $25.6 | $16.4 |
| Gross profit / margin | $0.4 / 3.8% | $2.6 / 46.2% | $6.9 / 27.1% | $7.4 / 45.3% |
| Operating expenses | $37.8 | $9.4 | $99.4 | $40.0 |
| Operating loss | $(37.4) | $(6.8) | $(92.4) | $(32.6) |
| Net income (loss) | $(32.8) | $(6.8) | $80.8 | $(32.8) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(35.5) | $(24.8) |
- Q3 revenue increased 82% year over year; management attributed growth to customer expansion, higher-volume customers and GeneSiC. Units shipped rose 19% to 7.1 million and average selling price increased 53% to $1.43.
- Nine-month revenue rose 56%; units shipped increased 26% to 22.0 million and average selling price rose 24.2% to $1.16.
- Despite revenue growth, gross profit fell in both comparison periods. Q3 cost of revenue included a $2.8 million inventory reserve, $0.5 million of acquisition-related inventory step-up expense, and higher wafer costs following a 20% TSMC price increase.
- Nine-month reported net income was driven by non-cash gains of $51.8 million from warrant remeasurement and $112.2 million from the decrease in earnout liability fair value. These gains outweighed the operating loss; they are not evidence of operating profitability. Q3 included a $6.1 million earnout remeasurement loss.
Balance sheet, cash flow and liquidity
- At September 30, cash and cash equivalents were $124.8 million, down $143.5 million from December 31, 2021. Current assets were $156.1 million and current liabilities $18.6 million.
- Operating cash use was $35.5 million for the first nine months, versus $24.8 million a year earlier. Investing cash use was $106.4 million, principally acquisitions; financing cash use was $1.5 million. Cash flow remained negative despite reported nine-month net income.
- Debt principal was $4.5 million, down from $6.9 million at year-end; $3.2 million was current and $1.3 million long-term. The term loan carried a 6.3% rate and matures in January 2024.
- Total assets were $443.2 million, including $160.3 million goodwill and $110.5 million net intangible assets, largely associated with acquisitions. Stockholders’ equity, including noncontrolling interest, was $382.1 million.
- Common shares issued and outstanding were 152.0 million at quarter-end, versus 117.8 million at December 31, 2021; 153.4 million Class A shares were outstanding November 10, 2022.
Material changes, outlook and risks
- Acquisitions: GeneSiC was acquired for preliminary total consideration of $246.2 million: $99.3 million cash, $146.3 million equity and contingent cash earnout fair-valued at $0.6 million, with up to $25 million potentially payable. The preliminary allocation includes $157.4 million goodwill and $110.1 million intangible assets and remains subject to measurement-period adjustments. Navitas also acquired VDDTech in June for approximately $1.9 million and consolidated a former joint venture in August.
- Costs and spending: Nine-month R&D increased 123% to $36.4 million and SG&A increased 166% to $63.0 million. Stock-based compensation was $52.1 million for the nine months; SG&A also included $7.7 million of GeneSiC transaction expenses and intangible amortization. Management expects R&D and SG&A to continue increasing as the business expands and integrates acquisitions.
- Liquidity outlook: Management expects continued operating losses and negative operating cash flow, with spending and capital needs increasing. It believes available cash is sufficient for operations, working capital and capital expenditures for the foreseeable future, but gives no specific revenue, earnings or cash-flow guidance. It notes further financing may be needed and cannot be assured on favorable terms.
- Key risks: GeneSiC integration and realizing expected benefits; reliance on a single foundry for GaN wafers and another for SiC, plus concentrated suppliers and manufacturing locations; customer and distributor concentration and cancellable orders; exposure to China; and execution in newer markets such as solar, data centers and EVs. Four distributors each accounted for at least 10% of revenue in at least one reported period.
- Controls and contingencies: Management concluded disclosure controls were not effective because of previously identified material weaknesses involving technical accounting expertise, staffing and segregation of duties. Remediation efforts include adding a controller, consultants and planned hires; weaknesses were not yet considered remediated. The filing reports no material pending legal proceedings and no material subsequent events through November 14, 2022.
Investor verification priorities
- Separate recurring product economics from acquisition effects, inventory reserves, wafer-cost increases and fair-value gains; assess the sustainability of gross margins.
- Review GeneSiC’s contribution to revenue and operating results, integration costs, final purchase-price allocation, and the likelihood and potential amount of its earnout.
- Reconcile reported nine-month net income with operating cash burn, acquisition spending and the remaining cash balance; evaluate liquidity against management’s rising expense expectations.
- Track dilution from acquisition shares, employee awards, earnout shares and other equity plans, and confirm subsequent share counts.
- Monitor progress in remediating internal-control material weaknesses and the impact of acquisition integration on financial reporting.