Navitas Semiconductor (NVTS) - 2024 Q1 - Quarterly Report

Part I - Financial Information Presents Navitas Semiconductor Corporation's unaudited condensed consolidated financial statements for Q1 2024 and 2023, covering balance sheets, operations, comprehensive loss, equity, and cash flows, with detailed notes Item 1. Financial Statements (unaudited) Presents Navitas Semiconductor Corporation's unaudited condensed consolidated financial statements for Q1 2024 and 2023, covering balance sheets, operations, comprehensive loss, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2024, and December 31, 2023 | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total assets | $467,889 | $485,546 | | Total liabilities | $69,972 | $104,929 | | Total stockholders' equity | $397,917 | $380,617 | - Total assets decreased by $17.66 million (3.6%) from December 31, 2023, to March 31, 2024, primarily due to a decrease in cash and cash equivalents and accounts receivable, partially offset by an increase in inventories and property and equipment[14] - Total liabilities decreased by $34.957 million (33.3%) from December 31, 2023, to March 31, 2024, largely driven by a significant reduction in earnout liability[14] Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net loss for the three months ended March 31, 2024, and 2023 | (In thousands, except per share amounts) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | NET REVENUES | $23,175 | $13,358 | | COST OF REVENUES | $13,660 | $7,873 | | LOSS FROM OPERATIONS | $(31,575) | $(35,466) | | Gain (loss) from change in fair value of earnout liabilities | $26,199 | $(27,752) | | NET LOSS | $(3,681) | $(62,365) | | Basic net loss per share | $(0.02) | $(0.39) | | Diluted net loss per share | $(0.02) | $(0.39) | - Net revenues increased by 73% to $23.175 million for Q1 2024 compared to $13.358 million for Q1 2023[16] - Net loss significantly decreased from $(62.365) million in Q1 2023 to $(3.681) million in Q1 2024, primarily due to a $26.199 million gain from the change in fair value of earnout liabilities in 2024, compared to a $(27.752) million loss in 2023[16] Condensed Consolidated Statements of Comprehensive Loss Presents the company's net loss and other comprehensive income/loss for the three months ended March 31, 2024, and 2023 | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | NET LOSS | $(3,681) | $(62,365) | | COMPREHENSIVE LOSS | $(3,681) | $(62,365) | | TOTAL COMPREHENSIVE LOSS ATTRIBUTABLE TO CONTROLLING INTEREST | $(3,681) | $(61,847) | - Comprehensive loss for Q1 2024 was $(3.681) million, a substantial improvement from $(62.365) million in Q1 2023, mirroring the reduction in net loss[17] Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity components for the three months ended March 31, 2024, and 2023 | (In thousands) | Balance at Dec 31, 2023 | Balance at Mar 31, 2024 | | :--- | :--- | :--- | | Total Stockholders' Equity | $380,617 | $397,917 | | Issuance of common stock under employee stock option and stock award plans | — | $10,734 | | Stock-based compensation expense | — | $10,247 | | Net loss | $(3,681) | $(3,681) | - Total stockholders' equity increased by $17.3 million to $397.917 million as of March 31, 2024, primarily due to additional paid-in capital from employee stock plans and stock-based compensation, despite a net loss[19] Condensed Consolidated Statements of Cash Flow Summarizes the cash inflows and outflows from operating, investing, and financing activities for Q1 2024 and 2023 | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(19,783) | $(7,920) | | Net cash used in investing activities | $(5,398) | $(1,815) | | Net cash provided by financing activities | $2,024 | $221 | | NET DECREASE IN CASH AND CASH EQUIVALENTS | $(23,157) | $(9,514) | | CASH AND CASH EQUIVALENTS AT END OF PERIOD | $129,682 | $100,823 | - Net cash used in operating activities increased to $(19.783) million in Q1 2024 from $(7.920) million in Q1 2023, mainly due to increased inventories and a decrease in customer deposits[22][147] - Net cash used in investing activities increased to $(5.398) million in Q1 2024, driven by a $2.5 million investment in a third party and higher purchases of property and equipment[22][148] Condensed Notes to Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Basis of Presentation Describes Navitas Semiconductor Corporation's business, operations, and the basis for financial statement preparation - Navitas Semiconductor Corporation designs, develops, and markets next-generation power semiconductors, including gallium nitride (GaN) power ICs, silicon carbide (SiC) devices, and associated high-speed silicon system controllers and digital isolators[24] - The Company made an additional $2.5 million investment in preferred interests in a third party on January 3, 2024, increasing its ownership to 15.48%[25] - In May 2023, the Company completed a public offering, raising $86.5 million in net proceeds for working capital, general corporate purposes, and potential acquisitions or strategic manufacturing investments[26] 2. Significant Accounting Policies and Recent Accounting Pronouncements Outlines the key accounting principles and recent pronouncements adopted by the company - The Company revalues contingent consideration liabilities quarterly, recording fair value changes in the Condensed Consolidated Statements of Operations, with significant judgment involved in determining assumptions[32][33] - ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective for fiscal years beginning after December 15, 2024, is anticipated to result in disclosure changes only[34] 3. Inventories Details the composition and changes in the company's inventory balances | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Raw materials | $4,576 | $7,743 | | Work-in-process | $23,000 | $10,863 | | Finished goods | $5,600 | $4,560 | | Total | $33,176 | $23,166 | - Total inventories increased by $10.01 million (43.2%) from December 31, 2023, to March 31, 2024, primarily driven by a significant increase in work-in-process inventory[36] 4. Property and Equipment, Net Presents the company's property and equipment, net of accumulated depreciation | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Property and Equipment, net | $11,773 | $9,154 | | Depreciation expense (Q1) | $722 | $506 | - Net property and equipment increased by $2.619 million (28.6%) from December 31, 2023, to March 31, 2024, mainly due to increases in computers and other equipment and leasehold improvements[38] 5. Fair Value of Financial Assets and Liabilities Discusses the valuation methods and fair values of the company's financial instruments | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Earnout liability (Level 3) | $20,653 | $46,852 | | Fair value adjustment (Q1 2024) | $(26,199) | N/A | - The earnout liability, measured at fair value using Level 3 unobservable inputs, decreased significantly from $46.852 million at December 31, 2023, to $20.653 million at March 31, 2024, resulting in a $26.199 million fair value adjustment gain[41][43] 6. Goodwill and Intangibles Provides information on the company's goodwill and intangible assets, including amortization | Intangible Asset (March 31, 2024) | Net Book Value (in thousands) | | :--- | :--- | | Trade Names | $169 | | Developed Technology | $32,453 | | In-process R&D | $1,177 | | Patents | $30,861 | | Customer Relationships | $20,351 | | Non-Competition Agreements | $1,282 | | Other | $32 | | Total | $86,325 | - Net intangible assets decreased from $91.099 million at December 31, 2023, to $86.325 million at March 31, 2024, primarily due to $4.774 million in amortization expense[46] - Total future amortization expense for intangible assets is estimated at $85.167 million, with $14.153 million remaining for fiscal year 2024[47] 7. Leases Details the company's lease arrangements, including right-of-use assets and lease liabilities - The Company's operating leases, primarily for commercial buildings, have remaining terms ranging from 0.2 to 5.6 years[48] | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Rent expense (including short-term lease cost) | $800 | $500 | | Cash paid for operating lease liabilities | $566 | $454 | | Operating lease cost | $601 | $512 | - Total lease liabilities as of March 31, 2024, are $8.164 million, with maturities extending through fiscal year 2028 and thereafter[52] 8. Share Based Compensation Explains the company's share-based compensation plans and related expenses | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total stock-based compensation expense | $13,548 | $17,160 | | R&D stock-based compensation | $7,370 | $7,177 | | SG&A stock-based compensation | $6,178 | $9,983 | - Total stock-based compensation expense decreased by $3.612 million (21%) in Q1 2024 compared to Q1 2023, primarily due to lower SG&A stock compensation[58] - Unrecognized compensation cost for unvested RSU awards totaled $79.2 million as of March 31, 2024, expected to be recognized over 2.5 years[66] 9. Earnout Liability Describes the contingent earnout liability and changes in its fair value - Certain stockholders are eligible to receive up to 10 million earnout shares of Class A Common Stock upon meeting three independent stock price milestones[75] | (In thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Fair value of earnout liability | $20,653 | $46,852 | | Gain (loss) from change in fair value (Q1) | $26,199 | $(27,752) | - The fair value of the earnout liability decreased to $20.7 million as of March 31, 2024, from $46.9 million at December 31, 2023, resulting in a $26.2 million gain for the quarter, driven by a decrease in the Company's stock price[77][140] 10. Significant Customers and Credit Concentrations Identifies major customers, geographic revenue concentrations, and supplier risks | Customer Concentration (Q1) | 2024 | 2023 | | :--- | :--- | :--- | | Distributor A | 68% | <10% | | Distributor B | <10% | 35% | | Distributor C | <10% | 19% | | Distributor D | <10% | 17% | | Geographic Revenue (Q1) | 2024 | 2023 | | :--- | :--- | :--- | | China | 74% | 57% | | Europe | 10% | 28% | | United States | 9% | 11% | | Asia excluding China | 7% | 4% | - The Company relies on single foundries for GaN IC and SiC MOSFET wafers, and a limited number of third-party subcontractors for testing, packaging, and other tasks, with many located in Taiwan and the Philippines, posing supplier risk[86][88] 11. Net Loss Per Share Presents the basic and diluted net loss per share calculations for the reporting periods | (In thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Weighted-average common shares - basic | 179,779 | 156,792 | | Weighted-average common shares - diluted | 179,779 | 156,792 | | Shares excluded from diluted weighted-average shares | 25,167 | 29,209 | - Potentially dilutive securities, including stock options, unvested shares, and earnout shares, were excluded from diluted net loss per share calculations for both periods as their effect would be anti-dilutive due to net losses[93] 12. Provision for Income Taxes Details the company's income tax provision and effective tax rate | | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Effective tax rate | (1.93)% | (0.03)% | | Income tax provision (in thousands) | $70 | $61 | - The effective tax rate for Q1 2024 was (1.93%), differing from the prior year primarily due to tax expense in foreign jurisdictions not impacted by valuation allowance[95] - The Company expects its tax rate to remain near zero in the near term due to full valuation allowances against deferred tax assets[141] 13. Commitments and Contingencies Discloses the company's contractual commitments and potential contingent liabilities - As of March 31, 2024, the Company had no non-cancelable contractual arrangements beyond one year, other than lease obligations[98] - The Company provides customer indemnification against intellectual property infringement claims, but has not had to reimburse any distributors or customers to date and cannot determine the maximum potential future payments[99][100] - In March 2023, the Company entered a Release and License Agreement with a university, agreeing to pay $1.0 million over three years and a royalty fee on covered products, with expected indemnification from GeneSiC Semiconductor Inc. sellers for royalty amounts up to $1.0 million[101] 14. Related Party Transactions Describes transactions and arrangements with related parties - In January 2023, Navitas agreed to acquire the remaining minority interest in its silicon control IC joint venture from Halo Microelectronics for $22.4 million in Navitas stock, completing the transaction in February 2023[105] - The Company leases property from an entity owned by an executive and from a family member of a senior executive, with both leases now month-to-month and immaterial rental payments made at standard market rates in Q1 2024[106][107] 15. Noncontrolling Interest Explains the accounting for noncontrolling interests in consolidated entities - The Company obtained control of a joint venture in August 2022, consolidating its net assets and reporting noncontrolling interests as a component of equity[111] - The acquisition of the remaining minority interest in the joint venture in February 2023 for $22.4 million in Navitas stock resulted in a net increase to additional paid-in capital of $7.5 million and the recognition of developed technology as an intangible asset at $4.4 million[112] 16. Subsequent Events Reports on significant events occurring after the balance sheet date - There were no material subsequent events identified between the consolidated balance sheet date of March 31, 2024, and the issuance date of the condensed consolidated financial statements on May 15, 2024[114] Item 2. Management's Discussion and Analysis of Financial Conditions and Operating Results Management's discussion and analysis of Navitas Semiconductor Corporation's financial condition and operating results for Q1 2024 versus Q1 2023, covering revenue, expenses, liquidity, and capital Overview Introduces Navitas Semiconductor Corporation's business model, products, and market position - Navitas is a U.S.-based developer of gallium nitride (GaN) and silicon carbide (SiC) power semiconductor devices, offering superior efficiency, performance, size, and sustainability for various applications[118][119] - The Company operates a fabless business model, partnering with third parties for manufacturing, assembly, and testing, which minimizes capital expenditures[119] - Navitas has established strong market traction, shipping GaN power ICs in mass production to 10 of the top 10 worldwide mobile OEMs and maintaining a leading IP position with a comprehensive patent portfolio[120][121][122] Results of Operations Analyzes the company's financial performance, including revenues, costs, and net loss, for Q1 2024 and 2023 | (In thousands) | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $23,175 | $13,358 | $9,817 | 73% | | Cost of revenues | $13,660 | $7,873 | $5,787 | 74% | | Research and development | $20,229 | $17,394 | $2,835 | 16% | | Selling, general and administrative | $16,087 | $19,058 | $(2,971) | (16)% | | Amortization of intangible assets | $4,774 | $4,499 | $275 | 6% | | Loss from operations | $(31,575) | $(35,466) | $3,891 | (11)% | | Gain (loss) from change in fair value of earnout liabilities | $26,199 | $(27,752) | $53,951 | (194)% | | Net loss | $(3,681) | $(62,365) | $58,684 | (94)% | - Revenue increased by 73% to $23.2 million in Q1 2024, primarily driven by increased sales in the mobile/consumer market[134] - Selling, general and administrative expense decreased by 16% to $16.1 million in Q1 2024, mainly due to lower stock compensation expense compared to the prior year, which included a significant stock grant related to an acquisition[137] - A $26.2 million gain from the change in fair value of earnout liabilities was recognized in Q1 2024, a significant reversal from a $27.8 million loss in Q1 2023, largely due to a decrease in the Company's Class A common stock closing price[140] Liquidity and Capital Resources Discusses the company's cash position, cash flows, and ability to fund future operations and growth - As of March 31, 2024, the Company had $129.7 million in cash and cash equivalents, a 15% decrease from December 31, 2023[144][146] - The Company expects to continue incurring net operating losses and negative cash flows, with increasing research and development, general and administrative expenses, and capital expenditures as it expands operations and product offerings[143] - Management believes current cash levels are sufficient to finance operations, working capital, and capital expenditures for the foreseeable future, but may seek additional equity or debt financing if needed for growth or acquisitions[144][145] Contractual Obligations, Commitments and Contingencies Details the company's contractual obligations, commitments, and potential contingent liabilities - As of March 31, 2024, the Company's non-cancellable contractual arrangements consisted entirely of lease obligations[150] Off-Balance Sheet Commitments and Arrangements Confirms the absence of any material off-balance sheet arrangements - As of March 31, 2024, the Company did not have any off-balance sheet arrangements as defined by SEC regulations[151] Critical Accounting Policies and Estimates Highlights the key accounting policies and estimates requiring significant management judgment - There have been no material changes to the Company's critical accounting policies and estimates from those disclosed in its 2023 annual report on Form 10-K[154] Item 3. Quantitative and Qualitative Disclosures About Market Risk Addresses Navitas Semiconductor Corporation's exposure to market risks, including global economic conditions and commodity price fluctuations Market Conditions Discusses the impact of global economic conditions on the company's product demand and operations - Adverse changes in the global economic landscape have impacted and may continue to affect demand for the Company's products, leading to altered customer order behaviors and shifts in vendor inventory levels[155] Commodity Risk Explains the company's exposure to fluctuations in commodity raw material prices - The Company is exposed to market price fluctuations of commodity raw materials, particularly gold, which are integrated into its products or used by suppliers, potentially leading to increased costs through price hikes or surcharges[156] Item 4. Control and Procedures Details Navitas Semiconductor Corporation's evaluation of disclosure controls, identifying material weaknesses in internal control over financial reporting and remediation plans Evaluation of Disclosure Controls and Procedures Assesses the effectiveness of the company's disclosure controls and procedures - As of March 31, 2024, the Company's disclosure controls and procedures were not effective due to identified material weaknesses in internal control over financial reporting[157] - Material weaknesses include insufficient personnel with appropriate knowledge for complex transactions and internal control matters, and ineffective controls over accounting for share-based payments and the license and release agreement[158] - Management plans to evaluate and assign resources, and utilize external professional firms for complex transactions, to address the identified material weaknesses[158] Changes in Internal Control Over Financial Reporting Reports on any changes in the company's internal control over financial reporting during the quarter - Other than the material weaknesses described, there have been no significant changes in the Company's internal control over financial reporting during the most recent fiscal quarter[160] Part II - Other Information Provides additional information not covered in the financial statements, including legal, risk factors, and other disclosures Item 1. Legal Proceedings Confirms Navitas Semiconductor Corporation is not currently involved in any material legal proceedings - The Company is not currently a party to any material legal proceedings[163] Item 1A. Risk Factors Refers to risk factors from the annual report on Form 10-K, with no new material risks identified as of March 31, 2024 - No additional risks that could materially adversely affect the Company's operating results, financial condition, or future business have been identified as of March 31, 2024, beyond those disclosed in the annual report on Form 10-K[164] Item 5. Other Information Details the adoption of a Rule 10b5-1 trading plan by Navitas Semiconductor Corporation's CEO, Gene Sheridan, including shares covered and purpose Adoption of 10b5-1 Trading Plans by Directors and Executive Officers Describes the Rule 10b5-1 trading plan adopted by the CEO, including covered shares and objectives - On March 13, 2024, CEO Gene Sheridan adopted a Rule 10b5-1 trading plan covering up to 800,000 directly held shares and 912,000 shares underlying restricted stock units (RSUs), scheduled to remain in effect until December 13, 2024[165] - The plan mandates the sale of a minimum of 400,000 directly held shares and all shares issued upon RSU vesting (after tax withholding) to satisfy Mr. Sheridan's tax obligations[165] - Rule 10b5-1 plans provide an affirmative defense against insider trading, requiring a waiting period of at least 90 days after adoption before trades can be executed[166] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certification documents and XBRL taxonomy extension files - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1*, 31.2*, 32.1**) and XBRL Taxonomy Extension documents (101.SCH*, 101.CAL*, 101.DEF*, 101.LAB*, 101.PRE*)[170] Signatures Contains official signatures of Navitas Semiconductor Corporation's CEO and CFO, certifying the report - The report is signed by Gene Sheridan, President and Chief Executive Officer, and Janet Chou, Executive Vice President, Chief Financial Officer and Treasurer, on May 15, 2024[172]