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