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
(“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.
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
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.
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.
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.
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.
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.
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 | |
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
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.
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
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
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.
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.
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
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.
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
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).
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
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) | | Other current liabilities | | $ | 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:
| | | | | |
| 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.
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.