Condensed consolidated statement of cash flows

For the period ended 30 June 2024

1. See note 2 'Interim 2023 restatement' paragraph.

Condensed consolidated statement of changes in equity

Six months ended 30 June 2024

Restated¹ six months ended 30 June 2023

1. See note 2 'Interim 2023 restatement' paragraph.

Notes to the unaudited interim statements

Six months ended 30 June 2024

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 changed from 6th Floor, 65 Gresham Street, London, United Kingdom, EC2V 7NQ to Central Square, 29 Wellington Street, Leeds, United Kingdom, LS1 4DL on 26 June 2024.

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 2023. 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 2023 and for the six months ended 30 June 2023.

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 2023 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.

These consolidated interim financial statements were authorised for issue by the Company's Board of Directors on 23 September 2024. The Independent Auditor's Report on the Annual Report and Accounts of Alphawave IP Group plc for the year ended 31 December 2023 was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006. The financial information for the periods ended 30 June 2024 and 30 June 2023 is unaudited but has been subject to a review by the Company's auditor.

Going concern

In preparing the condensed consolidated financial statements for the six months ended 30 June 2024, the Directors have updated their assessment of the Group's ability to continue as a going concern. The condensed consolidated financial statements have been prepared on a going concern basis which the Directors consider to be appropriate for the reasons outlined below.

As at 30 June 2024, the Group held cash and cash equivalents of US$76.3m and had bank borrowings totalling US$216.3m, comprised of a term loan of US$91.3m 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 2024 that are defined in the related Credit Agreement:

·      a maximum permissible net leverage ratio (ratio of consolidated total debt to consolidated adjusted EBITDA) of 3.00x; and

·      a minimum liquidity balance of US$45.0m.

Compliance with the net leverage ratio financial covenant is tested quarterly and compliance with the minimum liquidity balance financial covenant is tested monthly, with both the balance of liquidity at the end of the month and the average daily balance through the month required to be above the minimum. During the second quarter of 2024, the Group's net leverage ratio was above 3.00x which technically represented a breach of the bank covenant as at 30 June 2024 and resulted in the debt being presented as current as at the balance sheet date. This was principally due to low adjusted EBITDA in the first half of 2024.

On 19 July 2024, the Group signed an amendment to the credit agreement with the lenders to increase the maximum permissible net leverage ratio applicable to Q2 2024 to 4.50x. From Q3 2024, the net leverage ratio covenant has been amended to measure net secured leverage, with a maximum permissible ratio of 3.00x for the remainder of the term of the loan. In addition to the above changes, the amendment also replaced the fixed charges coverage ratio covenant, that was due to resume in Q3 2024, with a minimum interest coverage ratio covenant, being the ratio of the last twelve months interest expense to the last twelve months consolidated adjusted EBITDA. This ratio is set at a minimum of 2.50x for Q3 2024, then stepping up to 2.75x for Q4 2024 and Q1 2025, with a further step up to 3.00x from Q2 2025 for the remainder of the term loan. The amendment also gives the Group the option to draw an additional US$45.0m from the existing lender consortium.

The Directors have prepared cash flow forecasts and performed a going concern assessment on a 'base case' covering the period of at least twelve months from the date on which they approved the financial statements. This base case includes assumptions about (i) forecasted revenue based on existing contracts in place at the date of assessment, along with an estimate of future orders, and (ii) forecasted gross margins and operating expenses based on historical trends, ongoing and expected projects, headcount and commitments.

The Directors also considered a severe, but plausible, downside scenario ("stress case") over the forecast period relative to the base case as follows:

·      Revenue in Q3 2024 is 10% lower and revenue in Q4 2024 to Q3 2025 is 25% lower.  The Directors believe this to be an appropriate revenue forecast reduction to take into account the estimation uncertainty related to the timing of performance of contractual obligations for customer contracts, collections and payments, as well as the tape-out of products.

·      In the period from Q4 2024 to the end of Q3 2025 mitigating reductions of 10% in operating expenditure to reflect the lower volume of work and 50% reduction in laboratory and prototyping expenditure. 

·      The Directors consider further mitigating actions (such as bonus accruals) could be taken if needed, although not required in the downside scenario to maintain covenant compliance for the period from Q3 2024 to the end of Q3 2025.

Under the 'base case' forecast and the downside scenario described above, the analysis demonstrates the Group can continue to maintain sufficient liquidity headroom and expects to comply with the amended debt covenants throughout the going concern assessment period. Following consideration of the Group's liquidity position and prospects for the near term, the Directors are confident that the Group has adequate resources for a period of at least twelve months from the date of approval of the consolidated interim financial statements and have therefore assessed that the going concern basis of accounting is appropriate in preparing the consolidated interim financial statements.

Basis of organisation

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

Foreign currency translation

Each entity within the Group has a functional currency, which is normally the currency in which the entity primarily generates and expends cash.

At entity level, a foreign currency is a currency other than the entity's functional currency. Sales, purchases and other transactions denominated in foreign currencies are recorded in the entity's functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the end of the reporting period. Currency translation differences arising at entity level are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies are not retranslated subsequent to initial recognition.

On consolidation, the results of foreign operations are translated into US dollars at the average exchange rate for the reporting period and their assets and liabilities are translated into US dollars at the exchange rate ruling at the end of the reporting period. Currency translation differences arising on consolidation are recognised in other comprehensive income and taken to the currency translation reserve. In the event that a foreign operation is sold, the related cumulative currency translation difference recognised in other comprehensive income is reclassified from equity to profit or loss and is included in calculating the gain or loss on disposal of the foreign operation.

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 2023. New standards effective on or after 1 January 2024 have been reviewed and do not have a material effect on the Group's financial statements.

Interim 2023 restatement

The Group has restated the 30 June 2023 comparative financial statements to reflect the following:

-       Borrowing costs of US$4.5m should have been capitalised to intangible assets in the six month period ended 30 June 2023.  This restatement has resulted in a decrease of US$4.5m in finance expenses and a corresponding increase in intangibles assets at 30 June 2023. Borrowing costs of US$9.5m were correctly capitalised as at 31 December 2023.  There is no impact on the tax charge for the six month period ended 30 June 2023.

There is no impact on opening retained earnings as at 1 July 2022 or the cash flow statement for the six month period ended 30 June 2023. 

This restatement has resulted in an increase in basic and diluted earnings per share from (1.92) to (1.27) (expressed in cents per ordinary share) for the six month period ended 30 June 2023.

-       In addition, US$4.1m of deferred cash rights expense has been reclassified from general and administration expenses to other operating expenses to be presented on the same basis as for the year ended 31 December 2023. In the cash flow statement at 30 June 2023, this non-cash movement was incorrectly included in the change in trade and other payables within cash generated from operations.  In the restated cash flow statement, this expense is now presented within cash generated from operations before changes in working capital. There is no impact on opening retained earnings as at 1 July 2022.

3.   Critical judgements and key sources of estimation uncertainty

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. There have been no changes to critical judgements and key sources of estimation uncertainty in the 6 months to 30 June 2024.

4.   Revenue

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

'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 by way of the master reseller agreement in late 2021. It also represents revenue from any new contracts signed with VeriSilicon since 1 January 2024, following the expiration of the master reseller agreement in December 2023.

'IP and NRE - JV' represents revenue from our joint venture, WiseWave, and includes revenues recognised under the five-year subscription licence and revenues recognised under the VeriSilicon reseller arrangements which were moved under WiseWave in late 2021. Since 1 January 2024 revenue from any new contracts signed with VeriSilicon are outside of the master reseller agreement and are therefore disclosed in 'IP and NRE - Reseller'.

'Silicon and royalties' represent 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 in prior periods, we have separately itemised the revenue from our reseller and joint venture, both based in China. The revenue in H1 2024 from our joint venture in China, WiseWave, predominantly relates to an greement signed at the end of 2023 for technology that was not included in the five-year subscription licence agreement. Revenue recognised against the subscription licence agreement was US$0.1m in H1 2024 and consisted solely of support revenue, whereas the revenue recognised in H1 2023 (US$26.4m) was predominantly based on our deliveries of IP to WiseWave.

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$64.8m (71% of total revenues) (H1 2023: US$46.4m, 25%) represent revenues recognised over time. Of the US$64.8m revenue recognised over time, US$44.1m is subject to estimation uncertainty. US$9.4m of contract assets and US$53.8m of contract liabilities are also subject to estimation uncertainty. 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 2024 which are subject to estimates. If our estimates of total hours or total costs had been 10% higher, these revenues would be US$39.7m, contract assets would be US$8.5m and contract liabilities would be US$59.2m. If our estimates of total hours or total costs had been 10% lower, these revenues would be US$48.5m, contract assets would be US$10.3m and contract liabilities would be US$48.4m.

US$26.2m (29% of total revenues) (H1 2023: US$140.8m, 75%) 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.

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. There is only support and maintenance revenue left to be recognised on the subscription licence agreement as all the revenue related to IP uploads was recognised before the end of 2023.

Please see the 'Financial Highlights' section on page 7 for further information on revenue.

Below is a reconciliation of the movement in contract assets during the period:

Below is a reconciliation of the movement in contract liabilities, excluding the flexible spending account, during the period:

The contract liabilities balance is all expected to be satisfied within 12 months of the balance sheet date. There has been an increase in the contract liabilities balance since the end of December 2023 due to an increase in NRE invoicing and cash received towards the end of Q2 2024 where the revenue is expected to be recognised in Q3 and Q4 2024.

The flexible spending account, which is included within contract liabilities on the balance sheet, has increased to US$18.8m at the end of June 2024 from US$5.9m at the end of December 2023. The increase was driven by a US$12.9m of invoices raised in H1 2024 against two FSA agreements. 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:

The costs to obtain contracts from customers include commissions. Amortisation of US$1.1m (H1 2023: US$0.5m) was charged to the consolidated statement of comprehensive income in the period.

5.   Other operating expense

Other operating expense items were as follows:

The increase in acquisition related costs from H1 2023 to H1 2024 was primarily due to the release of an escrow payment of US$6.2m made per the terms of our acquisition of Precise-ITC that became due in H1 2024. This payment is a compensatory expense for financial reporting purposes per the guidance included in IFRS 3 Business Combinations but is included in other operating expense due to it being economically connected to a business acquisition.

6.   Employee costs excluding Directors and key management personnel

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

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

7.   Directors and key management personnel compensation

8.   Finance income and expense

1.         See note 2 'Interim 2023 restatement' paragraph

9. Investments

WiseWave joint venture:

As at 30 June 2024, the Group held a 42.5% ownership interest in WiseWave Technology Co., LTD ('WiseWave'), a supplier of semiconductor devices based in China. WiseWave's registered office is at Room 105, No. 6, Baohua Road, Hengqin New District, Zhuhai, China.

The value of the investment in WiseWave was reduced to US$nil in 2022, as a result of equity accounting for losses at WiseWave during the period. The value of the cumulative losses incurred by WiseWave exceeds the cumulative value of our investment in the business, hence there is no elimination of gains from the sales to WiseWave in the six months to 30 June 2024 as the value of the investment was already reduced to US$nil at 31 December 2023 and  therefore no provision has been recognised for the excess of the Group's share of WiseWave's losses through end of H1 2024 over the carrying amount of the investment of US$8.6m, on the basis that the Group does not have a constructive obligation.

10. Income tax expense

During the six months ended 30 June 2024, the Group recorded a consolidated tax credit of US$10.0m (H1 2023: US$2.3m expense), which represented effective tax rates of 20% and 20%, respectively.

Income tax expense has been recognised based on management's estimate of the annual actual income tax rate for the financial period applied to the reported profits before tax of the interim reporting period for each entity in the consolidated Group

11. 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.

1.         See note 2 'Interim 2023 restatement' paragraph

Basic loss per share in the six months to 30 June 2024 and diluted loss per share in the six months to 30 June 2024 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.

12. Goodwill

Goodwill is tested for impairment annually and whenever there is an indication that it may be impaired, at the level of the cash-generating unit (CGU) or group of CGUs to which it is allocated. Our business model is such that our IP is leveraged across the channels through which we provide our products and services to customers, i.e. IP licensing, custom silicon and own products. Given this interdependence of the Group's operations, management considers that the Group constitutes only one CGU because there is no asset or group of assets within the business that generates cash inflows that are largely independent of cash inflows generated by other assets or groups of assets. Goodwill was tested for impairment at Group level at the end of 2023 by comparing the Group's recoverable amount, determined from its fair value less costs of disposal, against its carrying amount. In 2023, the Group's fair value less costs of disposal was higher than its carrying amount and therefore no impairment of goodwill was required. In H1 2024, we assessed whether there were any indications that goodwill may be impaired and concluded that there are none. Specifically, we do not expect the Group's consolidated net loss incurred in H1 2024 to be indicative of a permanent reduction in the Group's ability to generate cash flows.

13. Other intangible assets

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 2024 (H1 2023: US$1.0m).

The identifiable intangible assets from the acquisition of OpenFive in 2022 were valued at US$61.0m, against which amortisation of US$5.4m was recorded in H1 2024 (H1 2023: US$5.3m).

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$41.2m of additions includes US$1.0m paid to a third-party IP provider and US$6.4m of capitalised borrowing costs. The remaining US$33.8m is capitalised development expenditure comprising primarily of staff costs where staff have worked on projects that are capitalisable under the Group's research and development capital expenditure policy.

The Group incurred research and development costs, net of a SRED credit of US$4.8m, 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:

14. Property and equipment - owned

The value of property and equipment has increased by US$17.3m from US$20.7m at 31 December 2023 to US$38.0m at the end of June 2024. The increase is mainly due to a US$14.6m mask set for our own products purchased in Alphawave IP, Inc., which was not yet available for use as at 30 June 2024.

15. Cash and cash equivalents

Please see the 'Financial Highlights' section on page 8 for further information on cash, including the decrease in cash as at 30 June 2024 compared to 31 December 2023.

16. Trade and other receivables

Current trade and other receivables have decreased from US$78.1m on 31 December 2023 to US$60.9m on 30 June 2024. Other receivables have decreased from US$16.7m on 31 December 2023 to US$7.8m on 30 June 2024 predominantly due to the receipt of US$12.4m relating to the OpenFive purchase price adjustment.  Total restricted cash reduced by US$13.4m due to deferred compensation payments made to employees from acquired entities. Of this US$10.5m reduction, US$7.2m relates to a reduction in amounts held by third-party paying agents in respect of future compensation amounts payable to employees of Banias Labs being settled in the first half of 2024. The remaining US$6.2m was deferred compensation that was paid to one of the vendors of Precise-ITC. The payments associated with Precise-ITC and Banias Labs deferred cash are presented within operating activities in the condensed consolidated statement of cash flows. The reduction of the deferred cash asset from these transactions is included in working capital in the condensed consolidated statement of cash flows.

Non-current trade receivables have decreased from US$6.4m on 31 December 2023 to US$5.1m on 30 June 2024 due to a decrease in the non-current deferred cash balance in line with vesting dates.

17. Other assets

Prepayments have decreased by US$9.9m due primarily to recognition of prepaid expenses in the first six months of 2024 in line with the terms of the contracts relating to prepayments.

18. Trade and other payables

Current trade and other payables have increased from US$69.3m on 31 December 2023 to US$72.2m on 30 June 2024. Other payables increased by US$6.8m predominantly due to higher vesting of RSUs in 2024 due to the headcount increase from 2022 and 2023 and the bonus RSUs that were issued in the first half of 2024 relating to 2023 performance.

19. 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, 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 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.

During the second quarter of 2024, the Group's net leverage ratio (NLR) was above the maximum allowed ratio of 3.00x, principally as a result of low adjusted EBITDA in Q3 2023 and H1 2024, combined with a step-down in the ratio from 3.50x to 3.00x. The lower than anticipated adjusted EBITDA in H1 2024 was driven by the time lag in converting new bookings to recognised revenue, particularly in high-value IP and ASIC NRE contracts that were signed in the second half of 2023.

Discussions with the Group's lenders commenced in Q2 2024 to ensure that recording a NLR above the allowed maximum would not be treated as a breach of the covenant. These discussions culminated in the Fourth Amendment and Waiver to the Credit Agreement, which was signed on 19 July 2024. Under the terms of the Fourth Amendment, the maximum permitted NLR is increased to 4.50x for the second quarter of 2024. From Q3 2024, the net leverage ratio covenant is amended to measure net secured leverage, with a maximum permissible ratio of 3.00x for the remainder of the term of the loan. In addition to the above changes, the Fourth Amendment and Waiver also replaced the fixed charges coverage ratio covenant, that was due to resume in Q3 2024, with a minimum interest coverage ratio covenant, being the ratio of the last twelve months interest expense to the last twelve months consolidated adjusted EBITDA. This ratio is set at a minimum of 2.50x for Q3 2024, then stepping up to 2.75x for Q4 2024 and Q1 2025, with a further step up to 3.00x from Q2 2025 for the remainder of the term loan. The Fourth Amendment and Waiver also gives us the option to draw an additional US$45.0m from our existing lender consortium.

As the Fourth Amendment and Waiver was signed after the balance sheet date, the Term Loan and the RCF were technically payable on demand as at 30 June 2024 and were therefore classified as current liabilities in our H1 2024 balance sheet. This has had the effect of making our current liabilities greater than our current assets by US$147.6m.

20. Share capital

21. Share- based payments

25% of awards granted vest on the first anniversary of issuance and the remaining awards vest equally each month over the following 36 months. Awards expire within ten years of their issue under the terms of the option agreements. This has moved to ten years from five years following approval from the remuneration committee on 21 March 2024.

On 25 June 2024, at the Company AGM, the shareholders approved the Company granting 1,165,968 shares under the terms of the LTIP to Tony Pialis in respect of the financial year ending 31 December 2024.  The performance metrics and weightings are:

-       Relative TSR vs constituents of the FTSE 250 - 35% weighting

-       Relative TSR vs constituents of the FTSE All-World Technology - 35% weighting

-       Adjusted EPS growth - 30% weighting.

No expense has been recorded in the financial statements to 30 June 2024 as the amount is not material.

22. Related party transactions

During the period, Group companies entered into the following transactions with related parties who are not members of the Group

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

-       Director ceased to be chief financial officer of this company in February 2024.

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. All revenue and associated balances in respect of transactions signed with VeriSilicon since the VeriSilicon reseller agreement moving under WiseWave as master reseller effective November 2021 are recognised through the WiseWave joint venture line. Since 1 January 2024 any new deals signed with VeriSilicon are outside of the master reseller agreement and are therefore disclosed on a separate VeriSilicon line.

23. Subsidiaries of the Group as at 30 June 2024

All subsidiaries have been included in the consolidated financial statements using the equity method. Details of the Group's subsidiaries as at 30 June 2024 are as follows:

All subsidiaries are wholly owned.

1. Owned directly by Alphawave IP Group plc.

2. Dormant

3. Joint venture in which the Group has a 42.5% ownership interest and voting rights.

24. Post balance sheet events

The Group and its lenders signed Fourth Amendment and Waiver to the Credit Agreement on 19 July 2024. Please see note 19 for more details.

On 26 August 2024, Wise Road Huazhi (Zhuhai) Equity Investment Partnership (Limited Partnership) ("WRC") and certain affiliates of WRC agreed to an amendment to the shareholders agreement between WiseWave's investors. This amendment:

·      allowed WRC and its affiliates to make a capital contribution in WiseWave, which was subsequently completed on 6 September 2024. The Group did not contribute any incremental investment in this round, which resulted in the reduction of the Group's equity interest in WiseWave from 42.5% to 35.2%.   

·      granted WRC a call option to purchase all of our equity interest at a pre-determined varying exercise prices on or before 31 December 2027. The exercise prices in each instance are higher than the per share cost of our original investment in WiseWave.  

Alternative Performance Measures (APMs)

Introduction

Management uses a number of measures to assess the Group's financial performance. We consider certain of these measures to be particularly important and identify them as 'key performance indicators' (KPIs). We have identified the following financial measures as KPIs: revenue; bookings; backlog (excluding royalties); adjusted EBITDA; and cash generated from operations.

Certain of these measures are non-IFRS measures because they exclude amounts that are included in, or include amounts that are excluded from, the most-directly comparable measure calculated and presented in accordance with IFRS or are calculated using financial measures that are not calculated in accordance with IFRS. We do not regard non-IFRS measures as a substitute for, or superior to, the equivalent IFRS measures. Non-IFRS measures presented by Alphawave may not be directly comparable with similarly titled measures presented by other companies.

Bookings and backlog

Management monitors bookings and backlog as indicators of future revenue from contracts with customers.

Bookings

Bookings is a non‑IFRS measure and represents legally binding and largely non-cancellable commitments by customers. Bookings comprise licence fees, non-recurring engineering support, orders for silicon products, financing components and estimated future royalties (based on contractually committed royalty prepayments or on volume estimates provided by customers). Bookings are recorded at the point the contract has been signed by both Alphawave and the customer. These are released to the market each quarter within our quarterly trading update. Infrequently, customers request to cancel bookings. At the time of cancellation, these are recorded as debookings after taking into account any pertinent cancellation charges. Bookings during the year were as follows:

Backlog

Backlog is a non-IFRS measure that represents cumulative bookings (excluding royalties) that have not yet been recognised as revenue and which we expect to be recognised in future periods.

Backlog at the end of the year is calculated based on our backlog as at the beginning of the year, plus new bookings during the year and backlog acquired in business combinations, less revenue recognised during the year.

Movements on backlog during the year were as follows:

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

Earnings before interest, taxation, depreciation and amortisation (EBITDA) is a non-IFRS measure that we consider is useful to investors and other users of our financial information in evaluating the sensitivity of the Group's trading performance to changes in variable operating expenses.

Joint venture profit or loss

We also exclude the costs of our joint venture in WiseWave from EBITDA because we consider that, as a start-up, they hinder the comparison of the Group's trading performance from one period to another or with other businesses.

Operating profit to EBITDA reconciliation

Adjusted measures of profitability

We report adjusted measures of profitability because we believe that they provide both management and investors with useful additional information about the financial performance of our business. Adjusted measures of profitability are non-IFRS measures that represent the equivalent IFRS measures adjusted for specific items that we consider hinder comparison of the Group's financial performance from one period to another or with other businesses. Adjusted measures of profitability exclude items that can have a significant effect on profit or loss. We compensate for this limitation by monitoring separately the items that are excluded from the equivalent IFRS measures in calculating the adjusted measures. We outline below the specific items of income and expenses that are recognised in profit or loss in accordance with IFRS but are excluded from the Group's adjusted results.

EBITDA to adjusted EBITDA reconciliation

Business combinations

We exclude those effects of applying the acquisition method of accounting under IFRS that we consider are not indicative of the Group's trading performance, including the accounting for transaction costs; the recognition of certain elements of the purchase price as compensation expense; and the recognition of remeasurements of contingent consideration in profit or loss.

During the periods under review, we excluded from our adjusted results the following items arising from the accounting for business combinations:

> acquisition-related costs;

> the element of the value of the deferred cash rights granted to employees of Banias Labs to replace the unvested employee share awards at the acquisition date that is accounted for as compensation expense rather than as consideration;

> the remeasurement of the contingent consideration payable for Precise-ITC; and

> the purchase price adjustment receivable from the vendor of Open Silicon that was recognised as other operating income rather than as an adjustment to the purchase price because it was agreed after the end of the measurement period.

We also exclude from our adjusted measures the amortisation of identifiable intangible assets acquired in business combinations in order that the performance of our business may be compared more fairly with that of businesses that have developed on an organic basis.

We exclude the costs of integrating acquired businesses because we consider that they hinder the comparison of the Group's trading performance from one period to another or with other businesses.

Share-based payments and related expenses

We exclude the compensation expense recognised in relation to options and RSUs granted under the Company's share-based payment plans because the awards are equity-settled and their effect on shareholders' returns is already reflected in diluted earnings per share measures. We additionally exclude the expense for payroll taxes payable on the exercise or vesting of the awards because the expense fluctuates according to the Company's share price at the exercise or vesting date and the effect on profit or loss is therefore not necessarily indicative of the Group's trading performance.

Currency translation differences

We exclude gains and losses that arise at entity level on the translation of foreign currency-denominated net cash and borrowings into the entity's functional currency. Such gains and losses can be significant and are not representative of the Group's trading performance.

Income tax effect of adjustments

Where relevant, we calculate the income tax effect of adjustments by considering the specific tax treatment of each item and by applying the relevant statutory tax rate to those items that are taxable or deductible for tax purposes

Profit after tax to adjusted profit after tax reconciliation

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

1.         See note 2 'Interim 2023 restatement' paragraph

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 2024 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$141.6m as at 30 June 2024 is made up of the bank loan of US$216.3m, the IIA loan in Israel of US$1.6m less the cash and cash equivalents balance of US$76.3m.