Indie Semiconductor, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unless noted otherwise, financial amounts are in millions of U.S. dollars. Indie develops automotive semiconductors and software for ADAS, autonomous vehicles, connected cars, user experience and electrification; it outsources manufacturing.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $30.0 | $12.2 | $77.8 | $29.5 |
| Gross profit / margin | $15.0 / 50.1% | $5.2 / 43.0% | $33.4 / 43.0% | $12.4 / 42.0% |
| Operating loss | $(25.9) | $(21.3) | $(90.2) | $(47.9) |
| Net loss attributable to indie | $(37.6) | $(79.6) | $(31.0) | $(62.7) |
| Basic and diluted loss per share | $(0.31) | $(0.83) | $(0.27) | $(1.07) |
Q3 revenue rose 147% year over year; nine-month revenue rose 164%. Product revenue was $24.4 million in Q3 and $63.0 million for nine months; contract revenue was $5.6 million and $14.8 million, respectively. Management attributed growth primarily to higher product volumes, product mix and average selling prices, and a large multiyear engineering project. Despite stronger gross margins, operating expenses substantially exceeded gross profit. Q3 results included a $19.1 million noncash warrant remeasurement loss; nine-month results included a $48.6 million noncash warrant remeasurement gain, materially affecting comparisons of net loss.
Cash, liquidity and debt
- Cash and cash equivalents were $150.4 million at September 30, 2022, down from $219.1 million at December 31, 2021. Current assets were $194.3 million and current liabilities $55.3 million.
- For the first nine months, operating cash use was $58.8 million (versus $36.9 million in 2021); investing cash use was $13.2 million (versus $2.5 million); financing provided $2.5 million, compared with $344.3 million in 2021, which included proceeds from the 2021 business combination.
- Total debt carrying value was $17.3 million, including $13.1 million classified as current. This includes a $10.0 million interest-free Symeo promissory note due January 2023. Cash exceeded debt by approximately $133.1 million, before other obligations.
- The company reported $11.3 million of lease liabilities and $31.2 million of total contractual obligations, including debt, leases and $2.5 million of deferred acquisition payments.
- An at-the-market program permits up to $150 million of share sales. By quarter-end, Indie had raised $12.3 million gross, issuing 1.51 million shares at an average $8.14 per share; approximately $137.7 million remained available.
Material changes, outlook and risks
- Operating costs increased alongside growth: Q3 R&D expense more than doubled year over year to $30.2 million. Management expects R&D and SG&A expenses to continue increasing as the company expands product development, headcount and global operations.
- Management expects continued operating losses and negative operating cash flows, but stated existing cash, anticipated operating funds and available borrowing capacity should meet working-capital needs for at least the next 12 months. Additional financing may be needed if those sources prove insufficient.
- Revenue is concentrated: one customer represented 36.7% of Q3 revenue and 37.3% of nine-month revenue; that customer accounted for 27% of receivables at quarter-end. The filing warns that losing major customers could materially affect results.
- Management cited supply constraints and global supply imbalances, as well as uncertainty related to COVID-19, inflation, rising interest rates and financial-market volatility. Manufacturing is outsourced, primarily in Asia; about 53% of nine-month 2022 product revenue was tied to shipments to customer locations in Asia.
- Acquisitions added integration and valuation exposure. Symeo’s purchase-price allocation remained preliminary; the $10 million note is due in January 2023, and its equity earn-out depends on revenue and gross-margin thresholds. ON Design contingent consideration was reduced to zero after the specified designs were replaced.
- Foreign-currency translation losses reached $18.3 million at quarter-end, compared with $0.06 million at year-end 2021, primarily reflecting U.S. dollar strength against foreign currencies.
- Disclosure controls were not effective at September 30, 2022. Material weaknesses in internal control over financial reporting remained unremediated; remediation included adding finance expertise, implementing an ERP system, engaging specialists and establishing an internal audit function. Management said remediation could extend into 2023.
- Indie reported no material pending legal proceedings and no material changes to the risk factors disclosed in its 2021 Form 10-K.
Important facts for investors to verify
- Whether revenue growth and customer demand persist, and how customer concentration and the large engineering contract affect future revenue.
- Cash consumption, the timing of the January 2023 Symeo note repayment, and any further use of the ATM program or other financing.
- Progress in remediating internal-control weaknesses and whether management concludes controls are operating effectively.
- Final Symeo acquisition accounting, earn-out outcomes, and the effects of acquired-intangible amortization on reported costs and margins.
- Supply availability, foreign-exchange exposure and the extent to which continued investment drives operating costs and cash needs.