Good afternoon and welcome to indie Semiconductor's Second Quarter 2023 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 indie Semiconductor's second 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 Q2 results and Q3 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 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. For a complete reconciliation to GAAP, please see our Q2 earnings press release, which was issued in advance of this call and can be found on our website at www.indisemi.com. I'll now turn the call over to Donald.

Thanks Ashish, and welcome everybody. I am delighted to report that indie once again exceeded our top line and gross margin guidance and delivered another quarter of record performance, a testament to both increasing demand for our innovative Autotech solutions and our unwavering commitment to achieving operational excellence. Our demonstrable outperformance against automotive industry peers continues to be fuelled by indie's deep product portfolio and design win pipeline, backed by over 400 patents and applications worldwide, with engagements across virtually all leading global vehicle OEMs and Tier 1s. Specifically, during the second quarter of 2023, we grew the revenue 102% year-over-year and 29% sequentially to $52.1 million and achieved a gross margin of 52.2%. As we'll outline, we're gaining design win traction across ADAS, user experience and electrification applications. Of special note, during the quarter, we captured our first ever program win at Bosch, one of the world's leading suppliers to the automotive industry. This particular win rounds out our Tier 1 customer base and dramatically extends our OEM reach initially at Toyota, including Lexus. At a higher level, wins like this in the hundreds of millions of dollars in potential lifetime revenue set the stage for sustained above market growth and the generation of annuity like free cash flow. To that end, we're making our biggest engineering investments and design win strides within ADAS. In fact, the entire automotive industry is now squarely focused on advanced vehicle safety features above all else. For instance, the National Highway Traffic Safety Administration, NHTSA, has recently proposed a regulation that would mandate all new passenger vehicles be equipped with automatic braking capabilities, capable of preventing rear end crashes with other vehicles and collisions with pedestrians. We applaud this proposal and similar safety initiatives that leverage the next generation of Autotech technologies to…

Thanks, Donald. indie delivered a solid second quarter, once again exceeding our top-line and gross margin guidance. In fact, this represents our ninth consecutive quarter of beating or at least meeting such targets post- indie's IPO. Specifically, revenue for the period was on the higher end of our guidance range and up 102% year-over-year and up 29% sequentially to $52.1 million. Gross profit was $27.2 million, translating into a 52.2% gross margin up 363 basis points year-over-year and ahead of our 52.0% guidance. R&D was $34 million and slightly above plan, given multiple tape-outs and accelerated product development costs which converged in Q2, but importantly also as the benefit of pulling in our time to revenue. Similarly, SG&A was $9.5 million, reflecting further extension of our sales and marketing reach, particularly in Asia, with near-immediate results. In turn, our Q2 operating loss was $16.3 million, a 35 percentage poin operating margin improvement year-over-year, and a further narrowing on a sequential basis. With negligible other and net interest expense below the line, our net loss was $16.4 million, and we posted $0.10 loss per share on a base of 164.1 million shares. Turning to the balance sheet, given our aggressive growth plans, during the quarter, we invested $22 million in working capital, entered a multi-year supply agreement with a strategic foundry partner for $4 million, and expanded our internal test capacity and quality lab capabilities via $3 million in capital expenditures. To partially offset these cash outlays, we issued 1.9 million shares under our ATM program, including 1.1 million shares via Blocktrade, for total proceeds of $18 million, enabling us to exit the quarter with $181 million in cash and equivalents. Looking forward, for the third quarter, we intend to scale into a $240 million annualized revenue run rate, up 100%…

Thanks, Tom. As our design-win traction, operational agility and scalability demonstrate, indie is effectively executing to our strategy. In fact, as a net result, we now see a clear path to over $1 billion in annual revenue by 2028 and yet, we're just getting started. Our diverse product and IP portfolio, deepening customer engagements, collaborative supplier partnerships, and innovative roadmaps, and last but not least, of course, our stellar team, are positioning us to capitalize on the $48 billion ADAS user experience and EV triple megatrend, and in the process, build an auto tech powerhouse, and most importantly, create extraordinary shareholder value. That concludes our prepared remarks. Operator, let's open the call for questions.

[Operator instructions] Our first question is from Suji DeSilva of Roth MKM. Please go ahead.

Hi, Donald. Hi, Tom. Congrats on the progress here. Sure, obviously, it's choppy, but I'm looking ahead to 3Q. The guide here is a little bit behind consensus in my number. I'm just curious. You talked about two pushouts here. I want to understand maybe some color on those, and then were those indie-specific pushouts for reasons, customer-specific reasons, or just end-market reasons? Any color there would be helpful. Thanks.

Hi, Suji. Sure. Yeah. So, there were two significant pushouts, which were really to do with the customer's programs per se, nothing that was within our control, their own engineering execution. And I would say it's important to note that no business has been lost here. It's just being pushed out by a few quarters in order to allow these guys to complete whatever they need to do on the engineering side.

Okay. Great. That's very helpful. And then on the Bosch win for OMS, it'd be helpful to understand the magnitude of that lifetime, I think you said hundreds of millions of opportunity, and the timing of that, perhaps contrasted with the large radar win you had, just to kind of give a sense of maybe how the two layer on together as you start to build up a book of these.

Yeah. We're super excited about this. Bosch is one of the top two or three players in the industry, and they've been, I would say, largely missing from our portfolio to date. It's hard to size exactly, but given that this is one of their key platforms, which they will likely attach to multiple OEMs, then we feel it will be up there with the largest design wins that we've made in the history of the company. So, we're super excited about it.

The next question is from Cody Acree of The Benchmark Company. Please go ahead.

Yes. Thank you and thanks for taking my questions. Don, let me just go back to Suji's question. The total outlook, like he said, is a little light, but how much of that is macro? We're seeing countervailing data points out of some in markets, and there's been a lot of speculation that autos are going to finally hit a bit of a softer patch. Now, if you look at this, is this more of the estimates getting ahead of themselves, or is it more to do with the changes in the market?

Well, good question, Cody. From our side, obviously, we see the chop in the macro market. We're not blind to that and of course, nobody's immune to it. But from our perspective, it's a secondary issue versus the growth rate that we've achieved as a company. In Q2, we grew 100% year-on-year. In Q3, we're guiding to 100% growth year-on-year, and likely Q4 will be that way or better. So from our perspective, it's kind of hard for us to see the macro effects translated directly into our own business. So, from our perspective, it's there, but, really, the larger effect on us is a couple of program pushouts, which is just a minor air pocket for us and doesn't really change anything about our long-term outlook.

Okay. So if you look at the revenue that you're getting in from longer-term prior agreements, it's making up the bulk of your $52 million here, versus those that are new programs, can you talk about breaking up the $52 million as to what's contributed on established platforms that are shipping in volumes to customers? And therefore, you've got to take a look at total SAR vagaries, and then how much of that $52 is getting into new programs that may or may not be on your timing schedule?

It's a mix. Once we ramp our product, and we've done our bit of engineering, if you like, then there's typically still a ramp at the OEMs, which contributes to our overall revenue profile. And of course, by virtue of the fact that we're a growth company, new products that are planned to ramp, we typically can mitigate those, we have a lot of ramps ongoing. And I would say, there's always going to be a mix of new product starts, as well as ongoing growth from existing programs. It's just the nature of the beast. We're a growing company, so there are new programs that are going to ramp in addition to running revenue.

The next question is from Craig Ellis of B. Riley Securities. Please go ahead.

Yeah, I'll start with a longer-term question for Donald. Donald, I was very intrigued by the comment that you feel like you have increased visibility to becoming a $1 billion sales company by 2028. I was just wondering if you could flesh that out a little bit more and talk about what you see in that timeframe from the user experience business broadly, the ADAS business broadly, and then what role electrification will play in getting to that billion?

Yeah. Well, we've been building our, let's say, customer portfolio and design wind portfolio over the course of the last period. And as you know, of course, our heaviest R&D investment is in the ADAS space. And that's going to be one of the large drivers for that growth into that timeframe. The user experience will continue to grow, but ADAS, as you can see, as you can say, would be the main engine behind that and e-vehicle directly pertaining to the propulsion system, maybe a little behind that.

Got it. Thank you. And then, Tom, I wanted to flip it over to you and ask much more of a near-term question. So, really like the renewed or reiterated target to get to operating profitability this year. Can you just help us kind of bridge the gap between where we were this quarter, next quarter, which I think would be a $13 million operating loss all the way to profitability that seems to imply either very significant sequential fourth quarter revenue growth or pretty dramatic gross margin or operating expense reduction? Just a little help there. Thank you.

Sure. Yeah. In fact, it's all of the above. So, it's accelerating growth into Q4, continued gross margin expansion, and then operating leverage. We actually expect Q4 OpEx to tick down because for Q2 and Q3, we're seeing higher tape out costs, mass costs coming through. But that'll reduce in Q4. So, all of those factors get us to profitability next quarter.

The next question is from Ross Seymore of Deutsche Bank. Please go ahead.

Hi, guys. Thanks for the question. Just wanted to follow up Craig's question on the fourth quarter side of things and not to sound too cynical, but considering the pushout side of things in the third quarter, what gives you the confidence in that acceleration on the revenue side in the fourth quarter?

Just the situation of our backlog where we are, where we can see things going. We feel extremely confident about it. Otherwise, we wouldn't have called it in that sense, given it's a short-term turn. As Tom also mentioned, we do have a little help from the OpEx dropping. We have ever more, let's say, labor and R&D cost intensive programs which we're deploying right now. So, the middle of the year is where we spent heavily to get the tape out, which are going to drive the revenue in the 2024, 2025, 2026 timeframe and beyond.

Got it. Then, I guess if I think a little bit longer term, maybe in Wall Street terms, longer term, not so much in automotive, in the 2024 as a whole, Donald, what would you think would be the tailwinds and potential headwinds that you would look to as far as growth ramping out of your backlog, new product ramps, different types within user experience, sensing ADAS, those sorts of things? What are the pluses and minuses that you see looking into next year?

Well, in 2024, you'll begin to see the thin end of the ramp of the designs that we began to win as we became a public company, which were significantly larger than the ones that we could command as a private company. And so, generally speaking, that's really the beginning of that sort of second phase of the company's growth, which we expect to take us into the back half of this decade. Again, we've spent a great deal of time in the ADAS space, the ASPs are significantly higher, the gross margins are higher in terms of mix, and that's really going to be one of the heaviest drivers in 2024 and 2025 and beyond.

The next question is from Anthony Stoss of Craig-Hallum. Please go ahead.

Hi, guys. A couple of questions. Tom, maybe you can share how much GEO was in Q2 and what you expect a GEO to be in terms of your guide for Q3. And then, Don, maybe if you can share some of the two OEM pushouts, what revenue would that have equated to?

Sure. The first one, Tony, we just aren't sub-segmenting, as you may know. But at a higher level, I would convey that we're delighted with GEO as an acquisition. It's certainly bearing fruit already in terms of these large-scale programs. We had mentioned Bosch, Toyota, we'll have some other names soon to be able to hit the market. And then, of course, we'll have some other names soon to be able to share on that particular front. So, the long-term opportunity around GEO just continues to look better and better and then, on the second part?

Yeah. On the second part of that, I mean, these programs are significant. And when they fully ramp, which, of course, takes a little bit of time, they're about $50 million combined annually.

Okay. And then, shifting back to Tom, knowing what you're expecting from OpEx in Q4, when you run the math, you'd be over $70 million in revenues to break even on a 55% gross margin for Q4. Is that kind of what you're thinking of for Q4?

That's the right idea. Yeah, $75 million roughly in revenue, gross margin in the, yeah, 54% range. I think that gets you there.

Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. And we'd like to turn the call back to Donald McClymon for some closing remarks.

Thanks, everybody, for listening and see you at the investor conferences over the next few weeks.

Thank you very much, Sir. Ladies and gentlemen, that concludes today's conference. You may disconnect your lines at this time and thank you for your participation.