Q1 2023 indie Semiconductor Inc Earnings Call

Speaker 1: I.

Speaker 1: Never.

Speaker 2: Good afternoon and welcome to Indy Semiconductor's first quarter 2023 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 is being recorded.

Speaker 2: I will now turn the call over to Ashish Gupta, Investor Relations. Mr. Gupta, please go ahead.

Speaker 3: order 2023 earnings call. Joining me today are Dalma Climate, Indies Co. Founder and CEO and Roger Ball, Indies Chief Accounting Officer. Tom Schiller, Indies CFO and EVP of strategies out of the office with the passing of his mother just days ago.

Speaker 3: Donald will provide opening remarks and discuss business highlights followed by Rage's review of indeed Q1 results in second quarter outlook. Please note that we will make informed living statements based on current expectations and assumptions that are subject to risks and uncertainties.

Speaker 3: as representative about views.

Speaker 3: in different material and expectations. For discussion of strategic background formulation methodology, please refer to our City Fiber Statement, E3 2022 Earnings Press Release.

Speaker 3: 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, 2022, as well as other public reports filed with the FCC.

Speaker 3: Finally, the results and guidance discussed today are based on certain non- GAAP financial measures. For a complete reconciliation to Gap, please see our key one earnings press release, which was issued in advance of this call and can be found on our website at www.indicentings.com. I'm not going to call over to Donald.

Speaker 4: Thank you, Ashish, and welcome everybody.

Speaker 4: I'm pleased to report that Indy delivered yet another above-plan record performance in the first quarter, reflecting robust demand for our highly innovative Autotek solutions and our unwavering commitment to achieving operational excellence. Once again, we substantially outpaced our industry peers and our industry partners in the industry.

Speaker 4: driven by Indy's diverse and differentiated product set, underpinned by over 400 global patents and applications.

Speaker 4: We're off to a strong start in 2023. Specifically, during the quarter, we grew revenue 84% year over year and 22% sequentially to $40.5 million and achieved a gross margin of just over 52%.

Speaker 4: Our deep R&D investments and targeted acquisitions are beginning to yield results, allowing Indy to sharply outpace our peer group and insulate us from isolated geographic customer and market weakness. As we'll review, we're gaining design win momentum across ADAS, user experience and electrification applications.

Speaker 4: setting the stage for sustained outsized growth for years to come as these wins translate into program ramps and ultimately revenue and free cash flow generation.

Speaker 4: First, within the ADAS product area, we are enabling automotive OEMs and Tier 1 suppliers to meet the growing demand for advanced safety systems in next generation vehicles. Importantly, we continue to follow a technology agnostic approach supporting multiple sensor modalities such as radar,

Speaker 4: LIDAR, computer vision and ultrasonic solutions, from which we will ultimately fuse the data created to provide a comprehensive and accurate perception of the vehicle surroundings. We believe that a sensor fusion product roadmap augmented and accelerated by our acquisition strategy has truly differentiated Indy from the pack, including competitors who tend to cling to one modality, often with an extremely narrow customer base. Quite simply, we believe that no single sensing modality will dominate the application line space.

Speaker 4: particularly given the diversity of ADAS use cases ranging from backup safety systems to lane assist to fully autonomous driving and everything in between. And to be clear, Indy's business plan isn't dependent on full autonomy.

Speaker 4: Our solutions support the evolution of today's safety systems from level two to what I like to call level two plus plus plus In other words, we haven't even begun to address the opportunity presented by levels four and five The definition of the complete driverless vehicle But we certainly will when those markets begin to mature in the meantime

Speaker 4: I'm delighted to announce that during the quarter, we captured our first design win at General Motors in partnership with Sharp of Japan. While we can't elaborate upon this particular program, suffice it to say it's a material development for Indie, and will initially encompass many of GM's forthcoming models, including its EV portfolio.

Speaker 4: We look forward to providing additional information upon the global rollouts next year. During the quarter, we also strengthened our position as a technology leader in automotive radar.

Speaker 4: with this acquisition of Silicon Radar, a company specializing in advanced highly integrated high frequency systems on chip.

Speaker 4: Silicon Radar had developed the industry's first volume production ready highly integrated 120 GHz radar front end transceiver including on-chip integrated antennas.

Speaker 4: Silicon Radar had previously been a design partner to our own Munich, Germany-based radar group. As vehicle safety standard initiatives such as the European new car assessment program continue to expand globally, there is an increasing need for driver and occupant monitoring systems making in-cabin sensing solutions as an essential component for ensuring overall safety. In fact, S&P Global Mobility predicts that the market for driver and occupant monitoring semiconductors will dynastyj our

Speaker 4: With Silicon Radar's world-class design team, we plan to lead the way. On the LIDAR front, during the quarter, we continue to make progress with our Surya SoC program, demonstrating our solution at multiple European automotive tier 1s. In the Surya LIDAR SoC is a game-changing product, enabling customers to implement a highly integrated and high performance software-defined data acquisition and signal processing system. It is the world's first merchant market coherent LIDAR solution that integrates multichannel high-speed analog to digital converters, hardware and software-based digital signal processing, together with the system control interfaces needed for an efficient and cost-effective FMC.

Speaker 4: detection, night vision, and driver and occupant monitoring. These functions collectively enable use cases such as lane change assist, highway pilot, traffic jam pilot, occupant safety, and automated parking amongst others. During the quarter, we continue to expand our design wind pipeline.

Speaker 4: securing initial vision sockets at Panasonic in support of Honda. Next, turning to user experience, by background OEMs have been increasingly prioritizing a best-in-class in-cabin experience as a point of differentiation.

Speaker 4: OEMs have increasingly highlighted the importance of interior lighting as it can drive an emotional connection with the driver and is a strong generator of brand recognition. Indy is redefining the future of in-cabin lighting with multicolor technologies for an enhanced user experience. The interior and exterior lighting of today's vehicles is rapidly evolving. With advanced dynamic lighting, it is possible to improve visibility and make it easier for drivers to see and be seen, which can help reduce the risk of accidents. Innovative lighting can also improve the comfort of the driver and occupants, creating an atmosphere suited to the context of the journey.

Speaker 4: style preference of the vehicle owner and indeed the general mood. In these solutions, such as the recently announced LED matrix controller, are designed to address this growing demand for innovative and power efficient LED lighting.

Speaker 4: North American and China based, including BYD, NEO and Li Auto.

Speaker 5: Similarly,

Speaker 4: Mobile device integration and wireless charging are also top priorities for global automakers. This technology allows drivers to seamlessly link their mobile device into the vehicle's infotainment system, safely making calls, sending and receiving messages, and enjoying their favorite music without diverting their attention from the road. To date, Apple and Android have provided compelling consumer experiences and have gained significant market share. In that process, Indy has played no small part in enabling this functionality.

Speaker 4: That said, our chipset is agnostic to whatever software layer is implemented.

Speaker 4: be it Apple CarPlay, Android Auto, or even in-house solutions. While some OEMs have recently announced plans to transition to internally developed architectures, Indy is in no way impacted by this development particularly as we continue to sell data transport and power to connect the phone to the infotainment system within any configuration. At the same time, our strong relationships with Tier 1s

Speaker 4: We expect global EV OEMs will seek more efficient and integrated semiconductor solutions and believe Indy is in a strong position to benefit from the growth particularly given our strong relationships with an increasing number of leading EV OEMs around the globe. I'll now turn the call over to Raja for a discussion of our Q1 results and Q2 outlook. For those who haven't had the opportunity to meet Raja, he has been a valuable member of the Indy team for over three years and currently serves as our Chief Accounting Officer. Raja, over to you. Thanks Donald. Indy delivered a strong first quarter, once again exceeding our top-line guidance and expectations.

Speaker 6: In fact, this represents our eighth consecutive quarter of beating or at least meeting our revenue and gross margin targets post-Indies IPO.

Speaker 6: Specifically, revenue for the period was up 84% year over year and up 22% sequentially to $40.5 million, including a stub portion of revenue from our acquisition of Geo Semiconductor in March. On a non-GAAP basis, gross profit was $21.1 million.

Speaker 6: translating into 52.2% gross margin, up 484 basis points year over year, and slightly ahead of our 52% guidance.

Speaker 6: In turn, our Q1 operating loss was $16.8 million. Below the line, net interest income was half a million dollars. As a result, our net loss was $16.3 million, and we posted a 10 cent loss per share on a base of 155.1 million shares in line with guidance. Turning to the balance sheet. We had significant one-time cash disbursements during the quarter, including 90 million related to the acquisition of Geosemiconductor, 8.4 million related to the acquisition of Silicin Radar, and a $10 million repayment of the analog devices' promissory note related to the acquisition of the acquisition.

Speaker 6: We also invested 16.7 million in working capital, primarily to secure inventory in support of our back half growth plans.

Speaker 6: 3.2 million in capital expenditures for expanded internal testing capabilities, and 3.9 million in other financing activities.

Speaker 6: Also, during the quarter, we raised $34.2 million from the ATM and issued 3.3 million shares.

Speaker 6: These sources and uses of cash combined with a non-gap operating loss of 16.8 million resulted in 207.4 million of cash on hand exiting the quarter.

Speaker 6: Looking forward, based on our order visibility and the depth of Indy's new product pipeline, we plan to demonstrably outperform the auto tech market over the forecast horizon.

Speaker 6: For the second quarter, we plan to scale to a 205 to 210 million dollar annualized revenue run rate.

Speaker 6: Assuming the midpoint of this range at 51.9 million dollars, we expect non-GAAP gross margin again in the 52% range, particularly as we work through lower margin pre-synergized geo inventory. We're also planning 33 million dollars in R&D and 9 million dollars in SG&A, which includes the full quarterly impacts of both our recent acquisitions.

Speaker 6: versus just one month in Q1.

Speaker 6: As a result, we plan to narrow our operating loss to approximately $15 million. Below the line, we anticipate $200,000 of net interest expense and no taxes.

Speaker 6: Assuming 164.3 million shares outstanding, we expect a 9 cent loss per share. Finally, and to reiterate, we believe the combination of Indies accelerating growth trajectory, growth margin expansion, post acquisition synergies, and planned operating expense leverage will enable us to reach profitability in the back half of this year. With that, I'll turn the call back to Donald's first closing comments.

Speaker 4: Thanks Raja. In summary Q1 was another solid quarter operationally, but we also remain in the early innings of what's possible at Indy given the strength of our customer engagements, supplier partnerships, product portfolio, roadmaps, and our world-class design team. In the short term our performance and outlook represent yet more proof points that were effectively...

Speaker 4: automotive semiconductor market opportunity and in the process creating an Autotech powerhouse. That concludes our prepared remarks. Operator, let's open the call for questions.

Speaker 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

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Speaker 2: One moment please, while we pull for questions. Thank you. Our first question comes from Suji, the Silva with Roth's capital. Please proceed with your question. Thank you.

Speaker 3: And congrats on the progress here. First question, in these exposures, I just want to think about, a framework think about this. I guess I think about traditional versus new auto car companies, and I'm wondering, you know, is the exposure roughly half-half, or is there any kind of one that's stronger than the other? And you know, I guess China EV, the question's been there around the...

Speaker 4: The demand you'd set would remain strong. So just curious, your thoughts on the relative demand across traditional versus new auto companies. Thanks, Oji. I mean, from our subjective viewpoint, all of our products have extremely strong demand, as you can see from the results. So as far as we're concerned, the market remains particularly strong.

diversified across all of those factors. There has been of course some some noise in the market I would say with regard to weakness in China e-vehicles where we do have representation of course as part of the broader portfolio.

But from our perspective, they're scheduled to do 8 million e-vehicles in China this year, and that's a pretty strong performance. It's a huge percentage of the world's market for e-vehicle, and they've come from a very little base to basically a leadership position in a very short time.

So our view on that generally is we only see strength in that particular market at this point also.

Okay, great. And in the prepared remarks, you guys mentioned the Apple CarPlay and China. Can you just elaborate on the content opportunity there and what's happening in that market if it's diversifying to Apple CarPlay and have the opportunity scaled out for you?

Well, I mean from our perspective, our hardware supports any software skin or user interface that's used on top of it.

So whether it be Apple CarPlay, Android Auto, or some proprietary system which belongs to an OEM. And it makes really no difference to us as regards to what they do. So as far as our perspective goes, as long as there's continued growth and integration of the user's mobile...

I think are the two or three biggest revenue opportunities. It seems like there's a lot of different content there across safety and infotainment and all that. Maybe that you could point out two or three that are really high growth opportunities in the next one to two years.

I mean, it's spread across our whole portfolio as we mentioned in the remarks. The ones that we called out in the remarks are really the ones that are the most immediate. But generally speaking, I mean, the cabin is becoming a place where people spend more time and there are many more creature comforts which...

a great driver of semiconductor content as the future unfolds.

make it up to content as the future unfolds. OK, thanks, Donald.

Our next question comes from Anthony with Craig Hallam. Please proceed with your question. Thanks. Hi, guys. I wanted to focus on your GM A-Desk. I know you're not on liberty to probably divulge too much, but I'm just curious, did I hear you correctly that something may start next year? Any sense on when the revenue is?

would start for you without ever coming follow ups. Yeah, I mean in that timeframe it's a very positive announcement for us and we are indeed very pleased about it. GM has been a sales recustomer ours for many years but this represents kind of a new...

product area for us that's launching. Is there any share or any number of models that you think you'll get? Care to share? We're not at the point where we're at liberty to.

disclose exact numbers and volumes and car models. But it's going to be significant for us, to say the least. Got it. And then following up on one of the earlier questions on China and your lighting was that you disclosed. What percent of revenue is China right now for you and where do you see that in the next couple of years?

Sure, I'll take that Donald. So China has been roughly historically roughly half of our revenues and that's pretty consistent with the current quarter and where we expect to be going forward. But to clarify that, China for us is kind of misleading in terms of the filings because clip.

much of the volume that's credited as being manufactured over there is generated through European and US design wins. That makes more sense. And then last question related to geo. I'm curious if you're now having conversations post the close on other automakers that were maybe a little shy in using geo because they're a private company and they're small.

and when do you expect new customer design wins now under the flag of Indy? Yeah, I mean we announced a couple of wins in there that went across the line perhaps I would say because of the girth of the combined companies now already, which were really just on the one yard line, we gave a final pushover.

But yeah, I mean we've been super happy with the way that the sales teams have integrated. We're working great together even after a very short time frame. And the amount of traction that we're seeing for their products through our sales channel and vice versa indeed for our products through their sales channel is enormous. But I do expect that over the course of the next while we will make some.

first one Donald outside of China to a certain extent because you've already answered that one but a lot of investor concern of just about supply demand dynamics in the automotive space any sort of changes in that from your perspective obviously your numbers don't seem to show any big change one way or the other I just wanted to get your thoughts

I mean, the situation has greatly alleviated itself from the situation of, let's say, the last 18 months or so. Much of the supply chain is back to normal. There are some isolated pockets that you can see which demand enhanced management to make sure that there's no slip, twixt, cup and lip.

But other than that, it's becoming more alleviated. That being said, what we see is that there, you know, the car volume per year is still below where it was at its peak in 2018. Still many cars didn't get manufactured during the course of that period. And we still see some pent up demand to get the car's volume back to really where it was before.

But generally speaking, we would see that the demand situation has improved, but still some work to do.

Got it. Thanks for that. And a couple of geo questions quickly. Was the ADAS design when the General Motors in partnership with Sharp Japan, I noticed the word Japan in there, was that something to do with the geo side of things or was that from kind of core Indy?

We're actually not detailing that at the moment, but we'll announce on that as time progresses and we can talk a little bit more about the application. Gotcha. The last question would just be, now that you've had Geo in the fold for a bit of time, I think you said a couple million dollars was the stub in the prior quarter when you guided and you expect a full quarter and then $40 million for the year, roughly, if I remember correctly. Are those the rest of those numbers or are those all still applicable?

No, we're still tracking to plan.

No, we're still tracking to plan. Great, thank you.

Great, thank you. Thanks folks.

Our next question comes from Cody with benchmark. Please proceed with your question. Thanks for taking my questions, guys. Please pass my sympathies along to Tom. Thank you very much. Don, can you just talk about your revenue mix by application? Can you give us some kind of color on how that breaks down for this quarter or this past quarter and in your guidance? And then I'll have another follow-up. Well, I mean, we don't really segment our revenue by application or geography or...

business is initial ramping of new products and new sockets and how much is dependent on the market's volume of vehicles.

that over the last eight quarters we've massively outgrown the market. And that's the primary factor that's going to influence us before anything else.

Of course, that was generated by new business starts and new product deployments over the course of that period and will continue to do so. In terms of, I wouldn't really characterize them as new wins any longer because these are wins that we made, I mean largely in terms of the revenue profile that we've produced to date.

of where we've come from, where we are right now, and where we're going for the long term, really through the end of this decade. So again, we don't really sub-segment out by category or by nature of design win, but just the nature of our business because of the long design cycles, we have a great deal of security and visibility into where the revenue's coming from on a quarterly and...

I mean it'll be driven by a multitude of factors. MIX as higher technology products deploy, operating efficiencies as we increase in scale, maybe in the short term operating efficiencies as we fully integrate the acquisitions that we recently made, and we remain on track to hit our 60% gross margin model, which we've talked about at length over the course of the last quarters.

Thank you guys. Thank you. Our next question comes from Craig Ellis with B Riley Securities. Please proceed with your questions.

Yeah, thanks for taking the question. Donald, I'll start with one that's more qualitative, but it relates to a point you made about the way you're scaling up the business both organically and inorganically. With the business where it is today, it's significantly increased scale over the last few years.

How is that changing the way customers come to end a detourine and engage both types of customer size of customers and maybe across different types of products that they may be interested in?

consistent and steady. And so with every, let's say, small milestone that we made, our credibility improves with our customers and they are willing to give us access to larger programs.

I would say that there are days where you feel that there's somehow been a threshold across when some very large customer approaches us and calls out to us and says, hey, we like what you're doing, we're really impressed. We are looking for a vendor in this space, looks like your technology is very differentiated.

in the market that we can deliver. We can deliver on time to the right quality. Automotive is quite a conservative market in that sense, so track record matters. I would say generally speaking, again I'll repeat it, it's been a very gratifying experience to see our progress happening really linearly over the course of the last 14 years even. That's helpful. Then I'll ask a specific product question.

Yeah, I mean it remains fully on track. I mean we don't talk about specific milestones in public, but yeah, we're very happy with the way it's executing. The resonance from the market who's beginning to get an appreciation that it's coming is becoming very strong because we do truly have a disruptive technology in that space that's going to make a difference.

The addition of silicon radar also helps us in the in-cabin arena because of their 120 GHz technology. It's really the next step on the roadmap beyond what we have in development now. And they have a leadership position in that. They're really the only 120 GHz functioning front-end available in the world today. So that's big things to work against and what's throwing our business out of the way.

I think it was conveyed that that was via ATM. Is there plans to raise similar this quarter, either by type or by amount? Thank you.

Yeah, sure. Yeah, we, we did raise the 34M via the ATM during during Q1 and there are no plans currently to raise additional share of place additional shares, particularly. At these at these share prices.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thanks everybody for attending and listening to our call. Hope to see you guys at the investor conferences in the coming weeks and see you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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