Navitas Semiconductor Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results compare with the corresponding 2022 periods. Navitas designs GaN and SiC power semiconductors and uses a fabless manufacturing model. The filing incorporates GeneSiC results since its August 2022 acquisition.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $18.1m | $8.6m | $31.4m | $15.4m |
| Gross profit / margin | $7.5m / 41.5% | $3.6m / 41.6% | $13.0m / 41.3% | $6.5m / 42.7% |
| Operating expenses | $34.7m | $23.6m | $75.7m | $61.6m |
| Operating loss | $(27.2)m | $(20.0)m | $(62.7)m | $(55.0)m |
| Net income (loss) | $(58.5)m | $33.8m | $(120.9)m | $113.6m |
| Basic EPS | $(0.35) | $0.27 | $(0.75) | $0.93 |
| Operating cash flow | — | $(17.2)m | $(18.4)m |
Gross margins shown are calculated from reported revenue and cost of revenue. Q2 revenue increased 110%; management attributed growth to customer expansion, higher-volume customers and GeneSiC. Units shipped rose 121% to 16.2m, while average selling price increased 4% to $1.07. For the six months, revenue increased 105%, unit volume rose 69% to 25.1m and average selling price increased 26% to $1.21.
Operating losses widened despite revenue growth. R&D expense rose 76% in Q2 and 50% for the six-month period, driven principally by compensation, headcount and product expansion. SG&A decreased 6% in Q2 and 16% year to date, partly due to lower stock compensation. Acquisitions drove higher intangible amortization. Cost of revenue also reflected a disclosed 20% TSMC wafer-price increase.
Net results were materially affected by noncash fair-value remeasurement of earnout liabilities: losses of $32.2m in Q2 and $60.0m for the six months in 2023, versus gains of $54.9m and $118.3m in the 2022 comparisons. The liability was $73.0m at June 30, 2023. The 2022 six-month comparison also included a $51.8m warrant fair-value gain. These items make reported net income/loss less indicative of underlying operating performance.
Cash, debt and capital
Cash and cash equivalents were $177.7m at June 30, 2023, up from $110.3m at year-end 2022. Six-month operating cash use was $17.2m and investing cash use was $2.7m; financing provided $87.3m, primarily from the May public offering. The offering issued 11.5m shares at $8 per share and generated $86.5m in net proceeds. Shares outstanding were 173.6m at June 30, versus 153.6m at December 31, 2022. Management said cash on hand should fund operations and capital requirements for the foreseeable future, while expecting continued operating losses and negative operating cash flows. The term loan was paid in full; no debt balance was reported. Current assets were $216.1m and current liabilities $36.0m.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance was provided. Management expects R&D and SG&A, operating costs and capital requirements to increase as the company expands headcount, products and customer reach.
- Management cited demand opportunities in mobile and consumer charging, data centers, solar and EV applications, but noted that growth in new markets depends on winning designs and adoption; success is not assured.
- Revenue and supply risks include reliance on a limited number of distributors and customers, no long-term customer purchase commitments, significant China exposure, and single wafer foundries for GaN and SiC. A substantial part of the supply chain is in Taiwan.
- Management stated that disclosure controls were not effective at June 30 due to continuing material weaknesses in internal control over financial reporting, including insufficient technical accounting expertise and segregation of duties. Remediation is ongoing; effectiveness has not yet been established.
- Navitas recorded a $1.7m GeneSiC pre-acquisition product-return liability as a purchase-price adjustment, increasing goodwill and accrued liabilities. GeneSiC’s potential earnout of up to $25m was considered remote at quarter-end, with no liability recorded.
- The company identified possible foreign-investment regulatory scrutiny of GaN and SiC technologies, including CFIUS review, and noted a proposed U.S. outbound-investment review regime concerning certain semiconductor investments in China. The final scope was not established in the filing.
- Management reported no material pending legal proceedings and no material subsequent events through August 14, 2023. It expected to cease being an emerging growth company at fiscal year-end 2023 and become a large accelerated filer effective January 1, 2024.
Key facts for investors to verify
- Whether revenue growth translates into sustained gross-margin improvement and reduced operating losses, particularly as wafer costs and operating expenses rise.
- The cash-burn trajectory and management’s assumptions supporting its view that existing liquidity is sufficient.
- The magnitude and timing of dilution from equity compensation, the public offering and any earnout shares.
- Progress and independent testing of remediation for the disclosed material weaknesses in financial reporting controls.
- Customer, geographic and foundry concentration, and potential effects of China-related or Taiwan supply-chain disruption and foreign-investment regulation.