TIDMAWE

RNS Number : 0611A

Alphawave IP Group PLC

21 September 2022

ALPHAWAVE IP GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2022

   --    Technology leadership and product portfolio underpin broader customer base 
   --    Revenue doubled year-on-year to US$57.1m 
   --    H1 2022 operating profit of US$29.9m compared to restated H1 2021 US$1.3m 
   --    Adjusted EBITDA 1 up 67% year-on-year to US$23.2m 

-- Adjusted EBITDA 1 margin at 41%, below H1 2021, as we continue to expand our R&D capability to support a growing pipeline and future revenue growth

   --    EBITDA significantly above H1 2021 at US$32.7m 

-- Significant revenue growth expected in H2 2022, with medium-term outlook unchanged and continued confidence in growth prospects

LONDON, United Kingdom and TORONTO, Ontario, Canada 21 September 2022 - Alphawave IP Group plc (LSE: AWE, "Alphawave IP", "Alphawave", the "Company"), a global leader in high-speed connectivity for the world's technology infrastructure, has published its interim results for the six months ended 30 June 2022.

 
 Financial Summary and APMs [1]           H1 2022       Restated   Change 
  - US$m                                             H1 2021 [2] 
=======================================  ========  =============  ======= 
 Revenue                                     57.1           27.6     107% 
 EBITDA (2)                                  32.7            2.6       nm 
 EBITDA margin                                57%             9% 
 Adjusted EBITDA (1)                         23.2           13.9      67% 
 Adjusted EBITDA margin                       41%            50% 
 Profit after Tax (2)                        16.3            0.1       nm 
 PAT margin                                  28 %             nm 
 Adjusted Profit after Tax(1)                 6.7           11.4    (41%) 
 Adjusted PAT margin                          12%            41% 
 Pre-tax operating cash flow (2)             32.2            4.7     578% 
 Net cash and cash equivalents 
  (end of period)                           451.8          519.1    (13%) 
 
 Bookings [3] and Design Win              H1 2022        H1 2021   Change 
  Activity - US$m 
=======================================  ========  =============  ======= 
 Licence and related                         38.5           33.0      17% 
 Potential future royalties                  14.9           15.2     (2%) 
 New Bookings (excluding VeriSilicon 
  and WiseWave multi-year subscription 
  licences)                                  53.4           48.3      11% 
 Additional design win activity              14.7              -       nm 
  - FSA drawdowns and China re-sale 
  licences [4] 
 WiseWave and VeriSilicon multi-year            -          147.8       nm 
  subscription licences 
 Number of end-customers (end 
  of period)                                   28             16 
 

Due to rounding, numbers presented in the table may not add up to the totals provided and percentages may not precisely reflect the absolutely figures. 'nm', where referenced, means 'not meaningful'.

Tony Pialis, President and Chief Executive Officer of Alphawave IP said: "We delivered another set of strong results, doubling our revenue over H1 2021 while continuing to invest both organically, through R&D, as well as through M&A to support our growing pipeline and future revenue growth. The strong results are a testament to our technology and the solid execution by our talented people. Following the closing of the acquisition of OpenFive on 1 September 2022, we welcomed over 330 employees to Alphawave and over 50 new customers. We expect customer traction to gain momentum in the second half of the year and we are excited about the long-term prospects for growth."

John Lofton Holt, Executive Chairman of Alphawave IP, added: "Alongside this strong set of results, the completion of OpenFive represents an important milestone in the evolution of our business. Through an uncertain economic environment our customers in digital infrastructure markets continue to invest in leading connectivity technology, and this is the reason we are excited about the long-term potential of the business."

Interim Results Highlights

-- H1 2022 revenues of US$57.1m, representing 107% growth year-on-year driven by mix of repeat business and new customers

-- WiseWave revenues of US$18.3m (excluding re-seller revenue [5] ), of which US$12.9m relate to the multi-year subscription licence

-- Adjusted EBITDA 1 of US$23.2m and margin of 41% (H1 2021 US$13.9m and 50%), reflecting accelerated investment in R&D

-- US$19.3m exchange gain due to the weakening of GBP against USD on USD cash balances held at Alphawave IP Group plc level denominated in GBP

-- Net cash generated from operating activities in H1 2022 was US$18.8m, US$17.2m higher than in H1 2021 (H1 2021 restated: US$1.6m)

Business and Technology Highlights

   --    Alphawave IP maintained its technology leadership with a new design win in 3nm 

-- The Company added to its product portfolio two new interconnect IPs, AresCORE16 and OptiCORE100

-- During H1 2022, the Company expanded its customer base to 28 (FY 2021: 20 customers; H1 2021: 16 customers), including two top 20 North American semiconductor companies

-- Microchip Technology selected Alphawave's low-power and high-performance 112Gbps IP, AlphaCore100, for its next-generation META-DX2 1.6Tbps Ethernet retimer family

-- Cumulative bookings over the life of the Company since its inception in 2017, exceeded US$400m, of which over 50% represents customers outside of China

-- Continued to build sales and R&D capabilities with new offices in San Jose, California and Ottawa, Canada

-- In H1 2022, the Company headcount increased by 97 people globally, bringing the total headcount from 154 (as of 31 December 2021) to 251 (132 as of 30 June 2021)

-- After the end of the reporting period, on 31 August 2022, the Company completed the acquisition of OpenFive, extending Alphawave's product offerings and customer base while driving greater scale and revenue growth from an expanded total addressable market

Outlook

-- During the second half of the year, t he Company expects customer traction to gain momentum, including multiple chiplet IP design wins.

-- Alphawave IP reiterates its mid-term and long-term outlook including the financial contribution of OpenFive, communicated on 29 April 2022 in its 2021 full year results.

Capital Markets Day

The Company will host a Capital Markets Day in London, on 13 January 2023. Alphawave's executives will present the Company's long-term business strategy and financial targets as it enters its next phase of technology leadership in connectivity for digital infrastructure markets.

Results Presentation and webcast

A presentation for investors and analysts will be held at 8.30am BST, on 21 September 2022. The webcast will be accessible via:

https://us02web.zoom.us/s/82295344058?pwd=ektteElrdWFwQ2NRd2lETnFIS0RjQT09

Passcode: 397388

Or by phone:

US: +1 669 900 9128 / +1 719 359 4580 / +1 253 215 8782

United Kingdom: +44 203 901 7895 / +44 208 080 6591 / +44 330 088 5830

Webinar ID: 822 9534 4058

Full list of dial-in numbers available https://us02web.zoom.us/u/kD2i0tmO

The Company's H1 2022 Report is also available to view in the Investor Relations section of the Company's website ( Results, Reports & Presentations (awaveip.com) ).

About Alphawave IP Group plc (LSE: AWE)

Faced with the exponential growth of data, Alphawave IP's technology serves a critical need: enabling data to travel faster, more reliably and with higher performance at lower power. Alphawave IP is a global leader in high-speed connectivity for the world's technology infrastructure. Our IP solutions meet the needs of global tier-one customers in data centres, compute, networking, AI, 5G, autonomous vehicles and storage. Founded in Toronto, Canada in 2017 by an expert technical team with a proven track record in licensing semiconductor IP, our mission is to focus on the hardest-to-solve connectivity challenges. To find out more about Alphawave IP, visit awaveip.com

Alphawave IP and the Alphawave IP logo are trademarks or registered trademarks of Alphawave IP Group plc. All other trademarks or registered trademarks mentioned herein are held by their respective companies. All rights reserved.

Contact Information

 
 Alphawave IP Group   John Lofton Holt, Executive                 ir@awaveip.com 
  plc                  Chairman                             +44 (0) 20 7717 5877 
                       Jose Cano, Head of IR 
-------------------  ----------------------------  ----------------------------- 
 Brunswick Group      Simone Selzer                 alphawave@brunswickgroup.com 
                       Sarah West                           +44 (0) 20 7404 5959 
-------------------  ----------------------------  ----------------------------- 
 Gravitate PR         Lisette Paras                    alphawave@gravitatepr.com 
                       Wynton Yu                                 +1 415 528 0468 
===================  ============================  ============================= 
 

Cautionary statement regarding forward-looking statements

This document may contain forward-looking statements which are made in good faith and are based on current expectations or beliefs, as well as assumptions about future events. You can sometimes, but not always, identify these statements by the use of a date in the future or such words as "will", "anticipate", "estimate", "expect", "project", "intend", "plan", "should", "may", "assume" and other similar words. By their nature, forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. You should not place undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to factors that could cause our actual results to differ materially from those expressed or implied by these statements. The Company undertakes no obligation to update any forward-looking statements contained in this document, whether as a result of new information, future events or otherwise.

A. Operational and Strategic Highlights

Summary

Total bookings in H1 2022 of US$53.4m were below the prior year (H1 2021: US$196.1m) due to the multi-year agreements signed with VeriSilicon and WiseWave in H1 2021.

In H1 2022, Alphawave generated licence and related bookings, which include non-recurring engineering and support, of US$38.5m, an increase of 17% from H1 2021. Our estimates of future royalties from design wins secured during H1 2022 remained roughly flat at US$14.9m (H1 2021: US$15.2m). We also saw Flexible Spending Accounts 4 ("FSA") drawdowns of US$5.6m, and China (VeriSilicon) reseller deals of US$9.1m. Both FSA and reseller deals are not new bookings but represent the conversion of prior customer commitments to design wins.

Cumulative bookings over the life of the Company since its inception in 2017 exceeded $400m.

In the period, we won eight new customers, including two top-tier North American semiconductor companies, ending the period with 28 customers. Of our eight new end-customer wins in H1 2022, six of those customers are headquartered in North America or EMEA. As of 30 June 2022, Alphawave had six of the top ten semiconductor companies (as ranked by market capitalisation) as customers.

Revenue increased 107% to US$57.1m year-on-year (H1 2021: US$27.6m), driven by growth in designs wins from new customers and repeat business from existing customers. We achieved gross margin of 97% and adjusted EBITDA 6 of US$23.2m, up 67% year-on-year. Adjusted EBITDA margin was 9 percentage points below H1 2021 at 41% [6] , prior to non-recurring M&A costs, stock-based compensation and exchange gains.

We closed the period with a net cash position of US$451.8m, compared to a net cash position of US$501.0m at the end of December 2021. The year-on-year decrease was mainly the result of higher net cash generated from operating activities offset by a US$14.1m outflow related to the acquisition of Precise-ITC on 1 January 2022, and US$50.1m foreign exchange impact on reported cash and cash equivalents.

End Market Drivers Remain Strong

Despite an uncertain economic environment, digital infrastructure markets remain strong. Our core markets of servers, storage and network switches continue to provide compelling opportunities for growth. In Q1 2022, data centre capital expenditure grew at the fastest rate year-on-year in three years and Amazon, Google, Meta and Microsoft are projected to increase 25% in 2022 [7] . Not surprisingly, the amount of data created, captured, replicated and consumed each year is expected to more than double in size from 2022 to 2026 [8] .

Our pipeline of customer opportunities reflects those trends. Our customers continue to seek differentiation and enhanced performance by transitioning faster to lower design nodes, with the majority of our design wins in H1 2022 at 7nm and 5nm manufacturing processes and a first design win in 3nm. As we have noted in previous announcements, we continue to see hyperscale data centre providers reducing reliance on networking ASIC vendors.

The ongoing constraints on the semiconductor supply chain and the ubiquitous presence of semiconductors in our lives continue to reinforce the importance of semiconductor technology on a global scale. As the digital infrastructure continues to grow and transitions to leading and more efficient technologies, we remain confident in the long-term outlook of the business.

Expanding Technology Leadership and Customer Traction

During H1 2022, we recognised revenue from 28 customers, compared to 16 customers in H1 2021 and 20 customers at FY 2021. Our H1 2022 revenue continued to be heavily weighted to our core markets of data networking and cloud compute. 42% of revenue in the period was generated from North American customers, 38% from China, 13% from APAC excluding China and 7% from EMEA.

Since 2017, the Company has demonstrated connectivity technology leadership in 7nm, 6nm, 5nm and 4nm technology. In Q2 2022, Alphawave IP extended its leadership with a new design win in 3nm technology. The Company expects further design wins in 3nm in the second half of the year and is working with its foundry partners in 3nm and beyond.

In June 2022, the Company announced the availability of two new Interconnect IP products to its product portfolio. AresCORE16 is a Die-to-Die parallel interface that further extends Alphawave's chiplet leadership by enabling a new generation of chiplet products. OptiCORE100 is a 112Gbps PAM4 optical Serialiser-Deserialiser ("SerDes") that enables direct drive of optics and includes advanced DSP techniques for receiving optical waveforms. These two new products bring exciting new opportunities for Alphawave IP to continue to help its customers solve increasingly complex connectivity challenges.

Investing in People

During the first six months of the year, we continued to invest heavily in talent, particularly in R&D. As of 30 June 2022, total headcount increased to 251, comprising 220 in R&D/engineering, 9 in sales and marketing and 22 in general and administrative roles (from 132, 6 and 16 respectively as at 31 December 2021). In January 2022, Tony Chan Carusone joined as Chief Technology Officer, bringing over 20 years of experience in both, academic research and business consulting.

In support of its market expansion, on 10 May 2022, the Company announced the opening of its new office in San Jose, California - marking the launch of its presence in the United States in order to better support customers in the region.

In addition to the significant investment in R&D/engineering, we have expanded our finance, HR and other administrative functions, including a new Global Head of Investor Relations, Jose Cano, formerly Head of Investor Relations at Dialog Semiconductor Plc. In January 2022, we appointed Michelle Senecal de Fonseca as our Workforce Engagement Non-Executive Director, ensuring that the views and concerns of our employees are brought to the Board and taken into account.

Significant Post-Interim Events

On 1 September 2022, the Company announced the closing of the acquisition of OpenFive. The acquisition accelerates the Company's ambition to become a pure-play provider of connectivity technology, offering silicon IP as well as custom silicon. The acquisition nearly doubles the number of connectivity-focused IPs from 80 to over 155 and significantly increases Alphawave's customer base globally from 28 to over 80, particularly in North America. New customers include a top two semiconductor memory supplier, a top three high performance computing (HPC) server manufacturer, a leading automated tester equipment manufacturer, and mission critical high-speed communications and industrial equipment manufacturers. OpenFive's proven silicon development team enables Alphawave to offer leading-edge data centre and networking custom silicon as well as enhancing its chiplet design capabilities. This accelerates Alphawave's strategic goal to scale revenues by monetising its leading connectivity IP not only through IP licensing but advanced custom silicon .

Outlook

Despite the uncertain macroeconomic environment, our growing pipeline reflects positive growth trends in data infrastructure markets and the continued investment in next generation connectivity solutions. This combined with our talented team and strong balance sheet give us continued confidence in our future.

During the second half of the year, t he Company expects customer traction to gain momentum, including multiple chiplet IP design wins.

Alphawave IP reiterates its mid-term and long-term outlook communicated on 29 April 2022 in its 2021 full year results . Including the financial contribution from OpenFive, the Company expects to reach revenues of between US$325m and US$360m in 2023. Longer-term, we expect to achieve annual revenue run rates in excess of US$500m in 2024 and in excess of US$1 bn by 2027.

Near-term margins will be impacted by OpenFive as we integrate and scale that business, and we anticipate a 2023 adjusted EBITDA margin of 32% to 36% with a gradual increase thereafter as we focus and integrate the business and realise the anticipated synergies.

B. Financial Highlights

Contracted Order Book and Backlog

Total bookings in H1 2022 of US$53.4m were below the prior year (H1 2021: US$196.1m) due to the large multi-year agreements signed with VeriSilicon and WiseWave in H1 2021. Excluding those transactions, licence and related bookings (which include non-recurring engineering and support) grew 17%, from US$33.0m in H1 2021 to US$38.5m in H1 2022.

Our estimates of future royalties from design wins secured during H1 2022 remained roughly flat at US$14.9m (H1 2021: US$15.2m). These royalty estimates are based on guaranteed royalty commitments and estimates of future end-customer sales volumes and management believe that actual royalties could substantially exceed these estimates.

Of the US$53.4m of licence and related and royalty bookings in H1 2022, 44% were from customers in North America, 36% in EMEA, 13% in China and 7% in APAC excluding China.

We also saw Flexible spending account 4 ("FSA") drawdowns of US$5.6m and China (VeriSilicon) reseller deals of US$9.1m. Both FSA and reseller deals are not new bookings but represent the conversion of prior customer commitments to design wins.

Cumulative bookings over the life of the Group since its inception in 2017 have exceeded US$400m. Our backlog (contracted bookings not yet recognised as revenue) excluding royalties as at end-H1 2022 was US$150.0m. This is expected to substantially increase in H2 2022 as we include the backlog contribution from OpenFive.

In the period, we won eight new customers, including two top-tier North American semiconductor companies, ending the period with 28 customers. As of 30 June 2022, Alphawave had six of the top ten semiconductor companies (as ranked by market capitalisation) as customers.

Revenues

Revenues for H1 2022 reached US$57.1m, 107% growth compared to US$27.6m in H1 2021 and reflects execution against existing design wins, as well as revenues from new design wins with existing and new customers:

-- Customers - In H1 2022 we recognised revenues from 28 end-customers, compared to 16 end-customers in H1 2021. Our top 3 customers represented 52% of H1 2022 revenues versus 43% in H1 2021 and the top 3 customers in each period were different. Excluding revenues from WiseWave, which were US$18.3m in the period (excluding re-seller revenue), our top 3 customers in H1 2022 represented 40% of revenues.

-- Regions - In H1 2022, our revenues were 42% from customers in North America, 38% from China, 13% from APAC excluding China and 7% EMEA. The increase in contribution from China over H1 2021 (17% of sales) is due to recognition of WiseWave and VeriSilicon revenues in H1 2022, which did not contribute to H1 2021 revenues.

Substantially all of our revenues in H1 2022 and H1 2021 were generated from licence and licence-related (non-recurring engineering and support) activities. We did not recognise any royalty revenues in H1 2022 and expect to recognise first royalties in H2 2022, earlier than anticipated, albeit royalties are not expected to be a material contributor to revenues in the short term.

Operating Expenses and Profitability

In H1 2022, our gross margin was 97%, with cost of sales primarily reflecting sales commissions, compared to 95% in H1 2021. Our EBITDA was US$32.7m (57% margin) compared to a restated EBITDA of US$2.6m (9% margin) in H1 2021. Our adjusted EBITDA [9] was US$23.2m (41% margin) compared to adjusted EBITDA of US$13.9m (50% margin) in H1 2021. Our EBITDA in the period was materially impacted by a US$19.3m foreign exchange gain as a result of USD cash balances held at the Alphawave IP Group plc level which are accounted for in GBP. Such foreign exchange differences are not included in adjusted EBITDA and hence adjusted EBITDA in H1 2022 is lower than EBITDA, whereas in H1 2021, adjusted EBITDA was higher than EBITDA.

Including IPO-related expenses in H1 2021, depreciation, one-time M&A-related expenses, FX gains and losses and share-based payments, operating expenses in H1 2022 totalled US$25.5m compared to restated operating expenses of US$24.9m in H1 2021. Our reported operating expenses were materially impacted by non-recurring or other items, including FX gains, which management believes does not reflect the underlying operational performance of the business. Reflecting the continued scaling of the business, excluding IPO-related expenses in H1 2021, one-time M&A-related expenses, share-based payments and FX gains and losses, operating expenses in H1 2022 totalled U$35.0m, compared to US$13.9m in H1 2021. Of the US$35.0m of operating expenses in the first half, including depreciation, US$25.2m (44.0% of revenue) relate to R&D / engineering, US$8.4 m (14.7% of revenue) to general and administrative expenses and US$1.4m (2.5% of revenue) to sales and marketing expenditure. General and administrative expenses include an expected credit loss of US$1.8m based on our assessment of our potential credit loss on overdue invoices. Excluding this, our general and administrative expenses for H1 2022 were US$6.6m (11.6% of revenue). Of the US$13.9m expenditure in H1 2021, including depreciation, US$10.7m (39.0% of revenue) related to R&D / engineering, US$2.5m (9.0% of revenue) related to general and administrative expenses and US$0.7m (2.4% of revenue) related to sales and marketing expenditure.

The increase in our operating expenses was primarily due to the significant growth in our headcount in H1 2022 together with software tool costs which scale with our R&D / engineering headcount. Our headcount grew from 132 as at H1 2021 and 154 as at FY 2021, to 251 as at H1 2022, with the net addition of 97 employees in the first six months of 2022. 88 of those additions were in our R&D / engineering function, 6 within G&A and 3 within S&M, including the team that joined with the acquisition of Precise-ITC in January 2022. We expect to slow the pace of hiring in H2 2022, as we integrate the new hires and begin the integration of OpenFive. The increase in share-based payments, from US$2.0m in H1 2021 to US$7.2m in H1 2022, was primarily due to the significant increase in headcount and restricted stock unit issuance in H1 2022 with relatively high values compared to previous option issues.

Depreciation and amortisation expenses in H1 2022 were US$2.8m (H1 2021: US$1.3m ) , of which US$1.5m related to right-of-use assets (H1 2021: US$1.1m), namely our premises and leased test equipment.

Our profit after tax for the period, which is stated after share-based payments, an exchange gain of US$19.3m, one-time costs relating to our IPO and M&A activities, as well as our share of losses from WiseWave, was US$16.3m, compared to a restated profit after tax of US$0.1m in H1 2021. On an adjusted basis [10] , our profit after tax for the period was US$6.7m , compared to a restated profit after tax of US$11.4m in H1 2021, with profit in H1 2022 significantly impacted by the share of post-tax losses of US$7.9m in WiseWave (nil in H1 2021) and higher income tax expenses of US$6.0m (restated US$1.1m in H1 2021).

Balance Sheet, Liquidity and Cashflow

Our gross and net cash decreased by US$49.2m from US$501.0m as at end-December 2021 to US$451.8m as at end-June 2022. Whilst we report in USD, our IPO proceeds were received in GBP and we continue to hold significant cash reserves in GBP. During H1 2022, the USD to GBP exchange rate fell from 1.3513 to 1.2159, which accounted for a US$50.1m fall in our USD reported cash over the same period.

In the first six months of 2022, our intangible assets increased from US$1.2m to US$9.7m [11] , largely as a result of intangibles acquired through the acquisition of Precise-ITC. Investment in equity-accounted joint venture WiseWave, decreased to US$1. 6m as at 30 June 2022 from US$9.4m as at 31 December 2021, as a result of the Group's share of the loss incurred by WiseWave during H1 2022.

Our trade and other receivables increased to U$21.0m at end-June 2022 from US$13.1m at end-December 2021, largely due to an increase in prepayments on software tools used by our R&D / engineering team. In addition, we provisioned for an expected credit loss of US$1.8m, based on our assessment of our credit risk on overdue invoices.

Our accrued revenue, where revenue recognition conditions are met under IFRS 15 but we have not billed or collected any amount increased to US$41.6m at end-June 2022 from US$31.7m at end-December 2021. This increase was primarily due to increasing new business and the timing of invoicing milestones on specific projects.

Between end-December 2021 and end-June 2022 our trade and other payables decreased from US$5.8m to US$4.0m. Our deferred revenue liability, where we have invoiced or received money for products or services where revenue recognition conditions are not met, increased to US$14.4m at end-June 2022 from US$12.7m at end-December 2021, as a result of invoice milestones becoming due before projects have sufficiently progressed to recognise an equivalent amount as revenue.

FSAs, which represent current liabilities, are contracts with customers who have committed to regular periodic payments to us over the term of the contract. These payments are not in respect of specific licences or other deliverables, but can be used as credit against future deliverables. We have FSAs with some customers with whom we work on multiple projects and who prefer regular periodic billing rather than milestone-based billing. The revenue recognition conditions which enable us to recognise these billings as revenue have not yet been met. The balance sheet liability against FSAs increased from US$6.8m at end-December 2021 to US$12.9m at end-June 2022.

The balance of accrued revenue less deferred revenue and FSAs increased slightly to US$14.3m in H1 2022 from US$12.2m at end-December 2021.

Our pre-tax operating cashflow during the period was US$32.2m, an increase of 578% compared to a restated amount of US$4.7m in H1 2021. In H1 2022, we had an increase in working capital of US$6.0m. Trade receivables increased by US$7.9m accrued revenues increased by US$9.9m, trade payables increased by US$3.9m and deferred revenue and FSAs increased by US$7.8m. This compared to a restated amount of US$0.1m decrease in working capital in H1 2021. Our income tax paid increased substantially from US$3.1m in H1 2021 to US$13.4m in H1 2022.

Our capital expenditure on property and equipment during H1 2022 totalled US$2.4m (H1 2021: US$0.6m) as a result of significant upgrades and expansions to our IT infrastructure, purchases of test equipment as well as leasehold improvements to our new office in Silicon Valley.

During H1 2022, we did not make any further equity investment in WiseWave.

Principal Risks and Uncertainties

The Group faces a number of risks and uncertainties that may have an impact on our operations and performance. These risks and uncertainties are regularly assessed by the Directors. The principal risks and uncertainties affecting the Group in respect of the second half of the year have not changed materially from those set out on pages 51 to 53 of the Annual Report dated 13 May 2021. In summary, the principal risks and uncertainties are as follows

 
 Risk                   Description 
---------------------  ------------------------------------------------------------ 
 Managing our           We have a limited operating history and are growing 
  growth                 rapidly, both organically and through acquisitions. 
                         If we do not manage our growth successfully, fail 
                         to execute on our strategy, or fail to implement 
                         or maintain governance and control measures, our 
                         business may be adversely impacted. We have rapidly 
                         expanded our headcount and intend to maintain a 
                         rapid pace of hiring. We also intend to continue 
                         to grow through acquisitions. 
=====================  ============================================================ 
 Competition            We seek to maintain our competitive advantage by 
  and failure            being first to market with new IP as data speeds 
  to maintain            increase and manufacturing sizes decrease. If these 
  our technology         industry transitions do not materialise 
  leadership             or are slower than anticipated, our competitors 
                         may be able to introduce competing IP which may 
                         diminish our competitive advantage and selling 
                         prices. Our ability to maintain our technology 
                         leadership is further dependent on our ability 
                         to attract R&D and engineering talent. 
=====================  ============================================================ 
 Customer Dependence    The cost and complexity of developing semiconductors 
                         targeted by our IP limits the number of our potential 
                         addressable customers. In any reporting period, 
                         a substantial part of our revenues may be attributable 
                         to a small number of customers. 
=====================  ============================================================ 
 Customer Demand        Demand for our IP is dependent on the continued 
                         global growth in generation, storage and consumption 
                         of data across our target markets as well as the 
                         increasing cost and complexity 
                         of designing and manufacturing semiconductors. 
                         We may be impacted by our customers' demand sensitivity 
                         to broader economic and social conditions. Our 
                         potential customers may seek to develop competitive 
                         IP internally or acquire IP or semiconductors from 
                         our competitors. 
=====================  ============================================================ 
 Risks associated       WiseWave is core to our strategy to monetise our 
  with WiseWave          IP in China and we are a significant minority shareholder. 
                         We may be limited in our ability to influence strategy, 
                         operational, legal, commercial or financial matters. 
                         The Group and WiseWave may also face regulatory 
                         risk in terms of transfer of technology into China. 
                         There is a risk that the bookings from WiseWave 
                         do not translate into revenues and our equity investment 
                         diminishes in value. WiseWave is a new venture 
                         and if it does not effectively execute on its business 
                         plan, we may be negatively impacted. 
=====================  ============================================================ 
 Dependence             Our financial performance is highly dependent on 
  on Licensing           licensing revenues and we do not anticipate a material 
  revenue                contribution from royalty revenues for some years. 
                         If our customers delay or cancel their development 
                         projects, fail to take their products to production 
                         or those products are not successful, our royalty 
                         revenues may be delayed, diminished or not materialise. 
=====================  ============================================================ 
 Reliance on            We rely on the senior management team and our business 
  Key Personnel          may be negatively impacted if we cannot retain 
  and ability            and motivate our key employees. Our ability to 
  to attract             grow the business is also dependent on attracting 
  talent                 talent, particularly in R&D and engineering, and 
                         if we are unable to do so, our business may be 
                         negatively impacted. 
=====================  ============================================================ 
 External Environment   Semiconductors are becoming increasingly important 
  and Events             as countries and regions seek to guarantee supply 
                         and build domestic supply chains, as well as restrict 
                         outside access to their domestic technologies. 
                         Our business could be impacted by the actions of 
                         governments, political events or instability, or 
                         changes in public policy in the countries in which 
                         we operate. The current conflict in Ukraine potentially 
                         has wide-ranging impacts, including global economic 
                         instability, increased geopolitical tensions and 
                         disruption to supply chains. 
=====================  ============================================================ 
 IP Protection          We protect our IP through trade secrets, contractual 
  and Infringement       provisions, confidentiality agreements, licences 
                         and other methods. A failure to maintain and enforce 
                         our IP could impair our competitiveness and adversely 
                         impact our business. If other companies assert 
                         their IP rights against us, we may incur significant 
                         costs and divert management and technical resources 
                         in defending those claims. If we are unsuccessful 
                         in defending those claims, or we are obliged to 
                         indemnify our customers or partners in any such 
                         claims, it could adversely impact our business. 
=====================  ============================================================ 
 Reliance on            We rely on third-party semiconductor foundries, 
  third-party            both as customers and as manufacturing partners 
  manufacturing          to our customers. If foundries delay the introduction 
  foundries              of new process nodes or customers choose not to 
                         develop silicon on those process nodes, our ability 
                         to license new IP and our selling prices may be 
                         adversely impacted. We are not currently reliant 
                         on the foundries' capacity for high volume manufacturing 
                         for our revenues but may become more reliant as 
                         royalty revenues become more material to us and 
                         as we seek to develop and sell chiplet silicon 
                         devices. 
=====================  ============================================================ 
 Reliance on            We rely heavily on IT systems to support our business 
  complex IT             operations. The vast majority of our design tools, 
  systems                software and IT system components are off-the-shelf 
                         solutions and our business would be disrupted if 
                         these components became unavailable. If our IT 
                         systems were subject to disruption, for example, 
                         through malfunction or security breaches, we may 
                         be prevented from developing our IP and fulfilling 
                         our contracts with our customers. 
---------------------  ------------------------------------------------------------ 
 

Directors Responsibility Statement

The Directors confirm that, to the best of their knowledge:

-- This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted for the use in the UK, and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and

   --   This Half-Year Report includes a fair review of the information required by: 

o DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

o DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period.

Details of all current Directors of Alphawave IP Group plc are maintained on www.awaveip.com .

By order of the Board

Tony Pialis

President and Chief Executive Officer

21 September 2022

Unaudited condensed consolidated statement of comprehensive income

Six months ended 30 June 2022

 
                                               Six months        * Restated six 
                                            ended 30 June                months 
                                                     2022         ended 30 June 
                                                                           2021 
                                          ---------------  -------------------- 
                                 Note             US$'000               US$'000 
---------------------------  -----------  ---------------  -------------------- 
 
 Revenue                          5                57,107                27,589 
 Cost of sales                                    (1,750)               (1,336) 
 Gross profit                                      55,357                26,253 
 R&D/engineering                                 (25,152)              (10,749) 
 Sales & marketing                                (1,442)                 (672) 
 General & administration                         (8,407)               (2,490) 
 Other items                                        9,542              (11,034) 
---------------------------  -----------  ---------------  -------------------- 
 Operating profit                                  29,898                 1,308 
 
 'Other items' charged 
  in arriving at operating 
  profit: 
 Non-recurring IPO 
  costs*                          10                    -               (7,935) 
 Non-recurring M&A-related 
  costs                           10              (2,537)                     - 
 Share-based payment              18              (7,192)               (1,958) 
 Exchange gain/(loss)             11               19,271               (1,141) 
---------------------------  -----------  ---------------  -------------------- 
 Other items                                        9,542              (11,034) 
---------------------------  -----------  ---------------  -------------------- 
 
 Finance income                   9                   362                   102 
 Finance expense                  9                 (160)                 (159) 
 Share of post-tax 
  loss of equity-accounted 
  joint ventures                  12              (7,868)                     - 
 Profit before tax                                 22,232                 1,251 
 Income tax expense               13              (5,980)               (1,148) 
---------------------------  -----------  ---------------  -------------------- 
 Profit after tax                                  16,252                   103 
---------------------------  -----------  ---------------  -------------------- 
 
 Other comprehensive 
  income 
 Exchange differences 
  on the reorganisation                                 -              (11,106) 
 Exchange (losses)                               (50,518)                     - 
  arising on translation 
  of foreign operations 
---------------------------  -----------  ---------------  -------------------- 
 Other comprehensive 
  income for the period, 
  net of tax                                     (50,518)              (11,106) 
---------------------------  -----------  ---------------  -------------------- 
 Total comprehensive 
  loss for the period                            (34,266)              (11,003) 
---------------------------  -----------  ---------------  -------------------- 
 
 

* Restated operating expenses to move US2,619k from share premium to 'non-recurring IPO costs' within operating expenses. See note 23 for further details

Profit per ordinary share attributable to the shareholders (expressed in cents per ordinary share and restated for H1 2021):

 
 Basic earnings per 
  share                14    2.43   0.02 
 Diluted earnings 
  per share            14    2.32   0.02 
 

Condensed consolidated statement of financial position

As at 30 June 2022

 
                                           Unaudited as at   Audited year ended 
                                              30 June 2022     31 December 2021 
                                          ----------------  ------------------- 
                                    Note           US$'000              US$'000 
---------------------------------  -----  ----------------  ------------------- 
 Assets 
 Non-current assets 
 Goodwill                                            1,451                    - 
 Property and equipment                              3,071                1,626 
 Intangible assets                   15              9,703                1,167 
 Right-of-use assets                                 6,913                7,672 
 Investments in equity-accounted 
  associates                                         1,553                9,421 
---------------------------------  -----  ----------------  ------------------- 
 Total non-current assets                           22,691               19,886 
---------------------------------  -----  ----------------  ------------------- 
 Current assets 
 Trade and other receivables                        20,984               13,103 
 Accrued revenue                     5              41,605               31,719 
 Taxes receivable                                    3,414                2,605 
 Cash and cash equivalents           16            451,833              500,964 
---------------------------------  -----  ----------------  ------------------- 
 Total current assets                              517,836              548,391 
---------------------------------  -----  ----------------  ------------------- 
 Total assets                                      540,527              568,277 
---------------------------------  -----  ----------------  ------------------- 
 
 Liabilities 
 Lease liabilities                                   1,999                2,160 
 Trade and other payables                            4,004                5,805 
 Income tax payable                                     96                6,970 
 Deferred revenue                    5              14,378               12,661 
 Flexible spending account           5              12,908                6,819 
 Total current liabilities                          33,385               34,415 
---------------------------------  -----  ----------------  ------------------- 
 Non-current liabilities 
 Deferred income taxes                                 600                  422 
 Lease liabilities                                   5,195                5,668 
---------------------------------  -----  ----------------  ------------------- 
 Total non-current liabilities                       5,795                6,090 
---------------------------------  -----  ----------------  ------------------- 
 Total liabilities                                  39,180               40,505 
 Net assets                                        501,347              527,772 
---------------------------------  -----  ----------------  ------------------- 
 
 Share capital and reserves 
 Share capital                       17              9,596                9,399 
 Share premium account                                 452                    - 
 Share-based payment reserve         18             11,969                4,777 
 Merger reserve                                  (793,216)            (793,216) 
 Currency translation reserve                     (72,236)             (21,718) 
 Retained earnings                               1,344,782            1,328,530 
---------------------------------  -----  ----------------  ------------------- 
 Total equity                                      501,347              527,772 
---------------------------------  -----  ----------------  ------------------- 
 
 

Unaudited condensed consolidated statement of changes in equity

Six months ended 30 June 2022

 
                           Ordinary 
                              share           Share   Share-based                     Currency 
                            capital         premium       payment       Merger     translation     Retained      Total 
   US$'000          Note          *         account       reserve      reserve         reserve     earnings     equity 
-----------------  -----  ---------  ---  ---------  ------------  -----------  --------------  -----------  --------- 
 
 Balance at 
  1 January 2022              9,399    -          -         4,777    (793,216)        (21,718)    1,328,530    527,772 
-----------------  -----  ---------  ---  ---------  ------------  -----------  --------------  -----------  --------- 
 Profit for the 
  period                          -    -          -             -            -               -       16,252     16,252 
 Other 
  comprehensive 
  income                          -    -          -             -            -        (50,518)            -   (50,518) 
 Transactions 
  relating to 
  share issuance 
 Issue of shares                  -    -          -             -            -               -            -          - 
 Reorganisation                   -    -          -             -            -               -            -          - 
  accounting 
 exchange                         -    -          -             -            -               -            -          - 
 differences 
-----------------  -----  ---------  ---  ---------  ------------  -----------  --------------  -----------  --------- 
 Recognition 
  of share-based 
  payments           18           -    -          -         7,192            -               -            -      7,192 
 Exercise of 
  share options                 197    -        452                          -               -            -        649 
-----------------  -----  ---------  ---  ---------  ------------  -----------  --------------  -----------  --------- 
  Balance at 
  30 June 2022                9,596    -        452        11,969    (793,216)        (72,236)    1,344,782    501,347 
   (Unaudited) 
-----------------  -----  ---------  ---  ---------  ------------  -----------  --------------  -----------  --------- 
 

*Restated six months ended 30 June 2021

 
 
                               Ordinary      Pref.      Share   Share-based                  Currency 
                                  share      share    premium       payment      Merger   translation   Retained       Total 
 US$'000             Note       capital    capital    account       reserve     reserve       reserve   earnings      equity 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 
 Balance at 
  1 January 2021               474,447*          -          -           331   (472,566)                   15,579      17,791 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 Adjusted for 
  effect of 
  reorganisation 
  accounting to 
  opening position            (474,447)          -          -             -     472,566             -          -     (1,881) 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 Profit for the 
  period 
  (restated**)                        -          -          -             -           -             -        103         103 
 Other                                -          -          -             -           -             -          -           - 
 comprehensive 
 expense 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 Total 
  comprehensive 
  income/(expense) 
  for the year 
  (restated**)                        -          -          -             -           -             -        103         103 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 Transactions relating 
  to IPO 
 Issue of shares, 
  primary             17        124,147         71    384,856             -           -             -          -     509,074 
 Issue of shares, 
  secondary           17        796,958          -          -             -                         -          -     796,958 
 Issue of shares, 
  other               17            313          -        969             -           -             -          -       1,282 
 Exercise of 
  options             17          4,064          -          -             -           -             -          -       4,064 
 Reorganisation 
  accounting                          -          -          -             -   (797,279)             -          -   (797,279) 
 Effect of 
  exercise 
  price below 
  nominal value 
  (restated**)        17         14,381          -   (14,381)             -           -             -          -           - 
 Net costs on 
  issuance of 
  shares relating 
  to IPO 
  (restated***)                       -          -      1,929             -           -             -          -       1,929 
 Exchange 
  differences 
  on the 
  reorganisation      17              -          -          -             -           -      (11,106)          -    (11,106) 
 Recognition 
  of share-based 
  payments            18              -          -          -         1,958           -             -          -       1,958 
 Reduction in 
  SBP reserve 
  following 
  exercise                            -          -          -         (637)           -             -          -       (637) 
 Balance at 
  30 June 2021                  939,863         71    373,373         1,652   (797,279)      (11,106)     15,682     522,256 
------------------  -----  ------------  ---------  ---------  ------------  ----------  ------------  ---------  ---------- 
 

* Share capital adjusted as if the reorganisation happened 1 January 2020 to give comparative figures and in line with the note in "Basis of Preparation"

** The increase of $14,3181k to ordinary share capital was previously stated as a reduction to the merger reserve but has been restated to a reduction in share premium as described in Note 23.

*** Restated operating expenses to move US$2,619k from equity to 'non-recurring IPO costs' within operating expenses. This affects share premium, retained earnings and currency translation reserve. Please refer to note 23 for further information on this adjustment

Unaudited condensed consolidated statement of cash flows

For the period ended 30 June 2022

 
                                              Six months      *Restated six 
                                                   ended    months ended 30 
                                            30 June 2022          June 2021 
                                          --------------  ----------------- 
                                    Note         US$'000            US$'000 
---------------------------------  -----  --------------  ----------------- 
 Cash flows from operating 
  activities 
 Cash generated from operating 
  activities before tax             (a)           32,216              4,749 
---------------------------------  -----  --------------  ----------------- 
 Income tax paid                                (13,440)            (3,133) 
 Net cash generated from 
  operating activities                            18,776              1,616 
---------------------------------  -----  --------------  ----------------- 
 
 Cash flows from investing 
  activities 
 Purchase of property and 
  equipment                                      (2,448)              (557) 
 Purchase of intangible 
  asset                                            (904)              (541) 
 Payment for Precise ITC                        (14,136)                  - 
  acquisition 
 Net cash used in investing 
  activities                                    (17,488)            (1,098) 
---------------------------------  -----  --------------  ----------------- 
 
 Cash flows from financing 
  activities 
 Issuance of common shares           17                             509,003 
 IPO share issuance costs**          17                            (16,942) 
 Exercise of options                 17              727              4,064 
 Proceeds from IPO stabilisation     17                              22,238 
 Decrease in bank indebtedness                                         (38) 
 Increase in long-term debt                                               - 
 Interest received                                   362                  - 
 Interest paid                                      (52)              (144) 
 Collection of notes receivable                                         428 
 Repayment of principal 
  under lease liabilities                        (1,336)              (951) 
---------------------------------  -----  --------------  ----------------- 
 Net cash generated from 
  financing activities                             (299)            517,658 
---------------------------------  -----  --------------  ----------------- 
 
 Net (decrease)/increase 
  in cash and cash equivalents                       989            518,176 
 
 Cash and cash equivalents 
  at start of year                               500,964             14,039 
 Effects of foreign exchange 
  on cash and cash equivalents                  (50,120)           (13,078) 
---------------------------------  -----  --------------  ----------------- 
 Cash and cash equivalents 
  at end of period                   16          451,833            519,137 
---------------------------------  -----  --------------  ----------------- 
 

* Restated changes in working capital within operating activities at H1 2021, increasing the increase in trade and other payables by US$1,000k. Please refer to note 23 for further information on this adjustment

** Restated changes also decreased the IPO share issuance costs within financing activities by US$3,500k. Please refer to note 23 for further information on this adjustment

Note to the condensed consolidated statement of cashflows

   a)   Cash used in operations 
 
                                             Six months              *Restated six 
                                                  ended               months ended 
                                           30 June 2022               30 June 2021 
                                         --------------  ------------------------- 
                                   Note         US$'000                    US$'000 
--------------------------------  -----  --------------  ------------------------- 
 Cash flows from operating 
  activities 
 Net income                                      16,252                        103 
 Items not affecting cash: 
  Income tax expense                              5,793                      1,148 
  Deferred income taxes                             187                          - 
  Share of loss in joint                          7,868                          - 
   venture 
  Amortisation of acquired                          777                          - 
   intangibles 
  Depreciation of property 
   and equipment                                    602                        144 
  Depreciation of right-of-use 
   asset                                          1,459                      1,134 
  Share-based payment               18            7,192                      1,958 
  Lease interest                                    108                        144 
  Foreign exchange (gain)                       (1,999)                          - 
                                         --------------  ------------------------- 
                                                 38,239                      4,631 
                                         --------------  ------------------------- 
 Changes in working capital: 
  (Increase)/decrease in 
   trade and other receivables                  (7,879)                        364 
  (Increase) in accrued revenue     5           (9,886)                    (8,656) 
  (Decrease)/increase in 
   trade and other payables                       3,936                      3,823 
  Increase in deferred revenue 
   & flexible spending account      5             7,806                      4,587 
--------------------------------  -----  --------------  ------------------------- 
                                                (6,023)                        118 
--------------------------------  -----  --------------  ------------------------- 
 Cash generated from operating 
  activities before tax                          32,216                      4,749 
--------------------------------  -----  --------------  ------------------------- 
 

* Restated changes in working capital at H1 2021, increasing the increase in trade and other payables by US$1,000k

Notes to the interim statements

Six months ended 30 June 2022

   1.   General information 

These consolidated interim financial statements represent the consolidated interim financial statements of Alphawave IP Group plc ('the Company' or 'Alphawave IP') and its subsidiaries (together 'the Group').

This report for the six months ended 30 June 2022 is the second half-yearly financial report presented by the Group.

The principal activities of the Company and its subsidiaries are described on pages 1 to 7.

The Company is a public limited company whose shares are listed on the London Stock Exchange and is incorporated and domiciled in the United Kingdom. The address of its registered office 65 Gresham Street, London, EC2V 7NQ.

   2.   Basis of preparation 

The consolidated interim financial statements of the Group have been prepared in accordance with UK-adopted international accounting standards (IAS) 34 Interim Financial Reporting and should be read in conjunction with the Group's consolidated financial statements as of and for the year ended 31 December 2021. They do not include all the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to give an understanding of the changes in the Group's financial position and performance since the last annual consolidated financial information as of 31 December 2021 and for the six months ended 30 June 2021.

These condensed consolidated interim statements do not comprise of statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the six months ended 30 June 2021 are not the Group's statutory accounts for that financial period. The preparation of these consolidated interim financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement and complexity, or areas where assumptions and estimates are significant to the consolidated interim financial statements are disclosed in note 3.

The Company was incorporated on 9 December 2020 and admitted to listing on the London Stock Exchange on 18 May 2021. On 14 May 2021, a reorganisation of Alphawave IP's corporate structure was completed through which the Company became the sole owner of Alphawave IP Inc. Thereafter, pursuant to an agreement between the Company, Alphawave IP Inc. and each of the members of Alphawave IP Inc., the issued and outstanding Alphawave IP Inc. Common Shares were exchanged for 20 Ordinary shares of the Company with a nominal value of GBP1.

This has been accounted for as a common control transaction under IFRS 3.B1 (see note 15). Therefore, the condensed consolidated financial statements for the period ended 30 June 2021 comprises an aggregation of financial information of the Company and the consolidated financial information of Alphawave IP Inc.

These condensed financial statements were authorised for issue by the Company's Board of Directors on 20 September 2022.

Going concern

As of 30 June 2022, the Group had cash and cash equivalents of US$451.8m. Considering the Group's financial position as of 30 June 2022 and its principal risks and opportunities, a going concern analysis has been prepared for at least the twelve-month period from the date of signing the consolidated interim financial statements ("the going concern period") utilising realistic scenarios and applying a severe but plausible downside scenario. Even under the downside scenario, the analysis demonstrates the Group can continue to maintain sufficient liquidity headroom and continue to comply with all financial obligations. Therefore, the Directors believe the Group is adequately resourced to continue in operational existence for at least the twelve-month period from the date of signing the consolidated interim financial statements. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the consolidated interim financial statements.

Basis of organisation

The Group's management has performed its evaluation for reporting its reportable segments, if any, and concluded that the Group's business constitutes only one operating segment as all its products and services are of similar nature and focus on customers from the same industry. Its entire revenues, expenses, assets and liabilities pertain to the one business as a whole. This has been ratified by the chief operating decision makers (CODM), Tony Pialis (CEO) and Daniel Aharoni (CFO), who are deemed best placed to evaluate the entity's operating results to assess performance and to allocate resources.

Functional currency

For presentational purposes these consolidated interim financial statements are presented in US dollars. This is consistent with the last annual consolidated financial information as of 31 December 2021 and for the six months ended 30 June 2021. Each of the three trading entities in the Group have different functional currencies, with Alphawave IP Inc. being accounted for in CAD, Alphawave IP Corp. in USD and the Company in GBP.

Accounting policies

The accounting policies that have been used in the preparation of these consolidated interim financial statements are the same as those applied in the last annual consolidated financial information as of 31 December 2021 and for the six months ended 30 June 2021. New standards effective on or after 1 January 2022 have been reviewed and do not have a material effect on the Group's financial statements.

Revenue recognition

The accounting policy for revenue recognition that has been used in the preparation of these consolidated interim financial statements is unchanged from the policy applied in the last annual consolidated financial statements, prepared for and as at the year ended 31 December 2021.

Share-based payments

The Group operates an equity-settled, share-based payment compensation plan, under which the entity receives services from employees as consideration for equity instruments, options and RSUs, of the Company. The fair value of the employee service received in exchange for the grant of the options is recognised as an expense over the vesting period.

Where options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when the options are exercised.

If an option is cancelled this is accounted for as an acceleration of the vesting period and any amount unrecognised is recognised immediately.

M&A-related costs and other non-recurring items

The Group incurred costs from certain M&A and other non-recurring items, e.g. acquisition costs. Management has disclosed these separately to enable a greater understanding of the underlying results of the trading business so that the underlying run rate of the business can be established and compared on a like-for-like basis each year.

   3.   Significant accounting estimates and judgements 

The preparation of consolidated interim financial statements in conformity with IAS 34 requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated interim financial statements and the reported amounts of revenues and expenses during the period. Such estimates are periodically reviewed and any adjustments necessary are reported in earnings in the period in which they become known. Actual results could differ from these estimates.

The areas which require management to make significant estimates in determining carrying values include, but are not limited to:

   (a)     Revenue recognition 

In the determination of allocation of revenues to work-in-process and deferred revenues, management must assess the stage of completion of custom IP licence contracts based on hours completed compared to total estimated hours to complete. Such estimations are inherently uncertain due to unforeseen delays in technological research. Refer to note 5 for further information regarding the sensitivity in the estimation uncertainty.

As disclosed in the annual consolidated financial statements for the year ended 31 December 2021, an amount of revenue is typically held back for recognition at the latter stages of project completion. This amount is typically a fixed percentage dependent on the categorisation of the IP licence agreement and is typically held back until the earlier of 'customer silicon acceptance' (customer silicon meets specifications) or a time specified in the contract. In the period ending 30 June 2022, management has started to review contracts with revenue held back on a case-by-case basis and reassessed the amounts held back to confirm they are proportionate to the likelihood or risk of the customer requiring additional post-delivery work from the Group to ensure customer silicon acceptance. This resulted in US$2.5m additional revenue being recognised in H1 2022.

There have been no changes in the estimates and judgements used in relation to the recognition of revenue from sales to our joint venture WiseWave from those disclosed in the annual consolidated financial statements for the year ended 31 December 2021.

   (b)   Share-based payments 

Judgement is used in determining the fair value of the share options at the grant date, including determining comparable listed companies against which the future volatility of the share price is compared and expected dividend yield. Such judgements are inherently uncertain and changes in these affect the fair value determination. See note 16.

   (c)   Research and development costs 

Judgement is exercised in determining whether costs incurred should be capitalised in line with IAS 38. The judgement includes whether it is technically feasible to complete the relevant assets on which costs are incurred so that it will be available for use or sale. See note 8.

   4.   Alternative Performance Measures (APMs) 

The Group uses certain financial measures that are not defined or recognised under IFRS. The Directors believe that these non-GAAP measures supplement GAAP measures to help in providing a further understanding of the results of the Group and are used as key performance indicators within the business to aid in evaluating its current business performance. The measures can also aid in comparability with other companies who use similar metrics. However, as the measures are not defined by IFRS, other companies may calculate them differently or may use such measures for different purposes to the Group.

Bookings

Bookings excluding royalties comprise licence fees, flexible spending accounts, non-recurring engineering and support from contracted and typically non-cancellable orders that will ultimately result in recognised revenue. Bookings including royalties include Group estimates of potential future royalties which may result in recognised revenues.

Bookings are a measure of operating performance used by management to assess order intake in each period, whether we are successfully converting our pipeline into committed orders and therefore how effective we have been in executing our strategy. Bookings are a key performance indicator used to assess the Group's performance for internal reporting purposes.

Earnings before interest, taxation, depreciation and amortisation (EBITDA)

EBITDA provides a supplemental measure of earnings that facilitates review of operating performance on a period-to-period basis by excluding items that are not indicative of the Group's underlying operating performance and is a key profit measure used by the Board to assess the underlying financial performance of the Group. EBITDA is stated before the following items and for the following reasons:

-- interest is excluded from the calculation of EBITDA because the expense bears no relation to the Group's underlying operational performance;

-- charges for the depreciation and amortisation of property and equipment, acquired intangibles and right-of-use assets are excluded from the calculation of EBITDA, as removing these non-monetary items allows management to better project the Group's long-term profitability; and

-- tax is excluded from the calculation of EBITDA because the expense bears no relation to the Group's underlying operational performance.

Operating profit to EBITDA reconciliation

 
                                             Six months   Restated six months 
 (US$'000)                           ended 30 June 2022    ended 30 June 2021 
                                   --------------------  -------------------- 
 Operating profit                                29,898                 1,308 
 Add backs: 
  Depreciation and amortisation*                  2,839                 1,278 
 EBITDA                                          32,737                 2,586 
                                   --------------------  -------------------- 
 

* US$2,839k of depreciation in H1 2022 split by function is US$2,316k R&D/engineering, US$115k sales & marketing and US$407k general & administration

Two further measures are adjusted EBITDA and adjusted profit after tax, defined in the tables below. These further allow for a more accurate assessment of the underlying business performance by making exclusions of items which do not form part of the Group's normal underlying operations.

EBITDA to adjusted EBITDA reconciliation

 
                                        Six months              Restated six months 
 (US$'000)                      ended 30 June 2022               ended 30 June 2021 
                              --------------------  ------------------------------- 
 EBITDA                                     32,737                            2,586 
                              -------------------- 
 Add backs: 
  Non-recurring IPO costs*                       -                            7,935 
  Non-recurring M&A-related                  2,537                                - 
   costs 
  Share-based payment                        7,192                            1,958 
  Exchange (gain)/loss                    (19,271)                            1,141 
  CPP legal costs**                              -                              299 
                              -------------------- 
 Adjusted EBITDA                            23,195                           13,919 
                              --------------------  ------------------------------- 
 

* Restated operating expenses to move US$ 2,619k from share premium to 'non-recurring IPO costs' within operating expenses. See note 23 for further details

** One-off legal costs incurred in H1 2021 from the formation of WiseWave. Whilst still included in operating expenses and not included in non-recurring IPO costs, this expense was deemed one-off and added back to adjusted EBITDA.

Profit after tax to adjusted profit after tax reconciliation

 
                                        Six months              Restated six months 
 (US$'000)                      ended 30 June 2022               ended 30 June 2021 
                              --------------------  ------------------------------- 
 Profit after tax                           16,252                              103 
                              --------------------  ------------------------------- 
 Add backs: 
  Non-recurring IPO costs                        -                            7,935 
  Non-recurring M&A-related                  2,537                                - 
   costs 
  Share-based payment                        7,192                            1,958 
  Exchange (gain)/loss                    (19,271)                            1,141 
   CPP legal costs                               -                              299 
                              --------------------  ------------------------------- 
 Adjusted profit after 
  tax                                        6,710                           11,436 
                              --------------------  ------------------------------- 
 

Adjusted profit per ordinary share attributable to the shareholders (expressed in cents per ordinary share)

 
                              Note       Six months 
                                      ended 30 June              Six months ended 
                                               2022                  30 June 2021 
---------------------------  -----  ---------------  ---------------------------- 
 Adjusted basic earnings 
  per share                    14              1.00                          1.95 
 Adjusted diluted earnings 
  per share                    14              0.96                          1.68 
 
   5    Revenue 

Revenue in the unaudited condensed consolidated statement of income and comprehensive income is analysed as follows:

 
                     Six months ended   Six months ended 
 (US$'000)               30 June 2022       30 June 2021 
                    -----------------  ----------------- 
 Revenue by type: 
 Products                      52,464             25,559 
 Support                        4,643              2,030 
                               57,107             27,589 
                    -----------------  ----------------- 
 
 
                       Six months ended   Six months ended 
 (US$'0000)                30 June 2022       30 June 2021 
                      -----------------  ----------------- 
 Revenue by region: 
 North America                   23,768             18,499 
 China                           21,807              4,766 
 APAC (ex-China)                  7,257              4,324 
 EMEA                             4,275                  - 
                                 57,107             27,589 
                      -----------------  ----------------- 
 

Sensitivity analysis

Revenue recognition for product revenue is determined using the input method on a percentage of completion basis. The percentage of completion is calculated as a function of total hours estimated to fulfil the contract. The table below illustrates the sensitivity the percentage of completion estimate has on revenue recognition:

 
 Revenue stream    As reported     +10%     -10% 
                  ------------  -------  ------- 
 Products               52,464   57,710   47,218 
                  ------------  -------  ------- 
 

Please see the 'Financial Highlights' section on page 8 for further information on revenue, including the significant increase in revenue in H1 2022 compared to H1 2021.

Below is a reconciliation of the movement in accrued revenue during the period:

 
                                           Six months ended 
 (US$'000)                                     30 June 2022 
                                          ----------------- 
 At 1 January 2022                                   31,719 
 Revenue accrued in the period                       32,744 
 Accrued revenue invoiced in the period            (22,495) 
 Foreign exchange difference                          (363) 
 At 30 June 2022                                     41,605 
                                          ----------------- 
 

Below is a reconciliation of the movement in deferred revenue during the period:

 
                                            Six months ended 
 (US$'000)                                      30 June 2022 
                                           ----------------- 
 At 1 January 2022                                    12,661 
 Precise ITC opening deferred revenue as 
  at 1 January 2022                                    1,120 
                                           ----------------- 
 Revenue recognised in the period                   (13,854) 
 Revenue deferred in the period                       14,765 
 Foreign exchange difference                         ( 314 ) 
 At 30 June 2022                                      14,378 
                                           ----------------- 
 

This deferred revenue balance is all expected to be satisfied within 12 months of the balance sheet date.

The flexible spending account has increased to US$12.9m at the end of June 2022 from US$6.8m at the end of December 2021. These are contracts with customers who have committed to regular periodic payments to us over the term of the contract. These payments are not in respect of specific licences or other deliverables, but they can be used as credit against future deliverables.

   6    Employee costs excluding Directors and key management personnel 
 
                          Six months ended   Restated six months 
 (US$'000)                    30 June 2022    ended 30 June 2021 
                         -----------------  -------------------- 
 Wages, salaries and 
  benefits                          14,275                 6,256 
 Defined contribution 
  pension costs                        483                   165 
 Social security costs                 225                    78 
 Share-based payments                7,192                 1,560 
 Investment tax credit                   -                 (909) 
 Government grants                       -                  (55) 
                         -----------------  -------------------- 
 Total employee costs               22,175                7,095* 
                         -----------------  -------------------- 
 

*The prior period total is restated as US$7,095k and was previously shown as US$7,493k

The average number of employees during the period, analysed by category, was as follows:

 
                              Six months ended   Six months ended 
                                  30 June 2022       30 June 2021 
                             -----------------  ----------------- 
 R&D/engineering                           176                 91 
 General & administration                   19                  6 
 Sales & marketing                           7                  4 
                             -----------------  ----------------- 
 Total employees (average)                 202                101 
                             -----------------  ----------------- 
 

The number of employees at the end of each period, analysed by category, was as follows:

 
                             Six months ended   Six months ended 
                                 30 June 2022       30 June 2021 
                            -----------------  ----------------- 
 R&D/engineering                          220                117 
 General & administration                  22                 10 
 Sales & marketing                          9                  5 
                            -----------------  ----------------- 
 Total employees (end 
  of period)                              251                132 
                            -----------------  ----------------- 
 
   7    Directors and key management personnel compensation 
 
                                 Six months ended   Six months ended 
 (US$'000)                           30 June 2022       30 June 2021 
                                -----------------  ----------------- 
 Directors and key management 
  emoluments                                1,875                712 
 Share-based payments                           -                398 
 Pension costs                                  3                 18 
                                -----------------  ----------------- 
 Total Directors and 
  key management remuneration               1,878              1,128 
                                -----------------  ----------------- 
 
   8    Research and development/engineering 

The Group incurred research and development costs that have been expensed in the unaudited condensed consolidated statement of comprehensive income. The amounts expensed through salaries, subscriptions, subcontracting, depreciation of right-of-use assets, equipment rentals, and prototypes which relate to research and development are as follows:

 
                             Six months ended   Six months ended 
 (US$'000)                       30 June 2022       30 June 2021 
                            -----------------  ----------------- 
 Research and development              25,152             10,749 
                            -----------------  ----------------- 
 
   9    Finance income and expense 
 
                                 Six months ended   Six months ended 
 (US$'000)                           30 June 2022       30 June 2021 
                                -----------------  ----------------- 
 Finance income 
 Interest income from 
  customer                                      -                102 
 Interest income from                         362                  - 
  bank 
                                              362                102 
                                -----------------  ----------------- 
 Finance expense 
 Interest expense 
  - bank charges                                -                 14 
 Lease interest                               160                145 
                                              160                159 
                                -----------------  ----------------- 
 Net finance income/(expense)                 202               (57) 
                                -----------------  ----------------- 
 

10 Non-recurring IPO costs and non-recurring M&A-related costs

In accordance with the Group's policy for non-recurring items, the following charges were included in this category for the period:

One-off costs relating to the Group's acquisition of Precise ITC on 1 January 2022, as well as one-off costs relating to the Group's acquisition of the OpenFive business, which closed on 31 August 2022. The majority of these costs relate to legal and financial due diligence expenses for the acquisitions.

For the prior period, one-off costs relating to Project Aurora, the project name for the Group's Initial Public Offering on the London Stock Exchange, that were not able to be offset against share premium under IAS 32, totalled US$7.9m. This is a restated figure as at 30(th) June 2021, which is further detailed at note 23. Over half of these costs related to LSE admission fees and legal costs associated with the IPO. Per IAS 32, costs that relate to the stock market listing or are otherwise not incremental and not directly attributable to issuing new shares should be recorded in the statement of comprehensive income .

11 Exchange gain/(loss)

The exchange gain recorded in the H1 2022 condensed consolidated statement of comprehensive income of US$19.3m (H1 2021: exchange loss of US$1.1m) is due to the weakening of GBP against USD. The Company's functional currency is GBP and it has significant cash and cash equivalents balances denominated in USD. Large exchange gains have resulted from translating USD to GBP each month at weakening exchange rates.

12 Share of post-tax loss of equity-accounted joint ventures

 
                                           Six months ended 30 
 (US$'000)                                           June 2022 
                                          -------------------- 
 Share of loss                                           1,566 
 Elimination of gains from sales to the 
  joint venture                                          6,302 
                                                         7,868 
                                          -------------------- 
 

The joint venture did not exist at 30 June 2021 so there are no comparatives in the table above.

13 Income tax expense

During the six months ended 30 June 2022 and 2021, the Group recorded a consolidated tax expense of US$6.0m and US$1.1m, respectively, which represented effective tax rates of 26.9% and 29.7%, respectively.

Income tax expense has been recognised based on management's estimate of the effective rate for the financial period, being 26.9%, multiplied by the reported profit before tax of the interim reporting period. The effective tax rate used in the period is an approximation of the effective rate expected in Canada, which is the jurisdiction of the Group's principal operations, as opposed to applying a separate annual average income tax rate to each tax jurisdiction and category of income in the respective tax jurisdiction.

14 Earnings per share

Basic earnings per share is calculated by dividing net income from operations by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding during the period to assume conversion of all potential dilutive share options and restricted share units to common shares.

 
                                     Six months                  Restated six 
                                  ended 30 June               months ended 30 
 (US$'000 except shares)                   2022                     June 2021 
                                ---------------  ---------------------------- 
 Numerator: 
 Net income from operations              16,252                           103 
                                ---------------  ---------------------------- 
 
 Denominator: 
 Weighted average number of 
  common shares outstanding 
  for basic EPS                     668,415,191                   585,328,447 
 Adjustment for share options        32,904,025                    93,760,220 
                                ---------------  ---------------------------- 
 Weighted average number of 
  common shares outstanding 
  for diluted EPS                   701,319,217                   679,088,667 
                                ---------------  ---------------------------- 
 Basic EPS (US$ cents)                     2.43                          0.02 
                                ---------------  ---------------------------- 
 Diluted EPS (US$ cents)                   2.32                          0.02 
                                ---------------  ---------------------------- 
 

15 Intangible assets

 
                                                 Six months 
                                              ended 30 June 
 (US$'000)                                             2022 
                                            --------------- 
 At 1 January 2022                                    1,167 
 Intangibles from Precise ITC acquisition             7,667 
 Additions                                            1,636 
 Amortisation of Precise ITC intangibles              (767) 
                                            --------------- 
 At 30 June 2022                                      9,703 
                                            --------------- 
 

The identifiable intangible asset from the acquisition of Precise ITC was provisionally valued at US$7.8m, against which amortisation of US$0.8m was recorded in H1 2022. Please refer to note 20 for further information.

The US$1.6m of additions is a licence to use IP. This IP is being developed by a 3rd party vendor and amounts paid to date represent instalments to initiate the development which is carried at cost. No amortisation is recorded as the intangible asset is not yet available for use.

16 Cash and cash equivalents

 
                                             As at 31 December 
 (US$'000)              As at 30 June 2022                2021 
                       -------------------  ------------------ 
 Cash at bank and in 
  hand                             451,833             500,964 
                       -------------------  ------------------ 
 

Please see the 'Financial Highlights' section on page 10 for further information on cash, including the decrease in cash as at 30 June 2022 compared to 31 December 2021.

17 Share capital

On 14 May 2021, the Company acquired the entire issued share capital of Alphawave IP Inc. in return for 576,908,920 Ordinary Shares issued by the Company with a nominal value of GBP1. This was based on 20 shares in the Company for each share in Alphawave IP Inc.

In addition, the Company issued 87,835,796 shares with a nominal value of GBP1 as part of its listing on the London Stock Exchange at a price of US$5.79 (GBP4.10), resulting in gross proceeds to the Company of US$509.0m (GBP360.1m) accounted for as share capital of US$124.1m (GBP87.8m) and share premium of US$384.9m (GBP272.3m).

Net proceeds after bank syndication fees were US$492.1m (GBP347.1m) with further costs relating to the issuance of shares resulting in restated total costs of US$20.3m (GBP14.4m), of which US$3.5m was unpaid as at 30 June 2021, chargeable to the share premium account. However, the Company received US$22.2m (GBP15.7m) as proceeds of a stock stabilisation programme which were set off against these IPO costs, resulting in the net proceeds of US$0.8m being posted to the share premium account.

As part of the transaction, all options held over Alphawave IP Inc. stock became, by way of an amendment to option agreements, options in Company shares, on the basis of 20 options in the Company for 1 option in Alphawave IP Inc., each with an exercise price of 1/20(th) of the original exercise price at the grant date.

On the IPO date, 13,049,861 options were exercised into ordinary shares in the Company. The options exercised all had prices below the GBP1 nominal value as a result of them maintaining their original exercise prices when they were granted as options in the shares of Alphawave IP Inc. This resulted in exercise proceeds of US$4.1m (GBP2.8m) with the shortfall in Share Capital of US$14.4m (GBP10.2M), being transferred from the merger reserve to the Share Capital account.

The reorganisation of the Company's corporate structure described above has been accounted for as a common control transaction and has been given effect from 1 January 2020. This has resulted in the opening share capital position being adjusted as if the reorganisation had happened on that date. In addition, a merger reserve has been established which reflects the difference between the share capital issued to acquire the shares in Alphawave IP Inc. and the share capital of Alphawave IP Inc. acquired at the transaction date of 14 May 2021.

The Currency Translation reserve arises out of the difference between the Net Asset position as at 30 June 2021 being translated into our presentational currency of USD at that date and the Equity balances being translated into our presentational currency at the date of the transaction.

 
                                         Shares     US$'000 
                                   ------------  ---------- 
 Balance as at 31 December 2020 
  in Alphawave IP Inc.               27,927,252 
 Exercise of options pre-IPO            265,701 
                                   ------------  ---------- 
 Sub-total                           28,192,953 
                                   ------------  ---------- 
 20 for 1 share exchange*           563,859,060     796,958 
 Shares issued to option holders 
  on exercise                        13,049,861      18,445 
---------------------------------  ------------  ---------- 
                                    576,908,920     815,403 
 Primary share issue at IPO          87,835,796     124,147 
 Further issue of shares                221,217         313 
---------------------------------  ------------  ---------- 
                                    664,965,934     939,863 
---------------------------------  ------------  ---------- 
 Capital reduction                            -   (930,464) 
---------------------------------  ------------  ---------- 
 Balance as at 31 December 2021     664,965,934       9,399 
---------------------------------  ------------  ---------- 
 Further issue of shares             16,456,177         197 
---------------------------------  ------------  ---------- 
 Balance as at 30 June 2022         681,422,111       9,596 
---------------------------------  ------------  ---------- 
 

* Reflects the 20 ordinary shares in the Company issued with a nominal value of GBP1 in exchange for 1 share in Alphawave IP Inc., immediately prior to the IPO on 14 May 2021 and as part of the reorganisation. See prospectus for more details of the IPO and Reorganisation.

18 Share-based payments

 
                                    As at 30 June 2022                As at 30 June 2021 
                            ---------------------------------  ------------------------------- 
                                                     Weighted                         Weighted 
                                    Share    average exercise       Shares    average exercise 
                                  options         price (US$)      options         price (US$) 
                            -------------  ------------------  -----------  ------------------ 
 Outstanding at the 
  beginning of the period      95,273,220               0.280    4,557,955               2.514 
 Exercised during the 
  period                     (16,456,177)               0.050    (918,194)               7.294 
 Forfeited during the 
  period                      (1,237,812)               1.217            -                   - 
 Granted during the 
  period                        6,906,285               2.149    1,048,250              28.230 
 Share split during                     -                   -   89,072,209                   - 
  the period* 
--------------------------  -------------  ------------------  -----------  ------------------ 
 Outstanding at the 
  end of the period            84,485,516               0.507   93,760,220               0.371 
--------------------------  -------------  ------------------  -----------  ------------------ 
 Exercisable at the 
  end of the period            44,088,144               0.537   48,421,600               0.111 
--------------------------  -------------  ------------------  -----------  ------------------ 
 

* 30 June 2021 number of shares has been adjusted for the 20 for 1 split that happened immediately prior to the IPO in May 2021.

Each share option in Alphawave IP Inc. became 20 share options in the Company by way of an amendment to the option agreements. Conditions largely remained the same with twenty five per cent of options granted vesting on the first anniversary date of issuance and the remaining options vesting equally over the following 36 months. Options expire within five years of their issue under the terms of the option agreements.

The following assumptions were used in the Black-Scholes-Merton model used to determine the fair value of the share-based compensation expense relating to share options issued in the period:

 
                           6 months ended 30   6 months ended 30 
                                   June 2022           June 2021 
                          ------------------  ------------------ 
 Risk-free interest 
  rate                                 2.82%               0.91% 
 Expected volatility                  29.72%              29.72% 
 Expected dividend                         -                   - 
  yield 
 Expected life of share 
  option                                   4                   5 
 

The Group has determined the forfeiture rate to be nil and volatility was determined in reference to listed entities similar to the Group.

Share-based payment split by function

6 months to June 2022

 
                                             Sales &             General 
 (US$'000)              R&D/engineering    marketing    & administration   Total 
                       ----------------  -----------  ------------------  ------ 
 Share-based payment 
  charge                          5,869          291               1,032   7,192 
                       ----------------  -----------  ------------------  ------ 
 

6 months to June 2021

 
                                             Sales &             General 
 (US$'000)              R&D/engineering    marketing    & administration   Total 
                       ----------------  -----------  ------------------  ------ 
 Share-based payment 
  charge                          1,557          115                 286   1,958 
                       ----------------  -----------  ------------------  ------ 
 

19 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions with Directors and key management personnel of the Group are disclosed in note 7. In addition, the Group entered into the following transactions and had the following outstanding balances with related parties who are not consolidated in these interim financial statements:

 
                                         As at and for the period ended 
                                     -------------------------------------- 
                                      30 June   31 December      * Restated 
 (US$'000)                               2022          2021    30 June 2021 
                                     --------  ------------  -------------- 
 Transactions: 
 Revenue from a company on 
  which a Director is the chairman 
  of the board(1&2)                       546         9,855           3,403 
 Revenue from a company on 
  which a Director is a board 
  observer(3)                               -             -           1,730 
 Revenue from VeriSilicon(4)            1,653         8,861             737 
 Revenue from WiseWave, a joint 
  venture, where there is common 
  directorship(4)                      20,154        29,846               - 
 Costs capitalised as intangible        (800)             -               - 
  assets from a company on which 
  a Director is a director 
-----------------------------------  --------  ------------  -------------- 
                                       21,553        48,562           5,870 
-----------------------------------  --------  ------------  -------------- 
 
 
 
 Balances: 
 Accounts receivable from a                      -      500       - 
  company on which a Director 
  is a board observer 
 Accounts receivable from VeriSilicon(4)         -    2,469   1,961 
 
 Accrued revenue for a company 
  on which a Director is a board 
  observer(3)                                    -        -   1,368 
 Accrued revenue for a company 
  on which a Director is the 
  chairman of the board                      4,710    5,631     261 
 Accrued revenue from VeriSilicon(4)         2,323      423     941 
 Accrued revenue from WiseWave, 
  a joint venture, where there 
  is common directorship(4)                 11,249    5,803       - 
 Accrued liabilities with a                  (600)        -       - 
  company on which a Director 
  is a director 
-----------------------------------------  -------  -------  ------ 
                                            17,682   14,826   4,531 
-----------------------------------------  -------  -------  ------ 
 
 Deferred revenue from a company 
  on which a Director is the 
  chairman of the board(1&2)                    49      727     356 
 Deferred revenue from a company 
  on which a Director is a board 
  observer(3)                                    -        -     205 
 Deferred revenue from VeriSilicon(4)          392      593      38 
 Deferred revenue from WiseWave,               479        -       - 
  a joint venture, where there 
  is common directorship(4) 
-----------------------------------------  -------  -------  ------ 
                                               920    1,320     599 
-----------------------------------------  -------  -------  ------ 
 

* Restated 30 June 2021 related party note to align reporting to our annual report. See the final sentence in footnote 4.

1. US$949,000 of the revenue in the period ended 31 December 2021 and US$677,000 of the deferred revenue balance as at 31 December 2021 is from Achronix Semiconductor Corporation, where John Lofton Holt ceased to be chairman of the board on 8 July 2021. Therefore, revenue and deferred revenue from this customer has not been included in this note for H1 2022.

2. Companies on which a Director is the chairman of the board are FLC Technology Group and DreamBig Semiconductor Inc.

3. The H1 2021 revenue of US$1,730,000, the accrued revenue balance of US$1,368,000 as at 30 June 2021 and the deferred revenue balance of US$205,000 as at 30 June 2021 have been kept in this note for consistency purposes. The Director who was a board observer ceased their interest in the customer in March 2021.

4. All revenue from VeriSilicon and related balances are in respect of transactions signed with VeriSilicon as reseller prior to the VeriSilicon reseller agreement moving under WiseWave as master reseller effective from November 2021. All revenue and associated balances in respect of transactions signed with VeriSilicon since that date are now recognised through the WiseWave joint venture line. The line item wording has changed to align this with our 2021 annual report.

Sales to related parties are made at market prices and in the ordinary course of business. Outstanding balances are unsecured and settlement occurs in cash. Any estimated credit losses on amounts owed by related parties would not be material and are therefore not disclosed. This assessment is undertaken at each key reporting period through examining the financial position of the related party and the market in which the related party operates.

In the interests of transparency, we have opted to disclose VeriSilicon as a related party within this note. However, we have received advice that VeriSilicon is not a related party as defined by IAS 24 or Listing Rule 11.

20 Business combinations

On 1 January 2022, the Group acquired 100% of Precise ITC ("Precise"). Precise is an emerging leader in the Ethernet and Optical Transport Network (OTN) communications connectivity IP space. The acquisition results in the addition of a team of leading engineers focused on delivering a high-performance Ethernet and OTN communications controller IP portfolio.

The total consideration stated in the share purchase agreement is US$19.5m. This comprises initial cash consideration of US$8.5m and future key employee remuneration of US$11.5m, less the estimated closing cash on acquisition of US$0.7m.

All M&A-related costs relating to the acquisition of Precise were recorded in the financial year ending 31 December 2021. Of the US$0.5m total amount of 'non-recurring M&A-related costs/professional costs' for the year ended 31 December 2021, US$0.3m related to the Precise acquisition.

The Group has a contingent liability of US$11.5m which represents remuneration to the single shareholder of Precise, payable on the earlier of achievement of certain revenue targets or completion of three years continuing employment, assessed at the second and third anniversaries of closing.

The provisional fair values, assessed as part of the ongoing purchase price allocation exercise, of the identifiable assets purchased and liabilities assumed as at the date of acquisition are detailed below. The Black Scholes Option Pricing Model has been used to determine the provisional fair value of contingent consideration.

 
 (US$'000) 
--------------------------------------------  --------- 
 Purchase consideration 
 Cash paid on closing                             8,470 
 Fair value of contingent consideration             740 
--------------------------------------------  --------- 
 Fair value of purchase consideration             9,210 
--------------------------------------------  --------- 
 Net tangible assets 
 Working capital excluding deferred revenue         269 
 Fixed assets                                        52 
 Cash                                               803 
 Non-operating liabilities                        ( 70) 
 Deferred revenue                              ( 1,120) 
--------------------------------------------  --------- 
 Net tangible assets                             ( 66 ) 
--------------------------------------------  --------- 
 Identifiable intangible assets 
 Technology                                      7 ,800 
--------------------------------------------  --------- 
 Identifiable intangible assets                 7 , 800 
--------------------------------------------  --------- 
 Goodwill 
 Assembled workforce                                326 
 Purchase price unallocated                      1 ,150 
--------------------------------------------  --------- 
 Goodwill                                       1 ,47 6 
--------------------------------------------  --------- 
 
 Total Consideration                             9 ,210 
--------------------------------------------  --------- 
 

The provisional working capital balance of US$0.3m is made up of US$0.4m accounts receivable and US$0.1m of accounts payable and accrued liabilities. There has been no fair value adjustment to working capital, which remains at its net book value from 31 December 2021.

Provisionally, we don't expect any tax deduction in respect of goodwill.

From the date of acquisition to 30 June 2022, Precise contributed US$1.2m revenue to the Group.

21 Subsidiaries of the Group as at 30 June 2022

 
               Description 
                and 
                proportion of 
                share capital 
                held directly   Country 
                or indirectly    of 
                by Alphawave     incorporation     Nature of                   Registered 
                IP Group plc     or registration    business                    office address 
------------  ---------------  -----------------  --------------------------  ------------------- 
 Alphawave     Ordinary 100%    Canada             Developing and              70 University 
  IP Inc.                                           licensing high              Avenue, Toronto, 
                                                    performance connectivity    Ontario, M5J 
                                                    intellectual                2M4 
                                                    property for 
                                                    the semiconductor 
                                                    industry 
 Alphawave     Ordinary 100%    United States      Sales and sale              1730 N. First 
  IP Corp.                                          support to license          Street, Suite 
                                                    intellectual                650, San Jose, 
                                                    property for                California, 
                                                    the semiconductor           95112, USA 
                                                    industry 
 Alphawave     Ordinary 100%    British            To facilitate               Trinity Chambers, 
  IP (BVI)                       Virgin Islands     IP licensing                PO Box 4301, 
  Ltd                                               to WiseWave Technology      Road Town, 
                                                    Co., Ltd                    Tortola, British 
                                                                                Virgin Islands 
 Alphawave     Ordinary 100%    Canada             Holding company 
  Call. Inc.                                        incorporated 
                                                    to facilitate 
                                                    the exchangeable 
                                                    share structure 
 Alphawave     Ordinary and     Canada             Holding company 
  Exchange      Exchangeable                        incorporated 
  Inc.          100%                                to facilitate 
                                                    the exchangeable 
                                                    share structure 
 Alphawave     Ordinary 100%    China              To facilitate 
  IP Limited                                        the investment 
                                                    into WiseWave 
                                                    Technology Co., 
                                                    Ltd 
 Precise       Ordinary 100%    Canada             Developing and              170 University 
  ITC                                               licensing high              Avenue, 
                                                    performance connectivity    10(th) Floor, 
                                                    intellectual                Toronto, 
                                                    property for                Ontario, M5H 
                                                    the semiconductor           3B3 
                                                    industry 
 AWIPINSURE    Ordinary 100%    Barbados           Captive insurance           1st Floor, 
  Limited                                           company                     Limegrove 
                                                                                Centre, Holetown, 
                                                                                St. James, 
                                                                                Barbados 
 

22 Post balance sheet events

The Company has evaluated subsequent events after 30 June 2022, the date of issuance of the condensed consolidated interim financial statements, and has identified one recordable or disclosable event not otherwise reported in these condensed consolidated financial statements or notes thereto, which is disclosed below.

OpenFive acquisition

On 14 March 2022, the Group announced it had entered into a definitive agreement to acquire the OpenFive business of SiFive. All regulatory approvals for the transaction were received on 25 August 2022 and the Group announced completion of the acquisition on 1 September 2022. The initial cash consideration for the transaction was US$203.6m representing a purchase price of US$210.0m less adjustments for estimated net working capital and indebtedness at closing. Closing statements will be finalised in the 90-day period following completion.

23 Prior year adjustments

The prior period comparative unaudited condensed consolidated statements of comprehensive income, changes in equity and cash flows have been restated as explained below.

Unaudited condensed consolidated statement of comprehensive income

 
                                     As previously                    * Restated 
                                      reported six                    six months 
                                      months ended                 ended 30 June 
                                      30 June 2021   Adjustment             2021 
                                    --------------  -----------  --------------- 
                              Note         US$'000      US$'000          US$'000 
---------------------------  -----  --------------  -----------  --------------- 
 
 Revenue                       5            27,589            -           27,589 
 Cost of sales                             (1,336)            -          (1,336) 
 Gross profit                               26,253            -           26,253 
 R&D/engineering                          (10,749)            -         (10,749) 
 Sales & marketing                           (672)            -            (672) 
 General & administration                  (2,490)            -          (2,490) 
 Other items                               (8,415)      (2,619)         (11,034) 
---------------------------  -----  --------------  -----------  --------------- 
 Operating profit                            3,927            -            1,308 
 
 'Other items' charged 
  in arriving at operating 
  profit: 
 Non-recurring IPO 
  costs                        10          (5,316)      (2,619)          (7,935) 
 Non-recurring M&A-related     10                -            -                - 
  costs 
 Share-based payment           18          (1,958)            -          (1,958) 
 Exchange gain/(loss)          11          (1,141)            -          (1,141) 
---------------------------  -----  --------------  -----------  --------------- 
 Other items                               (8,415)      (2,619)         (11,034) 
---------------------------  -----  --------------  -----------  --------------- 
 
 Finance income                9               102            -              102 
 Finance expense               9             (159)            -            (159) 
 Share of post-tax             12                -            -                - 
  loss of equity-accounted 
  joint ventures 
 Profit before tax                           3,870      (2,619)            1,251 
 Income tax expense            13          (1,148)            -          (1,148) 
---------------------------  -----  --------------  -----------  --------------- 
 Profit after tax                            2,722      (2,619)              103 
---------------------------  -----  --------------  -----------  --------------- 
 
 Other comprehensive 
  income 
 Exchange differences 
  on the reorganisation                   (11,035)         (71)         (11,106) 
 Exchange (losses)                               -            -                - 
  arising on translation 
  of foreign operations 
---------------------------  -----  --------------  -----------  --------------- 
 Other comprehensive 
  income for the period, 
  net of tax                              (11,035)         (71)         (11,106) 
---------------------------  -----  --------------  -----------  --------------- 
 Total comprehensive 
  loss for the period                      (8,313)      (2,690)         (11,003) 
---------------------------  -----  --------------  -----------  --------------- 
 

During the period ended 31 June 2021, the group debited US$23.0m of costs against share premium. Following a review, it was identified that US$2, 619k of these costs did not relate to the issue of new shares, and therefore should have been expensed as incurred. The effect of this restatement is to increase non-recurring IPO costs by US$2,619k, to decrease share premium by US$2,690k and to decrease the currency translation reserve by US$71k.

Unaudited condensed consolidated statement of changes in equity

As a consequence of the adjustment described above, profit for the period has been restated by US$2,619k. Exchange differences on the reorganisation has been restated by US$71k, and the line item 'Net costs on issuance of shares relating to IPO' has been restated by US$2,690k, both for the same reason.

In addition, the following further restatement has been made to the consolidated statement of changes in equity. During the IPO process, upon issuing shares, a resolution was passed to issues shares at lower than the nominal price and take the difference from a reserves balance. This was taken from the merger reserve, but should have been deducted from the share premium account. As a consequence, the line item 'Effect of exercise price below nominal value' has been restated to move US$14,381k from merger reserve to share premium.

Unaudited condensed consolidated statement of cash flows

 
                                         As previously                    *Restated 
                                          reported six                   six months 
                                          months ended                        ended 
                                          30 June 2021   Adjustment    30 June 2021 
                                        --------------  -----------  -------------- 
                                  Note         US$'000      US$'000         US$'000 
-------------------------------  -----  --------------  -----------  -------------- 
 Cash flows from operating 
  activities 
 Cash generated from 
  operating activities 
  before tax                      (a)            6,368      (1,619)           4,749 
-------------------------------  -----  --------------  -----------  -------------- 
 Income tax paid                               (3,133)            -         (3,133) 
 Net cash generated 
  from operating activities                      3,235      (1,619)           1,616 
-------------------------------  -----  --------------  -----------  -------------- 
 
 Cash flows from investing 
  activities 
 Purchase of property and 
  equipment                                      (557)            -           (557) 
 Purchase of intangible 
  asset                                          (541)            -           (541) 
 Net cash used in investing 
  activities                                   (1,098)            -         (1,098) 
--------------------------------------  --------------  -----------  -------------- 
 
 Cash flows from financing 
  activities 
 Issuance of common 
  shares                           17          509,003            -         509,003 
 IPO share issuance 
  costs                            17         (23,061)        6,119        (16,942) 
 Exercise of options               17            4,064            -           4,064 
 Proceeds from IPO 
  stabilisation                    17           22,238            -          22,238 
 Decrease in bank indebtedness                    (38)            -            (38) 
 Interest paid                                   (144)            -           (144) 
 Collection of notes 
  receivable                                       428            -             428 
 Repayment of principal 
  under lease liabilities                        (951)            -           (951) 
-------------------------------  -----  --------------  -----------  -------------- 
 Net cash generated 
  from financing activities                    511,539        6,119         517,658 
-------------------------------  -----  --------------  -----------  -------------- 
 
 Net increase in cash 
  and cash equivalents                         513,676        4,500         518,176 
 
 Cash and cash equivalents 
  at start of year                              14,039            -          14,039 
 Effects of foreign 
  exchange on cash and 
  cash equivalents                             (8,578)      (4,500)        (13,078) 
-------------------------------  -----  --------------  -----------  -------------- 
 Cash and cash equivalents 
  at end of period                 16          519,137            -         519,137 
-------------------------------  -----  --------------  -----------  -------------- 
 
 
                                         As previously                                          *Restated 
                                          reported six                                         six months 
                                          months ended                                              ended 
                                          30 June 2021              Adjustment               30 June 2021 
                                        --------------  ----------------------  ------------------------- 
                                  Note         US$'000                 US$'000                    US$'000 
-------------------------------  -----  --------------  ----------------------  ------------------------- 
 Cash flows from operating 
  activities 
 Net income                                      2,722                 (2,619)                        103 
 Items not affecting 
  cash: 
  Income tax expense                             1,148                       -                      1,148 
  Depreciation of property 
   and equipment                                   144                       -                        144 
  Depreciation of right-of-use 
   asset                                         1,134                       -                      1,134 
  Share-based payment              18            1,958                       -                      1,958 
  Lease interest                                   144                       -                        144 
                                                 7,250                 (2,619)                      4,631 
                                        --------------  ----------------------  ------------------------- 
 Changes in working 
  capital: 
  Decrease in trade 
   and other receivables                           364                       -                        364 
  (Increase) in accrued 
   revenue                         5           (8,656)                       -                    (8,656) 
  Increase in trade 
   and other payables                            2,823                   1,000                      3,823 
  Increase in deferred 
   revenue & flexible 
   spending account                5             4,587                       -                      4,587 
-------------------------------  -----  --------------  ----------------------  ------------------------- 
                                                 (882)                   1,000                        118 
-------------------------------  -----  --------------  ----------------------  ------------------------- 
 Cash generated from 
  operating activities 
  before tax                                     6,368                 (1,619)                      4,749 
-------------------------------  -----  --------------  ----------------------  ------------------------- 
 

Cash flows from operating activities has been restated to decrease net income by US$2,619k, based on the restatement of the consolidated statement of comprehensive income described above.

In addition, following a review of the prior year cash flow statement, two further restatements of the cash flow statement have been made.

The increase in trade and other payables within changes in working capital has been restated by US$1,000k to reflect IPO costs which remained unpaid at 30 June 2021. 'IPO share issuance costs' within cash flows from financing activities has also been restated by US$3,500k.

The effect of all of the above restatements is to increase the loss on 'effects of foreign exchange on cash and cash equivalents' line by US$4,500k.

[1] See note 4 Alternative Performance Measures (APMs) on page 21. Adjusted EBITDA and Adjusted Profit after Tax exclude IPO-related non-recurring costs, foreign exchange adjustments, share-based payments, M&A transaction costs and one-time fees associated with WiseWave.

[2] H1 2021 operating expenses have been restated by US$2.6m from share premium to non-recurring IPO costs. FY 2021 remains unchanged. This restatement had no impact on H1 2021 APMs. See note 23 for further information.

[3] Bookings are a non-IFRS measure representing legally binding and largely non-cancellable commitments by customers to license our technology. Bookings comprise licence fees, non-recurring engineering, support and, in some instances, our estimates of potential future royalties.

[4] Both FSA (Flexible Spending Account) drawdowns and China re-sale licences convert previously announced contractual commitments included within bookings reported in prior periods to new product design wins which will be recognised as revenue over time.

[5] For further details see note 19

[6] See note 4 (Alternative Performance Measures) on page 20

[7] Dell'Oro Group, June 16 2022 Data Center Capex Grew at the Fastest Rate in Three Years in 1Q 2022, According to Dell'Oro Group - Dell'Oro Group (delloro.com)

[8] IDC, May 2022 Worldwide IDC Global DataSphere Forecast, 2022-2026: Enterprise Organizations Driving Most of the Data Growth

[9] See note 4 (Alternative Performance Measures) on page 20 for reconciliation of EBITDA to adjusted EBITDA

[10] See note 4 (Alternative Performance Measures) on page 20 for reconciliation of profit after tax to adjusted profit after tax

[11] Provisional fair value of US$7.8m of identifiable intangible asset assumed as at the date of acquisition of Precise ITC. See note 15 on page 26 for details of provisional fair values of identifiable assets purchased and liabilities assumed from the Precise ITC acquisition.

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September 21, 2022 02:02 ET (06:02 GMT)

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