What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-14 · 57 added, 59 removed, 180 unchanged (39% of the section changed)

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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.

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 185 patents that are issued or pending.

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

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 devices 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 the six months ended June 30, 2023 and 2022 , we spent approximately 109% and 149%, respectively, of our revenue on research and development.

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

In the nine months ended September 30, 2023 and 2022, we spent approximately 95% and 134%, respectively, of our revenue on research and development.

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

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The future earn-out payments were fair valued at $0.6 million, for a total merger consideration of $244.0 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 six months ended June 30, 2023.

During the Company’s second quarter of 2023, the Company received information regarding products shipped by GeneSiC to a distributor prior to the Company’s acquisition of GeneSiC.

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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 Balance Sheet and Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2023.

Results of Operations

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Results of Operations

The tables and discussion below present our results for the three and six months ended June 30, 2023 and 2022 (in thousands):

The tables and discussion below present our results for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Net revenues $ 21,978 $ 10,243 $ 11,735 115 %

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Other income (expense), net:

Interest income (expense), net 806 52 754 1450 %

Gain from change in fair value of warrants — — — — %

Interest income, net 1,695 638 1,057 166 %

Gain (loss) from change in fair value of earnout liabilities 34,473 (6,098) 40,571 (665) %

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Net income (loss) attributable to controlling interests $ 7,519 $ (32,590) 40,109 (123) %

Six Months Ended

June 30, Change

Nine Months Ended

September 30, Change

Net revenues $ 53,399 $ 25,594 $ 27,805 109 %

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Other income (expense), net:

Interest income (expense), net 1,709 28 1,681 6004 %

Interest income, net

3,405 666 2,739 411 %

Gain from change in fair value of warrants — 51,763 (51,763) (100) %

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Net income (loss) attributable to controlling interests $ (112,855) $ 81,039 (193,894) (239) %

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Revenue for the three months ended June 30, 2023 was $18.1 million compared to $8.6 million for the three months ended June 30, 2022, an increase of $9.5 million, or 110%.

The increase reflects a combination of the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers, and the accretive revenue impact from the acquisition of GeneSiC.

Total sales volume increased 121%, from 7.3 million to 16.2 million units shipped, while the average selling price increased 4% to $1.07 per unit.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Revenue for the three months ended September 30, 2023 was $22.0 million compared to $10.2 million for the three months ended September 30, 2022, an increase of $11.7 million, or 115%.

The increase primarily reflects a combination of the Company’s customer growth trajectory, evolving from aftermarket customers to higher volume customers, and the accretive revenue impact from the acquisition of GeneSiC.

Cost of Revenues

Cost of revenues for the three months ended June 30, 2023 was $10.6 million compared to $5.0 for the three months ended June 30, 2022, an increase of $5.5 million or 110%.

The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, in addition to TSMC’s 20% wafer price increase which created a higher cost of revenues.

Cost of revenues for the three months ended September 30, 2023 was $14.9 million compared to $9.9 million for the three months ended September 30, 2022, an increase of $5.0 million or 51%.

The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, in addition to TSMC’s 20% wafer price increase which created a higher cost of revenues, coupled with an inventory reserve of $2.0 million in the three months ended September 30, 2023 primarily related to the exit of product lines.

Research and Development Expense

Research and development expense for the three months ended June 30, 2023 of $16.8 million increased by $7.3 million, or 76%, when compared to the three months ended June 30, 2022, driven by an increase of $3.9 million in stock based compensation and $3.1 million in compensation costs related to growth in headcount.

Research and development expense for the three months ended September 30, 2023 of $16.6 million increased by $5.0 million, or 44%, when compared to the three months ended September 30, 2022, primarily driven by an increase of $1.7 million in compensation costs related to growth in headcount, $1.0 million toward the expansion of new products, and

$0.8 million in stock based compensation.

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 June 30, 2023 of $13.2 million decreased by $0.8 million, or 6%, when compared to the three months ended June 30, 2022, driven by decreases of $2.4 million in stock based compensation, offset by an increase of $1.1 million in headcount costs, $0.3 million in professional fees, and $0.2 million higher transaction expenses.

Selling, general and administrative expense for the three months ended September 30, 2023 of $14.4 million decreased by $9.6 million, or 40%, when compared to the three months ended September 30, 2022, primarily driven by decreases of $5.2 million in transaction expenses and $4.9 million in stock based compensation, offset by an increase of $1.0 million in headcount costs.

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.

Amortization of Definite-Lived Intangible Assets

Amortization of definite-lived intangible assets for the three months ended June 30, 2023 of $4.8 million increased by $4.7 million, or 5582%, when compared to the three months ended June 30, 2022.

The increase is primarily due to business acquisitions that occurred during the fiscal year ended December 31, 2022.

Amortization of Intangible Assets

Amortization of intangible assets for the three months ended September 30, 2023 of $4.8 million increased by $2.5 million, or 113%, when compared to the three months ended September 30, 2022.

The increase is primarily due to business acquisitions that occurred during the fiscal year ended December 31, 2022, resulting in amortization of these intangible assets for only one half of a quarter during the three months ended September 30, 2022, compared to a full quarter of amortization during the three months ended September 30, 2023.

Other Income (Expense), net

Net interest income for the three months ended June 30, 2023 was $0.8 million compared to $0.1 million net interest expense for the three months ended June 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the three months ended June 30, 2023, we recognized a $32.2 million loss from the change in fair value of our earn-out liabilities.

Net interest income for the three months ended September 30, 2023 was $1.7 million compared to $0.6 million net interest income for the three months ended September 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the three months ended September 30, 2023, we recognized a $34.5 million gain 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 $32.2 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 increase in the estimated fair value of the earnout shares from $4.76 as of March 31, 2023 to $8.58 as of June 30, 2023.

The increase in fair value of our earn-out liability of $34.5 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 decrease in the estimated fair value of the earnout shares from $8.58 as of June 30, 2023 to $4.53 as of September 30, 2023.

Income Tax (Benefit) Provision

Income tax provision for the three months ended June 30, 2023 did not change materially when compared to the three months ended June 30, 2022.

Income tax provision for the three months ended September 30, 2023 increased $10.2 million when compared to the income tax benefit of $10.1 million three months ended September 30, 2022.

As a result of the GeneSiC Semiconductor Inc.

acquisition during the three months ended September 30, 2022, the Company released $9.9 million of U.S.

valuation allowance.

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.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Revenue for the six months ended June 30, 2023 was $31.4 million compared to $15.4 million for the six months ended June 30, 2022, an increase of $16.1 million, or 105%.

Total sales volumes increased 69%, from 14.8 million to 25.1 million units shipped, while the average selling price increased 26% to $1.21 per unit.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Revenue for the nine months ended September 30, 2023 was $53.4 million compared to $25.6 million for the nine months ended September 30, 2022, an increase of $27.8 million, or 109%.

The increase for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the same factors discussed above for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Cost of Revenues

Cost of revenues for the six months ended June 30, 2023 was $18.4 million compared to $8.8 million for the six months ended June 30, 2022, an increase of $9.6 million or 110%.

The increase was primarily driven by significant revenue growth, acquisition of GeneSiC, in addition to TSMC’s 20% wafer price increase which created a higher cost of revenues.

Cost of revenues for the nine months ended September 30, 2023 was $33.3 million compared to $18.7 million for the nine months ended September 30, 2022, an increase of $14.7 million or 79%.

Research and Development Expense

Research and development expense for the six months ended June 30, 2023 of $34.2 million increased by $11.3 million, or 50%, when compared to the six months ended June 30, 2022, driven by an increase of $6.6 million in compensation costs related to growth in headcount and $1.4 million toward the expansion of new products, in addition to an increase of $3.2 million in stock based compensation.

Research and development expense for the nine months ended September 30, 2023 of $50.7 million increased by $16.4 million, or 48%, when compared to the nine months ended September 30, 2022, driven by an increase of $8.3 million in compensation costs related to growth in headcount and $2.4 million toward the expansion of new products, in addition to an increase of $3.9 million in stock based compensation.

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, 2023 of $32.2 million decreased by $6.3 million, or 16%, when compared to the six months ended June 30, 2022, driven by decreases of $10.4 million in stock based compensation and $0.6 million in professional fees, partially offset by an increase of $3.1 million in headcount costs and $1.5 million higher transaction expense.

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.

Amortization of Definite-Lived Intangible Assets

Amortization of definite-lived intangible assets for the six months ended June 30, 2023 of $9.3 million increased by $9.1 million, or 5291%, when compared to the six months ended June 30, 2022.

The increase is primarily due to business acquisitions that occurred during the fiscal year ended December 31, 2022.

Selling, general and administrative expense for the nine months ended September 30, 2023 of $46.6 million decreased by $16.0 million, or 26%, when compared to the nine months ended September 30, 2022, driven by decreases of $15.3 million in stock based compensation, $3.8 million lower transaction expense, and $0.3 million in professional fees, partially offset by an increase of $4.1 million in headcount costs 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.

Amortization of Intangible Assets

Amortization of intangible assets for the nine months ended September 30, 2023 of $14.0 million increased by $11.6 million, or 482%, when compared to the nine months ended September 30, 2022.

The increase is primarily due to business acquisitions that occurred during the second-half of fiscal year ended December 31, 2022.

Other Income (Expense), net

Net interest income for the six months ended June 30, 2023 was $1.7 million compared to immaterial net interest expense for the six months ended June 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the six months ended June 30, 2023, we recognized a $60.0 million loss from the change in fair value of our earn-out liabilities.

Net interest income for the nine months ended September 30, 2023 was $3.4 million compared to $0.7 million net interest income for the nine months ended September 30, 2022, primarily due to the higher interest rate received on money markets funds.

During the nine months ended September 30, 2023, we recognized a $25.5 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 $60.0 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 increase in the estimated fair value of the earnout shares from $1.47 as of December 31, 2022 to $8.58 as of June 30, 2022.

The increase in fair value of our earn-out liability of $25.5 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 increase in the estimated fair value of the earnout shares from $1.47 as of December 31, 2022 to $4.53 as of September 30, 2022.

Income Tax (Benefit) Provision

Income tax provision for the six months ended June 30, 2023 did not change materially when compared to the three months ended June 30, 2022.

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

Income tax benefit for the nine months ended September 30, 2023 increased by $9.8 million when compared to the nine months ended September 30, 2022.

The change for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was due to the same factors discussed above for the three month ended September 30, 2023 compared to the three months ended September 30, 2022.

Liquidity and Capital Resources

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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.

As of June 30, 2023, we had cash and cash equivalents of $177.7 million.

As of September 30, 2023, we had cash and cash equiva lents of $176.7 million.

We currently expect to fund our cash requirements through the use of cash on hand.

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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 six months ended June 30, 2023 and 2022 (in thousands):

June 30, 2023 June 30, 2022

The following table summarizes our consolidated cash flows for the nine months ended September 30, 2023 and 2022 (in thousands):

September 30, 2023 September 30, 2022

Consolidated Statements of Cash Flow Data:

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We derive liquidity primarily from debt and equity financing activities.

As of June 30, 2023, our balance of cash and cash equivalents was $177.7 million, which is an increase of $67.4 million or 61% compared to December 31, 2022.

As of September 30, 2023, our balance of cash and cash equivalents was $176.7 million, which is an increase of $66.4 million or 60% compared to December 31, 2022.

Operating Activities

For the six months ended June 30, 2023, net cash used in operating activities was $17.2 million, which primarily reflects a net loss of $120.9 million.

For the nine months ended September 30, 2023, net cash used in operating activities was $17.4 million, which primarily reflects a net loss of $113.4 million.

This decrease to operating cash flows are partially offset by adjustments for non-cash share-based compensation of $41.8 million, non-cash losses of $25.5 million in earnout liabilities, amortization of intangible assets of $14.0 million, and an aggregate cash provided by operating assets and liabilities of $11.5 million.

Specifically, a $11.9 million increase in accounts payable-trade, accrued compensation, and other expenses primarily due to an increase in accrued compensation expense as a result of timing, partially offset by a $6.0 million increase in account receivable and $1.6 million increase in other assets, a $0.7 million increase in prepaid expenses and other, and a decrease in operating lease liabilities of $0.5 million..

Specifically, increases in deferred revenue of $13.3 million, accrued compensation expense of $12.2 million, increases in accrued expenses of $3.2 million, and increases in account payable of $2.5 million, partially offset by a $8.4 million increase in account receivable and $1.6 million increase in other assets, a $0.9 million increase in prepaid expenses and other, and a decrease in operating lease liabilities of $1.5 million.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2023 of $2.7 million was primarily due to $1.0 million cash funding of a joint venture and $1.7 million for purchases of fixed assets.

Net cash used in investing activities for the nine months ended September 30, 2023 of $4.4 million was primarily due to $1.0 million cash funding of a joint venture and $3.4 million for purchases of fixed assets.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2023 of $87.3 million was primarily due to proceeds from the issuance of common stock in May 2023 of $86.9 million and proceeds from stock option exercises of $0.9 million, offset by the payment of May 2023 public offering costs of $0.5 million.

Net cash provided by financing activities for the nine months ended September 30, 2023 of $88.2 million was primarily due to proceeds from the issuance of common stock in May 2023 of $86.9 million and proceeds from stock option exercises of $1.8 million, offset by the payment of May 2023 public offering costs of $0.5 million.

Contractual Obligations, Commitments and Contingencies

In the ordinary course of business, we enter into contractual arrangements that may require future cash payments.

As of June 30, 2023, our non-cancellable contractual arrangements consisted entirely of lease obligations.

As of September 30, 2023, our non-cancellable contractual arrangements consisted entirely of lease obligations.

Refer to Note 8 - Leases for further information.

Off-Balance Sheet Commitments and Arrangements

As of June 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

As of September 30, 2023, 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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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.

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.

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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.

Since the value of our public float exceeded $700 million as of June 30, 2023, we will cease to be an emerging growth company as of the end of fiscal year 2023 and will become a large accelerated filer, as defined by applicable regulations, effective as of January 1, 2024.

Since the value of our public float exceeded $700 million as of September 30, 2023, we have ceased to be an emerging growth company as of the end of fiscal year 2023 and will become a large accelerated filer, as defined by applicable regulations, effective as of January 1, 2024.

Quantitative and Qualitative Disclosures About Market Risk

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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