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Operator
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.
Ron Shelton
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.
Gene
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.
Kevin Cassidy
Thanks for taking my question, and congratulations on the progress. I guess the obvious question is, do you split out what your silicon carbide revenue was versus your gallium nitride?
Genesys
No, we're not splitting it out at this time, Kevin.
Kevin Cassidy
Okay, great. And in the China inventory, can you estimate about how over inventory you are? Is it aftermarket chargers or is it the OEM chargers?
Genesys
Yeah, I think the over inventory and the softness affected both China major OEMs as well as aftermarket. So I think it's spread across both.
Kevin Cassidy
Okay, and maybe just one other on that. In your new designs, how is that split between the 17 new designs as aftermarket charges versus inbox?
Genesys
Yeah, it continues to be a good mix. I think we continue to see new designs sort of equally across inbox or mobile players as well as the aftermarket. We highlighted a few of the bigger names. Those tend to be the bigger inbox or mobile OEMs, but it also included aftermarket. wins like Best Buy and Anchor, as well as the mobile players like Xiaomi, Lenovo, and Moto.
Kevin Cassidy
Okay, great. I'll get back in the queue. Thanks, Kevin.
Gene
Your next question comes from the line of Ross Seymour with Deutsche Bank. Please go ahead.
Ross Seymour
Hi, guys. Thanks for that asked question. Ron, I know guiding to next year is difficult for all the reasons that you stated. I just wondered on the Genesic side of things, is that still expected to be kind of a 60% CAGR in that market? And I guess as a second part of that, how do we align the 5X increase in capacity with that kind of 60% or whatever you're going to update us on growth rate? It seems like the capacity is ready for a lot more than 60%, but I know the timing can be a little bit off between the capacity and the revenue.
Ron Shelton
Yeah, sure. Ross, thanks for the question. Yeah, so to answer the first part of the question, yes, we certainly expect in that business to continue to hit a 60% growth rate. So that's all teed up. I think in the comments we talked about all the additional opportunities we're seeing. You know, since we acquired the business, backlog is higher today, and we're seeing a lot more opportunities. So from that perspective, I mean, the business is doing as well as we thought it would. when we acquired it. I think the additional manufacturing capacity, the fact is we're trying to catch up. It's not, you know, catch up to demand right now. That comes up over time. As you know, it won't come up all at once. But yeah, I think the idea is that we're putting in capacity that will support much higher levels of revenue than we're currently seeing in that business.
Ross Seymour
Thanks for that, Keller. I guess as my follow-up, the gross margin side of things, I guess a two-part on this one as well. It's good to see that it's going up a bit sequentially, but it is significantly lower than what you thought it would have been as of last quarter's call, where I believe you said it was kind of 43 plus or minus two points. So why is that, I guess, on the lower end? And then when you talk about continued improvement for next year, any sort of either directional magnitude, linearity, just any more color on that would be helpful.
Ron Shelton
Yeah, sure. So on the first part, it's a little lower than what we guided last quarter, and part of that is a mix issue. So silicon carbide wasn't, and again, we talked about demand and supply wasn't as big of an overall percentage of the business as we thought it might be. So that's one. The second is, and as you recall earlier this year, we discussed this, where we consciously made a decision a strategic decision to invest in a space outside the charger business, which was at the time and is currently lower margin than kind of corporate averages. So that business is doing exceptionally well and is a larger percentage of the overall business than it historically has been. We certainly expect that business, and we've talked about this, where when we introduce Gen 4, margins in that business will expand And so you'll see, and that's why we're pretty confident that margins in the next year will continue to move up. In terms of how much, I mean, I think right now, you know, we would look to low to mid kind of 40s, where we think that could go. And it should be relatively linear. You know, we expect, you know, the silicon carbide business can continue to grow. And like I said, we have new products coming in. on the GAN side that provide higher margins than what we would see today, a better cost structure.
Ross Seymour
And I guess if I can sneak in just a clarification to that, and apologies for the third question, but the mix in the fourth quarter, I'm a little confused. Did you say that silicon carbide was a bigger percentage of your mix, I guess, implied in your guide, or a smaller percentage of your mix implied in your guide that would lead the gross margin to not be terribly off from your 43, but still below it at 40?
Ron Shelton
Yeah, it's lighter. The mix of, yeah, silicon carbide was a little less than what we had anticipated when we guided 43. Got it.
Jonathan Tanwantang
Thank you.
Ron Shelton
Sure.
Gene
Our next question will come from the line of Blake Friedman with Bank of America. Please go ahead.
Blake Friedman
Hi, yeah, thanks for taking my question. Just kind of focusing on the mobile side of things first. Just, you know, given, you know, what we kind of assume about the normalized run rate for the Genesys business, if we look in the December quarter, it seems like the mobile declines are kind of in line with other Android peers. But I was just curious, I know visibility is limited, but your thoughts on maybe a potential bottoming in mobile sales maybe sometime in, you know, the December, March quarter from what we heard from your other peers.
Genesys
Yeah. Yeah. Thanks, Blake, for your question. It is hard to predict, but we've got a strong team and a lot of strong relationships in China. The best indications we have is that Q4 and Q1 are both still pretty soft, but after that we'd anticipate a decent recovery, and that's what we're factoring into our preliminary thinking about next year.
Blake Friedman
Great. And then just as a quick follow-up, I noticed you talked about some of the solar programs in your opening remarks. Just kind of curious, I know some of the, you know, on the GAN side of things, some of those programs are in a ramp in 24. I believe you mentioned earlier that it might begin in the second half of 23. I just want to, I was just curious if any of those programs are pushed out or if I'm just kind of, you know, that's the incorrect interpretation.
Genesys
I know for the last couple of quarters, we've been talking about the GAN ramping in 24 across first one and now a second major program. residential solar players, so we're still tracking for 24 ramps on GaN with at least those two major players and likely more. The silicon carbide, of course, is already shipping into a lot of the solar leaders today. That includes companies like APS, SunGrow, Chint, and GoodWe and many others.
Gene
Okay, our next question will come from the line of Jonathan Tanwantang with CJS Securities. Please go ahead.
Jonathan Tanwantang
Hi, thanks for taking my question. I just wanted to clarify, you said you had visibility or sign of sight into a doubling of revenue. Are you talking about reported revenue or pro forma for Genesic to get there? And I understand that there's a 60% component there, so if it's on a reported basis or pro forma basis, it makes a difference.
Ron Shelton
Right. So it's on a reported basis. So if you look at our guide, midpoint of our guide and the first nine months, we expect the full year to be around $38, $39 million in revenue. So when we talk about doubling, it's off that base.
Jonathan Tanwantang
Understood. Thank you for clarifying that. And then the second part is I think you've mentioned that silicon carbide didn't sell quite as much as you expected in the quarter. It wasn't as big a part of the mix. But then you said it was doing as expected. I'm just hoping you can reconcile that a little bit.
Genesys
Yes. Oh, sorry. Go ahead. Yeah, sure. I can jump in. I mean, at this point, we are selling every chip we can build. So we're working with our suppliers to ramp up as fast as we can. We do have some bottlenecks they're working through that makes the output a little bit choppy and led to a little bit less revenue in Q3 and Q4 than anticipated, which caused the mixed shift and small gross margin impact that Ron talked about. But Going forward, it looks like those supply issues are being resolved pretty thoroughly here in Q4, and we mentioned a long-term supply agreement. That kicks in at the start of Q1, setting up a really strong capacity position and growth position for next year.
Jonathan Tanwantang
Great. That's helpful. Do you have any sense of how much revenue you left on the table or pushed out because of these bottlenecks?
Genesys
Well, you can just look at what we guided compared to prior – or what was our prior guidance compared to actual results and – A bunch of that is silicon carbide.
Jonathan Tanwantang
Okay, so most of that was silicon carbide, and the rest, I would assume, is just incremental mobile weakness.
Genesys
Right, exactly.
Jonathan Tanwantang
Okay. Just a question on the acquisition strategically. Have you added any customers as a result of the acquisition where you were able to cross out to each other and jointly develop things? Just wondering if there's any progress or developments there in the short time you've been together.
Genesys
Yeah, definitely. In fact, we highlighted over 50 new silicon carbide opportunities since we acquired the company. So that's off to a great start. We've got our entire Salesforce system design centers all trained up, all actively engaged, all working with customers around the world. We haven't named names yet because we need permission for that typically. So many of those 50 projects will get revealed over time. But that's a heck of a great running start here in the last three months. And that obviously led to us, you know, wanting to be more bullish on capacity and securing the 5X increase that we talked about.
Jonathan Tanwantang
Great. That's helpful. Thank you. Thanks, John.
Gene
Your next question will come from the line of Trevor Yunoski on behalf of Quinn Bolton with Needham. Please go ahead.
Trevor Yunoski
Yeah. Hey, guys. This is Trevor on for Quinn. And thanks for letting me ask a question. On Genesec, can we expect sequential growth throughout 2023 with the new capacity in place? And is it possible to see silicon carbide revenues outpacing GAN at any quarter during the year? Any color there would be great.
Genesys
Certainly, sequential growth is our expectation. That 5X, as we talked about earlier, gives us a whole lot of headroom to drive upside. So we're very anxious to do exactly that. So I don't see any reason why we wouldn't see strong sequential growth, frankly, in the silicon carbide business and in the GAN business, depending upon that China recovery. So I think that sets us up pretty well across both businesses throughout the year next year.
Trevor Yunoski
Okay. And just to clarify for the data center, 5 million PO, how long does this agreement extend?
Genesys
Yeah, that purchase order is actually just for the second half of next year.
Trevor Yunoski
So it's just the beginning ramp up of that business. Okay, so we can expect all $5 million in the second half? That's right. Okay, and if I can just sneak in one more. At the time of the IPO, you spoke about Gann reaching price parity with Silicon by the end of 2023, right? Has your view on this timeline changed at all given the inflationary environment?
Genesys
Actually, no, it hasn't. There's been a lot of pluses and minuses there, but actually we're still on track. In fact, many of the programs we're developing now are, of course, the programs that get launched in 23, and we see that system cost parity being achieved across a number of products and a number of markets and customers.
Trevor Yunoski
Awesome. Thank you. Thank you, Trevor.
Gene
Our next question will come from the line of Tristan Guerra with Baird. Please go ahead.
Tristan Guerra
Hi, good afternoon. Could you talk a little bit about your positioning? And I know you've already provided details on Genesec. The feedback from silicon carbide conferences that we're attending is about the high end, high performance positioning. So are you highlighting any particular feature as differentiated as opposed to just going after the mass market? If you could just give us some color and with some of the 50 plus new opportunities that you've mentioned, is it all automotive or if you could talk about, you know, more feedback on the end applications for those new opportunities since the acquisition closed?
Genesys
Yeah, definitely. Thanks for your questions, Tristan. So on the Genesic technology, it kind of falls in three categories. The high-performance in-circuit test results are really extraordinary. We did a lot of benchmarking before we acquired the company across all the big guys. We found it to be the best efficiency under real-life high-temperature, high-frequency operating conditions. So that efficiency, that performance is really second to none, and that certainly gets customers' attention first and foremost. Secondarily is the robustness and reliability. We're one of only two suppliers offering guaranteed excellent avalanche energy rating and also extremely good short circuit ratings, protection ratings. And that's critical, obviously, in these high reliability applications. The third is the range of products itself. We go from 650 volts all the way on up to 6,500 volts. And so as you go up in voltage, those markets are not as big, but they are very demanding in performance. and very limited in the supplier choices out there, Genesic being one of only two, I think, at 3,500 volts, and the only one with 6,500 volts. So those are the three big differentiators that we're starting with today, and, of course, we're going to be adding to those as we integrate our own R&D plans and system R&D capabilities mixing with the Genesic technology.
Tristan Guerra
Okay, now that's great feedback. So as my follow-up, then... Are you able to price maybe at a premium on the basis of performance because clearly the features that you just mentioned are really highlighted within the industry as critical going forward and also I guess there is a relationship between shrinking those chips going forward but then the reliability comes down so at some point there's going to be kind of a collision course between more higher density but keeping a minimum reliability particularly for automotive applications. So how are you positioning price-wise and what does that mean in terms of market share that you can get? Can you go after the mass market or are you going to really focus on the premium segment and presumably be at a premium on the pricing as well?
Genesys
Yeah, great questions. And definitely it's a price premium strategy because it's a performance premium and reliability premium product. And that price premium strategy is working really well for us as we're growing faster than the market, taking share from others. And I think we'll be able to continue that for quite some time, albeit with an eye on mass market leadership position in the market. And we do have an aggressive cost reduction plan as well as an aggressive performance roadmap that I think will take us to mainstream leadership in cost performance and reliability in the silicon carbide market. So I think we feel really good about that growth rate, that share, and that pricing strategy. And I know you also, Tristan, asked about the opportunities. We did mention over 50 new silicon carbide opportunities since the acquisition. I also mentioned 22 of those were in EV. The others pretty broadly spread around solar, industrial, and energy storage, the other key markets. So it's a pretty broad-based market share gains and growth trajectory for us.
Trevor Yunoski
Great. Thanks for the comment.
Gene
And as a reminder, to ask a question, simply press star 1 on your telephone keypad. Our next question is a follow-up from the line of Jonathan Tanwantang with CJS Securities. Please go ahead.
Jonathan Tanwantang
Hi. Thanks for the follow-up. Ron, you mentioned the growth rate of OPEX slowing down. I was wondering, what are you planning for that to slow to as you enter the next year?
Ron Shelton
Yeah, sure. Good question. You know, we'll target, I mean, it'll be, you know, mid-single digits sequentially. That's what the target would be.
Jonathan Tanwantang
Okay. And is that just into Q1 or through the year?
Ron Shelton
That's what we'll drive to through the year.
Jonathan Tanwantang
Okay, great. And then what's the update to your cash burn expectations with, you know, macro investments? I guess, headwinds you're seeing in the mobile plus a little bit increased OPEX?
Ron Shelton
Yeah, so first of all, you know, I feel super good about the balance sheet. I mean, we have a very clean balance sheet, almost no debt. So we have about $124 million in cash. And again, if you think about what we talked about potentially doubling revenue next year and the margin guide and kind of the OPEX guide, I think you get to a number where It's $12 to $14 million a quarter now, and it'll go down through next year. But again, I think from a cash standpoint, a liquidity standpoint, we have no needs to raise additional capital to fund the business. We have plenty of capital on hand to grow the business. So we feel really good about our position with cash and certainly not having to approach the markets in this environment.
Jonathan Tanwantang
Got it. Is there a plan for that cash, just given the uncertainty that's out there? I know you've talked about M&A in the past. You've done a couple of things. But is it preferable just to hold on to that and probably earn a little bit more interest than maybe anyone thought it would?
Ron Shelton
I mean, I think the first priority is to fund the existing business, right? We think we have great growth opportunities, both in GAN and silicon carbide. So initially, we'll focus resources there. Having said that, we've indicated in the past in Genesic and VDD are examples of being willing to make acquisitions that make sense. And so we would be opportunistic should those situations arise. But again, the priority today is fund the existing business because there are great growth opportunities there and we plan to capitalize on it.
Trevor Yunoski
Great. Thank you.
Ron Shelton
Yep.
Gene
Our next question is a follow-up from the line of Ross Seymour with Deutsche Bank. Please go ahead.
Ross Seymour
Hi, guys. Thanks again for letting me ask a follow-up. Just a high-level one. Lots of moving parts, both in the demand side and, you know, the GAN versus silicon carbide and all those sorts of things. But you guys had a plan of breaking even at some point during calendar year 24. Is that still the plan?
Ron Shelton
Yeah, Ross, so again, I think it's a little challenging to forecast right now. You know, the plan obviously is to drive to break even. I don't want to commit, I mean, you know, ideally it'll be in 24, but I think for me to forecast that right now is probably a little premature given the market conditions. Okay, thank you.
Gene
And I'll now turn the conference back over to Gene Sheridan, CEO, for any closing remarks.
Genesys
Great. Thank you, operator, and thanks to all of you for joining our call. I'll just close with a few comments about the overall outlook going forward. We couldn't be happier with our Genesic acquisition. That integration has gone extremely well. The market response has been fantastic, and together it has us firing on all cylinders across GAN and silicon carbide, expanding our markets into new regions, new applications, and creating a very diversified business. I thank everyone for joining us today and look forward to any follow-on discussions.
Gene
Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.
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