Q4 2022 indie Semiconductor Inc Earnings Call
Good afternoon, and welcome to M D Semiconductor's fourth quarter and year end 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
As a reminder, this conference call is being recorded.
I'll now turn the call over to Ashish Gupta Investor Relations.
Please go ahead.
Thank you operator, good afternoon, and welcome to any semiconductor's fourth quarter and year end 2022 earnings call. Joining me today are Dom a climate these co founder and CEO, and Tom Schiller, and CFO and EVP of strategy.
<unk> will provide opening remarks and discuss business highlights followed by Tom's review of <unk> Q4, and first quarter outlook. Please.
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 about views of any subsequent date.
Statements are subject to variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a discussion of the strategic backlog formulation methodology, please refer to our safe Harbor statement.
And our Q3 earnings press release for material risks and other important factors that can affect our financial results. Please review our risk factors in our 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 Q4 earnings press release, which was issued in advance of this call can be found on our website at www Dot <unk> Dot com.
I'll now turn the call over to Donald.
Thanks, Ashish and welcome everybody.
India delivered another quarter of record revenue and gross margin performance in Q4.
Once again ahead of expectations and capping off a second consecutive year in which we more than doubled our top line.
Our sustained outperformance reflects the strength of our highly innovative auto tech products backed by an extensive global patents portfolio developed by N. These team of over 600 dedicated employees around the world.
Specifically during the fourth quarter, we significantly outpaced our addressable markets and grew revenue, 74% year over year, and 10% sequentially to just over $33 million.
We expanded gross margin to 52% and gain further design win momentum spanning eight S user expedience and electrification applications.
Of note during the period, we ramped our user experience portfolio across leading North American automotive Oems.
<unk> 200 million unit cumulative shipments.
The convertible debt offering of 160 million in support of our acquisition plans.
Launched a board authorized $50 million share and warrant repurchase program.
More recently, we captured a motor controller designed for E vehicle battery cooling systems.
Entered a key partnership with seeing machines targeting driver and vehicle occupant monitoring.
<unk> demonstrated innovative power delivery wireless charging lighting and Adas solutions at CES, including our studio coherent lighter air source heat and announced our intent to acquire duo semiconductor.
On a full year 2022 basis, we delivered $111 million in revenue and improved gross margin to nearly 50%.
While substantially increasing our strategic backlog to $4 3 billion as of November 2022 up from $2 6 billion in 2021 and $2 billion at the time of our launch in 'twenty 'twenty setting.
Setting the stage for sustained outsized growth through the balance of this decade as design wins translate into program ramps and ultimately revenue and free cash flow generation.
Well, then Adas, we are approaching a new era of sensor fusion.
Emerging multiple disparate technologies to gather and process information employing radars lidar ultrasound and computer vision.
We believe that following our sensor agnostic approach, India is the best positioned auto Tech semiconductor and software pure play to capitalize on this strategic megatrend.
First of all radar represents a fundamental eight us building block technology.
Today radar is widely deployed.
And I think an 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 application, making it an extremely critical sensor.
Recall, we significantly scaled our radar initiative.
Internal investments and the acquisitions of analog devices radar division and on Sami's radar team.
The successful integration of these assets was critical to accelerating our product development, leading to our largest design win to date, but they talked for automotive radar system supplier.
Secondly, given lidar is impressive resolution range and depth perception capabilities.
We can deliver this rapidly emerging sensor technology to enhance safety systems within mass market vehicles.
Sooner than they anticipated rollout of a fully autonomous driving use cases.
To date addressing the complex and compute intensive demands of coherent Lidar systems has been achieved by using very high end field programmable gate arrays.
F P G as our ideal for prototyping and offer high levels of flexibility and versatility.
Especially beneficial for nascent applications.
But F. P. J as are also expensive power hungry they require complex pcbs and additional discrete components that add significant cost size, they generate thermal problems and access with power consumption.
This makes any migration to mass market lidar impractical or automakers are seeking a sub $500 price point with less than 30 watts of power dissipation for long range Lidar.
Enter indeed, Syria Lidar S O C. The world's first merchant market coherent lidar solution, allowing our customers to implement a highly integrated high performance software defined data acquisition and signal processing system.
How do you integrate all of the necessary multichannel high speed analog to digital converters hardware and software digital signal processing together with the system control interfaces needed for an efficient and cost effective lidar system.
When coupled with our differentiated directly on lasers, Judy I can absolutely catalyze the lidar market.
Third ultrasound is increasingly deployed to provide practical low spatial resolution in short range sensing use cases up to a few meters such as park assist systems.
A key benefit of ultrasonic sensors is that they are particularly effective due to their resilience and most weather conditions and a relatively low cost.
We are still in the early innings of our own ultrasound product ground supporting 10 days, a smart part feature set amongst others.
And last and far from least computer vision.
Image processing systems to provide the main sensing function in both Adas and autonomous applications, requiring up to 20 cameras and next generation vehicles.
Many different functions, our naval by computer vision, ranging from simple backup cameras E mirrors surround view systems through object in lane detection night vision and drive an occupant monitoring.
Collectively these functions can realize use cases, such as lane change assist highway pilot traffic Jam pilot occupant safety automated parking and other levels of driver automation.
In fact, given the increasing attach rate of cameras around the vehicle IHS is forecasting 265 million camera easy use will be needed to support the global automotive market in 2023 growing to 430 million units by 2028, and thus, creating an $8 5 billion dollar total addressable semi.
Conductor market.
To accelerate our market entry and capitalize on this opportunity last.
Last week, we announced our intent to acquire G. O semiconductor it's rare that an acquisition target is a perfect fit but this is indeed the case with you.
Underpinned by 100 global patents G was industry, leading camera based sensing and viewing capabilities are shipping today to some of the world's largest automotive Oems, including Honda Hyundai Kia Nissan and Toyota.
With design wins across more than 20 tier ones do you has programs with every major image sensor supplier in the world and is engaged in multiple key vehicle programs.
Do you use products comprised three generations of application specific camera video processors, including those focused on viewing or video is projected on a display and viewed by the driver and sensing where video is processed using advanced computer vision and machine learning algorithms to assist the driver.
The unique ability to support both of these key categories, where it needs to deliver short term solutions for today's use cases or providing a technology platform to provide fully autonomous features for the vehicles are small.
Do you as complementary in terms of products customers and global sales channels, while at the same time highly synergistic operationally with massive cross selling opportunities.
Upcoming regulations and Oem's need for differentiation will require a significant increase in camera resolution and the number of image processors per car.
These requirements will demand both sensing and viewing features.
Do you use camera processing technology will allow the tailored processing of image for display and machine vision applications.
Any high fidelity image delivery to the display and the contrast enhanced image going to the machine vision system.
For object detection little latency and superior time to collision performance at ultra low power.
And these differentiated sensing technologies combined with G was camera processing, Knowhow and IP will uniquely position us to accelerate the adaptation of camera based sensing technology across the vehicle spectrum.
More importantly, do you is enabling indeed to complete our sensor mosaic spanning radar lidar ultrasound and computer vision with scale across each now underpinned by a total of 370 patents and applications.
Our next step will be to fuse all sensing methods into integrated platforms to provide our customers with the most optimized and highest performing systems bar none.
Switching gears during the fourth quarter. We also continued to ramp our user experience portfolio across leading global automakers as Oems prioritize a best in class cabin expedience more than ever.
This focus towards creating a unique cockpit environment, where communication entertainment and information sharing has become paramount and indeed is a much greater customer differentiation than traditional torque horsepower and zero to 60 metrics.
Providing the ultimate user experience throughout the entire cabin as the new standard and.
In particular.
Seamless mobile device integration, but in the automotive environment is increasingly away Oems are differentiating their cars, which means implementing systems, such as Apple car play and Android auto that enable drivers to safely make calls send and receive messages and enjoy their favorite music without taking their eyes off the road.
This key feature set is everything for teen drivers and even more important for their nervous parents.
Similarly.
Vehicle lighting is gaining in importance as it is a strong generator of brand recognition.
Illuminating of cars and TD or an exterior creates an emotional ambiance that drives a unique connection.
Car manufacturers understand the significance of this dynamic and are striving to perfect. The integration of lighting conditions for a more harmonious driving experience finally in the EV area. We're seeing the start of a long term secular tailwind as Oems led by consumer demand.
Shift towards electrification.
According to Cox automotive EV sales were up 66% versus the prior year in the U S and the E V share of the total market nearly doubled to around 6%.
While penetration of Evs has increased considerably theres still lies in an enormous blue sky opportunity ahead in India remains, especially well positioned here given our strong relationships with an increasing number of leading Oems around the world who are seeking more highly integrated and power efficient semiconductors to continually shorten charging.
<unk> and extend vehicle range.
I will now turn the call over to Tom for a discussion of our Q4 results and Q1 outlook.
Thanks, Donald Indeed delivered a solid fourth quarter once again, outpacing topline and gross margin expectations.
Q4 represents our seventh consecutive quarter of beating or at least meeting our revenue and gross margin targets post Denise I P. L revenue for the period was up 74% year over year and up 10% sequentially to $33 million gross profit was $17 2 million translating into a 52.2 per se.
Gross margin up 590 basis points year over year, and 180 basis points sequentially better than our 51% guidance.
Yeah.
To put this performance in context at the time of our IPO announcement in the fourth quarter of 'twenty 'twenty and he was a quarterly revenue of just $6 $7 million with a gross margin of 35, 4%.
And the two year sense and despite the challenging supply chain environment.
We've effectively five AXT, our revenue base, while expanding gross margin by nearly 1700 basis points.
Turning back to our Q4 results R&D was $24 $9 million and supportive accelerated product development with SG&A of $7 4 million, reflecting continued investments to extend any sales reached plus the implementation of a highly scalable ERP system.
In turn our Q4 operating loss was $15 $1 million slightly better than our guidance.
Below the line interest income was $7 million versus our guidance for point 8 million stemming from incremental convertible debt interest we hadn't contemplated in our original forecast 90 days ago.
We also bought back one 1 million shares last quarter, ending the period at 151.1 million shares against our guidance for 152 million shares.
As a result, our net loss was $14 4 million and we posted a 10 cent loss per share in the fourth quarter with the delta between our guidance and results tied to the slightly lower level of interest income and reduced share base.
Turning to the balance sheet, we exited the year with $321 9 million of cash up $171 1 million from Q3, including $154 $7 million of net proceeds from our convertible debt offering and $41 9 million from our Wuxi subsidiaries capital rates.
These increases were partially offset by $14 9 million of net cash used in operating activities $4 3 million in Capex for expanded lab in I T equipment, as well as $7 4 million and share repurchases.
Looking forward based on the depth of our new product pipeline multiple program ramps and the planned addition of G. O. Later this quarter, we plan to deliver accelerating topline growth throughout 2023.
For the first quarter, we plan to scale to a $160 million annualized revenue run rate, including the stub portion of G. O revenue with non-GAAP gross margin in the 52% range. We are also planning $29 million in R&D and $8 million of SG&A on a consolidated basis for the quarter.
Below the line, we anticipate 4 million of net interest income and no taxes.
Assuming 156 million shares outstanding, including approximately 4 million shares for G. O on a weighted average basis, we expect a 10 cent net loss per share.
Further and perhaps most importantly, we believe the combination of any steeper growth trajectory sustained gross margin expansion, particularly post G O synergies and planned operating expense leverage will enable us to reach profitability in the back half of this year, representing another key milestone.
Towards realizing our 60% gross and 30% operating margin target model.
On that note I'll turn the call back to Donald for his closing comments.
Thanks, Tom in conclusion, we posted solid Q4, and 2022 results and are executing to our ambitious growth plans.
And although we've made substantial progress since our IPO and extending our support of the car brands like Audi BMW BYD, Daimler Ford General Motors, Hyundai and Nissan Porsche still onto some folks argon India is now just getting started.
Our acquisition of G O immediately rounds out our sensor offering by accelerating our computer vision product portfolio with field proven differentiated solutions, enabling us to capitalize on the rapid proliferation of automotive image processors around the vehicle.
This acquisition effectively fast forwards our ability to provide a highly differentiated and true sensor fusion platform to our customers.
In this way, we will vastly simplify sensing architectures, and thus democratize access to higher level autonomous and Adas features bringing is a massive step towards realizing our strategic vision of enabling the N Crushable car, becoming I'd also take powerhouse and then the process, creating extraordinary shareholder value.
That concludes our prepared remarks, operator, let's open the call for questions.
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One moment, please while we poll for questions.
Our first question comes from the line of Sujit de Silva with Roth. Please proceed with your questions.
Hi, Donald Hi, Tom Congratulations on a strong finish to 'twenty, two and even really it sounds like a better outlook for 'twenty three so great job guys. Thank you. So yeah no problem, Yeah got it so maybe a financial question first on the backlog growth very strong growth. There very impressive four 3 billion can you give us some way of understanding how much of that might cover the next 12 or 24 months near.
Term versus longer term and what's a realistic expectation for how that backlog grows over the next few years, because it's having really strong growth years that kind of growth sustainable or just how to think about that thanks.
Well kind of going in reverse order I mean for sure we're still accelerating into the market, we've only been a public company for that.
A little over 18 months and still.
The positive effect that that has with their customers hasn't it hasn't really been fully harvested yet so so no I do anticipate that.
We'll be able to pull in some very large projects and those will be added to the strategic backlog in due course.
As you know it's would you on an annual basis.
So in terms of.
Well our expectation is for the next 12 months.
I mean, we've been very clear are our absolute target our absolute mandate my mandate to the entire team is that we hit profitability in the second half of this year and you know you can you can kind of draw a line between that from where we are now and where we have to get two and revenue in order to realize that.
And you know I think you know overtime.
If you consider.
It just didn't making it easy math.
A 10 year run for some of these projects. Then you can you can approximately divide by divide by 10 to get to the run rate at the midpoint of that of that area.
So in terms of where we are we're very much on track.
To meet the plan that we originally set out when we came to the market and I P O.
Confident about that and we've delivered on it in the first 18 months or so and we'll continue to do such.
That's great. It's very helpful color and perspective, there Donald and then one question, perhaps on the Geo semi acquisition I've never seen clearly that there's strong success there geographically in the Japan Korea Korea region I'm wondering if that came through a particular partnership or just a focus there and how would you take that and expand that success.
Quickly through the combined G. L vision Q effort or is there something they need to do additional partnerships.
Well.
You know as we've as we've discussed before we decided to enter the particularly the Japan market.
The latest our last in our in our evolution just simply because the market is quite conservative over there and takes a long time.
And so one of the things that attracted us to <unk> was in fact that they had a great presence in the Japanese market very strong representation. There withhold the name brand Oems with a bunch of the tier ones are they are a very good supply chain through into that market. So that was that was basically just a huge opportunity for us to enable cross selling and into a new market for our <unk>.
Products and.
And Conversely, also where are they are less strong than the other parts of the world for we built up a great reputation and a great footprint, we have the ability really to in the short term to deploy their products into into our customers and we really expect that there'll be it.
Very good.
Short term cross selling opportunity, which will reflect itself in the topline them pretty quickly.
How do they did that it was largely focused some key relationships, but just more than anything a testament to their they're great IP, they're great products and they are exceptionally hard work in executing that.
Thanks Donald.
And as a reminder, if you have any questions you May press star one and also we do actually please limit yourself to only one question and one follow up.
Our next question comes from the line of Anthony Stoss with Craig Hallum. Please proceed with your question.
Hi, guys my congrats as well as a Jew acquisition and I also wanted to follow up on that a little bit Donald.
Help us understand maybe the design timeframe the length of it four four which you does and under your company now the scale. The cash you have how quickly can you accelerate that growth maybe give us a sense also what what geos growth rate had been in the past and I had a follow up.
Sure So I mean effectively.
We said in the prepared remarks, they serve exactly the same market as we do so its prototypical identical as to how we go to market.
Certain geographies are a little faster I'm certain Asian geographies, a little faster to market starting out a little slower, mostly Europe , and perhaps Japan actually you could include.
But you know of course, there are opportunities where given the fact that their products are mature in many cases that we can deploy into certain areas, where there are opportunities that we could see them ahead of the acquisition. So effectively a part of our analysis was that we knew we could make hay with this.
Yeah.
And then in terms of their growth from the past do you want to but yeah yeah.
Historically, they've been on a pretty good growth path a couple of years ago. They were in the in the $20 million neighborhood they effectively doubled.
Last year and so we're working to of course take that business now to the next level they've been hindered in the past by their own balance sheet AR and in some ways the way Andy was.
And so I think that's one of the huge synergies here to really explode out their business, yeah, exactly I mean, they're there they're in a similar situation to what we were before we became public and I think.
Are there no part of US what were the reason a lot of potential in there and their product deployment and you should see a similar growth curve to the one that we were able to realize a since we came out.
Perfect and then as a follow up I wanted to circle back to your.
Your radar win for them from some time ago I know, it's your biggest in the company history, where the top four.
What's the feedback then from other potential customers are you.
Shipping samples trailing you mean, just give us a sense of you know what the opportunities might still look like I would say your first big win.
Well I mean, we're not giving a lot of detail about that product development at the moment and typically we don't generally in any of our product developments.
We're on track with it.
It's in a good place to meet the time plan that we set out.
That generally speaking are having a really a one stop shop sensor technologies in the market is going to generate all sorts of opportunities for us with all sorts of customers.
And we'll we'll report on those opportunities.
The opportunities turning into reality is at the time it becomes appropriate.
Thanks Donald.
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 a question or two N. G O. One technology and then the follow up would be on the financial side. So first of all the technology side, Donald you talked a little bit about it in your preamble, but I just wanted to better understand how this business is complementary to or you know potentially some substitution for your preexisting vision portfolio, how do we.
What they bring versus division Q, you guys had beforehand.
Well I mean, the the fact that you as they had mature products in certain areas.
There are certain pieces of IP that we might have had two to reinvent in order to to access the market. So really the key and this was was accelerating our time to market with a the division Q activities that we have ongoing.
The way that our Roadmaps work there will be.
A lot of opportunity for us to to take their IP, and our IP and join them into something even better as a as a step beyond the parts that they have available today.
Also in that respect theres are some synergies in their roadmap, which will take advantage of an unbilled ripple through our P&L as as we.
As we as we mature that.
Ultimately, where we see.
The the key benefit and what they bring relative to our whole portfolio is bringing sensor fusion together.
The next topic that we're going to to cut into we see massive opportunities for that in the market combining the different sensor modalities and the processing thereof into single platforms and really that's where we're going to see have the most traction in the in the portfolio as we as we bring them in.
Got it thanks for that and then I guess this one might be more for Tom.
The G O side, you said there was a stub in your first quarter guide any sizing on that and just kind of the linearity of how that $40 million you guys talked about in the shale announcement folds in.
Yes, sure so we're expecting to close this quarter.
Were just modeling in a couple of million from Geo in terms of contribution and then from there. It's similar to what we guided for India overall, it's accelerating growth sequential growth throughout the year.
And that's when you said accelerating you mean year over year accelerating or the sequential quarter over quarter as our accelerating.
Actually.
Coincidentally, it's both.
Great. Thank you.
Okay.
Our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.
Yeah. Thanks for taking the question I will I join the long hit parade and ask a related question to start.
Uh-huh Donald issue look at G O N and this really does look like one of those one in 100 deals from a revenue synergy standpoint, but you know what.
If we're looking at our business. It's 40 million now as you look out two to three years and think about what's possible with cross selling and yeah with your vision.
Where sensor fusion goes how big do you think this business can be in the two to three year timeframe.
Okay.
Well.
In the in the short term as I said before you know I expect it to take the same profile as indeed, it and when we came out to the market basically it was kind of a little subset of us. There's no. If you if you can view it that way.
In terms of perhaps the longer term.
We're seeing extremely high dollar opportunities in extremely high volume growing.
Growing as a longtime result was that which you know will result in.
And design wins in the future of similar size to the radar design win that we've talked so much about over the last few quarters.
Got it and then Tom so it sounds like with a few million dollars of G. L. In the outlook, you're just counting on.
A couple of weeks at most and then.
And you would go to a full quarter, obviously into Q3.
And.
And this business do you think it sustains the pacing that it had last year as we go through 2023 and 2024.
We do we see it actually in fact more than anything else. We see are enormous top line synergy opportunity here as Donald mentioned, the cross selling opportunities.
Are fairly enormous so that those conversations have already started so we could see some benefit from that even in the back half of this year, that's not contemplated in the guidance, we put forth last week in terms of.
Expecting to see at least 40 million incrementally from G. O. This year.
And then of course that sets. The stage are you know thereafter for 'twenty four and 'twenty five.
Yeah got it and if I could sneak in one last one Tom just any color on what drove the gross margin upside in the fourth quarter.
Oh It was a nice combination of things our mix just continues to improve new program ramps layering in scale is of course, a big dynamic here and then in general the supply chain is loosening up a little bit.
And so that was also helpful. So all of those dynamics.
Or contributing to you now have have certainly contributed of late to the gross margin expansion, we've demonstrated and we see that continuing knows very dynamics continuing on are on our way to 60%.
License on all the progress guys great momentum. Thanks, Thanks, Craig.
And our next question comes from the line of Cody Acree with benchmark G proceed with your question.
Yeah. Thank you and let me add my congratulations group.
Kipp you talked Tom about your backlog give a number I have to step off the talk for just a second.
Did you give them absolute backlog increase.
Not this cycle stay tuned on that we generally provide that in the November conference call.
Well along the way of course will provide program wins and updates and such but we want to make that an annual event.
Does that number increase sequentially.
We we just haven't we've won some programs certainly since November , but we just havent publicly sized them yet.
Okay great.
Then one for Jim or what is the contribution margin that you're expecting near term and how does that grow with the contribution.
Oh, you're saying the incremental contribution margins yeah.
Yeah, what is what is Gee, there's a base gross margin.
Uh huh.
That attitude still dilutive to what you've got point sure sure. So initially in the current quarter, it's slightly dilutive.
Below our average, but will take some steps and fairly quickly here to get their margins at parity.
With.
Our expansion and then thereafter in fact, I think when we moved to 24 and 25, it's actually enhancing our gross margin and a lot of that candidly is they've just been subscale and we've got some.
Supply chain relationships, we can work there.
To.
Bring their margins more in line with us.
This is the one.
<unk>.
I was going to add this is the one quarter you know given that between.
The announcement in closing, we're not going to have that much time to.
Hum.
Really implement the synergies those really come into focus in the back half of this year.
Okay.
Okay, and then lastly, just E E.
And the machine vision and audio video processing from G O into your total adolf's offering.
When do you expect to be marketing those programs.
As our portfolio of offerings and solutions.
Oh, what do you expect that traction to look like.
Well from the get go will you know will.
Begin to incur.
Incorporate their portfolio into ours.
We I mean of course, we did our homework before the acquisition and we're very well aware about the market demand for <unk>.
But the potential of the combination of the of the technologies that they have and that we have.
So I mean, yeah, I mean, we do expect that the the residents for this is going to be pretty immediate.
Excellent. Thank you guys. Congrats thank you Cody.
And we have reached the end of the question and answer session now I'll turn the call over to management for closing remarks.
Well, thanks for joining US everybody look forward to seeing you at the upcoming Investor conferences and see you next quarter.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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Okay.
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