Indie Semiconductor, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; dollar amounts below are in millions unless stated otherwise. Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected-car, user-experience and electrification applications.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $60.5 | $30.0 | $153.0 | $77.8 |
| Product revenue | $53.4 | $24.4 | $132.5 | $63.0 |
| Contract revenue | $7.1 | $5.6 | $20.6 | $14.8 |
| Gross profit / margin | $25.3 / 41.8% | $15.0 / 50.1% | $61.7 / 40.3% | $33.4 / 43.0% |
| Operating loss | $(36.1) | $(25.9) | $(113.9) | $(90.2) |
| Net loss attributable to Indie | $(17.1) | $(37.6) | $(103.0) | $(31.0) |
| Loss per share, basic and diluted | $(0.12) | $(0.31) | $(0.73) | $(0.27) |
| Operating cash flow | Not separately stated | Not separately stated | $(88.0) | $(58.8) |
Q3 revenue rose 101% year over year; nine-month revenue rose 97%. Management attributed growth mainly to product volume, product mix, higher average selling prices and acquired businesses, with contract revenue growth also reflecting engineering-project progress. Gross margin declined as cost of goods sold grew faster than revenue; nine-month costs included acquired-intangible amortization and inventory step-up amortization. Research and development and selling, general and administrative expenses increased, reflecting development spending, headcount, share-based compensation and acquisition-related amortization.
Q3 net loss narrowed despite a larger operating loss, principally because the quarter included a $15.7 million noncash gain from warrant remeasurement and a $3.5 million gain from contingent consideration and acquisition-related holdbacks. For the first nine months, warrant remeasurement instead produced a $6.6 million loss; total other expense was $3.1 million versus $52.5 million of other income in the prior-year period. These fair-value items make reported net results volatile.
Liquidity, cash flow and debt
- Cash and cash equivalents were $160.6 million at September 30, 2023, down from $321.6 million at December 31, 2022. The filing reports a $161.2 million net decrease in cash and restricted cash during the nine months.
- Nine-month investing cash use was $103.6 million, including $95.0 million net cash spent on acquisitions and $8.6 million of capital expenditures. Financing provided $34.2 million, primarily from $52.0 million of ATM equity proceeds, partly offset by debt and financed-software payments.
- Total debt carrying value was $161.4 million, including $160.0 million principal on 4.50% convertible senior notes due 2027. The notes are convertible, subject to specified conditions and terms, into cash, shares or a combination at Indie’s election. Cash exceeded reported debt by approximately $0.8 million, before other obligations.
- Accrued expenses and other current liabilities increased to $104.9 million from $13.2 million, including $83.0 million of current contingent considerations. Total current assets were $269.9 million and current liabilities $149.0 million.
- Management stated that cash, expected operating cash and available borrowing sources should meet working-capital needs for at least the next 12 months. It also warned that additional equity or debt financing may be needed if anticipated liquidity proves insufficient. The ATM program had about $79.7 million of capacity remaining at quarter-end.
Material changes, acquisitions and notable items
- Indie acquired Silicon Radar in February, GEO Semiconductor in March and Exalos in September 2023. These deals expanded its radar, computer-vision and LiDAR-related technology portfolios. The acquisitions contributed to higher revenue, goodwill, intangible assets and acquisition-related costs; purchase-price allocations remained preliminary and could change.
- Goodwill rose to $309.5 million from $136.5 million at year-end 2022, primarily due to the acquisitions. Intangible assets increased to $196.4 million from $63.1 million.
- Class A shares outstanding increased materially, including shares issued through the ATM and as acquisition consideration. The filing reported 161.3 million Class A shares and 19.0 million Class V shares outstanding as of November 7, 2023, subject to stated exclusions.
- In October and November 2023, after quarter-end, Indie exchanged approximately 90% of outstanding warrants for 7.0 million Class A shares and exchanged the remaining warrants for another 0.7 million shares. Warrants were subsequently delisted.
- In November 2023, a demand letter sought $7.5 million of contingent consideration related to a prior business combination. Indie said it could not reasonably estimate any potential loss and intended to defend the claims.
Outlook, risks and controls
- The filing provides no numerical revenue, earnings or margin guidance. Management expects R&D and SG&A expenses to continue rising with product-development activity, headcount, global expansion and public-company costs; it also expects continued operating losses and negative operating cash flows.
- Risks include reliance on outsourced manufacturing and Asian supply chains, customer and revenue concentration, competition and pricing, execution and integration of acquisitions, and macroeconomic, geopolitical and foreign-exchange uncertainty. About 63% of nine-month product revenue was associated with shipments to customers in Asia. Three customers each contributed more than 10% of Q3 revenue; the filing says losing these customers could materially affect results.
- Management said the Middle East conflict’s potential effects on operations, employees, customers and suppliers, including in Israel, remained uncertain. The company also cited inflation, interest rates, supply availability and the ongoing Ukraine conflict among forward-looking risks.
- Disclosure controls and procedures were not effective as of September 30, 2023 because previously reported material weaknesses persisted. Weaknesses included risk assessment of non-routine transactions and information controls, including IT access and spreadsheet processes. Remediation was ongoing; timing and effectiveness were not assured.
- Indie expected to lose emerging-growth-company status beginning December 31, 2023 after its public float exceeded the stated threshold, bringing additional disclosure requirements and ending its extended transition period for accounting standards.
Most important facts for investors to verify
- Whether revenue growth can translate into improving gross margins and lower operating losses as acquisition-related amortization and operating expenses rise.
- Cash-burn trajectory, future financing needs, ATM issuance and dilution, and the cash-versus-stock settlement of acquisition earn-outs and holdbacks.
- Progress toward acquired-business revenue milestones, final purchase-price allocations, and any material remeasurement or payment of contingent consideration.
- Outcome and potential exposure from the $7.5 million demand letter, which management could not estimate at filing.
- Remediation and independent effectiveness of internal controls, plus exposure to customer concentration, Asian supply-chain dependence and geopolitical disruption.