Q3 2022 indie Semiconductor Inc Earnings Call
Okay.
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Good afternoon, ladies and gentlemen, and welcome to Indy Semiconductors third quarter 2022 earnings call.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press. The one followed by the score on your telephone if at any time during the conference you need to reach an operator, Please press star and zero.
In the interest of time during questions. Please only ask one question and one follow up question.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Ashish Gupta Investor Relations. Mr. Gupta. Please go ahead.
Thank you operator, good afternoon, and welcome to any semiconductor's third quarter of 2022 earnings call.
Joining me today are Dominic climate at least co founder and CEO , and Tom Schiller, and CFO and EVP of strategy.
Donald will provide opening remarks and discuss the business highlights.
Followed by Thomas review of <unk> third quarter, 2022 results as well as the fourth quarter 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 representative of our 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 a discussion of the strategic back.
Backlog formulation methodology, please refer to our safe Harbor statements on our Q3 earnings press release.
For material risks and other important factors that could affect our financial results. Please review our risk factors.
The annual report on Form 10-K for the fiscal year ended December 31, 2021, as well as other public reports filed with the SEC.
Finally, the results and guidance discussed today are based on certain non-GAAP financial measures.
For a complete reconciliation to GAAP. Please see our Q3 earnings press release, which was issued in advance of this call can be found on our website at www Dot <unk> Dot Com I will now turn the call over to Donald.
Thanks, Ashish and welcome everybody.
I'm pleased to report that indeed delivered another record quarter of results in Q3.
Driven by increasing demand for our highly innovative auto Tech solutions.
Coupled with absolutely tenacious operational execution.
We were once again able to substantially outperform the automotive industry.
Navigate the challenging supply chain environment going to our breakthrough product portfolio and differentiated core IP as well as leading customer and supplier partnerships supported by a world class team of over 600 and the employees worldwide.
Specifically during the third quarter we.
We significantly outpaced our addressable markets and grew revenue 147% year over year.
And 17% sequentially to just over $30 million, while expanding gross margin beyond the 50% Mark for the first time.
As we will outline our <unk> user experience and electric vehicle solutions are gaining design win traction across leading tier ones on a global automotive Oems.
In fact, I am delighted to announce that our strategic backlog.
Cause reached the sum of $4 3 billion as of today are more than doubling from the $2 billion. We outlined at the time of our IPO launch less than 24 months ago.
This significant growth reflects large scale program wins across our product portfolio.
And especially within radar vision advanced lighting, and wireless charging applications with both new and existing customers.
Accumulating this level of strategic backlog in such a short amount of time validates our decision to IPO sooner.
Historically customer feedback indicates that a stronger balance sheet was key to securing substantial programs.
Post IPO, we have quickly moved up in weight class and not only are we on numerous approved vendor list, but we are increasingly offered some of the largest opportunities within auto tech.
Given the over consolidation within automotive semiconductors over the past decade, and extremely high barriers to entry.
I fully expect us to continue to outpace the broader automotive market and win a disproportionate share of new programs over the coming years.
Keep in mind, when we found it India in 2007, there were roughly 30 semiconductor companies, who had sizable auto IC businesses, yet by the time that we went public there were only a handful remaining due to aggressive merger and acquisition activity in the interim as companies and Vcs alike turned their attention away from automotive semiconductors.
In search of short term investment cycles.
Just as the competitive landscape was dramatically sending out massive demand was building for next generation technologies, ranging from highly integrated safety systems to in cabin solutions as well as more power efficiency. Following the advent of electric vehicles.
Quite simply there were not enough qualified semiconductor suppliers supporting the global automotive market.
Over the past decade legacy incumbents have been focused on optimizing their operating margins to maximize cash return to shareholders.
Expense of R&D investments.
As a result product roadmaps have suffered and when capacity became tightened during COVID-19.
Product price increases passed along to tier ones and Oems both of them are inflamed the channel, but still led to empty car showrooms around the world.
Dynamics of contributes to indeed, the ability to effectively five XR revenue run rate over the past 24 months and more importantly, a large absolute dollars to our strategic backlog.
The stage for accelerating top line growth over the coming years.
Reaching this point is of course, not been easy and there were no shortcuts.
We're an overnight success, just 15 years in the making.
Through the lean years challenges included having a critical mass of design talent demonstrating product reliability possessing a strong financial foundation and adhering to all requisite automotive quality standards.
With nearly 200 million unit shipments now behind us and indie content within marquee automotive brands around the world, including Audi BMW BYD.
General Motors, Hyundai, New Nissan Porsche the Lantus and Volkswagen to name a few.
Prior headwinds have now turned into a tailwind for us.
Such a growth engine and opportunity funnel is just getting started.
In pursuit of the uncomfortable car and the revolutionary in cabin experience.
To that end.
<unk> is uniquely investing in a range of automotive sensor modalities deployed in new and emerging vehicles, including ultrasonic sensors visible spectrum and infrared cameras.
Flight detection and ranging or lidar.
Well, the short range and long range radar.
We are technology agnostic and believe that each of these sensors will play a critical role within the next generation of vehicles.
As no single sensing modality to meet the requirements of all autonomous and safety features.
The industry is moving towards sensor fusion the ability to bring together and process inputs from multiple sensors, including cameras lidar and radar for vehicles with higher levels of automation.
India is at the forefront of this edge sensing sea change in offering various solutions to address different sensor modalities.
In fact to date, we uniquely offer a range of sensing solutions, including our Sony Samsung Echo sense ultrasound family featuring built in digital signal processing.
By quick background ultrasound operates above the human heating range of 40, kilohertz and is commonly deployed to provide practical low spatial resolution and short range Samsung use cases up to a few meters such as park assist.
During the quarter, we ramped our ultrasound portfolio at leading tier ones in support of multiple car Oems.
At the other end of the performance spectrum vision.
Vision sensors operate in the visible light or an infrared.
And offer the highest facial resolution.
When this superior resolution is combined with color contrast, and character recognition capabilities for road sign Reading for example vision.
Vision based sensing provides a level of scene interpretation.
<unk> classification and drive our visualization, but other same thing without a simply cannot match.
Vision use cases include surround view driver an occupant monitoring digital meadows.
Forward facing cameras autonomous emergency braking lane censoring.
I am pleased to report during the quarter, our vision business unit captured their first design win that.
Setting the stage for global proliferation of individual solutions for years to come.
Turning to Lidar, which uses a laser to eliminate this team and incidentally is not a material contributor to our strategic backlog yet.
Our solutions are clearly resonating within our partnership channels.
During the quarter, we were awarded Lidar solution of the year.
I also take breakthrough plus lidar development of the year by also saying.
We are working closely with half a dozen partners on our <unk> development programs design phase as we speak.
With plans to convert pipeline opportunities into contracts and ultimately substantial revenue.
<unk> is a truly unrivaled lidar solution, comprising indeed innovative high speed analog mixed signal ESPN software combined with tax ceilings best in class Liza and sensing technologies.
Through our unparalleled semiconductors software and optical integration, we believe India can uniquely democratize three dimensional imaging, which is ideal for creating extremely accurate depiction of the vehicles surroundings.
Pivotal to enabling the high level of autonomous driving use cases of the model.
Lastly, and by no means least.
Radar represents in these single largest Adas investment area currently and fastest growth Avenue.
Radars occupy operate and the radio frequency at around 80, gigahertz and can detect objects and relative speeds from less than a meter up to 300 meters and.
And darkness or included situations, making it extremely critical center.
Today.
Radar is widely deployed for automatic emergency braking adaptive cruise control.
Lane change assist and blind spot detection applications.
In the near future. It will also enable the high volume cross traffic detection applications.
Through our acquisitions of analog devices radar division as well as on Sami's radar team, we have accelerated our product development, bringing together, leading enabling technologies over 259 years of accumulative development.
205 related patents and applications as well as world class mixed signal capabilities effectively rounding out our sensor modality portfolio.
In fact.
Earlier this year, we captured our single largest design win and entered into a strategic supply agreement with a leading tier one.
Which contributed the majority of the incremental increase in our strategic backlog.
Shifting gears to our user experience portfolio.
Likely noticing how automotive Oems are increasingly advertising convenience electrification range and a modern in cabin experience and are talking far less about torque and horsepower.
And by looking at a vehicle beyond being a functional tool for travel we see the emergence of a radically different cockpit environment, where passengers engaging communication entertainment and information sharing and affect a temporary home and for many of workplace.
In this view, we see the powerful role intelligence integrate electronics can play in delivering the best possible user experience for the cabinet.
Lighting has always been a fundamental aspect for vehicle design.
However, in modern automobiles and cabin lighting goes far beyond the functional or safety necessity.
And it's critical for enhancing the user experience for vehicle occupants and developing a positive association with the automotive brand.
In fact, Cody has publicly stated that lighting visualizes, the brand's core values Progressiveness fortinet and sophistication.
The ability to provide automotive designers with more auctions and form factors for lighting policeman throughout the vehicle has opened the door for advanced led technology and smart lighting systems.
These advancements benefit not only interior cabin lighting and instrument elimination, but external vehicle headlights and taillights.
At the same time seamless integration of mobile devices within the automotive environment is increasingly the way <unk> can differentiate their couch.
As a result, providing high performance mixed signal interfaces to bridge. These two wells.
Now a key element of intelligent cabin design.
Which means implementing systems, such as Apple car play and Android auto that alone.
Occupants to safely use their mobile devices to make calls send and receive messages and enjoy their favorite music seamlessly.
Also the provision of the USB power delivery infrastructure supports the often the simultaneous in carbon charging for mobile phones of higher power devices, such as tablets and notebooks.
As a testament to our progress and advanced lighting I'm, particularly pleased to report that during the quarter, we were able to secure initial production orders from our newest generation lighting products from two of the big three U S automotive Oems.
Finally in the EV area, we were able to expand our design win footprint at multiple electric vehicle Oems we.
We are seeing an accelerating shift to electrification amid longer term secular tailwind.
According to Cox automotive EV.
E V sales grew 67% in the third quarter of 2022, but overall U S auto sales were down around 1% for the same period.
While penetration of Evs has increased considerably to 6% of U S. New vehicle sales up nearly three times in the last two years.
The U S is a long road ahead to reach a similar mix of EV sales as Europe or China.
Let alone the Biden administrations target of 50% of new vehicle sales by 2030.
<unk> is well positioned to benefit from the electrification megatrend and capture a significant share due to our strong relationships with an increasing number of leading EV Oems.
Further.
Our broader auto tech portfolio tends to gain a substantially higher attach rate to newly designed electric vehicles, given our degree of innovation and power efficiency critical to maximizing vehicle range.
With that I'll now turn the call over to Tom for a discussion of our results and outlook.
Thanks, Donald Indeed delivered a strong third quarter once again on plan and producing record results. In fact, Q3 represents our sixth consecutive quarter of beating or at least meeting our guidance post <unk> IPO last summer.
Revenue for the period was up 147% year over year, and 17% sequentially to $30 million.
Gross profit was $15 $1 million translating into a 54% gross margins up 740 basis points year over year, and 180 basis points sequentially and above our 50% guidance.
To put this performance in better context, when we announced our plans to IPO in Q4 of 2020.
India was at just $6 $7 million in quarterly revenue with a 35, 4% gross margin.
Since then and despite global supply chain constraints, we successfully scaled our business nearly five fold.
And increased our gross margin by 500 basis points and less than 24 months.
Turning back to Q3 results operating expenses were $30 $9 million slightly better than our guidance for $31 million.
In particular, R&D investments were $24 $2 million in support of <unk>.
So rated product development, while SG&A of $6 7 million reflects continued investments to further extend our sales reach.
As a result, our Q3 operating loss was $15 $8 million.
Interest and other income yielded half a million dollars and taxes were negligible in.
In turn our net loss was $15 $3 million with a net loss per share of <unk> 10 cents on a base of 157 million shares <unk> better than our guidance.
Turning to the balance sheet, we exited the period with $158 million of cash and limited debt.
During the quarter, we invested $9 9 million in working capital, including one time inventory prepayments and IP licenses.
Capital expenditures were $2 7 million in support of expanded lab equipment and global infrastructure.
Finally, and as an offset we raised $12 million through the sale of $1 5 million shares under our ATM program.
Looking forward based on the depth of our new product pipeline, we plan to maintain outsized top line growth, while further expanding our gross margin over the planning horizon.
Specifically for the fourth quarter of 2022, we anticipate sales growth to an approximately $132 million annualized revenue run rate with gross margin expansion into the 51% range.
We are planning nominal increases in operating expenses were $25 million in R&D.
For additional mass sets and $7 million of SG&A for incremental marketing investments, but further reductions again on a percentage of sales basis.
Below the line, we anticipate a pickup of $750000 of net interest income and no taxes.
Assuming 152 million shares outstanding we expect a net loss of <unk> <unk> per share once again, a penny better than consensus estimates.
Further and perhaps most importantly, given our strong order visibility demonstrated scalability and planned operating expense leverage we are on track to reach profitability in the second half of next year with narrowing losses from here representing key next steps towards realizing our 60%.
Gross and 30% operating margin target model.
With that I'll turn the call back to Donald for his closing comments.
Thanks, Tom.
To summarize Q3 marked another quarter of record results for ending and we couldnt be more excited for the opportunities ahead, particularly.
Particularly given the $4 $3 billion of strategic backlog we've achieved.
Our comprehensive and differentiated portfolio of Adas user experience and electric vehicle solutions are gaining design win traction, which is beginning to translate into substantial revenue growth as new programs and customers around the world.
Accordingly, India has never been better positioned to capitalize on our $27 billion annual serviceable market opportunity.
Sustainably outpace industry peers, and ultimately to create extraordinary shareholder value.
We look forward to updating you along the way.
That concludes our prepared remarks, operator, let's open the call for questions.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone keypad, you will hear a three pronged to acknowledge your request.
These limit yourself to one question and one follow up question. If your question has been answered and you would like to withdraw your request you can press the one followed by the three.
And our first question is from the line of Sushi, the silver with Roth Capital. Please go ahead.
Thanks, Hi, Donald Hi, Tom and congratulations on the progress with the idea.
Thanks Kim.
So Jim so yeah. So some specific questions, let's talk about the.
Vision Q wins in computer vision.
First one you've gotten can you can you talk about.
The progress progress from when you announce that Donald it a few quarters ago to this first win what kind of happened in the interim and.
More importantly, competitively there are guys out for like mobile App, we're very well positioned also umbrella curious how you see this playing out going forward.
Yeah.
Well that's a good question to Jim really since since we announced the presence of the group I guess three or four quarters ago, maybe more I forget.
It's really been heads down and executing.
Executing on just really phenomenal.
Project definition product definition that we came up with.
The residents and the market has been has been phenomenal for this and.
The first this.
This is the first commitment for this product that we expect will be the first of many.
As regards to the names that you mentioned, we don't we don't really see ourselves competing head to head with these guys and in most cases, where we're more or less adjacent to them.
We view ourselves as.
Providers of edge interface is very close to the metal with the sensors that provide a layer of abstraction.
The guys, who are or maybe focusing a little more on the central compute.
That's helpful. Let's try that.
Distinction there and also another area to ask about the lighting area a very impressive two of the three big Auto auto guys. I'm curious if those are competitive wins versus what those carmakers were using in the class or whether these are kind of new platforms that you are kind of parachuting into it.
I mean, largely when we when we deploy new programs.
At the point, where there is a new piece of technology being deployed that we always view that when there was an inflection point in the market. It creates the greatest opportunity for us to deploy a new technology. So largely in those cases, it's been it's been fairly new I mean, there are competitive.
Our competitors in the market of course.
If if there weren't then there wouldn't be we're competing ourselves. So of course, we do take share away from some people in some cases, but I'm being largely speaking usually it's when theres new deployment of technologies.
And these these kind of programs deploy perhaps a little a touch more quickly than some of the other things that we work on and they still have a very nice dollar content per car.
I appreciate that clarification and I'll pass it along and get back in queue. Thank you.
And our next question is from the line of Ross Seymore with Deutsche Bank. Please go ahead.
Hi, guys. Thanks for me ask a question one is can be near term and then one longer term.
The first one on the near term you guys have talked about some of the supply shortages. It didn't seem to slow you down but.
It definitely was gumming up the works in an aggregate sum so any change in kind of the supply demand environment in the very near term.
Well.
With consumer demand falling we have seen some significant easing in certain aspects of the supply chain.
Particularly package and test now is fairly.
Really lacks compared to what it was 12 to 18 months ago.
Wafer supply in certain nodes is significantly alleviated, but in some of the more trailing nodes, where they are particularly focused on mixed signal. They are still still somewhat tight.
And.
As regards.
The demand for those kind of products is still Super high I mean, we see that being.
And very strong demand as far as the eye can see really through through 'twenty, three and beyond as far as we're concerned so there will still be something to manage through for us but.
We spent a lot of 2022.
Our contracts, making.
Forward looking commitments to our particularly our wafer suppliers and then also asking our customers too.
Make that pass through commitment to us to take the product. So it does give us a very nice sort of short and medium term visibility of where we're going with the revenue.
Thanks for that color and I guess as my follow up a little bit more longer term question.
Strategic backlog is impressive.
But I wanted to just dive a little bit into two aspects of that the composition of it how that's changing I know you've talked about radar being our biggest portion of the incremental increase year over year any more color you can give on that and then similarly, the margin profile of that backlog and how that evolves versus either your current gross margin or you're.
It's 60% longer term.
Yes.
I mean, we want to play.
Definitive terms and.
It's been strong across our whole product portfolio.
The Adas space of course is becoming as compared to perhaps two years ago, a larger percentage of the whole.
And the radar when it was a very significant part of that as indeed, it was the first vision win.
And so.
To the second aspect of it typically these products do in that space carry a higher gross margin. So we view that as tailwind towards our target of getting to 60% gross.
Thank you.
And our next question is from the line of Anthony Stoss with Craig Hallum. Please go ahead.
Hi, guys. My Congrats also on the progress I wanted to focus in on the radar when.
Can you explain is there any major hurdles that are left between now and I think you had said in the past late 2024 launch also how quickly could it ramp I know into this radar maker, it's probably into half a dozen or more auto Oems any any additional information you can give on hurdles and the timing and how quickly it'll ramp would be helpful.
A follow up.
Well from a technology perspective, it's an area that.
We're very strong and have been historically as a group and a team.
It's not rocket science, but it is a it is a heavy lift from a development perspective.
We have.
And the whole team and a very large team working on this.
To make sure that we meet our commitments that are milestones and get the production with this we were not going to release specifics about our programs, but I mean so.
Suffice it to say, we're pretty happy with the way, it's with the way its going right now.
In terms of the speed of ramp.
There is a let's say.
A very strong motivation to get this into production as quickly as possible so to the tier one into many many Oems.
We do expect that.
That conversion process will be we'll be extremely quick.
Got it and just a follow up on your prepared remarks, you talked about cross traffic perception.
In your radar solution can you give a little bit more detail on that and then.
Would that be part of this radar list.
Well, yes, I mean cross traffic detection. You mean is is basically somebody cutting across your bows, let's say an intersection or whatever.
The way that they make that happen is by having a radar on each of the front corners of the car in order to to.
To make that determination so basically what it does is it means that it adds to more radars per car, which is music to my ears. It's more radars means more chips more chips means more money so.
That's how that's going to play out for us.
And the reason why not only that just because it is nice and it makes people feel safe, but it's going to be mandated by the regulatory agencies.
Got you and then two last quickie is if you could give a little bit more detail on the breakout of the $4 3 billion backlog what portion is power lighting et cetera et cetera, and then also the fact that you are not including any lidar in that $4 3 billion backlog is that an indication that you think ladders still further out for the industry or lack.
ROE for you guys to play I'm, just curious your thoughts there.
And the first one.
I mean, we don't we're not going to give you specific numbers or dollars or percentages of what the backlog breaks out to be but I mean is all of our product portfolio are fairly well represented in there of course, we've called out the radar win is being being very significant.
We've allowed you a little bit of triangulation, there with a few percentages to try and figure that out for yourselves, how big that is.
In terms of Lidar, we do see it as being a little.
Later in the market, we do see is an incredibly relevant technology so for.
For us we absolutely believe it will we will participate strongly in that and in fact, we expect to be to be leading that in technology.
When the time comes.
But for US we are also very focused on high volume high revenue models.
We can get return.
Reasonable amount of time in light of our lower continuing to invest in it we do believe we'll be able to afford it.
We'll be there one thing Tony I'd add on the backlog is it's actually remarkably diverse so it's cutting across a dozen product areas and is underpinned by 'twenty tier ones in the automotive Oems.
Very helpful guys best of luck. Thank you.
Thank you.
And our next question is from the line of Craig Ellis with B Riley Securities. Please go ahead.
Yeah. Thanks for taking the question I'll Echo the congratulations on the.
The record gross margins in the backlog performance nice to see those numbers. Thank you Donald.
Yeah, you're welcome I wanted to start off just by following up on Lidar, because I think three months ago, you indicated that there were.
For customers with which you are engaged in now I think you said a half dozen or so so the numbers clearly gone up can you talk a little bit about whats changed with customer engagements and what youre seeing as you work with the six different partners.
We've added incremental engagements too.
What we had announced before.
We don't see.
Any behavior change in that period certainly.
There is a lot of drive to bring the technology to market that are still some hurdles to be crossed.
Not necessarily from our side, but.
The whole market.
And so I mean really.
Wouldn't call out anything as as having been significantly changed.
Over the course of 'twenty three 'twenty four.
There'll be some small volume programs that launch but.
It wouldn't move the needle for example for our revenue if we were participating in that already with the content and you just won't even see it it'd be a rounding error.
So.
As I mentioned in the last question there were very focused on large volume large revenue, which with lidar will come it will just take a little longer.
Yeah, Yeah, and nice to see what's going on with radar.
Second question is regarding the comment that I think the team is now 600 employees across the world in your different design centers of excellence and they are in the home office. So the question is this just you look at the opportunities in front of you in the current employee based Arnold.
Where do you think you need to invest in and how are you thinking about M&A because it has been a very successful part of building out your technology capability and how are you thinking about that now.
Yes, I mean it has.
We've got a lot of course in the last few years, we are entering into somewhat of a digestion phase there as we as we organize and incrementally recruit.
In terms of M&A activity.
It is still of course, a core part of our DNA I think we're pretty good at it and I'm sure. We'll make success of that in the in the near future and the long term future.
But.
For us.
The body or to enter into having.
Having an acquisition is very high I mean, we have very high standards. It has to be something that's going to accelerate our progress to our goals are to provide us with a significant augmentation to our IP portfolio is such that we can make better progress products and deploy them into our customers.
So.
We've we look a little deals we pass on most.
And as.
As such it will be part of our long term strategy.
No news right now.
Yes.
That's very helpful. And then lastly, Tom are not totally be out.
Like the strong reiteration of the flip to profitability in the second half of next year. If you were to list out the three or four things that give you confidence in that transition what would they be thank you got it yes, Oh sure yeah, well clearly the strategic backlog.
Being fully booked basically into next year gets us there continued gross margin expansion in the mid 50% range and then Opex is really just nominal growth from where we are now.
And we have no further questions in the queue. At this time I will now turn it over to Donald Mclennan for closing remarks.
Yeah.
Thanks, everybody for your time and look forward to seeing you at the upcoming investor conferences and at the next call. Thanks a lot.
That does conclude your conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Uh huh.
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