Results

Navitas Semiconductor Corporation

02/27/2026 | Press release | Distributed by Public on 02/27/2026 13:59

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
Unless the context otherwise requires, all references in this section to the "Company," "we," "us" or "our" refer to the business of Navitas and its subsidiaries. Throughout this section, unless otherwise noted, "Navitas" refers to Navitas Semiconductor Corporation and its consolidated subsidiaries.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere in this annual report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs and that involve risks and uncertainties. As a result of many factors, such as those set forth under the "Risk Factors" and "Cautionary Statement About Forward-Looking Statements" sections and elsewhere in this annual report, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
Navitas Semiconductor Corporation designs, develops and markets next-generation power semiconductors, including gallium nitride ("GaN") power integrated circuits ("ICs"), high-voltage silicon carbide ("SiC") devices, associated high-speed silicon system controllers, and digital isolators used in power conversion and charging applications. We focus primarily on high-power markets, including AI data centers, energy and grid infrastructure, performance computing and industrial electrification. Our products are designed to improve system efficiency, increase power density, enhance thermal performance, and reduce overall system size and cost compared to traditional silicon-based technologies.
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By leveraging the electrical properties of wide bandgap ("WBG") materials such as GaN and SiC, our solutions enable higher switching frequencies, higher voltage operation, and improved energy efficiency. These capabilities are increasingly important in applications such as hyperscale data centers, renewable energy systems, grid modernization infrastructure, and industrial automation.
We operate as a fabless semiconductor design company and outsource wafer fabrication, assembly, and testing to qualified third-party manufacturing partners. This business model allows us to operate with relatively low capital expenditure requirements; however, our results depend on the capacity, cost structure, yield performance, and operational execution of our manufacturing partners. We maintain operations around the world, including the United States, Ireland, Germany, Italy, Belgium, China, Taiwan, South Korea, and the Philippines, with principal executive offices in Torrance, California.
Private Placement of Common Stock ("PIPE" Offering)
On November 7, 2025, we entered into the Purchase Agreement with accredited investors for a private placement of approximately 14.8 million shares of Class A common stock at $6.75 per share. The transaction closed on November 10, 2025, with Needham & Company as sole placement agent, resulting in gross proceeds of approximately $100.0 million and offering-related costs of $4.4 million. Net proceeds are being used for working capital and general corporate purposes, including support of strategic initiatives in high-power markets. All shares were delivered and settled in the fourth quarter of 2025.
Execution of At-The-Market Agreement
On March 19, 2025, we entered into an Open Market Sale AgreementSM(the "Sale Agreement") with Jefferies LLC ("Jefferies"). We subsequently completed two "At the Market" (ATM) offerings referred to as ATM One and ATM Two, respectively. Pursuant to each agreement, we could offer and sell, from time to time, shares of our Class A common stock, par value $0.0001 per share, having an aggregate offering price of up to $50.0 million through Jefferies as sales agent. As of June 30, 2025, we completed the sale of shares under both ATM One and ATM Two resulting in approximately 11.1 million shares under ATM One and 8.7 million shares under ATM Two, with gross proceeds of approximately $100.0 million and offering-related costs of $3.3 million in total. All sales were completed in the second quarter of 2025.
Navitas 2.0 Restructuring Plan
During the fourth quarter of 2025, we have undertaken a strategic transformation ("Navitas 2.0 Restructuring Plan") to reposition the Company as a focused high-power semiconductor company serving large, durable, higher-margin markets. The fourth quarter 2025 total restructuring expense and impairment charges incurred by us were $16.6 million. See Note - 18 "Restructuring and Impairment" to the Consolidated Financial Statements in Item 8 of this report for further details on the restructuring expense and impairment charges.
The Navitas 2.0 Restructuring Plan shifts the Company away from consumer-oriented, short-life-cycle segments toward long-term programs in AI data centers, energy and grid infrastructure, performance computing and industrial electrification. This pivot is expected to improve business predictability, expand gross margin, and support a scalable and sustainable operating model. To enable this transition, we took several decisive actions focusing on 1) distributor rationalization, 2) resource realignment, 3) technology roadmap acceleration, and 4) go-to-market restructuring. Additionally, these actions support a disciplined operating model centered on four strategic pillars:
1.Market focus: AI data centers, energy and grid infrastructure, performance computing and industrial electrification.
2.Technology leadership: continuous innovation in GaN, GaN power ICs, and high-voltage silicon carbide, informed by customer requirements and co-design.
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3.Operational efficiency: a streamlined and rebalanced geographically deployed organization, a scalable foundry, and packaging and module partnerships.
4.Financial discipline: prioritized investments, leverageable operating expenses, and a mix shift toward high-margin programs.
Equity Method Investment
In October 2024, we began applying the equity method of accounting for our related party investment, in accordance with Accounting Standards Codification ("ASC") 323, Investments-Equity Method and Joint Ventures. Under ASC 323, an investor must use the equity method when it has significant influence over the investee, typically indicated by ownership of 20% to 50% of the voting stock or other qualitative factors (e.g. board representation). We hold a 13.1% ownership stake in the investment and as part of the October 2024 transaction, received the option to appoint a representative to the investee's board of directors. As a result, we remeasured our investment to its fair value of $5.55 per share as of the change in accounting and recognized its proportionate share of the investee's earnings and losses for the period from November through December 2024, resulting in a net gain of $3.9 million for the year ended December 31, 2024. We recorded our share of losses for the year ended December 31, 2025, resulting in a net loss of $1.1 million, which was recorded in "Equity method investment gain (loss)" on the Statements of Operations.
Results of Operations
Revenue
We design, develop and manufacture GaN power ICs and SiC MOSFETs for a variety of end-uses and applications. Our revenue represents the sale of semiconductors through specialized distributors to original equipment manufacturers ("OEMs"), their suppliers and other end customers.
Our revenues fluctuate in response to a combination of factors. In addition, our revenues may fluctuate in response to the Company's announced transition to high-power markets. Some of the factors that may cause these revenue fluctuations include the following:
•our overall product mix and sales volumes;
•gains and losses in market share and design win traction, including the Company's ability to ramp new high-power products;
•pace at which technology is adopted in our end markets;
•the stage of our products in their respective life cycles;
•the effects of competition and competitive pricing strategies, particularly in the mobile and consumer markets impacted by our announced transition to high-power markets;
•availability of specialized field application engineering resources supporting demand creation and end customer adoption of new products;
•achieving acceptable yields and obtaining adequate production capacity from our wafer foundries and assembly and test subcontractors;
•market acceptance of our end customers' products; governmental regulations influencing our markets; and
•the global and regional economic cycles;
•declines in average selling prices due product advances and market competition;
•the availability, and fluctuations in the price of, the raw materials required for our products
•changes in customer and distributor relationships including the Company's announced consolidation of its distribution network in connection with its transition to high-power markets; and
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•seasonal demand patterns in certain markets.
We consider the domicile of our end customers, rather than the distributors we sell to directly to be the basis of attributing revenues from external customers to individual countries. Revenue for the twelve months ended December 31, 2025 and 2024, excluding channel inventories, were attributable to end customers in the following countries:
Year Ended December 31,
Country 2025 2024
China 47 % 60 %
United States 28 % 16 %
Asia excluding China 11 % 15 %
Europe* 14 % 8 %
All others - % 1 %
Total 100 % 100 %
*Impractical to disclose revenue percentages by individual countries within Europe and therefore is presented in total.
Cost of Revenues
Cost of revenues consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead (which includes depreciation and amortization) associated with such purchases, final test and wafer level yield fallout, inventory impairments, consumables, system and shipping costs. Cost of revenues also includes compensation related to personnel associated with manufacturing, including costs related to cash and stock-based employee compensation.
Research and Development Expense
Costs related to research, design and development of our products are expensed as incurred. Research and development expense consists primarily of pre-production costs related to the design and development of our products and technologies, including costs related to cash and stock-based employee compensation, benefits and related costs of sustaining our engineering teams, project material costs, third-party fees paid to consultants, prototype development expenses, write-offs of material to be utilized in research and development, and other costs incurred in the product design and development process.
Selling, General and Administrative Expense
Selling, general and administrative expense includes employee compensation, including cash and stock-based compensation and benefits for executive, finance, business operations, sales, field application engineers and other administrative personnel. In addition, it includes marketing and advertising, IT, outside legal professional fees and legal settlements, tax and accounting services, insurance, and occupancy costs and related overhead based on headcount. Selling, general and administrative costs are expensed as incurred.
Interest Income (Expense), net
Interest income (expense), net primarily consists of interest earned on bank deposits and interest expense on our royalty agreement.
Dividend Income
Dividend income consists of income earned on money market treasury funds that are recorded as cash equivalents.
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Income Taxes
Legacy Navitas is a dual domesticated corporation for Ireland and U.S. federal income tax purposes. Refer to Note 14 - "Provision for Income Taxes", in our accompanying consolidated financial statements elsewhere in this annual report.
Results of Operations
The tables and discussion below present our results for the years ended December 31, 2025and 2024(in thousands):
Year Ended December 31, Change
$ 		Change
%
(dollars in thousands) 2025 2024
Net revenues
$ 45,916 $ 83,302 $ (37,386) (45) %
Cost of revenues (exclusive of amortization of intangibles included below) 31,668 54,963 (23,295) (42) %
Operating expenses:
Research and development 49,830 76,002 (26,172) (34) %
Selling, general and administrative 35,196 62,863 (27,667) (44) %
Amortization of intangible assets 18,937 18,926 11 - %
Restructuring and impairment expense 18,049 1,223 16,826 1376 %
Total operating expenses 122,012 159,014 (37,002) (23) %
Loss from operations (107,764) (130,675) 22,911 (18) %
Other income (expense), net:
Interest income (expense), net 863 (150) 1,013 (675) %
Dividend income 3,537 5,233 (1,696) (32) %
(Loss) Gain from change in fair value of earnout liabilities (12,424) 36,644 (49,068) (134) %
Other income 6 102 (96) (94) %
Total other income (expense), net (8,018) 41,829 (49,847) (119) %
Loss before income taxes (115,782) (88,846) (26,936) 30 %
Income tax provision (benefit) 50 (342) 392 (115) %
Equity method investment (loss) gain (1,121) 3,905 (5,026) (129) %
Net loss $ (116,953) $ (84,599) $ (32,354) 38 %
Comparison of the Years ended December 31, 2025 and 2024
Revenues
Net revenues for the twelve months ended December 31, 2025 were $45.9 million compared to $83.3 million for the twelve months ended December 31, 2024, a decrease of $37.4 million, or 45%. The decrease in sales was mainly due to the decline in the mobile and consumer markets in China.
Cost of Revenues
Cost of revenues for the twelve months ended December 31, 2025 was $31.7 million, a decrease of $23.3 million or 42% compared to the twelve months ended December 31, 2024. The decrease was primarily driven by lower sales volume, coupled with the absence of a $5.0 million inventory reserve recorded in the prior year related to a distributor disengagement and market mix.
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Research and Development Expense
Research and development expense for the twelve months ended December 31, 2025 of $49.8 million decreased by $26.2 million, or 34%, when compared to the twelve months ended December 31, 2024, primarily driven by lower stock-based compensation of approximately $10.7 million, which was primarily due to the resignation of a senior management member resulting in reversal of $4.2 million related to our long-term incentive plan, coupled with a reduced headcount and employee-related costs of $10.1 million from our workforce reduction due to restructuring since the third quarter of 2024 and a $1.6 million decline in R&D product development costs. Additionally, we had an other asset impairment and a one-time project expense of $3.7 million that was recorded in the prior year, but did not reoccur in the current year. These are partially offset by a $2.2 million advanced R&D NRE impairment in 2025.
Selling, General and Administrative Expense
Selling, general and administrative expense for the twelve months ended December 31, 2025 of $35.2 million decreased by $27.7 million, or 44%, when compared to the twelve months ended December 31, 2024. This is primarily driven by a decrease in stock-based compensation of approximately $17.8 million largely resulting from the reversal of $12.6 million following the separation of senior management members related to our long-term incentive plan. The decrease was additionally driven by a $7.5 million bad debt expense due to a distributor disengagement in the prior year and a decrease in headcount and employee costs of $3.9 million as a result of our reductions in force and workforce optimization. This was partially offset by approximately $4.0 million in CEO transition costs and governance costs in 2025.
Amortization of Definite-Lived Intangible Assets
Amortization of intangible assets remained fairly unchanged as we did not acquire new intangible assets.
Restructuring and Impairment Expense
We announced cost-reduction plans that include streamlining distribution channels, reductions in headcount, and impairment of fixed assets. We incurred $18.0 million of restructuring and impairment expenses for the year ended December 31, 2025, of which $16.6 million was related to the Navitas 2.0 Restructuring Plan and $1.4 million was related to the 2025 Restructuring Plan.
Other Income (Expense), net
Interest income primarily consists of interest earned on our interest earning bank accounts and interest expense is associated with our royalty agreement. The $0.9 million ofinterest income was primarily attributable to higher cash balances net of interest expense associated with our royalty agreement. The $0.2 million expense as of December 31, 2024 is primarily due to interest associated with our royalty agreement.
Dividend income consists of income earned on our money market treasury funds that are recorded as cash equivalents on our consolidated balance sheet. The decrease of $1.7 million is primarily due to decreases in our investment balances as of December 31, 2025 compared to December 31, 2024.
During the twelve months ended December 31, 2025, we recognized a $12.4 million loss from an increase in fair value of our earnout liabilities. The loss of $12.4 million in our earn-out liability was primarily a result of the increase of the closing price of our Class A common stock listed on the Nasdaq, resulting in an increase in the estimated fair value of the earnout shares from $1.18 as of December 31, 2024 to $2.33 as of December 31, 2025.
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Income Tax Provision (Benefit)
Income tax provision for the twelve months ended December 31, 2025 was $0.1 million while for the twelve months ended December 31, 2024, income tax benefit was $0.3 million. We expect our tax rate to remain close to zero in the near term due to full valuation allowances against deferred tax assets.
Equity method investment (loss) gain
In 2024, we recorded a net gain of $3.9 million related to our joint venture investment, which primarily reflected a fair value adjustment prior to applying the equity method. Beginning in October 2024, we applied the equity method and recognized our proportionate share of the joint venture's results. For the year ended December 31, 2025, we recognized our proportionate share of the joint venture's loss, resulting in a net loss of $1.1 million, compared to the net gain of $3.9 million for the year ended December 31, 2024.
Liquidity and Capital Resources
Our primary use of cash is to fund our operating expenses, working capital requirements, and outlays for strategic investments and acquisitions. In addition, we use cash to conduct research and development and fund capital expenditures.
We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will remain relatively flat.
We currently expect to fund our cash requirements through the use of cash and cash equivalents on hand. We believe that our current levels of cash and cash equivalents are sufficient to finance our operations, working capital requirements and capital expenditures for the foreseeable future.
Cash Flows
The following table summarizes our consolidated cash flows for the periods presented (in thousands):
Year Ended December 31,
2025 2024
Consolidated Statements of Cash Flows Data:
Net cash used in operating activities $ (42,891) $ (58,823)
Net cash used in investing activities $ (1,386) $ (9,271)
Net cash provided by financing activities $ 194,639 $ 3,495
We derive liquidity primarily from cash on hand and equity financing activities. As ofDecember 31, 2025, our balance of cash and cash equivalents was $236.9 million, which is an increase of $150.1 million or 173% compared to December 31, 2024, driven by our PIPE and ATM offerings.
Operating Activities
For the year ended December 31, 2025, net cash used in operating activities was $42.9 million, which primarily reflects a net loss of $117.0 million, adjusted for the amortization of intangible assets of $18.9 million, non-cash stock-based compensation of $14.5 million, non-cash loss of $12.4 million related to the change in fair value of our earnout liability, $3.8 million related to the impairment of a long-lived asset, depreciation of $3.5 million, partially offset by aggregate cash inflows from changes in operating assets and liabilities of $17.1 million. Specifically, the changes reflect a $9.5 million decrease in accounts receivable, $6.2 million increase in accounts payable, accrued compensation and other accrued expenses, $2.2 million decrease in inventories, and a decrease of $1.0 million in other assets, partially offset by
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decreases in operating lease liabilities related to lease payments of $1.7 million and a $0.3 million increase in prepaid expenses and other current assets.
For the year ended December 31, 2024, net cash used in operating activities was $58.8 million, which primarily reflects a net loss of $84.6 million, adjusted for non-cash stock-based compensation of $43.0 million, non-cash gains of $40.5 million in earnout and our equity investment due to changes in fair value, $7.9 million of non-cash bonus accruals, $7.7 million for our allowance for credit losses, a $2.0 million impairment of other asset, and an aggregate cash used in operating assets and liabilities of $1.9 million. Specifically, the changes reflect a $2.8 million decrease in accounts payable, accrued compensation and other accrued expenses, $11.0 million decrease in customer deposit and deferred revenue, $1.7 million decrease in operating lease liability, partially offset by a $4.2 million decrease in accounts receivable, $6.8 million decrease in inventories, a decrease of $0.6 million in other assets, and a $2.1 million decrease in prepaid expenses and other current assets.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 of $1.4 million was primarily due to purchases of fixed assets of $1.5 million, partially offset by net of proceeds from dispositions of $0.1 million.
Net cash used in investing activities for the year ended December 31, 2024 of $9.3 million was primarily due to purchases of fixed assets of $6.8 million and $2.5 million cash funding of a joint venture.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2025 of $194.6 million was primarily the result of proceeds of $200.0 million related to our PIPE and ATM offerings, proceeds from our employee stock purchase plan of $1.5 million, and proceeds from stock option exercises of $1.0 million. This was partially offset by the costs of our PIPE and ATM offerings of $7.7 million and payments on our finance lease of $0.2 million.
Net cash provided by financing activities for the year ended December 31, 2024 of $3.5 million was primarily the result of proceeds from stock option exercises of $0.8 million and proceeds from our employee stock purchase plan of $2.7 million.
Contractual Obligations, Commitments and Contingencies
In the ordinary course of business, we enter into contractual arrangements that may require future cash payments. As of December 31, 2025, our non-cancellable contractual arrangements consist of lease obligations and an agreement for the purchase of equipment. Refer to Note 9 - "Leases" for further information on our minimum future payments related to lease obligations. In December 2024, we entered into an agreement with a vendor for the purchase of equipment, requiring quarterly installment payments. Refer to Note 15 - "Commitments and Contingencies" for additional details on purchase obligations.
Off-Balance Sheet Commitments and Arrangements
As of December 31, 2025, we did not have any off-balance sheet arrangements as discussed in Instruction 8 to Item 303(b) of Regulation S-K.
Critical Accounting Policies
The preparation of our financial statements and related disclosures in accordance with U.S. GAAP requires our management to make judgments, assumptions and estimates that affect the amounts reported in our accompanying consolidated financial statements and the accompanying notes included elsewhere in this annual report. Our management bases its estimates and judgments on historical experience, current economic and industry conditions and on various other
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factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
We utilize the following critical accounting policies in the preparation of our financial statements. In addition to our critical accounting policies below, see Note 2 - "Significant Accounting Policies" in the notes to our audited consolidated financial statements included elsewhere in this Form 10-K.
Revenue Recognition
Revenue is recognized when a customer obtains control of products or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, "Revenue from Contracts with Customers", we perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) we satisfy performance obligations. We recognize revenue when the control of the promised goods or services is transferred to customers in an amount that reflects the consideration we expect to receive in exchange for such goods or services.
The majority of our revenue is derived from the sale of semiconductor products. In determining the transaction price, we evaluate whether the price is subject to refund or adjustment to determine the net consideration to which we expect to be entitled.
Revenue is recognized when control of the product is transferred to the customer (i.e., when our performance obligation is satisfied), which is defined by the commercial terms of each purchase but typically occurs at shipment. In determining whether control has transferred, we consider if there is a present right to payment and legal title, and whether risks and rewards of ownership have transferred to the customer. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements included elsewhere in this annual report for additional discussion of our revenue recognition policy.
Business Combinations
We account for business combinations using the acquisition method of accounting, in accordance with ASC 805, "Business Combinations". The acquisition method requires identifiable assets acquired and liabilities assumed be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. This judgment and determination affects the amount of consideration paid that is allocatable to assets and liabilities acquired in the business purchase transaction. Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include, but are not limited to, future expected cash inflows and outflows, expected technology life cycle, and discount rates. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.
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Valuation of Inventory
We assess inventory to address potential obsolescence and declining values through periodic assessments, considering factors including estimates for future demand and net realizable value. Identified impaired inventory items are adjusted to reflect net realizable values. Changes in assumptions of product demand, the future salability of inventory, and the net realizable value of obsolete and unmarketable inventory could have a significant impact on the amount of the reserve recorded. These assumptions include the assessment of market conditions and trends, expected demand inclusive of sales forecasts, anticipated sales and market prices, and product obsolescence.
Stock-Based Compensation
We account for awards of stock-based compensation under our employee stock-based compensation plan using the fair value method. Accordingly, we estimate fair value of our stock-based awards and amortized this fair value to stock-based compensation expense over the requisite service period.
RSUs - The fair value per unit of each RSU grant award is determined on the grant date based on the Company's stock price. Stock-based compensation is recognized on a straight-line basis over the requisite service period of the award. Forfeitures are recognized as they occur.
ESPP - We currently use the Black-Scholes option-pricing model to estimate the fair value of our Employee Stock Purchase Plan (ESPP) awards and amortize the expense over the requisite service period. The ESPP awards require management to make assumptions and to apply judgment in determining the fair value of the awards. The most significant assumptions and judgments include the expected volatility, risk-free interest rate, expected dividend rate and expected term of the award, in addition to the fair value of the underlying common stock.
LTIP Awards- The fair value for each tranche of the Long-term Incentive Plan Stock Option ("LTIP") awards was determined using Black-Scholes model and a Monte Carlo simulation estimated at the initial grant date. We utilized the services of a professional valuation firm to develop the grant date fair value. The LTIP awards vest based on the achievement of certain market (stock price hurdles) and performance conditions (revenue and/or EBITDA targets). During the years ended December 31, 2025 and 2024, the LTIP awards require management to make assumptions and to apply judgment in determining the timing and amount of the recognition of the awards. The most significant assumptions and judgments include management's forecasts related to award performance conditions, including whether certain performance conditions are probable. Awards are not recognized until they are deemed to be probable to vest, and awards may be derecognized if they are determined to be no longer probable.
As a result of certain employee terminations during 2025, all LTIP awards were forfeited, and the LTIP is no longer applicable as of December 31, 2025.
Earnout Shares
Certain shareholders of the Company are eligible to receive up to 10,000,000 earnout shares (the "Earnout Shares") of Class A common stock, contingent upon the fulfillment of certain earnout milestones. These milestones consist of three distinct criteria, with each criterion granting eligible stockholders 3,333,333 earn-out shares upon meeting the specified conditions. Each earnout milestone is deemed achieved if, at any time within 150 days following the Business Combination and before October 19, 2026, the volume-weighted average price of the Company's Class A common stock reaches or exceeds $12.50, $17.00, or $20.00 for any twenty trading days within a thirty trading day period, respectively.
These earnout shares have been categorized into two components: (i) the "Vested Shares" - those associated with stockholders with vested equity at the closing of the Business Combination that will be earned upon achievement of the earnout milestones. Any forfeited shares from unvested holders will be reallocated among the remaining earnout holders and (ii) the "Unvested Shares" - those associated with stockholders with unvested equity at the closing of the Business Combination which are subject to forfeiture if the employee leaves prior to the achievement of the earnout milestones. As the implicit service period has passed, these shares now remain contingent solely on meeting the earnout performance
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condition. The Vested Shares are classified as liabilities in the Consolidated Balance Sheets and the Unvested Shares are equity-classified stock-based compensation to be recognized over time (see Note 10 - "Stock-based Compensation"). The earnout liability was initially measured at fair value at the closing of the Business Combination and subsequently remeasured at the end of each reporting period. The change in fair value of the earn-out liability is recorded as part of "Other income (expense), net" in the consolidated statement of operations.
The estimated fair value of the earnout liability was determined using a Monte Carlo analysis of 20,000 simulations of the future path of the Company's stock price over the earnout period to estimate the likelihood of achieving certain stock price milestones. The assumptions utilized in the calculation include the Company's stock price volatility, risk-free interest rate, and the expected term of the award.
Recently Issued and Adopted Accounting Standards
See Note 2 - "Significant Accounting Policies" to our consolidated financial statements included elsewhere in this annual report for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.
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