Navitas Semiconductor Corp. - NVTS
Quick Take
Here is a quick take on one of the names I will be adding to Wednesday’s forthcoming interest list update.
Navitas Semiconductor Corp. came public during the SPAC craze of 2021, and though shares initially traded to the upside, they quickly reversed and have been flopping around and generally churning lower ever since. With around 200M fully diluted shares outstanding and a current $8 or so stock price, this provider of SiC and GaN chips to the charging, solar, EV, and mobile device industries would appear to be well-positioned to capture both some revenues and some profits from the current electrification craze gripping the markets. Though trading at 20x expected 2023 revenues, their revenues have been heading nicely higher despite some headwinds coming from the solar sector while profitability has been lacking as the company continues to spend heavily on both R&D and personnel (stock based comp). A recent announcement that they will be part of the Samsung S23 charging infrastructure package along with prior announcements regarding a couple of Chinese cell phone giants has people hoping this is just the beginning of their fortunes. So what’s not to love about this little-known but rising purveyor of power semiconductors to the hottest industries in the market?
At first glance, there’s a customer concentration issue, or since they don’t break it out that cleanly, a distributor concentration issue. (As an aside, when they disclose revenue concentration percentages in their filings, the company behind “distributor A” does not always appear to be the same company from one filing to the next; it appears to be simply the highest percentage contributor during that specific quarter. In Q3 2023 distributor A was 53% of revenues, while in Q2 a distributor A was 28%. The distributor A in Q3 was also only 29% of revenues year-to-date, and naturally the numbers from Q2 and Q3 add up to more than that number, meaning they are not the same entity. Inconsistency in the reporting of numbers like this just irks me, and especially when all you’re talking about are distributors, there’s no reason a name can’t be added to it either.) With a single distributor accounting for 53% of overall revenues, that may be a great sign or it can also be something to watch. The revenue number associated with that is $11.6M which is more than double any other quarterly number by a single customer.
Customer concentration issues can lead to other problems, like inventory obsolescence. The company took a $2M charge against older inventory that they attribute to Gen2 while they were already on Gen4 or Gen5 type of product.
Stock based comp in 2022 was $63M, or almost double their reported revenues, and though that number has moderated a bit so far in 2023, they’re still running almost even with overall revenues. I get that you need to retain your talent, but ruthlessly diluting shareholders isn’t always the right way of doing it.
Major acquisitions this early in a company’s public existence tend to be rare, but back on August 15 2022 the company acquired GeneSiC Semicondictor for $244M and a potential $25M in earn-out payments. This had the rather annoying effect of adding a second “gain (loss) from change in fair value of earnout liabilities” onto their income statement and also an account on their balance sheet; one is also in effect from the IPO. Just messy as all heck.
The company was asked this on a recent call: “Just wondering if you might be able to help us as we think about that earn-out liability for the GeneSiC acquisition, as liability comes down, does that mean that the GeneSiC revenue outlook is negatively affected?” Now, the company’s answer was that the earnout period is over and that any current gains/losses come from the IPO. That doesn’t answer the question. Though the company does not disclose the acquisitions’ current contribution to overall revenues, they do disclose some pro forma number regarding the past. In calendar 2021 it appears that GeneSiC was approximately a $15M revenue company. Q1 2022 pro forma’s put GeneSiC revenue at around $4.7M, while in Q2 the number rises to $5.1M. In Q3 2022, the quarter they purchased GeneSiC, the number declined to only $827K though it came more than half-way through the quarter so should have been more. So was everything fine when the company was purchased? Or did things deteriorate? Perhaps when they disclose Q4 results and the 10K is released we will find some more answers.
It will be interesting to see what happens in their Q4 earnings report and subsequent 10K. Will the large ramp from distributor A continue? Was it only a one-time thing? Perhaps some sort of a channel fill? Perhaps something related to the Samsung announcement? And will the GeneSiC pro forma numbers be disclosed at all for 2023? Or does that particular number get lost in the growth story? We shall stay tuned to find out.