Good afternoon and welcome to indie Semiconductor's Third Quarter of 2023 Earnings Call. At this time, all participants are in 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 of Investor Relations. Mr. Gupta, please go ahead.

Thank you, operator. Good afternoon and welcome to indie Semiconductor's third quarter 2023 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 Q3 results and Q4 outlook. Please note 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 of our 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. 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, 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 such as non-GAAP gross margin, non-GAAP operating income loss, non-GAAP net income loss, and non-GAAP EBITDA. These metrics may exclude from its corresponding GAAP measures certain of the following items: depreciation and amortization, share-based compensation, acquisition-related expenses, inventory cost realignments, gain or loss from change in fair values, noncash interest expense, and income tax, benefits or expenses. For a complete reconciliation to GAAP and the definition for the above 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.indiesemi.com. I'll now turn the call over to Donald.

Thanks, Ashish, and welcome, everybody. I am pleased to report that indie posted solid third quarter results against a challenging macroeconomic backdrop with growth well above our addressable market, driven by increasing demand for our highly differentiated Autotech Solutions. Specifically, during the quarter, we achieved all-time highs in revenue and gross margin with our top-line up 101% year-over-year and up 16% sequentially to $60.5 million with gross margin expansion to 52.7%. Our outperformance of the automotive industry reflects indie's world class design team, extensive product portfolio, leadership customer base including virtually every single automotive OEM in Tier 1, as well as our highly scalable supply chain, all augmented by our successful acquisition integrations. In fact, our commercial success has made indie the fastest growing semiconductor company in the world among 224 peers over the last 2 years based on a recent assessment by Morgan Stanley. At the same time and perhaps more importantly, indie is the only semiconductor company from the 2021 IPO class that is expected to reach non-GAAP EBITDA breakeven in the current quarter. Further, I'm delighted to report that our strategic backlog has increased to $6.3 billion, up from $4.3 billion last year and $2.6 billion in 2021. The $2 billion of incremental growth was led by Computer Vision supported by our acquisition of GEO Semiconductor earlier this year, together with post integration wins including Bosch, which enabled a leading North American OEM as well as Toyota. Combined with our radar wins, which should extend well beyond the capped 10 year lifetime, the ADAS contribution alone is roughly $4.6 billion in total with the balance heavily in User Experience followed by emerging Electrification products. Importantly, all of these wins set the stage for indie to exceed $1 billion in annual revenue by 2028. Our deepest investments have…

Thanks, Donald. indie delivered a solid third quarter once again exceeding our top line guidance. In fact, this represents our 10th consecutive quarter of beating or at least meeting such targets post indie's IPO. Specifically, revenue for the period was up 101% year-over-year and up 16% sequentially to $60.5 million. Gross profit was $31.8 million translating into a 52.7% gross margin, up 226 basis points year-over-year and up 50 basis points sequentially. R&D was $34.7 million and up sequentially given multiple product tape outs while SG&A was $10.2 million reflecting extended international sales and marketing activity bringing total operating expenses to $44.9 million. In turn, our operating loss was $13 million, a further narrowing versus $15.8 million during the same period last year and $16.3 million in the second quarter of 2023, driven by higher revenue, improving gross margin and operating expense leverage. With net interest expense of $200,000, our net loss was $13.2 million and we posted an $0.08 loss per share on a base of 168.6 million shares in line with our guidance. Turning to the balance sheet, during the quarter, we maintained our level of working capital and invested an additional $2 million in capital expenditures primarily to expand our quality lab capabilities at our Dresden center of excellence, enabling us exit the quarter with $160.6 million of cash and equivalents. Looking forward, given the strength of our order visibility new product pipeline that Donald outlined, we plan to continue to far outpace our addressable markets over the long run. More specifically for the fourth quarter of 2023, we anticipate accelerating top-line growth on the order of 112% to 127% year-over-year to $70 million to $75 million. To put our growth trajectory in better perspective, when we announced our plans to become a public company just a…

Thanks, Tom. In summary, Q3 marked another quarter of record our results for indie within a challenging macro environment. The surge in our strategic backlog is $6.3 billion and the overall momentum is a testament to our diverse product and IP portfolio, deepening customer relationships, our scalable supply chain, synergistic acquisitions, highly innovative roadmaps and last but not least our world class team. The stage is now set for indie to turn the corner and enter into a new growth and profitability phase, particularly as we translate our strategic backlog into new program ramps, recurring revenue streams and free cash flow. At a higher level, we are creating another tech powerhouse and have never been better positioned to capitalize on the $48 billion market opportunity, and most importantly to create extraordinary shareholder value. That concludes our prepared remarks. Operator, let's open the call for questions.

[Operator Instructions] Our first question comes from Suji DeSilva of ROTH MKM.

Hi, Donald. Hi, Tom. Congrats on the progress here and the breakeven you're achieving. It's a good accomplishment. So, Tom, last quarter you talked in the guidance about two OEM programs that were pushing out. Will love to get an update on those, if those are still kind of on hold or whether they've come back and maybe kind of dovetail that into whether you're seeing more push outs in this environment or if you're seeing resilient demand?

So, no update on those per se. We're still planning them in late in the first half of next year. There have been no further push outs that we can see. Our market demand is reasonably resilient in spite of everything and really no other news to report on that front.

Okay, Donald. Thanks. That's helpful. And then, on the backlog, you talked about the growth to $6.3 billion very significant. Is there some notion of how much of that is next 12 months to get some sense of coverage of a revenue forecast? Or is that -- yes, I mean, it's one of the ways to think about, I guess, the timeframe of the backlog.

Yes. I mean for next 12 months, we're pretty much fully booked. I mean that's pretty much the case of the automotive industry. In terms of giving you a kind of a rule of thumb, if you look back to when we came out at the end of 2020 and we announced our strategic backlog at $2.2 billion, if you assume that you divide that by 10, it gives you a look ahead view to where the revenue should be 3 years plus from that. So we have the benefit of hindsight to prove that, that was true. So when we announced $2.2 billion divided by 10 is $220 million and that's approximately the revenue run rate that we'll have in 2023. So by the same rule of thumb, if you take the $6.3 billion divided by 10, that's approximately going to be the annual run rate in 2026.

Our next question comes from Ross Seymore of Deutsche Bank.

Donald, just you mentioned the challenging environment. I think we all I kind of in general know what you're pointing to there. But when you mentioned no push outs and fully booked for next year, et cetera, what does a challenging environment mean to indie?

Well, I mean, our comments in that space are really just an acknowledgment of the general macro environment. The primary factor that drives our revenue profile is our own market share adds and the growth of semiconductor contents per vehicle. Since we came out in 2020, we haven't really enjoyed an up-year in terms of vehicle volume of really since 2018. 2019 and the last 4 years have been down and only thing that's changed has been the reason that's caused the downside. So going from COVID to allocation situation, golden screw, UAW strike twice, macroeconomic interest rates rising, and really, we see that as kind of flat. I mean -- but from our perspective, our trajectory hasn't been helped by that, but it's been relatively speaking unimpeded. We predicted -- we called our revenue in 2023 and 2020, and here we are. And we're going to continue to execute to the plan that we laid out. So what does it mean to us? For us, it's just about executing and running our own race. The macro aspects of it aren't necessarily helpful, but they're not stopping us either.

I guess one for Tom on the margin side of things. It's great to see the year-over-year increases and you're pretty much in line with what you've guided. But you've kind of been at roughly the same level for a year despite the revenues doubling. 4Q to 4Q, I guess you're up 50 basis points. So the move from here to 60, you'll obviously take a bit more than that. So I guess, one, the flatness year-over-year, what's the general cause of that? And then, much more importantly, what are the key drivers that would get you from kind of the roughly 53 up to 60?

Well, I mean, let me interject on first and take the last part of that question first. I mean really what's going to drive us to 60% is the deployment of the ADAS products, which are coming later into our revenue profile as opposed to the products that took us over the line from private to public. So at that point, the mix of these products is going to make the biggest difference. And they are significantly higher ASP, which is typically proportional to the amount of gross margin that we can demand, because the value of the product is simply high.

The only other thing I would add is the gross margin progression has actually been pretty impressive. I mentioned the $6.7 million of revenue we did in 2020. That was at a 35% gross margin. And as you know, we've steadily expanded from there, up now into the -- close to 53% range. So as Donald's mentioning, as the mix continues to improve from here and it increasingly moves to ADAS, which inherently is higher gross margin, that gets us to the 60% target.

Our next question comes from Anthony Stoss of Craig-Hallum.

Kind of a follow-up to Ross' question. Tom, where do you expect to exit 2024 in terms of gross margins? Then I had a couple of follow ups for Donald.

Sure. We haven't really guided that specifically. But just given the momentum we're seeing and the mix moving more towards the ADAS side, 55% is a reasonable expectation.

Donald, thank you for breaking out in your prepared remarks the ADAS 4.6 out of the 6.3. And I know you guys did a pretty good job of laying out $1 billion-plus win beginning late 2024. Of that 4.6, can you paint a picture how many of those customers will be live say by the end of 2025 or however you want to break it out?

Yes, almost all of them will be at least beginning to ramp by that stage. We have a few wins, which are '26 and beyond, but most of that backlog will begin to ramp in 2025.

Let me squeeze one more in. Just the North American ADAS win, what's the expected value of that one, the newest one?

We're not breaking it out specifically, but it's a pretty meaningful design win. It's with an existing customer where we have some significant volume in a similar space. I mean, you can assume as we're calling out really as our headline win that it's pretty significant part of the backlog increase.

Our next question comes from Craig Ellis of B. Riley Securities.

Yes. Thanks for taking the question and congratulations on the two company milestones, the $6.3 billion backlog and the adjusted EBITDA, profitability. So, yes, you're welcome. I wanted to follow-up on the latter, given that there's been some good attention on backlog. On profitability, is that something that you think the company can sustain as we go through 2024? Would there be anything we need to look out for with respect to a resurgence in asset costs or anything else?

I mean, for 2024, we're committed to a full year of profitability given the momentum that we see. I mean there'll be some fluctuations up and down in OpEx and so forth. But really we're -- given the sort of -- if you work with numbers basically, that's the bottom line for us. We're committed to a full year of profitability.

Yes. And to add to that, it's really a function of -- as we've talked about in the past, OpEx from here will go up nominally in absolute dollars, but will continue to come down dramatically on a percent of sales basis. That drives the operating leverage and the enhanced profitability.

And then, going back to some of the things that are happening in the ADAS portfolio, Donald, can you talk a little bit more about some of the developments in radar over the last 3 months? And then I have one more after that if you'll take it.

Well, as you might recall, we announced our radar win, I guess, 18 months to almost 2 years ago now. And so we've been on a very intense development phase through that, which as we mentioned in the prepared remarks, now we're coming to the end of, which is a big milestone for us. In addition to that, the visibility that we have of OEMs beginning to commit more programs is only increasing as a factor of our increased confidence in our execution which is now largely behind us and what we can see happening in the market. In terms of the potential for that market additionally, all we see is more radars being deployed for more diverse functions. Again, as we mentioned in the prepared remarks, there's perhaps somewhat unexpected applications which we're seeing now for things like road quality, monitoring of air-based suspension systems where the radars are really being deployed as multifunction sensors, not only for ADAS and we expect fully that we'll participate in those markets. So, our future is so bright in that one, we need to wear our shades.

Well, very hit reference there. Thank you for that. And is it possible to quantify the customer breadth that you have in the backlog in the ADAS area? And if you can, then it'd be helpful to get that in the User Experience area as well?

Yes, I mean, I would say, over the last 12 months, we kind of filled out any remaining gaps in customer portfolio that had and when we called out in the prepared remarks also. I mean, we're really everywhere now. We really have some content at all OEMs and all Tier 1s. Some more significant than others, but it is very diverse. And what we're beginning to see over the last 12 months perhaps really over for the first time is that the cross-selling within a single customer for our different product lines is gathering momentum and that has kind of a multiplicative effect on how we expect our revenue profile to grow in the future. So, I mean, couldn't be happier with where we are on that actually.

In fact to kind of quantify that, we've got 12 unique product areas, 20 Tier 1s within the backlog. And then as we've mentioned, we're selling now to virtually every car OEM in the world.

Our next question comes from Cody Acree of The Benchmark Company.

Yes, guys. Thanks for taking my questions and congrats on the progress. Could you maybe -- Donald, could you just speak a little bit to what makes up your $1 billion of visibility for '28? I guess, if you can give us any kind of direction as to what constitute that backlog?

Well, I mean the way our backlog is constructed. It's measured over a period of time. And of course, one of the nice things about automotive, although it takes a long time to get revenue going, it tends to last for a long time after you start. So, the run rate I called out as a benchmark around 2026, you could assume as being in the bag 2 years after that. And then the remaining part of our bridge to between there and the $1 billion in 2028 is based on a pipeline that we have in place, which is a number of multiples of larger than the strategic backlog that we declare. And when we say we have visibility, that means that we've been working with somebody for a long time. I mean some of these sales cycles are extremely long, multiple years of jumping through hoops and jumping over hurdles and displaying technical capability to get these guys on board and bought into our technology regardless of how good it may appear. They don't take much for granted in this industry. And so as a result of that, we got a lot of visibility in our pipeline of what's likely to convert over the next couple of years, push forward will get us into the position that we feel that we're going to be in 2028 around $1 billion of revenue. So we feel pretty bullish about that and hopefully, who knows, we can maybe even beat that a little bit.

Maybe if we can look at the UAW strike and any impact that you're seeing in your bookings or visibility?

Yes. I mean a little. I mean, we have exposure to the big 3 have been customers of ours for many years, but we are very geographically diversified now. We have a bigger customer base in China, Europe, non-unionized companies in the United States also for that matter, or even plants that belong to the big 3 who are not in the United States. So I mean, it had an impact, but it was, for us, relatively manageable within the noise of what we manage on a regular quarterly basis. And any impact of that is now baked into the numbers that we just saw. So, we're very glad that they came to resolution, and I hope there's no longer lasting effect of that. I don't think so. But at this point, we're not really planning anything extraordinary to mitigate.

Ladies and gentlemen, we have reached the end of a question-and-answer session. I will now hand over to Donald McClymont for closing remarks.

Thanks, everybody. See you at investor meetings and conferences over the next few weeks and see you again next quarter.

Thank you. Ladies and gentlemen, this concludes the indie Semiconductor conference call. Thank you for joining us and you may now disconnect your lines.