indie Semiconductor, Inc. - Quarter Report: 2022 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
For the quarterly period ended June 30, 2022
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number 001-40481
___________________________________________________________________
INDIE SEMICONDUCTOR, INC.
___________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware | 87-0913788 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
32 Journey Aliso Viejo, California | 92656 | |||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
(949) 608-0854
Registrant’s telephone number, including area code
___________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Class A common stock, par value $0.0001 per share | INDI | The Nasdaq Stock Market LLC | ||||||||||||
| Warrants, each whole warrant exercisable for one share of Class A common stock for $11.50 per share | INDIW | The Nasdaq Stock Market LLC | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | o | Accelerated filer | o | ||||||||
Non-accelerated filer | x | Smaller reporting company | x | ||||||||
Emerging growth company | x | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of shares outstanding of the registrant’s Class A and Class V common stock as of August 8, 2022 was 119,574,336 (excluding 1,725,000 Class A shares held in escrow and 876,565 Class A shares subject to restricted stock awards) and 26,382,703, respectively.
INDIE SEMICONDUCTOR, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
Table of Contents
| Page | ||||||||
Condensed Consolidated Financial Statements as of June 30, 2022 and December 31, 2021 and for the three and six months ended June 30, 2022 and 2021 (Unaudited) | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| Condensed Consolidated Statements of Operations | ||||||||
| Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) and Noncontrolling Interest | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| Item 3. | Defaults upon Senior Securities | |||||||
| Item 4. | Mine Safety Disclosures | |||||||
| Item 5. | Other Information | |||||||
1
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” (within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended). Such statements include, but are not limited to, statements regarding the Company’s future business and financial performance and prospects, and other statements identified by words such as “will likely result,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “plan,” “project,” “outlook,” “should,” “could,” “may” or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of the Company’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results and the timing of events may differ materially from the anticipated results or other expectations expressed in such forward-looking statements as a result of various factors, including, among others, the following: downturns or volatility in general economic conditions; the impact of the COVID-19 pandemic or a similar public health crisis; the impact of Russia’s invasion of Ukraine; the Company’s reliance on contract manufacturing and outsourced supply chain and the availability of semiconductors and manufacturing capacity; competitive products and pricing pressures; the Company’s ability to win competitive bid selection processes and achieve additional design wins; the impact of any acquisitions the Company may make, including its ability to successfully integrate acquired businesses and risks that the anticipated benefits of any acquisitions may not be fully realized or take longer to realize than expected; management’s ability to develop, market and gain acceptance for new and enhanced products and expand into new technologies and markets; trade restrictions and trade tensions; and political or economic instability in the Company’s target markets; and additional factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”) on April 11, 2022 (including those identified under “Risk Factors” therein), as such risk factors may be amended, supplemented or superseded from time to time in the Company’s other public reports filed with the SEC. indie cautions that the foregoing list of factors is not exclusive.
All information set forth herein speaks only as of the date hereof, and the Company disclaims any intention or obligation to update any forward-looking statements made in this report or in its other public filings, whether as a result of new information, future events or otherwise, except as required by law.
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 163,749 | $ | 219,081 | |||||||
| Restricted cash | 383 | 383 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $46 as of June 30, 2022 and $27 as of December 31, 2021 | 15,835 | 13,842 | |||||||||
| Inventory, net | 12,566 | 9,080 | |||||||||
| Prepaid expenses and other current assets | 6,910 | 5,648 | |||||||||
| Total current assets | 199,443 | 248,034 | |||||||||
| Property and equipment, net | 11,900 | 11,090 | |||||||||
| Intangible assets, net | 97,318 | 96,285 | |||||||||
| Goodwill | 125,738 | 115,206 | |||||||||
| Operating lease right-of-use assets | 10,345 | — | |||||||||
| Other assets and deposits | 1,623 | 270 | |||||||||
| Total assets | $ | 446,367 | $ | 470,885 | |||||||
| Liabilities and stockholders' equity | |||||||||||
| Accounts payable | $ | 7,608 | $ | 5,441 | |||||||
| Accrued payroll liabilities | 7,267 | 4,021 | |||||||||
| Accrued expenses and other current liabilities | 14,325 | 14,622 | |||||||||
| Intangible asset contract liability | 6,368 | 5,516 | |||||||||
| Deferred revenue | 1,768 | 1,840 | |||||||||
| Current debt obligations | 13,204 | 2,275 | |||||||||
| Total current liabilities | 50,540 | 33,715 | |||||||||
| Long-term debt, net of current portion | 4,795 | 5,618 | |||||||||
| Warrant liability | 32,813 | 100,467 | |||||||||
| Intangible asset contract liability, net of current portion | 9,419 | 12,452 | |||||||||
| Deferred tax liabilities, non-current | 23,320 | 21,164 | |||||||||
| Operating lease liability, non-current | 8,725 | — | |||||||||
| Other long-term liabilities | 5,458 | 5,612 | |||||||||
| Total liabilities | 135,070 | 179,028 | |||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Stockholders' equity | |||||||||||
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued or outstanding | — | — | |||||||||
Class A common stock, $0.0001 par value, 250,000,000 shares authorized, 121,973,538 and 111,260,962 shares issued, 119,323,612 and 108,181,781 shares outstanding as of June 30, 2022 and December 31, 2021, respectively. | 12 | 11 | |||||||||
Class V common stock, $0.0001 par value, 40,000,000 shares authorized, 26,382,703 and 30,448,081 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. | 3 | 3 | |||||||||
| Additional paid-in capital | 527,807 | 514,891 | |||||||||
| Accumulated deficit | (193,818) | (200,416) | |||||||||
2
| Accumulated other comprehensive loss | (8,452) | (1,443) | |||||||||
| indie's stockholders' equity | 325,552 | 313,046 | |||||||||
| Noncontrolling interest | (14,255) | (21,189) | |||||||||
| Total stockholders' equity | 311,297 | 291,857 | |||||||||
| Total liabilities and stockholders' equity | $ | 446,367 | $ | 470,885 | |||||||
See accompanying notes to the condensed consolidated financial statements.
3
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product revenue | $ | 20,452 | $ | 8,888 | $ | 38,538 | $ | 16,371 | |||||||||||||||
| Contract revenue | 5,303 | 292 | 9,216 | 923 | |||||||||||||||||||
| Total revenue | 25,755 | 9,180 | 47,754 | 17,294 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of goods sold | 15,178 | 5,319 | 29,370 | 10,167 | |||||||||||||||||||
| Research and development | 28,467 | 13,486 | 57,966 | 22,163 | |||||||||||||||||||
| Selling, general, and administrative | 12,085 | 8,878 | 24,727 | 11,573 | |||||||||||||||||||
| Total operating expenses | 55,730 | 27,683 | 112,063 | 43,903 | |||||||||||||||||||
| Loss from operations | (29,975) | (18,503) | (64,309) | (26,609) | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | 175 | 13 | 208 | 20 | |||||||||||||||||||
| Interest expense | (267) | (530) | (325) | (1,150) | |||||||||||||||||||
| Gain (loss) from change in fair value of SAFEs | — | 2,500 | — | 21,600 | |||||||||||||||||||
| Gain (loss) from change in fair value of warrants | 20,301 | 11,316 | 67,654 | 11,316 | |||||||||||||||||||
| Gain (loss) from change in fair value of earn-out liabilities | — | 17,939 | — | 17,939 | |||||||||||||||||||
| Gain (loss) from change in fair value of contingent considerations | 3,584 | (100) | 3,667 | (100) | |||||||||||||||||||
| Gain (loss) from extinguishment of debt | — | 304 | — | 304 | |||||||||||||||||||
| Other income (expense) | 9 | 106 | (21) | 99 | |||||||||||||||||||
| Total other income, net | 23,802 | 31,548 | 71,183 | 50,028 | |||||||||||||||||||
| Net income (loss) before income taxes | (6,173) | 13,045 | 6,874 | 23,419 | |||||||||||||||||||
| Income tax benefit (expense) | 869 | (57) | 1,528 | (70) | |||||||||||||||||||
| Net income (loss) | (5,304) | 12,988 | 8,402 | 23,349 | |||||||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | (1,070) | 6,839 | 1,803 | 6,385 | |||||||||||||||||||
| Net income (loss) attributable to indie Semiconductor, Inc. | $ | (4,234) | $ | 6,149 | $ | 6,599 | $ | 16,964 | |||||||||||||||
| Net income (loss) attributable to common shares — basic | $ | (4,234) | $ | 6,149 | $ | 6,599 | $ | 16,964 | |||||||||||||||
| Net income (loss) attributable to common shares — diluted | $ | (4,234) | $ | 3,649 | $ | 6,599 | $ | (4,636) | |||||||||||||||
| Net income (loss) per share attributable to common shares — basic | $ | (0.04) | $ | 0.13 | $ | 0.06 | $ | 0.43 | |||||||||||||||
| Net income (loss) per share attributable to common shares — diluted | $ | (0.04) | $ | 0.06 | $ | 0.04 | $ | (0.10) | |||||||||||||||
Weighted average common shares outstanding — basic | 116,983,265 | 47,058,489 | 114,102,308 | 39,712,251 | |||||||||||||||||||
Weighted average common shares outstanding — diluted | 116,983,265 | 63,647,057 | 150,740,655 | 46,236,226 | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | (5,304) | $ | 12,988 | $ | 8,402 | $ | 23,349 | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | (7,872) | 146 | (7,009) | 58 | |||||||||||||||||||
| Comprehensive income (loss) | (13,176) | 13,134 | 1,393 | 23,407 | |||||||||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | (951) | 6,805 | 1,943 | 6,387 | |||||||||||||||||||
| Comprehensive income (loss) attributable to indie Semiconductor, Inc. | $ | (12,225) | $ | 6,329 | $ | (550) | $ | 17,020 | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
5
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND NONCONTROLLING INTEREST
(Amounts in thousands, except unit and share amounts)
(Unaudited)
| Common Stock Class A | Common Stock Class V | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity (Deficit) Attributable to indie Semiconductor, Inc. | Noncontrolling Interest | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares (1) | Amount | Shares (1) | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | — | $ | — | — | $ | — | $ | 982 | $ | (153,264) | $ | (209) | $ | (110,312) | $ | 8,820 | $ | (101,492) | |||||||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization | 34,413,634 | 3 | 33,373,294 | 3 | 42,173 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 34,413,634 | $ | 3 | 33,373,294 | $ | 3 | $ | 43,155 | $ | (153,264) | $ | (209) | $ | (110,312) | $ | 8,820 | $ | (101,492) | |||||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards | 631,121 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 10,815 | — | 10,815 | (454) | 10,361 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (88) | (88) | 36 | (52) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | 35,044,755 | $ | 3 | 33,373,294 | $ | 3 | $ | 43,155 | $ | (142,449) | $ | (297) | $ | (99,585) | $ | 8,402 | $ | (91,183) | |||||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards | 1,133,889 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | 7,968 | — | — | 7,968 | — | 7,968 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss through June 10, 2021 | — | — | — | — | — | (13,434) | — | (13,434) | (132) | (13,566) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse recapitalization on June 10, 2021 | 60,441,289 | 6 | 454,077 | — | 250,129 | — | — | 250,135 | — | 250,135 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reverse recapitalization: ADK Minority Holders interest on June 10, 2021 | (378,605) | — | — | — | (36,831) | 40,892 | 40 | 4,101 | (4,101) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income after June 10, 2021 | — | — | — | — | — | 19,584 | — | 19,584 | 6,971 | 26,555 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | 146 | 146 | (34) | 112 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | 96,241,328 | $ | 9 | 33,827,371 | $ | 3 | $ | 264,421 | $ | (95,407) | $ | (111) | $ | 168,915 | $ | 11,106 | $ | 180,021 | |||||||||||||||||||||||||||||||||||||||||
(1) Retroactively restated to give effect to the reverse recapitalization.
6
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) AND NONCONTROLLING INTEREST
(Amounts in thousands, except unit and share amounts)
(Unaudited)
| Common Stock Class A | Common Stock Class V | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders' Equity Attributable to indie Semiconductor, Inc. | Noncontrolling Interest | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 108,181,781 | $ | 11 | 30,448,081 | $ | 3 | $ | 514,891 | $ | (200,416) | $ | (1,443) | $ | 313,046 | $ | (21,189) | $ | 291,857 | |||||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards | 250,378 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per net settlement of equity awards and cash exercise of stock options | 1,250,878 | — | — | — | (188) | — | — | (188) | 259 | 71 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per Exchange of Class V to Class A | 2,224,148 | — | (2,224,148) | — | (2,345) | — | — | (2,345) | 2,345 | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance on earn out awards | 3,070,494 | — | 1,895,879 | — | 872 | — | — | 872 | (872) | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | 10,742 | — | — | 10,742 | — | 10,742 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 10,833 | — | 10,833 | 2,873 | 13,706 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | 863 | 863 | 21 | 884 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 114,977,679 | $ | 11 | 30,119,812 | $ | 3 | $ | 523,972 | $ | (189,583) | $ | (580) | $ | 333,823 | $ | (16,563) | $ | 317,260 | |||||||||||||||||||||||||||||||||||||||||
| Vesting of equity awards | 136,306 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per net settlement of equity awards and cash exercise of stock options | 443,160 | — | — | — | (204) | — | — | (204) | 205 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | 7,093 | — | — | 7,093 | — | 7,093 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per Exchange of Class V to Class A | 3,737,109 | 1 | (3,737,109) | — | (3,054) | — | — | (3,053) | 3,054 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance per Exchange of ADK LLC units to Class A | 29,358 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (4,235) | — | (4,235) | (1,070) | (5,305) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (7,872) | (7,872) | 119 | (7,753) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | 119,323,612 | $ | 12 | 26,382,703 | $ | 3 | $ | 527,807 | $ | (193,818) | $ | (8,452) | $ | 325,552 | $ | (14,255) | $ | 311,297 | |||||||||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
7
INDIE SEMICONDUCTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
1
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 8,402 | $ | 23,349 | |||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 10,366 | 1,248 | |||||||||
| Inventory impairment charges | 707 | 65 | |||||||||
| Share-based compensation | 21,182 | 7,968 | |||||||||
| Amortization of discount of debt | 150 | 198 | |||||||||
| Bad debts | 24 | 93 | |||||||||
(Gain) loss from change in fair value remeasurement of SAFEs | — | (21,600) | |||||||||
(Gain) loss from change in fair value of warrants | (67,654) | (11,316) | |||||||||
(Gain) loss from change in fair value of earn-out liabilities | — | (17,939) | |||||||||
(Gain) loss from change in fair value of contingent considerations | (3,667) | 100 | |||||||||
(Gain) loss from extinguishment of debt | — | (304) | |||||||||
| Deferred City Semi compensation | 125 | 250 | |||||||||
| Amortization of right-of-use assets | 1,118 | — | |||||||||
| Unrealized foreign currency transaction (gain) loss | (216) | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (1,753) | (1,350) | |||||||||
| Inventory | (2,448) | (530) | |||||||||
| Accounts payable | 1,945 | (211) | |||||||||
| Accrued expenses and other current liabilities | 434 | 922 | |||||||||
| Accrued payroll liabilities | (723) | 242 | |||||||||
| Deferred revenue | 457 | (476) | |||||||||
| Prepaid and other current assets | (2,340) | (3,321) | |||||||||
| Operating lease liabilities | (814) | — | |||||||||
| Other long-term liabilities | (2,177) | 479 | |||||||||
| Net cash used in operating activities | (36,882) | (22,133) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | (1,846) | (809) | |||||||||
| Purchases of intangible assets | — | (43) | |||||||||
| Business combinations, net of cash | (8,705) | — | |||||||||
| Net cash used in investing activities | (10,551) | (852) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of SAFEs | — | 5,000 | |||||||||
| Proceeds from issuance of debt obligations | 1,059 | 155 | |||||||||
| Proceeds from reverse recapitalization | — | 377,663 | |||||||||
| Issuance costs related to reverse recapitalization | — | (6,215) | |||||||||
| Payments on debt obligations | (1,050) | (15,008) | |||||||||
| Payments on financed software | (1,928) | (2,227) | |||||||||
| Redemption of Class H units | — | (900) | |||||||||
1
8
| Payments on business combination | (5,000) | — | |||||||||
| Payments of City Semi deferred compensation | (1,000) | — | |||||||||
| Proceeds from exercise of stock options | 72 | — | |||||||||
| Net cash provided by (used in) financing activities | (7,847) | 358,468 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (52) | 27 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (55,332) | 335,510 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 219,464 | 18,698 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 164,132 | $ | 354,208 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 128 | $ | 1,137 | |||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||
| Purchases of property and equipment, accrued but not paid | $ | 275 | $ | 688 | |||||||
| Conversion of historical members' equity | $ | — | $ | 41,278 | |||||||
| Class G warrants cashless exchange | $ | — | $ | 407 | |||||||
| Conversion of SAFEs | $ | — | $ | 86,100 | |||||||
| Conversion of Embry Notes | $ | — | $ | 4,119 | |||||||
| Recognition of earn-out considerations | $ | — | $ | 119,759 | |||||||
| Accrual for purchases of intangible assets | $ | — | $ | 12,198 | |||||||
| Recognition of warrant liabilities | $ | — | $ | 74,408 | |||||||
| Transaction costs accrued but not paid | $ | — | $ | 14,754 | |||||||
| Contingent consideration for business combination | $ | 8,204 | $ | — | |||||||
| Accrual for purchase consideration for business combination | $ | 9,674 | $ | — | |||||||
See accompanying notes to the condensed consolidated financial statements.
9
INDIE SEMICONDUCTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except unit and share amounts and per unit and per share amounts)
(Unaudited)
1. Nature of the Business and Basis of Presentation
indie Semiconductor, Inc. (“indie”) and its predecessor for accounting purposes, Ay Dee Kay, LLC, a California limited liability company (“ADK LLC”) and its subsidiaries are collectively referred to herein as the “Company.” The Company offers highly innovative automotive semiconductors and software solutions for Advanced Driver Assistance Systems (“ADAS”), autonomous vehicle, connected car, user experience and electrification applications. The Company focuses on edge sensors across multiple modalities spanning LiDAR, radar, ultrasound and computer vision. These functions represent the core underpinnings of both electric and autonomous vehicles, while the advanced user interfaces are transforming the in-cabin experience to mirror and seamlessly connect to the mobile platforms people rely on every day. indie is an approved vendor to Tier 1 automotive suppliers and its platforms can be found in marquee automotive manufacturers around the world. Headquartered in Aliso Viejo, California, indie has design centers and sales offices in Austin, Texas; Boston, Massachusetts; Detroit, Michigan; San Francisco and San Jose, California; Budapest, Hungary; Cordoba, Argentina; Dresden and Munich, Germany; Edinburgh, Scotland; Haifa, Israel; Quebec City, Canada; Tokyo, Japan; Seoul, South Korea and several locations throughout China. The Company engages subcontractors to manufacture its products. The majority of these subcontractors are located in Asia.
Recent Acquisitions
On October 21, 2021, indie entered into a definitive agreement with Analog Devices (“ADI”) to acquire Symeo GmbH (“Symeo”). The acquisition was approved by the German government on January 4, 2022 and closed on the same day. The total consideration paid for this acquisition consisted of (i) $8,705 in cash at closing, net of cash acquired; (ii) a $10,000 promissory note payable in January 2023 with a fair market value of $9,674 on January 4, 2022; and (iii) an equity-based earn-out of up to 858,369 shares of indie Class A common stock based on future revenue growth. The fair market value of this equity-based earn-out was $8,204 on January 4, 2022.
See Note 2 - Business Combinations for additional description of this acquisition.
Reverse Recapitalization with Thunder Bridge Acquisition II
On June 10, 2021, Thunder Bridge Acquisition II, Ltd. (“TB2”), consummated a series of transactions that resulted in the combination (the “Transaction”) of TB2 with ADK LLC pursuant to the Master Transactions Agreement dated December 14, 2020, as amended on May 3, 2021 (the “MTA”) by and among TB2, Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation (“Surviving Pubco”), ADK LLC, and the other parties named therein. In connection with the Transaction, Surviving Pubco was formed to be the successor public company to TB2, TB2 was domesticated into a Delaware corporation and merged with and into and a merger subsidiary of Surviving Pubco, with Surviving Pubco continuing as the successor company, and a merger subsidiary of Surviving Pubco merged with and into ADK LLC, with ADK LLC continuing as the surviving limited liability company. On the same day, Surviving Pubco changed its name to indie Semiconductor, Inc., and listed shares of Class A common stock, par value $0.0001 per share on The Nasdaq Stock Market LLC under the symbol “INDI.”
Impact of COVID-19
The COVID-19 pandemic and the resulting economic downturn has affected business conditions in our industry. The duration, severity, and future impact of the pandemic, including as a result of more contagious variants of the virus that causes COVID-19, continue to be highly uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition. Like many companies in the semiconductor industry, we are experiencing various supply constraints due to the pandemic. While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain. Refer to Part I, Item 1A of our 2021 Annual Report on Form 10-K for the fiscal year ended December 31, 2021 under the heading “Risk Factors” for more information.
Basis of Presentation
The condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission
10
(“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and the Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the consolidated accounts of the Company’s majority-owned subsidiary, ADK LLC, of which 82% was owned by indie as of June 30, 2022. ADK LLC’s consolidated financial statements include its wholly-owned subsidiaries Indie Services Corporation, indie LLC and Indie City LLC, all California entities, Ay Dee Kay Limited, a private limited company incorporated under the laws of Scotland, indie GmbH, a private limited liability company incorporated under the laws of Germany, indie Kft, a limited liability company incorporated under the laws of Hungary, TeraXion Inc., a company incorporated under the laws of Canada, indie Semiconductor Israel Ltd., a private limited company incorporated under the laws of Israel, Wuxi indie Microelectronics (“Wuxi”), a Chinese entity with 64% voting controlled and 44% owned by the Company as of June 30, 2022 and Wuxi’s wholly-owned subsidiaries, indie Semiconductor Japan, indie Semiconductor HK, Ltd and Shanghai Ziying Microelectronics Co., Ltd.
All significant intercompany accounts and transactions of the subsidiaries have been eliminated in consolidation. The noncontrolling interest attributable to the Company’s less-than-wholly-owned subsidiary is presented as a separate component from stockholders’ equity (deficit) in the consolidated balance sheets, and a noncontrolling interest in the consolidated statements of operations and consolidated statements of stockholders’ equity (deficit) and noncontrolling interest.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial reporting. Certain information and footnote disclosures, normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to those rules and regulations. However, in management’s opinion, the financial information reflects all adjustments, including those of a normal recurring nature, necessary to present fairly the results of operations, financial position, and cash flows of the Company for the periods presented. The results of operations, financial position, and cash flows for the Company during the interim periods are not necessarily indicative of those expected for the full year. This information should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on April 11, 2022.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. indie is an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. Following the consummation of the Transaction, the Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the market value of the Company’s common stock that is held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter, (ii) the last day of the fiscal year in which the Company achieves total annual gross revenue of $1.07 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which the Company issues more than $1 billion in non-convertible debt in the prior three-year period or (iv) December 31, 2024. The Company expects to continue to take advantage of the benefits of the extended transition period, although it may decide to early adopt such new or revised accounting standards to the extent permitted by such standards. This may make it difficult or impossible to compare the Company’s financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.
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Significant Accounting Policies
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021. Other than the accounting policies discussed in Note 16, Leases, related to the adoption of ASC 842, Leases, there has been no material change to the Company’s significant accounting policies during the six months ended June 30, 2022.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. This ASU requires entities to measure the impairment of certain financial instruments, including accounts receivable, based on expected losses rather than incurred losses. This ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), whereby lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The FASB issued ASU 2019-10-Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates in November 2019 and ASU 2020-05-Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities in June 2020. The ASUs change some effective dates for ASU 2016-02 on leasing. After applying ASU 2019-10 and 2020-05, ASU 2016-02 is effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2021.
The Company applied the transition requirements on the adoption date of January 1, 2022, rather than at the beginning of the earliest comparative period presented. This approach allows for a cumulative effect adjustment in the period of adoption, and prior periods will not be restated. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. The Company also elected to use the hindsight practical expedient to consider any facts or circumstances that have changed through the January 1, 2022 adoption date that may affect the lease term due to renewal options and assess the impairment of the right-of-use asset. As an accounting policy election, the Company also excluded short-term leases (term of 12 months or less) from the balance sheet presentation and accounted for non-lease and lease components in a contract as a single lease component for certain asset classes. Effective January 1, 2022, the Company recorded the impact on its condensed consolidated balance sheet from the recognition of ROU asset and lease liability of $10,344. The impact to its condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) and condensed consolidated statements of cash flows is not material. See Note 16, Leases, for additional details.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 (and December 15, 2021 for nonpublic companies) and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective, or prospective basis. The Company adopted ASU 2019-12 as of January 1, 2022 on a prospective basis. The standard had no material impact on the Company’s condensed consolidated financial statements and related disclosures.
In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion
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feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company early adopted this update on January 1, 2022 using the modified retrospective method of transition and the impact to its condensed consolidated financial statements was not material.
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2. Business Combinations
The Company acquired TeraXion, Inc. (“TeraXion”) and ON Design Israel Ltd. (“ON Design Israel”) in October 2021 and Symeo GmbH (“Symeo”) in January 2022. These acquisitions were recorded by allocating the purchase consideration to the net assets acquired based on their estimated fair values at the acquisition date. The excess of the purchase consideration for the acquisition over the fair value of the net assets acquired is recorded as goodwill. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. The following presents the preliminary allocation of the purchase consideration to the assets acquired and liabilities assumed for TeraXion, ON Design Israel, and Symeo as of June 30, 2022:
| Symeo GmbH | TeraXion | ON Design Israel | ||||||||||||||||||
| Purchase price - cash consideration | $ | 10,000 | $ | 74,050 | $ | 6,107 | ||||||||||||||
| Purchase price - cash consideration (Accrual) | 9,674 | — | 7,500 | |||||||||||||||||
| Add: debt paid at closing | — | 6,857 | — | |||||||||||||||||
| Less: cash acquired | (1,295) | (5,625) | (1,133) | |||||||||||||||||
| Net cash paid | 18,379 | 75,282 | 12,474 | |||||||||||||||||
| Purchase price - equity consideration | ||||||||||||||||||||
| Common stock | — | 65,192 | — | |||||||||||||||||
| Options | — | 17,249 | — | |||||||||||||||||
| Total equity consideration | — | 82,441 | — | |||||||||||||||||
| Earn out shares | 8,204 | — | — | |||||||||||||||||
| Contingent consideration | — | — | 4,000 | |||||||||||||||||
| Net consideration | $ | 26,583 | $ | 157,723 | $ | 16,474 | ||||||||||||||
| Fair value of net assets and liabilities assumed: | ||||||||||||||||||||
| Current assets other than cash | 2,857 | 7,627 | 119 | |||||||||||||||||
| Property and equipment | 1,039 | 6,009 | 1,315 | |||||||||||||||||
| Developed technology | 6,631 | 43,594 | 5,077 | |||||||||||||||||
| In-progress research & development | 2,170 | 10,304 | 1,562 | |||||||||||||||||
| Customer relationships | 2,411 | 12,682 | — | |||||||||||||||||
| Backlog | 603 | 2,378 | — | |||||||||||||||||
| Trade name | 965 | 6,125 | — | |||||||||||||||||
| Other non-current assets | 36 | — | 66 | |||||||||||||||||
| Current liabilities | (1,461) | (5,840) | (859) | |||||||||||||||||
| Deferred revenue | — | (1,025) | — | |||||||||||||||||
| Deferred tax liabilities, non-current | (2,935) | (20,272) | (1,578) | |||||||||||||||||
| Long-term debt | — | (7,580) | — | |||||||||||||||||
| Total fair value of net assets acquired | 12,316 | 54,002 | 5,702 | |||||||||||||||||
| Goodwill | $ | 14,267 | $ | 103,721 | $ | 10,772 | ||||||||||||||
Any changes in the estimated fair values of the net assets recorded for the business combination of TeraXion, ON Design Israel or Symeo upon the finalization of more detailed analyses of the facts and circumstances that existed at the date of the transaction will change the allocation of the purchase price. Any subsequent changes to the purchase allocation during the measurement period that are material will be recorded in the reporting period in which the adjustment amounts are determined.
Trade receivables and payables, as well as other current and non-current assets and liabilities, were valued at the existing carrying value as they represented the fair value of those items at the acquisition date, based on management’s judgments and estimates.
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Because the acquisitions related to TeraXion, ON Design Israel and Symeo occurred relatively recently, the magnitude of the transactions, and the significant information to be obtained and analyzed, some of which resides in foreign jurisdictions, the Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable measurement period, which is up to the point the Company obtains and analyzes the information that existed as of the date of the acquisition necessary to determine the fair values of the assets acquired and liabilities assumed, but in no case to exceed more than one year from the date of acquisition. As of August 12, 2022, the Company had not finalized the determination of fair values allocated to various assets and liabilities, including, but not limited to, property, plant and equipment, identifiable intangible assets, other assets, deferred taxes, goodwill, tax uncertainties, income taxes payable, and other liabilities. Specifically for the valuation of intangibles assets acquired, the Company used publicly available benchmarking information, as well as a variety of other assumptions, including market participant assumptions to determine the preliminary values. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in material adjustments to goodwill.
Acquisition of TERAXION INC
On August 27, 2021, indie entered into a Share Purchase Agreement (the “Purchase Agreement”), pursuant to which indie’s wholly-owned Canadian subsidiary (“Purchaser”) agreed to purchase all of the outstanding capital stock of TeraXion from the existing stockholders. The transaction was completed on October 12, 2021 and TeraXion became a wholly-owned subsidiary of ADK, LLC as a result of this acquisition.
The aggregate purchase price of this acquisition was CAD$200,000 (the “Purchase Price”), which was payable 50% in cash and 50% in indie’s shares of Class A common stock, subject to various purchase price adjustments. Upon completion of the transaction, the total consideration paid for this acquisition consisted of (i) approximately $75,282 in cash (including debt paid at closing and net of cash acquired); (ii) the issuance by indie of 5,805,144 shares of indie Class A common stock with a fair value of $65,192 based on the market value of $11.23 per share; and (iii) the assumption by indie of TeraXion options, which became exercisable to purchase 1,542,332 shares of indie Class A common stock with a fair value of $17,249.
TeraXion is a market leader in the design and manufacture of innovative photonic components. The Company paid a premium (i.e. goodwill) over the fair value of the net tangible and identified intangible assets acquired as this acquisition accelerates indie’s vision of becoming a semiconductor and software level solutions provider for multiple sensor modalities spanning ADAS and autonomous vehicles. The goodwill is not expected to be deductible for tax purposes.
As of June 30, 2022, indie incurred approximately $1,649 of acquisition-related costs, which were primarily legal expenses and recorded as part of the Selling, General and Administrative expenses.
There are no amounts of revenue and earnings of TeraXion included in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2021.
The unaudited pro forma financial information shown below summarizes the combined results of operations for the Company and TeraXion as if the closing of the acquisition had occurred on January 1, 2021:
| Three months ended | Six months ended | ||||||||||
| June 30, 2021 | June 30, 2021 | ||||||||||
| Combined revenue | $ | 15,455 | $ | 29,499 | |||||||
| Combined net loss before income taxes | 11,283 | 19,850 | |||||||||
The unaudited pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. Pro forma information reflects adjustments that are expected to have a continuing impact on the Company’s results of operations and are directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect, among other things, direct transaction costs relating to the acquisition, the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset, and to eliminate a portion of the interest expense related to legacy TeraXion’s former loans, which were repaid upon completion of the acquisition. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been realized if the acquisition had taken place on January 1, 2021.
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Acquisition of ON Design Israel Ltd.
On October 1, 2021, indie entered into a definitive agreement and completed its acquisition of ON Design Israel Ltd. for $4,974 in cash paid upon close (net of cash acquired), $7,500 is to be paid in 2022 of which $5,000 was paid as of June 30, 2022. The remaining balance of $2,500 is reflected in Other current liabilities. Lastly, up to $7,500 would become payable upon achievement of certain milestones and is reflected in Other long-term liabilities. Upon completion of the acquisition, ON Design Israel was renamed to indie Semiconductor Design Israel Ltd and became a wholly-owned subsidiary of the Company.
The Company paid a premium (i.e. goodwill) over the fair value of the net tangible and identified intangible assets acquired as this acquisition brings the Company an engineering development team with broad experience in radar system implementation, which will accelerate indie’s entry into the radar market and enable the Company to capture strategic opportunities among Tier 1 customers. The goodwill is not expected to be deductible for tax purposes.
As of June 30, 2022, indie incurred approximately $390 of acquisition-related costs, which were primarily legal expenses and recorded as part of the Selling, General and Administrative expenses.
Total purchase consideration transferred at closing also included contingent consideration that had a fair value of $4,000 as of the acquisition date. The maximum contingent consideration payable in connection with the acquisition is $7,500. The acquisition date fair value of the contingent considerations was determined based on the Company’s assessment of the probability of achieving the performance targets that ultimately obligate the Company to transfer additional consideration to the seller. The contingent consideration is comprised of two tranches. The first tranche (“Tapeout”) is payable, up to a maximum of $2,500, upon the achievement of tapeout of certain product designs acquired from the seller within 30 months of the acquisition. The second tranche (“Design Win”) is payable, up to a maximum of $5,000, upon indie’s achievement of a design win related to certain acquired product designs within 36 months of the acquisition. The fair value of any outstanding contingent consideration liabilities will be remeasured as of the end of each reporting period with any resulting remeasurement gains or losses recognized in the consolidated statement of operations. During the three months ended June 30, 2022, management determined that the product designs specified in the contingent consideration arrangement would be replaced with a new product design that is better aligned with customer requirements and which will not be eligible for either of the contingent considerations. Accordingly, the fair value of Tapeout and Design Win contingent consideration liabilities were reduced to zero as of June 30, 2022.
Pro forma financial information for the three and six months ended June 30, 2021 for ON Design Israel is not disclosed as the results are not material to the Company’s condensed consolidated financial statements.
Acquisition of Symeo GmbH
On October 21, 2021, indie entered into a definitive agreement with ADI to acquire Symeo. The acquisition was approved by the German government on January 4, 2022 and closed on the same day. The total consideration paid for this acquisition consisted of (i) $8,705 in cash at closing, net of cash acquired; (ii) a $10,000 promissory note payable in January 2023 with a fair market value of $9,674; and (iii) an equity-based earn-out of up to 858,369 shares of indie Class A common stock based on future revenue growth. The fair market value of this equity-based earn-out was $8,204 on January 4, 2022. The acquisition date fair value of the equity-based earn-out was determined based on the Company’s assessment of the probability of achieving the performance targets that ultimately obligate the Company to transfer additional consideration to the seller. This earn-out has two tranches. Both tranches are payable upon Symeo achieving $5,000 of revenue threshold by March 31, 2023, another $6,000 of revenue threshold by March 31, 2024 and annual gross margin of Symeo for each period being greater than 65%. The fair value of any outstanding contingent consideration liabilities will be remeasured as of the end of each reporting period with any resulting remeasurement gains or losses recognized in the consolidated statements of operations. The fair value of these contingent consideration liabilities was $4,268 and $3,978, respectively, as of June 30, 2022. The first tranche of this earn-out liability is reflected in Accrued expense and other current liabilities and the second tranche is reflected in Other long-term liabilities in the condensed consolidated balance sheet as of June 30, 2022.
indie incurred various acquisition-related costs, which were primarily legal expenses and recorded as part of the Selling, General and Administrative expenses. Total costs incurred is de minimis as of June 30, 2022.
Pro forma financial information for the three and six months ended June 30, 2021 for Symeo is not disclosed as the results are not material to the Company’s condensed consolidated financial statements.
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3. Inventory, Net
Inventory, net consists of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Raw materials | $ | 4,730 | $ | 2,380 | |||||||
| Work-in-process | 4,867 | 6,301 | |||||||||
| Finished goods | 5,437 | 2,151 | |||||||||
| Inventory, gross | 15,034 | 10,832 | |||||||||
| Less: Inventory reserves | 2,468 | 1,752 | |||||||||
| Inventory, net | $ | 12,566 | $ | 9,080 | |||||||
During the three months ended June 30, 2022 and 2021, the Company recognized write-downs in the value of inventory of $204 and $57, respectively. During the six months ended June 30, 2022 and 2021, the Company recognized write-downs in the value of inventory of $707 and $65, respectively.
4. Property and Equipment, Net
Property and equipment, net consists of the following:
| Useful life (in years) | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Production tooling | 4 | $ | 10,750 | $ | 10,158 | ||||||||||||
| Lab equipment | 4 | 4,894 | 4,489 | ||||||||||||||
| Office equipment | 3 - 7 | 3,180 | 1,893 | ||||||||||||||
| Leasehold improvements | * | 607 | 395 | ||||||||||||||
| Construction in progress | 128 | 256 | |||||||||||||||
| Property and equipment, gross | 19,559 | 17,191 | |||||||||||||||
| Less: Accumulated depreciation | 7,659 | 6,101 | |||||||||||||||
| Property and equipment, net | $ | 11,900 | $ | 11,090 | |||||||||||||
*Leasehold improvements are amortized over the shorter of the remaining lease term or estimated useful life of the leasehold improvement.
The Company recognized depreciation expense of $798 and $221 for the three months ended June 30, 2022 and 2021, respectively. The Company recognized depreciation expense of $1,558 and $431 for the six months ended June 30, 2022 and 2021, respectively.
Fixed assets not yet in service consist primarily of capitalized internal-use software and certain tooling and other equipment that have not been placed into service.
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5. Intangible Assets, Net
Intangible assets, net consist of the following:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average Remaining Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||||||||||
| Developed technology | 6.1 | $ | 55,671 | $ | (5,410) | $ | 50,261 | 6.7 | $ | 49,040 | $ | (1,374) | $ | 47,666 | |||||||||||||||||||||||||||||||||
| Software licenses | 2.0 | 23,305 | (8,705) | 14,600 | 2.5 | 23,297 | (6,286) | 17,011 | |||||||||||||||||||||||||||||||||||||||
| Customer relationships | 6.1 | 15,093 | (1,425) | 13,668 | 6.7 | 12,682 | (365) | 12,317 | |||||||||||||||||||||||||||||||||||||||
| Intellectual property licenses | 1.3 | 1,780 | (1,704) | 76 | 1.5 | 1,736 | (1,687) | 49 | |||||||||||||||||||||||||||||||||||||||
| Trade names | 6.1 | 7,089 | (675) | 6,414 | 6.7 | 6,125 | (182) | 5,943 | |||||||||||||||||||||||||||||||||||||||
| Backlog | 1.3 | 2,980 | (970) | 2,010 | 1.8 | 2,378 | (239) | 2,139 | |||||||||||||||||||||||||||||||||||||||
| Effect of exchange rate on gross carrying amount | (3,151) | — | (3,151) | (631) | — | (631) | |||||||||||||||||||||||||||||||||||||||||
| Intangible assets with finite lives | 102,767 | (18,889) | 83,878 | 94,627 | (10,133) | 84,494 | |||||||||||||||||||||||||||||||||||||||||
| IPR&D | 14,036 | — | 14,036 | 11,866 | — | 11,866 | |||||||||||||||||||||||||||||||||||||||||
| Effect of exchange rate on gross carrying amount | (596) | — | (596) | (75) | — | (75) | |||||||||||||||||||||||||||||||||||||||||
| Total intangible assets with indefinite lives | 13,440 | — | 13,440 | 11,791 | — | 11,791 | |||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 116,207 | $ | (18,889) | $ | 97,318 | $ | 106,418 | $ | (10,133) | $ | 96,285 | |||||||||||||||||||||||||||||||||||
The Company obtained software licenses which it uses for its research and development efforts related to its products. In fiscal 2022 and 2021, the Company obtained additional software licenses. Further, the Company has acquired developed technology, customer relationships, trade names, backlog, and in-process research and development (“IPR&D”) as a result of the business combinations. See Note 2 - Business Combinations for additional information.
Intangible assets with finite lives are amortized on a straight-line basis over the expected period to be benefited by future cash flows. The Company monitors and assesses these assets for impairment on a periodic basis. As of June 30, 2022, the Company determined that there was no impairment of intangible assets.
Amortization of intangible assets for the three months ended June 30, 2022 and 2021 was $4,133 and $353, respectively. Amortization for the six months ended June 30, 2022 and 2021 was $8,808 and $764, respectively. Amortization of intangible assets is included within Cost of goods sold, Research and development expenses, and Selling, general and administrative expenses based their respective nature, in the condensed consolidated statements of operations.
Based on the amount of definite-lived intangible assets subject to amortization as of June 30, 2022, amortization expense for each of the next five fiscal years is expected to be as follows:
| 2022 (remaining six months) | $ | 8,927 | |||
| 2023 | 19,201 | ||||
| 2024 | 15,163 | ||||
| 2025 | 10,688 | ||||
| 2026 | 10,688 | ||||
| Thereafter | 19,211 | ||||
| $ | 83,878 | ||||
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6. Goodwill
The following table sets forth the carrying amount and activity of goodwill as of June 30, 2022:
| Amount | |||||
| Balance as of December 31, 2021 | $ | 115,206 | |||
| Acquisitions (Note 2) | 14,373 | ||||
| Effect of exchange rate on goodwill | (3,841) | ||||
| Balance as of June 30, 2022 | $ | 125,738 | |||
Goodwill increased by $14,373 during the six months ended June 30, 2022 due to an acquisition completed during the period. See Note 2 for a detailed discussion of goodwill acquired.
The Company tests its goodwill for impairment annually as of the first day of its fourth fiscal quarter and in interim periods if certain events occur indicating the carrying value of goodwill may be impaired. There were no indicators of impairment noted during the six months ended June 30, 2022.
7. Debt
The following table sets forth the components of debt as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Principal Outstanding | Unamortized Discount and Issuance Cost | Carrying Amount | Principal Outstanding | Unamortized Discount and Issuance Cost | Carrying Amount | ||||||||||||||||||||||||||||||
| Short term loans, due 2023 | $ | 1,942 | $ | — | $ | 1,942 | $ | 810 | $ | — | $ | 810 | |||||||||||||||||||||||
| Promissory note, due 2023 | 10,000 | (176) | 9,824 | — | — | — | |||||||||||||||||||||||||||||
| CIBC loan, due 2026 | 6,250 | (17) | 6,233 | 7,102 | (19) | 7,083 | |||||||||||||||||||||||||||||
| Total debt | $ | 18,192 | $ | (193) | $ | 17,999 | $ | 7,912 | $ | (19) | $ | 7,893 | |||||||||||||||||||||||
The outstanding debt as of June 30, 2022 and December 31, 2021 is classified in the condensed consolidated balance sheets as follows:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Current liabilities - Current debt obligations | $ | 13,204 | $ | 2,275 | |||||||
| Noncurrent liabilities - Long-term debt, net of current maturities | 4,795 | 5,618 | |||||||||
| Total debt | $ | 17,999 | $ | 7,893 | |||||||
PacWest Revolving Line of Credit
The Company entered into a loan and security agreement with Pacific Western Bank (“PacWest”) in January 2015, that provided a term loan of up to $10,000 with a maturity date of September 2020. The term loan bore interest equal to the greater of one percent above the prime rate in effect, or 4.5% on outstanding borrowings. In addition, the loan and security agreement provided for a revolving line of credit. The revolving line of credit bore interest equal to the greater of seventy-five basis points above the prime rate in effect, or 4.25% on outstanding borrowings. The terms of the loan and security agreement have been amended from time to time and was most recently amended on November 5, 2021 as described below. The amendments have, among other things, extended the maturity date of the loan and adjusted the financial covenants’ borrowing limits. During 2020, the outstanding balance on the term loan was transferred to the revolving line of credit.
On November 5, 2021, the Company entered into an amendment to the PacWest loan agreement that (i) increased the maximum borrowing capacity under the revolving line of credit to $20,000, (ii) limited the security interests of the bank to the cash collateral set at 102.5% of the drawn amount of the loan, (iii) removed various reporting and restrictive covenants, (iv) extended the maturity date to November 4, 2022 and (iv) reduced the interest rate to 2.1% per annum. In addition, the amendment requires the Company to collateralize a cash balance equal to the total outstanding balance in a cash security account with
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PacWest. Upon execution of the amendment, the Company repaid the outstanding balance of $1,675 under the original line of credit to this new arrangement.
As of June 30, 2022 and December 31, 2021, there was no outstanding balance on the revolving line of credit. The Company’s borrowings under the revolving line of credit were subject to an aggregate borrowing limit of $20,000 as of June 30, 2022 and December 31, 2021. Total borrowings at any given time under the revolving line of credit are limited to a percentage of domestic accounts receivables less than 90 days past due and other factors.
The revolving line of credit is subject to debt covenants which, if violated, could result in the outstanding balance becoming immediately due. The Company has complied with or obtained waivers for all such covenants as of the date these financial statements were issued.
TeraXion Revolving Credit
In connection with the acquisition of TeraXion on October 12, 2021, the Company assumed a revolving credit with the Canadian Imperial Bank of Commerce with a credit limit of CAD9,440 bearing interest at prime rate plus 0.25%, repayable in monthly installments of CAD155 plus interest, maturing in October 2026. The repayment of monthly installments reduces the credit limit over time. As of June 30, 2022 and December 31, 2021 the outstanding principal balance and credit limit of the loan was $6,250 and $7,102, or CAD8,048 and CAD8,976, respectively. This loan is secured with an authorized credit facility of CAD7,000 from the bank, bearing interest at prime rate plus 0.25%. This line of credit was unused at June 30, 2022 and December 31, 2021.
Short Term Loans
Wuxi
On November 13, 2019, Wuxi entered into a short-term loan agreement with CITIC Group Corporation Ltd. with aggregate principal balance of CNY2,000, or approximately $285, and bearing interest of 4.785% per annum. The principal balance is denominated in Chinese Yuan and the outstanding balance is adjusted for changes in foreign currency exchange rates at each reporting period. On November 13, 2020, the terms of the agreement were extended for twelve months, and the principal and interest were due on November 15, 2021. On November 19, 2021, the total outstanding balance with CITIC Group Corporation was fully paid off. On January 19, 2022, Wuxi entered into a short-term loan agreement with CITIC Group Corporation Ltd. with aggregate principal balance of CNY2,000, or approximately $315, and bearing interest of 3.90% per annum. On June 21, 2022, Wuxi increased its short-term loan principal with CITIC by CNY3,000, or approximately $448, and bearing interest of 3.70% per annum. The principal balance is denominated in Chinese Yuan and the outstanding balance is adjusted for changes in foreign currency exchange rates at each reporting period. As of June 30, 2022, the total outstanding short-term loan with CITIC Group Corporation Ltd. was CNY5,000, or approximately $747.
On October 15, 2020, Wuxi entered into a short-term loan agreement with Bank of Ningbo (“NBCB”) with aggregate principal balance of CNY1,000 or approximately $151 and bearing interest of 4.785%. On April 29, 2021, Wuxi increased its short-term loan principal with NBCB by CNY1,000 or approximately $155 to a total principal balance of CNY4,000. On October 14, 2021, the borrowing from October 15, 2020 was fully paid off. On October 18, 2021, Wuxi re-entered into a short-term loan agreement with NBCB for CNY1,000, or approximately $150 and bearing interest of 4.785%. On April 26, 2022, the entire loan balance was paid off, and on April 27, 2022 Wuxi entered into a short-term loan agreement with NBCB with aggregate principal balance of CNY2,000, or approximately $304, and bearing interest of 4.26% per annum. On June 24, 2022, Wuxi increased its principal balance by CNY3,000, or $448, and bearing interest of 3.15% per annum. As of June 30, 2022, the total outstanding short-term loan with NBCB was CNY5,000, or $747. As of December 31, 2021, the total outstanding short-term loan with NBCB was CNY2,000, or $315.
On November 18, 2021, Wuxi also entered into a short-term loan agreement with Bank of Nanjing with aggregate principal balance of CNY3,000, or approximately $453, and bearing interest of 4.00%. As of June 30, 2022, the total outstanding short-term loan with Bank of Nanjing was CNY3,000, or $448. As of December 31, 2021, the total outstanding short-term loan with Bank of Nanjing was CNY3,000, or $472.
Symeo Promissory Note
In connection with the Symeo acquisition on January 4, 2022, the Company issued a short-term interest-free promissory note of $10,000, payable upon its maturity of January 31, 2023. As of June 30, 2022, the outstanding principal balance was $10,000 and the carrying value was $9,824.
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The table below sets forth the components of interest expense for the three and six months ended June 30, 2022 and June 30, 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Interest expense on debt obligations: | |||||||||||||||||||||||
| Contractual interest | $ | 117 | $ | 433 | $ | 175 | $ | 952 | |||||||||||||||
| Amortization of discount and issuance cost | 150 | 97 | 150 | 198 | |||||||||||||||||||
| Total interest expense | $ | 267 | $ | 530 | $ | 325 | $ | 1,150 | |||||||||||||||
8. Warrant Liability
In connection with the June 10, 2021 Transaction, holders of TB2 Class A ordinary shares automatically received Class A common stock of indie, and holders of TB2 warrants automatically received 17,250,000 warrants of indie with substantively identical terms (“Public Warrants”). At the closing of the Transaction, 8,625,000 Class B ordinary shares of TB2 owned by Thunder Bridge Acquisition II LLC, a Delaware limited liability company (the “Sponsor”), automatically converted into 8,625,000 shares of indie Class A common stock, and 8,650,000 private placement warrants held by the Sponsor, each exercisable for one Class A ordinary share of TB2 at $11.50 per share, automatically converted into warrants to purchase one share of indie Class A common stock at $11.50 per share with substantively identical terms (“the “Private Placement Warrants”). Also at the Closing, TB2 issued 1,500,000 working capital warrants to an affiliate of the Sponsor in satisfaction of a working capital promissory note of $1,500 (the “Working Capital Warrants” and, together with the Private Placement Warrants, the “Private Warrants”). These Working Capital Warrants have substantially identical terms to the Private Placement Warrants.
The warrants may be exercised only during the period commencing on July 10, 2021 (30 days after the closing of the Transaction) through June 10, 2026. The Company may redeem the Public Warrants at a price of $0.01 per warrant upon 30 days’ notice, only in the event that the last sale price of the Class A common stock is at least $18.00 per share for any 20 trading days within a 30-trading day period ending on the third day prior to the date on which notice of redemption is given, provided there is an effective registration statement and current prospectus in effect with respect to the Class A common stock underlying such warrants during the 30 day redemption period. If the Company redeems the warrants as described above, management will have the option to require all holders to exercise warrants on a cashless basis.
In accordance with the warrant agreement relating to the Public Warrants, the Company is required to use its best efforts to maintain the effectiveness of the registration statement covering the warrants. If a registration statement is not effective within 90 days following the consummation of a business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. In the event that a registration statement is not effective at the time of exercise or no exemption is available for a cashless exercise, the holder of such warrant shall not be entitled to exercise such warrant for cash and in no event (whether in the case of a registration statement being effective or otherwise) will the Company be required to net cash settle the warrant exercise.
The terms of the Private Warrants are identical to the Public Warrants as described above, except that the Private Warrants are not redeemable so long as they are held by the Sponsor or its permitted transferees.
The Company has reviewed the terms of warrants to purchase its Class A common stock to determine whether warrants should be classified as liabilities or stockholders’ equity in its consolidated balance sheet. In order for a warrant to be classified in stockholders’ equity, the warrant must be (a) indexed to the Company’s equity and (b) meet the conditions for equity classification in ASC 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity. If a warrant does not meet the conditions for equity classification, it is carried on the consolidated balance sheet as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the statement of operations as change in fair value of warrants in Other income (expense), net. The Company determined that all warrants are required to be carried as a liability in the condensed consolidated balance sheet at fair value, with changes in fair value recorded in the condensed consolidated statement of operations (see Note 10). At the closing of the Transaction on June 10, 2021, the warrants had an initial fair value
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of $74,408, which was recorded as liability and a reduction to additional paid in capital in the condensed consolidated balance sheet.
The following table is a summary of the number of shares of the Company’s Class A common stock issuable upon exercise of warrants outstanding at June 10, 2021:
| Number of Shares | Exercise Price | Redemption Price | Expiration Date | Classification | Initial Fair Value | ||||||||||||||||||||||||||||||
| Public Warrants | 17,250,000 | $ | 11.50 | $ | 18.00 | June 10, 2026 | Liability | $ | 42,435 | ||||||||||||||||||||||||||
| Private Warrants | 10,150,000 | $ | 11.50 | N/A | June 10, 2026 | Liability | $ | 31,973 | |||||||||||||||||||||||||||
As of June 30, 2022, there have been no exercises of the warrants and the fair value was $32,813.
9. Contingent and Earn-Out Liabilities
Earn-Out Milestones
Certain of indie’s stockholders are entitled to receive up to 10,000,000 earn-out shares of the Company’s Class A common stock if the earn-out milestones are met. The earn-out milestones represent two independent criteria, which each entitles the eligible stockholders to 5,000,000 earn-out shares per milestone met. Each earn-out milestone is considered met if at any time following the Transaction and prior to December 31, 2027, the volume weighted average price of indie’s Class A common stock is greater than or equal to $12.50 or $15.00 for any twenty trading days within any thirty-trading day period, respectively. Further, the earn-out milestones are also considered to be met if indie undergoes a Sale. A Sale is defined as the occurrence of any of the following for indie: (i) engage in a “going private” transaction pursuant to Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; (ii) Class A common stock ceases to be listed on a national securities exchange, other than for the failure to satisfy minimum listing requirements under applicable stock exchange rules; or (iii) change of ownership (including a merger or consolidation) or approval of a plan for complete liquidation or dissolution.
Escrow Shares
3,450,000 Class A common shares of indie were placed in escrow for the potential future release to the Sponsor in the event the earn-out milestones are met. The earn-out milestones for the Escrow Shares are identical to those of the earn-out shares. Achievement of each milestone entitles the shareholders to 50% of the total Escrow Shares. The Escrow Shares have been accounted for as a liability and remeasured to fair value each reporting period.
As of November 9, 2021, the first earn-out milestone was achieved while the second Earn-Out Milestone remains unachieved. The achievement of the first earn-out milestone eliminated the variability in the arrangement that previously prevented this instrument to be equity-classified. As a result, the earn-out liabilities associated with the first Earn-Out Milestone were recorded to Additional paid-in capital in the consolidated balance sheet at its fair value. At the same time, the unearned liabilities associated with the second Earn-Out Milestones were also remeasured to its fair value and reclassified per ASC 815-40 to Additional paid-in capital in the consolidated balance sheet.
As of December 31, 2021, there was no liability remaining on the balance sheet.
Contingent Considerations
On May 13, 2020, in connection with the acquisition of City Semiconductor, Inc. (“City Semi”), the Company recorded contingent consideration as a long-term liability at a fair value of $1,180. The contingent consideration is comprised of two tranches. The first tranche is payable, up to a maximum of $500, upon the achievement of cash collection targets within twelve months of the acquisition, and $456 was achieved in May 2021. The second tranche is payable, up to a maximum of $1,500, upon the shipment of a product incorporating the acquired developed technology. In September 2021, the Company paid off the first tranche of the contingent consideration. The fair value of the second tranche contingent consideration liabilities was $1,310 as of June 30, 2022.
On October 1, 2021, in connection with the acquisition of ON Design Israel, the Company recorded contingent consideration as a long-term liability at a fair value of $4,000. The contingent consideration is comprised of two tranches. The first tranche is payable, up to a maximum of $2,500, upon the achievement of tapeout of certain product designs acquired from the seller within 30 months of the acquisition. The second tranche is payable, up to a maximum of $5,000, upon indie’s achievement of a design win related to certain acquired product designs within 36 months of the acquisition. During the three months ended June 30, 2022, management determined that the product design specified in the contingent consideration provision would be replaced
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with a new product design that is better aligned with customer requirements and which will not be eligible for either of the contingent considerations. Accordingly, the fair value for both the Tapeout and Design Win were reduced to zero as of June 30, 2022. The change in fair value since the acquisition date is recorded in Other income (expense), net in the consolidated statement of operations for the three and six months ended June 30, 2022.
On January 4, 2022, in connection with the acquisition of Symeo, the Company recorded contingent considerations as a current and a long-term liability at a fair value of $4,212 and $3,992, respectively. The contingent consideration is comprised of two tranches. The first tranche is payable upon the achievement of a revenue threshold of $5,000 by December 31, 2022. The second tranche is payable upon Symeo’s achievement of a revenue threshold of $6,000 by December 31, 2023. The fair value of the first and second tranche contingent consideration liabilities as of June 30, 2022 was $4,268 and $3,978, respectively. The change in fair value since the acquisition date is recorded in Other income (expense), net in the consolidated statement of operations for the three and six months ended June 30, 2022.
10. Fair Value Measurements
The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Company’s term loans generally approximated their carrying values. The fair value of the promissory note in relation with the Symeo acquisition was determined using valuation inputs categorized as Level 3.
At June 30, 2022, the Company held currency forward contracts of $3,050 to sell United States dollars and to buy Canadian dollars at a forward rate. Any changes in the fair value of these contracts are reflected in the consolidated statement of operations. The fair value of the currency forward contracts was determined using valuation inputs categorized as Level 2. The change in fair value at June 30, 2022 was de minimis.
The following table presents the Company’s fair value hierarchy for financial liabilities:
Fair Value Measurements as of June 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Warrant Liability | $ | — | $ | — | $ | 32,813 | $ | 32,813 | |||||||||||||||
| City Semi Contingent Consideration - Second Tranche | $ | — | $ | — | $ | 1,310 | $ | 1,310 | |||||||||||||||
| Symeo Contingent Consideration - First Tranche | $ | — | $ | — | $ | 4,268 | $ | 4,268 | |||||||||||||||
| Symeo Contingent Consideration - Second Tranche | $ | — | $ | — | $ | 3,978 | $ | 3,978 | |||||||||||||||
| Symeo Promissory Note | $ | — | $ | — | $ | 9,674 | $ | 9,674 | |||||||||||||||
| Fair Value Measurements as of December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Warrant Liability | $ | — | $ | — | $ | 100,467 | $ | 100,467 | |||||||||||||||
| ON Design Israel Contingent Consideration - Tapeout | $ | — | $ | — | $ | 1,817 | $ | 1,817 | |||||||||||||||
| ON Design Israel Contingent Consideration - Design Win | $ | — | $ | — | $ | 2,222 | $ | 2,222 | |||||||||||||||
| City Semi Contingent Consideration - Second Tranche | $ | — | $ | — | $ | 980 | $ | 980 | |||||||||||||||
As of June 30, 2022 and December 31, 2021, the Company’s cash and cash equivalents were all held in cash or Level 1 instruments where the fair values approximate the carrying values.
Level 3 Disclosures
Warrants
Warrants were valued using the Black-Scholes-Merton formula and a Monte Carlo Simulations analysis. Calculating the fair value of warrants requires the input of subjective assumptions. Other reasonable assumptions could provide differing results. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value.
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Earn-out Liabilities
Earn-out liabilities that are specifically indexed to the Company’s stock price were valued using a Monte Carlo analysis in order to simulate the future path of the Company’s stock price over the earn-out period. The carrying amount of the liability may fluctuate significantly and actual amounts paid may be materially different from the liability’s estimated value.
Contingent Considerations
Contingent considerations were valued based on the consideration expected to be transferred. The Company estimated the fair value based on the probability of achievement of various milestones identified within each contingent consideration arrangement, using certain assumptions that require significant judgement and discount rates. The discount rates were based on the estimated cost of debt plus a premium, which included consideration of expected term of the earn-out payment, yield on treasury instruments and an estimated credit rating for the Company.
The following table presents the significant unobservable inputs assumed for each of the fair value measurements:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Input | Input | ||||||||||
| Liabilities: | |||||||||||
| Warrants | |||||||||||
| Expected volatility | 51.60 | % | 36.00 | % | |||||||
| City Semi Contingent Consideration - Second Tranche | |||||||||||
| Discount rate | 10.80 | % | 10.80 | % | |||||||
| Earn-out liabilities - Second Milestone | |||||||||||
| Constant volatility factor | N/A | 40.00 | % | ||||||||
| ON Design Israel Contingent Consideration - Tapeout | |||||||||||
| Discount rate | N/A | 4.37 | % | ||||||||
| ON Design Israel Contingent Consideration - Design Win | |||||||||||
| Discount rate | N/A | 4.37 | % | ||||||||
| Symeo Contingent Consideration - First Tranche | |||||||||||
| Discount Rate | 7.29 | % | N/A | ||||||||
| Symeo Contingent Consideration - Second Tranche | |||||||||||
| Discount Rate | 7.29 | % | N/A | ||||||||
| Symeo Promissory Note | |||||||||||
| Discount rate | 3.13 | % | N/A | ||||||||
11. Noncontrolling Interest
In connection with the closing of the Transaction on June 10, 2021, certain members of ADK LLC (the “ADK Minority Holders”) retained an approximate 26% membership interest in ADK LLC. The ADK Minority Holders may from time to time, after December 10, 2021, exchange with indie, such holders’ units in ADK LLC for an equal number of shares of indie’s Class A common stock. As a result, indie’s ownership interest in ADK LLC will increase. The ADK Minority Holders’ ownership interests are accounted for as noncontrolling interests in the Company’s condensed consolidated financial statements. The Company’s ownership of ADK LLC, was approximately 82% as of June 30, 2022.
In connection with the Transaction, the Company issued to ADK Minority Holders an aggregate of 33,827,371 shares of Class V common stock of indie (the “Class V Holders”). The shares of Class V common stock provides no economic rights in indie to the holder thereof; however, each Class V Holder is entitled to vote with the holders of Class A common stock of indie, with each share of Class V common stock entitling the holder to one (1) vote per share of Class V common stock at the time of such vote (subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications). As of June 30, 2022, the Company had an aggregate of 26,382,703 shares of Class V common stock issued and outstanding.
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ADK LLC held 64% and 50% voting control and 44% and 50% ownership interest in Wuxi as of June 30, 2022 and December 31, 2021, respectively. From time to time, Wuxi has sold equity ownership and the transactions have reduced ADK LLC’s controlling interest in Wuxi on the consolidated balance sheets. As of June 30, 2022, ADK LLC maintained its controlling ownership in Wuxi. Accordingly, Wuxi’s financial statements are consolidated with those of ADK LLC and its other wholly-owned subsidiaries. Minority interests held in Wuxi are accounted for as non-controlling interests in the Company’s condensed consolidated financial statements.
12. Revenue
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by geographic region, as the Company’s management believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following tables present revenue disaggregated by geography of the customer’s shipping location for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| United States | $ | 8,613 | $ | 2,300 | $ | 15,244 | $ | 3,877 | |||||||||||||||
| Greater China | 11,142 | 5,222 | 20,259 | 10,209 | |||||||||||||||||||
| Europe | 3,601 | 605 | 7,654 | 811 | |||||||||||||||||||
| Rest of Asia Pacific | 1,236 | 136 | 1,561 | 575 | |||||||||||||||||||
| Rest of North America | 870 | 623 | 2,331 | 1,227 | |||||||||||||||||||
| South America | 293 | 294 | 705 | 595 | |||||||||||||||||||
| Total revenue | $ | 25,755 | $ | 9,180 | $ | 47,754 | $ | 17,294 | |||||||||||||||
Contract Balances
Certain assets or liabilities are recorded depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Contract liabilities primarily relate to deferred revenue, including advance consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is recognized upon delivery of products and services or as the services are performed. The Company recorded unbilled revenue of $994 and $402 at June 30, 2022 and December 31, 2021, respectively, as part of its Prepaid expenses and other current assets in the accompanying consolidated balance sheets.
The following table presents the liabilities associated with the engineering services contracts as of June 30, 2022 and December 31, 2021:
| June 30, 2022 | December 31, 2021 | ||||||||||
| Deferred revenue | $ | 1,768 | $ | 1,840 | |||||||
As of June 30, 2022 and December 31, 2021, contract liabilities were included as Deferred revenue and classified as current liabilities in the condensed consolidated balance sheets.
During the three months ended June 30, 2022 and 2021, the Company recognized $619 and $206, respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period. During the six months ended June 30, 2022 and 2021, the Company recognized $965 and $819, respectively, of revenue related to amounts that were previously included in deferred revenue at the beginning of the period. Deferred revenue fluctuates over time due to changes in the timing of payments received from customers and revenue recognized for services provided.
Revenue related to remaining performance obligations represents the amount of contracted development arrangements that has not been recognized, which includes deferred revenue on the consolidated balance sheet and unbilled amounts that will be recognized as revenue in future periods. As of June 30, 2022, the amount of performance obligations that have not been
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recognized as revenue was $45,170, of which approximately 56% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less. Variable consideration that has been constrained is excluded from the amount of performance obligations that have not been recognized.
Concentrations
As identified below, some of our customers accounted for more than 10% of the Company’s total revenue for the three and six months ended June 30, 2022 and 2021:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Customer A | 39.2 | % | 38.5 | % | 37.7 | % | 45.8 | % | |||||||||||||||
| Customer B | — | % | 12.6 | % | — | % | 12.5 | % | |||||||||||||||
| Customer C | — | % | 10.9 | % | — | % | 5.8 | % | |||||||||||||||
The loss of these customers would have a material impact on the Company’s condensed consolidated financial results.
The largest customer represented 43% of accounts receivable as of June 30, 2022 and the one largest customer represented 31% of accounts receivable as of December 31, 2021. No other individual customer represented more than 10% of accounts receivable at either June 30, 2022 or December 31, 2021.
13. Share-Based Compensation
Stock compensation expense is recorded in cost of goods sold, research and development, and general and administrative expenses based on the classification of the work performed by the grantees.
The following table sets forth the share-based compensation for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Cost of goods sold | $ | 13 | $ | — | $ | 13 | $ | — | |||||||||||||||
| Research and development | 5,414 | 2,598 | 14,064 | 2,598 | |||||||||||||||||||
| Selling, general, and administrative | 3,340 | 5,370 | 7,105 | 5,370 | |||||||||||||||||||
| Total | $ | 8,767 | $ | 7,968 | $ | 21,182 | $ | 7,968 | |||||||||||||||
Stock compensation expense for the three and six months ended June 30, 2022 included $1,674 and $3,347, respectively, which represents liability classified awards for the Company’s 2022 annual incentive plan accrual.
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14. Net Income (Loss) per Common Share
Basic and diluted net loss per common share was calculated as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | (5,304) | $ | 12,988 | $ | 8,402 | $ | 23,349 | |||||||||||||||
| Less: Net income (loss) attributable to noncontrolling interest | (1,070) | 6,839 | 1,803 | 6,385 | |||||||||||||||||||
| Net income (loss) attributable to indie Semiconductor, Inc. | $ | (4,234) | $ | 6,149 | $ | 6,599 | $ | 16,964 | |||||||||||||||
| Less: Change in fair value of SAFEs | — | 2,500 | — | 21,600 | |||||||||||||||||||
| Net income (loss) attributable to common shareholders - dilutive | $ | (4,234) | $ | 3,649 | $ | 6,599 | $ | (4,636) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding - basic | 116,983,265 | 47,058,489 | 114,102,308 | 39,712,251 | |||||||||||||||||||
| Effect of conversion of SAFEs | — | 5,976,258 | — | 6,523,975 | |||||||||||||||||||
| Effect of potentially dilutive Phantom Units | — | 379,721 | 1,064,688 | — | |||||||||||||||||||
| Effect of potentially dilutive Class V common stock | — | 7,434,587 | 28,925,854 | — | |||||||||||||||||||
| Effect of potentially dilutive unvested Class B units | — | 2,798,002 | 5,310,003 | — | |||||||||||||||||||
| Effect of potentially dilutive unexercised options | — | — | 1,337,802 | — | |||||||||||||||||||
| Weighted average common shares outstanding—diluted | 116,983,265 | 63,647,057 | 150,740,655 | 46,236,226 | |||||||||||||||||||
| Net income (loss) per share attributable to common shares— basic | $ | (0.04) | $ | 0.13 | $ | 0.06 | $ | 0.43 | |||||||||||||||
| Net income (loss) per share attributable to common shares— diluted | $ | (0.04) | $ | 0.06 | $ | 0.04 | $ | (0.10) | |||||||||||||||
The Company’s potentially dilutive securities, which include unvested Class B units, unvested phantom units, unvested restricted stock units, warrants for Class A units, unexercised options, earn-out shares and escrow shares, have been excluded from the computation of diluted net income (loss) per share as the effect would be to reduce the net income (loss) per share. The Company excluded the following potential shares, presented based on amounts outstanding at each period end, from the
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computation of diluted net loss per share attributable to shareholders for the periods indicated as their inclusion would have had an antidilutive effect:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Unvested Class B units | — | — | — | 2,027,508 | |||||||||||||||||||
| Unvested Phantom units | 1,060,119 | — | — | 1,727,730 | |||||||||||||||||||
| Unvested Restricted stock units | 5,070,412 | — | — | — | |||||||||||||||||||
| Convertible Class V common shares | 26,382,703 | — | — | 33,827,371 | |||||||||||||||||||
| Public warrants for the purchase of Class A common shares | 17,250,000 | 17,250,000 | 17,250,000 | 17,250,000 | |||||||||||||||||||
| Private warrants for the purchase of Class A common shares | 10,150,000 | 10,150,000 | 10,150,000 | 10,150,000 | |||||||||||||||||||
| Unexercised options | 368,875 | — | 368,875 | — | |||||||||||||||||||
| Earn-out Shares | 5,000,000 | 10,000,000 | 5,000,000 | 10,000,000 | |||||||||||||||||||
| Escrow Shares | 1,725,000 | 3,450,000 | 1,725,000 | 3,450,000 | |||||||||||||||||||
| 67,007,109 | 40,850,000 | 34,493,875 | 78,432,609 | ||||||||||||||||||||
15. Income Taxes
We are subject to U.S. federal and state taxes with respect to our allocable share of any taxable income or loss of ADK, LLC, as well as any stand-alone income or loss we generate. ADK, LLC is treated as a partnership for U.S. income tax purposes and for most applicable state and local income tax purposes and generally does not pay income taxes in most jurisdictions. Instead, ADK, LLC’s taxable income or loss is passed through to its members, including us. Despite its status as a partnership in the United States, ADK, LLC’s foreign subsidiaries are taxable entities operating in foreign jurisdictions. As such, these foreign subsidiaries record a tax expense or benefit in jurisdictions where a valuation allowance has not been recorded.
Our effective tax rate in 2022 will differ from the U.S. federal statutory rate primarily due to changes in valuation allowance, tax expense or benefit in foreign jurisdictions taxed at different tax rates and foreign research and development tax credits and incentives, and changes in non-controlling interest.
Based primarily on our limited operating history and ADK LLC’s historical domestic losses, we believe there is a significant uncertainty as to when we will be able to use our domestic, federal and state, deferred tax assets (“DTAs”). Therefore, we have recorded a valuation allowance against these DTAs for which we have concluded that it is not more likely than not that these will be realized.
As part of reverse capitalization, the Company entered into Tax Receivable Agreements (“TRAs”) with certain shareholders that will represent approximately 85% of the calculated tax savings based on the portion of basis adjustments on future exchanges of ADK, LLC units and other carryforward attributes assumed that we anticipate to be able to utilize in future years. Through June 30, 2022, there have been exchanges of units that would generate a DTA; however, as there is a full valuation allowance on the related DTA, we have not recorded a liability under the TRAs.
The Company recorded a benefit (provision) for income taxes of $869 and $(57) for the three months ended June 30, 2022 and 2021, respectively. The Company recorded a benefit (provision) for income taxes of $1,528 and $(70) for the six months ended June 30, 2022 and 2021, respectively. Income tax expense and benefits are primarily related to the Company’s operations in Canada and Europe.
Recent Change in U.S. Tax Law
Prior to 2022, IRC Section 174 allowed taxpayers to deduct “research or experimental” (“R&E”) expenditures in the year in which they were incurred.
The 2017 tax reform act amended Section 174, effective for amounts paid or incurred in tax years beginning after December 31, 2021, to require taxpayers to charge their R&E expenditures to a capital account. Capitalized costs are required to be amortized over five years (15 years for expenditures attributable to foreign research).
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Due to the Company’s significant R&E expenses the impact of this law change will mean that a significant portion of the Company’s total operating expenses will be taken as a deduction over a 5-year period rather than be currently deductible. The Company does not expect to pay cash taxes as a result of this change as its remaining operating expenses after excluding R&E expenses are significant and it expects to continue to generate losses for tax purposes in the near future.
16. Leases
The Company’s lease arrangements consist primarily of corporate and manufacturing facility agreements. The leases expire at various dates through 2028, some of which include options to extend the lease term. The options with the longest potential total lease term consist of options for extension of up to five years following expiration of the original lease term. All of the leases are operating leases. The Company is headquartered in Aliso Viejo, California and has various research and design centers, sales support offices, and manufacturing facilities throughout the world. The key lease terms for the principal locations are summarized below:
In July 2015, the Company entered into a five-year operating lease for its 14,881 square foot headquarters in Aliso Viejo, California, which is payable monthly with periodic rent adjustments over the lease term. The lease requires a security deposit of $30, which is recorded in other assets on the Company’s condensed consolidated balance sheets as well as a tiered, time-based letter of credit that has now reached its lowest tier of $200. Subsequently, the rentable area was expanded to 18,000 square feet and the lease was extended through the end of June 2023. Rent expense is approximately $38 per month.
In October 2015, the Company entered into a five-year operating lease for its Scotland Design Center in Edinburgh, Scotland, which is payable monthly with periodic rent adjustments over the lease term. The lease expired in October 2020. During 2019, the Company entered into a sub-lease agreement with a third party for the Scotland Design Center facility. Separately, effective January 2020, the Company entered into a lease for a property in Scotland. The lease agreement has a term through June 2024 and monthly rent of approximately $16 per month.
In October 2017, the Company entered into a 26-month operating lease for its Wuxi sales and design center. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term. The lease was subsequently extended through December 2022. Rent expense is approximately $8 per month.
In May 2021, the Company entered into a seven-year operating lease for a location in Detroit, Michigan, which is payable monthly with periodic rent adjustments over the lease term. The lease will expire in 2028 with an initial monthly rent of approximately $22 per month.
In October 2021, the Company entered into a five-year operating lease for its design center in Austin, Texas. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term, which expires in October 2026. Rent expense is approximately $13 per month.
In October 2021, the Company acquired TeraXion and assumed its existing operating lease for an office building and a warehouse in Quebec City, Canada. Rent for the associated office is payable at approximately $38 per month. The lease will expire on May 31, 2028. Rent for the associate warehouse is at approximately $3 per month. This lease will expire on November 30, 2023.
In February 2022, the Company entered into a two-year operating lease for its design center in Boston, Massachusetts, which is payable monthly with periodic rent adjustments over the lease term. The lease will expire March 31, 2024.
The total monthly rent for the remaining locations of the Company around the world is not material.
ASC 842 Adoption
The Company adopted ASC 842 using the modified retrospective method on January 1, 2022. The Company determines if an arrangement is a lease at its inception. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date. The lease term includes renewal options when it is reasonably certain that the option will be exercised, and excludes termination options. To the extent that the Company’s agreements have variable lease payments, the Company includes variable lease payments that depend on an index or a rate and excludes those that depend on facts or circumstances occurring after the commencement date, other than the passage of time. Lease expense for these leases is recognized on a straight-line basis over the lease term. The Company has elected the package of practical expedients permitted under the
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transition guidance, which does not require reassessment of prior conclusions related to contracts containing a lease, lease classification and initial direct lease costs. As an accounting policy election, the Company also excluded short-term leases (term of 12 months or less) from the balance sheet presentation and accounted for non-lease and lease components in a contract as a single lease component for certain asset classes. Effective January 1, 2022, the Company recorded the impact on its condensed consolidated balance sheet from the recognition of ROU asset and lease liability of $10,344.
The Company’s facility leases have remaining lease terms ranging from less than one year to six years, some of which include options to extend the lease term for up to six years.
The table below represents lease-related assets and liabilities recorded on the condensed consolidated balance sheet:
| Balance Sheet Classification | June 30, 2022 | |||||||||||||
| Assets | ||||||||||||||
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | 10,345 | |||||||||||
| Liabilities | ||||||||||||||
| Operating lease liabilities (current) | $ | 1,705 | ||||||||||||
| Operating lease liabilities (noncurrent) | Operating lease liabilities | 8,725 | ||||||||||||
| Total lease liabilities | $ | 10,430 | ||||||||||||
Lease Costs
The following lease costs were included in the condensed consolidated statements for the three and six months ended June 30, 2022:
| Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||||||
| Operating lease cost | $ | 602 | $ | 1,217 | |||||||
| Short-term lease cost | 29 | 103 | |||||||||
| Variable lease cost | 45 | 97 | |||||||||
| Total lease cost | $ | 676 | $ | 1,417 | |||||||
Supplemental Information
The table below presents supplemental information related to operating leases as of June 30, 2022:
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 503 | |||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 880 | |||
| Weighted average remaining lease term | 7.55 years | ||||
| Weighted average discount rate | 4.78 | % | |||
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the condensed consolidated balance sheet as June 30, 2022:
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| 2022 (remaining six months) | $ | 1,077 | |||
| 2023 | 1,991 | ||||
| 2024 | 1,492 | ||||
| 2025 | 1,361 | ||||
| 2026 | 1,362 | ||||
| Thereafter | 5,121 | ||||
| Total minimum lease payments | 12,404 | ||||
| Less imputed interest | (1,974) | ||||
| Present value of future minimum lease payments | 10,430 | ||||
| Less current obligations under leases | (1,705) | ||||
| Long-term lease obligations | $ | 8,725 | |||
Disclosures related to Periods Prior to Adoption of New Lease Standard
Minimum lease payments under operating leases with non-cancelable terms in excess of one year as of December 31, 2021, were as follows:
| 2022 | $ | 1,869 | |||
| 2023 | 1,674 | ||||
| 2024 | 1,303 | ||||
| 2025 | 1,177 | ||||
| 2026 | 1,201 | ||||
| Thereafter | 1,686 | ||||
| Total minimum lease payments | $ | 8,910 | |||
17. Commitments and Contingencies
Litigation
The Company may be a party to routine claims or litigation incidental to its business. The Company does not believe that it is a party to any pending legal proceeding that is likely to have a material adverse effect on its business, financial condition, results of operations or cash flows.
Royalty Agreement
The Company has entered into license agreements to use certain technology within its design and manufacture of its products. The agreements require royalty fees for each semiconductor sold using the licensed technology. Total royalty expense incurred in connection with these contracts during the three months ended June 30, 2022 and 2021 was $262 and $191, respectively. Total royalty expense incurred in connection with these contracts during the six months ended June 30, 2022 and 2021 was $504 and $340, respectively. These expenses are included in cost of goods sold in the consolidated statements of operations. Accrued royalties of $1,156 and $264 are included in accrued expenses in the Company’s consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.
Tax Distributions
To the extent the Company has funds legally available, the board of directors will approve distributions to each member of ADK LLC, prior to March 15 of each year, in an amount per unit that, when added to all other distributions made to such member with respect to the previous calendar year, equals the estimated federal and state income tax liabilities applicable to such member as the result of its, his or her ownership of the units and the associated net taxable income allocated with respect to such units for the previous calendar year. There were no distributions approved by the board of directors or paid by the Company during the six months ended June 30, 2022 and 2021.
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18. Supplemental Financial Information
Accrued expenses and other current liabilities consist of the following:
| As of | |||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| Accrued purchase consideration from business combinations | $ | 2,500 | $ | 7,500 | |||||||
| City Semi deferred compensation | — | 833 | |||||||||
| Contingent consideration | 4,768 | — | |||||||||
| Operating lease liabilities, current | 1,705 | — | |||||||||
| Accrued royalties | 1,156 | 360 | |||||||||
| Other (1) | 4,196 | 5,929 | |||||||||
| Accrued expenses and other current liabilities | $ | 14,325 | $ | 14,622 | |||||||
(1) Amount represents accruals for various operating expenses such as professional fees, open purchase orders, current lease liabilities and other estimates that are expected to be paid within the next 12 months.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INDIE
Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of indie and its subsidiaries prior to the consummation of the Transaction. Throughout this section, unless otherwise noted, “indie” refers to indie Semiconductor and its consolidated subsidiaries.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. Certain amounts may not foot due to rounding. This discussion and analysis contains forward-looking statements. See “Forward Looking Statements.” We urge you to consider the risks and uncertainties discussed in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2021, under the heading “Risk Factors” and in the other documents we have filed with the SEC in evaluating our forward-looking statements. We assume no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.
OUR COMPANY
indie Semiconductor offers highly innovative automotive semiconductors and software solutions for Advanced Driver Assistance Systems (“ADAS”), autonomous vehicle, connected car, user experience and electrification applications. We focus on edge sensors across multiple modalities spanning LiDAR, radar, ultrasound and computer vision. These functions represent the core underpinnings of both electric and autonomous vehicles, while the advanced user interfaces are transforming the in-cabin experience to mirror and seamlessly connect to the mobile platforms we rely on every day. We are an approved vendor to Tier 1 automotive suppliers and our platforms can be found in marquee automotive manufacturers around the world. Headquartered in Aliso Viejo, California, indie has design centers and sales offices in Austin, Texas; Boston, Massachusetts; Detroit, Michigan; San Francisco and San Jose, California; Budapest, Hungary; Cordoba, Argentina; Dresden and Munich, Germany; Edinburgh, Scotland; Haifa, Israel; Quebec, Canada; Tokyo, Japan; Seoul, South Korea and several locations throughout China.
We maintain design centers for our semiconductor engineers and designers in the United States, Scotland, Germany, Israel and China. We engage subcontractors to manufacture our products. These subcontractors, as well as the majority of our customers’ locations, are primarily in Asia. For the six months ended June 30, 2022 and 2021, approximately 57% and 66%, respectively, of our product revenues were recognized for shipments to customer locations in Asia.
Recent Acquisitions
Symeo GmbH
On October 21, 2021, we entered into a definitive agreement with Analog Devices (“ADI”) to acquire Symeo GmbH (“Symeo”). The acquisition was approved by the German government on January 4, 2022 and closed on the same day. The total consideration paid for this acquisition consisted of (i) $8,705 in cash at closing, net of cash acquired; (ii) a $10,000 promissory note payable in January 2023 with a fair market value of $9,674; and (iii) an equity-based earn-out of up to 858,369 shares of indie Class A common stock based on future revenue growth. The fair market value of this equity-based earn-out was $8,204 on January 4, 2022.
See Note 2 - Business Combinations for additional description of this acquisition.
Impact of COVID-19
The COVID-19 pandemic and the resulting economic downturn has affected business conditions in our industry. The duration, severity, and future impact of the pandemic, including as a result of more contagious variants of the virus that causes COVID-19, continue to be highly uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition. Like many companies in the semiconductor industry, we are experiencing various supply constraints due to the pandemic. While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain.
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OPERATING RESULTS
Comparison of the Three Months Ended June 30, 2022 and 2021
Revenue
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Revenue | $ | % of Revenue | $ Change | % Change | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Product revenue | $ | 20,452 | 79 | % | $ | 8,888 | 97 | % | $ | 11,564 | 130 | % | |||||||||||||||||||||||
| Contract revenue | 5,303 | 21 | % | 292 | 3 | % | 5,011 | 1716 | % | ||||||||||||||||||||||||||
| Total revenue | $ | 25,755 | 100 | % | $ | 9,180 | 100 | % | $ | 16,575 | 181 | % | |||||||||||||||||||||||
Revenue for the three months ended June 30, 2022 was $25.8 million, compared to $9.2 million for the three months ended June 30, 2021, an increase of $16.6 million or 181%, which was primarily driven by a $11.6 million increase in product revenue as well as an increase in contract revenue. The increase in product revenue was due primarily to higher product volume (units sold) given the continued growth in demand from our customers globally. Change in product mix and increases in average selling price (“ASP”) also contributed to the increase in product revenue year-over-year. The increase in contract revenue of $5.0 million or 1716% was primarily due to commencement of a large multi-year non-recurring engineering project with a top customer in the current year.
Operating Expenses
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Revenue | $ | % of Revenue | $ Change | % Change | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Cost of goods sold | $ | 15,178 | 59 | % | $ | 5,319 | 58 | % | $ | 9,859 | 185 | % | |||||||||||||||||||||||
| Research and development | 28,467 | 111 | % | 13,486 | 147 | % | 14,981 | 111 | % | ||||||||||||||||||||||||||
| Selling, general, and administrative | 12,085 | 47 | % | 8,878 | 97 | % | 3,207 | 36 | % | ||||||||||||||||||||||||||
| Total operating expenses | $ | 55,730 | 216 | % | $ | 27,683 | 302 | % | $ | 28,047 | 101 | % | |||||||||||||||||||||||
Cost of goods sold for the three months ended June 30, 2022 was $15.2 million, compared to $5.3 million for the three months ended June 30, 2021. The increase of $9.9 million or 185% was primarily due to a $3.7 million increase in product shipments given the increase in revenue above, a $1.9 million increase due to change in product mix and a $2.4 million increase in product cost. Total cost of goods sold for the three months ended June 30, 2022 also included $1.7 million in amortization related to acquired intangible assets as a result of the recent business combinations.
Research and development expense for the three months ended June 30, 2022 was $28.5 million, compared to $13.5 million for the three months ended June 30, 2021. The increase of $15.0 million or 111% was primarily due to a $5.9 million increase in personnel costs as we increased the number of employees working on product development, a $4.1 million increase in product development costs, $2.8 million share-based compensation expense, and a $1.4 million increase in amortization expense related to R&D project licenses and acquired intangible assets from business combinations. We started recognizing share-based compensation expense in the second quarter of the prior year as it required the consummation of the Transaction in June 2021 and implementation of the 2021 Omnibus Equity Plan in August 2021 to be recognized. We expect research and development expense to continue to increase as we continue to grow our headcount organically to support expanded product development activities.
Selling, general and administrative expense for the three months ended June 30, 2022 was $12.1 million, compared to $8.9 million for the three months ended June 30, 2021. The increase of $3.2 million or 36% was primarily due to a $2.5 million increase in outside professional fees and a $1.2 million increase in intangible asset amortization from business combinations.
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We expect selling, general, and administrative expense to continue to increase as we grow our headcount to support our global expansion and to fulfill our obligations as a publicly traded company.
Other income (expense), net
| Three Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | $ | $ | $ Change | % Change | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | $ | 175 | $ | 13 | $ | 162 | 1246 | % | |||||||||||||||
| Interest expense | (267) | (530) | 263 | (50) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of SAFEs | — | 2,500 | (2,500) | (100) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of warrants | 20,301 | 11,316 | 8,985 | 79 | % | ||||||||||||||||||
| Gain (loss) from change in fair value of earn-out liabilities | — | 17,939 | (17,939) | (100) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of contingent considerations | 3,584 | (100) | 3,684 | (3684) | % | ||||||||||||||||||
| Gain (loss) from extinguishment of debt | — | 304 | (304) | (100) | % | ||||||||||||||||||
| Other income (expense) | 9 | 106 | (97) | (92) | % | ||||||||||||||||||
| Total other income, net | $ | 23,802 | $ | 31,548 | $ | (7,746) | (25) | % | |||||||||||||||
Interest expense for the three months ended June 30, 2022 was $0.3 million, compared to $0.5 million for the three months ended June 30, 2021. Interest expense relates to the routine cash and non-cash interest expenses on outstanding debt obligations. All long-term debts historically held by indie before the Transaction were paid off as of June 30, 2021, which resulted in the decrease in total interest expense compared to the same period in the prior year.
For the three months ended June 30, 2022 and 2021, we recognized gains (losses) from change in fair value for SAFE’s, warrants, earn-out liabilities, and contingent considerations. The gains (losses) recorded for both the three months ended June 30, 2022 and 2021 represent the following:
i) SAFEs: Upon the closing of the Transaction on June 10, 2021, the SAFE holders converted their SAFEs to Class A common stock of indie. The gain of $2.5 million for the three months ended June 30, 2021 represents the decrease in fair value in SAFEs from March 31, 2021 to June 10, 2021. No changes in fair value of SAFEs were recorded going forward.
ii) Warrants: During the three months ended June 30, 2022, we recognized an unrealized gain from change in fair value of our warrants of $20.3 million, which reflected the decrease in fair value of our warrant liability. The decrease in fair value of our warrant liability of $20.3 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq to $5.70 per share on June 30, 2022 from $7.81 per share on March 31, 2022. In the same period in the prior year, the decrease in fair value was a result of the closing price our Class A common stock listed on the Nasdaq to $9.88 per share on June 30, 2021 from $10.87 per share on June 10, 2021.
iii) Earn-out liabilities: The change in fair value of our earn-out liabilities of $17.9 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq to $9.88 per share on June 30, 2021 from $10.87 per share on June 10, 2021. On November 9, 2021, the first earn-out milestone was achieved, which eliminated the variability in the arrangement that previously prevented this instrument to be equity-classified. As a result, the earn-out liabilities were recorded to Additional Paid-in Capital at its fair value in November 2021 and no changes in fair value were recorded going forward.
iv) Contingent considerations: During the three months ended June 30, 2022, we recognized an unrealized net gain from change in fair value of our contingent considerations of $3.6 million. During the three months ended June 30, 2022, management determined that the product design specified in the contingent consideration arrangement would be replaced with a new product design that is better aligned with customer requirements and which will not be eligible for either of the contingent considerations. Accordingly, the fair value for both the Tapeout and Design Win were reduced to zero as of June 30, 2022, resulting in a gain of $3.9 million.
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For the three months ended June 30, 2021, we recognized a net gain of $0.3 million on extinguishment of debt. The net gain was attributable to a gain of $1.9 million from the PPP loan as we received forgiveness from SBA on May 20, 2021, partially offset by a loss of $1.6 million from the repayment of the Trinity loan on June 17, 2021.
Income Tax Benefits
We evaluate our estimated annual effective tax rate (“AETR”) on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period. This is due to factors such as the overall level of pretax book income or loss, changes in the blend of jurisdictional income or loss that is taxed at different rates, changes in domestic and foreign valuation allowances and changes in non-controlling interest. Consequently, our AETR may fluctuate significantly period to period and may make quarterly comparisons less than meaningful.
Income tax benefits for the three months ended June 30, 2022 were due to results of foreign operations. Tax expense recorded for the same period last year was also the result of foreign operations.
Comparison of the Six Months Ended June 30, 2022 and 2021
Revenue
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Revenue | $ | % of Revenue | $ Change | % Change | |||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Product revenue | $ | 38,538 | 81 | % | $ | 16,371 | 95 | % | $ | 22,167 | 135 | % | |||||||||||||||||||||||
| Contract revenue | 9,216 | 19 | % | 923 | 5 | % | 8,293 | 898 | % | ||||||||||||||||||||||||||
| Total revenue | $ | 47,754 | 100 | % | $ | 17,294 | 100 | % | $ | 30,460 | 176 | % | |||||||||||||||||||||||
Revenue for the six months ended June 30, 2022 was $47.8 million, compared to $17.3 million for the six months ended June 30, 2021, an increase of $30.5 million or 176%, which was primarily driven by a $22.2 million increase in product revenue as well as an increase in contract revenue. The increase in product revenue was due primarily to higher product volume (units sold) given the continued growth in demand from our customers globally. Change in product mix and increases in ASP also contributed to the increase in product revenue year-over-year. The increase in contract revenue of $8.3 million or 898% was primarily due to commencement of a large multi-year non-recurring engineering project with a top customer in the current year.
Operating expenses
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| (in thousands) | $ | % of Revenue | $ | % of Revenue | $ Change | % Change | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Cost of goods sold | $ | 29,370 | 62 | % | $ | 10,167 | 59 | % | $ | 19,203 | 189 | % | |||||||||||||||||||||||
| Research and development | 57,966 | 121 | % | 22,163 | 128 | % | 35,803 | 162 | % | ||||||||||||||||||||||||||
| Selling, general, and administrative | 24,727 | 52 | % | 11,573 | 67 | % | 13,154 | 114 | % | ||||||||||||||||||||||||||
| Total operating expenses | $ | 112,063 | 235 | % | $ | 43,903 | 254 | % | $ | 68,160 | 155 | % | |||||||||||||||||||||||
Cost of goods sold for the six months ended June 30, 2022 was $29.4 million, compared to $10.2 million for the six months ended June 30, 2021. The increase of $19.2 million or 189% was primarily due to a $7.2 million increase in product shipments given the increase in revenue above, a $3.6 million increase due to change in product mix and a $4.2 million increase in product cost. Total cost of goods sold for the six months ended June 30, 2022 also included $3.5 million in amortization related to acquired intangible assets as a result of the recent business combinations.
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Research and development (“R&D”) expense for the six months ended June 30, 2022 was $58.0 million, compared to $22.2 million for the six months ended June 30, 2021. This increase of $35.8 million or 162% was primarily due to a $12.0 million increase in personnel costs as we increased the number of employees working on product development, a $6.3 million increase in product development costs, $11.5 million share-based compensation expense, and a $3.0 million increase in amortization expense related to R&D project licenses and acquired intangible assets from business combinations. We started recognizing share-based compensation expense in the second quarter of the prior year as it required the consummation of the Transaction in June 2021 and implementation of the 2021 Omnibus Equity Plan in August 2021 to be recognized. We expect research and development expense to continue to increase as we continue to grow our headcount organically to support expanded product development activities.
Selling, general and administrative expense for the six months ended June 30, 2022 was $24.7 million, compared to $11.6 million for the six months ended June 30, 2021. The increase of $13.2 million or 114% was primarily due to a $5.6 million increase in outside professional fees, a $1.7 million increase in share-based compensation expense, a $2.8 million increase in personnel costs due to increase in headcounts, and a $2.6 million increase in intangible asset amortization from business combinations. We started recognizing share-based compensation expense in the second quarter of the prior year as it required the consummation of the Transaction in June 2021 and implementation of the 2021 Omnibus Equity Plan in August 2021 to be recognized. We expect selling, general, and administrative expense to continue to increase as we grow our headcount to support our global expansion and to fulfill our obligations as a publicly traded company.
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (in thousands) | $ | $ | $ Change | % Change | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | $ | 208 | $ | 20 | $ | 188 | 940 | % | |||||||||||||||
| Interest expense | (325) | (1,150) | 825 | (72) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of SAFEs | — | 21,600 | (21,600) | (100) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of warrants | 67,654 | 11,316 | 56,338 | 498 | % | ||||||||||||||||||
| Gain (loss) from change in fair value of earn-out liabilities | — | 17,939 | (17,939) | (100) | % | ||||||||||||||||||
| Gain (loss) from change in fair value of contingent considerations | 3,667 | (100) | 3,767 | (3767) | % | ||||||||||||||||||
| Gain (loss) from extinguishment of debt | — | 304 | (304) | (100) | % | ||||||||||||||||||
| Other income (expense) | (21) | 99 | (120) | (121) | % | ||||||||||||||||||
| Total other income, net | $ | 71,183 | $ | 50,028 | $ | 21,155 | 42 | % | |||||||||||||||
Interest income for the six months ended June 30, 2022 increased by 940% from the six months ended June 30, 2021. The increase was a result of higher cash balances held in interest bearing accounts.
Interest expense for the six months ended June 30, 2022 was $0.3 million, compared to $1.2 million for the six months ended June 30, 2021. Interest expense relates to the routine cash and non-cash interest expenses on outstanding debt obligations. All long-term debts have been paid off as of June 30, 2021 post our consummation of the Transaction.
For the six months ended June 30, 2022 and 2021, we recognized gains (losses) from change in fair value for SAFE’s, warrants, earn-out liabilities, and contingent considerations. The gains (losses) recorded for the both the six months ended June 30, 2022 and 2021 represent the following:
i) SAFEs: Upon the closing of the Transaction on June 10, 2021, the SAFE holders converted their SAFEs to Class A common stock of indie. The gain of $21.6 million for the six months ended June 30, 2021 represents the decrease in fair value in SAFEs from December 31, 2021 to June 10, 2021. No changes in fair value of SAFEs were recorded going forward.
ii) Warrants: During the six months ended June 30, 2022, we recognized an unrealized gain from change in fair value of our warrants of $67.7 million, which reflected the decrease in fair value of our warrant liability. The decrease in fair value of our warrant liability of $67.7 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq to $5.70 per share on June 30, 2022 from $11.99 per share on December 31, 2021. In the same
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period in the prior year, the decrease in fair value was a result of the closing price our Class A common stock listed on the Nasdaq to $9.88 per share on June 30, 2021 from $10.87 per share on June 10, 2021.
iii) Earn-out liabilities: The change in fair value of our earn-out liabilities of $17.9 million was primarily a result of the decrease of the closing price of our Class A common stock listed on the Nasdaq to $9.88 per share on June 30, 2021 from $10.87 per share on June 10, 2021. On November 9, 2021, the first earn-out milestone was achieved, which eliminated the variability in the arrangement that previously prevented this instrument to be equity-classified. As a result, the earn-out liabilities were recorded to Additional Paid-in Capital at its fair value in November 2021 and no changes in fair value were recorded going forward.
iv) Contingent considerations: During the six months ended June 30, 2022, we recognized an unrealized net gain from change in fair value of our contingent considerations of $3.7 million. During the six months ended June 30, 2022, management determined that the product design specified in the contingent consideration arrangement would be replaced with a new product design that is better aligned with customer requirements and which will not be eligible for either of the contingent considerations. Accordingly, the fair value for both the Tapeout and Design Win were reduced to zero as of June 30, 2022, resulting in a gain of $3.9 million.
Income Tax Expense
We evaluate our estimated AETR on a quarterly basis based on current and forecasted operating results. The relationship between our income tax provision or benefit and our pretax book income or loss can vary significantly from period to period. This is due to factors such as the overall level of pretax book income or loss, changes in the blend of jurisdictional income or loss that is taxed at different rates, changes in domestic and foreign valuation allowances and changes in non-controlling interest. Consequently, our AETR may fluctuate significantly period to period and may make quarterly comparisons less than meaningful.
Income tax benefits for the six months ended June 30, 2022 were due to results of foreign operations. Tax expense recorded for the same period last year was also the result of foreign operations.
JOBS Act
The JOBS Act permits an emerging growth company (“EGC”) such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (2) the date on which we are deemed to be a “large accelerated filer,” which would occur if the market value of our equity securities held by nonaffiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering, or December 31, 2024.
We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for public companies.
Liquidity and Capital Resources
Historically, we derive liquidity primarily from debt and equity financing activities as we have historically had negative cash flows from operations. On June 10, 2021, we completed the Transaction, which resulted in approximately $341.3 million of net cash proceeds. On November 5, 2021, we also entered into an amendment to the PacWest loan agreement that (i) increased the maximum borrowing capacity under the revolving line of credit to $20 million, (ii) limited the security interests of the bank to the cash collateral set at 102.5% of the drawn amount of the loan, (iii) removed various reporting and restrictive covenants, (iv) extended the maturity date to November 4, 2022 and (iv) reduced the interest rate to 2.1% per annum. We currently do not have any outstanding balance under this revolving line of credit. As of June 30, 2022, our balance of cash and cash equivalents was $163.7 million.
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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 general and administrative expenditures. In addition, from time to time, we use cash to fund our mergers and acquisitions as well as for purchases of various capital and software assets. Our immediate sources of liquidity are cash, cash equivalents and our revolving credit facility. We believe that our existing cash and cash equivalents, funds anticipated to be generated from our operations, and available borrowing on our revolving credit facility will be sufficient to meet our working capital needs for at least the next 12 months. Our future capital requirements may vary from those currently planned and will depend on many factors, including our rate of sales growth, the timing and extent of spending on various business initiatives, including potential merger and acquisition activities, our international expansion, the timing of new product introductions, market acceptance of our solutions, and overall economic conditions including the potential impact of global supply imbalances, rising interest rates, inflationary pressures, COVID-19 and volatility in the global financial markets. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing.
Acquisitions
Since the closing of the Transaction, we have completed multiple acquisitions. We continually assess and plan to selectively pursue inorganic growth opportunities that are complementary to our existing technologies and portfolio of products and/or accelerate our growth initiatives. See Note 2 - Business Combinations for additional information about our recent acquisitions.
In connection with our acquisitions, we may from time to time be required to make future payments or issue additional shares of our common stock to satisfy our obligations under the acquisition agreements, including to satisfy certain earn-out requirements. For example, in January, 2022 we completed the acquisition of Symeo GmbH, for which we made an initial cash payment of approximately $10.0 million. An additional $10.0 million will be due in 2023, as well as an equity based earn out of shares of indie Class A common stock based on future revenue growth. In addition, in October 2021, we acquired ON Design Israel Ltd. for $5.0 million in cash paid upon close (net of cash acquired), $5.0 million paid as of June 30, 2022 and an additional $2.5 million required to be paid in 2022.
We expect to continue to incur net operating losses and negative cash flows from operations. We also expect our research and development expenses, general and administrative expenses and capital expenditures will increase over time as we continue to expand our operations, product offerings and customer base.
The following table summarizes our consolidated cash flows for the six months ended June 30, 2022 and 2021:
| Six Months Ended June 30, | Change | Change | |||||||||||||||||||||
| 2022 | 2021 | $ | % | ||||||||||||||||||||
| Net cash used in operating activities | $ | (36,882) | $ | (22,133) | $ | (14,749) | 67 | % | |||||||||||||||
| Net cash used in investing activities | (10,551) | (852) | (9,699) | 1138 | % | ||||||||||||||||||
| Net cash provided by (used in) financing activities | (7,847) | 358,468 | (366,315) | (102) | % | ||||||||||||||||||
Operating Activities
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 general and administrative expenditures.
For the six months ended June 30, 2022, net cash used in operating activities was $36.9 million, which included net income of $8.4 million and reflected adjustments for certain non-cash items and changes in operating assets and liabilities. Non-cash decreases primarily consisted of $71.3 million of net gains resulting from a change in fair value for warrants and contingent considerations. These non-cash decreases were partially offset by $21.2 million in share-based compensation expense and $10.4 million in depreciation and amortization. Changes in operating assets and liabilities from operations used $7.4 million of cash, primarily driven by an increase in inventory, prepaid and other current assets, and accounts receivable, and a decrease in other long-term liabilities, partially offset by an increase in accounts payable and accrued liabilities .
Cash used in operating activities during the six months ended June 30, 2021 was $22.1 million, which included net income of $23.3 million and was adjusted for certain non-cash items and changes in operating assets and liabilities. Non-cash charges primarily consisted of a $50.8 million of gains resulting from change in fair values for SAFEs, warrants, earn-out liabilities, and
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contingent considerations, and a $0.3 million net gain from extinguishment of long-term debts and forgiveness from the PPP loan. These non-cash decreases were partially offset by $8.0 million in share-based compensation expense and $1.2 million in depreciation and amortization. Changes in operating assets and liabilities from operations used $4.2 million of cash, primarily driven by an increase in accounts receivable and prepaid and other current assets.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 and 2021 was $10.6 million and $0.9 million, respectively. During the period ended June 30, 2022, the decrease in cash was primarily due to the acquisition of Symeo for $8.7 million, net of cash acquired, as well as an increase in cash used of $1.8 million for the purchase of capital expenditures. During the period ended June 30, 2021, our primary investing activities consisted of capital expenditures. We expect that we will make additional capital expenditures in the future, including licenses to various intangible assets, in order to support the future growth of our business.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2022 was $7.8 million, which was primarily attributed to $5.0 million paid to OnSemi as part of the deferred payments in relation to the acquisition of ON Design Israel Ltd, $1.9 million of payments on financed software, and a $1.0 million payment of City Semi deferred compensation.
Cash provided by financing activities for the six months ended June 30, 2021 of $358.5 million was primarily attributed to $377.7 million of net cash acquired from TB2 as we closed the Transaction on June 10, 2021 and $5.0 million of proceeds from issuance of SAFEs in April 2021. These increases in cash were partially offset by $6.2 million of transaction costs incurred in connection with the Transaction and $15.0 million for the repayment of long-term debt and related termination fees. Total transaction costs incurred in relation to the Transaction was approximately $44.5 million, and the remainder of the balance was paid in the third quarter of 2021.
Future Material Cash Obligations
Following is a summary of our material cash requirements from known contractual and other obligations, including commitments for capital expenditures, as of June 30, 2022:
| Future Estimated Cash Payments Due by Period | ||||||||||||||||||||||||||||||||
| Contractual Obligations | Less than 1 year | 1 - 3 years | 3-5 years | >5 years | Total | |||||||||||||||||||||||||||
| Debt obligations | $ | 1,169 | $ | 14,378 | $ | 2,645 | $ | — | $ | 18,192 | ||||||||||||||||||||||
| Operating leases | 1,077 | 3,483 | 2,723 | 5,121 | 12,404 | |||||||||||||||||||||||||||
| Deferred business acquisition payments | 2,500 | — | — | — | 2,500 | |||||||||||||||||||||||||||
| Total contractual obligations | $ | 4,746 | $ | 17,861 | $ | 5,368 | $ | 5,121 | $ | 33,096 | ||||||||||||||||||||||
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments in applying our most critical accounting policies that can have a significant impact on the results we report in our financial statements. The SEC has defined critical accounting estimates as those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on a registrant’s financial condition or results of operations. Based on this definition, our most critical accounting estimates include revenue recognition, which impacts the recording of net revenue; inventory valuation, which impacts the cost of goods sold and gross margin; business combinations, which impacts the fair value of acquired assets and assumed liabilities; goodwill and long-lived assets, which impacts the fair value of goodwill and intangible assets; warrants and earn-out liabilities valuations, which impacts the fair value of these financial instruments; and income taxes, which impacts the income tax provision. We have other significant accounting policies that do not generally require subjective estimates or judgments or would not have a material impact on our results of operations. The Company’s critical accounting policies and estimates are disclosed under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K filed for the year ended December 31, 2021.
Recently Issued and Adopted Accounting Pronouncements
We describe the recently issued and adopted accounting pronouncements that apply to us in Note 1 - Nature of Business and Basis to our Condensed Consolidated Financial Statements presented herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We have international operations, giving rise to exposure to market risks from changes in currency exchange rates. A cumulative foreign currency translation loss of $8,452 related to our foreign subsidiaries is included in “Accumulated other comprehensive loss” within the Stockholders' Equity section of the consolidated balance sheet at June 30, 2022. The aggregate foreign currency translation adjustments included in determining gain (loss) before income taxes was $(7.0) million and $58 thousand for the six months ended June 30, 2022 and 2021, respectively. The year-over-year change was driven by the cumulative foreign currency translation loss recorded as of June 30, 2022 as the US dollar strengthened against foreign currencies.
As our international operations grow, our risks associated with fluctuation in foreign currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar could increase the costs of our international expansion and operation.
Investment and Interest Rate Risk
Our exposure to interest rate and general market risks relates principally to our investment portfolio, which consists of cash and cash equivalents (money market funds and marketable securities purchased with less than ninety days until maturity) that totals approximately $163.7 million as of June 30, 2022.
The main objectives of our investment activities are liquidity and preservation of capital. Our cash equivalent investments have short-term maturity periods that dampen the impact of market or interest rate risk. Credit risk associated with our investments is not material because our investments are diversified across securities with high credit ratings.
Given the objectives of our investment activities, and the relatively low interest income generated from our cash, cash equivalents, and other investments, we do not believe that investment or interest rate risks currently pose material exposures to our business or results of operations even in the current environment of rising interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2022 and based on this evaluation, have concluded that, as a result of the material weaknesses in internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of June 30, 2022.
Per Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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Material Weaknesses in Internal Control over Financial Reporting and Remediation Plan
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an assessment of our internal control over financial reporting as of December 31, 2021, based on the framework in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”). As a result of this evaluation, management identified the following material weaknesses in internal control over financial reporting as of December 31, 2021, which remain unremediated as of June 30, 2022:
a.Control Environment: The Company did not have a sufficient number of personnel with assigned responsibility and accountability for the design, operation and documentation of internal control over financial reporting in accordance with the 2013 COSO Framework.
a.Risk Assessment: The Company did not have an effective risk assessment process that defined clear financial reporting objectives and evaluated risks, including identifying and analyzing risks related to non-routine transactions such as mergers and acquisitions, at a sufficient level of detail to identify all relevant risks of material misstatement across the Company or within each acquired entity.
a.Information and Communication: The Company did not have effective information control processes, including those related to the use of manual spreadsheets, to ensure the reliability of information used in certain computations related to financial reporting.
a.Monitoring Activities: The Company did not have effective monitoring activities to assess the operation of internal control over financial reporting, including the continued appropriateness of control design and level of documentation maintained to support control effectiveness.
a.Control Activities: As a consequence of the aforementioned deficiencies, the Company did not have effective control activities related to the design and operation of process-level controls across certain key financial reporting processes.
The Company’s remediation efforts related to the foregoing material weaknesses are ongoing, and the Company will continue its initiatives to implement and document policies and procedures and strengthen the Company’s internal control environment. Remediation of the identified material weaknesses and strengthening the Company’s internal control environment will require a substantial effort throughout 2022 and, possibly, the first quarter of 2023. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. In addition, it is possible that certain controls the Company plans to implement in 2022 will not have operated for a sufficient period of time in 2022 to test their operating effectiveness as part of the Company’s evaluation of internal control over financial reporting as of December 31, 2022 and may extend to the following year.
To remediate the material weaknesses described above, the Company is pursuing the following remediation steps:
i.We will continue to seek, train and retain individuals that have appropriate skills and experience related to designing operating and documenting internal controls over financial reporting, coupled with the addition of finance staff to improve the current segregation of roles and responsibilities; and
ii.We have launched a company-wide initiative to implement a new enterprise resource planning (“ERP”) system capable of automating some of our manual financial reporting processes, enhancing our information technology control environment, and mitigating some of the internal control gaps and limitations that cannot be addressed by the current system; and
iii.We have engaged third party specialists to conduct a comprehensive review, update and enhancement of the design and documentation of key business processes to ensure the components of internal control over financial reporting are present and functioning in accordance with the 2013 COSO Framework; and
iv.We are in the process of establishing an internal audit function which will perform routine risk assessments and gap analysis of our control environment and report regularly to the audit committee on the progress and results of our remediation plan, including the identification, status, and resolution of internal control deficiencies.
We believe that our remediation plan will be sufficient to address the identified material weaknesses and strengthen our internal control over financial reporting. As we continue to evaluate, and work to improve our internal control over financial reporting, we may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. It cannot be assured, however, when we will remediate such material weaknesses, nor can we be certain whether
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additional actions will be required. Moreover, it cannot be assured that additional material weaknesses will not arise in the future.
Changes in Internal Control Over Financial Reporting
As described above under “Management's Remediation Plan”, we are taking actions to remediate the material weaknesses in our internal control over financial reporting. Except as described above, there were no changes in internal control over financial reporting during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not party to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. The outcome of litigation is inherently uncertain, and there can be no assurances that favorable outcomes will be obtained. In addition, regardless of the outcome, such proceedings or claims can have an adverse impact on us, which may be material because of defense and settlement costs, diversion of resources and other factors.
ITEM 1A. RISK FACTORS
The business, financial condition, and operating results of the Company can be affected by many factors, whether currently known or unknown, including but not limited to those described in Part 1, Item 1A in the Company’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2021 under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past or the anticipated future financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results, and stock price. There have been no material changes to the Company’s risk factors disclosed under the heading “Risk Factors” in Part 1, Item 1A in the Company’s Annual Report on Form 10-K for the Fiscal Year ended December 31, 2021 filed on April 11, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On various dates between May 13, 2022 and June 8, 2022 the Company issued an aggregate of 3,766,467 shares of its Class A common stock to three ADK Minority Holders in exchange for an equal number of their ADK LLC units. The shares of Class A common stock were issued to the three ADK Minority Holders in reliance on the exemption under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). In connection with such exchange, 3,737,109 shares of Class V common stock held by the ADK Minority Holders were cancelled and 29,358 shares of ADK LLC units were exchanged to Class A common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
(d) Exhibits
| Exhibit Number | Description of Exhibit | |||||||
44
| 101 .INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101 .SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101 .CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101 .DEF | Inline XBRL Taxonomy Definition Linkbase Document | |||||||
| 101 .LAB | Inline XBRLTaxonomy Extension Label Linkbase Document | |||||||
| 101 .PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and contained in Exhibit 101) | |||||||
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INDIE SEMICONDUCTOR, INC. | |||||||||||
| August 12, 2022 | By: | /s/ Thomas Schiller | |||||||||
| Name: | Thomas Schiller | ||||||||||
| Title: | Chief Financial Officer & EVP of Strategy (Principal Financial Officer) | ||||||||||
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