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 worldwide 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. 27 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, data centers, and new energy sectors, which include EV, renewables and energy storage. We evaluate various complementary technologies and look to improve our PDK, in order to keep introducing newer generations of GaN technology. In the three and six months ended June 30, 2025, we spent approximatel y 79% and 85%, resp ectively, of our revenue on research and development. Navitas’ research and development activities are located primarily in the US and China. In the three and six months ended June 30, 2024, we spent approximately 93% and 90%, respectively, of our revenue on research and development. Execution of At-The-Market Agreement On March 19, 2025, we entered into an Open Market Sale Agreement SM (the “Sale Agreement”) with Jefferies LLC (“Jefferies”). We subsequently completed two ATM offerings referred to as ATM One and ATM Two, respectively. Pursuant to each agreement, we may offer and sell, from time to time, shares of its Class A common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million through Jefferies as sales agent. As of June 30, 2025, we completed the sale of shares under both ATM One and ATM Two resulting in approximately 11.1 million shares under ATM One and 8.7 million shares under ATM Two, with gross proceeds of approximately $100.0 million and offering-related costs of $3.3 million in total. 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 to 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 of existing and new distributors; • seasonal demand patterns particularly in mobile and consumer markets. 28 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 and six months ended June 30, 2025 and 2024, excluding channel inventories, were attributable to end customers in the following countries: Three Months Ended June 30, Six Months Ended June 30, Country 2025 2024 2025 2024 China 62 % 66 % 52 % 70 % United States 22 14 26 11 Asia excluding China 9 12 12 10 Europe* 7 8 10 9 Total 100 % 100 % 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 consists 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. 29 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 June 30, 2025 and 2024 (in thousands): Three Months Ended June 30, Change $ Change % 2025 2024 Net revenues $ 14,490 $ 20,468 $ (5,978) (29) % Cost of revenues (exclusive of amortization of intangible assets included below) 12,162 12,478 (316) (3) % Operating expenses: Research and development 11,496 18,971 (7,475) (39) % Selling, general and administrative 7,751 15,382 (7,631) (50) % Amortization of intangible assets 4,734 4,774 (40) (1) % Total operating expenses 23,981 39,127 (15,146) (39) % Loss from operations (21,653) (31,137) 9,484 (30) % Other income (expense), net: Interest income (expense), net 131 (72) 203 (282) % Dividend income 647 1,361 (714) (52) % (Loss) Gain from change in fair value of earnout liabilities (27,964) 7,550 (35,514) (470) % Other income 37 31 6 19 % Total other income (expense), net (27,149) 8,870 (36,019) (406) % Loss before income taxes (48,802) (22,267) (26,535) 119 % Income tax provision 48 61 (13) (21) % Equity method investment loss (225) — (225) — % Net loss $ (49,075) $ (22,328) $ (26,747) 120 % 30 TABLE OF CONTENTS Six Months Ended June 30, Change $ Change % (dollars in thousands) 2025 2024 Net revenues $ 28,508 $ 43,643 $ (15,135) (35) % Cost of revenues (exclusive of amortization of intangible assets included below) 20,873 26,138 (5,265) (20) % Operating expenses: Research and development 24,164 39,200 (15,036) (38) % Selling, general and administrative 19,491 31,469 (11,978) (38) % Amortization of intangible assets 9,468 9,548 (80) (1) % Restructuring expense 1,469 — 1,469 — % Total operating expenses 54,592 80,217 (25,625) (32) % Loss from operations (46,957) (62,712) 15,755 (25) % Other income (expense), net: Interest income (expense), net 93 (70) 163 (233) % Dividend income 1,391 3,041 (1,650) (54) % (Loss) Gain from change in fair value of earnout liabilities (19,851) 33,749 (53,600) (159) % Other income 55 114 (59) (52) % Total other income (expense), net (18,312) 36,834 (55,146) (150) % Loss before income taxes (65,269) (25,878) (39,391) 152 % Income tax provision 130 131 (1) (1) % Equity method investment loss (505) — (505) — % Net loss $ (65,904) $ (26,009) $ (39,895) 153 % Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024 Revenue Revenue for the three months ended June 30, 2025 was $14.5 million compared to $20.5 million for the three months ended June 30, 2024, a decrease of $6.0 million, or 29%. The decline in sales was due to the decline in industrial China markets. Cost of Revenues Cost of revenues for the three months ended June 30, 2025 was $12.2 million compared to $12.5 million for the three months ended June 30, 2024, a decrease of $0.3 million or 3%. The change was primarily driven by a decline in sales offset by a $3.2 million inventory reserve due to demand softness in the China region. Research and Development Expense Research and development expense for the three months ended June 30, 2025 of $11.5 million decreased by $7.5 million, or 39%, when compared to the three months ended June 30, 2024. This is primarily driven by a decrease in stock-based compensation of approximately $6.8 million, of which $4.2 million resulted from the reversal of expense following the resignation of a senior management member who participated in the our 2021 LTIP, coupled with a decrease in headcount and employee costs of $2.7 million as a result of the Company’s reduction in forces, which was partially offset by an expense of $2.2 million due to a NRE impairment. Selling, General and Administrative Expense Selling, general and administrative expense for the three months ended June 30, 2025 of $7.8 million decreased by $7.6 million, or 50%, when compared to the three months ended June 30, 2024. This was primarily driven by a decrease in 31 TABLE OF CONTENTS stock-based compensation of approximately $7.0 million largely resulting from the $4.2 million reversal of expense following the resignation of a senior management member who held 2021 LTIP Options, coupled with a decrease in headcount and employee costs of $1.1 million as a result of the Company’s reduction in forces, which was partially offset by approximately $1.6 million related to governance costs. Amortization of Intangible Assets Amortization of intangible assets remained fairly unchanged as we did not acquire new intangible assets. 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 $0.7 million is primarily due to decreases in our investment balances in June 30, 2025 compared to June 30, 2024. During the three months ended June 30, 2025, we recognized a $28.0 million loss from the change in fair value of our earn-out liabilities. The change of $35.5 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 $1.53 as of June 30, 2024 to $3.31 as of June 30, 2025. Income Tax Provision Income tax provision for the three months ended June 30, 2025 remained relatively flat when compared to the income tax provision of $0.1 million for the three months ended June 30, 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 $0.2 million for the quarter ended June 30, 2025. Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 Revenue Revenue for the six months ended June 30, 2025 was $28.5 million compared to $43.6 million for the six months ended June 30, 2024, a decrease of $15.1 million, or 35%. The decline in sales was due to the decline in mobile and industrial markets. Cost of Revenues Cost of revenues for the six months ended June 30, 2025 was $20.9 million compared to $26.1 million for the six months ended June 30, 2024, a decrease of $5.3 million or 20%. The decrease was primarily driven by a decline in sales coupled with product mix. Research and Development Expense Research and development expense for the six months ended June 30, 2025 of $24.2 million decreased by $15.0 million, or 38%, when compared to the six months ended June 30, 2024. This is primarily driven by a decrease in stock-based compensation of approximately $10.3 million largely resulting from the reversal of expense following the resignation of a senior management member who held 2021 LTIP Options, coupled with a decrease in headcount and employee costs of $4.5 million as a result of the Company’s reduction in forces, and a decline of approximately $2.7 million related to decreases in R&D product development costs, which was partially offset by a $2.2 million NRE impairment. 32 TABLE OF CONTENTS Selling, General and Administrative Expense Selling, general and administrative expense for the six months ended June 30, 2025 of $19.5 million decreased by $12.0 million, or 38%, when compared to the six months ended June 30, 2024. This is primarily driven by a decrease in stock-based compensation of approximately $10.1 million largely resulting from the reversal of expense following the resignation of a senior management member who held 2021 LTIP Options, coupled with a decrease in headcount and employee costs of $2.1 million as a result of the Company’s reduction in forces, which was partially offset by approximately $1.6 million related to governance costs. 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 that 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 six months ended June 30, 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 $1.7 million is primarily due to decreases in our investment balances in June 30, 2025 compared to June 30, 2024. During the six months ended June 30, 2024, we recognized a $19.9 million loss from the change in fair value of our earn-out liabilities. The change of $53.6 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 decrease in the estimated fair value of the earnout shares from $1.53 as of June 30, 2024 to $3.31 as of June 30, 2025. Income Tax Provision Income tax provision for the six months ended June 30, 2025 remained relatively flat when compared to the income tax provision of $0.1 million for the six months ended June 30, 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 $0.5 million for the six months ended June 30, 2025. 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. We entered into an Open Market Sale Agreement SM (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) on March 19, 2025. We subsequently completed ATM One and ATM Two. Each agreement permits us to sell, from time to time, shares of its Class A common stock, par value $0.0001 per share, with an aggregate offering capacity of up to $50.0 million, through Jefferies acting as sales agent. As of June 30, 2025, we had sold approximately 11.1 million shares under ATM One and 8.7 million shares under ATM Two, resulting in gross proceeds of approximately $100.0 million and offering-related costs of $3.3 million in total. 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. 33 TABLE OF CONTENTS As of June 30, 2025, we had cash and cash equiva lents of $161.2 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 and 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 six months ended June 30, 2025 and 2024 (in thousands): June 30, 2025 June 30, 2024 Consolidated Statements of Cash Flow Data: Net cash used in operating activities $ (24,765) $ (34,908) Net cash used in investing activities $ (674) $ (8,139) Net cash provided by financing activities $ 98,540 $ 2,203 We derive liquidity primarily from cash on hand and equity financing activities. As of June 30, 2025, our balance of cash and cash equivalents was $161.2 million, which is a increase of $74.5 million or 86% compared to December 31, 2024. Operating Activities For the six months ended June 30, 2025, net cash used in operating activities was $24.8 million, which primarily reflects a net loss of $65.9 million, adjusted for a non-cash loss of $19.9 million related to changes in the fair value of our earnout liability, amortization of intangible assets of $9.5 million, non-cash stock-based compensation of $6.1 million, depreciation and amortization of $1.7 million offset by aggregate cash inflows from changes in operating assets and liabilities of $2.0 million. Specifically, operating cash flow was mainly impacted by decreases in other assets of $1.0 million, decreases in accounts receivable of $0.8 million, increases in accounts payable of $0.7 million , decreases in inventories of $0.4 million, partially offset with decreases in lease liabilities related to lease payments of $0.8 million. For the six months ended June 30, 2024, net cash used in operating activities was $34.9 million, which primarily reflects a net loss of $26.0 million. This decrease to operating cash flows is partially offset by adjustments for non-cash share-based compensation of $26.6 million, depreciation of $1.4 million, non-cash gains of $33.7 million in earnout liabilities, amortization of intangible assets of $9.5 million, and an aggregate cash used in operating assets and liabilities of $14.0 million. Specifically, increases in inventories of $3.0 million due to sales increases coupled with decreases in accounts payable, accrued compensation and other expenses of $10.4 million and customer deposits and deferred revenue of $4.7 million, partially offset by decreases in accounts receivable of $3.2 million and prepaid expenses and other current assets of $1.4 million. Investing Activities Net cash used in investing activities for the six months ended June 30, 2025 was primarily attributable to fixed asset purchases of $0.7 million. 34 TABLE OF CONTENTS Net cash used in investing activities for the six months ended June 30, 2024 of $8.1 million was primarily due to $2.5 million cash funding of a joint venture and $5.6 million for purchases of fixed assets. Financing Activities Net cash provided by financing activities for the six months ended June 30, 2025 of $98.5 million was primarily due to proceeds from stock option exercises related to our ATM offering of $100.0 million, proceeds from stock option exercises of $1.0 million, and proceeds from our employee stock purchase plan of $0.8 million. This was partially offset by the cost of our ATM offerings of $3.3 million. Net cash provided by financing activities for the six months ended June 30, 2024 of $2.2 million was primarily due to proceeds from stock option exercises of $0.4 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 June 30, 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 June 30, 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. 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.