Unless the context otherwise requires, all references in this section to the "Company," "we," "us, or "our" refer to the business of Navitas and its subsidiaries. Throughout this section, unless otherwise noted, "Navitas" refers to
Navitas Semiconductor Corporationand its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those set forth under the "Summary of Risk Factors" and "Cautionary Statement About Forward-Looking Statements" sections and elsewhere in this quarterly report, our actual results may differ materially from those anticipated in these forward-looking statements. 25 --------------------------------------------------------------------------------
Founded in 2013, Navitas is a
U.S.based, developer of gallium nitride power integrated circuits that provide superior efficiency, performance, size and sustainability relative to existing silicon technology. Our solutions offer faster charging, higher power density and greater energy savings compared to silicon-based power systems with the same output power. By unlocking this speed and efficiency, we believe we are leading a revolution in high-frequency, high-efficiency and high-density power electronics to electrify our world for a cleaner tomorrow. We maintain operations around the world, including the United States, Ireland, Germany, Italy, China, Taiwanand the Philippines, with principal executive offices in El Segundo, California. We design, develop and market gallium nitride ("GaN") power integrated circuits ("ICs") used in power conversion and charging. Power supplies incorporating our products may be used in a wide variety of electronics products including mobile phones, consumer electronics, data centers, solar inverters and electric vehicles. We utilize a fabless business model, working with third parties to manufacture, assemble and test our designs. Our fabless model allows us to run the business today with minimal capital expenditures. Our go-to-market strategy is based on partnering with leading manufacturers and suppliers through focused product development, addressing both mainstream and emerging applications. We consider ourselves to be a pioneer in the GaNmarket with a proprietary, proven GaNpower IC platform that is shipping in mass production to tier-1 companies including Samsung, Dell, Lenovo, LG, Xiaomi, OPPO, Amazon, vivo and Motorola. Most of the products we ship today are used primarily as components in mobile device chargers. The majority of charger manufacturers we ship to today are in China, supporting major international mobile brands. Other emerging applications will be addressed in China, other parts of Asia, and worldwide. In support of our technology leadership, we have formed relationships with numerous Tier 1 manufacturers and suppliers over the past eight years, gaining significant traction in mobile and consumer charging applications. Navitas GaN is now in mass production with 9 of the top 10 mobile OEMs across smartphone and laptops, and is in development with 10 out of 10. In addition, our supply chain partners have committed manufacturing capacity in excess of what we consider to be necessary to support our continued growth and expansion. The core strength of our business lies in our industry leading IP position in GaN Power ICs. Navitas invented the first commercial GaN Power ICs and along the way we patented many fundamental circuit elements which are needed in most power systems from 10 W to 100 kW. Today, we have over 151 patents that are issued or pending. In addition to our comprehensive patent portfolio, our biggest proprietary advantage is our process design kit (PDK), the 'how-to' guide for Navitas designers to create new GaNbased device and circuits. Our GaNpower IC inventions and intellectual property translate across all of our target markets from mobile, consumer, EV, enterprise, and renewables. We evaluate various complementary technologies and look to improve our PDK, in order to keep introducing newer generations of GaNtechnology. In 2021 and the three months ended March 31, 2022, we spent approximately 117% and 143%, respectively of our revenue on research and development. Navitas' research and development activities are located primarily in the US and China. As of March 31, 2022, we had approximately 103 full-time personnel in our research & development team, with approximately 59% with advanced degrees (PhD and MS).
Business combinations and reverse recapitalization
May 6, 2021, Navitas Semiconductor Limited("Navitas Ireland"), a private company limited by shares organized under the Laws of Irelandand domesticated in the State of Delawareas Navitas Semiconductor Ireland, LLC, ("Navitas Delaware", and together with Navitas Ireland, "Legacy Navitas") a Delawarelimited liability company, entered into a business combination agreement and plan of reorganization (the "Business Combination Agreement" or "BCA") with Live Oak Acquisition Corp.II, ("Live Oak"). Pursuant to the BCA, through a series of transactions, Navitas Ireland merged with and into Live Oak effective October 19, 2021(the "Closing Date"), with Navitas Ireland's newly formed parent, Navitas Semiconductor Corporation(" Navitas Corp" or after the Business Combination, the "Company", formerly named Live Oak Acquisition Corp.II), surviving the transaction.
The business combination has been accounted for as a reverse recapitalization under US GAAP. Per ASC 805 guidelines, Live Oak has been treated as the “acquired” company for financial reporting purposes. We were famous
26 -------------------------------------------------------------------------------- the accounting predecessor and the post-combination company is the successor
SECregistrant, meaning that our financial statements for previous periods will be disclosed in our annual report Form 10-K filed with the SECfiled on March 31, 2022. The Business Combination had a significant impact on our reported financial position and results as a consequence of the reverse recapitalization. The most significant change in our reported financial position and results of operations was net cash proceeds of $298,054from the merger transaction, which included $173,000in gross proceeds from the PIPE financing that was consummated in conjunction with the Business Combination. The increase in cash was offset by transaction costs incurred in connection with the Business Combination of approximately $24,967. Navitas expects to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees. Results of Operations Revenue
We design, develop and manufacture GaN integrated circuits. Our revenue represents the sale of semiconductors through specialty distributors to original equipment manufacturers (“OEMs”), their suppliers and other end customers.
Our revenues fluctuate in response to a combination of factors, including the following:
•our overall product range and sales volumes;
•gains and losses of market share and win traction design;
•the rate at which technology is adopted in our end markets;
•the stage of our products in their respective life cycles;
•the effects of competition and competitive pricing strategies;
•availability of specialized application engineering resources in the field supporting the creation of demand and the adoption of new products by end customers;
•achieve acceptable yields and obtain adequate production capacities from our wafer foundries and our assembly and test subcontractors;
• market acceptance of our end customers’ products; government regulations affecting our markets; and
•global and regional economic cycles.
Our product revenue is recognized when the customer obtains control of the product and the timing of recognition is based on the contractual shipping terms of a contract. We provide a non-conformity warranty which is not sold separately and does not represent a separate performance obligation. The vast majority of our product revenue originates from sales shipped to customer locations in
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead (which includes depreciation and amortization) associated with such purchases, final test and wafer level yield fallout, consumables, system and shipping costs. Cost of goods sold also includes compensation related to personnel associated with manufacturing.
Research and development costs
Costs related to research, design, and development of our products are expensed as incurred. Research and development expense consists primarily of pre-production costs related to the design and development of our products and technologies, including costs related to cash and share-based employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third party fees paid to consultants, prototype development expenses, and other costs incurred in the product design and development process. 27 --------------------------------------------------------------------------------
Selling, general and administrative expenses
Selling, general and administrative costs include employee compensation, including cash and share-based compensation and benefits for executive, finance, business operations, sales, field application engineers and other administrative personnel. In addition, it includes marketing and advertising, IT, outside legal, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred.
Interest expense consists primarily of interest under our term loan facility.
Legacy Navitas a dual domesticated company for
The table and discussion below present our results for the three months ended
March 31, 2022and 2021: Three Months Ended March 31, Change Change ($ in thousands) 2022 2021 $ % Revenue $ 6,740 $ 5,317 $ 1,42327 % Cost of goods sold 3,777 2,959 818 28 % Gross profit 2,963 2,358 605 26 % Operating expenses: Research and development 13,413 4,254 9,159 215 % Selling, general and administrative 24,544 5,369 19,175 357 % Total operating expenses 37,957 9,623 28,334 294 % Loss from operations (34,994) (7,265) (27,729) 382 % Other income (expense), net: Interest expense, net (24) (61) 37 (61) % Gain from change in fair value of warrants 51,763 - 51,763 - % Gain from change in fair value of earnout liabilities 63,406 - 63,406 - % Other expense (356) - (356) - % Total other income (expense), net 114,789 (61) 114,850 - % Income (loss) before income taxes 79,795 (7,326) 87,121 - % Income tax expense 3 19 (16) (84) % Net income (loss) $ 79,792 $ (7,345) $ 87,135(1186) % 28
Comparison of quarters ended
Revenue for the three months ended
March 31, 2022was $6.7 millioncompared to $5.3 millionfor the three months ended March 31, 2021, an increase of $1.4 million, or 27%. The significant increase primarily reflected the Company's customer growth trajectory, evolving from aftermarket customers to the top mobile companies and total sales volumes increasing 32%, from 5.7 million to 7.5 million units shipped, while the average selling price declined 15% to $0.82per unit. Cost of Goods Sold Cost of goods sold for the three months ended March 31, 2022was $3.8 millioncompared to $3.0 millionfor the three months ended March 31, 2021, an increase of $0.8 millionor 28%. The increase was primarily driven by significant revenue growth, partially offset by lower costs on third generation ("Gen 3") products launched in the second half of 2021.
Research and development costs
Research and development expense for the three months ended
March 31, 2022of $13.4 millionincreased by $9.2 million, or 215%, when compared to the three months ended March 31, 2021, primarily driven by increases in stock based compensation, resulting in $7.3 millionhigher compensation costs, along with an increase of $1.9 millionin non-compensation costs related to new applications and reliability expenses devoted to next generation product development. We expect research and development expense to continue to increase as we grow our headcount to support our expansion into new applications.
Selling, general and administrative expenses
Selling, general and administrative expense for the three months ended
March 31, 2022of $24.5 millionincreased by $19.2 million, or 357%, when compared to the three months ended March 31, 2021. The increase is primarily due to an $16.3 millionincrease in stock-based compensation, a $1.6 millionincrease in compensation costs related to growth in headcount and a $1.3 millionincrease in other costs of growing the business. We expect selling, general and administrative costs to increase to support our growth and as a result of the increased costs for infrastructure required as a public company.
Other income (expenses), net
Net interest expense, net for the three months ended
During the three months ended
March 31, 2022, we recognized gain from the change in fair value of our warrant liabilities, earn out liabilities and an equity method investment of $51.8 million, $63.4 millionand ($0.4) million, respectively, as follows: i) Warrants: The change in fair value of our warrant liability is due to the Company issuing a notice of redemption on February 4, 2022and the Company revaluing the liability just before the exercise and redemptions which resulted in a valuation change of $51.8 million. ii) Earnout liability: Subsequent to the recognition of the earnout liability upon the consummation of the Business Combination on October 19, 2021, we remeasure the fair value of this liability at each reporting date. The decrease in fair value of our earn-out liability of $63.4 millionwas primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq from $17.01per share on December 31, 2021to $10.28per share on March 31, 2022.
(iii) Other expense reflects our minority interest in the net loss of a joint venture.
income tax expense
Income tax expenses for the three months
March 31, 2022decreased by ($16) thousandwhen compared to the three March 31, 2021. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.
Cash and capital resources
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, working capital requirements related to inventory, accounts payable and accounts receivable, and selling, general and administrative expenditures. In addition, we use cash to fund our debt service obligations, and purchases of capital and software assets. We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will continue to increase. We expect our expenses and capital requirements to increase in connection with our ongoing initiatives to expand our operations, product offerings and end customer base. Prior to the Business Combination, we derived our liquidity and capital resources primarily from the issuance and sale of convertible preferred stock. The term loan principal balance is payable in monthly installments beginning in
September 2021. As March 31, 2022, we had cash and cash equivalents of $253.8 million. We currently use cash to fund operations, meet working capital requirements, for capital expenditures and strategic investments. Post-Business Combination, the Company has additional access to capital resources through public market transactions and the historical focus on near-term working capital and liquidity has shifted to more strategic and forward-looking capital optimization plans. We believe that the influx of capital from the Business Combination is sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future. We expect our operating and capital expenditures to increase as we increase headcount, expand our operations and grow our end customer base. If additional funds are required to support our working capital requirements, acquisitions or other purposes, we may seek to raise funds through additional debt financing or from other sources. If we raise additional funds through the issuance of equity, the percentage ownership of our equityholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing equityholders. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operating flexibility and would also require us to incur interest expense. We can provide no assurance that additional financing will be available at all or, if available, that we would be able to obtain additional financing on terms favorable to us.
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