indie Semiconductor, Inc. (INDI) Earnings Call Transcript & Summary

Good afternoon, and welcome to indie Semiconductor's First Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I will turn the call over to Ashish Gupta, Investor Relations. Mr. Gupta, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to indie Semiconductor's First Quarter 2022 Earnings Call. Joining me today are Don McClymont, indie's Co-Founder and CEO; and Tom Schiller, indie's CFO and EVP of Strategy. Don will provide opening remarks and discuss business highlights, followed by Tom's review of indie's first quarter 2022 results as well as the second quarter of 2022 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 about 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 further discussion of the material risks and other important factors that could affect our financial results, please refer to our risk factors in our recent annual report on Form 10-K for the fiscal year ended December 31, 2021, and other public reports filed with the SEC. Additionally, the results and guidance discussed today are based on certain non-GAAP financial measures. For a complete reconciliation to GAAP, please see our Q1 earnings press release, which was issued in advance of this call and can be found on our website at indiesemi.com. With that, I'll turn the call over to Donald.

Thanks, Ashish, and welcome, everybody. I am pleased to report that indie delivered another record quarter in Q1. Building upon our 2021 outperformance, this year is off to a strong start for indie with increasing broad-based demand for our highly innovative automotive semiconductors and software, underpinned by a strengthening order pattern. Perhaps what is most impressive is our team's operational execution, particularly in the face of continued global supply chain headwinds. indie's performance is a testament to the resiliency of our team, our differentiated product portfolio, our underlying intellectual property and our key industry partnerships. Specifically, during the first quarter, we once again outpaced our addressable markets and grew revenue to a record $22 million, approximately the same level of revenue that we delivered in the entire of 2020 calendar year. We expanded gross margin by 710 basis points year-over-year and 110 basis points sequentially, and we gained design win traction across LiDAR, radar, user experience and electrification applications. Our advanced Autotech solutions are being brought to market as the automotive industry approaches a major inflection point. We believe indie is poised to be a major beneficiary for intensifying industry megatrends as automotive customers are demanding a step function increase in electronic performance and complexity. Our highly differentiated semiconductors and software platforms are particularly well suited to meeting this challenge. Stepping back and to put a context around what's the stake here, in a December 2021 report, the United Nations estimated that road accidents are responsible for roughly 1.3 million deaths and 50 million injuries all over the world every year and are one of the leading killers of children and teenagers on a global basis. These statistics underscore the urgent need for greater onboard ADAS capabilities. The UN has set a target to halve this number by 2030 through national and local government actions, but we feel that, that's not ambitious enough. As an industry, we have the means to bring to market technologies to enable uncrashable cars and ultimately truly autonomous vehicles. And at indie, we're passionate about leading the way through cost-effective semiconductor and associated software integration. Further, according to a recent Kelley Blue Book industry assessment, many of the top automotive technologies recommended for car buyers are ADAS, automatic emergency braking, driver monitoring systems, safe exit assist, 360-degree camera, blind spot view monitor and video rearview mirror. These applications all support the UN's mission and perfectly align with indie's existing product portfolio and road maps. During the quarter, we commenced sampling of Surya, our LiDAR SoC, which integrates DSP, Analog, mixed signal, MCU and firmware functionality, augmented by TeraXion's world-class lasers and associated technology. I'm delighted to report that we already have multiple customers engaged in this early phase launch, all of whom are investing in their own development based on our Surya platform to support their LiDAR systems. For us, this is an opportunity to capture up to $75 per implementation, enabling a complete $200 BOM, which is 80% less than current discrete architectures. Accordingly, we believe that Surya will catalyze the LiDAR market. At the same time, the complementary design teams we recently acquired from ON Semi and ADI, helped us secure a strategic design win with one of the top 4 global automotive radar suppliers in the world. During the quarter, we successfully integrated these 2 groups, made substantial progress in our development, setting the stage for indie to become the leading supplier of radar solutions for all applications within the coming years. This is, in fact, the single largest design win in indie's history and sets the stage for us to similarly capture additional billion-dollar size programs. Turning to user experience. OEMs are increasingly differentiating their vehicles, not in terms of torque and horsepower, but rather via seamless [ smartphone ] integration, lighting, wireless charging and telemetry features. For example, today, Apple CarPlay is supported on hundreds of vehicle models and is available in more than half of new cars and continually gaining in share, in most cases, enabled by indie's core technologies. During the quarter, we expanded our design win pipeline for wired and wireless charging, commenced preproduction shipments to a leading Korean customer for rapid charging applications and captured key content with one of the leading U.S. automotive OEMs. Shifting gears. With rapidly increasing oil prices and broader concern for global climate change, consumers are rapidly turning to electric vehicles. Last quarter, EV sales were up 76% in the U.S. compared to a decline of 16% overall for traditional new cars and truck sales. In fact, according to a recent CarGurus' poll, 40% of Americans now expect to own an electric car in the next 5 years, up from 32% in February and 30% last year, driven by an increasing demand for fuel-efficient vehicles in response to high gas prices. Along with cyclical factors, the industry should continue to benefit from the long-term structural trend towards electrification. Once consumers make the switch to electric, that shift tends to be permanent due to higher performance and compelling economics of electric vehicles. indie will be a major beneficiary of this electrification megatrend, led by our wins at Vitesco, one of the largest European automotive Tier 1s, and with a leading EV OEM for last quarter, we added to our design win scorecard. Generally, our product portfolio sees a far higher attach rate within electric vehicles given the need for more power-efficient semiconductors and software as well as the more innovative EV architectures. Said another way, demand is expected to accelerate for next-generation vehicles containing increased safety features and an enhanced user experience as the automotive industry shifts towards ubiquitous electrification and autonomy. As a direct result, the average semiconductor content per car is expected to grow from just $500 today to $4,000 over the coming decade. Our product portfolio is particularly well aligned to capitalize on the shifting landscape and steep content growth trajectory. Finally, during the quarter, we extended our market reach by launching a strategic presence in both Japan and more recently in Korea. While we have some content at Nissan, indie has historically not had any footholds at Toyota, Honda, Mazda or Subaru, and we've been underrepresented at Hyundai and Kia. With the establishment of indie sales and technical support centers of excellence now in Tokyo and Seoul, this is a top corporate mandate, and we look forward to providing progress reports, particularly given the massive markets we've just opened for indie. Japan and Korea represent strategic launching sites for leading-edge automotive technologies, and we expect to commensurately ramp our highly integrated portfolio across an entirely new class of customers in support of our vision of empowering the global Autotech revolution. I'll now turn the call over to Tom for a discussion of our results and outlook.

Thanks, Donald. indie delivered strong first quarter results, once again exceeding our guidance and analysts' expectations. In fact, Q1 represents our fourth consecutive quarter of outperformance versus plan post-indie's IPO last summer. Revenue for the period was up 171% year-over-year and 16% sequentially to a record $22 million, beating our outlook for revenue growth to be up 160% to 170% year-over-year. Gross profit was $10.4 million, translating into a 47.4% gross margin, up 710 basis points year-over-year and 110 basis points sequentially and versus our 47% guidance. Operating expenses were on forecast at $26.9 million against guidance for $27 million and up from the prior period with R&D investments of $20.2 million as we accelerated product development. Likewise, we increased our SG&A spending to $6.7 million to expand our marketing capabilities and implement some of the final elements of public company infrastructure. As a result, our operating loss was $16.5 million, better than analysts' consensus estimates. Interest, other expenses and taxes were negligible. Thus, our net loss was also $16.5 million with a loss per share of $0.11 on a base of 148.1 million shares. Turning to the balance sheet. We invested $900,000 in working capital and made a $10 million payment to analog devices for our Symeo carve-out, exiting the period with $193 million in cash and limited debt. Looking forward and based on strong order visibility, set customer ramps and new product launches, we plan to sustainably outpace indie's addressable markets over the forecast horizon. Specifically, for the second quarter of 2022, we anticipate revenue growth on the order of 172% to 183% year-over-year and in the range of $25 million to $26 million, putting indie on pace for another record quarter. At the midpoint of this range, we are on a greater than $100 million annualized revenue run rate. Further, we expect gross margin expansion to the 48% range with $30 million in operating expenses, comprising $23 million in R&D and $7 million in SG&A as we increase our product development investments in response to pent-up customer demand, particularly in radar and extend our sales and marketing capabilities globally. Assuming no other net expense or taxes below the line and approximately 149 million shares outstanding, we expect a net loss of $0.12 per share. Finally, as Donald outlined, indie is uniquely positioned to capitalize on the strategic Autotech opportunity and translate our design win momentum into a highly profitable business model. Given our visibility, scalability and planned operating leverage as revenue growth far outpaces OpEx, we are well on our way to reaching profitability in the back half of next year, representing a key next step on our path to realizing indie's long-term targets of 60% gross and 30% operating margins by 2025. With that, I'll turn the call back to Donald for his closing comments.

Thanks, Tom. To summarize, as our Q1 outperformance and strong growth reflect, indie is continuing to execute to the business plan we stated at our IPO, and we couldn't be more excited about the opportunities ahead. In particular, we see multiyear tailwinds that will drive steeper demand for our solutions, including: the global automotive semiconductor market being expected to grow from $36 billion last year to $62 billion by 2026; the transport experience fundamentally changing for both drivers and passengers as enhanced safety and better in-cabin features are deployed; and as OEMs announced worldwide EV investments over the next 5 years that will exceed $250 billion, in some cases, committing to shift the entire car portfolio to electric within a short amount of time. We expect indie's differentiated semiconductor sensor and software technologies to play a major part in the next wave of automobiles, enabling us to help stabilize in the process, dramatically enhance the in-cabin experience and generate significant value for our shareholders. That concludes our prepared remarks. Operator, let's open the call for Q&A.

[Operator Instructions] Your first question comes from Suji Desilva, Private Investor.

Suji Desilva of ROTH Capital. So Donald and Tom, congratulations on the strong execution and progress here.

Thanks.

Thank you.

Yes, no problem. So Tom, thanks for laying out the gross margin sort of aspirational goal of 60% mid-'23. Can you talk about the key elements, the expansion drivers between here and there because you've been executing really long on gross margin. I'm just curious how that -- how you keep that momentum going.

Yes, sure. It's actually a combination of things. It's the move to -- from first generation to second to third generation pricing, scale is a factor and then new product launches coming onboard. All of those things culminate to -- helped us thus far to move to 47%, and then we'll click to move to 48% and then ultimately to the long-term target of 60%.

Okay. Helps to have that color. And then maybe for Donald. The sensor wins you've had are pretty impressive, radar, you're going to tee up some lighter ones as one. Well, can you just give us a sense how you approach the market or customers differently perhaps than some of the point product competitors that are out there? Or maybe you don't, but just any color there on your approach to the sensor market since you sell kind of a range of products, would be helpful to understand from a differentiation perspective.

Yes. I mean the market across each individual sensor modality is slightly different. But generally speaking, what we found in each market was there were relatively few players in the market who had perhaps invested over time. And we felt -- and actually, more importantly, our customers felt that their appetite to continue investment to give the performance and the cost points that they needed for the long term were somewhat lacking. And generally speaking, we came with very new technologies, very innovative ways of solving the same problem and it created the opportunity for us to become a new player in that market. I mean, particularly, I'd single out the radar design win is falling into that category. It really is one of the very most premium design wins that can be achieved in the automotive market at all, bar none, really. And so our approach to having the appetite and the willingness to invest in new technologies has really been instrumental for us. And then additionally, across the different sensor modalities, as we're positioning ourselves as a one-stop shop for all kinds of sensors, really what became apparent is that once they take us for one sensor, they want to use us for all of the sensors because, effectively, a large amount of the software back end is common to all of them, which really saves them a lot of money in their OpEx and their development costs for their whole sensor portfolio.

Lastly, if I can, just kind of looking ahead, maybe 2 opportunities in the cabin that I find interesting, and maybe you can give some color on them. First is driver monitoring, and second -- and that one, just curious how that kind of ramps up and how you take an opportunity there. And then something like in-cabin wireless charging, I know there's kind of some solution penetration out there. But maybe why hasn't that penetrated as much as it should have perhaps already? And what's the gating factor that you might be able to kind of break down to drive more adoption there?

Well, the first one is an easy answer. I mean we are already involved in DMS and, in fact, OMS as part of our vision portfolio. And we'll give more details on that as -- in the fullness of time. In terms of in-cabin wireless charging, I mean, we see it ramping up, we see it accelerating also. And I mean, generally speaking, I would say the automotive market is quite slow to adopt as a significant cost adder. But once you've had it in your car, you can't go back. I just went through that anecdotally personally myself. My lease expired, and I was desperately trying to make sure that my new car would be delivered with a wireless charger inside because once you've had it, it's hard to give it up. I don't like the cables wrapped around my gear stick.

Next question comes from Ross Seymore with Deutsche Bank.

Congrats on the strong execution yet again. Donald, I want to talk about the size of the design wins that you guys have. You talked about the sensor win being the biggest one in the history of the company. We've talked in the past about you guys being invited to kind of bid on bigger and bigger deals. Is there any sort of way you could quantify the -- just by a percentage increase, not necessarily a dollar amount, but the size of the design wins you're getting? And in addition to that, magnitude, the breadth of design wins across the broad array? Are you just getting invited to a single area, bigger design wins in that area? Or is it also the breadth that is allowing you to grow?

I mean, certainly, it's breadth also. We have many activities which are running right now which are of the same order of magnitude as our first flagship win that we talked about. And in terms of quantifying it, it's between 2 and 3x the size of the largest design win that we had previously.

Great. And then on the gross margin side, one for you, Tom. In the near term, what caused the upside versus quarter -- let's keep it quarter-over-quarter. The increase quarter-over-quarter you had of about a little over 1 point and then the guidance going forward increasing, I get the road map to the 60 and the moving parts there. But in the nearer term, what are the first steps you're taking about that journey?

Yes. So we've had some really good cost reduction initiatives kick in. Also, candidly, our mix is just getting better. As we move forward, and increasingly, our mix becomes ADAS-based, we tend to command much higher gross margins in that area. So that's yet another catalyst to gross margin expansion as we go forward. And it was one of the contributors last quarter. And then as you have probably gleaned, we like to guide relatively conservatively to give ourselves room given the environment that we're in these days. So there was an element of that as well.

Got you. And if I could sneak in one last one. Any sort of sand in the gears additionally in this quarter versus the prior quarter as far as supply chain management, those sorts of things? It doesn't seem to be slowing you down and you deserve kudos for that. But is it getting better, worse, staying about the same?

I mean, tendentially, it's getting mostly better. Maybe a year ago or so or 9 months ago, everything was tight. Now we have certain areas where there are bottlenecks. Through the course of the beginning of this quarter, there was a scare about the COVID shutdowns in China, which caused some inconvenience for a couple of weeks. But I think we've moved beyond that. Then perhaps it's appropriate to talk about the effect of the war in Ukraine. So far, we haven't seen any direct impact of that neither due to the supply of renewable gases to the fabs nor to the impact of cable harnesses, which are heavily manufactured in Ukraine and indeed in Russia. And what we've seen from our discussions with our own direct customers who are also very active in that area is that they've been extremely agile and moving that into areas where either they could continue to manufacture out of Ukraine, in the West of Ukraine, or they've moved it to other factories very quickly within a matter of weeks. So I mean, it's still very tight. It's going to be a challenging environment, I would say, at least for the next 2 quarters that we can see. But certainly, it's nowhere near as bad as it was a year ago.

Next question, Craig Ellis with B. Riley.

Congratulations on a good execution, guys. Donald, I wanted to start with you and see if I could get you to give us a little bit more color on what you're seeing with the customers that are sampling Surya, just given how important that product is strategically. Can you give us some insights on what's resonating with customers and how they're testing and reacting to the product and the solution?

Well, I mean, the reaction has been phenomenal, really. I mean we've been heavily oversubscribed in terms of getting samples into the market. And we believe that the reason for that is the combination of super high-end, digital back-end DSP together with our advanced mixed-signal technology. Really, they're in the process of trying to find a way to build their systems around it as quickly as they possibly can. We're really -- in terms of a free to market solution, we're kind of the only game in town in that space. And just the reaction of people who've been struggling along with, whatever, 1,000-based FPGA systems has been absolutely phenomenal. It makes a huge difference in the cost as, in fact, will the TeraXion laser technology, which we'll deploy alongside it.

Got it. And a somewhat related question. The company has completed TeraXion, the ADI Symeo deal, the ON-RADAR deal. Can you just give us some qualitative color on how well you think the integration of those deals is going and then use that as springboard to talk about your further appetite for M&A and to the extent that you would like to do something? Is there a particular size range that you're looking at or a particular technology that you'll be looking for?

Yes. I mean the integrations have gone really well. I mean TeraXion was completely flawless. They were a very mature company, very well run from the get-go so the integration was really seamless. And likewise, the ON Semi and Symeo teams, they were strong part of our radar offering and simply the kind of proof is in the pudding and the pudding is already there to be eaten and that we've won this truly massive design win on the back of that. We always take the philosophy of building kind of, let's say, a [ wrapper team of our own ] in terms of the integration so that there's ease of access to our systems, and we try to integrate where we can make an improvement and we try to lead things to be where they're working well. So I mean, we've been very pleased with how that's going to date. On top of that, in terms of targets that we're looking for in the future. We really have pretty much everything that we need in order to execute the plan in front of us. However, we will continue to be opportunistic in the market. And given the overall market -- macro condition at the moment, we are beginning to see some attractive opportunities out there. But because of the fact that there is, let's say, more on offer right now, it allows us to set the barrier to entry into indie that much higher, such that we can only kind of improve the gene pool as a result of that. We're not looking for specific technologies at this point. There are always exceptions to that rule. But we are -- where we probably may choose to conduct a transaction is going to be something that's going to be very financially responsible and immediately accretive to the whole deal.

Next question comes from Cody Acree with Benchmark.

Congratulations. Donald, if you could just -- if you could add any color to your first half revenue performance either by product or application or by customer? If you can give just a degree of detail?

I mean we tend not to segment either by customer or by product. And an actual fact that the drive for growth has been uniform across all of our products which are differentiated each in their own way. And we'll continue to see that as we go forward. The book of business that we built as a private company is the thing that's fueling that and the design win activity and the new news that we bring here every quarter, quarter-on-quarter, is really only going to fuel the out years on top of that. So again, I mean, we remain very confident in what we intend to do here. I think we're in a very good position. We've proven now over 4 quarters that we beat and raise and we execute as we say we're going to do. And I think, generally speaking, we're very happy with all the product areas that we have and all the customer relations that we have. And so far, everything that we're feeling from the market -- by the market, I mean our customer base, has been super positive in all directions.

That's great. And then just any cross applicability of your products into the industrial markets? Obviously, they have a much more attractive design cycle. Any thoughts there?

We get asked a lot. We really do because there is sort of a kinship between industrial and automotive. But we feel really it's in the company's best interest and also in our customers' best interests that we focus wholly on automotive for the foreseeable future. That gives a certain power to the company in the respect that we do the right thing for our customer base, and we're not conflicted by some other customer base, which may have differing -- different goals, shall I say.

Thank you. I would like to turn the floor over to management for closing comments.

Well, thanks, everybody, for attending. See you next quarter and then interim. See you at the next investor conferences that we'll be announcing in due course. Thanks again.

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