Q4 2023 indie Semiconductor Inc Earnings Call
Participants
Ashish Gupta
Donald Mcclymont; Chief Executive Officer; indie Semiconductor Inc
Thomas Schiller; Chief Financial Officer, Executive Vice President of Strategy; indie Semiconductor Inc
Suji Desilva; Analyst; Roth MKM
Anthony Stoss; Analyst; Craig Hallum
Cody Acree; Analyst; The Benchmark Company LLC
Presentation
Operator
Good afternoon. And welcome to indie Semiconductor's fourth quarter and year-end 2023 earnings conference call. (Operator Instructions)
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.
Ashish Gupta
Thank you, operator. Good afternoon, and welcome to indie Semiconductor's fourth quarter and year-end 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 Q4 and indie's outlook.
Please note that we'll be making forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today and should not be relied upon as 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 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 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, non-cash interest expense, and income tax benefits or expenses. For a complete reconciliation to GAAP and the definition for the above items, please see our Q4 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.
Donald Mcclymont
Thank you, Ashish, and welcome, everybody. The indie team delivered another quarter of solid revenue and gross margin performance, capping off a third consecutive year in which we've more than doubled our top line, once again, massively outpacing our peer group and earning the unique distinction of being the fastest growing semiconductor company in the world based on our last two years of revenue performance per Morgan Stanley.
Despite the challenging macro backdrop, in Q4, we achieved record revenue, delivering sales growth of 112% year over year and 16% sequentially to just over $70 million with 50 basis points of gross margin expansion on a year-over-year basis to 52.7%. We also substantially narrowed our operating loss to less than $1 million on an EBITDA basis. While we navigate automotive industry weakness in the short term, stemming from rising interest rates slowing in market car sales, facilitating consumer transition to semiconductor content rich electric vehicles and inventory rebalancing across the automotive industry. Our design win momentum has continued unabated and reinforces our confidence in these business model. I'm proud of the Endy team's absolute relentless focus and the substantial progress we've made to date towards our financial goals in the face of these headwinds entering 2024, we expect these dynamics to persist dampening Q1 but with a recovery in Q2 and return to strong growth by Q3 and Q4 of this year.
As context, automotive markets are forecasted to slow after experiencing a strong 2023 according to an updated S&P Global Assessment from last month. In 2022, light vehicle production totaled 83 million units, up 7% year over year from 2023 was up 9% to $90 million vehicles, but S&P Global is now indicating the first signs of the market shrinking in this production year. In particular, we are seeing real-time weakness across the China EV vehicle market as their luxury vehicles are or the seasonally adjusted annual rate came in at $20.6 million for January, down versus $21.7 million reported in December, marking the fifth consecutive month of declines.
While the fundamental landscape for EVs over the medium and longer term remains robust. Shorter term, the vehicle industry trends have certainly deteriorated given reduced buyer incentives, concern over charging infrastructure and the saturation of early adopters. The shift in our near-term outlook reflects the softness compounded by the cancellation of a high-profile North American OEMEDAS. program, which you may recall was pushed out from last year through no fault of Indy.
Despite the setback, it won't result in a permanent loss of revenue as we fully expect to participate in their next equivalent project. Moreover, we won substantial subsequent business with this OEM, leveraging the same in division product line which will more than offset this loss in the medium term. So while we are seeing this air pocket in broader industry demand, the strategic opportunity for India remains unchanged and is enormous, particularly as MD is at the unique intersection of vehicle safety systems, sensor fusion and with our newest product developments, artificial intelligence towards realizing our vision of the unconscionable car.
Accordingly, we will continue to prudently invest, remain aggressive on taping out new products as soon as possible, maintain our disciplined cost control approach that balance that against addressing ever-increasing Tier 1 and OEM demand for our innovative Autotech solutions, including each of these exciting new technologies. And while incremental investments hamper profitability in the immediate term, they will enable us to maintain our steep growth trajectory over the long run, furthering in these technology leadership and adding to our strategic backlog to that end, during the quarter, we expanded our automotive camera video processor portfolio with the launch of a highly integrated system on chip that enables precision performance sensing capability at the vehicle's edge while supporting driver viewing as the government regulators, new car safety, sensors and consumers demand higher performance safety features, automakers are increasingly seeking camera-based ADAS solutions that support volume scalability across their vehicle classes. This requires a distributed processing approach division sensing with high levels of integration and low power consumption to meet the needs of mass market deployments. Again, according to S&P, global shipments of automotive electronic control units incorporating vision-based processing are expected to grow from 232 million units in 2022 to nearly 400 million units by 2027. And based on our current engagements, we intend to capture a disproportionate share of this market. We also continue to gain design win traction by securing major in-cabin monitoring programs with leading automotive OEMs, including BMW, Ford, General Motors and Toyota as global safety initiatives continue to evolve. The demand for these monitoring system is intensifying positioning in-cabin sensing solutions as critical elements to enable future automation features. More recently, we entered into a strategic partnership with Acosta, a leading Tier one supplier to bring AI based automotive camera solutions, initially supporting two of the top five car OEMs in the world and aimed at significantly enhancing vehicle safety, government regulators and new car safety assessment programs are increasingly seeking to specify protection for vulnerable road users, such as pedestrians and cyclists often referred to as VRU., especially through backup and emitter applications. Euro end cap implemented the VRU safety test protocol in 2020 and in the United States, the National Highway Transportation Safety Administration, or NASA has this year proposed enhancements to the NCAP. protocol to provide consumers with information about crash worthiness and pedestrian protection of new vehicles. As a result, automakers are demanding camera-based data solutions that provide not just passive viewing capability, but also intelligent sensing to actively detect pedestrians via AI processing and take corresponding action. And these upcoming generation of vision solutions incorporate proprietary on-chip neural processing hardware and software to enable real-time data processing such as object classification and detection of the vehicle's edge, thereby offloading the central areas, compute processing requirements and alleviating the cost and power consumption of high-speed data transfer across the vehicle, leveraging picocells near decade-long expertise of the high-volume vision solution supplier and our field proven differentiated vision processing technology together, we can deliver breakthrough imaging and camera object detection, particularly for challenging edge sensing applications. Sampling for the first smart AI-based camera solutions is set to commence later this year with volume production slated for 2025 at the same time. And just as importantly, I'm pleased to report that we have successfully sampled our radar baseband and mimic to our lead customer, one of the largest contributors to our strategic backlog and are on track for a 2025 program.
Shifting to user experience. During the quarter, we launched new products adding to our interior lighting and power management portfolios, a leading global automakers to support OEMs, increasing prioritization of a captivating in-cabin environment. Vehicles have become more than just a means of transportation morphing into a sophisticated environment equipped with a unique array of electronic devices and systems. As a result, the need for reliable, efficient and seamless power delivery has risen to the forefront. Similarly, OEMs are increasingly focusing on interior and exterior lighting solutions as it transcends just functionality within the modern vehicle, becoming a pivotal element of the user experience that shapes the cabins, ambiance and enhances visibility and safety.
Finally, in the electric vehicle area, we have extended our footprint into a leading North American EV vehicle OEM, securing two significant design wins in support of their future model years. The two custom chip sets enable high-speed smart networking within the vehicle.
In summary, despite the tactical market challenges, we're winning new programs and setting the stage for the next wave of above market growth towards sustained profitability.
I'll now turn the call over to Tom for a discussion of our Q4 results and outlook.
Thomas Schiller
External revenue for the fourth quarter was up 112% year over year and up 16% sequentially to a record $70.1 million at the lower end of our guidance band and indicative of the weak market environment, though still up more than tenfold within just three years.
Q4 gross profit was $37 million, translating into a 52.7% gross margin, up 50 basis points year over year and consistent with our guidance. Operating expenses were $39.4 million, with R&D sequentially lower to $29.4 million, reflecting a pause in tape-out activity, while SG&A was down slightly quarter over quarter to $10 million in turn, our Q4 operating loss narrowed to $2.4 million versus a loss of $15.1 million in the year ago period, driven by higher revenue, improving gross margin and operating expense leverage adding back $1.4 million of depreciation. Our EBITDA loss was less than $1 million with net interest expense of 200,000. Our net loss was $2.6 million, and we posted a $0.01 loss per share on a base of $181.6 million shares, again, in line with our guidance and consensus estimates. We exited the quarter with $151.7 million of cash and equivalents down $9 million versus Q3, primarily related to increased day our CapEx to expand our internal test capacity, partially offset by a decline in inventory.
Turning to our outlook for the first quarter of 2024, we expect Eni's revenue to be up 38% year over year, but down 20% sequentially, reflecting seasonality and current industry softness with gross margin in the 52% range.
In terms of operating expenses, we are planning for 34 million in R&D, driven by accelerated product development activities and $10 million of SG&A below the line. We anticipate 400,000 of net interest expense and no taxes, assuming $186 million shares outstanding, including the full 7.7 million shares related to the retirement of $27 million warrants that we closed in November. We expect an $0.08 net loss per share from a full year 2024 perspective, we expect revenue to be in the $275 million to $300 million range, up 29% at the midpoint based on our new program and design win pipeline. We expect Q1 to represent a trough quarter with top line recovery in Q2 and a resumption of outsized revenue growth in Q three and four yielding a profitability baseline on an EBITDA basis in the second half of this year ahead of our significant 2025 radar and vision ramps.
On that note, I'll turn the call back to Donald for closing comments.
Donald Mcclymont
Thanks, Tom. In conclusion, we posted record Q4 and 2023 results, demonstrating the strength of our business model through a challenging operating environment. Whilst we can control the weather. Our strategic focus remains unwavering. We're building an absolute Autotech powerhouse with innovative areas, user experience and electric vehicle solutions, positioning us to effectively navigate current market conditions, capitalize on the $48 billion serviceable opportunity, which is just ahead of us and most importantly, to create great shareholder value.
That concludes our prepared remarks. Operator, let's open the call for questions.
Question and Answer Session
Operator
Suji Desilva, Roth MKM.
Suji Desilva
Hi, Tom. So maybe you could provide some color on the demand weakness you're seeing, if that's broadly across all geographies and whether there's any geography, color there? And any specific color on the sort of on the programs or applications that may be are being impacted EV. non-EUV, that kind of. But thank you.
Donald Mcclymont
Well, we're seeing that the overwhelming reason for the majority of it is just the inventory digestion, which is broadly across across the market. And we do see some specifics in the China new vehicle market, which are kind of the vanguard of what we saw coming across the market. But generally speaking, it's really a broad inventory correction that we're seeing.
Okay.
Suji Desilva
And then to understand a follow-up on that. You talked about a program pushout I believe or canceled coming for the next program. Can you just kind of clarify that and talk about whether you're seeing kind of a broader trend decisions and programs for maybe the model years, 25, 26 or seven being delayed or pushed out or whether those decisions are continuing to be made ahead of those those models and no.
Donald Mcclymont
And so to answer the last part of your question first, absolutely not. This is one program over 50 that we're working on and it just happened to be a program where and there was an ambitious goals set for it. And the engineering execution on the customer side didn't pan out for their business goals. So it was a major program for them in this case, I would say it's something that very rarely happens in the automotive industry at all. And even with us with a relatively smaller customer base, it's still an extremely rare thing so it's for sure, not a trend.
Okay.
Suji Desilva
Thanks, Dan.
Operator
Craig Ellis, B. Riley Securities.
The reason why Dell calling in for Craig Ellis. Thanks for taking my questions. On You provided a nice on the slope of demand as you see it on those, wondering if you could provide any color on how you're seeing on the gross margin trajectory going forward?
Yes. So we expect gross margin expansion from here. In fact, this is just an air pocket in terms of market demand but as you've seen in the past, we've done a very good job sequentially expanding margin. And that just comes from improving mix and lowering costs, improving yields, et cetera. And that's going to continue. So we expect off that Q1 trough to begin to expand gross margin again towards 60%.
Gotcha.
Donald Mcclymont
And similarly, are you on thinking about the OpEx levers or would that similarly be something that we could expect to see grow out of second quarter OpEx?
At this stage, we've reached critical mass. So we're making some tactical investments here and there to accelerate product development that's happening in the current quarter. But from there, it's a relatively flattish profile and that creates the operating leverage to hit profitability in the back half of this year and then of course, beyond that towards our 30% target model.
Got it.
So much appreciated.
Operator
Anthony Stoss, Craig Hallum Capital Group.
Anthony Stoss
On maybe if you can give us some color on kind of expected new programs coming online Q2, Q3, Q4, that gives you the confidence for kind of a steep ramp in Q3 and Q4? And then also as my follow-up, probably for you, Donald, again, I think the if that large radar when your prior statements where Q4 or Q1 of 2025, now you're saying 2025, do you still expect it to be in Q1 2025?
Or is that getting pushed as well?
Donald Mcclymont
No, that's still remains on track and on track, I mean, as fast as the semantics of the notes that we made in the prepared remarks, so nothing has changed in that respect. In fact, we did announce that we had simple these programs. And as you know, from us from all your experience in this market on the back of the program is largely broken once you get to for silicon. And the rest of it is really edge edge execution of maybe more details are ramping into production. So we're pretty happy where that program is right now. And we do expect some material revenue from from that to come in on the schedule that we originally outlined in terms of what we're ramping ramping across the board that are in our vision programs that are ramping that our user experience programs that are ramping throughout this year. Not later, of course, that will be will be late this year and early next year. But yes, I mean, it's still fundamentally across the board and all of the other project areas that work that we're servicing right now.
Anthony Stoss
It's thanks, guys.
Operator
Cody Acree, The Benchmark Company.
Cody Acree
Yes, thanks, guys, for taking my questions. I guess given the magnitude of the decline in Q1. What is giving you confidence that that you're going to see a ramp to support your your fiscal year outlook?
And I guess what what are you expecting sequentially as you push through the year.
Donald Mcclymont
And I mean, we're on we have programs ramping through the year, of course, which is has been typical of us through our entire public existence. And as I just mentioned to the answer to the previous question, for sure, we do expect the market to recover. And I think you will see that message coming from multiple companies in the same space as us that they are seeing and through that period of recovery, I mean, in particular areas in the market, we did see what I would describe as fairly dramatic air pockets. We've tried to be conservative in the way that we've guided Q1. And as a net result, we're pretty confident about a recovery in Q2 and a return to the plan in Q3, Q4.
Cody Acree
And I guess, Donald, is that confidence backed by firm orders today? And I guess what's the flexibility or cancel ability of those orders. I guess how much volatility are you building into your Q2 expectations?
Donald Mcclymont
And like I say, we've tried to build in as much conservatism as we possibly can. I mean this as being a fairly in certain segments, a fairly violent disturbance in the market. But we do expect that with the recovery that we're seeing, coupled with the conservatism that we built and we feel we feel pretty confident about where we can get to in the second half and in Q2 and indeed.
Cody Acree
All right. Thank you, guys.
Operator
Jon Tanwanteng, CJS Securities.
Hi, this is Justin on for John. Thanks for taking the questions. First, how does the updated outlook impact your expectations for cash flow and your capital needs?
Thomas Schiller
Well between now and what Donald just outlined in terms of the back half of the year on cash flow, probably will resemble our operating loss. So you can assume somewhere in the 35 to CAD40 million range of cash usage between now and then until we're beginning to generate cash that is. And of course, we just exited with a north of 150 million in cash, so that that leaves us with ample cushion.
Okay. That's helpful. I appreciate the color.
And then second one more, can you talk about the scale of the wins that you had in Q4 and tried to size them for us, if any of them are it's significant well, the one that we'd single out is the design win for Corsair who are a European-based Tier one.
Donald Mcclymont
And as such, some supply with this particular program, two of the largest European OEMs, a program that we've been working on for quite some time and done it. But I wouldn't say it was the largest program we've won in the history of the Company, but certainly in the top five.
Okay. Thanks a lot. I appreciate the question. Thanks.
Operator
Thank you. Ladies and gentlemen, as there are no further questions, that concludes the conference of indie Semiconductor. Thank you for your participation. You may now disconnect your line.
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