What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 99 added, 58 removed, 132 unchanged (54% of the section changed)

9 unchanged sentences

By unlocking this speed and efficiency, we believe we are leading a revolution in high-frequency, high-efficiency and high-density power electronics to electrify our world for a cleaner tomorrow.

We maintain operations around the world, including the United States, Ireland, Germany, Italy, China, Taiwan and the Philippines, with principal executive offices in El Segundo, California.

We maintain operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan and the Philippines, with principal executive offices in El Segundo, California.

We design, develop and market gallium nitride (“GaN”) power integrated circuits (“ICs”) used in power conversion and charging.

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Most of the products we ship today are used primarily as components in mobile device chargers.

The majority of charger manufacturers we ship to today are in China, supporting major international mobile brands.

Other emerging applications will be addressed in China, other parts of Asia, and worldwide.

Charger manufacturers we ship to today are worldwide, supporting major international mobile brands.

Other emerging applications will also be addressed across the world.

In support of our technology leadership, we have formed relationships with numerous Tier 1 manufacturers and suppliers over the past eight years, gaining significant traction in mobile and consumer charging applications.

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In addition, our supply chain partners have committed manufacturing capacity in excess of what we consider to be necessary to support our continued growth and expansion.

The core strength of our business lies in our industry leading IP position in GaN Power ICs.

Navitas invented the first commercial GaN Power ICs and along the way we patented many fundamental circuit elements which are needed in most power systems from 10 W to 100 kW.

A core strength of our business lies in our industry leading IP position in GaN Power ICs.

Navitas invented the first commercial GaN Power ICs.

Today, we have over 165 patents that are issued or pending.

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We evaluate various complementary technologies and look to improve our PDK, in order to keep introducing newer generations of GaN technology.

In 2021 and the three months ended March 31, 2022, we spent approximate ly 117% and 143%, respectively o f our revenue on research and development.

In 2021 and the six months ended June 30, 2022 , we spent approximately 117% and 150%, respectively of our revenue on research and development.

Navitas’ research and development activities are located primarily in the US and China.

As of March 31, 2022, we had approximatel y 103 full-time personnel in our research & development team, with approximately 59% w ith advanced degrees (PhD and MS).

As of June 30, 2022, we had approximate ly 116 full-time personnel in our research & development team, with approximately 55% with advanced degrees (PhD and MS).

Acquisition of VDDTech

On June 10, 2022, the Company’s wholly owned subsidiary, Navitas Semiconductor Limited, acquired all of the stock of VDDTECH srl, a private Belgian company (“VDDTech”) for approximately $1,859 in cash and stock.

Based in Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for next-generation power conversion.

VDDTech’s net assets and operating results since the acquisition date are included in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022.

We recorded a preliminary allocation of the purchase price to tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The excess of the purchase price over the fair value of assets of $1,177 was recorded as goodwill.

Business Combination and Reverse Recapitalization

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Under the guidance in ASC 805, Live Oak was treated as the “acquired” company for financial reporting purposes.

We were deemed

the accounting predecessor and the post-combination company is the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in our annual report Form 10-K filed with the SEC filed on March 31, 2022.

We were deemed the accounting predecessor and the post-combination company is the successor SEC registrant, meaning that our financial statements for previous periods will be disclosed in our annual report Form 10-K filed with the SEC filed on June 30, 2022.

The Business Combination had a significant impact on our reported financial position and results as a consequence of the reverse recapitalization.

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Results of Operations

The table and discussion below present our results for the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31, Change

($ in thousands) 2022 2021

$ 6,740 $ 5,317 $ 1,423 27 %

The table and discussion below present our results for the three and six months ended June 30, 2022 and 2021:

Three Month Ended

June 30, Change

(dollars in thousands) 2022 2021

Revenue $ 8,611 $ 5,450 $ 3,161 58 %

Cost of goods sold 5,026 2,971 2,055 69 %

3,777 2,959 818 28 %

2,963 2,358 605 26 %

Gross profit 3,585 2,479 1,106 45 %

Operating expenses:

Research and development 9,606 6,267 3,339 53 %

13,413 4,254 9,159 215 %

Selling, general and administrative 13,993 14,794 (801) (5) %

24,544 5,369 19,175 357 %

Total operating expenses 23,599 21,061 2,538 12 %

37,957 9,623 28,334 294 %

Loss from operations (20,014) (18,582) (1,432) 8 %

(34,994) (7,265) (27,729) 382 %

Other income (expense), net:

Interest expense, net

(24) (61) 37 (61) %

Gain from change in fair value of warrants 51,763 — 51,763 — %

Gain from change in fair value of earnout liabilities 63,406 — 63,406 — %

Other expense (356) — (356) — %

Interest income (expense), net 52 (63) 115 (183) %

Gain (loss) from change in fair value of warrants — — — — %

Gain (loss) from change in fair value of earnout liabilities 54,854 — 54,854 — %

Other income (expense) (785) — (785) — %

Total other income (expense), net 54,121 (63) 54,184 (86006) %

114,789 (61) 114,850 — %

Income (loss) before income taxes 34,107 (18,645) 52,752 (283) %

79,795 (7,326) 87,121 — %

Income tax expense 270 5 265 5300 %

3 19 (16) (84) %

Net income (loss) $ 33,837 $ (18,650) $ 52,487 (281) %

$ 79,792 $ (7,345) $ 87,135 (1186) %

Comparison of the Quarters ended March 31, 2022 and 2021

Revenue for the three months ended March 31, 2022 was $6.7 million compared to $5.3 million for the three months ended March 31, 2021, an increase of $1.4 million, or 27%.

The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to the top mobile companies and total sales volumes increasing 32%, from 5.7 million to 7.5 million units shipped, while the average selling price declined 15% to $0.82 per unit.

Six Months Ended

June 30, Change

(dollars in thousands) 2022 2021

Revenue $ 15,351 $ 10,767 $ 4,584 43 %

Cost of goods sold 8,803 5,930 2,873 48 %

Cost of goods sold for the three months ended March 31, 2022 was $3.8 million compared to $3.0 million for the three months ended March 31, 2021, an increase of $0.8 million or 28%.

The increase was primarily driven by significant revenue growth, partially offset by lower costs on third generation (“Gen 3”) products launched in the second half of 2021.

Gross profit 6,548 4,837 1,711 35 %

Operating expenses:

Research and development 23,019 10,521 12,498 119 %

Selling, general and administrative 38,537 20,163 18,374 91 %

Total operating expenses 61,556 30,684 30,872 101 %

Loss from operations (55,008) (25,847) (29,161) 113 %

Other income (expense), net:

Interest income (expense), net 28 (124) 152 (123) %

Gain (loss) from change in fair value of warrants 51,763 — 51,763 — %

Gain (loss) from change in fair value of earnout liabilities 118,260 — 118,260 — %

Other income (expense) (1,141) — (1,141) — %

Total other income (expense), net 168,910 (124) 169,034 (136318) %

Income (loss) before income taxes 113,902 (25,971) 139,873 (539) %

Income tax expense 273 24 249 1038 %

Net income (loss) $ 113,629 $ (25,995) $ 139,624 (537) %

Comparison of the Quarters ended June 30, 2022 and 2021

Revenue for the three months ended June 30, 2022 was $8.6 million compared to $5.5 million for the three months ended June 30, 2021, an increase of $3.2 million , or 58%.

The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to the higher volume customers and total sales volumes increasing 26%, from 5.8 million to 7.3 million units shipped, while the average selling price increased 11% to $1.06 per unit.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2022 was $5.0 million compared to $3.0 million for the three months ended June 30, 2021, an increase of $2.1 million or 69%.

The increase was primarily driven by significant revenue growth, in addition to TSMC's 20% wafer price increase which created a higher cost of goods sold.

Research and Development Expense

Research and development expense for the three months ended March 31, 2022 of $13.4 million increased by $9.2 million, or 215%, when compared to the three months ended March 31, 2021, primarily driven by increases in stock based compensation, resulting in $7.3 million higher compensation costs, along with an increase of $1.9 milli on in non-compensation costs related to new applications and reliability expenses devoted to next generation product development.

Research and development expense for the three months ended June 30, 2022 of $9.6 million increased by $3.3 million, or 53%, when compared to the three months ended June 30, 2021, driven by increases in stock based compensation, resulting in $1.7 million higher compensation costs, along with an increase of $1.7 million compensation costs related to growth in headcount as the Company develops products in Solar, Enterprise and EV.

We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.

Selling, General and Administrative Expense

Selling, general and administrative expense for the three months ended March 31, 2022 of $24.5 million increased by $19.2 million, or 357%, when compared to the three months ended March 31, 2021.

The increase is primarily due to an $16.3 million increase in stock-based compensation, a $1.6 million increase in compensation costs related to growth in headcount and a $1.3 million increase in other costs of growing the business.

Selling, general and administrative expense for the three months ended June 30, 2022 of $14.0 million decreased by $(0.8) million, or (5)%, when compared to the three months ended June 30, 2021.

The decrease is primarily due to a

($3.3) million decrease in stock-based compensation issued for one-time executive stock awarded in the three months ended June 30, 2021, offset by a $2.5 million increase in compensation costs related to growth in headcount and an increase in other costs of growing the business.

We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.

Other Income (Expense), net

Net interest expense, net for the three months ended March 31, 2022 of $24 thousand decreased by (61%), when compared to the three months ended March 31, 2021, primarily due to lower outstanding debt and interest income on cash equivalents.

During the three months ended March 31, 2022, we recognized gain from the change in fair value of our warrant liabilities, earn out liabilities and an equity method investment of $51.8 million, $63.4 million and ($0.4) million, respectively, as follows:

Net interest income for the three months ended June 30, 2022 was $52 thousand compared to $(63) thousand net interest expense for the three months ended June 30, 2021, primarily due to the higher interest rate received on money markets funds.

During the three months ended June 30, 2022, we recognized $54.9 million gain from the change in fair value of our earn out liabilities and $(0.8) million loss from an equity method investment as follows:

i) Earnout liability:

Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date.

The decrease in fair value of our earn-out liability of $54.9 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq, resulting in the decline in the estimated fair value of the earnout shares from $8.47 as of March 31, 2022 to $1.89 as of June 30, 2022.

ii) Other expense primarily reflects our minority interest in the net loss of a joint venture.

Income Tax Expense

Income tax expenses for th e three months June 30, 2022 increased by $265 thousand when compared to the three months June 30, 2021.

We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.

Comparison of the Six Months ended June 30, 2022 and 2021

Revenue for the six months ended June 30, 2022 was $15.4 million compared to $10.8 million for the six months ended June 30, 2021, an increase of $4.6 million , or 43%.

The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers and total sales volumes increasing 29%, from 11.5 million to 14.8 million units shipped, while the average selling price remained approximately flat at $0.94 per unit.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2022 was $8.8 million compared to $5.9 million for the six months ended June 30, 2021, an increase of $2.9 million or 48%.

The increase was primarily driven by significant revenue growth, in addition to TSMC's 20% wafer price increase which created a higher cost of goods sold.

Research and Development Expense

Research and development expense for the six months ended June 30, 2022 of $23.0 million increased by $12.5 million, or 119%, when compared to the six months ended June 30, 2021, primarily driven by increases in stock based compensation, resulting in $8.9 million higher compensation costs, along with an increase of $3.6 million in non-compensation costs related to new applications and reliability expenses devoted to next generation product development and compensation costs related to growth in headcount as the Company develops products in Solar, Enterprise and EV.

We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.

Selling, General and Administrative Expense

Selling, general and administrative expense for the six months ended June 30, 2022 of $38.5 million increased by $18.4 million, or 91%, when compared to the six months ended June 30, 2021.

The increase is primarily due to a $13 million increase in stock-based compensation, and a $5.3 million increase in compensation costs related to growth in headcount and other costs of growing the business.

We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.

Other Income (Expense), net

Net interest income for the six months ended June 30, 2022 was $28 thousand compared to $(124) thousand net interest expense for the six months ended June 30, 2021, increased by 123%, primarily due to the higher interest rate received on cash equivalents.

During the six months ended June 30, 2022 , we recognized $51.8 million gain from the change in fair value of our warrant liabilities, $118.3 million decrease in fair value of our earn out liabilities and $(1.1) million loss from an equity method investment, as follows:

The change in fair value of our warrant liability is due to the Company issuing a notice of redemption on February 4, 2022 and the Company revaluing the liability just before the exercise and redemptions which resulted in a valuation change of $51.8 million.

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Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date.

The decrease in fair value of our earn-out liability of $63.4 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq from $17.01 per share on December 31, 2021 to $10.28 per share on March 31, 2022.

iii) Other expense reflects our minority interest in the net loss of a joint venture.

The decrease in fair value of our earn-out liability of $118.3 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq, resulting in the decline in the estimated fair value of the earnout shares from $16.09 as of December 31, 2021 to $1.89 as of June 30, 2022.

iii) Other expense primarily reflects our minority interest in the net loss of a joint venture.

Income Tax Expense

Income tax expenses for the three months March 31, 2022 decreased by ($16) thousand when compared to the three March 31, 2021.

Income tax expense s for the six months ended June 30, 2022 increased by $249 thousand when compared to the six months ended June 30, 2021.

We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.

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The term loan principal balance is payable in monthly installments beginning in September 2021.

As March 31, 2022, we had cash and cash equivalents of $253.8 million.

As June 30, 2022, we had cash and cash equivalents of $240.5 million.

We currently use cash to fund operations, meet working capital requirements, for capital expenditures and strategic investments.

Post-Business Combination, the Company has additional access to capital resources through public market transactions and the historical focus on near-term working capital and liquidity has shifted to more strategic and forward-looking capital optimization plans.

We believe that the influx of capital from the Business Combination is sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future.

that the influx of capital from the Business Combination is sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future.

We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our end customer base.

If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional debt financing or from other sources.

If we raise additional funds through the issuance of equity, the percentage ownership of our equityholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equityholders.

If we raise additional funds through the issuance of equity, the percentage ownership of our equity holders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equity holders.

If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense.

We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.

The following table summarizes our consolidated cash flows for the three months ended March 31, 2022 and 2021:

March 31, 2022 March 31, 2021

($ in thousands)

The following table summarizes our consolidated cash flows for the six months ended June 30, 2022 and 2021:

June 30, 2022 June 30, 2021

(dollars in thousands)

Consolidated Statements of Cash Flow Data:

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We derive liquidity primarily from debt and equity financing activities.

As of March 31, 2022, our balance of cash and cash equivalents was $253.8 million, which is an decrease of $14.5 million or 5% compared to December 31, 2021.

Our total outstanding debt principal balance as of March 31, 2022 was $6.1 million, which is a decrease of $0.8 million from the $6.9 million of total debt outstanding at December 31, 2021.

As of June 30, 2022, our balance of cash and cash equivalents was $240.5 million, which is an decrease of $27.7 million or 10% compared to December 31, 2021.

Our total outstanding debt principal balance as of June 30, 2022 was $5.3 million, which is a decrease of $1.6 million from the $6.9 million of total debt outstanding at December 31, 2021.

Operating Activities

For the three months ended March 31, 2022, net cash used in operating activities was $10.6 million, which primarily reflects a net income of $79.8 million, adjusted for non-cash share-based compensation of $25.3 million, non-cash, gains of $115.2 million in earnout and warrant liabilities and an aggregate change of $0.3 million in higher operating assets.

For the three months ended March 31, 2021, net cash used in operating activities was $5.8 million, which reflects a net loss of $7.3 million, adjusted for non-cash share-based compensation of $1.8 million and includes an aggregate $.9 million decrease due to higher operating assets, offset by a decrease in cash of $0.6 million due to lower accounts payable.

For the six months ended June 30, 2022, net cash used in operating activities was $18.4 million, which primarily reflects a net income of $113.6 million, adjusted for non-cash share-based compensation of $36.4 million, non-cash gains of $170.0 million in earnout and warrant liabilities and an aggregate cash used in operating activities of $1.0 million.

Specifically, $1.1 million increase in account receivable and $2 million increase in inventory are primarily due to increased sales.

$1.9 million increase in account payable is primarily due to accrued bonus and increased wages, offsetting by $0.6 million increase in operating lease liability.

For the six months ended June 30, 2021, net cash used in operating activities was $13.8 million, which reflects a net loss of $26.0 million, adjusted for non-cash share-based compensation of $14.6 million and includes an aggregate cash used in operating activities of $2.7.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 of $3.0 million was primarily due to $2.7 million cash funding of a joint venture and $0.3 million for purchases of fixed assets.

Net cash used in investing activities of $990 thousand for the three months ended March 31, 2021, was primarily related to the purchase of an asset acquisition and property and equipment.

Net cash used in investing activities for the six months ended June 30, 2022 of $8.1 million was primarily due to $5.2 million cash funding of a joint venture, $2.3 million for purchases of fixed assets, coupled with $0.6 million business acquisition.

Net cash used in investing activities of $1.5 million for the six months ended June 30, 2021, was primarily related to the purchase of an asset acquisition and property and equipment.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2022 of $0.9 million was primarily the result of $0.8 million net uses from the issuance and repayment of debt.

Net cash provided by financing activities for the three months ended March 31, 2021 of $222 thousand was primarily the result net proceeds from the issuance and repayment of debt.

Net cash used in financing activities for the six months ended June 30, 2022 of $1.3 million was primarily due to debt payments of $1.6 million and repurchase of our common stock of $0.6 million, partially offset by proceeds from stock option exercises of $0.9 million.

Net cash provided by financing activities for the six months ended June 30, 2021 of $222 thousand was primarily the result proceeds from stock option exercises.

Contractual Obligations, Commitments and Contingencies

There have been no significant changes to our contractual obligations as described in our annual report on Form 10-K for the year ended December 31, 2021.

Except for a new operating lease entered into during the quarter, there have been no significant changes to our contractual obligations as described in our annual report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Commitments and Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of June 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis