indie Semiconductor(INDI) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents indie Semiconductor's unaudited financial statements, notes, and management's analysis of operations ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents indie Semiconductor, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes. It reflects significant financial changes driven by the reverse recapitalization, increased operating expenses, and fair value adjustments Condensed Consolidated Balance Sheets This section presents indie Semiconductor's unaudited condensed consolidated balance sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Cash and cash equivalents | $323,865 | $18,698 | | Total assets | $358,692 | $35,126 | | Total liabilities | $279,345 | $136,618 | | Warrant liability | $103,492 | — | | Earn-out liability | $147,317 | — | | Total stockholders' equity (deficit) | $79,347 | $(101,492) | Condensed Consolidated Statements of Operations This section presents indie Semiconductor's unaudited condensed consolidated statements of operations, detailing revenue and net loss Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $12,157 | $7,586 | $29,451 | $15,957 | | Loss from operations | $(21,258) | $(3,166) | $(47,867) | $(12,322) | | Total other expense, net | $(86,939) | $(19,003) | $(36,911) | $(22,197) | | Net loss | $(108,161) | $(22,156) | $(84,812) | $(34,528) | | Net loss attributable to indie Semiconductor, Inc. | $(79,649) | $(21,959) | $(62,685) | $(33,938) | | Net loss per share—basic | $(0.83) | $(0.70) | $(1.07) | $(1.09) | Condensed Consolidated Statements of Comprehensive Loss This section presents indie Semiconductor's unaudited condensed consolidated statements of comprehensive loss Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(108,161) | $(22,156) | $(84,812) | $(34,528) | | Foreign currency translation adjustments | 172 | 119 | 230 | 58 | | Comprehensive loss attributable to indie Semiconductor, Inc. | $(79,475) | $(21,840) | $(62,455) | $(33,880) | Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) and Noncontrolling Interest This section presents indie Semiconductor's unaudited condensed consolidated statements of changes in stockholders' equity Stockholders' Equity (Deficit) Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Additional Paid-in Capital | $271,738 | $43,155 | | Accumulated Deficit | $(175,056) | $(153,264) | | Total Stockholders' Equity (Deficit) | $79,347 | $(101,492) | - The reverse recapitalization on June 10, 2021, significantly increased Additional Paid-in Capital by $250,129 thousand[28] Condensed Consolidated Statements of Cash Flows This section presents indie Semiconductor's unaudited condensed consolidated statements of cash flows Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(36,913) | $(14,527) | | Net cash used in investing activities | $(2,452) | $(776) | | Net cash provided by financing activities | $344,339 | $17,092 | | Net increase in cash and cash equivalents | $305,167 | $1,810 | | Cash and cash equivalents at end of period | $323,865 | $8,965 | - Net cash provided by financing activities increased significantly by $327,247 thousand (1915%) in 2021, primarily due to $377,663 thousand proceeds from the reverse recapitalization[33][239] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to indie Semiconductor's unaudited condensed consolidated financial statements Note 1. Nature of the Business and Basis of Presentation indie Semiconductor specializes in automotive semiconductors and software for ADAS, autonomous vehicles, and user experience. The company completed a reverse recapitalization with Thunder Bridge Acquisition II on June 10, 2021, becoming a Nasdaq-listed public entity. This transaction significantly increased cash and was accounted for as a reverse recapitalization. The COVID-19 pandemic has impacted customer demand and supply chains, leading to material shortages and increased costs. As an Emerging Growth Company, indie has elected to use the extended transition period for new accounting standards - Core Business: Automotive semiconductors and software solutions for Advanced Driver Assistance Systems (ADAS), autonomous vehicle, connected car, user experience and electrification applications, focusing on edge sensors (LiDAR, radar, ultrasound, vision)[38][186] - Reverse Recapitalization (June 10, 2021): indie became a public company listed on Nasdaq under the symbol 'INDI' through a transaction with Thunder Bridge Acquisition II, treated as a reverse recapitalization for accounting purposes[39][45][193][195] - Transaction Financial Impact: Gross cash proceeds of $399,511 thousand (including $150,000 thousand PIPE financing), offset by $43,423 thousand transaction costs and $15,607 thousand debt retirement[45][194] - COVID-19 Impact: Experienced decreased customer demand in Q2 2020, followed by increased demand and material shortages/supply constraints in H2 2020 and Q3 2021, leading to extended production lead times and increased costs[48][201] - Emerging Growth Company (EGC): Elected to use the extended transition period for complying with new or revised financial accounting standards[52][231] Note 2. Business Combinations On May 13, 2020, indie acquired City Semiconductor, Inc. for approximately $2,029 thousand, including Class H units and contingent consideration. The acquisition resulted in $1,739 thousand in goodwill, primarily for the assembled workforce. Contingent consideration tranches were established, with the first tranche paid in September 2021 and the second tranche valued at $1,200 thousand as of September 30, 2021 - Acquisition: City Semiconductor, Inc. acquired on May 13, 2020, for technology related to analog and mixed-signal integrated circuitry[58] - Consideration: Approximately $2,029 thousand, including $711 thousand Class H units and $1,180 thousand contingent consideration[58] - Goodwill: $1,739 thousand recognized, primarily attributed to the assembled workforce[61] - Contingent Consideration: First tranche of $456 thousand achieved in May 2021 and paid in September 2021; second tranche fair value $1,200 thousand as of Sep 30, 2021[59] Note 3. Inventory, Net The company's net inventory increased to $5,549 thousand as of September 30, 2021, from $2,900 thousand at December 31, 2020, primarily due to an increase in work-in-process. Inventory reserves decreased significantly during this period Inventory, Net (in thousands) | Inventory Component | Sep 30, 2021 | Dec 31, 2020 | | :------------------ | :----------- | :----------- | | Work-in-process | $5,980 | $4,277 | | Finished goods | $262 | $882 | | Inventory, gross | $6,242 | $5,159 | | Less: Inventory reserves | $693 | $2,259 | | Inventory, net | $5,549 | $2,900 | - Inventory write-downs for the nine months ended September 30, 2021, were $78 thousand, a decrease from $485 thousand in the prior year[66] Note 4. Intangible Assets, Net indie's net intangible assets significantly increased to $11,608 thousand as of September 30, 2021, from $1,088 thousand at December 31, 2020, primarily driven by an increase in software licenses. Amortization expense also rose for the nine-month period Intangible Assets, Net (in thousands) | Intangible Asset | Sep 30, 2021 Net Carrying Amount | Dec 31, 2020 Net Carrying Amount | | :--------------- | :------------------------------- | :------------------------------- | | Software licenses | $11,255 | $632 | | Intellectual property licenses | $59 | $122 | | Developed technology | $294 | $334 | | Total | $11,608 | $1,088 | - Amortization of intangible assets for the nine months ended September 30, 2021, was $2,222 thousand, up from $1,281 thousand in 2020[68] Expected Amortization Expense for Next Five Fiscal Years (in thousands) | Fiscal Year | Amount | | :---------- | :----- | | 2021 (remaining) | $888 | | 2022 | $3,805 | | 2023 | $4,570 | | 2024 | $2,221 | | 2025 | $53 | Note 5. Goodwill There was no change in the recorded goodwill balance between September 30, 2021, and December 31, 2020 - Goodwill remained constant at $1,739 thousand as of September 30, 2021, and December 31, 2020[15][70] Note 6. Debt indie Semiconductor significantly reduced its total debt to $2,296 thousand as of September 30, 2021, from $20,833 thousand at December 31, 2020. This reduction was primarily due to the full repayment of the Trinity term loan and the forgiveness of the PPP loan in 2021. Post-period, the PacWest revolving line of credit was amended to increase capacity and extend maturity Debt Components (in thousands) | Debt Component | Sep 30, 2021 Carrying Amount | Dec 31, 2020 Carrying Amount | | :------------- | :--------------------------- | :--------------------------- | | Trinity term loan | — | $11,335 | | Short term loans | $621 | $459 | | PPP Loan | — | $1,868 | | Tropez loan | — | $2,000 | | Revolving line of credit | $1,675 | $1,675 | | Embry convertible notes | — | $3,496 | | Total debt | $2,296 | $20,833 | - PPP Loan: The entire balance of $1,868 thousand was forgiven by the SBA on May 10, 2021, resulting in a $1,889 thousand gain on extinguishment of debt[92] - Trinity Term Loan: Fully repaid on June 21, 2021, for $13,261 thousand, leading to a $1,585 thousand loss from extinguishment of debt[88] - PacWest Revolving Line of Credit (Post-period event, Nov 5, 2021): Maximum borrowing capacity increased to $20,000 thousand, maturity extended to November 4, 2022, and interest rate reduced to 2.1% per annum[82][265] - Interest expense for the nine months ended September 30, 2021, decreased to $1,175 thousand from $1,620 thousand in 2020, primarily due to debt repayments[94][222] Note 7. Warrant Liability Following the reverse recapitalization on June 10, 2021, indie recognized a warrant liability of $74,408 thousand, which increased to $103,492 thousand by September 30, 2021. This increase resulted in an unrealized loss of $40,401 thousand for the three months and $29,085 thousand for the nine months ended September 30, 2021, primarily due to the rise in the Class A common stock price - Warrant Liability: $103,492 thousand as of Sep 30, 2021 (vs $0 as of Dec 31, 2020)[15][100] - Initial Fair Value (June 10, 2021): $74,408 thousand[99] - Fair Value Change (three months ended Sep 30, 2021): Unrealized loss of $40,401 thousand, primarily due to the increase in Class A common stock price from $9.88 to $12.31 per share[18][210] - Fair Value Change (nine months ended Sep 30, 2021): Unrealized loss of $29,085 thousand, primarily due to the increase in Class A common stock price from $10.87 (June 10, 2021) to $12.31 (Sep 30, 2021)[18][224] Note 8. Earn-Out Liability indie recognized an earn-out liability of $119,759 thousand upon the reverse recapitalization, which increased to $147,317 thousand by September 30, 2021. This liability is tied to the achievement of stock price milestones for potential issuance of 10,000,000 Class A common shares. The increase in fair value resulted in an unrealized loss of $45,516 thousand for the three months and $27,677 thousand for the nine months ended September 30, 2021, driven by the rising stock price. The first milestone was achieved post-period end - Earn-Out Liability: $147,317 thousand as of Sep 30, 2021 (vs $0 as of Dec 31, 2020)[15][105] - Initial Fair Value (June 10, 2021): $119,759 thousand[105] - Milestones: Two independent criteria (stock price >= $12.50 or $15.00 for 20 trading days within 30-day period, or a Sale event), each entitling 5,000,000 earn-out shares[101] - Fair Value Change (three months ended Sep 30, 2021): Unrealized loss of $45,516 thousand, primarily due to the increase in Class A common stock price from $9.88 to $12.31 per share[18][211] - Fair Value Change (nine months ended Sep 30, 2021): Unrealized loss of $27,677 thousand, primarily due to the increase in Class A common stock price from $10.87 (June 10, 2021) to $12.31 (Sep 30, 2021)[18][225] - Subsequent Event: The first Earn-Out Milestone was achieved as of November 9, 2021[105] Note 9. Simple Agreement for Future Equity ("SAFEs") SAFEs (Simple Agreements for Future Equity) converted into Class A and Class V common stock upon the closing of the reverse recapitalization on June 10, 2021. The fair value of SAFEs at conversion was $86,100 thousand, and a gain of $21,600 thousand from fair value remeasurement was recognized for the nine months ended September 30, 2021 - SAFEs converted to equity on June 10, 2021, as part of the Transaction[108] - Fair Value at Conversion: $86,100 thousand[108] - Fair Value (Dec 31, 2020): $102,700 thousand[108] - Fair Value Change (nine months ended Sep 30, 2021): Gain of $21,600 thousand from change in fair value of SAFEs[18][223] Note 10. Fair Value Measurements This note details the fair value hierarchy for indie's financial liabilities, which primarily consist of Level 3 instruments such as warrant liabilities, contingent earn-outs, and contingent consideration. These are valued using complex models like Monte Carlo simulations and PWERM, requiring subjective assumptions Fair Value Liabilities (in thousands) | Liability | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Warrant Liability | $103,492 | — | | Contingent earn-outs - first milestone | $76,698 | — | | Contingent earn-outs - second milestone | $70,619 | — | | Second tranche contingent consideration | $1,200 | $900 | | Currency forward contract | $1,200 | — | | SAFEs | — | $102,700 | | First tranche contingent consideration | — | $500 | - Valuation Methods: Warrants and Contingent Earn-Outs valued using Monte Carlo simulations; SAFEs valued using PWERM (Probability-Weighted Expected Return Method)[113][114][115] - Currency forward contract: An unrealized loss of $1,200 thousand was recorded for a CAD $85 million contract hedging the TeraXion acquisition, which was settled post-period[110][212][227] Note 11. Stockholders' Equity This note details the conversion of ADK LLC's historical member units into indie's Class A and Class V common stock as part of the June 10, 2021, reverse recapitalization. It outlines the specific number of shares issued for each class of member unit and provides historical information on ADK LLC's equity structure Conversion of ADK LLC Member Units to indie Common Stock (as of June 10, 2021) | Member Units | Outstanding | Class A Common Stock | Class V Common Stock | | :----------- | :---------- | :------------------- | :------------------- | | Class A | 1,381,424 | 12,612,470 | 25,791,473 | | Class B | 293,221 | 9,564,150 | — | | Class C | 400,000 | 11,520,101 | — | | Class D | 236,521 | 1,568,565 | 5,806,776 | | Class E | 112,916 | 1,309,971 | 2,229,122 | | Class F | 492,110 | 16,380,782 | — | | Class G | 10,019 | 278,533 | — | | Total | 2,926,211 | 53,234,572 | 33,827,371 | - Class H units were redeemed for a cash payment of $900 thousand[117] Note 12. Noncontrolling Interest Following the reverse recapitalization, certain ADK LLC members (ADK Minority Holders) retained approximately 26% ownership in ADK LLC, accounted for as noncontrolling interest. These holders received 33,827,371 shares of Class V common stock, which carry voting rights but no economic rights, and have the option to exchange their ADK LLC units for indie's Class A common stock after December 10, 2021 - ADK Minority Holders: Retained approximately 26% membership interest in ADK LLC as of September 30, 2021, accounted for as noncontrolling interest[129] - Class V Common Stock: 33,827,371 shares issued to certain ADK LLC members, providing voting rights but no economic rights[130] - Exchange Rights: ADK Minority Holders may exchange their ADK LLC units for indie's Class A common stock after December 10, 2021[129] Note 13. Revenue indie's total revenue for the nine months ended September 30, 2021, increased by 84.6% to $29,451 thousand, primarily driven by product revenue growth across most geographic regions, especially Greater China and the United States. Deferred revenue decreased, and the company has significant customer concentrations Total Revenue Disaggregated by Geography (Nine Months Ended September 30, in thousands) | Region | 2021 | 2020 | | :---------------- | :----- | :----- | | United States | $5,910 | $3,403 | | Greater China | $17,800 | $9,868 | | Rest of North America | $2,513 | $525 | | South America | $1,004 | $483 | | Rest of Asia Pacific | $701 | $1,168 | | Europe | $1,523 | $510 | | Total revenue | $29,451 | $15,957 | - Deferred Revenue: $377 thousand as of Sep 30, 2021, down from $1,665 thousand at Dec 31, 2020[136] - Customer Concentration (Nine Months Ended September 30, 2021): Customer A accounted for 39.3% of total revenue[140] Note 14. Share-Based Compensation indie's share-based compensation expense for the nine months ended September 30, 2021, was $14,185 thousand, a significant increase from zero in the prior year, as recognition began after the June 2021 reverse recapitalization. This includes Profit Interests, Phantom Units, and Unvested Earn-out Shares, all equity-classified awards. The 2021 Omnibus Equity Incentive Plan was adopted post-Transaction, authorizing 10,368,750 shares for future grants - Share-based compensation expense for the nine months ended September 30, 2021, was $14,185 thousand, compared to $0 in 2020[156] - Unrecognized share-based compensation costs totaled $44,538 thousand as of September 30, 2021[157] - The 2021 Omnibus Equity Incentive Plan was adopted on June 10, 2021, authorizing 10,368,750 shares for various equity awards[147] - Compensation expense recognition for Profit Interests and Phantom Units commenced after the consummation of the Transaction in June 2021[154][156] Note 15. Net Income (Loss) per Common Share Basic and diluted net loss per common share for the three months ended September 30, 2021, was $(0.83), and for the nine months, it was $(1.07). Potentially dilutive securities were excluded from the diluted EPS calculation as their effect would be antidilutive due to the company reporting a net loss. Weighted average shares outstanding were retroactively restated due to the reverse recapitalization Net Loss Per Share Attributable to Common Shares (Basic) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three Months Ended Sep 30 | $(0.83) | $(0.70) | | Nine Months Ended Sep 30 | $(1.07) | $(1.09) | - Weighted average common shares outstanding (basic) for the three months ended Sep 30, 2021, was 96,368,379, significantly higher than 31,349,643 in 2020 due to the reverse recapitalization[158] - Potentially dilutive securities (including SAFEs, unvested equity, warrants, and convertible debt) were excluded from diluted EPS calculation as their effect was antidilutive due to net loss[159][160] Note 16. Income Taxes indie Semiconductor's ADK LLC is treated as a partnership for U.S. tax purposes, while foreign subsidiaries incur income taxes. A valuation allowance is recorded against deferred tax assets due to historical losses. The company entered into Tax Receivable Agreements (TRAs) post-reverse recapitalization, but no liability has been recorded yet - Tax Structure: ADK LLC is treated as a partnership for U.S. income tax purposes; however, foreign subsidiaries are liable for income taxes (e.g., United Kingdom)[161] - Valuation Allowance: A valuation allowance is recorded against deferred tax assets due to significant uncertainty regarding their realization, based on limited operating history and historical losses[162] - Tax Receivable Agreements (TRAs): Entered into with certain shareholders post-reverse recapitalization, representing approximately 85% of calculated tax savings from basis adjustments and carryforward attributes. No liability recorded as no exchanges have occurred[163] - Income tax (benefit) expense for the three months ended Sep 30, 2021, was $(36) thousand, and for the nine months, it was $34 thousand, primarily related to European operations[18][164] Note 17. Commitments and Contingencies indie Semiconductor is not involved in any material legal proceedings but has various operating lease commitments for its global offices and design centers, with future minimum lease payments totaling $3,416 thousand as of September 30, 2021. The company also has a policy for tax distributions to members - Litigation: The company is not a party to any material legal proceedings[165] - Lease Commitments: Operating leases for multiple global locations including Aliso Viejo (CA), Edinburgh (Scotland), Austin (TX), Wuxi (China), Shanghai (China), San Francisco, Budapest (Hungary), and Dresden (Germany)[166][168][169][170][171][172][173][174][175] Future Minimum Lease Payments (as of September 30, 2021, in thousands) | Year | Amount | | :--- | :----- | | 2021 (remaining) | $287 | | 2022 | $1,074 | | 2023 | $637 | | 2024 | $315 | | 2025 | $286 | | Thereafter | $817 | | Total | $3,416 | Note 18. Subsequent Events After the reporting period, indie Semiconductor completed three strategic acquisitions: TeraXion Inc. (October 12, 2021) for LiDAR technology, ON Design Israel Ltd. (October 1, 2021) for millimeter wave technology, and entered into a definitive agreement to acquire Symeo GmbH (October 21, 2021) for radar systems. These acquisitions are expected to expand indie's product capabilities and market reach - Acquisition of TeraXion Inc. (Oct 12, 2021): CAD $200 million purchase price (50% cash, 50% Class A common stock), acquiring low noise lasers, Bragg gratings, and integrated photonic elements for LiDAR applications[179][188] - Acquisition of ON Design Israel Ltd. (Oct 1, 2021): $5.0 million cash at closing, $7.5 million cash in 2022, and up to $7.5 million cash based on design win performance, acquiring millimeter wave technology expertise[180][189][192] - Acquisition of Symeo GmbH (Oct 21, 2021): $10.0 million cash at closing, $10.0 million cash in 2023, and an equity-based earn-out up to 858,369 Class A common stock based on future revenue growth, acquiring radar system implementation expertise (pending German government approval)[181][191][192] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on indie Semiconductor's financial condition and operating results, highlighting the impact of the reverse recapitalization, recent acquisitions, and the COVID-19 pandemic. It details the significant revenue growth, increased operating expenses, and changes in other income/expense, particularly fair value adjustments, for the three and nine months ended September 30, 2021. The company's liquidity was substantially boosted by the transaction, but it anticipates continued operating losses and increased expenditures OUR COMPANY indie Semiconductor is a global provider of automotive semiconductors and software solutions for ADAS, autonomous vehicles, connected cars, user experience, and electrification, focusing on edge sensors like LiDAR and radar. The company operates design centers and sales offices worldwide, with manufacturing primarily outsourced to Asia, which accounted for 67% of product revenues in the nine months ended September 30, 2021 - Core Business: Automotive semiconductors and software solutions for ADAS, autonomous vehicle, connected car, user experience and electrification applications, focusing on edge sensors (LiDAR, radar, ultrasound, vision)[186] - Global Presence: Headquartered in Aliso Viejo, California, with design centers and sales offices in various locations including Austin, Boston, Detroit, San Francisco, San Jose, Budapest, Dresden, Edinburgh, Haifa, Quebec, Tokyo, and China[186] - Manufacturing: Relies on subcontractors, primarily in Asia[187] - Product Revenue from Asia: Approximately 67% for nine months ended Sep 30, 2021 (vs 83% in 2020)[187] Recent Acquisitions indie Semiconductor recently completed the acquisitions of TeraXion Inc. (optical sensing for LiDAR) and ON Design Israel Ltd. (millimeter wave technology for radar), and entered into an agreement to acquire Symeo GmbH (radar system implementation). These strategic moves are aimed at expanding the company's capabilities in key automotive sensor markets and accelerating its entry into the radar market - TeraXion Inc. (Oct 12, 2021): Acquired for low noise lasers, Bragg gratings, and integrated photonic elements, supporting next-generation Frequency Modulated Continuous Wave systems for automotive LiDAR. Expected to accelerate mass market LiDAR deployments[188] - ON Design Israel Ltd. (Oct 1, 2021): Acquired for engineering development teams with millimeter wave technology expertise, accelerating entry into the radar market[189][192] - Symeo GmbH (Oct 21, 2021): Acquired for engineering development teams with radar system implementation expertise, further accelerating entry into the radar market and capturing strategic opportunities[191][192] Reverse Recapitalization with Thunder Bridge Acquisition II On June 10, 2021, indie Semiconductor completed a reverse recapitalization with Thunder Bridge Acquisition II, becoming an SEC-registered, Nasdaq-listed public company. This transaction generated $399.5 million in gross cash proceeds, which, after transaction costs and debt retirement, significantly increased the company's cash position. As a public company, indie anticipates increased annual expenses and substantial capital and operating expenditures for R&D and global expansion - Transaction Date: June 10, 2021[193] - Outcome: indie became an SEC-registered, Nasdaq-listed company under the symbol 'INDI'[193][196] - Financial Impact: Gross cash proceeds of $399.5 million (including $150.0 million PIPE financing), offset by $43.4 million transaction costs and $15.6 million debt retirement[194] - Accounting Treatment: Accounted for as a reverse recapitalization, with indie as the accounting acquirer[195] - Future Impact: Expects increased annual expenses as a public company (D&O insurance, director fees, accounting/legal/admin) and significant capital/operating expenditures for R&D, equipment, and personnel[196][197] Impact of COVID-19 The COVID-19 pandemic initially caused a decrease in customer demand and product shipments in Q2 2020 due to manufacturing facility closures. Subsequently, increased demand in H2 2020 and Q3 2021 led to widespread semiconductor material shortages and supply constraints, resulting in extended production lead times, higher production costs, and delays in meeting customer demand. indie has responded by increasing order lead times and placing advance purchase orders - Q2 2020 Impact: Decrease in customer demand and product shipments due to manufacturing facility closures in China[201] - H2 2020 & Q3 2021 Impact: Increased customer demand led to semiconductor material shortages and supply constraints, resulting in extended production lead times, increased production/expedite costs, and delays in meeting demand[201] - Mitigation: Increased order lead times and placed purchase orders based on anticipated demand to secure production capacity[201] OPERATING RESULTS indie Semiconductor experienced substantial revenue growth for both the three and nine months ended September 30, 2021, driven by increased product volume. However, operating expenses, including Cost of Goods Sold, R&D, and SG&A, surged significantly due to growth in personnel, product development, and public company obligations. Other expenses were heavily impacted by unrealized losses from fair value changes in warrants and earn-out liabilities, partially offset by gains from SAFE remeasurement and debt extinguishment Comparison of the Three Months Ended September 30, 2021 and 2020 For the three months ended September 30, 2021, total revenue increased by 60% to $12.2 million, primarily from product revenue. Operating expenses (Cost of Goods Sold, R&D, SG&A) saw significant increases of 89%, 158%, and 805% respectively, driven by higher product shipments, personnel costs, product development, and public company expenses. Other expenses surged by 358% due to unrealized losses on warrants ($40.4M) and earn-out liabilities ($45.5M), leading to a substantial net loss - Total Revenue: $12.2 million (2021) vs $7.6 million (2020), a 60% increase. Product revenue grew by 94%, while contract revenue decreased by 43%[202] - Cost of Goods Sold: Increased by 89% to $6.9 million (2021) from $3.7 million (2020), driven by higher product shipments and costs[204] - Research and Development (R&D) Expense: Increased by 158% to $15.0 million (2021), due to higher personnel costs ($3.1 million), product development ($2.5 million), share-based compensation ($2.6 million), and professional services/equipment ($0.9 million)[205] - Selling, General and Administrative (SG&A) Expense: Increased by 805% to $11.4 million (2021), driven by professional/consulting services ($3.2 million), share-based compensation ($3.6 million), public company obligations ($1.2 million), and personnel costs ($1.0 million)[206] - Other Expense, Net: Increased by 358% to $(86.9) million (2021), primarily due to unrealized losses from changes in fair value of warrants ($40.4 million), earn-out liabilities ($45.5 million), and a currency forward contract ($1.2 million)[207][210][211][212] Comparison of the Nine Months Ended September 30, 2021 and 2020 For the nine months ended September 30, 2021, total revenue increased by 85% to $29.5 million, primarily from product revenue. Operating expenses (Cost of Goods Sold, R&D, SG&A) rose by 96%, 141%, and 464% respectively, driven by increased production, personnel, R&D programs, and public company-related professional fees. Other income/expense included a $21.6 million gain from SAFE fair value changes, but was offset by losses from warrants ($(29.1)M) and earn-out liabilities ($(27.7)M), and a net gain of $0.3 million from debt extinguishment - Total Revenue: $29.5 million (2021) vs $16.0 million (2020), an 85% increase, with product revenue growing by 107%[215] - Cost of Goods Sold: Increased by 96% to $17.1 million (2021), due to higher production volume and material costs[217] - Research and Development (R&D) Expense: Increased by 141% to $37.2 million (2021), driven by personnel costs ($7.4 million), R&D program expenses ($6.2 million), share-based compensation ($5.2 million), and professional fees/equipment ($2.8 million)[218] - Selling, General and Administrative (SG&A) Expense: Increased by 464% to $23.0 million (2021), primarily due to share-based compensation ($9.0 million), outside professional fees ($7.7 million, including acquisition, public company, and SPAC-related fees), and personnel costs ($2.4 million)[219] - Other Expense, Net: $(36.9) million (2021) vs $(22.2) million (2020), a 66% increase. Includes a $21.6 million gain from SAFE fair value changes, $(29.1) million loss from warrants, $(27.7) million loss from earn-out liabilities, and a $0.3 million net gain from debt extinguishment[221][223][224][225][226] JOBS Act indie Semiconductor maintains its status as an Emerging Growth Company (EGC) under the JOBS Act and has elected to utilize the extended transition period for complying with new or revised accounting standards. This election may result in financial statements that are not directly comparable to other public companies that have adopted new standards earlier. The company will remain an EGC until specific revenue, market capitalization, or debt issuance thresholds are met, or until December 31, 2024 - EGC Status: indie is an Emerging Growth Company[231] - Election: Elected to use the extended transition period for complying with new or revised accounting standards[231] - Impact: Financial statements may not be comparable to companies complying with public company effective dates[231] - EGC Duration: Until earliest of >$1.07 billion in annual revenue, 'large accelerated filer' status (>$700 million non-affiliate equity market value), >$1.0 billion non-convertible debt in 3 years, or December 31, 2024[232] Liquidity and Capital Resources indie Semiconductor's liquidity was significantly enhanced by $341.3 million in net cash proceeds from the June 2021 reverse recapitalization, bringing cash and cash equivalents to $323.9 million as of September 30, 2021. Historically reliant on debt and equity financing, the company's primary cash uses include operating expenses, R&D, working capital, and M&A. Despite the cash infusion, indie expects continued net operating losses and negative cash flows, with increasing expenditures for growth and recent acquisitions - Liquidity Source: Historically debt and equity financing; significantly enhanced by $341.3 million net cash from reverse recapitalization (June 10, 2021)[234] - Cash and Cash Equivalents: $323.9 million as of Sep 30, 2021[234] - Primary Cash Uses: Operating expenses (R&D, working capital, G&A), M&A, and capital/software asset purchases[235] - Subsequent M&A Cash Payments: Initial cash payments of $80.0 million for TeraXion and $5.0 million for ON Design Israel in October 2021. Expects additional $15.0 million for ON Design Israel and $20.0 million for Symeo[236] - Future Outlook: Expects continued net operating losses and negative cash flows from operations, with increasing R&D, G&A, and capital expenditures[237] Consolidated Cash Flows Summary (Nine Months Ended September 30, in thousands) | Metric | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(36,913) | $(14,527) | | Net cash used in investing activities | $(2,452) | $(776) | | Net cash provided by financing activities | $344,339 | $17,092 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section addresses indie Semiconductor's exposure to market risks, primarily foreign currency fluctuations due to international operations and investment/interest rate risks from its cash and cash equivalents. The company uses hedging strategies for currency risk and maintains a conservative investment approach for liquidity and capital preservation, deeming current investment and interest rate risks as non-material Foreign Currency Risk indie Semiconductor is exposed to foreign currency exchange rate fluctuations due to its international operations. A cumulative foreign currency translation loss of $61 thousand was reported as of September 30, 2021. The company entered into a CAD $85 million currency forward contract to hedge the TeraXion acquisition, which resulted in a $1.2 million unrealized loss at period-end but was offset upon settlement post-period - Exposure: Market risks from changes in currency exchange rates due to international operations[245] - Foreign Currency Translation Loss: $61 thousand (Sep 30, 2021) included in accumulated other comprehensive loss[245] - Foreign Currency Transaction Exchange Rate Income (Loss): $230 thousand income (2021) vs $58 thousand income (2020) for nine months ended Sep 30[245] - Hedging: Entered into a CAD $85 million currency forward contract on Sep 3, 2021, for TeraXion acquisition, resulting in a $1.2 million unrealized loss as of Sep 30, 2021, which was offset upon settlement in October 2021[110][212][227] Investment and Interest Rate Risk indie Semiconductor's investment portfolio, totaling $226.3 million in cash and cash equivalents as of September 30, 2021, primarily consists of short-term maturity instruments. The company's investment objectives are liquidity and capital preservation, and given the current low interest rate environment and diversified, high-credit-rating investments, investment and interest rate risks are not considered material - Investment Portfolio: Cash and cash equivalents ($226.3 million as of Sep 30, 2021) in money market funds and marketable securities with short-term maturities[248] - Objectives: Liquidity and preservation of capital[249] - Risk Assessment: Not material due to short-term maturities, diversification, high credit ratings, and current low interest rate environment[249][250] ITEM 4. CONTROLS AND PROCEDURES indie Semiconductor's management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to a material weakness in internal control over financial reporting related to a lack of segregation of duties in the accounting department. Remediation efforts are ongoing, including adding finance personnel and evaluating a new ERP system, with no other material changes to internal controls reported during the quarter Evaluation of Disclosure Controls and Procedures As of September 30, 2021, indie Semiconductor's management, including the CEO and CFO, concluded that its disclosure controls and procedures were not effective due to an identified material weakness in internal control over financial reporting. Despite this, management believes the financial statements fairly represent the company's financial condition - Conclusion: Disclosure controls and procedures were not effective as of Sep 30, 2021[251] - Reason: Material weakness in internal control over financial reporting[251] - Management Belief: Despite weaknesses, condensed consolidated financial statements fairly represent financial condition, results of operations, and cash flows[251] Material Weaknesses in Internal Control over Financial Reporting The identified material weakness in internal control over financial reporting relates to a lack of segregation of duties within the accounting department. Remediation efforts are underway, including hiring additional finance personnel to improve roles and responsibilities and initiating the evaluation of a new Enterprise Resource Planning (ERP) system to address control gaps and enhance IT general controls. These efforts are ongoing and require further validation - Identified Weakness: Lack of segregation of duties related to roles and responsibilities in the accounting department[253] - Remediation Actions: Added finance personnel to improve segregation of duties; initiated evaluation of a new ERP system to mitigate internal control gaps and enhance IT general controls[254][256] - Status: Remediation efforts are ongoing and require validation and testing over sustained periods[254][257] Changes in Internal Control Over Financial Reporting During the three months ended September 30, 2021, there were no material changes in indie Semiconductor's internal control over financial reporting, apart from the ongoing remediation efforts for the previously identified material weakness - No material changes in internal control over financial reporting during Q3 2021, except for ongoing remediation efforts for the material weakness[258] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, other information, and exhibits ITEM 1. LEGAL PROCEEDINGS indie Semiconductor is not currently a party to any material legal proceedings. While routine claims incidental to business may arise, the company does not anticipate any material adverse effects on its financial condition or operations from such matters - No material legal proceedings are currently pending against the company[260] - The company may be involved in routine claims incidental to its business, but does not believe they will have a material adverse effect[260] ITEM 1A. RISK FACTORS This section reiterates the risk factors previously disclosed in Form S-1, with a specific update highlighting the identified material weakness in internal control over financial reporting. This weakness, related to a lack of segregation of duties, poses a risk to accurate and timely financial reporting, and remediation efforts are ongoing - No material changes to previously disclosed risk factors from Form S-1, except for the identified material weakness in internal control over financial reporting[261] - Material weakness identified: Lack of segregation of duties related to roles and responsibilities in the accounting department, which could adversely affect investor confidence if financial results are not accurately reported in a timely manner[262][263] - Remediation efforts are ongoing, including adding finance personnel and evaluating a new ERP system[263][266] ITEM 5. OTHER INFORMATION On November 5, 2021, indie Semiconductor amended its PacWest loan agreement, significantly increasing the revolving line of credit to $20.0 million, limiting security interests, removing restrictive covenants, extending the maturity date to November 4, 2022, and reducing the interest rate to 2.1% per annum. The company repaid the outstanding balance under the original line of credit - PacWest Loan Agreement Amendment (Nov 5, 2021)[265] - Increased maximum borrowing capacity under the revolving line of credit to $20.0 million - Limited security interests of the bank to cash collateral set at 102.5% of the drawn amount - Removed various reporting and restrictive covenants - Extended the maturity date to November 4, 2022 - Reduced the interest rate to 2.1% per annum - Company repaid the outstanding balance of $1.7 million under the original line of credit ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including key agreements such as the Master Transactions Agreement and the TeraXion Share Purchase Agreement, corporate governance documents, warrant agreements, and certifications from the CEO and CFO, along with XBRL data files - Key exhibits include the Master Transactions Agreement, Amendment to Master Transactions Agreement, Share Purchase Agreement (TeraXion), Amended and Restated Certificate of Incorporation and Bylaws, Warrant Agreements, CEO and CFO Certifications, and Inline XBRL documents[267] SIGNATURES The report is duly signed on behalf of indie Semiconductor, Inc. by Thomas Schiller, Chief Financial Officer & EVP of Strategy, on November 12, 2021 - The report was signed by Thomas Schiller, Chief Financial Officer & EVP of Strategy, on November 12, 2021[271]