Navitas Semiconductor Corporation

billion per year power semiconductor market to move from silicon to GaN and silicon carbide, we are also very excited about two major U.S. initiatives. First, the CHIPS Act will bring over $50 billion in investments for the U.S. semi-industry, and we believe GaN and silicon carbide are perfect candidates to leverage such investments and dramatically improve costs and capacities in coming years. Second, the $300 billion-plus investments in the Inflation Reduction Act focused solely on accelerating clean energy and climate change initiatives, perfectly aligns to Navitas' focus on sustainable energy, EV, and EV infrastructure, and in particular, our spotlight on upgrading homes from fossil fuels to clean, energy-efficient, electricity-based home appliances. To summarize, despite the near-term mobile softness and the macroeconomic headwinds, we are very happy with our near-term and long-term growth expectations. In GAN, this includes upsides we're seeing in data centers and in motor drives, while we are executing on schedule with our new Gen 4 platform and longer-term expansion into solar and EV. In silicon carbide, we are seeing upsides and a growing backlog across all segments that includes EV, solar, energy storage, and industrial segments, all of which will significantly benefit from the long-term supply agreement that we've recently signed to support this growth. With that, let me turn it over to Ron Shelton, our CFO.

Thanks, Gene, and thanks, everyone, for joining us today. In my comments today, I'll first take you through our third quarter results and then walk you through our outlook for the fourth quarter, and then I'll close with some comments about what we currently see for 2023. Gap revenue for the quarter grew to $10.2 million. That represents an 82% growth from the third quarter of 2021. This was in line with our guidance. While we continued to see the impact of the slowdown in the mobile market that is impacting the semiconductor industry broadly, this was offset by gains we made in diversifying our end markets and customer base and strong demand for our new silicon carbide products. Gap gross margin was 3.8% in the third quarter, and non-gap gross margins were 38.4%, which was within the range of guidance we provided last quarter. We had several GAAP adjustments during the quarter, which impacted GAAP gross margins. They were comprised primarily of an adjustment for a step up in the value of inventory related to the Genesic acquisition, totaling approximately $600,000, and a reserve for inventory of $2.8 million as we focus our efforts on higher power, ultra-fast mobile chargers, data center, solar, EV, and motor drive markets. Total non-GAAP operating expenses were $14.2 million for the third quarter of 2022. Our non-GAAP SG&A expense was $7.9 million and non-GAAP R&D was $6.3 million in the third quarter of 2022. Non-GAAP operating expenses were slightly higher than the midpoint of our guidance and reflect a partial quarter of expenses associated with the GENESIC acquisition and higher spending associated with new product development. While we will be prudent in how and where we invest, we will continue to make targeted investments in our business where we derive the most long-term value. Putting all this together, the non-GAAP loss from operations was $10.3 million, compared to a loss from operations of $6.5 million in the third quarter of 2021, as we invest simultaneously across new markets in this phase of our company's growth. Our weighted average basic and diluted share count for the third quarter was 138.5 million shares. Turning to the balance sheet, it continues to remain very strong with high levels of liquidity. Cash and cash equivalents at quarter end were $124.8 million. Accounts receivable was $10.9 million compared to $9.4 million in the prior quarter, reflecting improved day sales outstanding. Inventory rose to approximately $17 million compared to $14 million in the prior quarter and is comprised of both inventory related to Genesic as we continue to increase supply to meet end market demand in the silicon carbide market and initial inventory builds for new products. We're confident that over time our inventory levels will trend towards our long-term target for inventory turns of three to four times. Moving on to guidance. For the fourth quarter of 2022, GAAP revenues are expected to grow to between $11 and $13 million. That's compared to $7.3 million in the fourth quarter of 2021. At the midpoint, growth would be 64% year-over-year and 17% sequentially. Our guidance for the quarter includes a full quarter of operations for the Genesys business and reflects very strong demand for those products. At the same time, we continue to remain cautious about the China mobile end markets and have reflected that in our revenue guidance. Gross margin for the fourth quarter is expected to be approximately 40% plus or minus 1% as our mix of silicon carbide products becomes a greater share of overall revenue. As we noted last quarter, we continue to believe that gross margins will expand over the next few quarters as we transition to new GAN products and as the revenue contribution from our silicon carbide products continues to grow. In total, Our non-GAAP operating expenses in Q4 are expected to be approximately $17.5 million, plus or minus 2%, and this excludes stock-based compensation and amortization of intangible assets. The sequential increase is related to a full quarter of Genesic operations and continued investment in that business. Increases in compensation, types of bonuses paid to China employees, which is effectively an additional month of salary, which is standard in China, and further investments in R&D, new products, and added design center activity around future growth opportunities. However, we do expect the spending growth rate to moderate as we enter 2023. As all of you know, in the current environment, multi-quarter projections are increasingly challenging. That said, based on our existing backlog, new design activities, anticipated new product introductions, and other identified opportunities, we believe we have a line of sight to potentially double revenue in 2023 compared to 2022. As mentioned earlier, we expect continued margin expansion. We will have more detailed guidance for 2023 in our next earnings call in February. In summary, while we navigate near-term uncertainties that are impacting the entire semiconductor industry, We continue to be very excited about the growth opportunities in front of us. Navitas is the only pure-play next-generation power semiconductor company, and this provides us with advantages, opportunities, and benefits for significant expansion. Operator, let's begin the Q&A session.

As a reminder, to ask a question, simply press star, then the number 1 on your telephone keypad. Our first question will come from the line of Kevin Cassidy with Rosenblatt Securities. Please go ahead.