Q2 2023 Hesai Group Earnings Call

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Thank you for standing by and welcome to the House I Group second quarter 2023 earnings Conference call.

Participants are in a listen only mode.

There will be a presentation, followed by a question and answer session.

If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.

I would now like to hand, the conference over to Jan to Chee. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining <unk> second third Tucson in 'twenty earnings Conference call. Our earnings release is now available on our IR website at investors got closer towards I'll call as well as via Newswire services.

Today Youll hear from our CEO , Dr. David Lee, who will start the call with an overview of our recent update.

Our global CFO , Mr. Louis two wells.

Well address our financial results before we open the call for questions.

Before we continue I refer you to the Safe Harbor statements in our earnings press release, which applies to this call. We will make forward looking statements. Please also note that the company was discussed non-GAAP measures today, which are more thoroughly and are reconciled to the most comparable measures reported on the top in our earnings release and SEC.

Following.

With that I'm pleased to turn over the call to our CEO such a thoroughly stomach. Please go ahead.

Thank you Andrea and thank you everyone for joining our call today.

The second quarter, our team's dedication hard work resulted in record breaking quarterly figures in particular, we achieved unprecedented milestones in our quarterly net revenue experiencing a surge of over 100% year over year. Furthermore, our total lighter shipments for the quarter stored to a record of over 52000 units.

Marking a 10 fold increase compared to the same periods last year, both our revenue and shipments also reached all time highs with Avis shipments growing 27 times year over year further reinforcing our leading position and delivering high quality lidar scope happens of course.

As a result, we are delighted to report that our strong shipments along with our unwavering focus on operational efficiency have generated a positive operating cash flow for the second consecutive quarter with a four fold increase over prior quarter.

Our six U S listed peers, we take pride in being the sole players.

Positive operating cash flow.

<unk> financial achievements underscore our commitment to sustainable and profitable growth in the long ago.

We are also thrilled to be named as the number one global automotive lidar supplier for the second consecutive year in a recent report published by your intelligence a Woodward now independent research company in Europe .

Have captured 47% of the worldwide <unk> sure.

In 2022, you'll report indicated sounding gross of 95% of the global automotive Lidar market from 'twenty, one through 'twenty two.

Meanwhile, we extended our leading position increasing our global light on our market share from 42% in 2021.

87% in 2019 to clearly surpassing the second largest player 15%.

Furthermore, according to the report that is projected to be the largest shipper of Adas Lidar units again in 2023.

Anticipated volume almost one times, one five times greater than the second, but swire firmly establishing us as the market leader this prestigious leadership position.

Strong testament to our exceptional capabilities in designing manufacturing and shipping high performance high quality product at a substantial volume would take immense pride in and our unique ability to meet market demands and consistently exceed customer expectation.

Now, let's take a closer look at our second quarter business update on.

On the Adas front, we're excited to announce that we have secured a new domestic <unk> for multiple serious production vehicle models. Please take a motor a partnership with them now include New intelligence multipurpose vehicles. In addition to our previous collaboration on passenger vehicles and battery electric heavy duty trucks.

Our 11th Adas customers six of them are scheduled to begin shipping new EV models equipped with satellite or by end of 2023.

So as of second quarter of 2023, a mall or a 11 eight at OEM customers, we have achieve Adas design wins for loss production across over 40 vehicle models showcasing our commitment to providing top notch light applause to our valued customers.

Internationally, our Adas Lidar products have attracted significant interest from global Oems, who acknowledge our proven track record in consistently delivering automotive lidar.

The highest performance and the better quality at scale and meeting production schedules, we are making notable progress in advancing our discussions with leading global Oems are sourcing arrangements for their next generation intelligent vehicles in.

In the second quarter for additional progress with three leading global Oems have moved forward to the arc <unk> phase.

And we anticipate final decision to be made that started in the fourth quarter of 'twenty.

Sweet.

Among our ongoing our SKU engagement, we force two new strategic development programs with two leading global automotive OEM partners were from North America and Europe .

Comprehensive programs encompass law as short range lidar, enabling us to create a comprehensive portfolio of advanced Lidar solution that prioritize safety <unk>.

Development programs that Ive.

That presents a unique opportunity for us to find to our products around the design of the harvest vehicle models and offer OEM customers a deeper level of understanding of our technical superiority.

Engineering capability before they make a final decision move.

Moving onto the autonomous mobility market in the second quarter, we successfully tendered as the volume shippers on our latest deal which represents the largest global taxi lidar contract in the company's history with a leading global a robo taxi player in order, we mentioned the jewelry our last quarterly earnings call.

Higher water spend the next couple of years and notably we have already secured a contract to ship light us valued at a couple hundred million dollars for the year of 2024 alone.

With an improved gross margin.

I'd love to share an update on manufacturing and product upgrades, we remain on track to manufacturer of our upgraded E. T series Lidar featuring a refined design extended protection range lower power consumption.

Full scale production is anticipated to commence in the third quarter of 2003 at first into our in house manufacturing facility in Hangzhou, which operates at an automation rates over 90% this year.

New motor manufacturing facility is designed to increase our production throughput and further reduce costs and pave the way for either more scalable production anticipating a smooth transition we expect to begin volume shipments of the upgraded <unk> early in the fourth quarter of this year.

And the recent development, we've deepened our long standing partnership with Nvidia, which dates back to 2019.

A new venture that seamlessly integrates our cutting edge lidar sensors into the Nvidia drive and Nvidia omni versus ecosystems.

Now developers to leverage the Nvidia platform for more accurate testing of the autonomous vehicle, others, well significantly shortening development cycles, facilitating a more efficient and powerful approach to autonomous driving and video has been one of our top tier U S customers for 2019.

Last but not least safety remains at the heart of our and gave US a commitment deeply rooted in our conviction that human life is priceless, our unwavering dedication to spearheading advanced and comprehensive safety standards functional safety cyber security and product quality.

Truly sets us apart in the industry.

The prize we've taken our achievement is tangible we are 35 by S. G I.

<unk>, leading third party certification company as the very first light of sector too.

To attain <unk> product certification and our products. Furthermore, we're truly honored to lead the themed global ISO automotive Lidar working group, where we collaborate alongside industry Giants like Vallejo, BMW Bosch, Sony and Volkswagen.

Together, we're forging a unified the consensus on the test the methods for automotive grade Lidar showcasing our leadership role in shaping the industry's future.

It brings us immersed pride to show those the responsibility of utilizing our technical expertise to drive the establishment of multiple safety standards for the industry, our devotion to safety no no doubt.

And we continue to push the boundaries to empower a secure and protected future for all.

To quickly summarize our second quarter was truly remarkable.

Operational accomplishments are a testament to the strides were making with the record breaking revenue and lighter shiftless backed by a steady positive operating cash flow.

This is just the beginning of extraordinary returning our unwavering dedication drives us to build upon the try them and see long term growth opportunities, either boomy Adas and ATM markets.

Our commitment to absolute goes beyond year worse. It is relentless pursuit to ensure that our products are synonymous with trust and dependability to safeguard the well being of every end customer and to craft, a tomorrow, where safety is paramount.

And intelligence to rice.

Now I'll turn the call over to Louis to share more details on our financial performance and outlook. Lewis. Please go ahead. Thank you David and Hello, everyone. Let's go through our operating and financial figures for the second quarter to be mindful of the length of our earnings call today I encourage listeners to refer to our SEC.

<unk> quarter earnings press release for further details.

We are delighted to see that our <unk>.

Net revenues exceeded our guidance, reaching an all time high of RMB $440 3 million U S dollar $67 million.

This quarter up 108.5% year over year, and two 4% quarter over quarter.

In the second quarter.

Our lidar shipments.

So impressive.

Impressive tenfold surge year over year, 49, 6% increase quarter over quarter, reaching a record high of 52106 units Rio.

Reaffirming our leading position in the global Lidar industry with cumulative lidar shipments now exceeding 190000 units in.

In addition.

We obtained exceptional.

Milestones with record high Adas revenues for the second quarter.

Experiencing a triple digit year over year increase in shipments of Adas Lidar.

Sorry, its been a standard.

Astounding 27 times year over year.

Based on reported revenues and shipments in 2022 as well as the first half of 2023, we continue to outpace the competition with higher revenues and lidar shipments than our six other U S system like our peers combined.

Our gross margin for the second quarter of 2023 exceeded our earlier expectations, reaching 30%.

Yeah.

This achievement is a result of better than expected asps.

And continuous improvement in our manufacturing cost structure.

Even though the gross margin slightly lower quarter over quarter as expected due to the commencement of a larger a large but lower margin quarter with the leading global Robo taxi company.

Furthermore, our unrelenting effort to improve revenues scalability and cost efficiency.

Resulted in sustained positive operating cash flow for the second consecutive quarter of RMB 58 point.

3 million U S all of our $8 million.

This accomplishment, which is unparalleled in the light our industry represents a fourfold quarter over quarter increase underscoring.

Our robust financial trajectory to profitability in the long term.

Turning to our financial outlook for the third quarter of 2023, we expect net revenues to be between RMB $405 million.

$55 9 million and RMB 425 million U S dollar 58.6.

Yeah.

Representing a year over year of approximately 21 three.

27 three.

3% growth.

The low end of normal year over year quarterly net revenue growth.

Can be attributable to two primary factors.

First.

Net revenue in Q3 of 22.

Were elevated due to a significant rebound in Q2.

Q3.

22, following the Shanghai Covid Lockdowns in <unk> 2002.

Resulting in a high base year over year compare comparison for Q3 23.

And second Lidar units totaling several million dollars.

That were initially scheduled for delivery in <unk>.

<unk> 2003 are now anticipated to be delivered in four to 'twenty three.

Is that an adjustment to.

Purely reflects a shift in timing.

We are still on track to.

To meet or exceed our revenue target of U S. I'm, sorry of RMB, one 8 billion approximately U S $250 million it's.

It is important to highlight that the strong growth.

It comes in the face of challenging currency backdrop.

RMB, having weakened about 8% against the U S dollar over the past year shifting from around 671 to seven to five RMB to the U S dollar.

Regarding light our shipments.

Our original goal was to achieve 250000 for the full year 23, due to some delays from our OEM customers, particularly relating to.

New model releases and the product transition and our updated <unk> 28, which.

Mandates.

Testing and validation by our customers.

We are now projecting shipments of.

Approximately 220000 lidar units for the full year.

Year 2023.

With respect to gross margins, we anticipate the commencement.

Our production of our hurts us a factory in Hangzhou.

In the third quarter 2023 will further improve our gross margins as it reaches economies of scale and manufacturing and utilization.

Also expect our group level gross margins to rise in the fourth quarter of 2023. We are now confident that we will exceed our gross margin target of 27% and 30% for the full year of 2023 and expect to reach our long term target of stabilizing.

The blended gross margin between.

30% to 35% in this 23 year, one year ahead of our previous estimate.

In summary.

Our full year 2023 revenues gross margin and operating cash.

Cash flow have all surpassed our expectation.

Whereas our lidar shipment volume is slightly lower than our initial estimation.

Made at the end of last year.

Nonetheless, our business continues to make significant strides paving a clear path to sustained growth and profitability.

The above outlook is based on our current market conditions.

And reflects the company's preliminary estimates of market and operating conditions.

And customer demand.

All are all subject to change.

This concludes our prepared remarks for today operator, we are now ready to take questions.

Thank you.

Wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you're on a speakerphone please pick up the handset to ask your question.

If you wish to ask a question in Chinese please immediately repeat your question in English.

For the sake of clarity and all that please ask one question at a time management will respond and then you may ask your follow up question.

Your first question comes from Tim <unk> from Morgan Stanley . Please go ahead.

Good morning, David Lewis and Tim Thanks for taking my questions and congratulations on another solid quarter.

I have two questions. The first one is about.

The delivery delay because according to their earnings release.

There will be several million dollars you saw there yourself so for lidar delay from third quarter to fourth quarter.

I think at least.

Recently highlight cat, but could you elaborate a little bit more.

More about.

What caused the delayed and what kind of program. It is a mechanical or semi solid state lidar and any read across to the impact you have I suppose quarter margin and lastly, Jay do we expect any further delay how far their.

Their projects from fourth quarter to sometime next year. Thank you.

Thank you Tim.

As far as the delay as they relate to both Adas Lidar for the solid state as well as for the.

The 80 series.

Don't discuss any names, but there are they will move to Q4.

And then I don't at this point know of any delays into Q1 of next year, but you can basically expect a large Q4 lead us delivery numbers.

You know as basically many of our customers will ramp up for next year.

You think about this year, we'll probably have three or four programs that are shipping their actual models shipping and aid US next year by the end of next year. We expect over 30 models. So some of them will be begin to accept a lidar and ramp up in Q4. So it's just been a shift in time, but I won't I won't call out any specific names.

Got it thank you Louise.

My second question is about your overseas projects because doing.

The presentations I think Dave you mentioned that on.

The company has received several RF queues from Europe into U S car makers and assemble it turned to the confirmed purchase orders likely later this year so.

So could you please shed some light a.

Regarding their rough scale.

Those projects have been.

While we currently have in China, and if there is any potential ESOP schedule you can share with us. Thank you.

David do you want to take the overseas.

I think Tim as Italy, and so on you asked about the global programs right. So I think.

First we have moved from quite a few of the RFID to RF queues, which is.

Really the stage before it makes the final decision to go usually with one vendor and yes and based on the scheduled work is and they will start to kick me out.

Final decisions starting in the Q4 of this year.

A lot of them to our Q4. This year Q1 next year I think we also mentioned briefly that on top of this our Q. Some Oems are taking an extra step.

To do a development project with US, which is one step further meaning that for the few of the lenders who are on the short list of the RF Q. They usually go with one or two.

All of those vendors to do invest development first before making a decision essentially flip.

Frontload some of the work for them to further understand our capability.

In a development style.

Style as opposed to just looking at the testing that you bet.

So this is.

This is very helpful to us because if you think about her size capability, we always outperform.

Peers. When we are all the products are testing directly against especially in the integrated way and now we're getting this very special opportunity to prove that and so we are in the process up to two one is with European Oems together with American OEM.

Got it. Thank you very much David Lewis and looking forward to more practically in the new project rates. Thank you.

Thank you Tim.

Thank you. Your next question comes from Olivia Xu from Goldman Sachs. Please go ahead.

Thank you David and Lewis for taking my question. Congratulations on the results. My first question is about the pricing we've seen the intensified price competition that you see.

In July and August how do we see the price of pressure to lighter products I into the second half this year and longer term.

Thank you Olivia I think for Q3 or Q2, our pricing remained relatively stable. There was the large contract with a global Robo taxi company that was.

Obviously lowered our prices in effect, our gross margin, but that was accounted for already.

We have seen a stabilization in the prices for <unk>.

X T Qt and Pandora in fact, the pricing for other customers has actually been better than expected and Thats why you saw the gross margin tough up so.

So we raised our gross margin profile. So so far it's been relatively stable.

Into Q3, and Q4, we expect that stability to continue for this year, because we sign longer term contracts.

And then as far as next year goes we will have to wait for Q4. So we are lucky so far that prices have stabilized.

Got it Yeah. My second question is about the financials, let me say that those are south of the marketing or the R&D expense was lower in the second quarter versus the first quarter. This year, how would how should we expect the opex to trend into the third and fourth quarter. This year.

Sure.

I think sales and marketing and G&A are certainly under control. So they will continue to trend down as a percentage of revenue.

R&D if it goes up more it's actually a good sign that means we're winning programs. So obviously when you win.

F. Q you must put resources into the into the initial phase four for getting the product to Sop.

So if we do increase the R&D side. It will be good also Maxwell will open next quarter and that will mean R&D spending to move.

By testing and validation and calibration equipment and moving it into the new facilities as well as additional head count same thing on the her side hurtful.

Full scale operation in September and so it will require some spending there, but R&D spending at this stage for the rest of this year was actually a good sign that means we're winning a lot of business.

Okay got it okay. Thank you.

Thank you. The next question comes from Ben Wong from Credit Suisse. Please go ahead.

Thank you I've got two financial questions number one can you provide a solid core volume guidance.

Because he provided revenue can you provide a volume from a lidar that's number one number two it's about a question about service revenue why such a big chunk of it.

Third quarter revenue compared to.

Oh previously Kona as well so good change of accounting to determine the status and I'm now thank you.

First question on the units, we don't typically provide unit guidance, but it will be lower likely then Q2, that's why the revenue stay lower.

Because of the shift in timing Q4, the units will be quite high but it was somewhere would be my best guess would be the units will be somewhere between 45 and 48000.

Units.

And then on the services revenue.

I didn't see any specific.

Do you know what I read on it.

The services revenue went up in Q2.

I didn't really fit.

Okay. Okay. So as it relates to a specific project, but we're working with with.

To build basically its a new software development program.

So that one.

Haven't really disclosed yet but.

That's the reason.

Thank you.

Okay.

Thanks, Tom.

Not significant on our business yet.

Yeah.

Thank you. Your next question comes from Lee Ping Huang from <unk>. Please go ahead.

Okay. Thank you for taking my question. My first question is also about the margin outlook in next few quarters. So you mentioned is due to a onetime big order from one major customer each second quarter should we what should we look at the margin outlook. The next few quarters, where it stabilized.

Below 30% range.

Since we see some auto related or is that do we see some.

Further price cuts.

On the OEM side.

These days how this translates into your margin.

The first question, Yes, I think for US Q3, we'll see we'll see a dip in margin as we've already telegraphed to everyone. I would expect Q3 March gross margin to be somewhere between 20, and 25% and then Q4 will bump up.

Q4.

With the Hertz facility.

Running and also with the new version.

<unk> of <unk>.

In the market you should see a bump up in gross margin back to 30% to 35%.

So for the full year of 2023.

We did 38% gross margin in Q1, 30% in Q2, Q3 will be our low point, 20% to 25% Q4 will be back to 30% to 35% and so for the full year, we will exceed 30% gross margins.

So we would hit our target long term target of 30% to 35% gross margins for the whole year and Q4, well, we'll do that because of the size and the volume shipments in Q4 for long term gross margins next year, we expect it to be in the range of 30% to 35%.

The enhanced <unk> will be shipping in large volume. So if we shipped 220000 total later this year next year, we probably expect a double on that to over 400000, so things will be at scale. Therefore gross margin will go up with the new enhanced product second is the the large robo taxi biz.

<unk> we.

We will also have a enhanced.

Enhanced our <unk> product, which will begin to ship in Q1 of next year and that will also improve margins.

Between the two with our with our revised and enhanced products in <unk> and <unk> you will see a gross margin stabilization between 30% to 35% in fact 24 should be higher than 2003 and gross margin.

So that's why we're moving very quickly on a clear path to profitability by the second half of 2024.

Okay. So the second question is do.

Do you have any ccu's Epsom postpone under revenue for the fourth quarter. So based on the latest view on the market do you have any visibility on your outlook.

Outlook for the next year, sometimes it can be.

Yes.

Yes, I think for 'twenty Q4 of 'twenty three will be our biggest quarter at this point. So that's why we will hit our <unk> for the first two quarters. We've done a 101 hundred 20 something million U S dollars our target for the year is $2 50. So.

Don't forget if you when we made that projection last year. The RMB was $6 seven so thats actually 270 plus million U S dollars will exceed our original forecast.

So if you put that perspective, Q4 will be our largest quarter.

<unk> units were shipped the highest as people ramp up for 24. So we would expect to hit that $250 million Mark with a strong Q4.

Both in deliveries and revenue for the quarter for 2024, our current estimate and we'll refine it as we get closer to 2024 is four.

Units to be over 400000, so basically a double almost from this year and revenue should easily be at least 60% to 80% growth year over year. So we're targeting somewhere between 404 hundred $50 million U S dollars.

Would you be.

That 60 to 75 or so percent growth so.

We expect a strong 24.

Okay.

Thank you very much okay.

Okay.

Thank you once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

Your next question comes from Tim <unk> from Morgan Stanley . Please go ahead.

Hi, Thanks for.

Giving me the opportunity to ask a quick follow up questions. So actually has another two weeks.

Late to CIT operation. So the first one is about client concentration because despite the 11 had as customers.

David just mentioned earlier.

Them correctly.

The largest customers to contribute to a big chunk of that is scrapped. So looking for issues should we expect more of a diversified sales mix and 2024, whereas such sales concentration in your view continues to be the case.

Even increasing divergence in performance.

As always gained customers we noticed that there are probably one or two of the others.

Well. So this is my first question.

Yeah, I think for this year, you're correct, Tim the concentration is well over 50% on the Adas side, and one customer and about 50% on the robo taxi side in one customer.

We obviously expect some diversification in 'twenty four because right now only three or four models are shipping sop by 2024 by the end over 30 models will be shipping and we have we have one of over 45 models in our pipeline. So you can see that obviously with more model shipping in 'twenty.

For the concentration in Adas would've been also same thing on the robo taxi side.

We have we have hundreds of customers on the robo taxi side and industrial robotics side and so the concentration we would expect to lower in 'twenty four although these two customers on Adas and.

And and Robo taxi, obviously are our biggest two customers.

But we do expect some reduction in the percentage.

You had a second question.

My second question is about is product yourself, because I just wanted to check that boost odor yourselves as lidar is seeing our order backlog to standardized products and do we see increasing requirement after its product customization.

By our clients or most of the OEM car maker I still find we still standardized products. So going forward do you expect.

The copies you have more upward.

Spoke projects with OEM.

<unk> probably have copies tied up with the car makers in the long term. Thank you.

I think youre seeing a bifurcation in the standard versus optional side. So for the high end models for the highest end models and most of these Oems.

I think lidar will become more and more increasingly a standard feature.

For cars to the mid range or lower youll be youll see it as an optional feature.

But over time as you will see is as the market moves to L. Three and L. For Lidar becomes a necessity so for for one of our customers for the product. So the navigation on auto pilot it requires lidar.

So if you want that feature.

To be able to talk to the hands free driving in the city or on your commute or embarking youre going to need Lidar and youll see that as the features become rich and the functionality increases across the OEM spectrum that lidar will be seen as a necessity.

But right now I would say is for the high end cars, you will see that in our.

Our largest adas customer and others has it become standard but for.

For products that are not the highest level as far as their price point, you will see it doesn't option even on the option that take up rate for us has been about 30% plus so it's not that good.

I think Tim's, Yes go ahead, David it'd be a different way I think he I think he is asking whether we are providing a customized product or standardized product to the customer.

That's right that's right.

Most of it is standardized the E T.

Yes.

Yes.

I think the short answer is that we always provide the standardized product in the sense that.

It's the same platform.

And when we are for example upgrade from the current 80 128 to get.

Upgraded version, everyone also moves over and in the end, it's a it's about an economy of scale and the efficiency. So and we always try to provide the same product to whether one with no customization on the performance I'm definitely no customization on the reliability part one.

Part of that might be slightly different is the communication because different customers probably talk to outright ours in a different way I think I mean on the date of that right.

So that's the only part of that difference and other than that when people are always we always ask them to join the same platform and so that we can focus on polishing.

One product for everybody and at each generation and that has always been a challenge.

Got it Super clear, Thank you very much David and Lewis. Thank you.

Thank you Kevin.

Thank you. Your next question comes from Yan Kang from CIBC. Please go ahead.

Thanks for taking my question I'm young from size they see congrats on your achievement.

I'd like to share with us your opinion about the relationship between <unk> radar and lidar because as far as I know Lee <unk> 40, right on the L. Seven model, So where do you think this will be a trend in the future and how this will impact our lighter to trade volumes. Thank you.

David do you want to you want to take this yeah. Yeah sure. We are we follow the development of any of the new sensors on the vehicles that are closely and 40 you laid out has definitely been one of the interesting options, but let's just talk about the specs right. So and I think one of the.

Things 40 radar is really good at is that it doesn't have any moving parts and it's performing relatively better than in the more difficult weather.

But other than that I think the biggest challenge for 40 radar today is if you just look at the image of it right there.

And why or why not.

The resolution is how many.

How many points per second from Lidar right. That's one of the most important.

Lidar or camera.

So what are your readout is roughly 1% resolution.

A good lidar.

Which means that the image you see is gonna be a kind of a low rate because the resolution. So bad like you take off your classes and you look at what's in front of you, yes, you'd get an idea of whats going out but for safety. If you fully rely on that it's going to be difficult.

I can name quite a few cases that 40 radar resolution simply isn't good enough and then sort of camera alone.

Fully gift D V was a 100% confidence you can get tapping that that's where it really light us come in lighter or not about the 99% of the scenario and the safety is always about the loss of 1% or maybe the 1% of the 1% off the scenario, where lidar performs much better than any other alternative.

I am not seeing.

40 radar to match the resolution of Lidar anytime soon if ever.

It won't be able to comment.

The rationale behind why Rialto is yielding some off the 40 read out, but I think it's sufficient to say that even for the outstanding model. The maxillary should also have a lidar song.

We haven't seen the trend that.

Any of the 14th is replacing Ladd Hall at all so this is a dollar deal and if you just simply look at it.

Whether you can use 40, we'd have to do the driving and if you look at the point cloud you've got a much clearer picture.

Got it thank you very helpful.

Thanks.

Thank you once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

Your next question comes from Jesse Lu from Bofa Securities. Please go ahead.

Sure. Thank you.

My question. So my first question would be.

Toward that new partners you mentioned.

Our second quarter, two leading global Oems, So I guess in fiscal <unk>, how is their attitude patient and your cooperation in terms of the launch time.

Like a lighter model price range potential end market and also that my ideal caught on adopting a lidar.

Thank you.

David.

Yeah.

First I won't be able to give the exact names, but I could comment on the rest of the questions first days.

So the global Oems.

Normally.

From late 2025 to 26 to 27, which is a bit later than a typical Chinese OEM, which had the short term the development cycle.

And then the second question is about this process and their attitude is.

It's actually very interesting because for the typical traditional global Oems.

Normally known for being conservative.

How long and vetting process and decide that night hours earlier than or more years in that event than a typical Chinese player.

And then.

Usually at least some of the Oems have already some prior relationship with a competitor and competitor in the Lidar space.

I think what at least what I was told is that they understand the complexity of this selection and they think that it's it's not very easy to make the right choice. That's why they're being very careful at this time I think I also briefly mentioned that.

During even the RFA a SKU phase now.

Demanding more.

Tangible evidence well in other words and used to be that if you have a very nice powerpoint and there's some very good samples and that's enough and now the Oems are like Oh, I need to see the full set of evidence, especially all the way to production, which is more than fair right now Lidar space is entering a new era, where.

Some of the players like us are already shifting a larger volume, but others are not.

So and that's also one of the things they pay a lot of attention to because I'm in the past no one's shipping yet you can't you're telling me rely on the sample assessment now they spend a lot of time auditing our factory looking at our production capabilities, especially looking at the quality of the parts.

Chips, but we shipped close to two hundreds of thousands of sensors.

So far as a company and the more than 100.

Adas side, so and then they come to us and they say look you know.

We really care about the quality of ships because a lot of your peers that are far away from the scale. You are but are you shifting at automotive grade quality that we need.

Of course that can only be answered by looking at the reliability of our sensors and the quality is interesting thing in a sense that.

It's impossible to predict right because you can only know some parts are of high quality when they have shipped enough and you can look back and look at it. We are one of the very few competitors, who can tell the OEM that we have shipped a large volume of them. Please look at it.

We really need your standard so that's one of the things that makes us very unique in those discussions and I believe that's one of the reasons. We are advanced it to not only the RF SKU, but also the development phase.

Yeah, hopefully that will yield good results in the next quarter or two.

I think also to add on that I think to add on that these these development agreements are for much larger volume in the long term than the initial ones that were awarded based on Powerpoint. So those were kind of test projects.

The concept of a lidar the ones that are upcoming are much larger platform based so they will cut across many more models and higher volume cars. So it's a bigger game to play now than it used to be the prize is much larger.

Okay.

Alright. Thank you so much Joe My second question would be.

It could cause some re excellent comment on Carnegie Center number by 50% and carry out the next question to Pete I agree.

Evolution 2024 to 25, do we see I mean, ideally to feedback and thoughts from our existing OEM clients.

On the other hand, I see I I started this accomplishment Volkswagen of course, good for a supply chain that do we see any like potential to banking.

Two such kind of opportunity.

I'm, sorry, I didn't catch the question, David you want handle that yes.

I'll answer I'll take the question. So I don't think we can comment specifically on each of the customer and so I will.

Focus on the previous question, which is do we see the trend of number of Lidar going down on the vehicle first of all the most of the customers. We work with today are using one lidar votes as to well I guess.

It depends on their strategy.

When you use one later, it's focusing on the long range looking forward.

More like a highway type of application and as they evolve.

Lot of people are considering putting more especially around the vehicle I think it does.

The need of the than the scenario of the Odd's.

And my belief is that.

The functionality of the different Adas vehicles are evolving very quickly and in may and is there going to be able to handle it.

Many different scenarios, including low speed urban driving.

And the last mile.

Valet parking things like that for that.

The coverage you need is more than just what we're facing long range and that naturally require.

More number of flight hours and that's also the trend that we see of course eat me and it's dependent.

The speed of the software deployment on the OEM side, Wendy carefully deploy them and release those functions to the customer, but we already see that some of the customers we work with they already have.

So we like ours and starting this year, so we definitely see that.

Thank you so much.

Thank you. Your next question comes from <unk> from J P. Morgan. Please go ahead.

Oh, Hi, this is <unk> from Jpmorgan. Thanks for taking my question.

I actually have two questions. The first is could you give me more guidance regarding the delivery pipeline from six Oems by end of <unk> not only in its by end of next year.

Because I'm actually curious if we may have some seasonal volatility schinman throughout the next year.

If any large order from one single client and whether there'll be a potential downside risk if that order got Tonight. Yeah. That's my first question. Thank you.

I think for 2024, we expect.

10, or 11 Oems to be shipping by then and what you you you know we have one last one customers is our largest customer.

The risk there is not high as far as.

The delays or whatever I mean, there are obviously selling very very well.

So so long as they do well, we will do well I think the overall total number of shipments for Adas Lidar should be in the range of.

400, <unk> 380 to 420000 units for next year.

And Thats between 11 11 Oems.

And then for the Robo taxi side should be well over 30000 units.

Three a 40000 units.

Okay. That's your question or do you want.

Okay.

Yes, that's helpful and my second question is could you give us more updates regarding the X T series and after Sandra if any.

So on that park and what is the expected during that time.

Yeah.

Okay.

X T has done quite well so <unk> is actually growing.

<unk> 30, 40% a year in units and the prices are quite good.

<unk> is also doing well so the the ones below Pandora.

Robo taxi side is doing quite well so the growth rates are where we've sold so far in the first two quarters or over 12000, and then for the whole year, we should be over 25000 units on the non Adas lidar, so depend or the XD in Q T. So all three of them are selling quite well eight X T probably better than.

Q2.

Okay.

We don't break down specific total units.

Those three together will be about 25000 or more units for this year.

So the.

Matt confirmed that it's about F T better than Q T.

Yes ft.

Just to be released this quarter.

To be perfectly honest the number of units that will deliver us won't be high that's one of the ones that were missed.

We originally forecast at 10000 units, you'll come in well short of that.

So ft, we still have a couple of customers for it but the volume will be much lower than originally forecast.

Okay understand okay. Thank you.

Okay.

Okay.

Thank you there are no further questions at this time I'll now hand back to the company for closing remarks.

Thank you once again for joining US today. If you have got two questions. Please feel free to contact our Investor Relations team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye.

Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.

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Okay.

Thank you for standing by and welcome to the House I Group second quarter 2023 earnings Conference call.

All participants are in a listen only mode.

There will be a presentation, followed by a question and answer session.

If you wish to ask a question you will need to press the star key followed by the number one on your telephone keypad.

I would now like to hand, the conference over to Jan Tinchy. Please go ahead.

Thank you operator, Hello, everyone and thank you for joining us outside groups second quarter 2023 earnings Conference call. Our earnings release is now available on our IR website at Investor <unk> cut.

<unk> Dot com, that's where all SBA newswire services today.

Today Youll hear from our CEO , Dr. Deborah Lee, who will start the call with an overview of our recent updates next our global CFO , Mr. Luiz well.

Well address our financial results before we open the call for questions.

We continue I refer you to the Safe Harbor statement in our earnings press release, which applies to this call as we will make.

Forward looking statements. Please also note that the company with discuss non-GAAP measures today, which are more thoroughly.

Reconciled to the most comparable measures reported on adopting all the earnings release and SEC filings.

With that I'm pleased to turn over the call to our CEO Dr. <unk>.

David Please go ahead.

Thank you Andy and thank you everyone for joining our call today and the second quarter. Our team's dedication hard work resulted in record breaking quarterly figures in particular, we achieved unprecedented milestones in our quarterly net revenue exceeding anything a surge of over 100% year over year. Furthermore, our.

Total lighter shipments for the quarter stored to a record of over 52000 units, marking a 10 fold increase compared to the same period last year, both our Adas revenue and shipments also reached all time high with eight shipments growing 27 times year over year further reinforcing our leading position and delivering.

High quality lidar with having to car.

As a result, we are delighted to report that our strong shipments along with our unwavering focus on operational efficiency have generated a positive operating cash flow for the second consecutive quarter with a four fold increase over prior quarter.

Our six U S listed peers, we take pride in being the sole players with a positive operating cash flow.

Financial achievements underscore our commitment to sustainable and profitable growth in the long ago.

We are also thrilled to be named as the number one global automotive lidar supplier for the second consecutive year in a recent report published by view intelligence, a Woodward now independent research company in Europe .

Captured 47% of the worldwide <unk> sure.

In 2022, you'll.

Youll report indicated sounding growth of 95% of the global automotive Lidar market from 'twenty, one to 'twenty two.

Meanwhile, we extended our leading position increasing our global market share from 42% in 2021% to 47% in 2019 to clearly surpassing the second largest player 15%. Furthermore.

Furthermore, according to the report.

That is projected to be the largest shipper of Adas Lidar units again in 2023.

Anticipated volume almost 115 times greater than the second with Swire firmly establishing us as the market leader this prestigious leadership position.

Strong testament to our exceptional capabilities in designing manufacturing and shipping high performance high quality product at a substantial volume we take immense pride in our unique ability to meet market demands and consistently exceed customer expectation.

Now, let's take a closer look at our second quarter business update.

On the Adas front, we're excited to announce that we have secured a new domestic design wins for multiple serious investment vehicle models. Please take a motor a partnership with them now include New intelligence multipurpose vehicles. In addition to our previous collaboration on passenger vehicles and battery electric heavy duty trucks.

Or 11, Adas customers six of them are scheduled to begin shipping new EV models equipped with satellite or by end of 2023.

So as of second quarter of 2023, a mall or a 11 eight at OEM customers, we have achieve Adas design wins for mass production across over 40 vehicle models showcasing our commitment to providing top notch lighter product to our valued customers.

Internationally, our Adas Lidar products have attracted significant interest from global Oems, who acknowledge our proven track record in consistently delivering automotive lidar.

The highest performance and the best quality at scale and meeting production schedules, we are making notable progress in advancing our discussions with leading global Oems outsourcing arrangements for their next generation intelligent vehicles in.

In the second quarter four additional programs with three leading global Oems have moved forward to the arc <unk> phase.

And we anticipate final decision to be made starting in the fourth quarter of 2019.

Sweet.

Among our ongoing <unk> engagement, we for two new strategic development programs with two leading global automotive OEM partners, one from North America and Europe .

The comprehensive programs encompass law as short range lidar, enabling us to create a comprehensive portfolio of advanced Lidar solution that prioritize safety <unk>.

Development programs like this.

It represents a unique opportunity for us to fine tune our products around the design of the harvest vehicle model and offer OEM customers, a deeper level of understanding of our technical superiority and engineering capability before they make a final decision.

Moving onto the autonomous mobility market in the second quarter, we successfully tendered the volume shippers on our latest deal which represents the largest global taxi lidar contract in our company's history with a leading global global taxi player in order, we mentioned the jewelry, our last quarterly earnings call.

Entire water spend the next couple of years and notably we have already secured contracts to ship lighthouse valued at a couple of hundred million dollars for the year of 2024 alone.

With an improved gross margin.

I'd love to share an update on manufacturing and product upgrades, we remain on track to manufacture our upgraded ATC with lidar, featuring a refined design extending detection range and lower power consumption.

<unk> scaled production is anticipated to commence in the third quarter of 2003 at first into our in house manufacturing facility in Hangzhou, which operate at an automation rates over 90%.

This new Florida manufacturing facility is designed to increase our production throughput.

Further reduce costs and pave the way for EBIT more scalable production anticipating a smooth transition we expect to begin volume shipments of the upgraded <unk> early in the fourth quarter of this year.

In the recent development, we've deepened our long standing partnership with Nvidia, which dates back to 2019 through a new venture that seamlessly integrates our cutting edge lidar sensors into the Nvidia drive and Nvidia omni versus ecosystem.

Now developers to leverage the Nvidia platform for more accurately the testing of the vehicle all of this well significantly shortening the development cycle, facilitating a more efficient and powerful approach to autonomous driving.

And video has been one of our top tier U S customers for 2019.

Last but not least safety remains at the heart of our in gave us.

A commitment deeply rooted in our conviction that human life is our unwavering dedication to spearheading advanced and comprehensive safety standards in our functional safety cyber security and product quality truly sets us apart.

Sorry.

The price we've taken our achievement is tangible we are 35 by Sci the leading third party certification company as the very first lidar sector to attain <unk> product simplification in our products. Furthermore, we are truly honored to lead.

<unk> Global ISO automotive Lidar working group, where we collaborate alongside industry Giants like Vallejo, BMW Bosch, Sony and Volkswagen.

Together, we're forging a unified the consensus on the test method for automotive grade Lidar showcasing our leadership role in shaping the industry's future.

It brings us in most pride to shoulder the responsibility of utilizing our technical expertise to drive the establishment of multiple safety standards for the industry, our devotion to safety no doubt.

And we continue to push the boundaries to empower a secure and protected future for all.

To quickly summarize our second quarter was truly remarkable.

Operational accomplishments are a testament to the strides were making with the record breaking revenue and lighter shipments.

By a steady positive operating cash flow.

This is just the beginning of an extraordinary returning a half hour unwavering dedication drives us to build upon the try them and see long term growth opportunities either boomy, Adas and <unk> end markets.

Our commitment to excellent growth beyond the worse. It is relentless pursuit to ensure that our products are synonymous with trust and dependability to safeguard the well being of every end customer and to craft, a tomorrow, where safety is paramount.

And intelligence to rice.

Now I'll turn the call over to Louis to share more details on our financial performance and outlook. Lewis. Please go ahead. Thank you David and Hello, everyone. Let's go through our operating and financial figures for the second quarter to be mindful of the length of our earnings call today I encourage listeners to refer to our <unk>.

<unk> quarter earnings press release for further details.

We are delighted to see that our <unk>.

Net revenues exceeded our guidance, reaching an all time high of RMB $440 3 million U S dollar $67 million.

This quarter up 108.5.

<unk>, 5% year over year.

Two 4% quarter over quarter.

In the second quarter.

Our lidar shipments.

<unk> saw an unpleasant impressive tenfold surge year over year, 49, 6% increase quarter over quarter, reaching a record high of 52106 unit Rio.

Reaffirming our leading position in the global Lidar industry with cumulative lidar shipment now exceeding 190000 units in.

In addition.

We obtained exceptional.

Milestones with record high Adas revenues for the second quarter.

Experiencing a triple digit year over year increase in shipments of Adas Lidar.

Sorry, it's been astounding.

Astounding 27 times year over year.

Based on reported revenues and shipments in 2022 as well as the first half of 2023, we continue to outpace the competition with higher revenues in light our shipments than our six other U S system like our peers combined.

Our gross margin for the second quarter of 2023 exceeded our earlier expectations, reaching 30%.

Yeah.

This achievement is a result of better than expected asps.

And continuous improvement in our manufacturing cost structure.

Even though the gross margin slightly lower quarter over quarter as expected due to the commencement of a larger a large but lower margin order with a leading global robo taxi company.

Furthermore, our unrelenting effort to improve revenue.

Scalability and cost efficiency.

As noted in sustained positive operating cash flow for the second consecutive quarter of RMB 58.

$3 million 8 million.

This accomplishment, which is unparalleled in the light our industry represents a fourfold quarter over quarter increase underscoring.

Our robust financial trajectory to profitability in the long term.

Turning to our financial outlook for the third quarter of 2023, we expect net revenues to be between RMB $405 million $55 9 million and RMB 425 million U S dollar $58.6 million.

Representing a year over year of approximately 21 three.

The 27 three.

3% growth.

The lower than normal year over year quarterly net revenue growth.

Can be attributable to two primary factors.

First.

Net revenue in Q3 of 22.

Were elevated due to a significant rebound in Q.

Q3.

22, following the Shanghai Covid Lockdowns in <unk> 2002.

Resulting in a high base year over year compare comparison for Q3 2003.

And second Lidar units totaling several million dollars.

That were initially scheduled for delivery in <unk>.

<unk> 'twenty three are now anticipated to be delivered in <unk> 2003.

Is that an adjustment there.

<unk> reflects a shift in timing.

We are still on track to meet or exceed our revenue target of U S. I'm, sorry, RMB, one 8 billion approximately U S $250 million.

It's important to highlight that the strong growth.

In the face of challenging currency backdrop.

With your RMB, having weakened about 8% against the U S dollar over the past year shifting from around 671 to seven to five RMB to the U S dollar.

Regarding lidar shipments.

Our original goal was to achieve 250000 for the full year 2003, due to some delays from our OEM customers, particularly relating to.

New model releases, and the product transition and our updated $81 28, which.

Mandates.

Testing and validation by our customers.

We are now projecting shipments of.

Approximately 220000 lidar units for the full year.

Year 2023.

With respect to gross margins, we anticipate the commencement.

Our production of our hurts us a factory in Hangzhou.

In the third quarter 2023 will further improve our gross margins as it reaches economies of scale and manufacturing and utilization.

I also expect our group level gross margins to rise in the fourth quarter of 2023. We are now confident that we will exceed our gross margin target of 27% and 30% for the full year of 2023 and expect to reach our long term target of stabilizing.

The blended gross margin between.

30% to 35% in this 23 year, one year ahead of our previous estimate.

In summary.

Our full year 2023 revenues gross margin and operating cash.

Cash flow have all surpassed our expectation.

Whereas our lidar shipment volume is slightly lower than our initial estimation.

Made at the end of last year.

Nonetheless, our business continues to make significant strides paving a clear path to sustained growth and profitability.

The above outlook is based on our current market conditions.

And reflects the company's preliminary estimates of market and operating conditions.

And customer demand.

All are all subject to change.

This concludes our prepared remarks for today operator, we are now ready to take questions.

Thank you.

Wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

If you wish to cancel your request please press star two.

If you're on a speakerphone please pick up the handset to ask your question.

If you wish to ask a question in Chinese please immediately repeat your question in English.

For the sake of clarity and all that please ask one question at a time management will respond and then you may ask your follow up question.

Your first question comes from Tim <unk> from Morgan Stanley . Please go ahead.

Good morning, David Lewis and Tim Thanks for taking my questions and congratulations on another solid quarter.

I have two questions. The first one is about.

The delivery delay because according to their earnings release.

And there will be several million dollars, you're still there yourself so for lidar delay from third quarter to fourth quarter.

I think at least.

We highlight that but could you elaborate a little bit more.

More about how.

What caused the delay and what kind of program. It is a mechanical or semi solid state lidar and any read across to the impact you hit its highest fourth quarter margin and lastly, Jay do we expect any further delay how far their projects from fourth quarter to sometime next year. Thank you.

Thank you Tim.

As far as the delay as they relate to both Adas Lidar for the solid state as well as for the.

The 80 series.

Discuss any names, but they are they will move to Q4.

And then I don't at this point know of any delays into Q1 of next year, but you can basically expect a large Q4 lead us delivery number.

You know as basically many of our customers will ramp up for next year.

You think about this year, we'll probably have three or four programs that are shipping are there actual models shipping and aid US next year by the end of next year. We expect over 30 models. So some of them will be begin to accept lidar and ramp up in Q4. So it's just been a shift in time, but I won't I won't call out any specific names.

Got it thank you Louise.

Second question is about the overseas projects because doing.

<unk> I think David mentioned that.

The company has received several RF queues from Europe into U S car makers and assemble it turned to that confirmed purchase orders likely later this year. So.

So could you please shed some light.

Regarding the rough scale at El Dorado.

Those projects.

While we currently have in China and.

If there is any potential sop schedule, you can share with us. Thank you.

David do you want to take the overseas.

Alright. Thank you. Thank you Tim as daily and so and you asked about the global programs right. So I think.

First we have moved from quite a few of the RFID to RF queues, which is.

Really the stage before it makes the final decision to go usually with one vendor and yes based on the scheduled work is and they will start to kick me out.

Final decisions starting in the Q4 of this year.

There's a lot of them to our Q4. This year Q1 next year I think we also mentioned briefly that on top of this all of Q. Some Oems are taking an actual step to do a development project with us which is.

One step further meaning that for a few of the lenders who are on the shortlist of F. Q. They usually go with one or two.

All of those vendors to do in depth development first before making a decision essentially flip.

Frontload some of the work for them to further understand our capability.

In a development style.

Style as opposed to just looking at the testing that you that.

So this is.

This is very helpful to us because if you think about her size capability, we always outperform peer.

Here's what we are all the products are testing directly against especially in the integrated way and now we're getting this very special opportunity to prove that and so we are in the process off the two one is with European Oems.

American OEM.

Got it. Thank you very much David Lewis and looking forward to more practically in the new project rates. Thank you.

Thank you Tim.

Thank you. Your next question comes from Olivier <unk> from Goldman Sachs. Please go ahead.

Thank you David and Lewis for taking my question. Congratulations on the results. My first question is about the pricing we've seen the intensified price competition.

In July and August how do we see the pricing pressure to lighter products I into the second half this year and longer term.

Thank you Olivia I think for Q3 Q2, our pricing remained relatively stable there was the large contract with a global Robo taxi company that was.

Obviously lowered our prices in effect, our gross margin, but that was accounted for already.

We have seen a stabilization in the prices for <unk>.

X T Qt and Pandora in fact, the pricing for other customers has actually been better than expected and Thats why you saw the gross margin pop up.

So we raised our gross margin profile. So so far it's been relatively stable.

Into Q3, and Q4, we expect that stability to continue for this year, because we sign longer term contracts.

And then as far as next year goes we will have to wait for Q4. So we are lucky so far that prices have stabilized.

Got it Yeah. My second question is about the financials, let me say that those are.

Sales and marketing or R&D expense was lower in the second quarter versus the first quarter. This year, how it how should we expect the opex to trend into the third and fourth quarter. This year.

I think sales and marketing and G&A are certainly under control. So they will continue to trend down as a percentage of revenue.

R&D if it goes up more it's actually a good sign that means we're winning programs. So obviously when you win.

<unk> you must put resources into the into the initial phase four for getting the product to Sop. So if we do increase the R&D side. It would be good also Maxwell will open next quarter and that will mean, R&D spending to move and to buy testing and validation and calibration equipment and moving it.

The new facilities as well as additional head count same thing on the her side hurts will begin full scale operation in September and so it will require some spending there, but R&D spending at this stage for the rest of this year was actually a good sign that means we're winning a lot of business.

Okay got it that's very clear thank you.

Yeah.

Thank you. The next question comes from Ben Wong from Credit Suisse. Please go ahead.

Thank you I've got two financial questions number one can you provide a set of course unit volume guidance.

Because he provided revenue can prevent a volume from a lineup that's number one number two is the.

Question about service revenue why such a big chunk.

Third quarter revenue compared to no.

The quarter all previous the Kona as well so good change of accounting to determine the status and I'm now thank you.

First question on the units, we don't typically provide unit guidance, but it will be lower likely then Q2, that's why the revenue stay lower because of the shift in timing Q4, the units will be quite high but it was somewhere would be my best guess would be the units will be somewhere between 45 and 48.

Units.

And then on the services revenue.

I didn't see any specific.

Do you know what I read on it.

The services revenue went up in Q2.

I didn't really fit.

Okay. Okay. So as it relates to a specific project, but we're working with with.

To build basically its a new software development program.

So that one.

Haven't really disclosed yet, but that's the reason.

Thank you.

Okay.

Okay. So I'll take that question.

Difficult in our business yet.

Thank you. Your next question comes from Lee Peng Wang from <unk>. Please go ahead.

Okay. Thank you for taking my question. My first question is also about the margin outlook in mix few quarters. So you mentioned is due to a one time big order from one major customer each second quarter should we what should we look at the margin outlook. The next few quarters, where it stabilized in these pillows.

Of that 8% range.

We see some auto related or is that do we see some.

Further price cuts.

On the OEM side.

These days how this translates into your margin.

Yeah, I think for US Q3, we'll see we'll see a dip in margin as we've already telegraphed to everyone. I would expect Q3 March gross margin to be somewhere between 20, and 25% and then Q4 will bump up Q.

Q4.

With the Hertz facility.

Running and also with the.

The new version of <unk>.

The market you should see a bump up in gross margin back to 30% to 35%.

So for the full year of 2023.

38% gross margin in Q1, 30% in Q2, Q3 will be our low point, 20% to 25% Q4 will be back to 30% to 35% and so for the full year, we will exceed 30% gross margins.

So we would hit our target long term target of 30% to 35% gross margins for the whole year and Q4, well, we'll do that because of the size and the volume shipments in Q4 for long term gross margins next year, we expect it to be in the range of 30% to 35%.

The enhanced <unk> will be shipping in large volume. So if we shipped 220000 total later this year next year, we probably expect a double on that to over 400000, so things will be at scale. Therefore gross margin will go up with the new enhanced product second is the the large robo taxi biz.

<unk> we.

We will also have.

Enhanced our <unk> product, which will begin to ship in Q1 of next year and that will also improve margins.

Between the two with our with our revised and enhanced products in <unk> and <unk> you will see a gross margin stabilization between 30% to 35% in fact 24 should be higher than 2003 and gross margin.

So that's why we're moving very quickly on a clear path to profitability by the second half of 2024.

Okay. So.

The second question is do.

Do you have any gcu's Epsom postpone under revenue for the fourth quarter. So based on the latest view on the market do you have any visibility on your outlook.

Outlook for the next year.

Yes.

Yes, I think for 'twenty. The Q4 of 'twenty three will be our biggest quarter at this point. So that's why we will hit our for the first two quarters. We've done 100, and 120 something million U S dollars our target for the year is $2 50. So.

Don't forget if you will.

We made that projection last year. The RMB was $6 seven so thats actually 270 plus million U S dollars will exceed our original forecast.

So if you put that perspective, Q4 will be our largest quarter industrial knits were shipped the highest as people ramp up for 24. So we would expect to hit that $250 million Mark with a strong Q4.

Both in deliveries and revenue for the quarter for 2024, our current estimate and we'll refine it as we get closer to 2024 is four.

Units to be over 400000, so basically a double almost from this year and revenue should easily be at least 60% to 80% growth year over year. So we're targeting somewhere between 400 and 450 million U S dollars.

It should be.

That 60 to 75 or so percent growth. So we expect a strong 24.

Okay.

Thank you very much.

Yeah.

Thank you once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

Your next question comes from Tim <unk> from Morgan Stanley . Please go ahead.

Hi, Thanks for.

Giving me another app.

<unk> has two other quick follow up questions.

Actually I have another two years related to the accretion.

The first one is about to decline.

Client concentration because despite the 11 had as customers.

David just mentioned earlier.

Critically the single largest customers to contribute to a big chunk of our size to add as Brett.

So looking for issues should we expect more diversified sales mix.

2024, whereas such sales concentration in your view like continues to be the case given.

Do you have an increasing divergence in performance. Besides gained customers we noticed that there's probably one or two out there they are doing very well.

So this is my first question.

Yeah, I think for this year, you're correct, Tim the concentration is well over 50% on the Ada decided one customer and about 50% on the robo taxi side in one customer.

We obviously expect some diversification in 24, because right now only three or four models are shipping by 2024 by the end over 30 models will be shipping and we have we have one of over 45 models in our pipeline. So you can see that obviously with more model shipping in 'twenty.

For the concentration in Adas, we'll also same thing on the robo taxi side.

We have hundreds of customers on the robo taxi side, and industrial robotics side and so the concentration we would expect to lower in 'twenty four although these two customers on Adas and.

And and Robo taxi, obviously are our biggest two customers.

But we do expect some reduction in the percentage.

You had a second question.

Yes. My second question is about is product yourself, because I just wanted to check that aren't boost odor yourself out as like ours being our order backlog to standardized products and do we see increasing requirement after its product customization.

By our clients or most of our OEM car maker I still find we still standardized products. So going forward do you expect.

The copies you have more upward.

Spoke projects basically OEM.

<unk>, probably accompany tied up with the car makers in the long term. Thank you.

I think youre seeing a bifurcation in the standard versus optional side. So for the high end models for the highest end models and most of these Oems.

I think lidar will become more and more increasingly a standard feature.

For cars to the mid range or lower you will be you will see it as an optional feature.

But over time as you will see is as the market moves to L. Three and L for Lidar becomes a necessity.

So for for one of our customers for the <unk> products. So the navigation on auto pilot it requires lidar.

So if you want that feature to be able to do the hands free driving in the city or on your commute or embarking youre going to need Lidar and youll see that as the features become rich and the functionality increases across the OEM spectrum that lidar will be seen as a necessity.

But right now I would say is for the high end cars, you will see that in.

Our largest adas customer and others is it because standard but for.

For products that are not the highest level as far as their price point, you will see it doesn't option even on the option the take up rate for us has been about 30% plus so it's not that good.

I think Tim Yeah go ahead, there might be a different I think he I think he was asking whether we're providing a customized product or standardized product to the customer.

That's right that's right.

Most of it is standardized the Haiti.

Yes.

I think the short answer is that we always provide the standardized product in the sense that.

It's the same platform.

And when we are for example upgrade from the current 80 128 to get upgraded.

Self graded version.

Also moves over and in the end, it's a it's about an economy of scale and efficiency. So and we always try to provide the same product to whether one with no customization on the performance I'm definitely no customization on the reliability part and the only part that might be slightly different.

Is the communication because different customers, probably talk to our lidar in a different way I think I mean on the data that threat. So that's the only part of that difference and other than that when people are always we always ask them to join the same platform.

That if we can focus on polishing.

One product for everybody and at each generation and that has always been a challenge.

Got it Super clear, Thank you very much David and Lewis. Thank you.

Thank you Kevin.

Thank you. Your next question comes from Yan Kang from CIBC. Please go ahead.

Thanks for taking my question and also I'm, sorry, as they see it and congrats on your achievement.

Just share with us your opinion about the relationship between 40 radar and lidar because as far as I know <unk> 40 right.

Seven model, so where do you think this will be a trend in the future and how this will impact our lighter future volumes. Thank you.

David do you want to you want to take this yeah, yeah sure.

We are we follow the development of any of the new sensors on the vehicles that are closely and 40 layer are definitely being one of the interesting options.

But let's just talk about the specs right. So and I think one of the things 40 radar is really good at is that it doesn't have any moving parts and it's performing relatively better than in the.

The more difficult weather.

But other than that I think the biggest challenge for 40 radar today is if you just look at the image outfit resolution away when they see a resolution is how many.

How many points per second from Lidar right. That's one of the most important.

Lidar or camera.

And what do you read that is roughly 1% resolution.

Have a good lidar.

Which means that the image you see it's gonna be a kind of low rate because they resolution. So bad it's like you take off your classes and you look at what's in front of you. Yes, you would get an idea of whats going out but for safety. If you fully rely on that it's going to be difficult.

I can name quite a few cases that 40 redox resolutions simply isn't good enough and then sort of a camera alone.

40 gig D V was a 100% confidence even gets happening there that's where it really light has come in lighter or not about the 99% of the scenario and safety is always about the loss of 1% or maybe the 1% up to 1% off the scenario, where lidar performs much better than any other alternative.

I am not seeing 40 radar to match the resolution of Lidar anytime soon if ever.

It won't be able to comment.

The rationale behind wildly alto is yielding some off of 40 read out, but I think it's sufficient to say that even for the Al Center model. The masks devotion to also have a lidar song.

We haven't seen the trend that.

Any of the 14th is replacing right at all so this is our view and if you just simply look at it.

Whether you can use 40, we'd have to do the driving and if you look at a point cloud you've got a much clearer picture.

Got it thank you very helpful.

Thanks.

Thank you once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.

Your next question comes from Jesse Lu from Bofa Securities. Please go ahead.

Sure. Thank you management for taking my question. So my first question would be.

Forward that new partners you mentioned.

Our second quarter, two leading global Oems.

I guess, the Scottish shaken user how is their attitude patient and your cooperation in terms of the launch time.

Like a lighter model price range potential end market and also that my ideal caught on adopting a lidar.

Thank you.

David I can add.

Yeah.

First I won't be able to give the exact names, but I could comment on the rest of the questions first days.

So the global Oems.

Normally.

From late 2025, 26, 27, which is a bit later than a typical Chinese OEM, which had the short term the development cycle.

And then the second question is about this process and their attitude is.

It's actually very interesting because for us the typical traditional global Oems.

Normally known for being conservative.

How long.

Vetting process and decided that night hours earlier than or more years and that event than a typical Chinese player.

And then.

Usually at least some of the Oems have already some prior relationship with a competitor.

A competitor on the light in the Lidar space I think what at least what I was told is that they understand the complexity of this selection and they think that it's not very easy to make the right choice. That's why they are being very careful at this time I think I also briefly mention that.

During even off our SKU phase now.

Are demanding more.

Tangible evidence.

In other words and used to be that if you have a favorite nice Powerpoint and there's some very good samples and that's enough and now the Oems are like Oh, I need to see the full set of evidence, especially all the way to production, which is more than fair right. Because now lidar space is entering a new era.

Some of the players like us are already shifting a larger volume and others are not.

So and that's also one of the things they pay a lot of attention to because in the past no one's shipping yet you can't you can only rely on the sample assessment now they spend a lot of time auditing our factory looking out of our production capabilities, especially looking at the quality of the parts.

Shifting but we shipped close to 200000 sensors.

So far as a company and a more than 100.

Ada side, so and then they come to us and they say look you know, we really care about the quality of your ships because a lot of your peers that are far away from the scale. You are but are you shipping at automotive grade quality that we need.

Of course that can only be answered by looking at the reliability of our sensors and the quality is interesting thing in the sense that it.

It is impossible to predict right because you can only know some parts are of high quality. When they have shipped enough that you can look back and look at it. So we're one of the very few competitors, who can tell the OEM that we have shipped a large volume of them. Please look at it we really need your standard.

That's one of the things that makes us very unique in those discussions and I believe that's one of the reasons. We are advanced it to not only RF SKU, but also the development phase.

Yeah, hopefully that will yield good results in the next quarter or two.

I think also to add on that I think to add on that these these development agreements are for much larger volume in the long term than the initial ones that were awarded based on Powerpoint. So those are kind of test projects to test the concept of a lidar the ones that are upcoming are much larger.

Platform based so they will cut across many more models and higher volume cars. So it's a bigger game to play now than it used to be the prize is much larger.

Okay.

Yeah, all right. Thank you so much my second question would be different than that.

On the car so re export comment on kind of a certain number.

By 50% and carry out the next question to Pete I agree.

Evaluation or <unk> 24 to 25, do we see any like really to feedback and thoughts from our existing OEM clients.

On the other hand, I see I I started this accomplishment Volkswagen of course excellent Gary a supply chain that do we see any like potential to banking.

She is such kind of opportunity.

Sorry, I didn't catch the question David you want handle that yeah I'll answer I'll take the question. So I don't think we can comment specifically on each of the customer and so I will.

Focus on the previous question, which is do we see the trend of number of Lidar going down on the vehicle are first of all the most of the customers. We work with to date are using one lidar votes as to well I.

I guess it depends on their strategy and when you use one later, it's focusing on the long range looking forward.

And more like a highway type of application and as they evolve.

Lot of people are considering putting more especially around the vehicle I think it's.

The need of the than the <unk>.

In the area of the Odd's.

And my belief is that.

The functionality of the different Adas vehicles are evolving very quickly and is there going to be able to handle.

Many different scenarios, including low speed urban driving.

And last mile.

Valet parking things like that for that.

The coverage you need is more than just what we're facing long range and that naturally require.

More number of Lidar and that's also the trend that we see of course eat me and it's dependent.

The speed of the software deployment on the OEM side Wendy carefully deploy.

Release, those function to the customer, but we already see that some of the customers we work with they already have.

Mm three lidar.

Starting this year, so we definitely see that.

Thank you so much.

Thank you. Your next question comes from <unk> from J P. Morgan. Please go ahead.

Oh, Hi, this is Julia from Jpmorgan. Thanks for taking my question.

I actually have two questions. The first is could you give me more guidance regarding the delivery pipeline from six Oems by end of the Hitachi that Oems by end of next year.

Because I'm actually curious if we may have some she didn't know well.

T O schinman throughout the next year.

Any large order from one single client and whether there'll be a potential downside risk if that order got lake Yes. That's my first question. Thank you.

I think for 'twenty to 'twenty four we expect.

10, or 11 Oems to be shipping by then and what you you you know we have one last one customers is our largest customer.

I think the risk there is not high as far as.

The delays or whatever I mean, there are obviously selling very very well.

So so long as they do well, we will do well.

The overall total number of shipments for Adas Lidar should be in the range of.

400, $380 to 420000 units for next year.

And Thats between 11 11 Oems.

And then for the Robo taxi side should be well over 30000 units.

Three a 40000 units.

Okay. That's your question or do you want.

Okay.

Yes, that's helpful and my second question is could you give.

As more updates regarding the X T series and I have to say with any others on that park and what is the expected during that time, yes. Thank you.

Okay.

X T has done quite well so.

<unk> is actually growing.

30, 40% a year in units and the prices quite good.

Qt is also doing well so the the ones below Pandora the whole robo taxi side is doing quite well so the growth rates are.

We've sold so far in the first two quarters or over 12000, and then for the whole year, we should be over 25000 units on the non Adas lidar so depend on the XT in the Q T. So all three of them are selling quite well eight extra you're probably better than Q2.

Okay.

Yeah.

We don't break down specific total units.

Those three together will be about 25000 or more units for this year.

This is.

Matt confirmed that it's about F T.

In Q T.

Yes S T.

It's supposed to be released this quarter.

Perfectly honest the number of units that will deliver us won't be as high as that's one of the ones that were missed.

The target we originally forecast at 10000 units, you'll come in well short of that.

So F T. We still have a couple of customers for it but the volume will be much lower than originally forecast.

Okay understand okay. Thank you.

Okay.

Uh huh.

Thank you there are no further questions at this time I'll now hand back to the company for closing remarks.

Thank you once again for joining us today. If you have further questions. Please feel free to contact our Investor Relations team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye.

Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.