Navitas Semiconductor Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of Navitas and its subsidiaries. Throughout this section, unless otherwise noted, “Navitas” refers to Navitas Semiconductor Corporation and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the “Summary of Risk Factors” and “Cautionary Statement About Forward-Looking Statements” sections and elsewhere in this quarterly report, our actual results may differ materially from those anticipated in these forward-looking statements. Overview Founded in 2013, Navitas is a U.S. based developer of gallium nitride power integrated circuits that provide superior efficiency, performance, size and sustainability relative to existing silicon technology. Our solutions offer faster charging, higher power density and greater energy savings compared to silicon-based power systems with the same output power. 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, Belgium, China, Taiwan, Thailand and the Philippines, with principal executive offices in Torrance, California. We design, develop and market gallium nitride (“GaN”) power integrated circuits (“ICs”) used in power conversion and charging. Power supplies incorporating our products may be used in a wide variety of electronics products including mobile phones, consumer electronics, data centers, solar inverters and electric vehicles. We utilize a fabless business model, working with third parties to manufacture, assemble and test our designs. Our fabless model allows us to run the business today with minimal capital expenditures. Our go-to-market strategy is based on partnering with leading manufacturers and suppliers through focused product development, addressing both mainstream and emerging applications. We consider ourselves to be a pioneer in the GaN market with a proprietary, proven GaN power IC platform that is shipping in mass production to tier-1 companies including Samsung, Dell, Lenovo, LG, Xiaomi, OPPO, Amazon, vivo and Motorola. Most of the products we ship today are used primarily as components in mobile device chargers. 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. Navitas GaN is now in mass production with 9 of the top 10 mobile OEMs across smartphone and laptops, and is in development with 10 out of 10. 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. 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. In addition to our comprehensive patent portfolio, our biggest proprietary advantage is our process design kit (PDK), the ‘how-to’ guide for Navitas designers to create new GaN based device and circuits. Our GaN power IC inventions and intellectual property translate across all of our target markets from mobile, consumer, EV, enterprise, and renewables. 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 nine months ended September 30, 2022 , we spent approximately 103% and 163%, respectively of our revenue on research and development. Navitas’ research and development activities are located primarily in the US and China. As of September 30, 2022, we had approximate ly 138 f ull-time personnel in our research & development team, with approximat ely 55% wit h advanced degrees (PhD and MS). 32 Table of Contents Acquisition of GeneSiC On August 15, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100% of the outstanding shares of GeneSiC Semiconductor Inc. (“GeneSiC”) for $146.3 million of equity, $99.3 million of cash consideration, and potential future earn-out payments of up to an aggregate of $25.0 million in cash. GeneSiC is a silicon carbide (“SiC”) pioneer with deep expertise in SiC power device design and process, based in Dulles, Virgnia. The future earn-out payments were fair valued at $0.6 million, for a total merger consideration of $246.2 million. GeneSiC’s net assets and operating results since the merger date are included in the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Operations as of and for the three and nine months ended September 30, 2022, respectively. 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 $157.4 million was recorded as goodwill. 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 $1.9 million 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 nine months ended September 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 $1.2 million was recorded as goodwill. Subsequent to June 30, 2022 a preliminary valuation of the intangible assets acquired was calculated at $1.2 million . During the three months ended September 30, 2022 , the Company reclassed the goodwill to an intangible asset. Business Combination and Reverse Recapitalization On May 6, 2021, Navitas Semiconductor Limited (“Navitas Ireland”), a private company limited by shares organized under the Laws of Ireland and domesticated in the State of Delaware as Navitas Semiconductor Ireland, LLC, (“Navitas Delaware”, and together with Navitas Ireland, “Legacy Navitas”) a Delaware limited liability company, entered into a business combination agreement and plan of reorganization (the “Business Combination Agreement” or “BCA”) with Live Oak Acquisition Corp. II (“Live Oak”). Pursuant to the BCA, Live Oak acquired all of the capital stock of Navitas Ireland by means of a tender offer, and a wholly owned subsidiary of Live Oak merged with and into Navitas Delaware, with Navitas Delaware surviving the merger. As a result, Legacy Navitas became a wholly owned subsidiary of Live Oak effective October 19, 2021. At the closing of the Business Combination, Live Oak changed its name to Navitas Semiconductor Corporation. The Business Combination was accounted for as a reverse recapitalization in accordance with US GAAP. 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 were disclosed in our annual report Form 10-K filed with the SEC filed on March 31, 2022. The Business Combination had a significant impact on our reported financial position and results as a consequence of the reverse recapitalization. The most significant change in our reported financial position and results of operations was net cash proceeds of $298 from the merger transaction, which included $173 in gross proceeds from the PIPE financing that was consummated in conjunction with the Business Combination. The increase in cash was offset by transaction costs incurred in connection with the Business Combination of approximately $25. Navitas expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. 33 Table of Contents Results of Operations Revenue We design, develop and manufacture GaN ICs, SiC MOSFETs and Schottky MPS diodes that deliver best-in-class performance, ruggedness and quality. Our revenue represents the sale of semiconductors through specialized distributors to original equipment manufacturers (“OEMs”), their suppliers and other end customers. Our revenues fluctuate in response to a combination of factors, including the following: • our overall product mix and sales volumes; • gains and losses in market share and design win traction; • pace at which technology is adopted in our end markets; • the stage of our products in their respective life cycles; • the effects of competition and competitive pricing strategies; • availability of specialized field application engineering resources supporting demand creation and end customer adoption of new products; • achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors; • market acceptance of our end customers’ products; governmental regulations influencing our markets; and • the global and regional economic cycles. Our product revenue is recognized when the customer obtains control of the product and the timing of recognition is based on the contractual shipping terms of a contract. We provide a non-conformity warranty which is not sold separately and does not represent a separate performance obligation. The vast majority of our product revenue originates from sales shipped to customer locations in Asia. Cost of Goods Sold Cost of goods sold consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead (which includes depreciation and amortization) associated with such purchases, final test and wafer level yield fallout, inventory reserves, consumables, system and shipping costs. Cost of goods sold also includes compensation related to personnel associated with manufacturing. Research and Development Expense Costs related to research, design, and development of our products are expensed as incurred. Research and development expense consists primarily of pre-production costs related to the design and development of our products and technologies, including costs related to cash and share-based employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third party fees paid to consultants, prototype development expenses, and other costs incurred in the product design and development process. Selling, General and Administrative Expense Selling, general and administrative costs include employee compensation, including cash and share-based compensation and benefits for executive, finance, business operations, sales, field application engineers and other administrative personnel. In addition, it includes marketing and advertising, IT, outside legal, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred. Interest Expense Interest expense primarily consists of interest under our term loan facility. 34 Table of Contents Income Taxes Legacy Navitas is a dual domesticated corporation for Ireland and U.S. federal income tax purposes. Refer to Note 14, Provision for Income Taxes, in our accompanying condensed consolidated financial statements elsewhere in this quarterly report. Results of Operations Three Months September 30, 2022 and 2021 The table and discussion below present our results for the three months ended September 30, 2022 and 2021 (in thousands): Three Months Ended September 30, Change $ Change % 2022 2021 Revenue $ 10,243 $ 5,631 $ 4,612 82 % Cost of goods sold 9,852 3,032 6,820 225 % Gross profit 391 2,599 (2,208) (85) % Operating expenses: Research and development 13,343 5,804 7,539 130 % Selling, general and administrative 24,477 3,550 20,927 589 % Total operating expenses 37,820 9,354 28,466 304 % Loss from operations (37,429) (6,755) (30,674) 454 % Other income (expense), net: Interest income (expense), net 638 (75) 713 (951) % Loss from change in fair value of earnout liabilities (6,098) — (6,098) — % Other income (expense) (74) — (74) — % Total other income (expense), net (5,534) (75) (5,459) 7279 % Income (loss) before income taxes (42,963) (6,830) (36,133) 529 % Income tax (benefit) provision (10,135) 13 (10,148) (78062) % Net income (loss) (32,828) (6,843) (25,985) 380 % Less: Net income (loss) attributable to noncontrolling interests (238) — (238) — % Net income (loss) attributable to controlling interests $ (32,590) $ (6,843) $ (25,747) 376 % Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021 Revenue Revenue for the three months ended September 30, 2022 was $10.2 million compared to $5.6 million for the three months ended September 30, 2021, an increase of $4.6 million , or 82%. The increase reflects a combination of the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers, and the accretive acquisition of GeneSiC. Total sales volumes increased 19%, from 6.0 million to 7.1 million units shipped, while the average selling price increased 53% to $1.43 per unit. Cost of Goods Sold Cost of goods sold for the three months ended September 30, 2022 was $9.9 million compared to $3.0 million for the three months ended September 30, 2021, an increase of $6.8 million or 225%. The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, which includes $0.5 million for step up in inventory valuation that was 35 Table of Contents expensed during the quarter, and inventory reserves of $2.8 million, 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 September 30, 2022 of $13.3 million increased by $7.5 million, or 130%, when compared to the three months ended September 30, 2021, driven by increases in stock based compensation, resulting in $5.2 million higher compensation costs, along with an increase of $1.9 million compensation costs related to growth in headcount as the Company develops products in Solar, Enterprise and EV and through its acquisition of GeneSiC. 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 September 30, 2022 of $24.5 million increased by $20.9 million, or 589%, when compared to the three months ended September 30, 2021, driven by increases in stock based compensation, resulting in $10.4 million higher compensation costs, along with an increase of $1.4 million increase in compensation costs related to growth in headcount. In addition, the Company incurred $7.7 million of transaction expenses and amortization of intangibles related to the acquisition of GeneSiC and a $1.1 million 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. O ther Income (Expense), net Net interest income for the three months ended September 30, 2022 was $638 compared to $75 net interest expense for the three months ended September 30, 2021, primarily due to the higher interest rate received on money markets funds. During the three months ended September 30, 2022 , we recognized $6.1 million loss from the change in fair value of our earn-out liabilities. 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 increase in fair value of our earn-out liability of $6.1 million was primarily a result of the increase of the closing price of our Class A common stock listed on the Nasdaq, resulting in the increased in the estimated fair value of the earnout shares from $1.89 as of June 30, 2022 to $2.61 as of September 30, 2022. Other expense primarily reflects our minority interest in the net loss of a joint venture through August 18, 2022.. Income Tax (Benefit) Provision Income tax benefit for the three months September 30, 2022 increased by $10,148 when compared to the three months September 30, 2021. As a result of the GeneSiC Semiconductor Inc. acquisition, (see Note 17, Business Combinations), the Company released $9.9 million of U.S. valuation allowance during the three months ended September 30, 2022. The release was attributable to a preliminary estimate of $23.2 million of net deferred tax liabilities recorded on GeneSiC’s opening balance sheets that offset other U.S. net deferred tax assets.We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets. 36 Table of Contents Results of Operations Nine Months September 30, 2022 and 2021 The table and discussion below present our results for the nine months ended September 30, 2022 and 2021 (in thousands): Nine Months Ended September 30, Change $ Change % 2022 2021 Revenue $ 25,594 $ 16,398 $ 9,196 56 % Cost of goods sold 18,655 8,962 9,693 108 % Gross profit 6,939 7,436 (497) (7) % Operating expenses: Research and development 36,362 16,325 20,037 123 % Selling, general and administrative 63,014 23,713 39,301 166 % Total operating expenses 99,376 40,038 59,338 148 % Loss from operations (92,437) (32,602) (59,835) 184 % Other income (expense), net: Interest income (expense), net 666 (199) 865 (435) % Gain (loss) from change in fair value of warrants 51,763 — 51,763 — % Gain (loss) from change in fair value of earnout liabilities 112,162 — 112,162 — % Other income (expense) (1,215) — (1,215) — % Total other income (expense), net 163,376 (199) 163,575 (82198) % Income (loss) before income taxes 70,939 (32,801) 103,740 (316) % Income tax (benefit) provision (9,862) 37 (9,899) (26754) % Net income (loss) 80,801 (32,838) 113,639 (346) % Less: Net income (loss) attributable to noncontrolling interests (238) — (238) — % Net income (loss) attributable to controlling interests $ 81,039 $ (32,838) $ 113,877 (347) % Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021 Revenue Revenue for the nine months ended September 30, 2022 was $25.6 million compared to $16.4 million for the nine months ended September 30, 2021, an increase of $9.2 million , or 56%. The significant increase primarily reflected the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers and the accretive acquisition of GeneSiC. Total sales volumes increasing 26%, from 17.5 million to 22.0 million units shipped, while the average selling price increased 24.2% to $1.16 per unit. Cost of Goods Sold Cost of goods sold for the nine months ended September 30, 2022 was $18.7 million compared to $9.0 million for the nine months ended September 30, 2021, an increase of $9.7 million or 108%. The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, which includes $0.5 million for step up in inventory valuation that was expensed during the quarter, and inventory reserves of $2.8 million, 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 nine months ended September 30, 2022 of $36.4 million increased by $20.0 million, or 123%, when compared to the nine months ended September 30, 2021, primarily driven by increases in 37 Table of Contents stock based compensation, resulting in $14.0 million higher compensation costs, along with an increase of $1.1 million in non-compensation costs related to new applications and reliability expenses devoted to next generation product development and $4.9 million in 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 nine months ended September 30, 2022 of $63.0 million increased by $39.3 million, or 166%, when compared to the nine months ended September 30, 2021. The increase is primarily due to a $23.5 million increase in stock-based compensation, and a $3.5 million increase in compensation costs related to growth in headcount. In addition, the Company incurred $7.7 million of transaction expenses and amortization related to the acquisition of GeneSiC and a $3.4 million 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. O ther Income (Expense), net Net interest income for the nine months ended September 30, 2022 was $666 thousand compared to $(199) thousand net interest expense for the nine months ended September 30, 2021, increased by 435%, primarily due to the higher interest rate received on cash equivalents. During the nine months ended September 30, 2022 , we recognized $51.8 million gain from the change in fair value of our warrant liabilities, $112.2 million decrease in fair value of our earn out liabilities and $(1.2) million loss from an equity method investment, as follows: i) Warrants: 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. ii) 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 $111.6 million was primarily a result of the increase 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 $2.61 as of September 30, 2022 . iii) Other expense primarily reflects our minority interest in the net loss of a joint venture through August 18, 2022.. Income Tax Benefit (Provision) Income tax benefit for the nine months ended September 30, 2022 increased by $9,899 when compared to the nine months ended September 30, 2021. As a result of the GeneSiC Semiconductor Inc. acquisition, (see Note 17, Business Combinations), the Company released $9.9 million of U.S. valuation allowance during the three months ended September 30, 2022. The release was attributable to a preliminary estimate of $23.2 million of net deferred tax liabilities recorded on GeneSiC’s opening balance sheets that offset other U.S. net deferred tax assets. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets. Liquidity and Capital Resources Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, working capital requirements related to inventory, accounts payable and accounts receivable, and selling, general and administrative expenditures. In addition, we use cash to fund our debt service obligations, and purchases of capital and software assets. We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will continue to increase. 38 Table of Contents We expect our expenses and capital requirements to increase in connection with our ongoing initiatives to expand our operations, product offerings and end customer base. Prior to the Business Combination, we derived our liquidity and capital resources primarily from the issuance and sale of convertible preferred stock. The term loan principal balance is payable in monthly installments beginning in September 2021. As September 30, 2022, we had cash and cash equivalents of $124.8 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. 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 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. 39 Table of Contents Cash Flows The following table summarizes our consolidated cash flows for the nine months ended September 30, 2022 and 2021 (in thousands): September 30, 2022 September 30, 2021 Consolidated Statements of Cash Flow Data: Net cash used in operating activities $ (35,537) $ (24,792) Net cash used in investing activities $ (106,447) $ (2,525) Net cash used in financing activities $ (1,476) $ (476) We derive liquidity primarily from debt and equity financing activities. As of September 30, 2022, our balance of cash and cash equivalents was $124.8 million, which is a decrease of $143.5 million or 53% compared to December 31, 2021. Our total outstanding debt principal balance as of September 30, 2022 was $4.5 million, which is a decrease of $2.4 million from the $6.9 million of total debt outstanding at December 31, 2021. Operating Activities For the nine months ended September 30, 2022, net cash used in operating activities was $35.5 million, which primarily reflects a net income of $80.8 million, adjus ted for non-cash share-based compensation of $52.1 million, non-cash gains of $163.9 million in earnout and warrant liabilities and an aggregate cash provided by operating assets and liabilities of $2.6 million. Specifically, $0.5 million increase in account receivable and $2.7 million increase in inventory are primarily due to increased sales. $2.8 million increase in account payable is primarily due to accrued bonus and increased wages, offsetting by $0.5 million decrease in operating lease liability. For the nine months ended September 30, 2021, net cash used in operating activities was $24.8 million, which primarily reflects a net loss of $32.8 million, adjus ted for non-cash share-based compensation of $14.8 million and an aggregate cash used in operating assets and liabilities of $7.3 million. Specifically, $1.4 million increase in account receivable and $8.3 million increase in inventory are primarily due to increased sales. $2.6 million increase in account payable is primarily due to accrued bonus and increased wages. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2022 of $106.4 million was primarily due to $5.2 million cash funding of a joint venture, $3.5 million for purchases of fixed assets, coupled with $99.9 million business acquisitions. Net cash used in investing activities of $2.5 million for the nine months ended September 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 nine months ended September 30, 2022 of $0.5 million was primarily due to debt payments of $2.4 million and repurchase of our common stock of $0.6 million, partially offset by proceeds from stock option exercises of $1.5 million. Net cash used in financing activities for the nine months ended September 30, 2021 of $476 was primarily due to payments of deferred offering costs offset by proceeds from issuance of long term debt. 40 Table of Contents Contractual Obligations, Commitments and Contingencies Except for a new operating lease entered into during the quarter (see Note 8, Leases, included on this Form 10-Q), 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 September 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 The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our accompanying condensed consolidated financial statements and the accompanying notes included elsewhere in this quarterly report. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our condensed consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. There have been no material changes to our critical accounting policies and estimates from the information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2021 annual report on Form 10-K, except for adoption of ASC 805 Business Combinations as discussed in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements included on this Form10-Q. 41 Table of Contents JOBS Act Accounting Election We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards applicable to public companies, allowing them to delay the adoption of those standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, following the Business Combination, our condensed consolidated financial statements may not be comparable to the financial statements of companies that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make common stock less attractive to investors. 42 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company, as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.