indie Semiconductor, Inc. Q4 FY2022 Earnings Call

Good afternoon and welcome to indie Semiconductor's Fourth Quarter and Year End 2022 Earnings Call. As a reminder, this conference call is being recorded. I will now turn the call over to Ashish Gupta, Investor Relations. Mr. Gupta, please go ahead.

Thank you, Operator. Good afternoon and welcome to indie Semiconductor's fourth quarter and year end 2022 earnings call. Joining me today are Donald McClymont, indie's Co-Founder and CEO; and Tom Schiller, indie's CFO and EVP of Strategy. Donald will provide opening remarks and discuss business highlights followed by Tom's review of indie's Q4 and first 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 views 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 backlog formulation methodology, please refer to our safe harbor statement on our Q3 earnings press release. For 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, 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 and can be found on our website at www.indisemi.com. I'll now turn the call over to Donald.

Thanks, Ashish, and welcome everybody. indie 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 topline. Our sustained outperformance reflects the strength of our highly innovative Autotech products, backed by an extensive global patent portfolio developed by indie's 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 gained further design win momentum spanning ADAS, user experience, and electrification applications. Of note, during the period, we ramped our user experience portfolio across leading North American automotive OEMs, exceeded 200 million unit cumulative shipments, closed a 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 design for E-vehicle battery cooling systems, entered a key partnership with Seeing Machines targeting driver and vehicle occupant monitoring, demonstrated innovative power delivery, wireless charging, lighting, and ADAS solutions at CES, including our Surya coherent LiDAR SoC. We announced our intent to acquire GEO Semiconductor. On a full-year basis for 2022, we delivered $111 million in revenue and improved gross margin to nearly 50%. We substantially increased 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 2020, setting the stage for sustained growth through the balance of this decade as design wins translate into program ramps and ultimately revenue and free cash flow generation. Within ADAS, we are approaching a new era of sensor fusion merging multiple disparate technologies together to process information, employing RADARs, LiDARs, ultrasound, and computer vision. We believe that following our sensor-agnostic approach, indie is the best-positioned Autotech semiconductor and software pure-play to capitalize on this strategic megatrend. First of all, RADAR represents a fundamental ADAS building block technology. 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 application making it an extremely critical sensor. We significantly scaled our radar initiative through internal investments and the acquisitions of Analog Devices radar division and Onsemi's RADAR team. The successful integration of these assets was critical to accelerating our product development, leading to our largest design win-to-date for the top four automotive radar system suppliers. Secondly, given LiDAR's impressive resolution, range, and depth perception capabilities, we can deliver this rapidly emerging sensor technology to enhance safety systems within mass-market vehicles far sooner than the anticipated rollout of 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. FPGAs are ideal for prototyping and offer high levels of flexibility and versatility, especially beneficial for nascent applications. But FPGAs are also expensive, power-hungry, and they require complex PCBs and additional discrete components that add significant costs, size, generate thermal problems, and excess power consumption. This makes any migration to mass-market LiDAR impractical for automakers who are seeking a sub-$500 price point with less than 30 Watts of power dissipation for long-range LiDAR. Enter indie Surya LiDAR SoC, the world's first merchant market coherent LiDAR solution, allowing our customers to implement highly integrated, high-performance, software-defined data acquisition and signal processing systems. Surya integrates all 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 TeraXion lasers, Surya can absolutely catalyze the LiDAR market. Third, Ultrasound is increasingly deployed to provide practical, low spatial resolution, and short-range sensing use cases up to a few meters such as park-assist systems. A key benefit of ultrasonic sensors is their effectiveness in most weather conditions and their relatively low cost. We are still in the early innings of our own ultrasound product ramp supporting Hyundai's Smart Park feature set amongst others. Lastly, computer vision. Image processing systems provide the main sensing function in both ADAS and autonomous applications requiring up to 20 cameras in next-generation vehicles. Many different functions are enabled by computer vision, ranging from simple backup cameras, mirrors, and surround view systems, through object and lane detection, night vision, and driver and occupant monitoring. Collectively, these functions can enable use cases such as lane change assist, highway pilot, traffic jam pilot, occupant safety, automated parking, and other levels of driver automation. The attach rate of cameras around the vehicle is increasing, with IHS forecasting 265 million camera ECUs needed to support the global automotive market in 2023, growing to 430 million units by 2028, creating an $8.5 billion total addressable semiconductor market. Last week, we announced our intent to acquire GEO Semiconductor. It's rare that an acquisition target is a perfect fit, but this is indeed the case with GEO. Underpinned by 100 global patents, GEO's 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-1s, GEO has programs with every major image sensor supplier in the world and is engaged in multiple key vehicle programs. GEO's products comprise three generations of application-specific camera video processors, including those focused on viewing, where video is projected on the 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 will allow indie to deliver short-term solutions for today's use cases, while also providing a technology platform for fully autonomous features in the vehicles of tomorrow. GEO is complementary in terms of products, customers, and global sales channels, while also being highly synergistic operationally with massive cross-selling opportunities. Upcoming regulations and OEMs' 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. GEO's camera processing technology will allow tailored processing of images for display and machine vision applications, resulting in high-fidelity image delivery to the display and contrast-enhanced images going to the machine vision system for object detection, lower latency, and superior time-to-collision performance at ultra-low power. Indie's differentiated sensing technologies combined with GEO's camera processing know-how and IP will uniquely position us to accelerate the adaptation of camera-based sensing technology across the vehicle spectrum. More importantly, GEO is enabling indie 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. During the fourth quarter, we continued to ramp our user experience portfolio across leading global automakers as OEMs prioritize the best-in-class cabin experience more than ever. This focus towards creating a unique cockpit environment, where communication, entertainment, and information sharing has become paramount, is a much greater customer differentiation than traditional torque, horsepower, and 0 to 60 metrics. Providing the ultimate user experience throughout the entire cabin is becoming the new standard. In particular, seamless mobile device integration within the automotive environment is increasingly how OEMs are differentiating their cars, implementing systems such as Apple CarPlay 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 is crucial for teen drivers and even more important for their nervous parents. Similarly, vehicle lighting is gaining importance as it significantly contributes to brand recognition. Illuminating a car's interior and exterior creates an emotional ambiance that drives a unique connection. Car manufacturers understand the significance of this dynamic and strive 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 US and the EV share of the total market nearly doubled to around 6%. While penetration of EVs has increased considerably, there still lies an enormous blue-sky opportunity ahead. indie 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 times 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. indie delivered a solid fourth quarter once again outpacing top line and gross margin expectations. In fact, Q4 represents our seventh consecutive quarter of beating or at least meeting our revenue and gross margin targets post indie's IPO. 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% gross margin, up 590 basis points year-over-year and 180 basis points sequentially, better than our 51% guidance. To put this performance in context, at the time of our IPO announcement in the fourth quarter of 2020, indie had quarterly revenue of just $6.7 million with a gross margin of 35.4%. In the two years since, and despite the challenging supply chain environment, we've effectively 5X our revenue base while expanding gross margin by nearly 1,700 basis points. Turning back to our Q4 results, R&D was $24.9 million in support of accelerated product development with SG&A at $7.4 million, reflecting continued investments to extend indie's sales reach, 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 $0.7 million versus our guidance for $0.8 million, stemming from incremental convertible debt interest we hadn't contemplated in our original forecast 90 days ago. We also bought back 1.1 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 $0.10 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 in cash, up $171.1 million from Q3, including $154.7 million in net proceeds from our convertible debt offering and $41.9 million from our Wuxi subsidiaries capital raise. These increases were partially offset by $14.9 million of net cash used in operating activities, $4.3 million in CapEx for expanded lab and IT equipment, as well as $7.4 million in share repurchases. Looking forward, based on the depth of our new product pipeline, multiple program ramps, and the planned addition of GEO later this quarter, we plan to deliver accelerating top-line growth throughout 2023. For the first quarter, we plan to scale to a $160 million annualized revenue run rate, including the stub portion of GEO 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 $0.4 million of net interest income and no taxes. Assuming 156 million shares outstanding, including approximately 4 million shares for GEO on a weighted average basis, we expect a $0.10 net loss per share. Further, and perhaps most importantly, we believe the combination of indie's steeper growth trajectory, sustained gross margin expansion, particularly post-GEO 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. Although we've made substantial progress since our IPO and extended our support of car brands like Audi, BMW, BYD, Daimler, Ford, General Motors, Hyundai, Nissan, Porsche, Stellantis, and Volkswagen, indie is now just getting started. Our acquisition of GEO 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-tracks 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 us a massive step towards realizing our strategic vision of enabling the uncrashable car, becoming an Autotech powerhouse and in the process creating extraordinary shareholder value. That concludes our prepared remarks. Operator, let's open the call for questions.

Our first question comes from Suji Desilva with ROTH. Please go ahead with your questions.

Hi. Donald. Hi, Tom. Congratulations on a strong finish to '22 and really, it sounds like a better outlook for '23. Great job, guys.

Thank you.

Yes, no problem. So maybe a financial question first on the backlog growth, very strong growth there, very impressive, the $4.3 billion. Can you give us some way of understanding how much of that might cover for the next 12 to 24 months near-term versus longer term and what's the realistic expectation for how that backlog grows over the next few years? Is that kind of growth sustainable or just how to think about that? Thanks.

Well, going in reverse order. For sure, we're still accelerating into the market. We've only been a public company for a little over 18 months. The positive effect that this has with our customers hasn't really been fully harvested yet. 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, Suji, on an annual basis, our absolute target, our absolute mandate, my mandate to the entire team is that we hit profitability in the second half of this year. You can draw a line between where we are now and where we have to get to in revenue to realize that. Over time, if you consider making an easy math, a 10-year run for some of these projects, you can approximately divide by 10 to get to the run rate at the midpoint of that area. So in terms of where we are, we're on track to meet the plan that we originally set out when we came to the market and IPO. We're very confident about that, and we've delivered on it in the first 18 months or so and we'll continue to do so.

That's great. It's very helpful color and perspective there, Donald. One question perhaps on the GEO Semi acquisition. Noticing clearly that there is strong success in the Japan and 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 geographically through the combined GEO vision queue effort? Is there something you need to do additional partnerships? Thanks.

As we've discussed before, we decided to enter the Japan market latest or last in our evolution, simply because the market is quite conservative and takes a long time. One of the things that attracted us to GEO was they had a great presence in the Japanese market, fairly strong representation there, along with several Tier-1 manufacturers. They have a very good supply chain into that market. This was a huge opportunity for us to enable cross-selling into a new market for our products. Conversely, where they are less strong in the other parts of the world, where we've built up a great reputation, we have the ability to deploy their products into our customers in a short time. We expect that there will be very good short-term cross-selling opportunity, which will reflect in the top line quickly. They did that largely through key relationships, but it's also a testament to their great IP, excellent products, and exceptionally hard work in executing.

Thanks, Donald. Thanks, Tom.

Our next question comes from Anthony Stoss with Craig-Hallum. Please go ahead with your question.

Hi guys. My congrats as well on the GEO acquisition. I also wanted to follow up on that, Donald. Help us understand maybe the design timeframe, the length of it for what GEO does and under your company now, the scale, and the cash you have, how quickly can you accelerate that growth? Maybe give us a sense also of what GEO's growth rates had been in the past. Then I had a follow-up.

Sure. Effectively, as we said in the prepared remarks, they serve exactly the same market as we do, so it's prototypically identical in how we go to market. Certain geographies are a little faster, while others, mostly Europe and Japan, might be slower. However, there are opportunities where given that their products are mature, we can deploy into areas where there are opportunities we saw ahead of the acquisition. Our analysis showed we could capitalize on this. In terms of their past growth, they were in the $20 million neighborhood a couple of years ago and effectively doubled last year. We are looking to, of course, take this business to the next level. They were hindered in the past by their own balance sheet in ways similar to what indie was. So, I think that's one of the huge synergies here to accelerate their business.

Yes. Historically, they've been on a pretty good growth path. A couple of years ago they were in the $20 million neighborhood, and they effectively doubled last year. We are looking to, of course, take this business to the next level. They've been hindered in the past by their own balance sheet in some ways, like indie was. I think we've got the potential to reach their potential.

Yes, exactly. They are in a similar situation to what we were before we became public. The fact that we will now reach a lot of potential in their product deployment should see a similar growth curve as we were able to realize since we came out.

Perfect. Then as a follow-up, I wanted to circle back to your radar win from some time ago. I know it's your biggest in the company's history with the top four. What's the feedback from other potential customers? Are you shipping samples, trialing? I mean just give us a sense of what the opportunities might still look like outside of your first big win.

I'm not giving a lot of detail about that product development at the moment, as we typically don't in any of our developments. We're on track with it and it's in a good place to meet the timeline we set out. However, having a one-stop shop for sensor technologies in the market will generate all sorts of opportunities for us with various customers. We'll report on those opportunities turning into reality as the time becomes appropriate.

Great. 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 the question. Two on GEO, one technology and then the follow-up will be on the financial side. So first on 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 potentially some substitution for your pre-existing vision portfolio. How do we look at what they bring versus the vision queue you guys had beforehand?

The key in this was accelerating our time to market with the vision queue activities that we have ongoing. Our roadmaps will provide a lot of opportunity for us to take their IP and ours and join them into something even better. Additionally, there are synergies in the roadmap that will have ripple effects through our P&L as we mature that. Ultimately, the main benefit of what they bring in relation to our entire portfolio is bringing sensor fusion together, which is the next topic we will cut into. We see massive opportunities for that in the market by combining the different sensor modalities and their processing into single platforms. That is where we will see the most traction in the portfolio as we integrate them.

Got it. Thanks for that. I guess this one might be more for Tom. On the GEO 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 initial announcement folds in?

Yes, sure. We're expecting to close this quarter. We're just modeling in a couple of million from GEO in terms of contribution. From there, it's similar to our guidance for indie overall, with accelerating growth throughout the year.

When you said accelerating, you mean year-over-year accelerating or the sequentials quarter-over-quarter are accelerating or maybe both?

Actually, coincidentally, it's both.

Okay.

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

Yes, thanks for taking the question. I will join the long list of GEO-related questions to start. Donald, if you look at GEO and this really does look like one of those one-in-100 deals from a revenue synergy standpoint. If we're looking at a business that's $40 million now, if you look out two to three years and think about what's possible with cross-selling and with your vision of where sensor fusion goes, how big do you think this business can be in the two to three-year timeframe?

In the short term, as I've said before, I expect it to take the same profile as indeed it as we came to the market. Basically, it's a little subset of us now. In terms of the longer term, we're seeing extremely high dollar opportunities and extremely high volume growth resulting from that, which will yield design wins in the future of similar size to the radar design win we've discussed over the last few quarters.

We're expecting to see at least $40 million incrementally from GEO this year. That sets the stage for 2024 and 2025.

Got it. Tom, so it sounds like with a few million from GEO in the outlook, you're just counting on a couple of weeks at most, and then you would go to a full quarter obviously in Q2?

That's right.

This business, do you think it sustains the pacing that it had last year as we go through 2023 and 2024?

We do, we actually see enormous top-line synergy opportunities here. The cross-selling opportunities are fairly significant. Those conversations have already started, so we could see some benefit from that even in the back half of this year. That's not included in the guidance we provided last week.

Congratulations on all the progress, guys. Great momentum.

Thanks, Craig.

Our next question comes from the line of Cody Acree with Benchmark. Please proceed with your question.

Yes, thank you, and let me add my congratulations to the group. Did you talk, Tom, about your backlog and give a number? I had to step off the call for just a second, but did you give an absolute backlog increase?

Not this cycle. Stay tuned on that. We generally provide that in the November conference call. Along the way, of course, we'll provide program wins and updates, but we want to make that an annual event.

Did that number increase sequentially?

We've won some programs certainly since November, but we haven't publicly sized them yet.

Okay, great. One for GEO, what is the contribution margin that you're expecting in the near term? How does that grow the contribution?

In the current quarter, it will be slightly dilutive below our average, but will quickly take steps to get their margins at parity with our expansion. Thereafter, when we move to 2024 and 2025, it will enhance our gross margin. A lot of that is reflected in their subscale status and the supply chain relationships we can improve to bring their margins in line with us. Given the short time frame between announcement and closing, we won't be able to implement strategies right away, but they will come into focus in the latter half of this year.

Okay. Lastly, just the incorporation of machine vision or video processing from GEO into your total ADAS offering. When do you expect to market those programs as a portfolio of offerings and solutions, and what do you expect that traction to look like?

From the get-go, we'll begin integrating their portfolio into ours. We've done our homework before the acquisition and are well aware of the market demand for the potential of the combination of our technologies. We expect immediate resonance for this.

Excellent. Thank you, guys, congrats.

Thank you, Cody.

We have reached the end of the question-and-answer session. I'll now turn the call over to management for closing remarks.

Well, thanks for joining us, everybody. We 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.