Navitas Semiconductor Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Financial figures are in millions of dollars unless otherwise noted. Navitas designs GaN power ICs and uses a fabless manufacturing model; its products were primarily used in mobile-device chargers. Comparisons are with 2021, before the October 2021 business combination.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $8.6 | $5.5 | $15.4 | $10.8 |
| Gross profit | $3.6 | $2.5 | $6.5 | $4.8 |
| Gross margin | 41.6% | 45.5% | 42.7% | 44.9% |
| Operating expenses | $23.6 | $21.1 | $61.6 | $30.7 |
| Operating loss | $(20.0) | $(18.6) | $(55.0) | $(25.8) |
| Net income (loss) | $33.8 | $(18.7) | $113.6 | $(26.0) |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $(18.4) | $(13.8) |
Q2 diluted earnings were $0.26 per share; six-month diluted earnings were $0.87 per share. The reported profits were substantially affected by noncash gains from changes in fair value of earnout and warrant liabilities: $54.9 million in Q2 and $170.0 million combined for the six months. Excluding these gains, the company remained loss-making at the operating level.
Q2 revenue rose 58%; management attributed growth to higher customer volumes and average selling price. Units shipped increased 26% to 7.3 million and average selling price rose 11% to $1.06. For the six months, revenue rose 43%, with units shipped up 29% to 14.8 million and average selling price approximately flat at $0.94. Gross margin declined in both comparisons; management cited a 20% wafer-price increase from TSMC alongside revenue growth.
Financial position and cash flows
- Cash and cash equivalents were $240.5 million at June 30, down $27.7 million from year-end 2021. Total assets were $286.3 million and stockholders’ equity was $246.9 million.
- Debt principal was $5.3 million, including $3.2 million current; the loan bears 5.5% interest and matures January 2024. Operating lease liabilities totaled approximately $7.0 million.
- For the first six months, investing cash use was $8.1 million, including $5.2 million invested in a joint venture and $2.3 million for property and equipment. Financing cash use was $1.3 million, mainly debt payments and share repurchases.
- Stock-based compensation expense was $36.4 million for the six months, including $25.8 million in selling, general and administrative expense and $10.5 million in R&D.
Changes, outlook, and notable items
- Operating expenses increased 12% in Q2 and 101% for the six months year over year. R&D rose as the company expanded engineering and development for solar, enterprise and EV applications; management expects R&D and SG&A to continue increasing with growth and public-company costs.
- Management expects operating losses and negative operating cash flow to continue, with expenses and capital needs rising. It said the $240.5 million cash balance was sufficient to fund operations, working capital and capital expenditures for the foreseeable future. No specific revenue or earnings guidance was provided.
- Navitas acquired Belgian digital-isolator developer VDDTech on June 10 for approximately $1.9 million in cash and stock; its contribution to reported results was not material.
- After quarter-end, on August 15, Navitas acquired GeneSiC for $100 million cash and 24.9 million shares, with possible earn-out payments up to $25 million tied to revenue targets. Purchase accounting was not yet complete. The filing identifies integration and execution risks.
- The company redeemed its public and private warrants in March 2022. The related fair-value gains, together with the earnout-liability remeasurement gain, materially boosted reported net income; these are not operating revenue or cash earnings.
Risks and controls
- Revenue is concentrated among distributors and customers; several distributors individually accounted for at least 10% of Q2 revenue. The company also relies on a single GaN wafer foundry and a limited supplier base, with significant manufacturing and supply-chain exposure in Taiwan and Asia.
- Demand depends on design wins and adoption beyond mobile charging, including consumer electronics, data centers, solar and EV. Orders may be cancelled or rescheduled, and wafer cost increases, supply disruption, China-related developments and competition could affect results.
- Management reported that disclosure controls were not effective because of material weaknesses in internal controls, including insufficient technical accounting expertise and inadequate segregation of duties. New accounting personnel were hired, but weaknesses were not yet considered remediated.
- The company maintains a valuation allowance against deferred tax assets and notes potential U.S./Ireland tax-residency exposure. It reported no material pending legal proceedings and no material off-balance-sheet arrangements.
Investor verification priorities
- Assess underlying operating performance and cash burn separately from the $170.0 million six-month noncash fair-value gains.
- Track gross margin, wafer pricing, customer and distributor concentration, and dependence on the single wafer foundry.
- Verify whether R&D and SG&A growth translates into design wins, production launches and revenue diversification beyond mobile chargers.
- Monitor liquidity and cash use after the GeneSiC acquisition, including its cash consideration, share dilution, earn-out terms and integration costs.
- Check progress toward remediating internal-control material weaknesses and completing GeneSiC purchase accounting.