TIDMAWE

RNS Number : 4424N

Alphawave IP Group PLC

25 September 2023

LEI: 213800ZXTO21EU4VMH37

ALPHAWAVE IP GROUP PLC

INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2023

-- Technology leadership and product portfolio underpin broader customer base of 85 (H1 2022: 28)

-- 16 design wins; 91% of Licence and NRE bookings from North American, EMEA and APAC (exc. China) customers

-- Bookings up 251% year-on-year to US$187m. Backlog excluding royalties of US$365m (FY 2022: US$365m)

-- Revenue up 228% year-on-year to US$187m including contribution from the acquisition of OpenFive

-- Adjusted EBITDA (1) of US$32m and adjusted EBITDA margin of 17% (H1 2022: US$23m and 41%) reflect R&D investment and change in business mix including silicon

   --      H1 2023 operating loss of US$3m compared to H1 2022 operating profit of US$30m 
   --      Cash outflow from operating activities of US$31m (H1 2022: US$32m cash inflow) 
   --      Net debt(1) of US$100m (H1 2022: net cash US$452m) 

-- FY 2023 outlook unchanged with increased profitability expected in H2 2023. Medium-term outlook unchanged and continued confidence in growth prospects

LONDON, United Kingdom and TORONTO, Ontario, Canada, 25 September 2023 - Alphawave IP Group plc (LSE: AWE, "Alphawave Semi", 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 2023.

 
 Financial Summary and APMs            H1 2023   H1 2022   Change 
  [1] - US$m 
====================================  ========  ========  ======= 
  Licence and NRE                         73.6      57.1      29% 
  Royalties and silicon                  113.6         -       nm 
 Revenue                                 187.2      57.1     228% 
 Operating (loss)/profit                 (2.6)      29.9   (109%) 
 Operating margin                         (1%)       52% 
 EBITDA (1)                               10.7      32.7    (67%) 
 EBITDA margin                              6%       57% 
 Adjusted EBITDA (1)                      32.4      23.2      40% 
 Adjusted EBITDA margin                    17%       41% 
 (Loss)/profit after tax                (13.4)      16.3   (182%) 
 (Loss)/profit after tax margin           (7%)      28 % 
 Adjusted Profit after tax(1)             15.4       6.7    130 % 
 Adjusted PAT margin                        8%       12% 
 Pre-tax operating cash flow            (31.3)      32.2   (197%) 
 Cash and cash equivalents               122.8     451.8    (73%) 
 Net (debt)(1) /cash                   (100.0)     451.8   (122%) 
 
 Bookings [2] and Design Win           H1 2023   H1 2022   Change 
  Activity - US$m 
====================================  ========  ========  ======= 
  Licence and NRE                        114.9      38.5     199% 
  Royalties and silicon [3]               72.2      14.9     384% 
 New Bookings                            187.2      53.4     251% 
 Additional design win activity 
  - FSA drawdowns and China re-sale 
  licences [4]                             3.4      14.7    (77%) 
 Number of revenue generating 
  end-customers (end of period)             85        28     204% 
 

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 Semi said: "We are successfully executing on our strategy, with the business offering a growing range of advanced connectivity solutions that enable the next generation of AI and cloud infrastructure. In H1 2023 we delivered a good set of results, scaling our business and investing organically to support our pipeline and future revenue growth. Our leading connectivity technology and strong execution give us confidence in the prospects for our business."

John Lofton Holt, Executive Chairman of Alphawave Semi, added: "Through an uncertain economic environment we remain focused on delivering on our vision for the business. We are serving and increasing number of customers with our next-generation connectivity technology. This fuels our optimism for the long-term potential of the business."

Interim Results Highlights

-- H1 2023 revenues of US$187.2m, representing 228% growth year-on-year including the contribution from the acquisition of OpenFive and organic growth.

-- WiseWave revenues of US$26.4m (excluding re-seller revenue [5] ), relate to the multi-year subscription licence

-- Adjusted EBITDA of US$32.4m and margin of 17% (H1 2022 US$23.2m and 41%), reflecting change in business mix including revenue from IP licences and silicon, as well as R&D investment in our new connectivity products going into production in 2024

-- Share-based payment of US$18.5m and deferred compensation payments [6] related to acquisitions of US$4.1m

-- Cash outflow from operating activities before tax in H1 2023 was US$31.3m (H1 2022 cash inflow: US$32.2m) including US$42.7m decrease in deferred revenue and flexible spending accounts

-- During the second quarter of 2023, the Group's fixed charges coverage ratio (FCCR) was below the minimum allowed ratio of 1.25x, which represented a breach of the covenant. Long-term waiver obtained from lenders covering the period to 30 June 2024

   --      Cash and cash equivalents of US$122.8m. Net debt of US$100.0m 

Business and Technology Highlights

-- IP & NRE bookings in H1 2023 up 199% year-on-year. 77% of these bookings in advanced nodes, i.e. 7nm and below

-- Alpha wave Semi maintained its technology leadership with new design wins in 3nm, 224G ser-des IP and PCI-Express Gen6 interface IP

   --     The Company expanded its technology collaboration with the leading foundries on 3nm process 

-- During H1 2023, the Company broadened its customer base to 85 (FY 2022: 80 customers; H1 2022: 28 customers), including more than half of the top 20 semiconductor device companies

-- Continued to reinforce sales and R&D capabilities with new premises in Ottawa, Canada and Pune, India

-- In H1 2023, the Company headcount increased by 49 people globally, from 695 (as of 31 December 2022) to 744 (251 as of 30 June 2022)

Outlook

-- Alphawave Semi reiterates its FY 2023, mid-term and long-term outlook communicated at the Capital Markets Day on 13 January 2023

-- The outlook for 2023 remains unchanged. Alphawave Semi expects 2023 revenue of US$340m to US$360m and adjusted EBITDA of approximately US$87m (or approximately 25% of revenue), which is at the mid-point of the revenue guidance range

Results Presentation and webcast

A presentation for investors and analysts will be held at 8.30am BST, on 25 September 2023. To register for the webcast:

https://awavesemi.zoom.us/webinar/register/WN_F9JqILaXQVG_3Gzb1F02Nw

After registering, you will receive a confirmation email with information about joining the webcast.

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: 894 8611 9992

   Full list of dial-in numbers available   https://awavesemi.zoom.us/u/kxW5Y5UU 

The Company's H1 2023 Report is also available to view in the Investor Relations section of the Company's website ( Results, Reports & Presentations (awaveip.com) ).

About Alphawave Semi

Alphawave Semi is a global leader in high-speed connectivity for the world's technology infrastructure. Faced with the exponential growth of data, Alphawave Semi's technology services a critical need: enabling data to travel faster, more reliably and with higher performance at lower power. We are a vertically integrated semiconductor company, and our IP, custom silicon, and connectivity products are deployed by global tier-one customers in data centers, compute, networking, AI, 5G, autonomous vehicles, and storage. Founded in 2017 by an expert technical team with a proven track record in licensing semiconductor IP, our mission is to accelerate the critical data infrastructure at the heart of our digital world. To find out more about Alphawave Semi, visit: awavesemi.com

Trademarks

Alphawave Semi and the Alphawave Semi logo are trademarks of Alphawave IP Group plc. All rights reserved. All registered trademarks and other trademarks belong to their respective owners.

Contact Information

 
 Alphawave IP Group   John Lofton Holt, Executive               ir@awavesemi.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 
                       Michael Terry Caraher                     +1 415 420 8420 
===================  ============================  ============================= 
 

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 2023 of US$187.2m were up 251% over the prior year (H1 2022: US$53.4m) due to increased design win momentum and the contribution from the acquisition of OpenFive. During H1 2023 we achieved 16 design wins.

Licence and Non-recurring Engineering ("NRE") bookings in H1 2023 were US$114.9m, up 199% year-on-year. North American customers represented approximately 44% of these bookings, followed by EMEA 25% and APAC customers (excluding China) 22%. China represented 9%. Royalties and Silicon orders were US$72.2m, up 384% over H1 2022 (H1 2022: US$14.9m). The level of silicon orders was driven by pre-existing custom silicon designs for North American and Chinese customers from the acquisition of OpenFive in H2 2022.

During H1 2023 there were no Flexible Spending Accounts 4 ("FSA") drawdowns (H1 2022: US$5.6m) and China (VeriSilicon) reseller deals totalled US$3.4m (H1 2022: US$9.1m). Both FSA and reseller deals are not new bookings but represent the conversion of prior customer commitments to design wins.

As of 30 June 2023, Alphawave Semi had more than half of the top twenty semiconductor device companies as customers [7] , a reflection of its continued strength in the data infrastructure markets that require the world's most advanced connectivity technology.

Revenue in H1 2023 was US$187.2m up 228% year-on-year (H1 2022: US$57.1m), driven by the contribution of the acquisition of OpenFive and organic growth. During H1 2023 we recognised revenue from 85 customers compared to 28 in H1 2022. Our H1 2023 revenue continued to be heavily weighted to our core markets of data networking and cloud compute. 66% of revenue in the period was generated from Chinese customers, including the custom silicon business from the acquisition of OpenFive. Revenue excluding China was US$63.1m up 79% year-on-year (H1 2022: US$35.3m).

Gross margin in H1 2023 was 44% compared to 97% in H1 2022. The decrease reflects the diversification of our business into custom silicon development and silicon products. Through the acquisition of OpenFive, we inherited a number of contracts with gross margins below our Group targets.

The year-on-year increase in R&D, S&M and G&A expenses was primarily due to the increase in our closing headcount from 251 employees in H1 2022 to 744 in H1 2023, together with associated software tool costs which scale with our R&D/engineering headcount. The increase of 493 full time employees includes approximately 350 employees who joined as part of the acquisitions of OpenFive and Banias Labs. In addition, we invested in support functions and scaled our finance, HR, legal and corporate marketing teams, reflecting the increased complexity and the extended geographical footprint of the Group. In H1 2023 we capitalised US$24.7m of R&D expenses related to the development of our opto-electronics products (H1 2022: US$nil). G&A expenses in H1 2023 included US$4.1m of deferred compensation payments [8] related to acquisitions.

Other operating expenses in H1 2023 totalled US$17.6m (H1 2022: credit of US$9.5m), mainly driven by share-based payment costs of US$18.5m. In H1 2022, other operating income totalled US$9.5m and included a 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.

Over the period we generated an operating loss of US$2.6m, significantly below US$29.9m operating profit in H1 2022.This was predominantly due to the diversification of our business into custom silicon development and silicon products combined with lower gross margin contracts inherited through the acquisition of OpenFive, and a significantly lower exchange gain in H1 2023.

Adjusted EBITDA in H1 2023 was US$32.4m (17% margin) compared to US$23.2m (41% margin) in H1 2022. The decrease in adjusted EBITDA margin was expected and reflects the early stage of our migration to a combined IP licensing and silicon business model through acquisitions and the scaling of our engineering capabilities to support our pipeline of opportunities.

We closed the period with a cash and cash equivalents balance of US$122.8m compared to US$451.8m and US$186.2m at the end of June 2022 and December 2022, respectively. At the end of H1 2023 we had a net debt position of US$100.0m (FY 2022: Net debt position of US$24.0m; H1 2022: Net cash position of US$451.8m).

During the second quarter of 2023, the Group's fixed charges coverage ratio (FCCR) was below the minimum allowed ratio of 1.25x, principally due to a higher working capital requirement as a result of a significant reduction in deferred revenue, a higher proportion of lower margin silicon revenue at the beginning of the year and increased investment in research and development activities, as anticipated, as the Company invests in its own products business. On 22 September 2023, we established an amendment to the credit agreement with the lenders which suspends the FCCR ratio for the period from the quarter ended 30 June 2023 to the quarter ending 30 June 2024, after which it is set at 1.1x until the quarter ending 30 September 2025 when it reverts to 1.25x. As we continue to invest in growth and scale, we continue to closely monitor our cash flow to ensure we bring our business into full compliance with the covenant as planned.

End Market Drivers Remain Strong

Our core markets of servers, storage and network switches continue to provide compelling opportunities for growth. In Q1 2023, data centre capital expenditure decelerated to 8% year-on-year driven by a decline in servers and storage systems while network and digital infrastructure maintained double-digit revenue growth [9] . In parallel, the recent server platform refresh and the growing demand on AI/ML applications is expected to motivate customers to upgrade their infrastructure. Global, spending on artificial intelligence (AI), including software, hardware, and services for AI-centric systems, will reach US$154 billion in 2023, an increase of 26.9% over the amount spent in 2022. The ongoing incorporation of AI into a wide range of products will result in a compound annual growth rate (CAGR) of 27.0% over the 2022-2026 forecast with spending on AI-centric systems expected to surpass US$300 billion in 2026. [10]

Our pipeline of customer opportunities reflects these trends. Our customers continue to seek differentiation and enhanced performance by transitioning faster to lower design nodes, with the majority of our H1 2023 license and NRE bookings in 7nm and below. 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 2023, we recognised revenue from 85 customers, compared to 28 customers in H1 2022 and 80 customers at FY 2022. Our H1 2023 revenue continued to be heavily weighted to our core markets of data networking and cloud compute.

In H1 2023, customers' demand for our high-performance IP and products remained robust and our pipeline is as strong as it has ever been. Since 2017, the Company has demonstrated connectivity technology leadership in leading-edge technologies, including 3nm process. In H1 2023, we achieved three 3nm design wins two of which were IP licence design wins, with a top North American hyperscaler and a leading industrial business. In addition, we achieved our first 3nm custom silicon design win using our 224G Serialiser-Deserialiser (SerDes) IP as well as multiple chiplet-based design wins.

During the first half of 2023, Alphawave Semi expanded its ongoing collaboration with the leading foundries in the industry. The Company announced the launch of its first connectivity silicon platform on TSMC's most advanced 3nm process with its ZeusCORE Extra-Long-Reach (XLR) 1-112Gbps NRZ/PAM4 SerDes IP. The 3nm process platform is crucial for the development of a new generation of advanced chips needed to cope with the exponential growth in AI-generated data, and enables higher performance, enhanced memory and I/O bandwidth, and reduced power consumption. This flexible and customizable connectivity IP solution together with Alphawave Semi's chiplet-enabled custom silicon platform which includes IO, memory and compute chiplets, allows end-users to produce high-performance silicon specifically tailored to their applications.

Alphawave Semi also announced the expansion of its ongoing collaboration with Samsung to include the 3nm process node. Samsung Foundry platform customers now benefit from Alphawave Semi's most advanced high-performance connectivity IP and chiplet technologies, including 112 Gigabits-per-second (Gbps) Ethernet and PCI Express Gen6/CXL 3.0 interfaces, to build the complex systems-on-a-chip (SoCs) needed to keep pace with the rapidly growing demands of data-intensive applications such as generative AI and the associated infrastructure required by global data centres.

Investing in People

During the first six months of 2023, we continued to invest in talent, albeit at a lower rate than in H2 2022. As of 30 June 2023, total closing headcount increased to 744, comprising 662 in R&D/engineering, 22 in sales and marketing and 60 in general and administrative roles (from 621, 17 and 57, respectively as at 31 December 2022). Turnover rate [11] remained broadly stable at approximately 11% and the percentage of female employees as of 30 June 2023 was 19%, broadly in line with the ratio as at the end of 2022.

In support of its market expansion, during March 2023 the Company announced the opening of its new premises in Ottawa, Canada and in Pune, India. The new premises enhance our capabilities to cater to the growing demands of our global customers and provide state-of-the-art test and laboratory space for our teams to design, test and launch leading-edge IP and silicon.

Significant Post-Interim Events

In July 2023, the Group invested a further US$9.0m in WiseWave.

B. Financial Highlights

Contracted Order Book and Backlog

Total bookings in H1 2023 of US$187.2m were up 251% over the prior year (H1 2022: US$53.4m) due to increased design win momentum and the contribution from the acquisition of OpenFive in September 2022. North American customers represented 41% of total bookings.

Licence and NRE bookings in H1 2023 were US$114.9m, up 199% year-on-year. North American customers represented approximately 44% of these bookings, followed by 25% from EMEA and 22% from APAC customers (excluding China). China represented 9% of total bookings. Royalties and Silicon orders were US$72.2m, up 384% over H1 2022 (H1 2022: US$14.9m). The level of silicon orders was driven by pre-existing custom silicon designs for North American and Chinese customers from the acquisition of OpenFive.

During H1 2023 there were no Flexible Spending Accounts drawdowns (H1 2022: US$5.6m) and China (VeriSilicon) reseller deals of US$3.4m (H1 2022: US$9.1m). Both FSA and reseller deals are not new bookings but represent the conversion of prior customer commitments to design wins.

At the end of H1 2023, backlog (contracted bookings not yet recognised as revenue) excluding royalties was US$364.5m.

Revenues

Revenue in H1 2023 was US$187.2m up 228% year-on-year (H1 2022: US$57.1m), driven by the contribution of the acquisition of OpenFive and organic growth. Our H1 2023 revenue continued to be heavily weighted to our core markets of data networking and cloud compute.

-- Customers - In H1 2023 we recognised revenues from 85 end-customers, compared to 28 end-customers in H1 2022 and 80 in FY 2022. Our top 3 customers represented 42% of H1 2023 revenues versus 52% in H1 2022. Excluding revenues from WiseWave, which were US$26.4m in the period (excluding re-seller revenue), our top 3 customers in H1 2023 represented 36% of revenues (H1 2022: 40%).

-- Regions - In H1 2023, our revenues were 30% from customers in North America, 66% from China, 3% from APAC excluding China and 1% EMEA. The increase in contribution from China over H1 2022 (38% of revenue) was due to the custom silicon business from the acquisition of OpenFive and the multi-year SLA agreement with WiseWave. Revenue excluding China was US$63.1m up 79% year-on-year (H1 2022: US$35.3m).

Operating Expenses and Profitability

In H1 2023, gross margin was 44% compared to 97% in H1 2022. The decrease reflects the diversification of our business into custom silicon development and silicon products. Through the acquisition of OpenFive, we inherited a number of contracts with gross margins below our Group targets.

Operating expenses in H1 2023 totalled US$85.1m compared with US$25.5m in H1 2022. Reported operating expenses were materially impacted by non-recurring or other items, including FX gains in H1 2022, which management believes do not reflect the underlying operational performance of the business. Operating expenses in H1 2023 included US$21.7m of other operating items (H1 2022: other operating income US$9.5m) i ncluding FX gains and losses, share-based payments, deferred compensation payments related to acquisitions and a small credit to one-time M&A-related expenses. In H1 2023, other expenses included a US$0.6m exchange gain which resulted from the strengthening of USD against GBP, compared to a gain of US$19.3m in H1 2022.

The increase in share-based payments, from US$7.2m in H1 2022 to US$18.5m in H1 2023, was primarily due to the significant increase in headcount and US$2.3m additional charge from prior periods (see note 20).

Reflecting the continued scaling of the business, R&D, S&M and G&A expenses in H1 2023 totalled US$67.5m, compared to US$35.0m in H1 2022. This increase was primarily due to the significantly higher headcount together with software tool costs which scale with our R&D / engineering headcount. Our closing headcount grew from 251 at the end H1 2022 to 744 at the end of H1 2023 as a result of the acquisitions of OpenFive and Banias Labs, as well as organic growth. In the first six months of 2023 the closing headcount increased by 49 employees. We expect to slow the pace of hiring in H2 2023. Of the US$67.5m of operating expenses excluding M&A costs/professional costs, share-based payment charges and exchange gains in H1 2023, US$35.5m (18.9% of revenue) relate to R&D / engineering, US$26.8m (14.3% of revenue) to general and administrative expenses and US$5.2m (2.8% of revenue) to sales and marketing expenditure. General and administrative expenses include an expected credit loss of US$2.7m (H1 2022: US$1.8m) based on our assessment of our potential credit loss on overdue invoices. Excluding this, our general and administrative expenses for H1 2023 were US$24.1m (12.8% of revenue) which included US$4.1m of deferred compensation payments related to acquisitions (H1 2022: US$nil). Of the US$35.0m expenditure in H1 2022, which excludes US$9.5m other operating income, US$25.2m (44.0% of revenue) related to R&D / engineering, US$8.4m (14.7% of revenue) related to general and administrative expenses and US$1.4m (2.5% of revenue) related to sales and marketing expenditure.

In H1 2023, the business generated an operating loss of US$2.6m compared to a US$29.9m operating profit in H1 2022.

Depreciation and amortisation expenses in H1 2023 were US$13.3m (H1 2022: US$2.8m), of which US$2.0m related to right-of-use assets (H1 2022: US$1.5m), namely our premises and leased test equipment. The increase was mainly driven by US$6.3m of amortisation expenses related to intangibles acquired through the acquisitions of OpenFive (US$5.3m) and Precise ITC (US$1.0m). The remaining increase in depreciation and amortisation is due to depreciation on property and equipment, and leases acquired as part of the OpenFive and Banias Labs acquisitions.

EBITDA was US$10.7m (6% margin) compared to US$32.7m (57% margin) in H1 2022. In H1 2023, EBITDA included US$0.6m of exchange gains in other expenses compared to US$19.7m in H1 2022.

Adjusted EBITDA (12) in H1 2023 was US$32.4m (17% margin) compared to US$23.2m (41% margin) in H1 2022. The decrease in adjusted EBITDA margin was expected and reflects the early stage of our migration to a combined IP licensing and silicon business model through our acquisitions and the scaling of our engineering capabilities to support our pipeline of opportunities.

On an adjusted basis [12] , our profit after tax for the period was US$15.4m, compared to a profit after tax of US$6.7m in H1 2022.

Balance Sheet, Liquidity and Cashflow

We closed the period with a cash and cash equivalents balance of US$122.8m compared to US$186.2m at the end of December 2022. Our net debt position at the end of H1 2023 was US$100.0m.

During the second quarter of 2023, the Group's fixed charges coverage ratio (FCCR) was below the minimum allowed ratio of 1.25x which represented a breach of the covenant as at 30 June 2023. This was principally due to a higher working capital requirement as a result of a significant reduction in deferred revenue, a higher proportion of lower margin silicon revenue at the beginning of the year and increased investment in research and development activities, as anticipated, as the Company invests in its own products business. On 22 September 2023, we established an amendment to the credit agreement with the lenders which suspends the FCCR ratio for the period from the quarter ended 30 September 2023 to the quarter ending 30 June 2024, after which it is set at 1.10x until the quarter ending 30 September 2025 when it reverts to 1.25x. As we continue to invest in growth and scale, we continue to closely monitor our cash flow to ensure we bring our business into full compliance with the covenant as planned.

In H1 2023, current trade and other receivables decreased from US$104.6m to US$99.8m, largely due to a decrease in prepayments, offset by an increase in trade receivables. This balance is reduced as payments are made to the employees on a quarterly basis and is expected to be settled over the period to August 2026. In addition, we provisioned for an expected credit loss of US$2.7m, based on our assessment of our credit risk on overdue invoices.

Our accrued revenue, where we have recognised revenue but not yet billed the customer, increased from US$58.5m to US$67.0m at the end of the period. This was mostly related to the WiseWave SLA agreement.

In the first six months of 2023, intangible assets increased from US$161.4m to US$179.6m, largely as a result of capitalised research and development costs.

Investments in equity-accounted associate, namely the value of the investment in WiseWave was US$nil in H1 2023 (FY 2022: US$nil), as a result of equity accounting for losses at WiseWave during the period. The value of the cumulative losses incurred by WiseWave exceeds the cumulative value of our investment into the business.

In H1 2023 current trade and other payables decreased from US$83.1m to US$67.5m. Deferred revenue liability, where we have invoiced or received money for products or services where revenue recognition conditions are not met, decreased from US$91.7m at the end of 2022 to US$41.8m at the end of H1 2023. This decrease was the result of a large volume of prepaid silicon orders placed in the second half of 2022 being fulfilled in early 2023.

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. In H1 2023, the balance sheet liability against FSAs increased from US$5.2m to US$12.5m. The increase was mostly driven by the VeriSilicon reseller agreement.

In H1 2023 the Group generated a pre-tax operating cash outflow of US$31.3m, compared to an inflow of US$32.2m in H1 2022. The outflow in H1 2023 was largely due to a working capital increase of US$60.0m. The working capital increase was primarily the result of a decrease of deferred revenue and FSA of US$42.7m combined with a decrease in trade payables of US$7.9m.

Capital expenditure on intangibles and property and equipment during H1 2023 totalled US$39.3m (H1 2022: US$2.4m) as a result of capitalising eligible engineering costs relating to projects that generate intangible assets, as well as property and equipment for significant upgrades and expansions to our IT infrastructure, purchases of test equipment and leasehold improvements to our new office in Toronto. During the first six months of 2023 we capitalised US$24.7m of engineering costs (H1 2022: US$nil).

During H1 2023, we made a further equity investment in WiseWave of US$2.7m and an investment of US$1.0m in an Israeli semiconductor company.

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 first half of the year have not changed materially from those set out on pages 67 to 69 of the 2022 Annual Report. 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, with increased pressure on cash flows. 
                         If we do not manage our growth successfully, fail 
                         to execute on our strategy, fail to meet future 
                         debt covenants or maintain sufficient liquidity, 
                         or fail to implement or maintain governance and 
                         control measures, our business may be adversely 
                         impacted. We have rapidly expanded our headcount 
                         and the complexity of our business and operations, 
                         both organically and 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, or are 
  leadership             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    Our products and technology target the data centre 
                         and network infrastructure markets, where there 
                         are a limited number of customers. Further, 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 technology 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 or semiconductors 
                         internally or acquire IP or semiconductors from 
                         our competitors. 
=====================  ========================================================= 
 Risks associated       WiseWave is today an important element of our strategy 
  with WiseWave          to monetise our 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 we are unable to realise the 
                         full value of our investment on exiting the joint 
                         venture. 
=====================  ========================================================= 
 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 technology through trade secrets, 
  and Infringement       contractual 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. By pursuing a vertically integrated 
                         model and supplying silicon products, we are reliant 
                         on the foundries' capacity for a portion of our 
                         revenues and this reliance may increase as royalty 
                         revenues become more material to us. 
=====================  ========================================================= 
 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.awavesemi.com .

By order of the Board

Tony Pialis

President and Chief Executive Officer

23 September 2023

Condensed consolidated statement of comprehensive income

 
                                                 Unaudited six         Unaudited Six 
                                                        months                months 
                                                 ended 30 June         ended 30 June 
                                                          2023                  2022 
                                               ---------------  -------------------- 
                                         Note          US$'000               US$'000 
--------------------------------------  -----  ---------------  -------------------- 
 
 Revenue                                  5            187,179                57,107 
 Cost of sales                                       (104,659)               (1,750) 
 Gross profit                                           82,520                55,357 
 Research and development/engineering     16          (35,464)              (25,152) 
 Sales and marketing                                   (5,225)               (1,442) 
 General and administration                           (26,764)               (8,407) 
     of which expected 
      credit loss                                      (2,713)               (1,803) 
 M&A costs/professional 
  costs                                                    263               (2,537) 
 Share-based payment                                  (18,502)               (7,192) 
 Exchange gain                            10               592                19,271 
 Operating (loss)/profit                               (2,580)                29,898 
 
 Finance income                           8              1,719                   362 
 Finance expense                          8            (7,565)                 (160) 
 Share of post-tax 
  loss of equity-accounted 
  joint ventures                          11           (2,730)               (7,868) 
 (Loss)/profit before 
  tax                                                 (11,156)                22,232 
 Income tax expense                       12           (2,275)               (5,980) 
--------------------------------------  -----  ---------------  -------------------- 
 (Loss)/profit after 
  tax                                                 (13,431)                16,252 
--------------------------------------  -----  ---------------  -------------------- 
 
 Other comprehensive 
  income 
 Items that may be reclassified 
  subsequently to profit 
  or loss: 
 Exchange gains/(losses) 
  arising on translation 
  of foreign operations                                 13,457              (50,518) 
--------------------------------------  -----  ---------------  -------------------- 
 Other comprehensive 
  income for the period, 
  net of tax                                            13,457              (50,518) 
--------------------------------------  -----  ---------------  -------------------- 
 Total comprehensive 
  income/(expense) for 
  the period                                                26              (34,266) 
--------------------------------------  -----  ---------------  -------------------- 
 
 

(Loss)/profit per ordinary share attributable to the shareholders (expressed in cents per ordinary share):

 
 Basic earnings per 
  share                13   (1.92)    2.43 
 Diluted earnings 
  per share            13   (1.92)    2.32 
 

The notes on this document form part of these financial statements.

Condensed consolidated statement of financial position

As at 30 June 2023

 
                                         Unaudited as at   Audited year ended 
                                            30 June 2023     31 December 2022 
                                        ----------------  ------------------- 
                                  Note           US$'000              US$'000 
-------------------------------  -----  ----------------  ------------------- 
 Assets 
 Current assets 
 Trade and other receivables                      99,779              104,634 
 Accrued revenue                   5              66,965               58,534 
 Taxes receivable                                  3,081                2,922 
 Inventory                                        15,271               18,061 
 Cash and cash equivalents         17            122,764              186,231 
-------------------------------  -----  ----------------  ------------------- 
 Total current assets                            307,860              370,382 
-------------------------------  -----  ----------------  ------------------- 
 Non-current assets 
 Goodwill                          14            331,886              331,886 
 Property and equipment            15             23,284               13,421 
 Intangible assets                 16            179,551              161,406 
 Right-of-use assets                              16,902               14,553 
 Trade and other receivables                      18,792               19,272 
 Deferred income taxes                            10,957                2,680 
 Other Investments                 11              1,011                    - 
-------------------------------  -----  ----------------  ------------------- 
 Total non-current assets                        582,383              543,218 
-------------------------------  -----  ----------------  ------------------- 
 Total assets                                    890,243              913,600 
-------------------------------  -----  ----------------  ------------------- 
 Liabilities 
 Current liabilities 
 Lease liabilities                                 3,392                3,756 
 Trade and other payables                         67,536               83,055 
 Income tax payable                                4,826                    - 
 Deferred revenue                  5              41,771               91,733 
 Flexible spending account         5              12,466                5,200 
 Loans and borrowings              18            221,251                5,000 
 Total current liabilities                       351,242              188,744 
-------------------------------  -----  ----------------  ------------------- 
 Non-current liabilities 
 Lease liabilities                                14,214               11,177 
 Deferred income taxes                            31,055               29,650 
 Trade and other payables                          4,780               10,555 
 Loans and borrowings              18              1,534              205,201 
-------------------------------  -----  ----------------  ------------------- 
 Total non-current liabilities                    51,583              256,583 
-------------------------------  -----  ----------------  ------------------- 
 Total liabilities                               402,825              445,327 
 Net assets                                      487,418              468,273 
-------------------------------  -----  ----------------  ------------------- 
 
 Share capital and reserves 
 Share capital                     19              9,883                9,751 
 Share premium account                             1,350                  775 
 Share-based payment reserve       20             36,601               18,189 
 Merger reserve                                (793,216)            (793,216) 
 Currency translation 
  reserve                                       (83,250)             (96,707) 
 Retained earnings                             1,316,050            1,329,481 
-------------------------------  -----  ----------------  ------------------- 
 Total equity                                    487,418              468,273 
-------------------------------  -----  ----------------  ------------------- 
 
 

Condensed consolidated statement of changes in equity

Six months ended 30 June 2023

 
 
                                Ordinary      Share   Share-based                     Currency 
                                   share    premium       payment       Merger     translation     Retained      Total 
   US$'000               Note    capital    account       reserve      reserve         reserve     earnings     equity 
----------------------  -----  ---------  ---------  ------------  -----------  --------------  -----------  --------- 
 
 Balance at 1 
  January 2023                     9,751        775        18,189    (793,216)        (96,707)    1,329,481    468,273 
----------------------  -----  ---------  ---------  ------------  -----------  --------------  -----------  --------- 
 (Loss) for the 
  period                               -          -             -            -               -     (13,431)   (13,431) 
 Other comprehensive 
  income                               -          -             -            -          13,457            -     13,457 
 Transactions 
  relating to share 
  issuance 
 Issue of shares                      45        575             -            -               -            -        620 
 Reorganisation                        -          -             -            -               -            -          - 
  accounting 
 exchange differences                  -          -             -            -               -            -          - 
----------------------  -----  ---------  ---------  ------------  -----------  --------------  -----------  --------- 
 Recognition of 
  share-based payments    20           -          -        18,502            -               -            -     18,502 
 Exercise of share 
  options                             87          -          (90)            -               -            -        (3) 
----------------------  -----  ---------  ---------  ------------  -----------  --------------  -----------  --------- 
  Balance at 30 
  June 2023                        9,883      1,350        36,601    (793,216)        (83,250)    1,316,050    487,418 
   (Unaudited) 
----------------------  -----  ---------  ---------  ------------  -----------  --------------  -----------  --------- 
 

Six months ended 30 June 2022

 
                                 Ordinary      Share   Share-based                    Currency 
                                    share    premium       payment       Merger    translation     Retained      Total 
 US$'000                  Note    capital    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     20           -          -         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) 
-----------------------  -----  ---------  ---------  ------------  -----------  -------------  -----------  --------- 
 

Condensed consolidated statement of cash flows

For the period ended 30 June 2023

 
                                         Unaudited six      Unaudited six 
                                          months ended    months ended 30 
                                          30 June 2023          June 2022 
                                        --------------  ----------------- 
                                  Note         US$'000            US$'000 
-------------------------------  -----  --------------  ----------------- 
 Cash flows from operating 
  activities 
 (Loss)/profit for the year                   (13,431)             16,252 
 Items not affecting cash: 
 Tax expense                                     2,275              5,980 
 R&D tax credit                                (1,500)                  - 
 Amortisation of intangibles                     6,778                777 
 Depreciation of property 
  and equipment                                  4,532                602 
 Depreciation of right-of-use 
  asset                                          1,997              1,459 
 Share of loss in joint 
  venture                                        2,730              7,868 
 Share-based payment                            18,502              7,192 
 Finance income                                (1,719)                  - 
 Finance cost                                    7,013                  - 
 Lease interest                                    552                108 
 Foreign exchange loss/(gain) 
  on Intercompany balances                         967            (1,999) 
-------------------------------  -----  --------------  ----------------- 
                                                28,696             38,239 
-------------------------------  -----  --------------  ----------------- 
 Changes in working capital: 
 (Increase) in trade and 
  other receivables                            (3,707)            (7,879) 
 Decrease in Inventories                         2,790                  - 
 (Increase) in accrued revenue     5           (8,431)            (9,886) 
 (Decrease)/increase in 
  trade and other payables                     (7,919)              3,936 
 (Decrease)/Increase in 
  deferred revenue & flexible 
  spending account                 5          (42,696)              7,806 
-------------------------------  -----  --------------  ----------------- 
                                              (59,963)            (6,023) 
-------------------------------  -----  --------------  ----------------- 
 Cash (used in)/generated 
  from operating activities 
  before tax                                  (31,267)             32,216 
 Income tax paid                               (5,420)           (13,440) 
 Net cash (used in)/generated 
  from operating activities                   (36,687)             18,776 
-------------------------------  -----  --------------  ----------------- 
 
 Cash flows from investing 
  activities 
 Purchase of property and 
  equipment                                   (13,233)            (2,448) 
 Purchase of intangible 
  asset                                        (1,425)              (904) 
 Interest received                               1,518                362 
 Capitalised development                      (24,660)                  - 
  expenditure 
 Investments in joint venture 
  and other investments                        (3,730)           (14,136) 
 Net cash used in investing 
  activities                                  (41,530)           (17,126) 
-------------------------------  -----  --------------  ----------------- 
 
 Cash flows from financing 
  activities 
 Exercise of options                               617                727 
 Proceeds from loans and                        15,000                  - 
  borrowings 
 Repayment of loans and                        (2,500)                  - 
  borrowings 
 Interest paid                                 (9,727)               (52) 
 Repayment of principal 
  under lease liabilities                      (2,324)            (1,336) 
-------------------------------  -----  --------------  ----------------- 
 Net cash generated from/(used 
  in) financing activities                       1,066              (661) 
-------------------------------  -----  --------------  ----------------- 
 
 Net (decrease)/increase 
  in cash and cash equivalents                (77,151)                989 
 
 Cash and cash equivalents 
  at start of year                             186,231            500,964 
 Effects of foreign exchange 
  on cash and cash equivalents                  13,684           (50,120) 
-------------------------------  -----  --------------  ----------------- 
 Cash and cash equivalents 
  at end of period                 17          122,764            451,833 
-------------------------------  -----  --------------  ----------------- 
 

Notes to the unaudited interim statements

Six months ended 30 June 2023

   1.   General information 

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

The principal activities of the Company and its subsidiaries are described on pages 1 to 6.

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 is 6(th) Floor, 65 Gresham Street, London, United Kingdom, EC2V 7NQ.

   2.   Basis of preparation 

The consolidated interim financial statements of the Group have been prepared in accordance with UK-adopted international accounting standard (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 2022. 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 2022 and for the six months ended 30 June 2022.

These consolidated interim financial 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 2022 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.

These consolidated interim financial statements were authorised for issue by the Company's Board of Directors on 23 September 2023.

Going concern

In preparing the condensed consolidated financial statements for the six months ended 30 June 2023, the Directors have updated their assessment of the Group's ability to continue as a going concern. The Directors based their going concern assessment on 'base case' forecasts covering the period of at least twelve months from the date on which they approved the financial statements. The Directors also considered a sever, but plausible, downside scenario over the forecast period as follows:

-- Revenue, excluding joint venture revenue, is 25% lower and the interest rate on the Group's debt is 200 basis points higher than forecast, but taking into account mitigating reductions of 10% in operating expenditure and 50% in laboratory and prototyping expenditure.

As at 30 June 2023, the Group held cash and cash equivalents of US$122.8m and had bank borrowings totalling US$221.3m, comprised of a term loan of US$96.3m and US$125.0m drawn against a US$125.0m revolving credit facility. Both the term loan and the revolving credit facility are not scheduled to mature until the fourth quarter of 2027 but were subject to the following financial covenants as at 30 June 2023 that are defined in the related Credit Agreement:

-- a maximum permissible net leverage ratio (ratio of consolidated total debt to consolidated adjusted EBITDA) of 3.75x up to 30 June 2023, 3.5x up 31 March 2024 and 3.0x thereafter; and

-- a minimum fixed charges coverage ratio (ratio of total consolidated cash flows to total fixed charges for the preceding twelve months) of 1.25x.

Compliance with the financial covenants is tested quarterly. During the second quarter of 2023, the Group's fixed charges coverage ratio was below 1.25x which represented a breach of the bank covenant as at 30 June 2023. This was principally due to a significant cash outflow for the delivery of goods in 2023 which had unusually high deferred revenue levels at the end of 2022, in addition to further investment in research and development activities.

On 22 September 2023, we signed an amendment to the credit agreement with the lenders to waive the fixed charges coverage ratio. Under the terms of the amended agreement, the fixed charge coverage ratio covenant is suspended for the period from the quarter ending 30 September 2023 to the quarter ending 30 June 2024 and for the period from the quarter ending 30 September 2024 to the quarter ending 30 June 2025, the minimum fixed charge coverage ratio is set at 1.10x. From the quarter ending 30 September 2025, the minimum fixed charge coverage ratio is set at 1.25x. Additionally, there is a minimum liquidity requirement that the Group must maintain for the period to 30 September 2025. The net leverage ratio covenant is unchanged.

Under the 'base case' forecasts and the downside scenario described above, the analysis demonstrates the Group can continue to maintain sufficient liquidity headroom with no default on debt covenants.

Having considered the 'base case' forecasts and the downside scenario, and following the covenant relief being agreed with the lenders, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities as they fall due for at least twelve months from the date of approval of the condensed financial statements for the six months ended 30 June 2023 and therefore have prepared the financial statements on a going concern basis.

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 maker (CODM), Tony Pialis (CEO) who is 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 statements as of 31 December 2022 and for the six months ended 30 June 2022. The ten trading entities in the Group have different functional currencies. Alphawave IP Inc. and Precise-ITC are now accounted for in US$, as the primary economic environment has changed due to the proportion and value of US$ transactions increasing. The functional currency change commenced from 1 January 2022. Alphawave Semi US Corp. (formerly Alphawave IP Corp.), Alphawave Semi International Corp., Alphawave IP Limited and Alphawave IP (BVI) Ltd are also in US$ and the Company in GBP. Open -- Silicon Japan is in JPY, Open-Silicon Research Private Ltd is in INR, Alphawave Semi (Nanjing) Co. Ltd (formerly Yuanfang Silicon Technology (Nanjing) Co. Ltd) is in RMB and Solanium Labs Ltd. is in ILS. The currencies used by each entity reflect the functional currency of that entity. However, it was decided to use US$ as the Group's presentational currency as substantially all of the Group's revenues and a significant part of the costs are denominated in US$ and it is typically the presentational currency used across the semiconductor industry.

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 statements as of 31 December 2022. New standards effective on or after 1 January 2023 have been reviewed and do not have a material effect on the Group's financial statements.

   3.   Significant accounting estimates and judgements 

In the application of the Group's and Company's accounting policies, the Directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

   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

The Group monitors and discloses bookings and backlog as key performance indicators of future revenues. Bookings are a non-IFRS measure and represent legally binding and largely non-cancellable commitments by customers. Our bookings comprise licence fees, non-recurring engineering (NRE), support, orders for silicon products and, in some instances, our estimate of potential future royalties.

Our royalties are estimated based on contractually committed royalty prepayments or, in limited instances, on sensitised volume estimates provided by customers. Our bookings for the six months to 30 June 2023, including royalties, totalled US$187.2m (FY 2022: US$228.1m), and excluding royalties, US$187.2m (FY 2022: US$213.0m).

Backlog represents bookings, excluding royalties, over the life of the Group that have not yet been recognised as revenues and which we expect to be recognised in future periods. Backlog as at the end of the six months to 30 June 2023 is calculated based on our backlog as at the end of 2022, plus new bookings, less revenues recognised during the period.

 
                                                      Six months    Year ended 
                                                           ended   31 December 
                                                         30 June          2022 
                                                            2023          US$m 
                                                            US$m 
----------------------------------------------------  ----------  ------------ 
Backlog (end of the prior year)                            364.5         168.6 
Add: New bookings excluding IP royalties                   187.2         213.0 
Add: Backlog acquired with OpenFive and Precise-ITC            -         168.3 
Less: Revenues recognised in the period(1)               (187.2)       (185.4) 
----------------------------------------------------  ----------  ------------ 
Backlog (end of the period)                                364.5         364.5 
----------------------------------------------------  ----------  ------------ 
 

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 and income bears no relation to the Group's underlying operational performance;

-- charges for the depreciation and amortisation of property and equipment, acquired intangibles, capital development expenditure 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            Six months 
 (US$'000)                          ended 30 June 2023    ended 30 June 2022 
                                  --------------------  -------------------- 
 Operating (loss)/profit                       (2,580)                29,898 
 Add backs: 
  Depreciation and amortisation                 13,307                 2,839 
 EBITDA                                         10,727                32,737 
                                  --------------------  -------------------- 
 

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                       Six months 
 (US$'000)                      ended 30 June 2023               ended 30 June 2022 
                              --------------------  ------------------------------- 
 EBITDA                                     10,727                           32,737 
                              -------------------- 
 Add backs: 
  Non-recurring M&A-related 
   (income)/costs                            (263)                            2,537 
  Share-based payment                       18,502                            7,192 
  Exchange gain                              (592)                         (19,271) 
  Retention payments                         4,069                                - 
                              -------------------- 
 Adjusted EBITDA                            32,443                           23,195 
                              --------------------  ------------------------------- 
 

M&A-related costs include one-off legal and professional costs incurred as a result of the Group's execution of agreements for the formation and commercial arrangements relating to the Group's joint venture, WiseWave, as well as professional fees.

We believe that excluding the effect of share-based payments from adjusted EBITDA assists management and investors in making period-to-period comparisons because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.

Retention payments represent cash payments in lieu of share-based remuneration committed as part of the acquisition of Banias Labs. These expenses can vary significantly between periods as a result of the timing of grants of new share-based awards, including grants in connection with acquisitions.

The exchange gain has been removed from EBITDA as it relates to an unrealised gain relating to cash held and therefore does not form part of the Group's operating performance.

We exclude the impact of amortisation of acquired intangibles in connection with business combinations from our adjusted profit after tax, as we do not consider them to be representative of the underlying operational performance of the business.

Profit after tax to adjusted profit after tax reconciliation

 
                                        Six months                       Six months 
 (US$'000)                      ended 30 June 2023               ended 30 June 2022 
                              --------------------  ------------------------------- 
 Profit after tax                         (13,431)                           16,252 
                              --------------------  ------------------------------- 
 Add backs: 
  Non-recurring M&A-related 
   (income)/costs                            (263)                            2,537 
  Share-based payment                       18,502                            7,192 
  Exchange gain                              (592)                         (19,271) 
  Retention payments                         4,069                                - 
  Amortisation of acquired                   6,328                                - 
   intangibles 
   Tax effect of above                         823                                - 
    adjustments 
                              --------------------  ------------------------------- 
 Adjusted profit after 
  tax                                       15,436                            6,710 
                              --------------------  ------------------------------- 
 

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

 
                              Note       Six months 
                                      ended 30 June              Six months ended 
                                               2023                  30 June 2022 
---------------------------  -----  ---------------  ---------------------------- 
 Adjusted basic earnings 
  per share                    13              2.20                          1.00 
 Adjusted diluted earnings 
  per share                    13              2.20                          0.96 
 

Adjusted basic and diluted earnings per share have been calculated by taking the adjusted profit for the year and dividing it by the basic or diluted, as appropriate, weighted average number of common shares outstanding. Adjusted basic earnings per share and adjusted diluted earnings per share are the same for the six months ended 30 June 2023 because the share options and RSUs are anti-dilutive. Therefore, they have been excluded from the calculation of diluted weighted average number of ordinary shares.

Net (debt)/cash

Net (debt)/cash is defined as the difference between total borrowings and cash and cash equivalents. It is a measure that provides additional information on the Group's financial position. Restricted cash, which cannot be accessed by the Group, has been excluded from the net debt measure.

The net debt of US$100.0m as at 30 June 2023 is made up of the of the bank loan of US$221.3m, the IIA loan in Israel of US$1.5m less the cash and cash equivalents balance of US$122.8m.

   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 2023       30 June 2022 
                         -----------------  ----------------- 
 Revenue by type: 
 IP and NRE                         38,736             36,182 
 IP and NRE - Reseller                   -              2,647 
 IP and NRE - JV                    34,859             18,278 
 Silicon and Royalties             113,584                  - 
                                   187,179             57,107 
                         -----------------  ----------------- 
 

'IP and NRE' represents revenues from IP products licensing, along with related support and NRE services, in addition to custom silicon NRE (which can include internal engineering services, our IP and related support, third party IP, tooling costs and prototypes). 'IP and NRE - Reseller' represents revenue from IP products licensing, related support and NRE services provided through VeriSilicon, prior to our arrangements with VeriSilicon being moved under WiseWave in late 2021. 'IP and NRE - JV' represents revenue from our joint venture, WiseWave, and includes revenues recognised under the 5-year subscription licence and revenues recognised under the VeriSilicon reseller arrangements which were moved under WiseWave in late 2021. 'Silicon and royalties' represents revenues recognised once our customers are in production and in the case of custom silicon are based on shipments of physical silicon products and, for standalone IP licensing, royalties payable on usage of our IP within silicon products.

Whilst this part of the note shows revenue by type, due to materiality, we have separately itemised the revenue from our reseller and joint venture, both based in China. The revenue from our joint venture in China, WiseWave, predominantly relates to a five-year subscription licence agreement where we have recognised US$26.4m (H1 2022: US$18.3m) based on our deliveries of IP to WiseWave. The remaining revenue from WiseWave relates to a separate agreement signed in Q4 2021 to deliver chiplet IP and revenue recognised through WiseWave acting as master reseller of IP to VeriSilicon.

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.

 
                       Six months ended   Six months ended 
 (US$'0000)                30 June 2023       30 June 2022 
                      -----------------  ----------------- 
 Revenue by region: 
 North America                   55,617             23,768 
 China                          124,058             21,807 
 APAC (ex-China)                  6,464              7,257 
 EMEA                             1,040              4,275 
                                187,179             57,107 
                      -----------------  ----------------- 
 

Where goods are delivered electronically, for example IP, the above revenue by region analysis is determined by classifying customers based on their main base of operations. Where goods are delivered physically, customers are classified based on the delivery location.

US$46.4m (25% of total revenues) (2022: US$90.7m, 49%) represent revenues recognised over time. These revenues require management judgements and estimates of project hours or costs that are used in percentage of completion calculations. These revenues relate to work done during the design phase of a customer project and include (with the exception of a limited amount of revenue relating to our Soft IP) IP product licensing fees, together with related support and NRE, as well as custom silicon NRE fees. We have applied a sensitivity to revenues recognised over time in 2023 which are subject to estimates. If our estimates of total hours or total costs had been 10% higher, these revenues would be US$42.9m. If our estimates of total hours or total costs had been 10% lower, these revenues would be US$49.9m.

US$140.8m (75% of total revenues) (2022: US$94.7m, 51%) are recognised at a point in time. These revenues are based on silicon shipments once our customers are in production. In the case of custom silicon, this represents revenues from shipments of physical silicon products, and for standalone IP licensing, royalties payable on usage of our IP within silicon products. Revenues from our 5 year subscription licence agreement with WiseWave are also recognised at a point in time, based on the number of IP uploads during the period. Revenues from the 3 year reseller agreement with VeriSilicon, which was moved under WiseWave in late 2021, are recognised at a point in time to the extent that they represent exclusivity fees paid during the period not credited against IP licences. In addition, a limited amount of revenue from our Soft IP products is recognised at a point in time.

WiseWave - subscription licence agreement

Revenue recognition for the WiseWave subscription licence agreement is determined with reference to the estimated total number of IP uploads to be delivered to WiseWave during the term of the agreement and the number of uploads made to WiseWave each period. The table below illustrates the sensitivity of revenue recognition and the associated balance sheet balances to a change in the estimated total number of IP products to be delivered and assumes a 10% increase and a 10% decrease in the total number of uploads, but the same number of uploads made during the six months to 30 June 2023.

 
 Six months ended 30 
  June 2023              As reported     +10%     -10% 
----------------------  ------------  -------  ------- 
 Revenue stream 
 WiseWave SLA revenue         26,433   23,790   29,076 
 WiseWave SLA accrued 
  revenue                     31,227   28,104   34,350 
----------------------  ------------  -------  ------- 
 
 
 Six months ended 30 
  June 2022              As reported     +10%     -10% 
----------------------  ------------  -------  ------- 
 Revenue stream 
 WiseWave SLA revenue         18,278   16,450   20,106 
 WiseWave SLA accrued 
  revenue                     11,081    9,973   12,189 
----------------------  ------------  -------  ------- 
 

Please see the 'Financial Highlights' section on page 8 for further information on revenue, including the significant increase in revenue in H1 2023 compared to H1 2022.

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

 
                                           Six months ended 
 (US$'000)                                     30 June 2023 
                                          ----------------- 
 At 1 January 2023                                   58,534 
 Revenue accrued in the period                       41,592 
 Accrued revenue invoiced in the period            (33,107) 
 Foreign exchange difference                           (54) 
 At 30 June 2023                                     66,965 
                                          ----------------- 
 

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

 
                                     Six months ended 
 (US$'000)                               30 June 2023 
                                    ----------------- 
 At 1 January 2023                             91,733 
 Revenue recognised in the period            (88,026) 
 Revenue deferred in the period                38,087 
 Foreign exchange difference                     (23) 
 At 30 June 2023                               41,771 
                                    ----------------- 
 

This deferred revenue balance is all expected to be satisfied within 12 months of the balance sheet date. There has been a significant reduction in the deferred revenue balance since the end of December 2022 due to a large volume of prepaid silicon orders at the back end of 2022 being fulfilled in early 2023 and fewer silicon orders in Q2 2023.

The flexible spending account has increased to US$12.5m at the end of June 2023 from US$5.2m at the end of December 2022. 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.

The balances related to costs to obtain contracts from customers are as follows:

 
 (US$'000)                As at 30 June 2023   As at 31 December 2022 
                         -------------------  ----------------------- 
 Capitalised contract 
  costs                                4,522                      874 
                         -------------------  ----------------------- 
 

The costs to obtain contracts from customers include commissions. Amortisation of US$0.5m (H1 2022: US$1.2m) and impairment of US$nil (2022: US$nil) was charged to the consolidated statement of comprehensive income in the period.

   6    Employee costs excluding Directors and key management personnel 
 
                          Six months ended   Six months ended 
 (US$'000)                    30 June 2023       30 June 2022 
                         -----------------  ----------------- 
 Wages, salaries and 
  benefits                          39,508             14,275 
 Defined contribution 
  pension costs                      2,439                483 
 Social security costs               1,533                225 
 Share-based payments 
  (all employees)                   16,166              7,192 
 Investment tax credit             (1,500)                  - 
 Total employee costs               58,146             22,175 
                         -----------------  ----------------- 
 

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

 
                              Six months ended   Six months ended 
                                  30 June 2023       30 June 2022 
                             -----------------  ----------------- 
 R&D/engineering                           651                176 
 General & administration                   59                 19 
 Sales & marketing                          20                  7 
                             -----------------  ----------------- 
 Total employees (average)                 730                202 
                             -----------------  ----------------- 
 

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

 
                             Six months ended   Six months ended 
                                 30 June 2023       30 June 2022 
                            -----------------  ----------------- 
 R&D/engineering                          662                220 
 General & administration                  60                 22 
 Sales & marketing                         22                  9 
                            -----------------  ----------------- 
 Total employees (end 
  of period)                              744                251 
                            -----------------  ----------------- 
 
   7    Directors and key management personnel compensation 
 
                                 Six months ended   Six months ended 
 (US$'000)                           30 June 2023       30 June 2022 
                                -----------------  ----------------- 
 Directors and key management 
  emoluments                                2,844              1,875 
 Pension costs                                 67                  3 
                                -----------------  ----------------- 
 Total Directors and 
  key management remuneration               2,911              1,878 
                                -----------------  ----------------- 
 
   8    Finance income and expense 
 
                                 Six months ended   Six months ended 
 (US$'000)                           30 June 2023       30 June 2022 
                                -----------------  ----------------- 
 Finance income 
 Interest income from                         149                  - 
  contracts with customers 
  containing significant 
  financing components 
 Other Interest                                52                  - 
 Interest income from 
  bank                                      1,518                362 
                                            1,719                362 
                                -----------------  ----------------- 
 Finance expense 
 Lease interest                               552                160 
 Term loan interest                         6,929                  - 
 Israel innovation interest                    84                  - 
                                            7,565                160 
                                -----------------  ----------------- 
 Net finance (expense)/income             (5,846)                202 
                                -----------------  ----------------- 
 
   9    Non-recurring M&A-related costs 

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

Accrual releases amounting to US$0.3m relating predominantly to the Group's acquisition of the OpenFive business, which closed on 31 August 2022. A small portion of the accrual release relates to the Group's acquisition of Banias Labs, which closed on 12 October 2022. These credits relate to legal and financial due diligence expenses for the acquisitions.

10 Exchange gain

The exchange gain recorded in the six months to 30 June 2023 consolidated statement of comprehensive income is US$0.6m (H1 2022: exchange gain of US$19.3m). The significant gain of US$19.3m in the six months to 30 June 2022 was due to the weakening of GBP against USD. The functional currency of the Company is GBP and it held significant cash and cash equivalents balances denominated in USD. In the six months of June 2023, GBP strengthened against USD resulting in a US$1.7m loss which was offset by an exchange gain in the OpenFive entity of US$2.3m.

11 Investments

WiseWave joint venture:

 
                                        Six months   Six months 
                                          ended 30     ended 30 
 (US$'000)                               June 2023    June 2022 
                                       -----------  ----------- 
 Share of loss                               8,169        1,566 
 Effect of elimination of gains from 
  sales to the joint venture               (5,439)        6,302 
                                       -----------  ----------- 
                                             2,730        7,868 
                                       -----------  ----------- 
 

The value of the investment in WiseWave was reduced to US$nil in 2022, as a result of equity accounting for losses at WiseWave during the period. The value of the cumulative losses incurred by WiseWave exceeds the cumulative value of our investment into the business, hence there is no elimination of gains from the sales to WiseWave in the six months to 30 June 2023 as the value of the investment is already reduced to US$nil by taking our share of their loss.

We have exercised our judgement in choosing not to eliminate the full gains from sales to WiseWave and not to recognise a deferred income balance for the excess of the elimination over the carrying value of the investment. In our opinion, this more appropriately reflects the current nature of the relationship with WiseWave and is consistent with our intention to exit the joint venture in the medium term. Had we elected to eliminate the share of the gain in full, we would have recognised a deferred income balance of US$15.1m in the consolidated statement of financial position.

Investment:

On 17 May 2023, the Group invested US$1.0m in an Israeli semiconductor company. Given the proximity of the investment to the half-year reporting date of 30 June 2023, the Group is satisfied that the investment's carrying value is representative of fair value.

12 Income tax expense

During the six months ended 30 June 2023, the Group recorded a consolidated tax expense of $US2.3m (H1 2022: US$6.0m expense), which represented effective tax rates of (20.4%) and 26.9%, respectively.

The group operates in different tax jurisdictions. Income tax expense has been recognised based on management's estimate of the effective rates for the financial period multiplied by the reported profits before tax of the interim reporting period for each tax jurisdiction.

13 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                  Six months 
                                       ended 30 June               ended 30 June 
 (US$'000 except shares)                        2023                        2022 
                                     ---------------  -------------------------- 
 Numerator: 
 Net (loss)/income from operations          (13,431)                      16,252 
                                     ---------------  -------------------------- 
 
 Denominator: 
 Weighted average number of 
  common shares outstanding for 
  basic EPS                              700,766,190                 668,415,191 
 Adjustment for share options             92,534,053                  32,904,025 
                                     ---------------  -------------------------- 
 Weighted average number of 
  common shares outstanding for 
  diluted EPS                            793,300,243                 701,319,217 
                                     ---------------  -------------------------- 
 Basic EPS (US$ cents)                        (1.92)                        2.43 
                                     ---------------  -------------------------- 
 Diluted EPS (US$ cents)                      (1.92)                        2.32 
                                     ---------------  -------------------------- 
 

Basic loss per share in the six months to 30 June 2023 and diluted loss per share in the six months to 30 June 2023 are the same because the share options and RSUs are anti-dilutive. Therefore, they have been excluded from the calculation of diluted weighted average number of ordinary shares.

14 Goodwill

 
                                    Total 
Group                             US$'000 
-------------------------------  -------- 
Cost 
Balance at 30 June 2022                 - 
On acquisition of subsidiaries    331,886 
Foreign exchange                        - 
-------------------------------  -------- 
Balance at 30 June 2023           331,886 
-------------------------------  -------- 
Impairment 
Balance at 30 June 2022                 - 
Impairment charge for the year          - 
-------------------------------  -------- 
Balance at 30 June 2023                 - 
-------------------------------  -------- 
Net book value 
At 30 June 2022                         - 
-------------------------------  -------- 
At 30 June 2023                   331,886 
-------------------------------  -------- 
 

The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value-in-use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows.

Movements in goodwill during the six months ending 30 June 2023 and the year ending 31 December 2022 were as follows:

 
                                      2023      2022 
                                   US$'000   US$'000 
--------------------------------  --------  -------- 
At the beginning of the year       331,886         - 
--------------------------------  --------  -------- 
Businesses acquired during 2022          -   331,886 
--------------------------------  --------  -------- 
At the end of the period           331,886   331,886 
--------------------------------  --------  -------- 
 

15 Property and Equipment

The value of property and equipment has increased by US$9.9m from US$13.4m at 31 December 2022 to US$23.3m at the end of June 2023. The increase is made up of new additions of US$13.2m, re-classification to property and equipment from intangibles of US$1.2m and depreciation of US$4.5m.

16 Intangible assets

 
                                                    Six months 
                                                 ended 30 June 
 (US$'000)                                                2023 
                                               --------------- 
 At 1 January 2023                                     161,406 
 Additions                                              26,085 
 Re-classification to property and equipment           (1,162) 
 Amortisation                                          (6,778) 
                                               --------------- 
 At 30 June 2023                                       179,551 
                                               --------------- 
 

The identifiable intangible asset from the acquisition of Precise-ITC in 2022 was valued at US$7.8m, against which amortisation of US$1.0m was recorded in H1 2023 (H1 2022: US$0.8m).

The identifiable intangible asset from the acquisition of OpenFive in 2022 was valued at US$61.0m, against which amortisation of US$5.3m was recorded in H1 2023 (H1 2022: US$nil).

The identifiable intangible asset from the acquisition of Banias Labs in 2022 was valued at US$83.9m. No amortisation is recorded as the intangible asset is not yet available for use.

The US$26.1m of additions includes US$1.4m paid to a third party. The remaining US$24.7m is capitalised development expenditure comprising primarily of staff costs where staff have worked on projects that are capitalizable under the Group's research and development capital expenditure policy. In the six months to 30 June 2023, an amortisation expense of US$0.1m was recorded for capitalised development expenditure .

The re-classification of US$1.2m from intangible assets to property and equipment relates to a physical test-chip purchased in 2022.

The Group incurred research and development costs that have been expensed in the consolidated statement of comprehensive income, due to not meeting the criteria for capitalisation. 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 2023       30 June 2022 
                            -----------------  ----------------- 
 Research and development              35,464             25,152 
                            -----------------  ----------------- 
 

17 Cash and cash equivalents

 
                                             As at 31 December 
 (US$'000)              As at 30 June 2023                2022 
                       -------------------  ------------------ 
 Cash at bank and in 
  hand                             122,764             186,231 
                       -------------------  ------------------ 
 

Please see the 'Financial Highlights' section on page 9 for further information on cash, including the decrease in cash as at 30 June 2023 compared to 31 December 2022.

18 Loans and borrowings

The Group's sources of borrowing for liquidity purposes include the Credit Agreement dated 12 October 2022 and the Incremental Facility Amendment dated 3 November 2022. These comprise a US dollar-denominated Delayed Draw Term Loan B ('Term Loan') of US$100.0m and a multi-currency revolving credit facility (RCF) of up to US$125.0m, provided by a syndicate of banks.

Both the Term Loan and the RCF have a term of five years. The Term Loan and US$110.0m of the RCF were drawn in full in October 2022 in connection with the Group's acquisition of Banias Labs. US$15.0m of the RCF was drawn down on 15 May 2023. Both the Term Loan and RCF bear interest at a floating rate of interest linked to SOFR (secured overnight financing rate), with the overall rate dependent on our total net leverage ratio, defined as the ratio of our consolidated total debt outstanding to our consolidated adjusted EBITDA.

Our borrowings under the Credit Agreement and Incremental Facility Amendment are subject to a net leverage ratio and a fixed charges coverage ratio which are defined in the Credit Agreement and tested quarterly. The maximum permissible net leverage ratio was 3.75x up to the period ending 30 June 2023, is 3.5x up to the period ending 31 March 2024 and 3.0x thereafter and is calculated by dividing total consolidated debt outstanding by total consolidated adjusted EBITDA for the last twelve months. The minimum fixed charges coverage ratio is 1.25x over the term of the debt and is calculated by dividing total consolidated cash flow for the last twelve months by total fixed charges for the last twelve months.

The Group did not meet the minimum fixed charges coverage ratio of 1.25x in the second quarter of FY 2023, which represented a breach of the bank covenant as at 30 June 2023. As such, the Term Loan and the RCF are payable on demand at 30 June 2023 and have been classified as current liabilities in the consolidated statement of financial position. On 22 September 2023, the Group signed an amendment to the credit agreement with the lenders waiving the covenant for the period to 30 June 2024, with a revised lower fixed charge coverage ratio covenant in effect from 30 September 2024 to 30 September 2025. Additionally, there is a minimum liquidity requirement that the Group must maintain for the period to 30 September 2025.

19 Share capital

 
                                    Number of shares   US$ '000 
---------------------------------  -----------------  --------- 
 Balance as at 31 December 2021          664,965,934      9,399 
---------------------------------  -----------------  --------- 
 Shares issued to option holders 
  on exercise                             29,442,453        344 
  Further issue of shares                    659,813          8 
---------------------------------  -----------------  --------- 
 Balance as at 31 December 2022          695,068,200      9,751 
---------------------------------  -----------------  --------- 
 Shares issued to option holders 
  on exercise                              6,799,986         87 
  Further issue of shares                  3,696,022         45 
---------------------------------  -----------------  --------- 
 Balance as at 30 June 2023              705,564,208      9,883 
---------------------------------  -----------------  --------- 
 

20 Share-based payments

 
                              As at 30 June 2023                 As at 30 June 2022 
                      ---------------------------------  --------------------------------- 
                                               Weighted                           Weighted 
                              Share    average exercise         Shares    average exercise 
                            options         price (US$)        options         price (US$) 
                      -------------  ------------------  -------------  ------------------ 
 Outstanding at the 
  beginning of the 
  period                 85,692,153               0.712     95,273,220               0.280 
 Exercised during 
  the period           (10,496,008)               0.697   (16,456,177)               0.050 
 Forfeited during 
  the period              (468,557)               1.658    (1,237,812)               1.217 
 Granted during the 
  period                  8,453,347               1.166      6,906,285               2.149 
 Outstanding at the 
  end of the period      83,180,935               0.724     84,485,516               0.507 
--------------------  -------------  ------------------  -------------  ------------------ 
 Exercisable at the 
  end of the period      42,554,503               0.266     44,088,144               0.537 
--------------------  -------------  ------------------  -------------  ------------------ 
 

25% of options granted vest on the first anniversary of issuance and the remaining options vest equally each month 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 2023           June 2022 
                          ------------------  ------------------ 
 Risk-free interest 
  rate                                 3.10%               2.82% 
 Expected volatility                  29.72%              29.72% 
 Expected dividend                         -                   - 
  yield 
 Expected life of share 
  option                                   4                   4 
                          ------------------  ------------------ 
 

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 2023

 
                                             Sales &             General 
 (US$'000)              R&D/engineering    marketing    & administration    Total 
                       ----------------  -----------  ------------------  ------- 
 Share-based payment 
  charge                         14,862        1,799               1,841   18,502 
                       ----------------  -----------  ------------------  ------- 
 

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 
                       ----------------  -----------  ------------------  ------ 
 

The share-based payment charge for the six months ended 30 June 2023 includes US$2.4m relating to prior periods. This is due to a change in methodology of the share-based payment calculation from annually graded vesting to monthly graded vesting.

21 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. 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   30 June 
 (US$'000)                                2023            2022      2022 
                                     ---------  --------------  -------- 
 Transactions: 
 Revenue from a company on 
  which a Director is the chairman 
  of the board(1)                          242           3,549       546 
 Revenue from VeriSilicon                    -           3,270     1,653 
 Revenue from WiseWave, a joint 
  venture, where there is common 
  directorship                          34,859          58,207    20,154 
 Costs capitalised as intangible 
  assets from a company on which 
  a Director is a director               (600)         (1,200)     (800) 
-----------------------------------  ---------  --------------  -------- 
                                        34,501          63,826    21,553 
-----------------------------------  ---------  --------------  -------- 
 
 
 
 Balances: 
 Accounts receivable from a 
  company on which a Director 
  is the chairman of the board                          350      350        - 
 Accounts receivable from VeriSilicon                     -      669 
 Accounts receivable from WiseWave, 
  a joint venture, where there 
  is common directorship                             15,060    3,360        - 
 Accrued revenue for a company 
  on which a Director is the 
  chairman of the board                               5,217    6,750    4,710 
 Accrued revenue from VeriSilicon                       812        -    2,323 
 Accrued revenue from WiseWave, 
  a joint venture, where there 
  is common directorship                             36,579   20,217   11,249 
 Accrued liabilities with a 
  company on which a Director 
  is a director                                           -        -    (600) 
--------------------------------------  -------------------  -------  ------- 
                                                     58,018   31,346   17,682 
--------------------------------------  -------------------  -------  ------- 
 
 Deferred revenue from a company 
  on which a Director is the 
  chairman of the board(1)                               88      686       49 
 Deferred revenue from VeriSilicon                        -        -      392 
 Deferred revenue from WiseWave, 
  a joint venture, where there 
  is common directorship                                342        -      479 
--------------------------------------  -------------------  -------  ------- 
                                                        429      686      920 
--------------------------------------  -------------------  -------  ------- 
 

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

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. All revenue from VeriSilicon and related balances are in respect of transactions signed with VeriSilicon prior to the VeriSilicon reseller agreement moving under WiseWave as master reseller effective 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.

22 Subsidiaries of the Group as at 30 June 2023

All subsidiaries have been included in the consolidated financial statements using the equity method. Details of the Group's subsidiaries as at 30 June 2023 are as follows:

 
                                                                                              Proportion 
                                                                                                      of 
                                                                                               ownership 
                                                                                                interest 
                                                                          Country                    and 
                                                                               of                 voting 
                                                                    incorporation                 rights 
                                                                    and principal                held by 
                                                                         place of   Class of         the 
Name of subsidiary            Principal activity                         business      share       Group 
----------------------------  ----------------------------------  ---------------  ---------  ---------- 
                              Developing and licensing 
                               high performance connectivity 
                               silicon IP for the semiconductor 
Alphawave IP Inc.              industry                                    Canada   Ordinary        100% 
Alphawave Semi                Sales and sales support 
 US Corp. (formerly            for silicon IP licensing             United States 
 Alphawave IP Corp.)           and custom silicon solutions.           (Delaware)   Ordinary        100% 
                              To facilitate silicon IP                    British 
Alphawave IP (BVI)             licensing to WiseWave Technology            Virgin 
 Ltd.                          Co., LTD                                   Islands   Ordinary        100% 
Alphawave Call. 
 Inc.                         Non-trading                                  Canada   Ordinary        100% 
Alphawave Exchange 
 Inc.                         Non-trading                                  Canada   Ordinary        100% 
                              To facilitate the investment 
                               in WiseWave Technology 
Alphawave IP Limited           Co., LTD                                     China   Ordinary        100% 
                              Developing and licensing 
                               high performance connectivity 
                               silicon IP for the semiconductor 
Precise-ITC, Inc.              industry                                    Canada   Ordinary        100% 
AWIPInsure Limited            Captive insurance company                  Barbados   Ordinary        100% 
Alphawave Semi                Holding company provides 
 International Corp.           operational support in 
 (formerly Alphawave           Taiwan for Open-Silicon,             United States 
 Holdings Corp.)               Inc                                     (Delaware)   Ordinary        100% 
Alphawave Semiconductor                                             United States 
 Corp.                        Dormant                                  (Delaware)   Ordinary        100% 
Alphawave Semi,               Provides custom silicon 
 Inc. (formerly                solutions and high -- speed          United States 
 Open-Silicon, Inc)            connectivity silicon IP                 (Delaware)   Ordinary        100% 
Alphawave Semi 
 Holding Corp. (formerly 
 Open-Silicon Holding 
 Corp.)                       Holding company                           Mauritius   Ordinary        100% 
Open-Silicon Development                                            United States 
 Corp.                        Dormant                                  (Delaware)   Ordinary        100% 
Open-Silicon Engineering,                                           United States 
 Inc.                         Dormant                                  (Delaware)   Ordinary        100% 
Open-Silicon International,                                         United States 
 Inc.                         Dormant                                  (Delaware)   Ordinary        100% 
Open-Silicon Japan            Dormant                                       Japan   Ordinary        100% 
                              Provides research and development 
Open-Silicon Research          contracting services to 
 Private Ltd .                 Alphawave Semi, Inc.                         India   Ordinary        100% 
Alphawave Semi 
 (Nanjing) Co. Ltd 
 (formerly Yuanfang           Provides sales and marketing 
 Silicon Technology            contracting services to 
 (Nanjing) Co. Ltd)            Alphawave Semi, Inc.                         China   Ordinary        100% 
                                                                   United Kingdom 
Alphawave 102022                                                         (England 
 Limited                      Dormant                                    & Wales)   Ordinary        100% 
                              Developing optical Digital 
                               Signal Processing chips 
Solanium Labs Ltd              for data centres                            Israel   Ordinary        100% 
Alphawave Semi 
 Asia Co. Ltd (Shanghai)      Dormant                                       China   Ordinary        100% 
----------------------------  ----------------------------------  ---------------  ---------  ---------- 
 

All of the subsidiaries, with the exception of Alphawave IP (BVI) Ltd, Alphawave Call. Inc., Alphawave IP Limited, AWIPInsure Limited, Alphawave Semi International Corp., Solanium Labs Ltd and Alphawave 102022 Limited are indirectly held subsidiaries.

The registered office of Alphawave Semi US Corp. and Alphawave Semi International Corp. is 1730 N 1st St, Suite 650, San Jose, CA, 95112.

The registered office of Alphawave IP (BVI) Ltd is Trinity Chambers, PO Box 4301, Road Town, Tortola, British Virgin Islands.

The registered office of Alphawave IP Limited is 21 Avenida da Praia Grande, No 409, Edificio China Law, 21 andar, em Macau.

The registered office of Precise-ITC, Inc. is 170 University Avenue, 10th Floor, Toronto, Ontario, M5H 3B3.

The registered office of AWIPInsure Limited is 1st Floor, Limegrove Centre, Holetown, St. James, Barbados.

The registered office of Alphawave Semi Inc, Open-Silicon Development Corp, Open-Silicon Engineering, Inc and Open-Silicon International, Inc is 490 N McCarthy Blvd #220, Milpitas, CA 95035.

The registered office of Alphawave Semi Holding Corp (Mauritius) is 3rd Floor, Les Cascades, Edith Cavell Street, Port Louis, Mauritius.

The registered office of Open-Silicon Japan is c/o Akia Tax Consultants, Shoei Kannai Building, 22, Sumiyoshicho 2-chrome, Naka-ku, Yokohama, Kanagawa.

The registered office of Open-Silicon Research Private Ltd is No. 11/1 & 12/1 Maruthi Infotech Centre, 2nd Floor, B-Block, Indiranagar, Koramangala Intermediate Ring Road, Bangalore - 560 071, India.

The registered office of Alphawave Semi (Nanjing) Co. Ltd is Room 101, Building B, No. 300, Zhihui Road, Qilin Science and Technology Innovation Park, Jiangning District, Nanjing.

The registered office of Alphawave 102022 Limited is 65 Gresham Street, 6th Floor, London, England, EC2V 7NQ.

The registered office of Solanium Labs Ltd. is 24 Hanagar, Hod HaSharon 4527713, Israel.

The registered office of all other subsidiaries is 70 University Ave, 10th Floor, Toronto, Ontario, Canada M5J 2M4.

23 Post balance sheet events

In July 2023, the Group invested a further US$9.0m in its joint venture WiseWave.

[1] See note 4 Alternative Performance Measures (APMs). Adjusted EBITDA and Adjusted Profit after Tax exclude foreign exchange adjustments, share-based payments, deferred compensation payments, and M&A transaction costs.

[2] 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, silicon orders, and, in some instances, our estimates of potential future royalties.

[3] In H1 2022 there were no silicon bookings. The amount reflects only those instances where potential future royalties could be estimated based on committed prepayments or customer volume estimates.

[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 21.

[6] Deferred compensation payments related to acquisitions which are expected to be settled over time until August 2026.

[7] Semiconductor device companies ranked on market capitalisation as of 11.07.23.

[8] Deferred compensation payments related to acquisitions which are expected to be settled over time until August 2026.

[9] Dell'Oro Group, June 15 2023 https://www.delloro.com/news/global-data-center-capex-decelerates-to-8-percent-growth-in-1q-2023/

[10] IDC, March 7 2023, https://www.idc.com/getdoc.jsp?containerId=prUS50454123#::text=The%20ongoing%20incorporation%20of%20AI, left%20behind%20%E2%80%93%20large%20and%20small

[11] Last twelve months turnover rate

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

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September 25, 2023 02:00 ET (06:00 GMT)

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