indie Semiconductor(US:INDI)2023-03-27 16:00PART I Item 1. Business indie Semiconductor provides innovative automotive semiconductors and software solutions, expanding its portfolio through acquisitions and operating on a fabless model - The company focuses on high-growth automotive applications including ADAS, autonomous vehicles, connected car, user experience, and electrification, targeting edge sensors like LiDAR, radar, ultrasound, and computer vision17 - Growth has been accelerated through strategic acquisitions including TeraXion, ON Design Israel, and Symeo to bolster its technology portfolio2122232426 - indie operates a fabless business model, partnering with third-party foundries for wafer manufacturing to ensure scalability and minimize capital expenditures4647 - The company has significant customer concentration, with Aptiv accounting for approximately 37% of total revenue in 2022 and 39% in 202153119 - The company heavily invests in innovation, with research and development expenses representing approximately 109% of its revenues in 2022 to support product development56 Item 1A. Risk Factors The company faces diverse risks including industry cyclicality, intense competition, reliance on third-party manufacturing, financial losses, debt, and internal control weaknesses - Operational risks include the cyclical nature of the semiconductor industry, intense competition, dependence on third-party manufacturers, and high customer concentration with Aptiv representing 37% of 2022 revenue9093105119 - Financial risks are significant, with a history of net losses and total consolidated indebtedness of $171.4 million as of December 31, 2022, including $160.0 million in 4.50% convertible senior notes121123124 - The company's holding structure depends on distributions from its subsidiary, ADK LLC, and a Tax Receivable Agreement requires payments of 85% of certain tax benefits to pre-transaction equity holders, which could be substantial131137138 - A majority of revenue is generated from China, exposing the company to risks from the PRC legal system, economic and political instability, and currency conversion controls179182184 - The company identified material weaknesses in its internal control over financial reporting for the years ended December 31, 2022 and 2021, related to risk assessment, information and communication, and control activities199625626 Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - Not applicable225 Item 2. Properties The company's principal facilities include its California headquarters and various design and sales offices globally, with manufacturing outsourced to subcontractors Principal Facilities | Location | Square Footage | | :--- | :--- | | Aliso Viejo, California | 18,000 | | Quebec City, Canada | 50,050 | | Detroit, Michigan | 32,700 | | Austin, Texas | 5,753 | | Suzhou, China | 6,841 | | Edinburgh, Scotland | 5,328 | | Haifa, Israel | 6,641 | | Shanghai, China | 5,162 | Item 3. Legal Proceedings The company is not currently a party to any material legal proceedings, with incidental claims not expected to have a material adverse impact - The company is not party to any material legal proceedings227 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable228 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A Common Stock and warrants began trading on Nasdaq in June 2021, with no cash dividends paid and a $50 million stock repurchase program authorized in November 2022 - Class A Common Stock and redeemable warrants began trading on the Nasdaq Capital Market under the symbols "INDI" and "INDIW" on June 10, 2021229 - The company has not paid any cash dividends to date and does not anticipate declaring any in the foreseeable future231 Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid per share | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (in thousands) | | :--- | :--- | :--- | :--- | | 11/1/2022 - 11/30/2022 | 1,112,524 | $6.65 | $42,596 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a 129% revenue increase to $110.8 million in 2022, driven by product and contract revenue growth, alongside significant increases in operating expenses and a strengthened liquidity position Revenue Comparison (FY 2022 vs. FY 2021) | Revenue Type | 2022 (in thousands) | 2021 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Product revenue | $89,457 | $43,796 | $45,661 | 104% | | Contract revenue | $21,340 | $4,616 | $16,724 | 362% | | Total revenue | $110,797 | $48,412 | $62,385 | 129% | Operating Expenses Comparison (FY 2022 vs. FY 2021) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of goods sold | $60,491 | $28,703 | $31,788 | 111% | | Research and development | $121,197 | $58,117 | $63,080 | 109% | | Selling, general, and administrative | $48,237 | $36,384 | $11,853 | 33% | | Total operating expenses | $229,925 | $123,204 | $106,721 | 87% | - The company recognized a net gain of $65.3 million in 'Other income (expense), net' for 2022, primarily from a $55.1 million unrealized gain on warrants, contrasting with a $44.1 million net loss in 2021273276 Cash Flow Summary (FY 2022 vs. FY 2021) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(76,745) | $(55,819) | | Net cash used in investing activities | $(16,273) | $(84,326) | | Net cash provided by financing activities | $192,659 | $340,646 | - As of December 31, 2022, the company had $321.6 million in cash and cash equivalents, with major financing activities in 2022 including $160 million from convertible notes and $17.2 million from an ATM equity program288289291 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is foreign currency exposure from international operations, resulting in a $12.0 million cumulative translation loss, while investment and interest rate risks are minimal - The company has significant exposure to foreign currency risk from its international operations, primarily in the Canadian dollar, Chinese yuan, and Israeli New Shekel312 - A cumulative foreign currency translation loss of $12.0 million was included in 'Accumulated other comprehensive loss' as of December 31, 2022, up from $1.4 million in 2021312 - Investment and interest rate risk is considered not material due to the investment portfolio consisting of $321.6 million in cash and cash equivalents with short-term maturities, prioritizing liquidity and capital preservation314315316 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2022 and 2021, reflecting significant asset and revenue growth, increased operating losses, and capital structure changes Consolidated Balance Sheet Highlights (as of Dec 31) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $321,629 | $219,081 | | Total Assets | $603,351 | $469,253 | | Long-term debt | $155,699 | $5,618 | | Warrant liability | $45,398 | $100,467 | | Total Liabilities | $289,019 | $177,396 | | Total Stockholders' Equity | $314,332 | $291,857 | Consolidated Statement of Operations Highlights (Year ended Dec 31) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue | $110,797 | $48,412 | | Loss from operations | $(119,128) | $(74,792) | | Total other income (expense), net | $65,305 | $(44,142) | | Net loss attributable to indie | $(43,400) | $(88,044) | | Net loss per share — basic & diluted | $(0.37) | $(1.26) | - The company adopted the new lease accounting standard (ASC 842) on January 1, 2022, recognizing operating lease right-of-use assets of $12.1 million and lease liabilities of $12.1 million320416603 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None620 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting, with remediation efforts ongoing - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022621 - Material weaknesses in internal control over financial reporting were identified and continue to exist as of December 31, 2022, in Risk Assessment, Information and Communication, and Control Activities625626 - Remediation efforts are ongoing, including hiring a Head of Internal Audit, establishing an Internal Audit function, implementing a new ERP system, and enhancing control activities, with efforts expected to continue through 2023628629630631632 Item 9B. Other Information The company reports no other information under this item - None637 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable638 PART III Item 10. Directors, Executive Officers and Corporate Governance This section details biographical information for directors and executive officers, the staggered Board structure, and highlights the company's Code of Ethics and independent Audit Committee - The report lists the names, ages, and positions of all directors and executive officers, along with their biographical information640641 - The Board of Directors is divided into three classes with staggered three-year terms, expiring at the annual meetings in 2023, 2024, and 2025642 - The company has adopted a Code of Ethics and maintains a standing Audit Committee chaired by Sonalee Parekh, designated as the 'Audit Committee financial expert'656657 Item 11. Executive Compensation This section details the compensation for named executive officers and non-employee directors for fiscal year 2022, including salaries, bonuses, equity awards, and severance provisions 2022 Summary Executive Compensation Table | Name and Principal Position | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Donald McClymont, CEO | $400,000 | $241,671 | $1,316,424 | $422,463 | $19,075 | $2,399,633 | | Ichiro Aoki, President | $275,000 | $72,690 | $764,884 | $108,914 | $6,855 | $1,228,343 | | Thomas Schiller, CFO | $300,000 | $101,955 | $493,660 | $158,422 | $23,418 | $1,077,455 | | Steve Machuga, COO | $330,000 | $106,349 | $968,536 | $174,269 | $8,250 | $1,587,404 | - Employment agreements for NEOs provide for severance payments upon termination without cause or for good reason, including accelerated equity vesting, with enhanced benefits for change-in-control related terminations668669 - The 2021 Omnibus Equity Incentive Plan authorizes up to 20,868,750 shares of Class A common stock for various equity awards670672 - Non-employee directors receive an annual cash retainer of $75,000 and an annual equity grant of $175,000 in RSUs, with committee chairs receiving an additional $15,000 cash retainer689691 Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters This section details beneficial ownership of common stock as of March 21, 2023, including holdings by executive officers, directors, and major shareholders, along with securities available under equity compensation plans Beneficial Ownership as of March 21, 2023 | Name of Beneficial Owner | % of Total Common Stock | | :--- | :--- | | Donald McClymont (CEO) | 3.7% | | Ichiro Aoki (President) | 3.5% | | All Executive Officers and Directors as a Group (12 persons) | 9.7% | | Anthem/MIC Strategic Partners LP | 8.0% | | Soros Fund Management LLC | 5.4% | - As of December 31, 2022, 10,824,527 securities were to be issued upon exercise of outstanding options, warrants, and rights, with 10,187,807 securities remaining available for future issuance under equity compensation plans700 Item 13. Certain Relationships and Related Transactions, and Director Independence The company has a policy for related person transactions, key agreements like the Exchange Agreement and Tax Receivable Agreement, and a majority of its directors are independent, with one disclosed related party employment - The Board has determined that seven of its directors are independent under Nasdaq and SEC rules701704 - The company is party to an Exchange Agreement allowing certain pre-merger ADK LLC unitholders to exchange units for Class A common stock on a one-for-one basis707708 - A Tax Receivable Agreement (TRA) requires the company to pay 85% of cash tax savings from increases in tax basis due to LLC unit exchanges, with potential payments expected to be substantial714715718 - The spouse of CEO Donald McClymont is employed as head of human resources, with a base salary of approximately $175,000 in fiscal year 2022737 Item 14. Principal Accountant Fees and Services This section discloses fees paid to KPMG LLP for professional services in fiscal years 2022 and 2021, totaling $2,436,780 and $1,787,393 respectively, all pre-approved by the Audit Committee Principal Accountant Fees (KPMG LLP) | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $2,420,000 | $1,779,382 | | Audit-Related Fees | $1,780 | $8,011 | | Tax Fees | $15,000 | $0 | | Total | $2,436,780 | $1,787,393 | PART IV Item 15. Exhibits and Financial Statement Schedules This section provides a comprehensive index of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Annual Report on Form 10-K - This section provides a comprehensive index of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Annual Report on Form 10-K742743744 Item 16. Form 10-K Summary The company reports no summary under this item - None748