What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2023-11-09 · 38 added, 113 removed, 124 unchanged (55% 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, Belgium, China, Taiwan, Thailand and the Philippines, with principal executive offices in Torrance, California.

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

We design, develop and market next-generation power semiconductors including gallium nitride (“GaN”) power integrated circuits (“ICs”, silicon carbide (“SiC”) and associated high-speed silicon system controllers, and digital isolators used in power conversion and charging.

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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.

In the three months ended March 31, 2024 and 2023, we spent approximately 87% and 130%, 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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In connection with the purchase of intellectual property, the Company recognized an intangible asset at its estimated fair value of $4.4 million related to acquired intellectual property.

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, $97.1 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, Virginia.

The future earn-out payments were fair valued at $0.6 million, for a total merger consideration of $244.0 million.

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.

GeneSiC had the option, but not the obligation, to accept returns sold to the distributor.

The Company determined that a $1.7 million return liability should have been recorded as of the close of the acquisition on August 15, 2022.

The Company recorded the return liability as a purchase price adjustment as of June 30, 2023, resulting in an increase to goodwill and accounts payable and other accrued expenses of $1.7 million.

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.

Results of Operations

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• 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.

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 less estimated returns.

We provide a non-conformity warranty which is not sold separately and does not represent a separate performance obligation.

Our product revenue is well diversified across the United States, Europe, and Asia.

Cost of Revenues

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Interest income primarily consists of interest earned from our cash on hand.

Interest Expense

Interest expense primarily consists of interest under our term loan facility, held during the fiscal year 2022.

Legacy Navitas is a dual domesticated corporation for Ireland and U.S.

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Results of Operations

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

The tables and discussion below present our results for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30, Change

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

Cost of revenues (exclusive of amortization of intangible assets included below) 14,878 9,852 5,026 51 %

Operating expenses:

Research and development 16,553 11,526 5,027 44 %

Selling, general and administrative 14,419 24,053 (9,634) (40) %

Amortization of intangible assets 4,774 2,241 2,533 113 %

Total operating expenses 35,746 37,820 (2,074) (5) %

Loss from operations (28,646) (37,429) 8,783 (23) %

Other income (expense), net:

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) %

Other income (expense) 20 (74) 94 (127) %

Total other income (expense), net 36,188 (5,534) 41,722 (754) %

Income (loss) before income taxes 7,542 (42,963) 50,505 (118) %

Income tax (benefit) provision 23 (10,135) 10,158 (100) %

Net income (loss) 7,519 (32,828) 40,347 (123) %

Net loss attributable to noncontrolling interests — (238) 238 — %

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

Nine Months Ended

September 30, Change

March 31, Change

Net revenues $ 23,175 $ 13,358 $ 9,817 73 %

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Other income (expense), net:

Interest income, net

3,405 666 2,739 411 %

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

Interest income 1,682 903 779 86 %

Gain (loss) from change in fair value of earnout liabilities 26,199 (27,752) 53,951 (194) %

Other income (expense) 50 (1,215) 1,265 (104) %

Other income 83 11 72 655 %

Total other income (expense), net 27,964 (26,838) 54,802 (204) %

Income (loss) before income taxes (113,386) 70,939 (184,325) (260) %

Income tax (benefit) provision (13) (9,862) 9,849 (100) %

Net income (loss) (113,373) 80,801 (194,174) (240) %

Loss before income taxes (3,611) (62,304) 58,693 (94) %

Income tax provision 70 61 9 15 %

Net loss (3,681) (62,365) 58,684 (94) %

Net loss attributable to noncontrolling interests — (518) 518 — %

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

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.

Net loss attributable to controlling interests $ (3,681) $ (61,847) 58,166 (94) %

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Revenue for the three months ended March 31, 2024 was $23.2 million compared to $13.4 million for the three months ended March 31, 2023, an increase of $9.8 million, or 73%.

The increase is primarily due to increased sales within the mobile/consumer market.

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.

Cost of revenues for the three months ended March 31, 2024 was $13.7 million compared to $7.9 million for the three months ended March 31, 2023, an increase of $5.8 million or 74%.

The increase was primarily driven by significant revenue growth.

Research and Development Expense

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.

Research and development expense for the three months ended March 31, 2024 of $20.2 million increased by $2.8 million, or 16%, when compared to the three months ended March 31, 2023, primarily driven by an increase in research and development materials by approximately $1.4 million since March 31, 2023 and an increase in research and development stock compensation expense by approximately $0.2 million reflecting increases in research and development personnel.

Selling, General and Administrative Expense

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.

Selling, general and administrative expense for the three months ended March 31, 2024 of $16.1 million decreased by $3.0 million, or 16%, when compared to the three months ended March 31, 2023, primarily driven by lower stock compensation expense in selling, general and administrative compared to March 2023 by around $3.8 million given the stock grant in March 2023 related to the acquisition of the minority interest of the Joint Venture as discussed in Note 15 Noncontrolling Interest.

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.

Amortization of intangible assets for the three months ended March 31, 2024 of $4.8 million increased by $0.3 million, or 6%, when compared to the three months ended March 31, 2023.

The increase is primarily due to business acquisitions resulting in more intangible assets.

Other Income (Expense), net

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.

Net interest income for the three months ended March 31, 2024 was $1.7 million compared to $0.9 million net interest income for the three months ended March 31, 2023, primarily due to the higher interest rate received on money markets funds.

During the three months ended March 31, 2024, we recognized a $26.2 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 $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 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.

The increase in fair value of our earn-out liability of $26.2 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 $4.76 as of March 31, 2023 to $2.42 as of March 31, 2024.

Income Tax Provision

Income tax provision for the three months ended March 31, 2024 increased $0.0 million when compared to the income tax expense of $0.1 million for the three months ended March 31, 2023.

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

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

As of March 31, 2024, we had cash and cash equiva lents of $129.7 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 nine months ended September 30, 2023 and 2022 (in thousands):

September 30, 2023 September 30, 2022

The following table summarizes our consolidated cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

March 31, 2024 March 31, 2023

Consolidated Statements of Cash Flow Data:

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$ (5,398) $ (1,815)

Net cash provided by (used in) financing activities

Net cash provided by financing activities

$ 2,024 $ 221

We derive liquidity primarily from debt and equity financing activities.

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.

We derive liquidity primarily from equity financing activities.

As of March 31, 2024, our balance of cash and cash equivalents was $129.7 million, which is a decrease of $23.2 million or 15% compared to December 31, 2023.

Operating Activities

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, 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.

For the three months ended March 31, 2024, net cash used in operating activities was $19.8 million, which primarily reflects a net loss of $3.7 million.

This decrease to operating cash flows are partially offset by adjustments for non-cash share-based compensation of $13.5 million, non-cash gains of $26.2 million in earnout liabilities, amortization of intangible assets of $4.8 million, and an aggregate cash used in operating assets and liabilities of $7.8 million.

Specifically, increases in inventories of $10 million due to wafer purchases, decreases in customer deposits of $2.9 million partially offset by a $3.7 million decrease in accounts receivable and a decrease in accounts payable, accrued compensation and other expenses of $0.5 million.

Investing Activities

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.

Net cash used in investing activities for the three months ended March 31, 2024 of $5.4 million was primarily due to $2.5 million cash funding of a joint venture and $2.9 million for purchases of fixed assets.

Financing Activities

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.

Net cash provided by financing activities for the three months ended March 31, 2024 of $2.0 million was primarily due to proceeds from stock option exercises of $0.2 million and proceeds from our employee stock purchase plan of $1.8 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 September 30, 2023, our non-cancellable contractual arrangements consisted entirely of lease obligations.

As of March 31, 2024, our non-cancellable contractual arrangements consisted entirely of lease obligations.

Refer to Note 7 - Leases for further information.

Off-Balance Sheet Commitments and Arrangements

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.

As of March 31, 2024, 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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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 2023 annual report on Form 10-K.

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.

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

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.

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