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NAVITAS SEMICONDUCTOR CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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Unless the context otherwise requires, all references in this section to the
"Company," "we," "us, or "our" refer to the business of Navitas and its
subsidiaries. Throughout this section, unless otherwise noted, "Navitas" refers
to Navitas Semiconductor Corporation and its consolidated subsidiaries.

You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and the related
notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion
contains forward-looking statements that reflect our plans, estimates, and
beliefs that involve risks and uncertainties. As a result of many factors, such
as those set forth under the "Summary of Risk Factors" and "Cautionary Statement
About Forward-Looking Statements" sections and elsewhere in this quarterly
report, our actual results may differ materially from those anticipated in these
forward-looking statements.

Overview


Founded in 2013, Navitas is a U.S. based developer of gallium nitride power
integrated circuits that provide superior efficiency, performance, size and
sustainability relative to existing silicon technology. Our solutions offer
faster charging, higher power density and greater energy savings compared to
silicon-based power systems with the same output power. By unlocking this speed
and efficiency, we believe we are leading a revolution in high-frequency,
high-efficiency and high-density power electronics to electrify our world for a
cleaner tomorrow. We maintain operations around the world, including the United
States, Ireland, Germany, Italy, Belgium, China, Taiwan, Thailand and the
Philippines, with principal executive offices in Torrance, California.

We design, develop and market gallium nitride ("GaN") power integrated circuits
("ICs") used in power conversion and charging. Power supplies incorporating our
products may be used in a wide variety of electronics products including mobile
phones, consumer electronics, data centers, solar inverters and electric
vehicles. We utilize a fabless business model, working with third parties to
manufacture, assemble and test our designs. Our fabless model allows us to run
the business today with minimal capital expenditures.

Our go-to-market strategy is based on partnering with leading manufacturers and
suppliers through focused product development, addressing both mainstream and
emerging applications. We consider ourselves to be a pioneer in the GaN market
with a proprietary, proven GaN power IC platform that is shipping in mass
production to tier-1 companies including Samsung, Dell, Lenovo, LG, Xiaomi,
OPPO, Amazon, vivo and Motorola. Most of the products we ship today are used
primarily as components in mobile device chargers. Charger manufacturers we ship
to today are worldwide, supporting major international mobile brands. Other
emerging applications will also be addressed across the world.

In support of our technology leadership, we have formed relationships with
numerous Tier 1 manufacturers and suppliers over the past eight years, gaining
significant traction in mobile and consumer charging applications. Navitas GaN
is now in mass production with 9 of the top 10 mobile OEMs across smartphone and
laptops, and is in development with 10 out of 10. In addition, our supply chain
partners have committed manufacturing capacity in excess of what we consider to
be necessary to support our continued growth and expansion.

A core strength of our business lies in our industry leading IP position in GaN
Power ICs. Navitas invented the first commercial GaN Power ICs. Today, we have
over 165 patents that are issued or pending.

In addition to our comprehensive patent portfolio, our biggest proprietary
advantage is our process design kit (PDK), the 'how-to' guide for Navitas
designers to create new GaN based device and circuits. Our GaN power IC
inventions and intellectual property translate across all of our target markets
from mobile, consumer, EV, enterprise, and renewables. We evaluate various
complementary technologies and look to improve our PDK, in order to keep
introducing newer generations of GaN technology. In 2021 and the nine months
ended September 30, 2022, we spent approximately 103% and 163%, respectively of
our revenue on research and development. Navitas' research and development
activities are located primarily in the US and China. As of September 30, 2022,
we had approximately 138 full-time personnel in our research & development team,
with approximately 55% with advanced degrees (PhD and MS).

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Acquisition of GeneSiC

On August 15, 2022, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") to acquire 100% of the outstanding shares of GeneSiC
Semiconductor Inc. ("GeneSiC") for $146.3 million of equity, $99.3 million of
cash consideration, and potential future earn-out payments of up to an aggregate
of $25.0 million in cash. GeneSiC is a silicon carbide ("SiC") pioneer with deep
expertise in SiC power device design and process, based in Dulles, Virgnia. The
future earn-out payments were fair valued at $0.6 million, for a total merger
consideration of $246.2 million. GeneSiC's net assets and operating results
since the merger date are included in the Company's Condensed Consolidated
Balance Sheet and Condensed Consolidated Statements of Operations as of and for
the three and nine months ended September 30, 2022, respectively.

We recorded a preliminary allocation of the purchase price to tangible and
intangible assets acquired and liabilities assumed based on their fair values as
of the acquisition date. The excess of the purchase price over the fair value of
assets of $157.4 million was recorded as goodwill.

Acquisition of VDDTech


On June 10, 2022, the Company's wholly owned subsidiary, Navitas Semiconductor
Limited, acquired all of the stock of VDDTECH srl, a private Belgian company
("VDDTech"), for approximately $1.9 million in cash and stock. Based in
Mont-saint-Guibert, Belgium, VDDTech creates advanced digital-isolators for
next-generation power conversion. VDDTech's net assets and operating results
since the acquisition date are included in the Company's Condensed Consolidated
Statement of Operations for the three and nine months ended September 30, 2022.

We recorded a preliminary allocation of the purchase price to tangible and
intangible assets acquired and liabilities assumed based on their fair values as
of the acquisition date. The excess of the purchase price over the fair value of
assets of $1.2 million was recorded as goodwill. Subsequent to June 30, 2022 a
preliminary valuation of the intangible assets acquired was calculated at $1.2
million. During the three months ended September 30, 2022, the Company reclassed
the goodwill to an intangible asset.

Business Combination and Reverse Recapitalization


On May 6, 2021, Navitas Semiconductor Limited ("Navitas Ireland"), a private
company limited by shares organized under the Laws of Ireland and domesticated
in the State of Delaware as Navitas Semiconductor Ireland, LLC, ("Navitas
Delaware", and together with Navitas Ireland, "Legacy Navitas") a Delaware
limited liability company, entered into a business combination agreement and
plan of reorganization (the "Business Combination Agreement" or "BCA") with Live
Oak Acquisition Corp. II ("Live Oak"). Pursuant to the BCA, Live Oak acquired
all of the capital stock of Navitas Ireland by means of a tender offer, and a
wholly owned subsidiary of Live Oak merged with and into Navitas Delaware, with
Navitas Delaware surviving the merger. As a result, Legacy Navitas became a
wholly owned subsidiary of Live Oak effective October 19, 2021. At the closing
of the Business Combination, Live Oak changed its name to Navitas Semiconductor
Corporation.

The Business Combination was accounted for as a reverse recapitalization in
accordance with US GAAP. Under the guidance in ASC 805, Live Oak was treated as
the "acquired" company for financial reporting purposes. We were deemed the
accounting predecessor and the post-combination company is the successor SEC
registrant, meaning that our financial statements for previous periods were
disclosed in our annual report Form 10-K filed with the SEC filed on March 31,
2022. The Business Combination had a significant impact on our reported
financial position and results as a consequence of the reverse recapitalization.
The most significant change in our reported financial position and results of
operations was net cash proceeds of $298 from the merger transaction, which
included $173 in gross proceeds from the PIPE financing that was consummated in
conjunction with the Business Combination. The increase in cash was offset by
transaction costs incurred in connection with the Business Combination of
approximately $25. Navitas expects to incur additional annual expenses as a
public company for, among other things, directors' and officers' liability
insurance, director fees and additional internal and external accounting and
legal and administrative resources, including increased audit and legal fees.
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Results of Operations

Revenue

We design, develop and manufacture GaN ICs, SiC MOSFETs and Schottky MPS diodes
that deliver best-in-class performance, ruggedness and quality. Our revenue
represents the sale of semiconductors through specialized distributors to
original equipment manufacturers (“OEMs”), their suppliers and other end
customers.

Our revenues fluctuate in response to a combination of factors, including the
following:

•our overall product mix and sales volumes;

•gains and losses in market share and design win traction;

•pace at which technology is adopted in our end markets;

•the stage of our products in their respective life cycles;

•the effects of competition and competitive pricing strategies;

•availability of specialized field application engineering resources supporting
demand creation and end customer adoption of new products;

•achieving acceptable yields and obtaining adequate production capacity from our
wafer foundries and assembly and test subcontractors;

•market acceptance of our end customers’ products; governmental regulations
influencing our markets; and

•the global and regional economic cycles.


Our product revenue is recognized when the customer obtains control of the
product and the timing of recognition is based on the contractual shipping terms
of a contract. We provide a non-conformity warranty which is not sold separately
and does not represent a separate performance obligation. The vast majority of
our product revenue originates from sales shipped to customer locations in Asia.

Cost of Goods Sold


Cost of goods sold consists primarily of the cost of semiconductors purchased
from subcontractors, including wafer fabrication, assembly, testing and
packaging, manufacturing support costs, including labor and overhead (which
includes depreciation and amortization) associated with such purchases, final
test and wafer level yield fallout, inventory reserves, consumables, system and
shipping costs. Cost of goods sold also includes compensation related to
personnel associated with manufacturing.

Research and Development Expense


Costs related to research, design, and development of our products are expensed
as incurred. Research and development expense consists primarily
of pre-production costs related to the design and development of our products
and technologies, including costs related to cash and share-based employee
compensation, benefits and related costs of sustaining our engineering teams,
project material costs, third party fees paid to consultants, prototype
development expenses, and other costs incurred in the product design and
development process.

Selling, General and Administrative Expense


Selling, general and administrative costs include employee compensation,
including cash and share-based compensation and benefits for executive, finance,
business operations, sales, field application engineers and other administrative
personnel. In addition, it includes marketing and advertising, IT, outside
legal, tax and accounting services, insurance, and occupancy costs and related
overhead based on headcount. Selling, general and administrative costs are
expensed as incurred.

Interest Expense

Interest expense primarily consists of interest under our term loan facility.

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Income Taxes

Legacy Navitas is a dual domesticated corporation for Ireland and U.S. federal
income tax purposes. Refer to Note 14, Provision for Income Taxes, in our
accompanying condensed consolidated financial statements elsewhere in this
quarterly report.

Results of Operations Three Months September 30, 2022 and 2021

The table and discussion below present our results for the three months ended
September 30, 2022 and 2021 (in thousands):

                                                       Three Months Ended                 Change                Change
                                                         September 30,                      $                     %
                                                    2022                2021
Revenue                                         $   10,243          $   5,631          $   4,612                       82  %
Cost of goods sold                                   9,852              3,032              6,820                      225  %
Gross profit                                           391              2,599             (2,208)                     (85) %
Operating expenses:
Research and development                            13,343              5,804              7,539                      130  %
Selling, general and administrative                 24,477              3,550             20,927                      589  %
Total operating expenses                            37,820              9,354             28,466                      304  %
Loss from operations                               (37,429)            (6,755)           (30,674)                     454  %
Other income (expense), net:
Interest income (expense), net                         638                (75)               713                     (951) %
Loss from change in fair value of earnout
liabilities                                         (6,098)                 -             (6,098)                       -  %
Other income (expense)                                 (74)                 -                (74)                       -  %
Total other income (expense), net                   (5,534)               (75)            (5,459)                    7279  %
Income (loss) before income taxes                  (42,963)            (6,830)           (36,133)                     529  %
Income tax (benefit) provision                     (10,135)                13            (10,148)                  (78062) %
Net income (loss)                                  (32,828)            (6,843)           (25,985)                     380  %
Less: Net income (loss) attributable to
noncontrolling interests                              (238)                 -               (238)                       -  %
Net income (loss) attributable to
controlling interests                           $  (32,590)         $  (6,843)         $ (25,747)                     376  %



Three Months Ended September 30, 2022 Compared to the Three Months Ended
September 30, 2021

Revenue


Revenue for the three months ended September 30, 2022 was $10.2 million compared
to $5.6 million for the three months ended September 30, 2021, an increase of
$4.6 million, or 82%. The increase reflects a combination of the Company's
customer growth trajectory, evolving from aftermarket customers to higher volume
customers, and the accretive acquisition of GeneSiC. Total sales volumes
increased 19%, from 6.0 million to 7.1 million units shipped, while the average
selling price increased 53% to $1.43 per unit.

Cost of Goods Sold


Cost of goods sold for the three months ended September 30, 2022 was $9.9
million compared to $3.0 million for the three months ended September 30, 2021,
an increase of $6.8 million or 225%. The increase was primarily driven by
significant revenue growth, acquisition of GeneSiC, which includes $0.5 million
for step up in inventory valuation that was
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expensed during the quarter, and inventory reserves of $2.8 million, in addition
to TSMC's 20% wafer price increase which created a higher cost of goods sold.

Research and Development Expense


Research and development expense for the three months ended September 30, 2022
of $13.3 million increased by $7.5 million, or 130%, when compared to the three
months ended September 30, 2021, driven by increases in stock based
compensation, resulting in $5.2 million higher compensation costs, along with an
increase of $1.9 million compensation costs related to growth in headcount as
the Company develops products in Solar, Enterprise and EV and through its
acquisition of GeneSiC. We expect research and development expense to continue
to increase as we grow our headcount to support our expansion into new
applications.

Selling, General and Administrative Expense


Selling, general and administrative expense for the three months ended
September 30, 2022 of $24.5 million increased by $20.9 million, or 589%, when
compared to the three months ended September 30, 2021, driven by increases in
stock based compensation, resulting in $10.4 million higher compensation costs,
along with an increase of $1.4 million increase in compensation costs related to
growth in headcount. In addition, the Company incurred $7.7 million of
transaction expenses and amortization of intangibles related to the acquisition
of GeneSiC and a $1.1 million increase in other costs of growing the business.
We expect selling, general and administrative costs to increase to support our
growth and as a result of the increased costs for infrastructure required as a
public company.

Other Income (Expense), net

Net interest income for the three months ended September 30, 2022 was $638
compared to $75 net interest expense for the three months ended September 30,
2021
, primarily due to the higher interest rate received on money markets funds.


During the three months ended September 30, 2022, we recognized $6.1 million
loss from the change in fair value of our earn-out liabilities. Subsequent to
the recognition of the earnout liability upon the consummation of the Business
Combination on October 19, 2021, we remeasure the fair value of this liability
at each reporting date. The increase in fair value of our earn-out liability of
$6.1 million was primarily a result of the increase of the closing price of our
Class A common stock listed on the Nasdaq, resulting in the increased in the
estimated fair value of the earnout shares from $1.89 as of June 30, 2022 to
$2.61 as of September 30, 2022.

Other expense primarily reflects our minority interest in the net loss of a
joint venture through August 18, 2022..

Income Tax (Benefit) Provision


Income tax benefit for the three months September 30, 2022 increased by $10,148
when compared to the three months September 30, 2021. As a result of the GeneSiC
Semiconductor Inc. acquisition, (see Note 17, Business Combinations), the
Company released $9.9 million of U.S. valuation allowance during the three
months ended September 30, 2022. The release was attributable to a preliminary
estimate of $23.2 million of net deferred tax liabilities recorded on GeneSiC's
opening balance sheets that offset other U.S. net deferred tax assets.We expect
our tax rate to remain close to zero in the near term due to full valuation
allowances against deferred tax assets.

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Results of Operations Nine Months September 30, 2022 and 2021

The table and discussion below present our results for the nine months ended
September 30, 2022 and 2021 (in thousands):

                                                       Nine Months Ended                 Change                Change
                                                         September 30,                     $                     %
                                                    2022               2021
Revenue                                         $  25,594          $  16,398          $   9,196                       56  %
Cost of goods sold                                 18,655              8,962              9,693                      108  %
Gross profit                                        6,939              7,436               (497)                      (7) %
Operating expenses:
Research and development                           36,362             16,325             20,037                      123  %
Selling, general and administrative                63,014             23,713             39,301                      166  %
Total operating expenses                           99,376             40,038             59,338                      148  %
Loss from operations                              (92,437)           (32,602)           (59,835)                     184  %
Other income (expense), net:
Interest income (expense), net                        666               (199)               865                     (435) %
Gain (loss) from change in fair value of
warrants                                           51,763                  -             51,763                        -  %
Gain (loss) from change in fair value of
earnout liabilities                               112,162                  -            112,162                        -  %
Other income (expense)                             (1,215)                 -             (1,215)                       -  %
Total other income (expense), net                 163,376               (199)           163,575                   (82198) %
Income (loss) before income taxes                  70,939            (32,801)           103,740                     (316) %
Income tax (benefit) provision                     (9,862)                37             (9,899)                  (26754) %
Net income (loss)                                  80,801            (32,838)           113,639                     (346) %
Less: Net income (loss) attributable to
noncontrolling interests                             (238)                 -               (238)                       -  %
Net income (loss) attributable to
controlling interests                           $  81,039          $ (32,838)         $ 113,877                     (347) %


Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September
30, 2021


Revenue

Revenue for the nine months ended September 30, 2022 was $25.6 million compared
to $16.4 million for the nine months ended September 30, 2021, an increase of
$9.2 million, or 56%. The significant increase primarily reflected the Company's
customer growth trajectory, evolving from aftermarket customers to higher volume
customers and the accretive acquisition of GeneSiC. Total sales volumes
increasing 26%, from 17.5 million to 22.0 million units shipped, while the
average selling price increased 24.2% to $1.16 per unit.

Cost of Goods Sold


Cost of goods sold for the nine months ended September 30, 2022 was $18.7
million compared to $9.0 million for the nine months ended September 30, 2021,
an increase of $9.7 million or 108%. The increase was primarily driven by
significant revenue growth, acquisition of GeneSiC, which includes $0.5 million
for step up in inventory valuation that was expensed during the quarter, and
inventory reserves of $2.8 million, in addition to TSMC's 20% wafer price
increase which created a higher cost of goods sold.
.

Research and Development Expense


Research and development expense for the nine months ended September 30, 2022 of
$36.4 million increased by $20.0 million, or 123%, when compared to the nine
months ended September 30, 2021, primarily driven by increases in
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stock based compensation, resulting in $14.0 million higher compensation costs,
along with an increase of $1.1 million in non-compensation costs related to new
applications and reliability expenses devoted to next generation product
development and $4.9 million in compensation costs related to growth in
headcount as the Company develops products in Solar, Enterprise and EV. We
expect research and development expense to continue to increase as we grow our
headcount to support our expansion into new applications.

Selling, General and Administrative Expense


Selling, general and administrative expense for the nine months ended
September 30, 2022 of $63.0 million increased by $39.3 million, or 166%, when
compared to the nine months ended September 30, 2021. The increase is primarily
due to a $23.5 million increase in stock-based compensation, and a $3.5 million
increase in compensation costs related to growth in headcount. In addition, the
Company incurred $7.7 million of transaction expenses and amortization related
to the acquisition of GeneSiC and a $3.4 million increase in other costs of
growing the business.. We expect selling, general and administrative costs to
increase to support our growth and as a result of the increased costs for
infrastructure required as a public company.

Other Income (Expense), net

Net interest income for the nine months ended September 30, 2022 was $666
thousand
compared to $(199) thousand net interest expense for the nine months
ended September 30, 2021, increased by 435%, primarily due to the higher
interest rate received on cash equivalents.


During the nine months ended September 30, 2022, we recognized $51.8 million
gain from the change in fair value of our warrant liabilities, $112.2 million
decrease in fair value of our earn out liabilities and $(1.2) million loss from
an equity method investment, as follows:

i) Warrants: The change in fair value of our warrant liability is due to the
Company issuing a notice of redemption on February 4, 2022 and the Company
revaluing the liability just before the exercise and redemptions which resulted
in a valuation change of $51.8 million.

ii) Earnout liability: Subsequent to the recognition of the earnout liability
upon the consummation of the Business Combination on October 19, 2021, we
remeasure the fair value of this liability at each reporting date. The decrease
in fair value of our earn-out liability of $111.6 million was primarily a result
of the increase of the closing price of our Class A common stock listed on the
Nasdaq, resulting in the decline in the estimated fair value of the earnout
shares from $16.09 as of December 31, 2021 to $2.61 as of September 30, 2022.

iii) Other expense primarily reflects our minority interest in the net loss of a
joint venture through August 18, 2022..

Income Tax Benefit (Provision)


Income tax benefit for the nine months ended September 30, 2022 increased by
$9,899 when compared to the nine months ended September 30, 2021. As a result of
the GeneSiC Semiconductor Inc. acquisition, (see Note 17, Business
Combinations), the Company released $9.9 million of U.S. valuation allowance
during the three months ended September 30, 2022. The release was attributable
to a preliminary estimate of $23.2 million of net deferred tax liabilities
recorded on GeneSiC's opening balance sheets that offset other U.S. net deferred
tax assets. We expect our tax rate to remain close to zero in the near term due
to full valuation allowances against deferred tax assets.

Liquidity and Capital Resources


Our primary use of cash is to fund operating expenses, which consist primarily
of research and development expenditures, working capital requirements related
to inventory, accounts payable and accounts receivable, and selling, general and
administrative expenditures. In addition, we use cash to fund our debt service
obligations, and purchases of capital and software assets.

We expect to continue to incur net operating losses and negative cash flows from
operations and we expect our research and development expenses, general and
administrative expenses and capital expenditures will continue to increase.

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We expect our expenses and capital requirements to increase in connection with
our ongoing initiatives to expand our operations, product offerings and end
customer base.


Prior to the Business Combination, we derived our liquidity and capital
resources primarily from the issuance and sale of convertible preferred stock.
The term loan principal balance is payable in monthly installments beginning in
September 2021.

As September 30, 2022, we had cash and cash equivalents of $124.8 million. We
currently use cash to fund operations, meet working capital requirements, for
capital expenditures and strategic investments. Post-Business Combination, the
Company has additional access to capital resources through public market
transactions and the historical focus on near-term working capital and liquidity
has shifted to more strategic and forward-looking capital optimization plans. We
believe that the influx of capital from the Business Combination is sufficient
to finance our operations, working capital requirements and capital expenditures
for the foreseeable future.

We expect our operating and capital expenditures to increase as we increase
headcount, expand our operations and grow our end customer base. If additional
funds are required to support our working capital requirements, acquisitions or
other purposes, we may seek to raise funds through additional debt financing or
from other sources. If we raise additional funds through the issuance of equity,
the percentage ownership of our equity holders could be significantly diluted,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing equity holders. If we raise additional funds by
obtaining loans from third parties, the terms of those financing arrangements
may include negative covenants or other restrictions on our business that could
impair our operating flexibility and would also require us to incur interest
expense. We can provide no assurance that additional financing will be available
at all or, if available, that we would be able to obtain additional financing on
terms favorable to us.
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