Q4 2021 indie Semiconductor Inc Earnings Call

Good afternoon, and welcome to M D Semiconductor's fourth quarter and year end 2021 earnings call.

This call is being recorded.

At this time I will turn the call over to pillar Barriga head of global corporate Communications for Andy Mr. Perez. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to induce semiconductor's fourth quarter and 2021 yearend earnings call.

Joining me today are Donaldson Claymont, Indeed, co founder and CEO , and Tom Schiller, and CFO and EVP of strategy.

Donald will provide opening remarks and discuss business highlights followed by Tom's review of India's fourth quarter in 2021 full year results as well as our first quarter 2022 outlook.

Please note that we will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as respect representative about views as of any subsequent date.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For further discussion of the material risks and other important factors that could affect our financial results. Please refer to our risk factors in our recent registration statement on form S. One and our other public reports filed with the SEC.

Additionally, the results and guidance discussed today are based on certain non-GAAP financial measures for a complete reconciliation to GAAP. Please see our Q4 earnings press release, which was issued in advance of this call and can be found on our website at angi semi dotcom.

Finally, as an emerging growth company our final 'twenty 'twenty. One results are not due to be filed with the STC until March 31st in the meantime, we are providing this preliminary business update and outlook in the interest of keeping our investors abreast of India's performance with that I'll turn the call over to Donald.

Thanks, Bill and welcome everybody.

I'm pleased to report that indeed delivered another record quarter in Q4 and in turn an outstanding year.

Despite global capacity constraints, we are successfully navigating you're still challenging supply chain environment and executing operationally to meet increasing customer demand for our highly innovative ultra tech solutions.

Our performance is a true testament to the strength of the endy team, our differentiated product portfolio and the underlying IP as well as the powerful automotive magazines feeling the need for the next generation Adas user expedience and electrification solutions.

Specifically during the fourth quarter, we substantially outpaced our addressable markets and grew revenue to a record $19 million.

We expanded gross margin by more than 1000 basis points year over year and over 300 basis points sequentially.

We gained design win traction across a number of new products and customers and significantly augmented our lidar and radar portfolios via organic development and key acquisitions.

From a full year of 'twenty to 'twenty, one perspective, we delivered a record $48 million in revenue more than doubling of 2020 to stop by.

We improved gross margin by over 100 basis points to about 43%.

Significantly increased our R&D investments and strategic product areas.

Lamented critical public company infrastructure pre and post our June IPO, and perhaps most importantly, given our strong balance sheet and expanding sensor modality capabilities.

We captured several major design wins with leading customers.

The impact of these efforts.

Not to be understated and are positioning <unk> to become the premier supplier of embedded mixed signal solutions for user experience and full system offerings spanning lidar.

EBITDAR Ultra science and vision precisely as the automotive industry increases its demands for these complex solutions.

Indeed advance auto Tech solutions directly answer the performance and integration challenges faced by automotive tier ones and car Oems to date and.

And we will continue to exceed next generation vehicle requirements as complexity increases.

Simply put the degree of self driving increases the number of sensors will grow exponentially.

More high end embedded processors would be required to enhance safety as well as the driver and passenger experience and giving her a dense digital architectures high speed mixed signal DSP power management and connectivity technologies. These strategic dynamics bode well for India and will translate into greater content per vehicle for us.

In fact at the core of today's vehicles are hundreds of semiconductors sensing surroundings, making real time decisions and controlling the vehicle system operation.

Accordingly, the average semiconductor content per car is expected to grow from roughly $500 per day.

Over 4000 over the coming decade.

To that end during the quarter, we expanded production of advanced interior lighting solutions to support multiple new OEM customers.

Captured onboard telematics design wins that I was six fleets information services provider.

I mean shipments of exterior lighting products with a leading German OEM.

We're awarded a vehicle security system program with a European tier one supplier.

Syria, a highly integrated Soc augmented by <unk> World class laser solutions.

Until now Lidar systems have not met the cost targets given the higher price points for discrete implementations.

We believe Syria represents a breakthrough in achieving the cost requirements, while providing outstanding performance.

At the same time, our acquisition of analog devices tomato radar Division My son is accelerating <unk> entry into the large and growing automotive radar market, which is expected to reach a time of $7 $6 billion by 2026.

The meadows industry, leading software and system technologies underpinned by 120 radar related global patents and applications enables real time position detection and velocity measurement for high precision radar solutions.

Further our acquisition of on Sami's highly skilled radar design engineers in Israel.

The strong domain experience in millimeter wave technologies, along with 65 radar patents and applications.

The Adi and on semi teams with incredibly strong and complementary expertise under the India umbrella, so significantly expanded our capabilities in <unk>.

But the direct result of these twin acquisitions I am pleased to report that we recently entered into a strategic development agreement with one of the top four global automotive radar suppliers in the world.

This program has the potential to be one of the single largest design winds in index history, and validates our organic greater investments in recent acquisitions.

We fully expect similar milestone wins in the near future as we leverage technology is common across Lidar radar vision and ultrasound applications.

In summary, India is now even better positioned to capitalize on the auto tech opportunity.

So makers make large scale investments in next generation vehicles that will usher in increased safety features and enhance the user experience towards ubiquitous electrification and autonomy.

I will now turn the call over to Tony for a discussion of our Q4 and 2021 results in Q1.

Thanks Donald.

Indeed delivered strong fourth quarter results once again exceeding our guidance and analysts expectations.

Revenue was up 185% year over year, and 56% sequentially to a record $19 million ahead of our guidance for 50% sequential growth driven by eight off user experience and electrification plan as well as the addition of a stub period of tracks here.

Gross profit was $8 8 million translating into a 46, 3% gross margin up 1090 basis points year over year, and 330 basis points sequentially, while 130 basis points better than our guidance.

Operating expenses were on forecast.

$21 4 million up from $16 8 million in the prior quarter.

We increased our R&D investments to $15 6 million to accelerate product development.

Likewise, we increased our SG&A spending to $5 8 million to expand our marketing capabilities and implement additional public company infrastructure.

As a result, our operating loss was $12 7 million and ahead of analysts' consensus estimates.

Interest other expenses and taxes were $50000, yielding a net loss of $12 7 million.

The loss per share of nine cents on a base of 146 8 million shares.

Turning to the balance sheet post our operating loss working capital investments and acquisition expenditures, we exited Q4 with $219 million in cash with limited debt.

For the full year revenue more than doubled.

To a record $48 4 million with 2021 gross margin expanded to 43, 7%.

A 140 basis point improvement over the prior year.

Achieving this level of performance was all the more remarkable.

And why did the challenging global supply chain environment.

Entering 2022, given new program ramps this quarter and throughout the year, we intend to demonstrably and sustainably outperform our addressable markets and drive further gross margin expansion.

Specifically for the first quarter of 2022, we anticipate revenue to be up 160% to 170% year over year and in the range of 21 to 22 million.

Putting in India on pace for another record quarter and a stellar 2022.

In fact with this guidance and he is already on a roughly $86 million annualized revenue run rate and is tracking to deliver well over 100 million in.

Total revenue in 2022.

For Q1 at the midpoint of our revenue guidance range, we plan to further expand gross margin to 47%.

With 27 million in operating expenses comprised of 21 million in R&D and 6 million in SG&A as we increase our product development investments in response to pent up customer demand, particularly in radar and extend our sales and marketing reach globally.

Accordingly, assuming no other net expense or taxes below the line.

Mm 148 million shares outstanding we expect a net loss of 11 cents per share.

Further and most important.

India is poised to capitalize on the strategic heart attack market will translate our design win momentum into long term shareholder value.

With strengthening in order visibility demonstrated scalability and planned operating leverage we are well on our way to reaching profitability in the back half of next year and realizing our long term targets of 60% gross and 30% operating margins by 2025.

On that note I'll turn it back to Donald for his closing comments.

Thanks, Tom.

To summarize the rapid emergence of user experience semi autonomous and ultimately fully self driving vehicles.

Listen to electrification.

Enormous opportunities for the auto tech landscape in India in particular.

These applications require highly integrated semiconductor and embedded software technologies.

Keep in mind, India's writing a powerful multiyear tailwind as the global automotive semiconductor Tam is expected to grow from 36 billion last year to $62 billion by 2026.

The transport experience is changing for both drivers and passengers safe.

Safety and better in cabin features are deployed.

And as Oems are nice worldwide E vehicle investments over the next five years that will exceed $250 billion in some cases committing to ship their entire card portfolio to electric within the next 15 years.

And these disruptive technologies are helping to power. This audit Tech Revolution and are enabling us to outpace the goes to the market.

Couldn't be more thrilled about how indeed differentiated semiconductor sensor and software technologies are driving the next wave of the automotive industry innovation.

That concludes our prepared remarks, operator, let's open the call for Q&A.

Thank you.

To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.

You May press star two if he would like to remove your question from the queue.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

We ask that you limit yourself to one question and one follow up.

And your first question comes from the line of Anthony Stoss with Craig Hallum. Please proceed with your question.

Hey, guys nice results.

I think in the past you've given strategic backlog number kind of accumulative can you update us on that and then also Donald I'd love to hear any other more detail I guess on design win activity, then I had a follow up for Tom.

So.

As we've mentioned before we don't intend to regularly update our strategic backlog at least not every quarter.

In the light of the design wins that we have announced as part of the the comments here, which you herd.

We have made some extremely significant progress, particularly I would single out the radar design win which is.

A very significant.

Material addition to the company, but we're not actually going to to.

Quantify the change to the strategic backlog today.

Okay got it thanks.

And I guess, a two part follow up then.

Will this new strategic relationship commence revenue wise for for Indian.

And I guess kind of the trajectory of getting that going and then the supply chain impact Tom view in mind.

How much it impacted December revenues from our March guidance.

Well in terms of the the new design wins of course, it's automotive so what we what we win and this year won't hit fully revenue until 2025 or so.

In terms of the supply chain.

We manage that pretty well I would say, we kept our customers supplied and we manage to make sure that we weren't the long pole in antibodies tent.

Probably we could have shipped a little bit more as these guys would love to have some inventory in their channel, which they still currently don't.

But.

Probably wouldn't actually put a number on exactly what the what the difference was between what we could have and what we did.

Thank you.

Our next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed with your question.

Hi, guys. Thanks for letting me ask the question and congrats I wanted to see if Donald you want a little more detail about the strategic radar engagements that you have obviously youre not going to name specific companies and customers et cetera in our numbers, but what led to that what was the appeal that you had I know you did some things organically and inorganically, but.

Just a little bit of color of how that came about and when what is the special sauce, you're bringing to that customer.

Well.

First let me talk about the significance of it.

That kind of underlying it enough its a huge milestone for us as a company.

It's a very binding contract on both sides.

The thing that that brought us two together really was the technology that we were able to bring which was very differentiated in terms of cost performance.

Power consumption.

Versus the incumbents are the <unk>.

Customer themselves. They are one of the significant market share holders.

There at the moment, our expectation is that we will take a very significant large portion of their addressable market and it's a large dollar content per car for us so it's going to be pretty pretty significant.

Thank you for that color and I realize it's sensitive to talk about all the details.

One for Tom the gross margin surprised sequentially versus your guide it looks like it's going up again in the March quarter on your guide what's driving that.

Sure. So a few factors one just the quality mix and then also as we've talked about in the past the move from first to second to third generation product.

And then operational scale all of those factors are.

<unk> to gross margin expansion and one of the key reasons, we have such confidence in the outer years, 60% Todd.

Target.

Thank you. Our next question comes from the line of Sujit de Silva with Roth Capital. Please proceed with your question.

Hi, Donald like Tom Congratulations on the progress here.

I'm curious you're welcome I'm curious when you know when you mentioned things like advanced lighting systems, or perhaps even more of a vehicle security systems those sound more like system level wind versus product wins like vision ultrasound radar light or can you just clarify if that's a different that's meaningful or not and I understand what the implications are for your level of interaction with customers.

No no there's no difference.

We'll still provide we're still providing.

Semiconductor components with embedded software so.

This model is the same.

Okay Fair enough and then I was curious the fleet market and you mentioned the win there or when with the I guess kind of a technology provider into the plate market is that market meaningfully different from the passenger car market to you as to will it come sooner, perhaps any color there would be helpful.

Yeah, that's true it does actually have a shorter time to market.

Then traditionally designing into some new model year, which will happen a few years in the future.

Typically the electronics are supplied by our customer or our aftermarket. So it's still in the car business, but the time to market is a little faster.

Thank you. Our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.

Yeah. Thanks for taking the questions I just wanted to follow up to start with a clarification for Tom Tom can you quantify the revenue contribution from <unk> in the quarter and what Youre assuming in the outlook.

You know on that Craig, we're actually not segmenting the business, but suffice to say at least last quarter are.

Both the classic Indy business and traction for that matter. We're ahead of plan and that helped deliver upside beyond that we just don't plan to sub segment the business and our guidance going forward, Yes, I didn't expect that long term was hoping to get some of the color you provided thanks for that and then Don.

I'll follow up on some of the other questions around.

Around the new strategic development agreement. So first congratulations given the significance of that accomplishment the questions or this one.

And admittedly you cant give customer names, but can you provide any color on the potential for further and customer diversification and I was hoping you could also provide some further color on my comments that there's pent up demand out there and radar and your ability to address that pent up demand issue engage with.

This new partner or other partners. Thank you.

Well in terms of does it give us access to new market of course, because it's really our first entry into into the radar market itself. So it's incremental versus.

Our running business.

In terms of the sell through into Oems and then yes, there will be some.

As a result of this relationship who we haven't accessed in the past.

So it does give us the.

Let's say an incremental increase in our in our Tam.

In terms of.

The significance of the business itself again.

If you if you consider them they might have sensors that are being deployed per car. If you're just sort of pick a round number of 80 million cars in a normal year manufacturer they have up to four radar sensors.

There were a limited number of vendors who are able to provide the technologies.

Which were required in that market.

As an aggressive investment in order to deploy that.

But we felt in our customer felt in the market fell in general that there was a it was a requirement to have one new vendor introduced to it.

Very limited subset of vendors.

We won that price.

Really it represents.

In terms of the kind of size and order of magnitude of business that we can address it really represents the first time I would say that India as a company is actually being able to win one of the premium design wins in the automotive market at all.

Thank you.

Our final question comes from the line of David Williams with Benchmark Company. Please proceed with your question.

Hey, good afternoon, and congrats on the progress.

Thanks.

Yes, just wanted to see if you could talk maybe a little bit about the vehicle security system program that you won with a European tier one and maybe just.

What that ramp looks like any color around that opportunity maybe anything around the specifics of the solution there.

Yeah.

Well basically says it's a classic sort of intruder detection, so stop the car getting stolen or broken into.

That's a reasonably complex system, that's an area where we've been active.

For a long period of time in the Companys history, but this is actually really gives us access to a new market.

New set of customers and the end result should be.

Fairly reasonable incremental revenue stream for us going forward, probably would decline to quantify it exactly at this point.

But also.

So in a kind of congruent with the regular timeframe of the car market. What we've wanted today will likely go to production.

And 25 or so.

Okay fantastic. Thank you.

And then maybe just as you think about your pipeline do you have a robust it seems like a number of design wins across the different areas. How do you think about each segment over time in terms of the revenue contribution and where do you see the greatest design win activity and then maybe talk about your ability to scale up and in terms of capacity to meet that demand. This forthcoming.

So.

The growth is coming from all of our product areas at the moment historically the user experience has been where the greater majority of our business has come from or we see the the largest medium term demand as in the sensing space of which we sometimes miss name is Ada so in Lidar radar.

Vision and an ultrasound, that's where we would expect expect to see within within our business the growth.

The rest of the business I would say.

Electrification is kind of early doors for us, but we have a.

A significant design win in that space, which we talked about I guess, two quarters ago, or even one quarter ago in their earnings call last quarter.

Which.

It is I would say kind of a vanguard of our drive into that market.

All of the segments will contribute.

Very nicely to the overall company's topline.

Thank you that concludes our Q&A session.

I'll now turn the call over to Mr. Mccormick for closing remarks.

Well, thanks for joining us today, everybody looking forward to seeing you at the upcoming investor conferences and venues and see you next quarter.

This concludes today's conference and you may disconnect your lines at this time.

You for your participation and have a wonderful day.