Astera Labs, Inc.(ALAB) - 2024 Q2 - Quarterly Report

Part I - Financial Information Comprehensive financial data including statements, management's analysis, market risks, and internal controls Item 1. Financial Statements (Unaudited) Presents Astera Labs' unaudited financial statements and notes, detailing revenue growth, operating expenses, and post-IPO liquidity Condensed Consolidated Balance Sheets Presents the company's financial position, highlighting assets, liabilities, and equity at specific dates | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change (YoY) | | :---------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Cash and cash equivalents | $421,076 | $45,098 | +$375,978 | | Marketable securities | $409,919 | $104,215 | +$305,704 | | Total current assets | $891,245 | $185,807 | +$705,438 | | Total assets | $915,515 | $196,292 | +$719,223 | | Total current liabilities | $64,073 | $35,079 | +$28,994 | | Total liabilities | $70,263 | $38,866 | +$31,397 | | Total Stockholders' Equity (Deficit) | $845,252 | $(97,701) | +$942,953 | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss over specific reporting periods | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :---------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenue | $76,850 | $10,688 | $142,108 | $28,352 | | Gross profit | $59,854 | $8,439 | $110,374 | $12,697 | | Total operating expenses | $84,201 | $26,052 | $217,688 | $49,237 | | Operating loss | $(24,347) | $(17,613) | $(107,314) | $(36,540) | | Net loss | $(7,546) | $(20,004) | $(100,541) | $(37,458) | | Basic and diluted net loss per share | $(0.05) | $(0.55) | $(0.97) | $(1.03) | Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) Outlines changes in equity, including preferred stock conversion and stock-based compensation impacts - Conversion of 90,891 thousand shares of redeemable convertible preferred stock into common stock, eliminating preferred stock, and issuance of 19,759 thousand shares of common stock in connection with IPO, resulting in $665,990 thousand in additional paid-in capital[19] - Total Stockholders' Equity (Deficit) shifted from $(97,701) thousand as of December 31, 2023, to $845,252 thousand as of June 30, 2024[19] - Recognized $140,835 thousand in stock-based compensation for the six months ended June 30, 2024[19] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities | Metric | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | Change (YoY) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :----------- | | Net cash provided by (used in) operating activities | $33,465 | $(26,781) | +$60,246 | | Net cash (used in) provided by investing activities | $(306,722) | $44,461 | $(351,183) | | Net cash provided by (used in) financing activities | $649,235 | $(87) | +$649,322 | | Net increase in cash and cash equivalents | $375,978 | $17,593 | +$358,385 | | Cash and cash equivalents, End of period | $421,076 | $93,681 | +$327,395 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the financial statements 1. Nature of Business and Summary of Significant Accounting Policies Describes Astera Labs' business, its Intelligent Connectivity Platform, and significant accounting policies, including IPO details - Astera Labs, Inc. offers an Intelligent Connectivity Platform, comprising semiconductor-based, high-speed, mixed-signal connectivity products and the COSMOS software suite, embedded in its products and integrated into customer systems[23] - The platform addresses data, network, and memory bottlenecks, scalability, and infrastructure requirements for hyperscalers and system OEMs[23] - On March 22, 2024, the Company completed its IPO, selling 19,758,903 shares of common stock at $36.00 per share, generating net proceeds of $672.2 million[28] - Immediately prior to the IPO, all 90,890,650 outstanding shares of Preferred Stock were converted into common stock and cancelled[29] 2. Segment and Geographical Information Provides insights into the company's operating segments, geographical revenue distribution, and asset locations - The CEO reviews financial information on a consolidated basis, and the company manages operations as a single operating segment[33] | Region | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Taiwan | $63,955 | $569 | $123,528 | $10,303 | | United States | $4,499 | $6,222 | $5,356 | $11,592 | | Netherlands | $- | $2,412 | $- | $4,919 | | Other | $8,396 | $1,485 | $13,224 | $1,538 | | Total | $76,850 | $10,688 | $142,108 | $28,352 | | Customer | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--------- | :------------------------------- | :----------------------------- | | Customer A | 41% | 44% | | Customer B | 24% | 30% | | Customer C | 18% | 13% | - As of June 30, 2024, 25% of property and equipment was located in the United States and 73% in Taiwan, a shift from substantially all in the US as of December 31, 2023[38] 3. Marketable Securities Details the composition, fair value, and maturity profile of the company's marketable securities portfolio | Security Type | Amortized Cost (June 30, 2024) | Fair Value (June 30, 2024) | Amortized Cost (Dec 31, 2023) | Fair Value (Dec 31, 2023) | | :--------------------------- | :----------------------------- | :------------------------- | :---------------------------- | :-------------------------- | | Money market funds | $141,349 | $141,349 | $757 | $757 | | U.S. treasury & agency securities | $268,000 | $267,988 | $60,328 | $60,475 | | Corporate debt securities | $239,793 | $239,678 | $23,552 | $23,639 | | Commercial paper | $145,161 | $145,069 | $8,763 | $8,758 | | Foreign government bonds | $498 | $498 | - | - | | Asset-backed securities | $21,822 | $21,803 | $12,059 | $12,065 | | Total Marketable Securities | $816,737 | $816,385 | $105,459 | $105,694 | - The majority of marketable securities mature within one year ($554.5 million fair value as of June 30, 2024)[42] - The company uses a three-level fair value hierarchy, with most assets valued using Level 1 (money market funds) and Level 2 (other marketable securities) inputs[44][46] 4. Condensed Consolidated Balance Sheet Components Breaks down key balance sheet items, including inventory, property and equipment, and various liabilities Inventory Details the composition and changes in raw materials, work-in-progress, and finished goods inventory | Inventory Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change | | :--------------- | :----------------------------- | :------------------------------- | :----- | | Raw materials | $1,664 | $2,247 | $(583) | | Work-in-progress | $10,915 | $11,780 | $(865) | | Finished goods | $15,993 | $10,068 | +$5,925 | | Total inventory | $28,572 | $24,095 | +$4,477 | Property and Equipment, Net Outlines the company's fixed assets, including construction in progress and laboratory equipment | Asset Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change | | :-------------------------- | :----------------------------- | :------------------------------- | :----- | | Construction in progress | $16,013 | $0 | +$16,013 | | Laboratory equipment | $8,367 | $6,470 | +$1,897 | | Total property and equipment, net | $21,821 | $4,712 | +$17,109 | - Construction in progress primarily includes capitalized production mask costs, which will depreciate upon manufacturing commencement[48] Accrued Expenses and Other Current Liabilities Presents short-term obligations such as compensation, production mask costs, and customer deposits | Liability Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change | | :---------------------------------- | :----------------------------- | :------------------------------- | :----- | | Accrued compensation and benefits | $16,325 | $14,923 | +$1,402 | | Production mask costs | $13,509 | $0 | +$13,509 | | Customer deposits | $5,000 | $0 | +$5,000 | | Total accrued expenses and other current liabilities | $49,478 | $28,742 | +$20,736 | Other Liabilities Details non-current liabilities, including income taxes and other long-term obligations | Liability Type | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | Change | | :--------------- | :----------------------------- | :------------------------------- | :----- | | Income taxes | $4,890 | $1,394 | +$3,496 | | Other | $1,300 | $2,393 | $(1,093) | | Total other liabilities | $6,190 | $3,787 | +$2,403 | 5. Commitments and Contingencies Covers the company's contractual obligations, legal proceedings, and indemnification agreements Purchase Commitments Summarizes future contractual obligations for purchases and cloud services | Year | Purchase Commitments (in thousands) | | :----------- | :-------------------------------- | | Remainder of 2024 | $600 | | 2025 | $4,341 | | Total | $4,941 | - The company has a cloud service agreement with a vendor for $2.0 million annually from 2024 through 2025 for R&D cloud hosting services[52] Legal Proceedings Confirms the absence of material legal proceedings or claims against the company - The company is not currently a party to any material legal proceedings or claims that could have a material adverse effect on its business[53] Indemnification Obligations Describes the company's standard indemnification provisions and historical experience - The company includes standard indemnification provisions in agreements but has not incurred significant expenses from these obligations in the past[54] 6. Redeemable Convertible Preferred Stock, Undesignated Preferred Stock, and Common Stock Details changes in the company's capital structure, including preferred stock conversion and common stock authorization Redeemable Convertible Preferred Stock Details the conversion of all outstanding preferred stock into common stock prior to the IPO - All 90.9 million outstanding shares of convertible Preferred Stock were automatically converted into common stock and cancelled immediately prior to the IPO[55] Undesignated Preferred Stock Reports the authorization of undesignated preferred stock with no shares issued - 100,000,000 shares of undesignated preferred stock were authorized in connection with the IPO, with no shares issued as of June 30, 2024[56] Common Stock Describes the increase in authorized common stock in connection with the IPO - Authorized common stock increased from 162.6 million shares to 1 billion shares in connection with the IPO[57] 7. Common Stock Warrants Provides information on warrants issued to a customer, including vesting conditions and revenue impact - Warrants were issued to a customer in October 2022 (1,484,230 shares) and October 2023 (831,945 shares) at an exercise price of $20.34 per share, vesting contingent on global payments by the customer[58] - As of June 30, 2024, 290,355 shares underlying the warrants were vested and exercisable, with an additional 42,693 shares probable of vesting[58] - The company recognized $0.3 million and $0.4 million as a reduction of revenue for the three and six months ended June 30, 2024, respectively, related to these warrants[58] 8. Stock-Based Compensation Details the company's equity incentive plans, stock options, restricted stock units, and related compensation expenses | Expense Category | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Cost of revenue | $84 | $2 | $612 | $7 | | Research and development | $12,971 | $1,672 | $42,978 | $3,351 | | Sales and marketing | $15,758 | $694 | $65,016 | $695 | | General and administrative | $14,254 | $304 | $32,229 | $616 | | Total | $43,067 | $2,672 | $140,835 | $4,669 | - Stock-based compensation expense for the six months ended June 30, 2024, included $88.9 million related to the cumulative vesting and settlement of RSUs upon the IPO[65] Amended and Restated 2018 Equity Incentive Plan Details the termination of the 2018 plan and transition to the 2024 plan - The 2018 Plan, which granted stock options and RSUs, was terminated in March 2024, with future grants under the 2024 Plan[59][60] 2024 Stock Option and Incentive Plan Outlines the new equity incentive plan, including reserved shares and effective date - The 2024 Plan, effective March 19, 2024, initially reserved 12,362,662 shares of common stock for issuance, with annual automatic increases[61] 2024 Employee Stock Purchase Plan Describes the ESPP, including reserved shares and participant purchase terms - The ESPP, effective March 19, 2024, initially reserved 3,090,666 shares, with annual automatic increases[62] - Participants can purchase shares at 85% of the lesser of the fair market value on the first or last trading day of the offering period[64] Stock Option Provides details on outstanding stock options, exercise prices, and unrecognized compensation costs | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------------- | :----------------------------- | :------------------------------- | | Number of Shares Outstanding | 9,182 | 10,059 | | Weighted Average Exercise Price | $0.86 | $0.84 | | Aggregate Intrinsic Value | $547,676 | $175,790 | - Unrecognized compensation cost for unvested options was $14.1 million as of June 30, 2024, to be recognized over 1.2 years[66] Restricted Stock Units Presents information on outstanding RSUs, their fair value, and unrecognized compensation expense | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------------- | :----------------------------- | :------------------------------- | | Number of Restricted Stock Units Outstanding | 12,782 | 8,583 | | Weighted Average Grant Date Fair Value | $24.30 | $13.34 | - The aggregate fair value of RSUs that vested and settled during the six months ended June 30, 2024, was $128.1 million[67] - Unrecognized stock-based compensation expense for unvested awards was $222.1 million as of June 30, 2024, to be recognized over 1.7 years[68] 9. Net Loss per Common Share Calculates basic and diluted net loss per common share, considering potentially dilutive securities | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders (in thousands) | $(7,546) | $(20,004) | $(100,541) | $(37,458) | | Weighted-average shares used in computing net loss per share, basic and diluted (in thousands) | 155,199 | 36,567 | 103,865 | 36,199 | | Net loss per share, basic and diluted | $(0.05) | $(0.55) | $(0.97) | $(1.03) | - Potentially dilutive securities (options, RSUs, warrants, ESPP) were excluded from diluted EPS calculations as they were anti-dilutive due to the net loss position[69][70] 10. Income Taxes Analyzes the company's income tax provision, effective tax rate, and deferred tax assets | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Income tax (benefit) provision | $(6,537) | $3,946 | $6,045 | $4,069 | | Effective tax rate | 46.4% | (24.6)% | (6.4)% | (12.19)% | - The effective tax rate differs from the statutory rate due to a valuation allowance on federal and state deferred tax assets and the capitalization of R&D expenditures under Section 174, which results in current tax expense despite pre-tax losses[71][72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Astera Labs' financial performance, focusing on revenue growth, IPO impact, R&D, liquidity, and non-GAAP measures Overview Introduces Astera Labs' mission, Intelligent Connectivity Platform, key products, and financial performance trends - Astera Labs' mission is to innovate and deliver semiconductor-based connectivity solutions for cloud and AI infrastructure, addressing data, network, and memory bottlenecks[76][79] - The company's Intelligent Connectivity Platform includes semiconductor products (ICs, boards, modules) and the COSMOS software suite, supporting high-performance cloud and AI infrastructure[77][78][80] - Products like Aries PCIe/CXL Smart DSP Retimers, Taurus Ethernet Smart Cable Modules, and Leo CXL Memory Connectivity Controllers are at the heart of major AI platforms[81] - Revenue grew significantly from $34.8 million in 2021 to $115.8 million in 2023, driven by demand for products like Aries, but the company has not yet achieved annual profitability due to R&D investments[81] Summary of Financial Highlights Summarizes key financial performance metrics, including revenue growth, gross margin, and operating expense changes - Revenue for Q2 2024 increased by 619% YoY, and for the six months ended June 30, 2024, by 401% YoY, primarily due to higher demand for Aries products[83][84] - Gross margin decreased by 110 bps to 77.9% for Q2 2024 due to inventory write-downs, but increased by 3,290 bps to 77.7% for the six months ended June 30, 2024, due to increased shipments, product mix, and reduced inventory write-downs[83][84] - Operating expenses increased by 223% for Q2 2024 and 342% for the six months ended June 30, 2024, largely driven by $40.3 million and $135.6 million, respectively, in non-cash stock-based compensation expense from RSU vesting and increased personnel-related expenses[85][86] Initial Public Offering Details the net proceeds from the IPO and its impact on stock-based compensation and tax obligations - The IPO on March 22, 2024, generated net proceeds of $672.2 million for the company[87] - In connection with the IPO, $88.9 million of cumulative stock-based compensation expense was recognized due to RSU vesting, and a $20.1 million tax withholding obligation was paid[87] Key Components of Results of Operations Explains the primary components influencing the company's financial results, including revenue and various expenses Revenue Explains the primary sources of revenue, mainly product sales - The vast majority of revenue comes from product sales (Intelligent Connectivity Platform solutions), with a small portion from engineering services[88] Cost of Revenue Details the components contributing to the cost of goods sold - Cost of revenue includes materials (wafers), packaging, assembly, shipping, depreciation, logistics, quality assurance, warranty, amortization of production masks, personnel costs (including stock-based compensation), and inventory write-downs[90] Gross Profit and Gross Margin Defines gross profit and factors influencing gross margin - Gross profit is revenue less cost of revenue, and gross margin is influenced by sales volume, pricing, product costs, contract manufacturing, personnel, shipping, and inventory write-downs[91] Operating Expenses Describes the categories of operating expenses, with personnel costs as a key component - Operating expenses comprise research and development, sales and marketing, and general and administrative expenses, with personnel costs (salaries, stock-based compensation, benefits, bonuses) being the most significant component[92] Research and Development Outlines R&D expenditures and future expectations - R&D expenses include personnel costs, pre-production engineering mask costs, software licenses, prototype costs, and allocated facilities[93] - These costs are expensed as incurred, except for production masks with alternative future use[93] - The company expects R&D expenses to increase in absolute dollars but moderately decline as a percentage of revenue over time[94] Sales and Marketing Details S&M expenses and anticipated trends - S&M expenses include personnel costs, samples, travel, and allocated facilities[95] - S&M expenses are expected to increase in absolute dollars with expanded personnel and customer engagement but moderately decline as a percentage of revenue[95] General and Administrative Explains G&A expenses and expected changes as a public company - G&A expenses include personnel costs for corporate, finance, legal, and HR, professional services, audit, compliance, insurance, and allocated facilities[96] - G&A expenses are expected to increase in absolute dollars due to public company operations but moderately decline as a percentage of revenue[97] Interest Income Describes income generated from short-term investments and cash balances - Interest income is earned on short-term investments, cash, and cash equivalents[98] Income Tax Provision Covers U.S. federal, state, and foreign income taxes and valuation allowances - Income tax provision includes U.S. federal, state, and foreign income taxes[99] - A full valuation allowance is maintained on federal and state deferred tax assets[99] Results of Operations Provides a detailed analysis of the company's financial performance for the reported periods Revenue Analyzes the drivers of revenue changes for the reported periods | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :------ | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | Revenue | $76,850 | $10,688 | $66,162 | 619% | | Six Months Ended June 30, 2024 vs 2023 | | | | | | Revenue | $142,108 | $28,352 | $113,756 | 401% | - Revenue increases were primarily due to a 555% (three months) and 399% (six months) increase in overall shipments, driven by higher demand for Aries products and an increased mix of second-generation Aries retimers with higher average selling prices[100][101] Cost of Revenue Examines the factors contributing to changes in cost of revenue | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | Cost of revenue | $16,996 | $2,249 | $14,747 | 656% | | Six Months Ended June 30, 2024 vs 2023 | | | | | | Cost of revenue | $31,734 | $15,655 | $16,079 | 103% | - Cost of revenue increased due to higher shipments and inventory write-downs (three months), partially offset by lower average unit cost[102] - For the six months, the increase was also offset by an $8.2 million decrease in inventory write-downs compared to the prior year[104] Gross Profit and Gross Margin Discusses the trends and reasons for changes in gross profit and margin | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Change (Amount) | Change (%) | | :----------- | :------------------------------- | :------------------------------- | :-------------- | :--------- | | Gross profit | $59,854 | $8,439 | $51,415 | 609% | | Gross margin | 77.9% | 79.0% | (110) bps | | | Six Months Ended June 30, 2024 vs 2023 | | | | | | Gross profit | $110,374 | $12,697 | $97,677 | 769% | | Gross margin | 77.7% | 44.8% | 3,290 bps | | - Gross margin decreased for the three months due to inventory write-downs but increased significantly for the six months due to increased shipments, product mix, and reduced inventory write-downs[107][108] Research and Development Analyzes the increases in R&D expenses, including stock-based compensation | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | R&D expense | $40,089 | $17,860 | $22,229 | 124% | | Percentage of revenue | 52% | 167% | | | | Six Months Ended June 30, 2024 vs 2023 | | | | | | R&D expense | $93,647 | $33,127 | $60,520 | 183% | | Percentage of revenue | 66% | 117% | | | - R&D expense increases were driven by $11.3 million (three months) and $39.6 million (six months) in non-cash stock-based compensation from RSU vesting, higher personnel costs due to headcount increases (54% for three months, 47% for six months), and increased software licenses/cloud hosting[109][110] Sales and Marketing Examines the increases in S&M expenses, including stock-based compensation | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | S&M expense | $22,076 | $5,097 | $16,979 | 333% | | Percentage of revenue | 29% | 48% | | | | Six Months Ended June 30, 2024 vs 2023 | | | | | | S&M expense | $77,586 | $9,490 | $68,096 | 718% | | Percentage of revenue | 55% | 33% | | | - S&M expense increases were primarily due to $15.1 million (three months) and $64.3 million (six months) in non-cash stock-based compensation from RSU vesting, and higher personnel costs due to headcount increases (32% for three months, 17% for six months)[111][112] General and Administrative Analyzes the increases in G&A expenses, including stock-based compensation and public company costs | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | G&A expense | $22,036 | $3,095 | $18,941 | 612% | | Percentage of revenue | 29% | 29% | | | | Six Months Ended June 30, 2024 vs 2023 | | | | | | G&A expense | $46,455 | $6,620 | $39,835 | 602% | | Percentage of revenue | 33% | 23% | | | - G&A expense increases were mainly due to $14.0 million (three months) and $31.6 million (six months) in non-cash stock-based compensation from RSU vesting, higher personnel costs due to headcount increases (108% for three months, 72% for six months), and increased professional services fees for public company infrastructure[113][114] Interest Income Discusses the significant increase in interest income due to IPO proceeds and rates | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :-------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | Interest income | $10,264 | $1,555 | $8,709 | 560% | | Six Months Ended June 30, 2024 vs 2023 | | | | | | Interest income | $12,818 | $3,151 | $9,667 | 307% | - Interest income increased significantly due to higher average short-term investments and cash equivalents balances, primarily resulting from the IPO proceeds, and higher interest rates[116] Income Tax (Benefit) Provision Explains the changes in income tax benefit/provision and effective tax rates | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Change (Amount) | Change (%) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------- | :--------- | | Income tax (benefit) provision | $(6,537) | $3,946 | $(10,483) | (266)% | | Six Months Ended June 30, 2024 vs 2023 | | | | | | Income tax (benefit) provision | $6,045 | $4,069 | $1,976 | 49% | - The three-month period saw an income tax benefit due to increased excess tax benefits from exercised stock options, foreign derived intangible income deduction, and U.S. R&D credits[117] - The six-month period's increase was due to higher revenue and capitalized R&D expenditures under Section 174[118] Non-GAAP Financial Measures Presents non-GAAP financial metrics to provide a clearer view of core operating performance - The company uses non-GAAP financial measures (gross profit, gross margin, operating income/loss, net income/loss) to supplement GAAP results, excluding stock-based compensation and related payroll taxes, to provide a clearer view of core operating performance and facilitate period-to-period comparisons[119] Non-GAAP Gross Profit and Non-GAAP Gross Margin Reconciles GAAP and Non-GAAP gross profit and margin, excluding stock-based compensation - Non-GAAP gross profit excludes stock-based compensation expenses from GAAP gross profit[120] | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | GAAP gross profit | $59,854 | $8,439 | $110,374 | $12,697 | | Stock-based compensation expense | $84 | $2 | $96 | $7 | | IPO Stock-based compensation expense | - | - | $516 | - | | Non-GAAP gross profit | $59,938 | $8,441 | $110,986 | $12,704 | | GAAP gross margin | 77.9% | 79.0% | 77.7% | 44.8% | | Non-GAAP gross margin | 78.0% | 79.0% | 78.1% | 44.8% | Non-GAAP Operating Income (Loss) Reconciles GAAP and Non-GAAP operating income (loss), adjusting for stock-based compensation and payroll taxes - Non-GAAP operating income (loss) excludes stock-based compensation expenses and employer payroll taxes related to RSU vesting from GAAP operating loss[122] | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | GAAP operating loss | $(24,347) | $(17,613) | $(107,314) | $(36,540) | | IPO Stock-based compensation | - | - | $88,873 | - | | Stock-based compensation | $43,067 | $2,672 | $51,962 | $4,669 | | Employer payroll tax related to IPO stock-based compensation | - | - | $1,072 | - | | Non-GAAP operating income (loss) | $18,720 | $(14,941) | $34,593 | $(31,871) | Non-GAAP Net Income (Loss) Reconciles GAAP and Non-GAAP net income (loss), adjusting for stock-based compensation, payroll taxes, and tax effects - Non-GAAP net income (loss) excludes stock-based compensation, related employer payroll taxes from IPO RSU vesting, and the related tax impact from GAAP net loss[125] | Metric | Three Months Ended June 30, 2024 (in thousands) | Three Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | GAAP net loss | $(7,546) | $(20,004) | $(100,541) | $(37,458) | | IPO Stock-based compensation expense | - | - | $88,873 | - | | Stock-based compensation expense | $43,067 | $2,672 | $51,962 | $4,669 | | Employer payroll tax related to IPO stock-based compensation | - | - | $1,072 | - | | Income tax effect | $(13,296) | - | $(4,811) | - | | Non-GAAP net income (loss) | $22,225 | $(17,332) | $36,555 | $(32,789) | - The non-GAAP tax rate for both the three and six months ended June 30, 2024, was approximately 23%[126] Liquidity and Capital Resources Assesses the company's ability to meet short-term and long-term obligations, including cash flows and capital structure - As of June 30, 2024, principal liquidity sources were $831.0 million in cash, cash equivalents, and marketable securities, and $827.2 million in working capital[127] - The company has an accumulated deficit of $225.9 million as of June 30, 2024, but believes current liquidity is sufficient for at least the next 12 months[127] Cash Flows Summarizes the net cash provided by or used in operating, investing, and financing activities | Cash Flow Type | Six Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2023 (in thousands) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by (used in) operating activities | $33,465 | $(26,781) | | Net cash (used in) provided by investing activities | $(306,722) | $44,461 | | Net cash provided by (used in) financing activities | $649,235 | $(87) | Operating Activities Details the components and drivers of cash flow from operating activities - Net cash provided by operating activities for the six months ended June 30, 2024, was $33.5 million, driven by non-cash charges (stock-based compensation) and increases in accrued expenses and accounts payable, partially offset by increases in accounts receivable, inventory, and prepaid expenses[129] - Net cash used in operating activities for the six months ended June 30, 2023, was $26.8 million, primarily due to net loss and decreases in accounts payable and accrued liabilities, partially offset by non-cash charges and a decrease in accounts receivable[130] Investing Activities Explains the cash flows related to purchases and sales of marketable securities and property and equipment - Net cash used in investing activities for the six months ended June 30, 2024, was $306.7 million, mainly due to $345.8 million in purchases of marketable securities and $2.1 million in property and equipment, partially offset by maturities and sales of marketable securities[131] - Net cash provided by investing activities for the six months ended June 30, 2023, was $44.5 million, primarily from sales and maturities of marketable securities, partially offset by purchases of marketable securities and property and equipment[132][133] Financing Activities Describes cash flows from financing, primarily IPO proceeds and stock option exercises - Net cash provided by financing activities for the six months ended June 30, 2024, was $649.2 million, primarily from $672.2 million in IPO proceeds, net of underwriting discounts and commissions, and stock option exercises, partially offset by tax withholding for RSU settlements and deferred offering costs[134] - Net cash used in financing activities for the six months ended June 30, 2023, was immaterial[135] Contractual Obligations and Commitments Notes the absence of material changes to previously disclosed contractual obligations - No material changes to contractual obligations (operating lease commitments, purchase commitments for software licenses and engineering services) since the Prospectus[136][137] Indemnification Agreements Refer to Note 5 for details on indemnification obligations[138] Critical Accounting Estimates States no material changes to critical accounting policies and estimates - No material changes to critical accounting policies and estimates since the Prospectus[140] Recent Accounting Pronouncements Refer to Note 1 for information on recent accounting pronouncements[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, holding short-term cash and marketable securities Interest Rate Risk Assesses the company's exposure to interest rate fluctuations on its cash and marketable securities - As of June 30, 2024, the company held $421.1 million in cash and cash equivalents and $409.9 million in marketable securities[143] - A hypothetical 100 basis point change in interest rates would change the fair value of marketable securities by $4.7 million as of June 30, 2024, and $0.9 million as of December 31, 2023[144] - The company does not use derivative financial instruments to manage interest rate risk and does not anticipate material risks due to the short-term nature of investments[144] Foreign Currency Exchange Risk Evaluates the company's exposure to foreign currency exchange rate fluctuations, noting limited impact - The company's reporting and functional currency is the U.S. dollar, and all sales and operating expenses are transacted in U.S. dollars, limiting foreign currency risk[145] - A hypothetical 100 basis point change in the U.S. dollar's value is not expected to have a material effect on operating results[145] Item 4. Controls and Procedures Management found disclosure controls ineffective due to material weaknesses in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Reports on the effectiveness of disclosure controls and procedures, noting material weaknesses - As of June 30, 2024, the CEO and CFO concluded that disclosure controls and procedures were not effective at a reasonable assurance level due to material weaknesses in internal control over financial reporting[146] - Despite weaknesses, management believes the interim condensed financial statements fairly present the company's financial condition, results of operations, and cash flows[147] Previously Reported Material Weaknesses in Internal Control Over Financial Reporting Details specific material weaknesses identified in internal controls - Identified material weaknesses include inadequate design and maintenance of an effective risk assessment process, particularly regarding segregation of duties over journal entries and account reconciliations[148] - Ineffective IT general controls for financial reporting systems were also identified, specifically concerning program change management, user access, computer operations, and program development controls[150] Remediation Efforts to Address Previously Identified Material Weaknesses Outlines the steps taken to address and remediate identified material weaknesses - Remediation efforts include engaging external consultants, formalizing accounting policies, hiring additional staff for segregation of duties, and designing controls for significant accounts and disclosures[153] - A formal Disclosure Committee has been formed for oversight[153] - Material weaknesses are not yet remediated as of June 30, 2024, as controls need to be effectively designed, operational, and tested for a sufficient period[154] Changes in Internal Control Over Financial Reporting Confirms no material changes to internal control over financial reporting during the quarter - No changes in internal control over financial reporting materially affected or are reasonably likely to materially affect internal control during the quarter ended June 30, 2024[155] Limitations on Effectiveness of Controls and Procedures Acknowledges inherent limitations in the effectiveness of control systems - Control systems provide reasonable, not absolute, assurance and can be subject to inherent limitations such as faulty judgments, simple errors, circumvention by individuals, collusion, or management override[156] Part II - Other Information Additional disclosures covering legal proceedings, risk factors, equity sales, and insider trading arrangements Item 1. Legal Proceedings The company is not currently involved in any material pending legal proceedings - The company is not currently a party to any material pending legal proceedings[158] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Prospectus - No material changes to risk factors disclosed in the Prospectus as of the date of this report[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There has been no material change in the expected use of net proceeds from the IPO as described in the final prospectus - No material change in the expected use of net proceeds from the IPO[160] Item 3. Defaults Upon Senior Securities No defaults upon senior securities - None[161] Item 4. Mine Safety Disclosures Not applicable - Not applicable[161] Item 5. Other Information Directors and officers adopted Rule 10b5-1 trading arrangements in May 2024, covering shares for RSU tax withholding Insider Adoption or Termination of Trading Arrangements Details the adoption of Rule 10b5-1 trading arrangements by directors and officers | Name | Title | Action | Date Adopted | Character of Trading Arrangement | Aggregate Number of Shares | Expiration Date | | :---------------- | :----------------------- | :------- | :----------- | :------------------------------- | :------------------------- | :-------------- | | Jitendra Mohan | CEO, Director | Adoption | 5/31/2024 | Rule 10b5-1 Trading Arrangement | 900,000 | 8/29/2025 | | Sanjay Gajendra | President, COO, Director | Adoption | 5/31/2024 | Rule 10b5-1 Trading Arrangement | 1,000,000 | 7/31/2025 | | Manuel Alba | Director | Adoption | 5/31/2024 | Rule 10b5-1 Trading Arrangement | 1,040,000 | 8/30/2025 | | Jack Lazar | Director | Adoption | 5/22/2024 | Rule 10b5-1 Trading Arrangement | 52,500 | 5/22/2025 | | Michael Tate | CFO | Adoption | 5/30/2024 | Rule 10b5-1 Trading Arrangement | 500,000 | 7/31/2025 | | Philip Mazzara | General Counsel | Adoption | 5/24/2024 | Rule 10b5-1 Trading Arrangement | 125,000 | 5/24/2025 | - Shares subject to these arrangements include those for tax withholding obligations upon RSU vesting, with the exact number varying based on market price and withholding taxes[166] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications, amended corporate documents, and XBRL interactive data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2), amended corporate documents (3.1, 3.2), and Inline XBRL documents (101.INS, SCH, CAL, DEF, LAB, PRE, 104)[169] - Certifications under Exhibits 32.1 and 32.2 are "furnished" not "filed" for Section 18 of the Exchange Act[170]