indie Semiconductor, Inc.

Good afternoon and welcome to Indy Semiconductor's 3rd Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference call is being recorded. I will now turn the call over to Ashish Gupta, Investor Relations. Mr. Gupta, please go ahead.

Thank you, Operator. Good afternoon and welcome to Indy Semiconductor's third quarter 2024 earnings call. Joining me today are Donald McClymont, Indy's co-founder and CEO, Raja Bal, Indy's CFO, and Mark Tindall, head of corporate development and investor relations. Donald will provide opening remarks and discuss business highlights, followed by Raja's review of Indy's Q3 results and Q4 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 material risks and other important factors that could affect our financial results, please review our risk factors and our annual report on Form 10-K for the fiscal year ended December 31, 2023, as well as other public reports filed with the SEC. Finally, the results and guidance discussed today are based on consolidated non-GAAP financial measures, such as non-GAAP gross margin, non-GAAP operating loss, non-GAAP net loss, and non-GAAP net loss per share. For complete reconciliation to GAAP and the definition of the non-GAAP reconciling items, please see our Q3 earnings press release, which was issued in advance of this call and can be found on our website at www.indisemi.com. And I'll turn the call over to Donald.

Thanks, Ashish. and welcome everybody. Let me first briefly cover our financial performance within the context of the overall automotive market environment before focusing on Indy's business achievements. During the third quarter of 2024, Indy achieved total revenue of $54 million, coming in above the midpoint of our guidance. Given the persisting unfavorable global macroeconomic environment and the well-reported short-term challenges impacting the automotive industry, These results are a testament to Indy's resilience. As we look forward, the growth reflected in our fourth quarter outlook and strategic backlog update highlights our ability to take share and outperform. Last quarter, we highlighted some of the factors negatively impacting the automotive industry, including the high cost of credit influencing consumer purchasing decisions and the ongoing elevated levels of vehicle and semiconductor inventory. We also noted that these challenges were widely anticipated to persist through the second half of 2024. Fast forward 90 days, this is indeed what the industry has experienced. But to paraphrase Mark Twain, the reports of the automotive industry's demise were greatly exaggerated. While we still see some uncertainty for the automotive market, the long-term market drivers of in-cabin experience, safety, and electrification remain strong. with safety and electrification being further accelerated by stringent new global regulations and increasingly demanding vehicle assessment programs from NHTSA and Euro NCAP. INDI remains incredibly well positioned to deliver growth across these three megatrends, leveraging our innovative and growing product portfolio to secure design wins which will translate into significant volume shipments in global production vehicles. Additionally, the Chinese automotive industry, EVs in particular, are showing relative strength And to that end, demand for Indy's ICs in China remained strong through the quarter. Let's turn to our business progress in the third quarter across our focus sectors. The news for the quarter across our target markets was unequivocally positive. We continue to gain commercial customer traction with our class-leading products. For ADAS, starting with Vision, our recently launched Indy 880 Vision Processor family is driving new design wins by hitting the customer sweet spot of performance, power, and cost requirements. In exhaustive customer testing, our solution is demonstrably exceeding the performance requirements of the upcoming and very rigorous US and European safety regulation for vulnerable road users that I discussed last quarter. Additionally, the numerous European and Asia-based OEM design and activities across occupant and driver monitoring applications that we also highlighted last time for Indy 880 and its predecessor products continue apace. And in China, the popular Avatar eVehicle is now on the road with our Vision Processor, supplying eMirror solutions. We're also delighted that the Indy 880 Processor family was recognized with the Award of Sensor Innovation of the Year by the Autotech Breakthrough Awards last month. Autotech Breakthrough is a leading independent organization that recognizes the top companies, technologies, and products in the automotive and transportation technology markets. Winning this prestigious award in a strong field of peers is an incredible validation of the class leading image signal processing innovation embodied in Indy's latest generation vision products. Our key 77 gigahertz radar program continues to progress well. Our lead customer is advancing through their internal productization stages and we remain steadfastly on track to support our customer to bring our highly competitive radar ECUs to production with multiple OEMs within the 2025 timeline as previously communicated. For LiDAR, our photonics team has secured a customer-funded program for a complete LiDAR optical engine plus a separate design win for a high-performance optical module. Both programs will leverage our world-class in-house optical component and system integration abilities. Moving to in-cabin user experience, I describe in detail last quarter our various lighting, power delivery, and wireless charging products and latest program wins. And all these are progressing well and on schedule for volume deployments commencing now and ramping in 2025. Our commercial momentum is strong, with numerous design wins across Western OEMs, including Porsche, General Motors, Volkswagen, and multiple Ford models. And in China, we are pleased to report Xiaomi, Avatar, BYD, LeeAuto, and many more OEMs are using Indy's ambient lighting ICs. This quarter, I want to highlight an unsung hero and more recent addition to our user experience portfolio, smart connectivity. The transportation and effective reproduction of high bandwidth data across the vehicle is essential for the growing multitude of in-cabin applications supporting audio-video entertainment and ADAS sensor data visualization. Indy's smart connectivity lineup of high-performance interface converters and retimers now has multiple active design engagements with global OEMs, including a large North American vehicle manufacturer. Finally, let me briefly touch upon our electrification portfolio. We have not elaborated on our capabilities in this segment, as our solutions today are primarily custom ASICs commissioned by specific customers. However, it's worth highlighting that Indy's unique engineering capabilities of analog, power management, digital, and system design are highly valued by Tier 1 system integrators who are dissatisfied with off-the-shelf solutions for their electrification applications, compelling them to commission Indy to deliver what they truly need. Although the past several quarters have been challenging, the long-term automotive outlook continues to remain strong. While analysts forecast modest growth in the new vehicle production for 2025, Indy's growth is not dependent on this. Indy continues to remain incredibly well positioned to deliver growth above market and many of our peer groups' projections, leveraging our uniquely differentiated and expanding product portfolio. The best indicator of our design win momentum and success in the field is the size of our strategic backlog, which we update annually in November. As a reminder, for a full definition of our strategic backlog, please see our Q3 earnings press release. We have recently completed this review process, and I'm pleased to share that our strategic backlog has increased to $7.1 billion, up over 12% from $6.3 billion last year and $4.3 billion in 2022. Based on our strategic backlog today, we would expect to achieve annual revenue of greater than $700 million in 2028. ADAS wins comprise over 72% of our updated strategic backlog, with in-cabin user experience and electrification accounting for the balance. The notable additions to our strategic backlog this year include some of the major DMS OMS wins for our Indy 880 Vision Processor family that we shared previously, plus a combination of our next generation wireless charging and smart connectivity solutions. Lastly, I would like to congratulate Raja on his appointment as our full-time Chief Financial Officer. As you know, Raja has served as Chief Accounting Officer from the time of our launch, and more recently as our acting CFO since June when Tom took medical leave. I want to personally thank Raja for his dedication and support over the last months. This promotion is extremely well deserved. Tom, who has been recuperating, will return soon in an advisory capacity to assist with strategic projects. Given Raja's tenure with INDI and Tom's continued engagement with us, we expect a seamless transition. I will now turn the call over to Raja for a discussion of our Q3 results and our Q4 outlook.

Thanks, Donald. For the third quarter of 2024, revenue came in at $54 million, slightly above the midpoint of our outlook, up 3.1% sequentially. Non-GAAP gross profit was $27.2 million, or 50.4% gross margin, which was above our outlook and up sequentially, resulting primarily from improved product mix. R&D was $33.7 million, while SG&A was $10.3 million, bringing total operating expenses to $44 million, consistent with that forecast. As a result, our third quarter non-GAAP operating loss was $16.8 million. With net interest expense of $900,000, our net loss was $17.7 million, and loss per share was $0.09, on a base of 199.9 million shares. Turning to the balance sheet, we exited the third quarter with total cash, including restricted cash, of $107.2 million versus $122.6 million in Q2, reflecting a net usage of $15.4 million of cash during the quarter. This was primarily comprised of $31.2 million of cash used in operations, partially offset by $10.9 million raised from the ATM facility and $5.7 million increase in our short-term credit facility. The higher than anticipated cash usage in operations during the quarter was primarily driven by an accelerated inventory build in anticipation of future revenue growth. Moving to our outlook, for the fourth quarter of 2024, we expect to deliver strong quarter-over-quarter revenue growth within the range of $56 to $60 million, or $58 million at the midpoint. This translates to over 7% sequential growth outpacing projections for the automotive industry. Moving down the income statement, we expect Q4 gross margins to be roughly flat sequentially. We also expect a marginal reduction of OpEx to $43.5 million with approximately $33.5 million of R&D expense and $10 million of SG&A expense in the fourth quarter. Below the line, we anticipate approximately $1.1 million of net interest expense and no taxes. Assuming the midpoint of the revenue range and with 206 million shares outstanding, we expect a 7 cent net loss per share for the fourth quarter. I want to take a moment to address our intensifying focus on operational efficiency and expense management. In my new role, we are conducting a comprehensive review of our cost structure to identify and capitalize on cost improvement opportunities and working capital efficiency across the organization. including manufacturing, engineering, and all administrative functions. The intended result of these initiatives is to pull forward profitability. This is one of the highest priorities for the executive team and particularly important as we navigate the current market environment. We look forward to providing updates as we progress on this front. With that, I'll turn the call back to Donald for his closing comments.

Thanks, Roger. In closing, While it is clear that the industry is experiencing persisting headwinds, the core market drivers for Indy's differentiated products are strong. We are comfortable with current analyst consensus for 2025, and Indy's long-term strategic outlook remains extremely positive as evidenced by our growing strategic backlog and continuing design momentum supported by our innovative product portfolio and an erring focus on operational excellence. Our silicon innovation, transforming the megatrends of ADAS user experience and electrification, will ensure that Indy continues to be an automotive leader and partner of choice for global automators and system integrators. That concludes our prepared remarks. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of Suji De Silva with Roth Capital Partners. Please go ahead.

Hi, Donald. Roger, congratulations and best of luck in the new role. And great to hear that, Tom, we come back soon. Yes, sure. So the 25 revenue growth, thanks for the color there on the consensus estimates. Just to give a sense of what the large radar programs that you announced several quarters ago are doing in terms of initial growth. looks into OEM programs and uptake. And then you mentioned the term customer homologation. I wasn't really familiar with that term, so if that has any impact on the ramp opportunity growth, I'd be helpful to know.

So the radar program, as we talk a lot about it, remains on track. We've made maybe a little bit better than planned progress through this quarter. We have a small amount of progress of significant revenue in 2025, which is part of our, sort of the thin end of the wedge of the ramp of that program, but we feel very good about where that is. And then homologation just is a fancy word for qualification and approval of frequently using the automotive.

Yeah. Thanks, Donald. I'll try to keep up there. And then a separate question on the, you talked about the regulations, NISTA and NCAP. Can you talk about the specific regulations benefits for Indy in terms of product sets and maybe what the timing of those regulations kicking in would imply for ships? I'd imagine you'd try to ship ahead of those requirements, but just any color they're available as well.

Basically, cars we're getting designed into now are being governed by regulations for several areas, particularly automatic emergency braking and driver monitoring systems. They're becoming regulated in the time frame that we're dealing with now as far as our design ends go So that's basically what's driving it. It becomes, you know, just a tailwind for us in terms of where our product base is, and that's kind of what that's about.

Okay. Last question, and I'll move on. The cost improvements, are there any product that Roger talked about, any product areas impacted specifically there, and what kind of revenue run rate would be break-even implied by the cost efforts? Thanks.

Thanks. Yeah, so no product areas are going to be impacted. That wasn't the intent of my comment. Really, we're just taking a fresh look in my new role across the board at cost efficiencies. We're looking at manufacturing, OPEX, all of our support functions, working capital metrics, et cetera. So I definitely see opportunity there, and we look forward to keeping you updated. But we're not changing our view on the break-even point at this point. I think the consensus models have us at roughly $80 million of top line getting to break even, and we're comfortable with that for now.

Great. Thanks, guys.

Thank you. The next question is from the line of Ross Seymour with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for asking the question. Congrats on the solid results. I guess I have a near-term question and a long-term question. Donald, a lot of the peers talked about kind of another leg down in the business and visibility getting worse, et cetera. China was strong, but the rest of the world, not so much. What are you seeing from customers, whether you want to talk kind of geographically or just in general, inventory burn, those sorts of things? And why is Indy able to buck the trend now?

So for sure, the market is still choppy. We believe that the macro issues that had affected us in the last three or four quarters are largely behind us. And those are the ones that were particularly specific to us. And quite simply, the reason that we're able to bump the trend is that we've gone through the period where we had delays in program ramps, and we're now beginning to see much more solidity in that. And it really takes us back to our original business as usual, where our profile and revenue is at a first order governed by our own share gain rather than by the macro.

Got it. Makes sense. And is there a geographic centricity to that, or is it just where your designs are is where it is? It's not exactly that demand is stronger or weaker in any sort of macro sense from your perspective?

No, it's more the latter than the former. We did see a little bit of a tailwind towards the end of last quarter and through this quarter in China, as others have seen also, due to a bit of a recovery of their e-vehicle industry. But rather, it's more the former than the latter, or the latter than the former. Yeah, whatever you said. Not geographic, but, yeah, more where our designs actually are centered.

Got it. And then I guess my last question is refreshing to hear you say you're comfortable with where the street is for next year. Can you remind us just kind of conceptually, one, is there any sort of seasonality we need to think about, you know, first half, second half, anything like that? But probably more importantly, what's the bridge – that you have to get from this year's revenue to next year's revenue? What are the key products that are launching, you know, vision, radar, any sort of buckets like that to make us, just give us a little more color?

Well, we're exiting the year at a run rate of approximately $60 million. And we have a bridge to get there, which is largely evenly split in two main drivers between user experience and vision-based products, which are ramping through the year. And then there's, as I said, a small amount for radar in the second half, which we talked about last quarter also. And then some dogs and cats, but that's the guts of it. Got it. Perfect.

Thank you very much. And Rajik.

Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one question and a follow-up. and rejoin the queue, please. Thank you. The next question is from the line of Cody Ackrey with the Benchmark Company. Please go ahead.

Yeah, thanks for taking my question and congrats on the progress. And Raja, congrats on the promotion. Maybe if you could talk about the backlog growth, the 12%. I would have thought maybe during this year with the machine vision wins and the radar wins, that that number could have been higher. Were there any puts and takes in that backlog number that came out?

Yeah, there were. I mean, we won way more business than the incremental number between the adjacent years. But we did have some fairly well-publicized push-outs, and that had an impact on next year, which is reflected in that. But, I mean, we're very happy for the where the number landed, it's a great number, and it's going to translate into annual run rate business in the near future.

And maybe can you just provide any further detail on the program ramps that you're expecting for either machine vision or for radar next year?

Well, I mean, machine vision is already heavily ramping through this year. We have a lot of programs in that space spread across a lot of OEMs. And we expect that individual OEMs add more models to the same programs as they deploy in new model launches. I mean, the classic example is BMW starting with seven series, going to five series, going to three series. So that's really how we expect that to roll out. Through the next year, through 2026, radar will be a big portion of that also. We do expect to ramp multiple OEMs in that year and then more computer vision on top of that.

All right. Thank you very much.

Thank you. The next question is from the line of Anthony Stoss with Craig Hallam. Please go ahead.

Good afternoon, guys. Congrats on the nice execution and congrats, Raja. I wanted to also drill in a little bit on the backlog, Donald, and if you could give us a sense of By geography, if it's evenly split, um, just a sense of where it's coming in. And then also, are you seeing a reduction, um, in content as maybe more vehicles shipped to lower price vehicles?

Um, in terms of the geographic split in the backlog, uh, we have won a lot of business switches, us and European based, um, also some in Japan and Korea. Um, the China business, um, we also have, have wins in there, but, uh, the larger programs which span, um, multiple product lines within OEMs and tier ones is, is more centric outside of, outside of China. So it's, I mean, it's probably 80% of it is outside. Um, and then, um, what was the second half of the question? Sorry, Tony.

It's not a shift to cheaper vehicles. We're seeing a reduction in, in content with your customers.

Not at present. I mean, that's a sort of narrative that we brought into the story last quarter, which is really just an explanation for the overall macro malaise that we could offer. For us, we typically deploy into mid to higher tier customers, but also the lower end of mid tier. And particularly in some of the applications in computer vision, where they're safety related and mandated by law, then they're also going to be deployed in low end vehicles. So we I don't think we'll feel too much of a split between model ranges, especially with the interest rates coming down right now. I think that may be something which decays as a narrative over the course of time.

Thanks, Donald, and best of luck to Tom.

Thank you. Thank you. The next question is from Craig Ellis with B Riley Securities. Please go ahead.

yeah thanks for taking the question and project congratulations on the appointment um donald i wanted to go back to backlog and just um inquire about um a longer term dynamic relative to some of your prepared comments so in the past and again today the the companies talked about the the backlog providing some level of visibility if we look three years out you mentioned the $710 million in revenues. I think it was calendar 28. The question is, as we think beyond 2025, what are the bigger blocks that take us from where we'll be next year at that consensus level that you talked about towards that $710?

Yeah, well, I think we mentioned the prepared remarks also that a large percentage of our entire backlog is now driven by ADAS products, which really is driven by Vision and Radar. And those are the key drivers for the company into the future. We do have some good backup from our user experience business. It still is a large portion of our running business today and will continue to be so. The design wins in those cases tend to be less chunky, more linear in terms of the growth that we add to it. And we do expect it will continue to grow. But the larger drivers will be vision and radar.

Got it. And then the follow-up question, going back to some of the design wins that you talked about in China, I think there were four in the ambient lighting area and then one in vision processing. Can you just talk about the design win momentum in that geography and how you think about maybe the intermediate term revenue opportunity with some of those domestic customers? Thank you.

Yeah, I mean, it's good. I mean, we've had presence at pretty much all the China OEMs, from the more traditional ones, which have been around for a longer period, to the more newer entries, including, you know, such as Avatar and Lee Auto and Neo, et cetera. BYD is a large customer of ours also. So we have a great sales representation. We have a great sales channel into all of those guys. And it's a very dynamic market. It's very exciting. The term coined is, you know, moving at China speed. And, you know, we can move things much more quickly in that geography than in others. It is more volatile for that reason. Their behavior of the OEMs is similar to, let's say, a new entrance into the market in e-vehicle space. But we're excited about the market. It's a market we can't afford to ignore. It's 30% of the entire automotive market, so we intend to be well represented there. Got it. Thank you.

Thank you. The next question is from the line of John Tanuanteng with CJS Securities. Please go ahead.

Hi. Good afternoon. Thank you for taking my questions, and congrats, Raj, on the role. I was wondering if you could talk about the risk of potential for further push-outs or delays or anything like that. You mentioned visibility across the industry is low, and we've obviously seen that in the past. What kind of cushion have you put into next year just to account for maybe they're not all completely done yet, or do you think that most of those are pretty safe at this point, what you have in the pipeline?

I mean, we felt after we did a – a large review during last quarter that we'd built in enough conservatism, and 90 days further on, that remains to be the case. In fact, we're more secure in our belief of that 90 days down the road than we were 90 days ago. We believed it then, but we believe it even more strongly now. The specific issues that hurt us, we do strongly believe that they're behind us. In terms of overall influence on SAR or macro, we believe that we've built a very conservative view of the overall unit shipped into the automotive industry for 25 and 26 and beyond. And anything that moves in the upward direction versus our model should be a tailwind in addition to what we put down on paper.

Got it. That's helpful, and it's good to see the momentum coming back. Second, I guess, Raja, could you – Any thoughts on if you might need to use the ATM again as growth re-accelerates, or is that kind of the final one you expect to use before you get to cash flow positive? No, we don't. We don't anticipate any further use.

Perfect. Thank you. Thank you. As there are no further questions, I would now like to hand the conference over to Donald McLemond for closing comments.

Well, thanks everybody for attending and look forward to seeing you at the investor conferences over the course of the next few weeks.

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