Q2 2023 indie Semiconductor Inc Earnings Call
Good afternoon, and welcome to <unk> semiconductor second quarter, 2023 earnings call.
At this time all participants are in a listen only mode.
A question and answer say shouldn't will follow the formal presentation.
As a reminder, this conference call is being recorded.
I will not turn the call over to Ashish.
Investor Relations.
Please go ahead.
Thank you operator, good afternoon, and welcome to any semiconductors second quarter 2023 earnings call.
Joining me today are Dominic climate, <unk>, co founder and CEO , and Tom Schiller, and CFO and EVP of strategy.
Paul will provide opening remarks and discuss the business highlights.
I'll buy times with you of in these Q2 results and Q3 outlook. Please note that we'll 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 representing 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.
So material risks and other important factors that could 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 SEC.
Finally, the results and guidance discussed today are based on non-GAAP financial measures.
Complete reconciliation to GAAP. Please see our Q2 earnings press release, which was issued in advance of this call and can be found on our website at www Dot <unk> Dot com.
I'll now turn the call over to Don.
Thanks, Ashish and welcome everybody.
I am delighted to report that Andy once again exceeded our top line and gross margin guidance and delivered another quarter of record performance.
Testament to both the increasing demand for our innovative older Tech solutions, and our unwavering commitment to achieving operational excellence.
Our demonstrable outperformance against automotive industry peers continues to be fueled by Indian deep product portfolio and design win pipeline.
Backed by over 400 patents and applications worldwide with engagements across virtually all leading global vehicle Oems and tier ones.
Specifically.
During the second quarter of 2023.
We grew the revenue of 102% year over year, and 29% sequentially to $52 $1 million.
And achieved a gross margin of 52, 2%.
As Bill outlined we're gaining design win traction across eight S user expedience and electrification applications.
Of special note during the quarter, we captured our first ever program win at Bush, one of the world's leading suppliers to the automotive industry.
This particular win rounds out our tier one customer base and dramatically extends our OEM reach initially at Toyota including likes us.
At a higher level wins like this and the hundreds of millions of dollars in potential lifetime revenue.
Set the stage for sustained above market growth and.
In the generation of annuity like free cash flow.
To that end, we're making our biggest engineering investments in design win strange, but then hate us.
In fact, the entire automotive industry is now squarely focused on advanced vehicle safety features above all else.
For instance, the National Highway traffic Safety Administration Nitza has recently proposed a regulation that would mandate all new passenger vehicles be equipped with automatic braking capabilities Cape.
Capable of preventing reran crashes with other vehicles in collisions with pedestrians.
We applaud this proposal and similar safety initiatives that leverage the next generation of older Tech technologies to prevent countless injuries and save lives.
Despite the incremental industry regulations, and the addition of new sensors and processes within the vehicle.
Calculable benefits of safer cars, and groceries, certainly far outweigh the associated costs.
And in India. We've made this our company mission empowering vehicle Oems and tier one suppliers with increasingly more sophisticated yet cost effective safety semiconductors and software for the vehicles of tomorrow, and ultimately leading towards that and Cashable car.
Specifically, we are falling a highly differentiated sensor fusion strategy versus a discrete approach, enabling either of the integration are flexible partitioning of multiple modalities, including radar computer vision Lidar and ultrasonic solutions.
We apply these modalities to capture data in different environments and ranges and to enable a comprehensive and accurate perception of the vehicles surroundings.
The potential for a sensor fusion product roadmap amplified and expedited by our targeted acquisitions.
I said, indeed distinctly apart from our competition.
Any of whom are just trying to develop a single modality.
Often in the hopes of lending and exclusive customer.
Contrast, this with endy.
We believe that no single technology won't monopolize, the playing field due to the complexity and diversity of the driving environment.
The combination of sensor technologies, and a harmonious fusion farms, the cornerstone over a robust and efficient solutions for advanced safety applications.
We believe this holistic sensor strategy at scale ensures the highest levels of safety and effectively meets the diverse and immediate needs of eight as implementations and one day farther out the autonomous vehicle market.
Within the vision product area, we're proud to highlight the aforementioned milestone achieved in the past quarter. Our first program win with Bosch, which was enabled by our acquisition of <unk> earlier this year.
This pivotal collaboration not only underscores the effectiveness and adaptability of our solutions, but also broadens our footprint in the area of driver on the occupant monitoring systems.
Our vision products combine the industry's leading real time signal processing.
Functional safety enabled microcontrollers and perhaps most importantly, artificial intelligence AI accelerators, which enabled perception algorithms to instruct the vehicle to take corrective actions.
As global safety initiatives continue to evolve.
The demand for these monitoring systems is intensifying.
<unk> in cabin sensing solutions is critical elements to enable enhanced autonomous features.
S&P global mobility as recent forecast reinforces this view with the market for these O M. S. D. M S semiconductors projected to cross the half a billion dollar threshold by 2029.
With our unique combination of vision and radar capabilities, India is well positioned to ascend to the leadership within this rapidly emerging market as we ramp up BMW and Toyota.
Speaking of radar.
Similarly made significant strides in an extremely short period of time in automotive terrorists.
Aided by deep R&D investments and augmented by synergistic acquisitions, including the radar division of analog devices on Sami's radar development team and most recently silicon radar.
With each bringing unique and highly complementary design teams and product type.
These acquisitions have also led to concrete achievements, including our largest design win to date and a strategic supply agreement with a top tier supplier.
On the Lidar front, we continued to make great progress with our C. D. I S O C derma.
Demonstrating our frequency modulated continuous wave or M. C. W. Lidar chipset, and an increasing number of leading Oems in the U S Europe and Japan.
And more recently, we announced a strategic partnership with <unk> technologies to deliver a world class F. M C. W. Lidar solution.
This partnership offers a fully integrated laser scanning system deploying coherent detection and set the high watermark for rapidly emerging lidar applications.
Background F M CW based lidar delivers multiple real world benefits compared to direct detection based time of flight solutions, including long range with high precision.
Interference immunity.
Powerpoint instantaneous velocity in distance measurement.
This partnership combines award winning products from silk and indeed into reference platforms that enable an order of magnitude improvement in sensing performance manufacturing ability.
Consumption form factor and cost relative to competing architectures.
Turning to use an expedient.
During the quarter, we further ramped our highly integrated power deficient portfolio across leading global automakers as Oems prioritize a best in class cabin experience more than ever.
With modern cars, becoming rolling Entertainment centers network hubs and doubling as workplace environments, providing the ultimate user expedience wrote the entire cabin is becoming the new car buyer paradigm.
For example, OEM.
Oems are increasingly focused on unique and differentiated interior lighting as it can drive an emotional connection with the driver while creating a strong linkage to brand recognition.
Likewise wireless charging and USB PD are now at the OEM design forefront.
These features not only provide convenience and seamless integration of personal devices into the vehicles ecosystem, but also serve as key factors in creating a tech forward impression thus.
Thus bolstering brand affinity.
And similar to interior lighting wireless charging and USB PD or components that form an integral part of the users' interaction with the vehicle contributing to the overall in cabin experience and again reinforcing the brand's commitment to technology and innovation.
During the quarter, we also launched a highly integrated automotive wireless power charging system on chip.
This product simplifies and accelerates the development of cost effective W. P. C also known as Qi based in cabin mobile device charging systems.
By background in cabin charging has become a necessity for drivers and passengers who use their smartphone to provide real time navigation music voice connections and many other services.
The emerging Chi two point always standard featuring the magnetic power profile is particularly relevant to automotive designs offering faster more reliable charging by automatically aligning smartphones with an inductive charging coil, maintaining the device and position irrespective of vehicle motion.
At the same time, we embarked on a key USB PD module design collaboration with a leading tier one facilitating the integration of power delivery functionality to a high speed USB hub application very rapidly emerging OEM.
As these designs ramp into high volume production, we will certainly have more details to share.
Finally in the electric vehicle area, we continue to see a long term secular tailwind as E V sales gained momentum.
According to Cox automotive Americans brought nearly 300000 full battery electric vehicles in the second quarter of 2023 and.
Implying more than a million evs annually for the first time in U S history.
In fact in the second quarter EV sales were up 48% versus the prior year in the U S. Yet the E V share of the total market is still in the single digits.
In other words EV penetration remains relatively low with massive sales headroom.
Further to that end Nitsa has introduced a proposed plan for fuel economy improvements through 'twenty 32, with a target fleet average of 58 miles per gallon clearly encouraging evs to reach this ambitious goal.
With advancements in E V technology rapid proliferation of charging infrastructure and declining battery costs the expansion.
And potential of the EV market is truly extraordinary.
Given in these customer engagements spanning market leaders, including new Ford, revealing G. M. B M. W. Mercedes Xiaopeng BYD shouldn't they Nissan Lee also and Volkswagen.
We are especially well positioned to face this start megatrend.
Now I will turn the call over to Tom for a discussion of our Q2 results and our Q3 outlook. Thanks, Donald Indeed delivered a solid second quarter once again exceeding our top line and gross margin guidance. In fact, this represents our ninth consecutive quarter of beating or at least meeting such targets post in this IPO.
Specifically revenue for the period was on the higher end of our guidance range and up 102% year over year and up 29% sequentially.
$52 $1 million.
Gross profit was $27 2 million translating into a 52.2% gross margin.
363 basis points year over year and ahead of our 52.0% guidance.
R&D was 34 million and slightly above plan, given multiple tape outs and accelerated product development costs, which converged in Q2, but importantly also has the benefit of pulling in our time to revenue.
Similarly, SG&A was $9 5 million, reflecting further extension of our sales and marketing reach particularly in Asia with near immediate results.
In turn our Q2 operating loss was $16 $3 million or 35 percentage point operating margin improvement year over year and a further narrowing on a sequential basis.
With negligible other and that interest expense below the line. Our net loss was $16 4 million and we posted a 10 cent loss per share on a base of $164 1 million shares.
Turning to the balance sheet, given our aggressive growth plans during the quarter, we invested 22 million and working capital.
Entered a multiyear supply agreement with a strategic foundry partner for $4 million and expanded our internal test capacity and quality lab capabilities via 3 million and <unk>.
Capital expenditures.
It's partially offset these cash outlays, we issued one 9 million shares under our ATM program, including $1 1 million shares via a block trade for total proceeds of 18 million, enabling us to exit the quarter with 181 million in cash and equivalents.
Looking forward for the third quarter, we intend to scale into a $240 million annualized revenue run rate up 100% year over year, and 15% sequentially and up more than tenfold versus our 2020 revenue base with all of this growth. Despite two OEM program push.
[noise] outs and the choppy macro backdrop.
At $60 million in sales, we expect gross margin expansion to the 53% range, particularly as we begin to realize operational synergies from our G O acquisition.
We're also planning $35 $5 million in R&D elevated once again from additional mass costs and expect SG&A to remain flat sequentially.
As a result, we intend to further narrow our operating loss to approximately $13 million.
Below the line, we anticipate half a million dollars of net interest expense and no taxes.
Assuming a 167 million shares outstanding from scheduled vesting and no further ATM activity, we expect an eight <unk> net loss per share.
Further we remain on track to more than double our annual revenues for a third consecutive year and reached profitability in the fourth quarter of this year driven by sustained sales growth gross margin expansion and operating expense leverage.
Longer term based on the depth of any new product pipeline is Donald outlined.
We plan to continue to deliver outsized top line growth over the forecast horizon towards 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.
As our design win traction operational agility and scalability demonstrate.
N D is effectively executing to our strategy in fact as a net result, we now see a clear path to over $1 billion in annual revenue by 2028.
And yet we're just getting started.
Our diverse product and IP portfolio deepening customer engagements collaborative supplier partnerships and innovative roadmaps and last but not least of course, our stellar our team are positioning us to capitalize on the 48 billion eight S user expedience and E V Triple Megatrend.
And in the process building older Tech powerhouse and most importantly create extraordinary shareholder value.
That concludes our prepared remarks, operator, let's open the call for questions.
Thank you Sir.
Ladies and gentlemen at this time, we'll be conducting a question and answer session.
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All participants using speaker equipment, it might be necessary to pick up your handset before pressing the star keys.
Due to time constraints, we ask that you. Please limit yourself to one question and one related follow up.
Our first question is from Sushi to Silva of Roth Capital. Please go ahead.
Hi, Donald Hi, Tom Congrats on the progress here. Thank you.
Sure I mean, obviously, you're talking about looking ahead to three Q. The guide here is a little bit behind consensus and my number I'm. Just curious you talked about to push outs here I want to understand and maybe some color on those and then where that was India specific.
The reasons are customer specific reasons or just end market reasons any color there would be helpful. Thanks.
Hi, Tsuji sure, yes, there were two significant push outs, which.
Really to do with the customers programs per se nothing that was within our control their own engineering execution.
And I would say and it's important to note that no business has been lost here is just being pushed out by a few quarters in order to allow these guys to complete wherever they need to do on the engineering side.
Oh, well that's very helpful. And then on this on the Bosch when for O M. S. It it's.
It'd be helpful to understand the magnitude of that lifetime, I think said hundreds of millions of Kenny and the timing of that you know, perhaps contrast, it with a large radar when you had just to kind of get a sense of maybe how the two layer on together as you start to build up a book of these.
Yeah, I mean, we're we're super excited about this I mean Bosch has one of the top two or three players in the industry and they have been I would say largely missing from our portfolio to date.
It's hard to size exactly but given that this is one of their key platforms, which they will likely attached to multiple Oems then we feel it will be up there with the largest design wins that we've made in the history of the company. So we're super excited about it.
Thank you Sir the next question is from Cody Acree at the Benchmark Company. Please go ahead.
Yes. Thank you all and thanks for taking my question.
Bob maybe you can just go back to Cds a question the AR, but the total outlet like you said is a little light, but how much of that is a macro or we were seeing countervailing data points out of southern markets and theres been a lot of speculation that autos are gonna finally.
He had a bit of a softer.
Softer patch.
Now if you look at this is this more of the he estimates getting ahead of themselves or is it more to do with the changes in the market.
Okay.
Well, it's a good question Cody I mean from our side you know obviously, we see the chop in the in the macro market and we're not blind to that and of course nobody is immune to it.
But from our perspective, it's it's a secondary issue versus the growth rate, but that we've achieved as a company.
In Q2, we grew 100% year on year in Q3, we are guiding to a 100% growth year on year and unlikely Q4 will be that way or better. So you know from our perspective, it's kind of hard for us to see the the macro effects translate directly into our own business. So.
From our perspective.
It's there, but I mean really the larger effect on us as a couple of program push outs, which is.
Just a minor air pocket for us and it doesn't really change anything about our long term outlook.
Okay. So if you look at all the revenue that you're getting in some longer term prior agreements, it's making up the bulk of your 52 million here versus those that are new programs can you talk about breaking up to $52 million as to.
What's contributed.
One established platforms that are shipping in volume to customers in there.
Got it take a look at total Saar bakeries, and what's how much of that 52 is getting into new programs that may or may not be on there on your timing schedule.
I mean, it's a mix hum once we are once we ramp.
Our product and we've done a bit of engineering, if you like.
Then there's typically still a ramp at the Oems switch.
Which contributes to our overall revenue profile and of course as if by virtue of the fact that you know we're we're a growth company new products that are or are planned to ramp. We typically can mitigate those we have a lot of ramps ongoing.
And I would say its you know theres always going to be a mix of new product starts as well as as well as ongoing growth from existing programs.
It's just it's just the nature of the Beast, we're growing company. So there are new programs that are going to ramp in addition to running revenue.
Thank you Sir.
Next question is from Craig Ellis of B Riley Securities. Please go ahead.
Yeah, I'll start with a longer term question for Donald tunnel.
Sorry.
<unk> private comment, but do you feel like you have increased visibility to becoming a $1 billion sales company by 2028 I was just wondering if you could flush that out a little bit more and talk about what you see in that time frame from.
From a from the user experience business properly.
But he would ask business proper young fan and what rural electrification will play in getting to that failure.
Yeah.
Well I mean, we've been building our.
Let's say customer portfolio and design win portfolio over the course of the last period.
And.
As you as you know of course, our heaviest R&D investment is in the Adas space and that's going to be one of the.
The large drivers far for that growth into the into that timeframe. The user experience will continue to grow.
Eight us as you can see as you can say would be the main engine behind that and E vehicle directly pertaining to the propulsion system, maybe a little behind that.
Got it. Thank you and then Tom I wanted to flip it over to you and ask much more of a near term question. So.
Really like the the renewed or re.
Reiterate it.
To get to operating profitability this year.
Can you just help us kind of bridge the gap between where we were this quarter or next quarter, which I think would be a $13 million operating loss all the way to profitability that seems to imply either very significant sequential fourth quarter revenue growth. It does a pretty dramatic.
Gross margin or operating expense reduction is just a little help there. Thank you.
Sure Yeah in fact, it's all the above so it's it's accelerating growth into Q4 continued gross margin expansion and then operating leverage we actually expect Q4 opex to tick down because were off for Q2 and Q3 were.
Seeing higher tape out costs mass costs coming through.
But that all.
That will reduce in Q4, so all of those factors get us to profitability.
Next quarter.
Thank you. The next question is from Ross Seymore, All Scotia Bank. Please go ahead.
Hi, guys. Thanks can I ask the question just wanted to follow up Craig's question on the fourth quarter side of things and not to sound too cynical, but considering the push outside of things in the third quarter. What gives you the confidence in that acceleration on the revenue side in the fourth quarter.
Yeah.
Just the situation of our backlog, where we are.
Where we can see things going we feel extremely confident about it otherwise we wouldn't have called it in that sense given that it's a short term return.
Tom also mentioned, we do have a little help from the Opex dropping.
We have evermore.
Let's say labor and R&D cost intensive programs, which we're deploying right now and so in the middle of the year is where are we spent heavily to get tape outs, which are going to drive the revenue in the 'twenty four 'twenty five 'twenty six timeframe and beyond.
Got it and then I guess, if I think of it a little bit longer term, maybe in wall Street terms longer term not so much in automotive and the 2024 as a whole Donald what would you think would be the the tailwind and potential headwinds that you would look to as far as kind of a growth ramping out of your backlog new product ramps are different type.
Within user experience sensing Adas those sorts of things are what are the pluses and minuses that you see looking into next year.
Well and 24, you'll begin to see the thin end of the ramp of the designs that we began to windows, we became a public company, which were significantly larger than the ones that we could command is a private company and so generally speaking that's really the beginning of that sort of a second phase of the company's growth.
Which we expect to take us into the back half of this decade.
Again, we spent.
A great deal of time in the Adas space. The Asps are significantly higher the gross margins are higher in terms of mix.
And that's.
That's really going to be one of the heaviest drivers.
In 'twenty, four 'twenty five and beyond.
Okay.
Thank you. The next question is from Anthony Stoss of Craig Hallum Capital Group. Please.
Please go ahead.
Just a couple of questions.
Tom maybe you can share how much Gilles was in Q2, and what you expect <unk> to be in terms of your guide for Q3.
And then Donald maybe if you can share some of the two OEM push outs, what revenue would that equate to.
Sure. The first one Tony we just aren't sub segmenting.
As you may know, but at.
At a higher level I would convey that we're delighted with G O as an acquisition that's certainly bearing fruit already in terms of these.
Large scale programs, we'd mentioned Bosch Toyota while some other names.
Soon to be able to share on that particular front. So the long term opportunity around G. O just continues to look better and better.
And then on the second part yeah on the second part of that I mean these programs are significant.
And when they fully ramp which of course takes a little bit of time, they're about $50 million combined annually.
Okay, and then shifting back to Tom.
No one way.
Or what you're expecting from Opex in Q4, when you run the math you'd be over 70 million in revenues to breakeven on a 55% gross margin for Q4 is that kind of what youre thinking about for Q4. That's that's the Rite aid D. S. Yeah $75 million roughly in revenue gross margin and the yep, 54% range.
Think that gets you there.
Okay.
Okay. Thank you very much ladies and gentlemen, we have reached the end of the question and answer session.
It's only the call back to Tom Klima for some closing remarks.
Thanks, everybody for listening and see you at the Investor conferences over the next few weeks.
Thank you very much sir.
Ladies and gentlemen that concludes today's conference.
May disconnect your lines at this time and thank you for your participation.
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