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 Navitas Semiconductor Corporation, a Delaware holding company, operates through its wholly owned subsidiaries, including Navitas Semiconductor Limited and GeneSiC Semiconductor LLC (“GeneSiC”). Originally founded in 2014 as the Legacy Navitas Semiconductor business (“Legacy Navitas”), we were previously an SEC registrant named Live Oak Acquisition Corp. II (“Live Oak”). On October 19, 2021, we completed a business combination (which we refer to as the “Business Combination”) in which, among other transactions, Live Oak acquired Navitas Semiconductor Limited and its subsidiaries, and changed our name to Navitas Semiconductor Corporation. We acquired GeneSiC Semiconductor in August 2022. Further details about the Business Combination and the acquisition of GeneSiC Semiconductor can be found in our SEC filings. Founded in 2014, 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, 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. 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 10 of the top 10 world-wide mobile OEMs across smartphone and laptops 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. 25 TABLE OF CONTENTS 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 three months ended March 31, 2025 and 2024, we spent approximatel y 90% and 87% , respectively, of our revenue on research and development. Navitas’ research and development activities are located primarily in the US and China. Execution of At-The-Market Agreement On March 19, 2025, the Company entered into an At-The-Market Offering Agreement (the "ATM Agreement") with Jefferies LLC ("Jefferies") for the sale of shares of its Class A common stock, par value $0.0001 per share. Under the terms of the ATM Agreement, the Company may offer and sell shares of its Class A common stock having an aggregate offering price of up to $50,000,000 from time to time through Jefferies, acting as the sales agent. As of March 31, 2025, the Company has not sold any shares under the ATM agreement. In connection with establishing the ATM program, the Company incurred offering-related costs of approximately $0.3 million. 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. • declines in average selling prices due product advances and market competition; • changes in customer and distributor relationships including the impact of the Q4 2024 disengagement with a significant distributor and the ability to replace the associated volumes with a combination existing and new distributors; • seasonal demand patterns particularly in mobile and consumer markets. 26 TABLE OF CONTENTS 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. Our product revenue is diversified across the United States, Europe, and Asia. We consider the domicile of our end customers, rather than the distributors we sell to directly to be the basis of attributing revenues from external customers to individual countries. Revenue for the three months ended March 31, 2025 and 2024, excluding channel inventories, were attributable to end customers in the following countries: Three Months Ended March 31, Country 2025 2024 China 41 % 60 % United States 31 16 Europe* 15 8 Asia excluding China 13 15 All others — 1 Total 100 % 100 % *Impractical to disclose revenue percentages by individual countries within Europe and therefore is presented in total. Cost of Revenues Cost of Revenues 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 impairments, consumables, system and shipping costs. Cost of revenues also includes compensation related to personnel associated with manufacturing, including costs related to cash and stock-based employee compensation. 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 stock-based employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third-party fees paid to consultants, prototype development expenses, write-offs of material to be utilized in research and development, 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 stock-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 professional fees and legal settlements, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred. Interest Income (Expense), net Interest income (expense), net primarily consists of interest associated with our royalty agreement. Dividend Income Dividend income consist of income earned on money market treasury funds that are recorded as cash equivalents. Income Taxes Legacy Navitas is a dual domesticated corporation for Ireland and U.S. federal income tax purposes. Refer to Note 13 - “Provision for Income Taxes”, in our accompanying condensed consolidated financial statements elsewhere in this quarterly report. 27 TABLE OF CONTENTS Equity method investment loss Equity method investment loss consists of our proportionate share of our joint venture’s loss, which we began recognizing in October 2024 when we started accounting for the investment under the equity method. Results of Operations The tables and discussion below present our results for the three months ended March 31, 2025 and 2024 (in thousands): Three Months Ended March 31, Change $ Change % 2025 2024 Net revenues $ 14,018 $ 23,175 $ (9,157) (40) % Cost of revenues (exclusive of amortization of intangible assets included below) 8,711 13,660 (4,949) (36) % Operating expenses: Research and development 12,668 20,229 (7,561) (37) % Selling, general and administrative 11,740 16,087 (4,347) (27) % Amortization of intangible assets 4,734 4,774 (40) (1) % Restructuring expense 1,469 — 1,469 — % Total operating expenses 30,611 41,090 (10,479) (26) % Loss from operations (25,304) (31,575) 6,271 (20) % Other income (expense), net: Interest income (expense), net (38) 2 (40) (2000) % Dividend income 744 1,680 (936) (56) % Gain from change in fair value of earnout liabilities 8,113 26,199 (18,086) (69) % Other income 18 83 (65) (78) % Total other income, net 8,837 27,964 (19,127) (68) % Loss before income taxes (16,467) (3,611) (12,856) 356 % Income tax provision 82 70 12 17 % Equity method investment loss (280) — (280) — % Net loss $ (16,829) $ (3,681) $ (13,148) 357 % Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024 Revenue Revenue for the three months ended March 31, 2025 was $14.0 million compared to $23.2 million for the three months ended March 31, 2024, a decrease of $9.2 million, or 40%. The decline in sales was due to the decline in mobile, EV, and industrial markets. Cost of Revenues Cost of revenues for the three months ended March 31, 2025 was $8.7 million compared to $13.7 million for the three months ended March 31, 2024, a decrease of $4.9 million or 36%. The decrease was primarily driven by a decline in sales coupled with product mix. 28 TABLE OF CONTENTS Research and Development Expense Research and development expense for the three months ended March 31, 2025 of $12.7 million decreased by $7.6 million, or 37%, when compared to the three months ended March 31, 2024. This is primarily driven by a decrease in stock-based compensation of approximately $3.5 million, coupled with a decrease in headcount and employee costs as a result of the Company’s 2024 reduction in force (“2024 Restructuring Plan”) announced in Q4 of fiscal year 2024. Additionally, decline of approximately $1.9 million related to decreases in R&D product development costs. Selling, General and Administrative Expense Selling, general and administrative expense for the three months ended March 31, 2025 of $11.7 million decreased by $4.3 million, or 27%, when compared to the three months ended March 31, 2024. This was primarily driven by a decrease in stock-based compensation of approximately $3.0 million, coupled with a decrease in headcount and employee costs as a result of the Company’s 2024 reduction in force (“2024 Restructuring Plan”) announced in Q4 of fiscal year 2024. Amortization of Intangible Assets Amortization of intangible assets remained fairly the same as we did not acquire new intangible assets. Restructuring Expenses We announced cost-reduction plans (“2024 Restructuring Plan” and “2025 Restructuring Plan”). The plans include a reduction in headcount with the majority of the costs consisting of employee severance and benefits. We incurred $1.5 million related to this plan for the three months ended March 31, 2025. Other Income (Expense), net Dividend income consists of income earned on our money market treasury funds that are recorded as cash equivalents on our consolidated balance sheet. Decrease of $0.9 million is primarily due to decreases in our investment balances in March 31, 2025 compared to March 31, 2024. During the three months ended March 31, 2025, we recognized a $8.1 million gain from the change in fair value of our earn-out liabilities. The decrease in the gain of our earn-out liabilities of $18.1 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 $2.42 as of March 31, 2024 to $0.24 as of March 31, 2025. Income Tax Provision Income tax provision for the three months ended March 31, 2025 remained relatively flat when compared to the income tax benefit of $0.1 million for the three months ended March 31, 2024. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets. Equity method investment loss In October 2024, we began applying the equity method to account for our joint venture investment. We recognized our proportionate share of the joint venture’s loss from the quarter, resulting in a net loss of $0.3 million for the quarter ended March 31, 2025. 29 TABLE OF CONTENTS Liquidity and Capital Resources Our primary use of cash is to fund our operating expenses, working capital requirements, and outlays for strategic investments and acquisitions. In addition, we use cash to conduct research and development, incur capital expenditures, and fund our debt service obligations. On March 19, 2025, the Company entered into an At-The-Market Offering Agreement (the "ATM Agreement") with Jefferies LLC for the sale of up to $50,000,000 of its Class A common stock. Under the agreement, the Company may sell shares from time to time through Jefferies as the sales agent. As of March 31, 2025, the Company has not sold any shares related to the ATM Agreement. 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. 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 March 31, 2025, we had cash and cash equiva lents of $75.1 million. We currently expect to fund our cash requirements through the use of cash on hand. We believe that our current levels of cash and cash equivalents are 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 equity or 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. Cash Flows The following table summarizes our consolidated cash flows for the three months ended March 31, 2025 and 2024 (in thousands): March 31, 2025 March 31, 2024 Consolidated Statements of Cash Flow Data: Net cash used in operating activities $ (13,533) $ (19,783) Net cash used in investing activities $ (41) $ (5,398) Net cash provided by financing activities $ 949 $ 2,024 We derive liquidity primarily from cash on hand and equity financing activities. As of March 31, 2025, our balance of cash and cash equivalents was $75.1 million, which is a decrease of $11.6 million or 13% compared to December 31, 2024. Operating Activities For the three months ended March 31, 2025, net cash used in operating activities was $13.5 million, which primarily reflects a net loss of $16.8 million, adjusted for a non-cash gain of $8.1 million related to changes in the fair value of our earnout liability, non-cash stock-based compensation of $7.0 million, amortization of intangible assets of $4.7 million, depreciation of $0.8 million and an aggregate cash used in operating assets and liabilities of $2.2 million. Specifically, operating cash flow was mainly impacted by increases in inventories of $0.6 million, increases in prepaid expenses and other current assets of $0.6 million, decreases in lease liabilities of $0.5 million, a decrease in accounts payable, accrued compensation, and other accrued expenses of $1.7 million, partially offset with decreases in accounts receivables of $1.2 million. 30 TABLE OF CONTENTS 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 offset by adjustments for non-cash stock-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 three months ended March 31, 2025 was primarily attributable to minimal fixed asset purchases. 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 three months ended March 31, 2025 of $0.9 million was primarily due to proceeds from stock option exercises of $0.1 million and proceeds from our employee stock purchase plan of $0.8 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 March 31, 2025, our non-cancellable contractual arrangements consisted of lease obligations and an agreement for the purchase of equipment. Refer to Note 8 - “Leases” for further information on our minimum future payments related to lease obligations. In December 2024, we entered into an agreement with a vendor for the purchase of equipment, requiring quarterly installment payments. Refer to Note 15 - “Commitments and Contingencies” for additional details on purchase obligations. Off-Balance Sheet Commitments and Arrangements As of March 31, 2025, 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. 31 TABLE OF CONTENTS 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 2024 annual report on Form 10-K.