Welcome to Navitas Semiconductor Third Quarter 2021 Quarterly Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker, Stephen Oliver.

Thank you. Good afternoon. I'm Stephen Oliver, Navitas Vice President of Corporate Marketing and Investor Relations. Thank you for joining Navitas Semiconductor's Third Quarter 2021 Results Conference Call, our first as NVTS, a public company. I'm joined today by Gene Sheridan, our Chairman, President and CEO; and Todd Glickman, our CFO. This call is being webcast on the Investor Relations section of our website at navitassemi.com/ir. A replay of this webcast, along with our 2021 third quarter earnings release, will be available on our website approximately 1 hour following this call, and the recorded webcast will be available for approximately 30 days following this call. Additional information related to our business is also posted on the Investor Relations section of our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures are included in our earnings release, which is posted separately on our website in the Investor Relations section. In this conference call, we will also make forward-looking statements about future events or about the future financial performance of Navitas. You can identify those statements by words like we expect or we believe or similar terms. We wish to caution you that such forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from expectations expressed in our forward-looking statements. Important factors that can affect Navitas business, including factors that could cause actual results to differ from our forward-looking statements, are described in our earnings release. Please also refer to the risk factors affecting Navitas discussed in SEC filings that were made in connection with our recently completed business combination with Live Oak Acquisition Corp. II, including the proxy statement or prospectus filed with the SEC by Live Oak on September 20, 2021. Our estimates or other forward-looking statements may change, and Navitas assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law. Now I would like to welcome Gene Sheridan, Navitas Co-Founder and CEO, to begin the main section.

Thank you, Steve. After our IPO celebration and ringing the Nasdaq opening bell, this is our first earnings call as a public company. We'll share our third quarter and year-to-date 2021 results as well as describe the fundamental opportunity and unique differentiation Navitas possesses with our GaN power IC technology. In Q3, our total revenue grew 61% year-over-year to $5.6 million and 128% on a year-to-date basis. Demand was solid in the mobile charging market with continued and growing business from Dell, LG, Amazon, OPPO, Xiaomi, Lenovo and dozens of other customers and received over 90% of the top smartphone and laptop customers designing their next-generation fast chargers with our GaN power IC. We are pleased with our growth trajectory and believe we will continue to double our revenues annually. Our customers were targeting even faster growth in GaN chargers but were limited in Q3 by industry-wide silicon supply constraints. In Q3, we saw our customers launch 24 new GaN chargers, which includes major launches from the top mobile and aftermarket players. Last week, we announced our third-generation GaN power ICs, which integrates new GaNSense technology and is already being adopted in major customer launches. And we are making good progress on our plans to expand into data center, solar and EV markets. Leading customers like Enphase Energy, Brusa and Compuware provided strong endorsements of our GaN power ICs and our excellent early adopter partners to Navitas. We are on track to sample these new higher-power GaN ICs this quarter to these and other top-tier customers in each of those target markets, which represent multibillion-dollar market additions to the $4 billion opportunity we've already identified in mobile and consumer. Before I go into further details on the significant Q3 business highlights, I want to share a brief introduction on the…

Thanks, Gene, and thanks to everyone for joining us today on our first public earnings call. Let me take you through our third quarter numbers and guidance for Q4. Revenue grew to $5.6 million, representing a 61% increase over the prior year's third quarter. Mobile demand remained strong. However, our customers were targeting over 1 million of additional demand in Q3, which they couldn't achieve due to non-GaN-related supply constraints. GAAP and non-GAAP gross margin was 46% in the third quarter, up from 38% in the same quarter of the prior year. We've been running about 4% to 6% on a non-GAAP basis during 2021, which is consistent with our strategy of delivering healthy margins and passing along cost reductions to our consumers during our high-growth early years and targeting a 55% gross margin long term. With regard to expenses, we have expanded our sales and marketing teams to support new markets in data center, solar and EV while also expanding regionally into Europe. As such, our non-GAAP SG&A expense was $3.4 million in Q3, which is up from $2.2 million in the third quarter of 2020. Non-GAAP R&D expense was $5.7 million in the third quarter of 2021 compared to $2.9 million last year as we are developing multiple new generations of GaN ICs while also expanding our road map to include GaN ICs for data center, solar and EV. Putting all this together, non-GAAP net loss from operations was $6.5 million compared to a net loss of $3.7 million in the third quarter of 2020. Turning to the balance sheet. We ended the quarter with $11.1 million of cash on the balance sheet and inventory of $11.7 million compared to $2.2 million a year ago as we put in place significant inventories to prepare for customers' aggressive growth…

[Operator Instructions] Our first question is from Ross Seymore with Deutsche Bank.

Gene, thanks for walking through all those long-term drivers. I'm going to focus a little more on the nearer term with my question though. Todd, you talked about some of the non-GaN-related supply issues. Can you go into a little bit more detail on that? Is -- we've heard from other folks that there's a little bit of excess inventory, so too much supply, not too little on the charger side of things, but it seems like you're pointing to the opposite of that. And in the duration that you talked about lasting for another few quarters, could you explain a little bit on that as well?

Sure, Ross. I can handle that. Thanks for your question. This is Gene. I think there's a lot of components used inside of GaN charger besides the GaN chip, of course. I'd say the primary shortages have been with the silicon controllers. There's actually multiple silicon controllers used on the primary side; on the secondary side, the PD controller. So that's where most of the limitations have been, although we see even nonsilicon, nonsemiconductor challenges popping up from time to time. With all of that said, I think our customers are making really good progress to approve new sources of supply. So they have many options to make sure they can satisfy the need for those non-GaN chips and free up some of these constraints, but it's still our best guess and our customers' feedback to us that it's probably 2 or 3 quarters of constraints, which we factored into the guidance that Todd described.

Great. And I guess you mentioned -- I think Todd said 1 million units that they had demand for that they couldn't ship for the size and the duration side of things. Was that correct? Did I hear that, Todd, correctly? And the duration before this is fixed? Is this something that's another quarter or 2 quarters? What's your best guess on that front?

Yes, that is correct. It was 1 million units. Duration, we expect to sort of -- to come back on track and going forward to all of our forecasts.

Our next question comes from Tristan Gerra with Baird.

You talked notably during your Analyst Day that you expect price breakeven with silicon a couple of years from now. But clearly, adoption is in the waiting for that price breakeven. So clearly, your customers are realizing the benefits. Is this like silicon carbide where the adoption rate in automotive is happening because of the gain in performance despite the price premium? Or do you expect a further inflection point once you reach price parity because it's just going to accelerate demand? If you could just give us a sense of how many people are waiting just for price parity versus just using your technology for the advantages that it offers.

Yes. Great question, Tristan. And I would say certainly in the mobile market, the value is clearly high. And so even with a modest premium as we have today, we see a lot of growth in adoption. I'd say that's all of the premium market and a large percentage of the mainstream, you might call mainstream market. But I think as you get into the low end of mainstream and the really low end of the markets, they're going to be more price sensitive. At least from our view, to be confident that we get the full transition from silicon to GaN that we expect, that cost transition is important. I'd also say it's more important in the nonmobile consumer. In that case, of course, you're not carrying around the power supply. You're not charging a battery. So the value point is going to be a little tougher. It's going to be a little bit more price sensitive. For that reason, we've been pretty conservative in our outlook for nonmobile consumer, but there's a lot of untapped potential there as we cut that GaN premium down lower and even match silicon and go below silicon in the next 2 years, as you described.

And then for my follow-up question. So you talked about gross margin, basically some impact related to the shortages. Then it sounds like it might continue in the first half of next year and then expansion into the second half, notably with next-gen products. So should we be looking at -- I know you're not guiding beyond this quarter, but should we be looking at gross margin stabilizing in the range of that 44% to 46% that you've been showing this year into the next few quarters and then maybe a little bit of an inflection point after that?

Yes. Good question, Tristan. We do expect it to have more information for you after Q4 earnings, but we're currently projecting a flat to slightly better margin year-over-year as the margin expansion from the new generation of GaN ICs will be partially offset by the increase in supply chain cost. But our goal continues to be to drive the GaN premium from silicon to 0 in the next 2 to 3 years and achieve a long-term margin of 55%, and we're on track for that.

Our next question comes from Richard Shannon with Craig-Hallum.

Congratulations on a nice start to your public life here. Maybe a couple of tactical questions before I get into 1 or 2 more fundamental longer-term ones here. In terms of your guidance here for the fourth quarter, you've got a meaningful uptick in -- measured in quarter-on-quarter growth here for the last few quarters. Is this driven by seasonality or these new wins or other factors? You just mentioned in the last couple of questions about supply probably not really easing to help you there. So maybe if you can give a sense of what's driving this increased sequential growth here for the fourth quarter.

Sure. Yes. Richard, thanks for your question. And yes, it's driven really by both seasonality. I think we'll always expect, as we saw last year, the second half of the year will tend to be bigger, in particular, in Q4, than the first half. We'll see that pattern again this year and likely next year. But there are -- and that's, of course, because of specific launches that tend to be holiday based in the mobile and consumer space, in particular, as we highlighted many new products, 24 new products launched in Q3. Of course, there's many more coming in Q4, but even the Q3 launch has helped to really drive a lot of the Q4 revenue. Those Anker products we talked about, the Baseus products, especially the Xiaomi ultrafast charger really leading an all-new category in that space. And as I said, there's many more coming that we can't announce but would cover in the Q4 earnings release.

Okay. Great. That is helpful. Another quick question on the financials here on OpEx. You've kind of guided to fourth quarter non-GAAP OpEx of $10 million here, obviously adding some staff here, and maybe that's continuing. How do we think about this as this trends into the first part of next year?

Yes. Great question. As we continue to grow and move into new markets, we expect to grow OpEx both on the R&D side and the SG&A. Long term, we expect OpEx to represent around 30% of revenue, and that's our long-term business model.

If I could add, I think you can also expect -- as you implied, we're in investment mode, and so there's OpEx growth that goes with that. But the OpEx growth will likely be slower than the revenue growth, leading towards that business model, as Todd described it.

Okay. That's fair enough. Gene, a question for you. You had a nice announcement here recently with Xiaomi, and then you just talked about Anker today in your prepared remarks. Maybe you can talk about the kind of the change in partnership models you have with those 2. And then if you can combine it with one of your comments on the call here about 90% of all OEM and aftermarket laptop and phone charger players are using Navitas. Does this imply any sort of entirely or mostly exclusive relationships with one or more of your customers out there?

Yes. So to give you a little bit more color as you started the question with Anker, we've done business with both. Actually, Anker and Xiaomi, of course, have been long-time partners and actually both long-time investors in our company. So the relationship goes back multiple years. With Anker in particular, we've taken it to the next level with the strategic partnership agreement, as I explained, with dedicated resources, dedicated labs and a much faster and bigger focus on really pushing the leading edge of next-generation fast chargers. Our Xiaomi relationship isn't too different in that it's extremely close, long-standing relationship. And there's a lot of co-development that goes into those next-generation chargers. As you know, we do a lot more than offer the GaN IC but actually offer a lot of system value and assistance in creating those next-generation chargers. With that said, we see them both being pretty significant going forward in our revenue into next year. Was there a second part to that question?

No, I think you -- well, I guess any sense of exclusivity with any of these customers you mentioned or other ones that's coming more in your direction, I guess.

Not a formal exclusive arrangement. But as you know, there's nobody that is directly second sourcing our GaN IC. All other competitors are using discrete-based GaN implementations. So by definition, as they design in our GaN ICs, it's most commonly sole sourced or exclusive business. It is possible in some cases to create dual sourcing by 2 different system designs. And sometimes that could be a smart strategy to help give the customer a multi-source strategy if they really need it for very high-volume programs.

Okay. That's helpful. My last question, and I'll jump out of line here, is on GaNSense. I guess a quick question here is -- I think you've explained the kind of added functionality here at a high level. It was at the level that I can understand here. But maybe you can kind of break it down to financials here. Can you give us a sense of how much this is an add or 2 to ASP and how much this improves, if anything, on system costs or other system characteristics?

Yes. Yes, definitely. So fundamentally, you can kind of look at the higher level of integration into 2 buckets. They're driving-related circuits, which we already had integrated. These are all the analog circuits related to drive, can be things like drive-level shift to bootstrap and others. But now we've added a whole another second layer of sensing. The sensing means real-time, accurate dynamic measurement of things like voltage, current and temperature. And with that information, sensed right on the GaN chip, we can immediately react to any dangerous condition to prevent any damage to the GaN chip or the system around it. But we can also do real-time performance optimization, actually do something called lossless current sensing, a feature we didn't highlight, but it's very fundamental to this new sensing technology. So to your earlier question, lossless current sensing actually boosts efficiency and saves costs at the same time. So this actually GaNSense does not result in an increased price because all of these added benefits are going to the customer actually at a lower GaN cost and system cost than the prior generation. So it's quite a great deal for the customer to continue down the cost reduction path, continue down the energy-saving improvement path and get significant protection and reliability circuits virtually for free for the customer. So I think that's a good summary of what that's doing for the customer, what it means for price and cost points to the customer.

Our next question comes from Quinn Bolton with Needham.

Gene, I guess I wanted to come back to your prepared script. I think earlier in your script, you talked about the ability to double revenues over, I think, sort of multiyear period. Just wanted to make sure I heard you correctly, understanding that it's probably not formal guidance, but just wanted to make sure I understand your kind of longer-term framework. And then a second question. Given the shortages on the controller side, is the company contemplating potentially going out and making acquisitions or perhaps forming partnerships with certain controller companies to try to alleviate some of those constraints that are affecting the demand for your products at this point?

Yes. Great questions. Thank you. Yes. On your latter question, we do -- obviously, the IPO has created a lot of excess capital, you might say, or dry powder, whether that means strategic internal investments or external ones or M&A. That creates a lot of possibility for us. But with that said, we're seeing a huge appetite and interest from many silicon controller companies to make GaN-specific or GaN-compatible controllers given the huge volume that's coming and the shortage that they want to fill quickly. So we think short term, there's plenty of options coming to the table to our customers to solve those gaps. But long term, there are some pretty interesting strategic things we can do headed towards our own mission of being a next-generation power semiconductor company, and that could go beyond GaN, as you implied.

Great. And then just a clarification on that comment in the script about kind of your longer-term growth opportunity.

Yes, you did hear it right. That is our estimate right now, and that's factoring in some of the constraints that are at least likely to exist going into next year. But even with those constraints, our best estimate is a minimum of doubling going forward.

Great. And then for Todd, I just wanted to clarify the gross margin outlook, understanding you're not giving guidance into 2022. But I think you made a comment that you saw gross margins flat to increasing on a year-over-year basis. And so I just want to make sure. If I look back at the model, it looks like you were sort of in the 46.5% range for the first half of 2021. Are you sort of implying you think it's back above that 46.5% level in the first half of 2022? Or did I mishear you?

So when sort of looking at next year, we're looking at to be flat on the full year of 2021. And as you're noticing in '21 is the second half is slightly lower than the first half. Now this is driven by Tier 1 customers ramping up in the second half versus aftermarket, more in the first half of the year. And so those are the main drivers. But we do expect it to be sort of flat and with slightly better margins year-over-year going forward.

Our next question comes from Kevin Garrigan with Rosenblatt Securities.

Congrats on the quarter and on the IPO. I just had 2 questions. The first on the product side. Can you kind of give us a sense of the expected life cycle for a smartphone power supply? Can it kind of be used over multiple generations? Or does the design need to be won with every kind of new iPhone or a new phone model?

Sure, Kevin. Good to hear from you. Yes, I'd say the life cycles are typically running 1 to 2 years on average. It can be a little less. It can be up to 3 years. That life cycle doesn't mean it's a completely new design. Oftentimes, there are refreshes, reusing a lot of the same architecture technology. Of course, GaN has created a disruption this market is not used to. So we're seeing major redesigns when you go from silicon to GaN. But once we get that first GaN design, there's, of course, a really good strong likelihood and a pattern that we see of a reuse to proliferate that either in the refresh of that model or, of course, into many new models.

Okay. Got it. That's very helpful. And then just as a follow-up, are you guys directly supporting and selling to your customers? Or are you working kind of more through the distribution channels?

Yes. Great question, actually. And distribution globally is actually pretty important, primarily as a fulfillment partner. Customers still expect logistics and inventory support for those customers around the world, but our product is very much a technical sell. And it's not just at the GaN level but at the system level. We're very hands-on to offer system design, support of the entire GaN charger. For some customers, that might mean we do the whole thing for them and others, and very often, it's a co-development approach. So it's very much a direct relationship with the end OEM or the brand name that you might know as well as their selected partners, which are often called ODMs. With that all said, we continue to build out a stronger and stronger ecosystem. So our distributors are actually investing in more applications engineers, anxious to learn this new technology, become more value-added, and that can actually be very important as we're seeing a long tail of GaN customers extending up into Tier 2, Tier 3 smaller customers and also a wider range of applications. So having a bigger network of distributors as well as ODMs that are familiar with how to do the GaN-based system design is very valuable for us, for the industry and makes our business very scalable as we grow.

All right. Our last question is from Natalia Winkler with Jefferies.

The question I had was on the automotive opportunity for you guys. Appreciate that the types of customers are a little bit different and the sales funnel is probably a little bit different from the fast charging market. So I'm just curious, how do you guys see your competition in that space? And specifically, how do you view the certification process for your devices, if that is something that plays into the time line of the adoption as well?

Yes. Thanks, Natalia, for the question. As you alluded to, the development cycles are longer. The emphasis on reliability and certification testing is even more critical. From our view, that really plays into our strength. We've actually overdesigned our GaN technology for the mobile market, which obviously is sort of 1-, 2-, 3-year life. And that's reflected in the fact that we've shipped 30 million units without a single GaN-related reported failure. I mean that was designed that way, anticipating the higher reliability markets that we're now moving into. GaNSense, the new generation we've just announced, only adds to that strength with even more built-in protection, reliability, all of which is going to help us to pass any certification tests and automotive-specific tests that our customers might want to perform over time. And as we mentioned in the prepared remarks, some customers like Brusa had even said, silicon carbide and silicon can't meet their needs for the future. GaN is the answer in terms of pushing cost, performance and reliability. So it puts us in a good position to get through any of these certification tests and drive that adoption over the next few years.

And I'm not showing any further questions in the queue. I will pass it back to management for any final remarks.

Thank you, operator, and thanks to everybody for joining our first public company earnings announcement. It's an exciting time for the company. And we want to wish you -- to all, go GaN fast and electrify our world with us. Thank you for attending.

And with that, ladies and gentlemen, we thank you for participating. You may now disconnect.