Q4 2023 Mobileye Global Inc Earnings Call
Greetings and welcome to the mobile Ly Q4 twenty-three earnings call at this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Dan Gals. Thank you. Mr. Gallagher you may begin.
Thanks, Kat Hello, everyone and welcome to mobilize fourth quarter 2023 earnings conference call for the period ending December 30, <unk> 2023.
Daniel V. Galves: Please note that today's discussion contains forward looking statements based on the business environment as we currently see it such statements involve risks and uncertainties.
Daniel V. Galves: Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially. Additionally on this call. We will refer to both GAAP and non-GAAP figures a reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release joining.
Moron Shemesh: Joining us on the call today are professor unknown sure sure mobilize CEO and President Mara and Moron Shemesh mobilized CFO.
Moron Shemesh: Joining me today for the Q&A session is Nimrod Neuston mobilized executive Vice president of strategy and business development.
Thanks, and now I'll turn the call over to Tom.
Tom: Thanks, Dan Hello, everyone and thanks for joining our earnings call.
Nimrod Neuston: Our thing with our results in Q4.
Tom: In line with the press release, we provided on January four.
Daniel V. Galves: The prior guide so no surprises here.
Daniel V. Galves: At the high level Q4 was a strong quarter in terms of revenue growth of 13% and adjusted operating income growth of 14%. We are pleased with the sequential growth in supervision volumes and we expect to see continued excellent growth in that product in 2024.
Daniel V. Galves: And also call attention to our operating expenses, which were significantly lower than what we expected in 2023 much of which relates to <unk>.
Daniel V. Galves: Transitory issues, but also some of which captures efficiencies that should benefit our cost structure over the long term.
Daniel V. Galves: Looking ahead the guidance we provided today is unchanged from the outlook. We provided in early January the inventory correction that is impacting the first half of the year has been well publicized while we did not learn of this buildup until late in the year. We believe we have our arms around this issue and the clear our plan we are in.
Moron Shemesh: Implemented additional processes to more closely monitor shipments versus demand and we believe we have good visibility into how to put this behind us and getting back to normalized revenue in the back half of 2024.
Moron Shemesh: I will provide some additional color.
Moron Shemesh: Switching gears as we close out 2023 and come out of sea, yes. It's a good time to remind you of our high level strategy and assess the progress made.
Moron Shemesh: Strategy strategy is very simple products worrying about 40% of auto production in 2023.
Moron Shemesh: And the higher percentage of vehicles with Adas.
Moron Shemesh: We can continue to grow to grow that in the coming years as a bigger and bigger percentage of cars are equipped with some level of driving assist technology.
But the more important growth driver is average revenue per vehicle driven by.
Moron Shemesh: Our advanced portfolio of products supervision chauffeur ends right will generate much higher average system prices than our core Adas products.
Moron Shemesh: Events and progress in 2023 gave us more confidence than ever that a very large market for these advanced products is developing and that's our technology and business model makes us the best positioned to enable and win in that market.
Moron Shemesh: On the industry segment itself, we see three clear distinct value propositions that we expect will drive consumer demand and turned into a very into a new very large automotive Tam.
Moron Shemesh: Number one is a meaningful improvement in safety.
Moron Shemesh: Later to the surround cameras that are in most of the next generation of idle enhanced three level, two plus systems like our supervision platform. It.
Moron Shemesh: It is underappreciated that in addition to the convenience of hands free driving the 360 degree perception can support the step change in safety current single camera systems don't support the many invasive maneuvers that can limit the accidents like merchant like merging into an open lane to avoid the rear end collision or avoids vehicles.
Moron Shemesh: Wed like.
Moron Shemesh: Number two is the higher productivity for the car owner is off systems like chauffeur can offer valuable tying back to the to the cardholder.
Moron Shemesh: If the operational design domain is only 80% to 90% of the time. This is seen as very high value by local makers.
Number three is turning vehicles into highly utilized resources. This corresponds to a fully autonomous driving for that we'll be able to offer self driving systems four lower than the annual cost of its waiver. This unlocks an ability for our customers to generate revenue at a much lower operating cost per mile and with no need to pay or find drivers.
Moron Shemesh: We believe these value propositions aligned perfectly with our advanced product portfolio.
Moron Shemesh: And there was much evidence in 2023 to support our view that those products are the highest performing most scalable and lowest cost available options in the market.
Moron Shemesh: At a high level all the industry trends, we're in our direction.
Moron Shemesh: The pace of innovation, it really picked up in China, and the pressure on OEM capital efficiency Rose.
Moron Shemesh: These both are pushing global Oems to focus more on programmatic issues like time to market cost and performance exactly where most of that has advantages.
Moron Shemesh: At the same time, we launched the Zika supervision software into high grades, which was significant proof point.
Moron Shemesh: Finally, we recently brought to our customers the collaboration framework called DXP that enabled the automakers to controls the driving experience of supervision or shop floor based system.
Moron Shemesh: Finding sweet spot that enables the Oems to control the look and feel of assistant but rely on our core technologies for all the objective and safety critical aspect is already paying dividends with customers.
Moron Shemesh: On a more specific basis, we announced the value of our 22023 design wins at CES two weeks ago.
Moron Shemesh: Future projected revenue was $7 billion for the second year in a row. This compares to our 2023 revenue of $2 billion.
Implied ASP of these agreements was $122 in 2023.
Moron Shemesh: $105 in 2022. This compares to ASP for 2020, one design wins of $65 and the ASP of our actual revenue in 2023 of $53.
Moron Shemesh: The volume associated with the design wins, the last two years 60 million plus compared to mid $30 million to date.
Moron Shemesh: Beyond the design wins 2023 was an important year for execution customer acquisition and expansion of Oems in the opportunity set.
Moron Shemesh: Supervision system is now on more than 190000 vehicles, we delivered the full highway software in August and it is providing to be a highly capable system and is proving to be highly capable system and we have expanded design domain to 2020 to 'twenty two cities from only two back in September.
Moron Shemesh: We believe that proving ourselves in what is the most challenging environment for mobile light given data restrictions.
Moron Shemesh: <unk>, our global scale and Thats unique selling point that is underappreciated.
Moron Shemesh: We were awarded supervision design wins with Bush, if he W. Mahindra and the major western OEM over the course of 2023.
The number of models included in all of our design wins are now projected at 30 30 models as compared to nine models at the beginning of 2023.
Moron Shemesh: Our portfolio strategy, where supervision serves as a bridge to chauffeur is being proven out as a poster at VW and a multi brand major western OEM all of water production programs on the show floor platform during 2023.
Moron Shemesh: We diversified the business significantly during 2023 for most of the Chinese Oems and mostly electric vehicles to a diverse set of Oems price points and powertrain types. The most important catalyst was a landmark design win to bring our entire product set to a major wisdom OEM.
Moron Shemesh: As the first global OEM to align behind our complete portfolio.
Nimrod Neuston: Especially mirroring their future intelligent driving productive element plant to our portfolio.
Nimrod Neuston: It is it's more than doubles the number of vehicle models in the pipeline and spans across all markets and powertrain types.
Nimrod Neuston: And the endorsement of this automaker will be high value in terms of closing additional deals.
Nimrod Neuston: We were successful in moving many Oems into our business development funnel.
Nimrod Neuston: High level trends I described earlier increase the sense of urgency in the marketplace and the confidence in our solutions.
Nimrod Neuston: We now have design wins or are in advanced discussions with 11, Oems representing 37% of industry production as compared to three Oems, representing 9% of industry production as of the start of 2023.
Nimrod Neuston: In summary, we know if no other competitor in the Adas space when a similar breadth of design wins that has actually that has actual navigate on titled systems in production and has production programs for ice off systems with multiple automakers.
Nimrod Neuston: Overall as we have shared previously we do not expect 2024 financial results to be where we want them to be given the inventory correction, but we expect the lessor, but we expect to leverage all the groundwork laid in 2022 and 23 to take a leap forward in terms of visibility toward the next leg of our growth story.
Nimrod Neuston: I'll now turn the call over to Mohan.
Mohan: Thank you everyone and thank you.
Mohan: Joining the call everyone before I begin please be aware that all my comments on a 15 to 18, when we had to non-GAAP measurements.
Mohan: Finally, excluding any normalized non-GAAP numbers.
Mohan: Nation of intangible.
Mohan: Is mainly related to India.
Mohan: In 2017, we also exclude Amit compensation.
Mohan: Adding the Q4 results we had another very good quarter with revenue up 13%.
Mohan: Adjusted operating income at 14% and adjusted operating margin at 39% supervision volumes were 8000 units in Q4 up from 29000 in Q3 67000 units redeemed in the second half was significantly higher than 35000 in the first.
Mohan: Yeah.
Mohan: Operating expenses were again meaningfully below expectation about $30 million this quarter.
Mohan: There were two main areas each about the same level.
Mohan: <unk> expenses were favorable.
Moron Shemesh: Favorable FX and due to some reinvestment for employees on military yes, yes.
Moron Shemesh: The other question was higher than expected engineering investment.
Moron Shemesh: Design win activity at all.
Nimrod Neuston: They call it the 2020.
Nimrod Neuston: Our operating margin rose from 27% to 39% on a sequentially higher revenue and.
Nimrod Neuston: And operating expenses.
Nimrod Neuston: Honestly this is a backward looking but it should give investors some sense of.
The operating leverage possible, what's more meaningful supervision and shall same volume.
Nimrod Neuston: To drive revenue significantly higher.
Nimrod Neuston: On a cash flow basis, we generated almost $400 million of operating cash flow in fiscal year 2023, and it's important to note. We invested around 200 million in Lisle building extra buffer of IQ chips on our on balance sheet.
Nimrod Neuston: We expect to maintain a consistent level of balance sheet inventory in 2024 epic that expenditure just below 100 million for the year in line with our prior comments.
Nimrod Neuston: Looking ahead, you are all aware that as part of this process of setting orders scheduled for Q1 and the remainder of 2024, we learned in every six to 7 million release of excess inventory of IQ chips at our customers.
Nimrod Neuston: And its matching this excess inventory decision by tier one customers to build inventory in the basic items category due to supply chain constraints and a desire to avoid part shortages in 2021, and 2022 as well as lower than expected production in certain Oems during 2023.
Nimrod Neuston: The inventory situation is related to the base <unk> business.
Nimrod Neuston: Television inventory normal level.
Nimrod Neuston: We noted in our January press release, and 8-K, we expect Q1 revenue to be down approximately 50% to around $230 million.
Speaker Change: <unk> volume to be around $3 4 million units in Q1.
Speaker Change: Yes.
Speaker Change: Supervision in the low 30000 unit range, reflecting normal seasonality in China.
Nimrod Neuston: Given the unusually low IQ volume because the <unk> will be a larger portion of revenues in Q1, which will result in gross margin in the mid 60 range dressing.
Speaker Change: Adjusting our operating expenses, which will likely be a bit higher at <unk>.
Speaker Change: 200 million running.
Speaker Change: For Q1, adjusted operating income is for a loss of $65 million to $80 million.
Speaker Change: But we see real revenue and volume netting back fairly quickly and believe we have very good visibility on it.
Due to the nature of our business all of this inventory is specific Oems and production of specific vehicle platform.
Speaker Change: Just to clear the inventory simply to stop shipping Jake.
Speaker Change: Vehicle and have our customer use that existing inventory to satisfy demand. There is no uncertainty regarding who their customers are there is no alternative product that can be used and there is no discounting or other economic action needed to Canadian inventory.
Speaker Change: As we compare Arab perspective shipments with vehicle production schedules. We believe approximately 5 million units can be cleared in Q1 and the vast majority of the remainder in Q2.
Speaker Change: In terms of our full year guidance unchanged.
Speaker Change: Any change from the preliminary outlook, we provided in January and our visibility has improved over the last several weeks.
Speaker Change: Volume perspective, we are assuming 31 to 32 million IQ shipments and the 175000 to 195000 supervision shipments in 2024, it will expand the cadence of IQ, assuming the midpoint of the guidance to be around $3 4 million in Q1.
Speaker Change: An increase of at least 100% in Q2 versus Q1, and then the balance of unit shipments in the second half of the.
Speaker Change: We believe that this cadence.
Speaker Change: Our analysis and discussions with government should result in enhanced majority of excess of inventory to be cleared by the middle of 2024.
Speaker Change: We expect elevated and price to increase in 2024 as compared to 2023 due to an increase of supervision as a percentage of total revenue.
Speaker Change: In terms of gross margin, we look at it on a product client banking on the Asia side mix.
Speaker Change: Slight downtick in gross margin this year for two reasons one as you know the cost of ITG from our supplier went up as the beginning of 2023.
Let alone to our customers.
Speaker Change: There were a decent number of units in 2023, England, we generated revenue of 2023 prices, but use cheap purchased in 2022, but that's a minor headwind this year.
Speaker Change: So assuming some continued normalization of production mix after very reach unique doing supply chain pricing.
Speaker Change: 72 headwind to be partially offset by higher cloud enhanced Adas volume and revenue accounting revenue.
Speaker Change: Regarding supervision the optimize the main controller is now in production.
Speaker Change: This comes at a meaningfully lower cost and we are sharing a portion of that with our customers.
ASP will be down a bit compared to last year, but we expect gross margin to be up meaningfully to low 40% as of Q2 2024 as compared to low to mid 30%. In 2022. In addition, we would expect some level of software licensing revenue to begin making an impact in Q4.
Speaker Change: This year <unk> trial.
Speaker Change: Any consumer debt to pay for the supervision based feature after the free trial will drive incremental revenue and profit for mobile.
Speaker Change: With respect to operating expenses, we are assuming 20% increase over the final 2020 number on an adjusted basis, excluding amortization of intangible assets income based compensation.
Speaker Change: Opex, there's a bit more discussion.
Speaker Change: Forecast for 2024 is unchanged from what we projected several months ago and not too far above our original forecast for 2023 much of the lower cost in 2022 related to more transitory things like foreign exchange and delayed move into our new Kansas. Good news on some engineering investment.
Speaker Change: And reimbursement of certain payroll costs for employees on military Lisa Mcdonald VP structural certain adjustments to the way, we collaborate with Oems, including DXP means the supervision and shall harp programs can scale more efficiently than we originally envisioned.
Speaker Change: Finance of our mobility as a service strategy to focus on supplying the self driving system needs to lead to structurally lower costs, but we don't believe a reduction in the opportunity.
Speaker Change: Online is that we do believe our operating expenses in the near and long term should be structurally lower than we expected as of a year ago and we continue to believe that the opex percentage growth in 2025 and beyond should be significantly lower than in 2024 Lastly in terms of tax rate, we are assuming a non-GAAP tax effective.
Tax rate of between 15, and 17% from 2000 to infer in comparison to 11% these things anything thank.
Speaker Change: Thank you and now we will now take your questions.
Moron Shemesh: Thank you Moron cat, if you could compile the Q&A queue.
Moron Shemesh: Please analysts if you could limit your questions to one main question and one follow up thank you.
Moron Shemesh: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants.
Moron Shemesh: Speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Moron Shemesh: Yeah.
Moron Shemesh: Our first question comes from Mark Delaney from Goldman Sachs. Please proceed.
Moron Shemesh: Yes, good morning, and thanks very much for taking the question I was hoping to start with an update on the engagements with the Oems with some of your more advanced solutions like supervision and so far I think as of the <unk> call. You said you were either booked or are in advanced discussions with 10 Oems I think I'm glad you said today that is now at 11.
Mark Delaney: And then I believe there's another four Oems, where there was more preliminary discussions underway can you give any more color on how those discussions are going your general sense of progress and where any Oems maybe deciding to go another direction or do you still feel like you're well positioned with that set of customers.
Mark Delaney: S.
Mark Delaney: We are essential for our complex systems. So early adopters they need a lengthy due diligence.
Mark Delaney: Losses.
For example, before winning supervision of Bosch, we underwent thousands of miles of public roadways in Europe and in the U S. With a due diligence that took almost a year, but now we're facing the effects of I would call. This the level of innovation of the fusion, which means that more Oems buy into supervision and support.
Mark Delaney: The shorter the due diligence phase.
Mark Delaney: So after winning the big Western OEM.
Mark Delaney: I believe the due diligence phase is getting much shorter.
Mark Delaney: We foresee a number of design wins, both in western and in China. During the 2044 and I believe that the announcements of those design wins would be in the second half of the year.
Mark Delaney: That's helpful. One other thing I'm, hoping for an update on was the DXP platform. It was.
Mark Delaney: A big part of your speech and presentation at CES. This year I imagine you've met with a number of.
Mark Delaney: Current and potential customers at CES, you, maybe you could share more around how impactful DXP is and the receptivity of auto Oems to DXP and maybe touch a little bit on how DSP is different from IQ Kevin. Thank you.
I think that the DXP really solves the problem of how did the OEM can own.
Kevin Smith: The driving experience in a very efficient and a very efficient manner. So previously before DXP Oems would come to us and say look we want to take you to IQ <unk> IQ six chips add another <unk>.
Kevin Smith: <unk> saw a strong microprocessor that cause.
Kevin Smith: Hundreds of dollars.
Kevin Smith: Worldwide, our driving policy called on that micro microprocessor.
Kevin Smith: Or they would come in and save our writing our code on your IQ six chip.
Moron Shemesh: It would create all sorts of clashes because our code and Yoko.
Moron Shemesh: Fighting a lot of resources, what we preferred to political as separate separate chip now this means that the cost of the system is higher.
Moron Shemesh: And the economical scalability is very very important with DXP.
They do not need to add any additional microprocessor they do not need to write code on our IQ six chip.
Moron Shemesh: <unk> codes on the on the MCU.
Moron Shemesh: And they're like high level goals and they use our infrastructure for writing they're driving the policy. So it reduces it does two things it reduces the bill of materials of persistent because you don't need to add another chip.
Moron Shemesh: And it allows us to mobilize to scale much faster because all of US all the code with an on the IQ six chip is the.
Moron Shemesh: It's more of the same for all the for all the platforms.
Moron Shemesh: The differences are in the LCD.
Moron Shemesh: Living in global as you add something.
Moron Shemesh: If I may add we have the opportunity during CES to present this concept to multiple Oems and <unk>.
Moron Shemesh: Meetings.
Moron Shemesh: The reception was very compelling in the sense that although Oems now have more focus on medical separation cost performance and time to market. This does not come at the expense of.
Moron Shemesh: One end user experience and being able to influence and craft their own user experience for their customer base and what's really missing in industry to find the sweet spot in between the best performance cost and time to market solution and full flexibility in crafting a unique user experience and this is where dx becomes tougher.
Moron Shemesh: <unk> comes in and it is really perceived as in driving operating system by Oems, which is kind of simplifying the task for Oems, who are now interested in offering new type of insurances and this new generation of driver assist and autonomous driving that product.
Moron Shemesh: Thank you next question please.
Moron Shemesh: Our next question comes from Emmanuel Rosner from Deutsche Bank. Please proceed.
Moron Shemesh: Alright, Thank you very much.
My first question is around.
Emmanuel Rosner: This chip Destocking.
Emmanuel Rosner: Jason that you flagged a few weeks or so ago can you maybe just go back over.
Emmanuel Rosner: You.
Emmanuel Rosner: You became aware of it how do you get confidence around the magnitude of the issue of the timing of it.
Emmanuel Rosner: Being resolved.
Emmanuel Rosner: In line with what you reiterated today please.
Emmanuel Rosner: Yes so.
Moron Shemesh: As I mentioned in my script on the inventory depletion started action three years ago, and Cohen <unk> when production went down dramatically and the industry was all about.
Moron Shemesh: And desire to secure production and to go after every chip that was also.
Moron Shemesh: The atmosphere for absolutely the suppliers and also from the census, we sense of urgency that we invest some of our customers.
Moron Shemesh: And that of course, we believe lessened some stocking.
Kevin Smith: Stocking activity in addition.
Kevin Smith: To your question in 2022, and 2023 actually the ordering process change so we needed to make full year commitment to achieve supplier. So we asked our customers to do the same and make full year commitment on <unk>.
Kevin Smith: For 2022, and 2023, which led to less ability from their side to adjust Richardson.
Kevin Smith: Two demand.
Kevin Smith: They did pre COVID-19 period so.
Kevin Smith: <unk> again, the quantities was impossible actually in 2023.
In 'twenty guidance, mainly on the supply.
Kevin Smith: Supply chain questions largely was over but it was still unclear when will double production again back to normal to pre quality levels.
Moron Shemesh: It might be the reason that the <unk> was kept hoarding inventory through the year and it will also again obligated these commitments.
Moron Shemesh: But they held it for the year and we went to informed of course of such quantity over the course of 2023.
Kevin Smith: We believe that our core customers underperformed in terms of production for our top customers are.
Kevin Smith: Sure makes a majority of our IHS customers they grew 4%.
The overall market growing 9% and then towards the end of the year when the commitment.
Kevin Smith: Ending and now in 2024, we've gone back to normal in terms of orders. So we have quarterly orders and customers can adjusted accordingly.
Kevin Smith: We think thats. The reason it came up towards the end of 2023 and as of the beginning of the year or some other timing during this period.
Okay.
Understood that is helpful.
Kevin Smith: And then just a quick one on the supervision I guess as part of this update a few weeks or so ago. You also sort of tweak down expectations for supervision units in 2024, I think part of it was maybe in exercising derisking around like timing launches.
Kevin Smith: Could you provide us sort of like similar type profile, you're risking around what the trajectory looks like.
Kevin Smith: Beyond 2020 before obviously.
Kevin Smith: Launches of generally for back half a little bit later than expected.
Yes about a year or so ago.
Kevin Smith: Want to make sure that you know that.
Kevin Smith: So our expectations are properly calibrated for what's beyond 2024, and the ramp up initially when you only have a few initial customers.
Kevin Smith: At the beginning of 2023.
We had a small number of car models and it's difficult to make accurate forecast today, we have 30 car models, we can improve our forecast.
Kevin Smith: So for 2023 and production we had two car models in China to based our forecast.
Kevin Smith: All of those we have to rely on was the OEM numbers, which turned out to be optimistic.
Kevin Smith: Now we know that most of the production of supervision is coming out in 2026 by 2025, we will have between nine to 11 models of supervision.
Kevin Smith: Supervision.
Kevin Smith: The five five models.
Kevin Smith: From the <unk> group to form the Zika or one smaller one forum pollstar one from the Volvo then between 4% to six car models from the FAA W. So that the production in the <unk>.
Kevin Smith: Politically forward in 2045, and <unk> 26, we have or shall we have the whats the big Western Oems with 17 car models as we have the we have behavior.
Kevin Smith: And just just one follow up for me this is Dan.
In terms of calibration for the leading edge analysts that have calibrated their model and estimate to the tracking document that we provided at CES as well as their own updated analysis. These estimates look reasonable and achievable for us.
Kevin Smith: Thank you next question Brian.
Kevin Smith: Our next question comes from Dan Levy from Barclays. Please proceed.
Kevin Smith: Hi.
Kevin Smith: Good afternoon. Thank you for taking the question.
Kevin Smith: I wanted to start with just.
Kevin Smith: Tying to your comments about the.
Kevin Smith: Engagements with 11 Oems.
Kevin Smith: I think broadly there is this narrative out there that like you said automakers do you want to own the technology, but the challenges has been very difficult to scale and there is a notable example of a north American automaker that.
Kevin Smith: It's pulling back on some of their more advanced Adas plans given some struggles there so.
Kevin Smith: To what extent are you seeing more engagement with automakers that despite the desire to own the technology really are coming to the realization that.
Moron Shemesh: They have no choice, but to come to you because you are the easiest and fastest way to scale to what extent are are you seeing automakers come around to you.
Emmanuel Rosner: Yes, I'll take it so I.
Emmanuel Rosner: I think what we are seeing is this.
Emmanuel Rosner: <unk>.
Moron Shemesh: It is becoming a realization in the industry that the next few years are going to be very.
Moron Shemesh: Very heavily influenced by Oems ability to offer these products with upper hands free driving eyes off driving.
Moron Shemesh: It is going to become a more a growingly more important feature for consumers.
Moron Shemesh: And this this is what gives rise to the sense of urgency amongst Oems.
Moron Shemesh: To create the shortest path, we can for a high quality product and maybe a few years ago. It was silly OEM.
Moron Shemesh: Oems had the perception that they have some time to invest and they can take the longer path to get there while still owning the technology stack now the clock is ticking for them and they are looking for the kind of the best performance at the shortest time to market. So that they can compete and we already see this dynamics happening in China, and it's growing lead growing outside of China.
Already to date, so we do see more and more traction from Oems, who were maybe in the past more bullish on owning the technology stack with cultural realization that they need to at least find a parallel path inside their company to de risk the <unk>.
Moron Shemesh: The activity towards the next generation of native product.
So it takes a certain portion of our engagements are with Oems with.
Moron Shemesh: <unk> invested significantly in the past and in house activities can say that.
Moron Shemesh: Sale of other.
Moron Shemesh: No, it's really a flywheel effect.
Moron Shemesh: There are a few years ago, the only of restaurants to such assistant was the Tesla autopilot in FSD.
Moron Shemesh: Now you have.
Moron Shemesh: So on these automakers.
Moron Shemesh: Systems of similar.
Moron Shemesh: Setup.
Moron Shemesh: Those Chinese.
Moron Shemesh: Automakers are also some of the models are being exported to the west.
Moron Shemesh: And those are mobilized.
Moron Shemesh: <unk>.
Moron Shemesh: The other day that they know that portion the big Western OEM are also going to introduce the system. So it creates a flywheel effect.
Moron Shemesh: As an OEM.
Unique to cater to.
Moron Shemesh: The rising competition in terms of intelligence is rising so this creates more and more incentive.
Moron Shemesh: To start working with local Io These advanced products, whether instead of their in house development or regardless of their in house development.
Moron Shemesh: Great. Thank you.
Moron Shemesh: As a follow up somewhat related.
Moron Shemesh: Maybe you could just provide us with an update on the competitive landscape in China.
Moron Shemesh: Appreciate that some of the earlier engagement, you've had with supervision or based on China, but we also know that.
Moron Shemesh: China is the market, where there is right now the most rapid development cycle.
Moron Shemesh: There are also data barriers.
Moron Shemesh: Within China, so to what extent.
Moron Shemesh: Are you.
You could talk about share trends, our win rates and in China.
Moron Shemesh: And to what extent are you as competitive in China as you are.
Moron Shemesh: In the west.
Moron Shemesh: Okay, so actually it's going to be a lengthy answer.
Moron Shemesh: So bear with me, that's really complicated landscape.
Moron Shemesh: So I'll start with west with the Western Oems, we have above 90% share in eight out of the 10 biggest Oems.
Moron Shemesh: This is true not only today, but given all the design wins to date.
This is true for the foreseeable future actually given all the current design wins, our market share is growing.
Moron Shemesh: Now in China, there are a number of Oems, where we have above 90% market share, including some local Oems like Jerry there are also some local Oems, where we have around 30% and some wave, which we do not have the relationship here. So for example at <unk>, we have 30% market share and with Shanghai, We have zero.
Moron Shemesh: So Chinese Oems.
Moron Shemesh: Chinese oem's growth is faster than our market share growth BYD in China are growing too fast.
Moron Shemesh: In terms of competition.
Moron Shemesh: The low end and high end at the low end Adas, we have some supplier competing at the very low end solutions very low cost very low end solutions and <unk>.
Moron Shemesh: At the high end, we have the in house development of Oems.
So at the low end.
Moron Shemesh: Beating system suffer from a large performance gap of the very basic features like Columbus Emergency braking for example of the performance will never pass any western regulator.
Moron Shemesh: For them to catch up they will need to have more expensive system, which will reduce their competitive offerings.
Moreover, we are adding win to the low end Adas to provide the cloud enhanced system and Sherry just announced that in two months, Colorado car models with mobilized club enhanced solution will be launched.
Moron Shemesh: This will add more pressure on our competitors by creating a moving target for a single camera Adas.
Moron Shemesh: So for the high end systems.
Moron Shemesh: Those are developed in house by some Oems there are still significant proof points in the past.
Moron Shemesh: I will tell you along three three axis there Joe good geographic scalability performance scalability and economics scalability. So geographic wise. There is this move from highway to orbit. This is a big challenge because high definition maps provided by Mapmakers are done manually do not scale to orbit Mobilise has rent this is a big.
Moron Shemesh: Advantage.
Moron Shemesh: Also geographic wise Oems want to export systems outside of China and meter regulation localized has advantage there.
Moron Shemesh: Performance wise the goal is to move from Ais onto <unk>. This is a significant step up in performance and focus on safety localized has an advantage there.
Moron Shemesh: Economical wise in house systems are more expensive and require more sensors to reach a reasonable performance level.
Moron Shemesh: <unk> has an advantage there.
Moron Shemesh: So.
Kevin Smith: Chinese I think the Chinese market is the most interesting and dynamic market to date.
Kevin Smith: We are doing very well, there and our market share will grow but the growth of the market is faster than our growth of the market share and I hope that we'll catch up soon.
Kevin Smith: Thank you.
Kevin Smith: Thank you Dan next question please.
Kevin Smith: Our next question comes from E. K Micheli from Citi. Please proceed.
Kevin Smith: Great. Thanks, everybody. Good afternoon, just two quick questions from me on the pipeline first hoping you could kind of dimension.
Kevin Smith: What portion of the pipeline is both looking at the supervision and so for a combined just given the momentum you've seen with chauffeur recently it second question since the big announcement at CES have you seen an increase in activity and conversations including maybe with the second wave of Oems as we described in our last earnings call.
Kevin Smith: Yes.
Kevin Smith: Yes, so regarding the first question.
Kevin Smith: It depends in some of the engagements we have we have parallel engagements for both supervision answer for.
Kevin Smith: With the same OEM. This isn't the case, where the Oems are interested in a few car models.
Kevin Smith: With which maybe they want to have different offerings for different segments in the market different price levels of cards.
Kevin Smith: On the other hand, there are some Oems who might be more interested in specific.
Kevin Smith: One of the specific product offering and maybe to start from chauffeur or to focus on hands off.
Kevin Smith: For their cars because of whatever considerations. The house. So we can say we have a mixed bag of of engagements in general we see a good mixture of both she'll firm supervision and are in our pipeline and engagement.
Kevin Smith: And I think regarding what was the second question. Please.
Kevin Smith: Thank you.
Kevin Smith: Just instance, CES any increased activity and engagement.
Kevin Smith: Wave.
Kevin Smith: Yes, so I think one of the interesting outcomes.
Kevin Smith: <unk> is that we have had just over a couple of weeks. After she is we already have.
I think three engagements within our pipeline that specifically want to focus on evaluating DXP hands on to actually start working technically on the XP to start experimenting with it to start feeling the tool is seeing how they can influence the driving experience.
Emmanuel Rosner: And then just after a couple of weeks since we've announced that for the first time. So it is a very promising start to this our promotion process that we are executing.
Kevin Smith: Okay.
Perfect. That's very helpful. Thank you.
Kevin Smith: Thanks, Steve next.
Kevin Smith: Next question please.
Kevin Smith: Our next question comes from Joe Spak from UBS. Please proceed.
Kevin Smith: Thanks, everyone.
Kevin Smith: You talked a lot about.
Kevin Smith: The progress on the supervision program wins I was wondering if you could shed a little bit of light on.
Joe Spak: When you have those conversations with customers how do they think about <unk>.
Joe Spak: Implementation on those programs are take rates like are they are they convince they can charge for these features or.
Moron Shemesh: You mentioned that as you sort of get to more higher end features like so far where you get time back maybe.
Moron Shemesh: Do we need features like that to see to really see significantly higher levels of adoption and willingness to pay.
Moron Shemesh: Okay.
Moron Shemesh: In the West we have a restaurant and that's the cost of it first life is deep.
Moron Shemesh: That's why it's so important to have a very economical very low cost system to allow the car maker flexibility in pricing.
Moron Shemesh: Mobilized system.
Moron Shemesh: With the sensors is left in $2000. So this gifts.
Moron Shemesh: The OEM lots of flexibility and pricing considering the <unk> $12000.
Moron Shemesh: To the end customers.
Moron Shemesh: Most of our engagements the system as a standard fit so it's not with a take rate calculations, but it comes in every in every color.
Moron Shemesh: So this is this a situation right now.
Moron Shemesh: Okay.
Moron Shemesh: Yeah.
Moron Shemesh: Thank you and then just the second one.
You mentioned just with respect to.
Moron Shemesh: The inventory build that occurred you mentioned that.
Moron Shemesh: But you are implementing some procedures to put in place to make sure you keep better track of sell through.
Moron Shemesh: Can you talk a little bit more about what youre doing there or is this really just you mentioned also that.
Over the past couple of years, you went to full year commitment. So have you sort of pulled back on full year commitments is that part of that procedure.
Mark Delaney: Yeah, So I'll take it.
Mark Delaney: First of all of course, I must say that we never experienced the situation before is custom.
Mark Delaney: Customers have done all through the 10 plus years DNA has a very good job.
Mark Delaney: Ordering and demand.
Mark Delaney: Given.
Mark Delaney: With the recent history, an inventory issue of course, we are.
Mark Delaney: Taking a tuning and our upfront.
Speaker Change: <unk> and <unk>.
Speaker Change: Capabilities to monitoring all shipments versus demand.
Kevin Smith: So the first thing that you mentioned, yes, we the order process is now back to normal.
Kevin Smith: Commitments for 12 months is no longer relevant so the commitment.
Kevin Smith: It's only a quarter ahead. So we do get forecast 12 month forecast and Thats just a forecast.
Kevin Smith: Commitment, though and the same thing with our suppliers so again.
Kevin Smith: <unk> and <unk>.
Kevin Smith: We've been saying that the 12 months' commitment is now no longer relevant in 2024, and we don't expect it to be aware of and also in the future.
Kevin Smith: Specific to Covid.
Kevin Smith: We will also try to receive some input from our customers.
Kevin Smith: <unk> never met its not something that we have visibility to is appointed to mention.
Kevin Smith: In terms of actions, we're taking internally. So we have established a regular process to met shipments too detailed vehicle production.
Speaker Change: Looking backwards and forward.
Moron Shemesh: We are putting more focus on market bank forecast that incorporate the added production rates and OEM share gains.
Moron Shemesh: We always have used and update the forecast in comparison to the market, but we will not put more weight on this.
Moron Shemesh: Another influence the customer provided forecast.
Moron Shemesh: Also consider working with that with external vendors to get some statistical model forecast.
Moron Shemesh: To incorporate macro level data and additional head count to support the Mustang. That's that's what we that's the steps.
Moron Shemesh: We are taking.
Moron Shemesh: Thank you very much.
Moron Shemesh: With vacation that Dan mentioned it wasn't came in my script.
Moron Shemesh: The full guidance for 2024 Hasnt changed.
Moron Shemesh: From January five so for IQ, we anticipating 31 33 million units.
Moron Shemesh: Of Ultrashape.
Moron Shemesh: Just a clarification since the line was dominantly. Thank you.
Moron Shemesh: <unk> next question please.
Moron Shemesh: Our next question comes from Vijay Rakesh from Mizuho Securities. Please proceed.
Moron Shemesh: Just a quick question on the.
Moron Shemesh: Again, I think and obviously mobilized doing very well.
Vijay Raghavan Rakesh: The western Hemisphere, and I think especially with the caveat gone in GM cruise, having problems elsewhere, but in China.
Vijay Raghavan Rakesh: Are you seeing this being some concerns.
Vijay Raghavan Rakesh: Nvidia gaining share any thoughts around that what's driving that is that.
Price performance of just Oems trying to diversify.
Vijay Raghavan Rakesh: Can you talk to what you're seeing there.
Vijay Raghavan Rakesh: I think in China that I mentioned the in house.
Vijay Raghavan Rakesh: Element in China those systems.
Vijay Raghavan Rakesh: Significant proof points to a still undergoing that says about geographic scalability economic scalability performance scalability on the economical side. These systems are way more expensive than ours in our system.
Vijay Raghavan Rakesh: Example, in the Aneel they have for Oren chips.
Vijay Raghavan Rakesh: It is.
Vijay Raghavan Rakesh: Video is a very expensive chip and they have four of them and they have leathers for reaching the performance level is there is not even reaching the performance level of supervision.
Vijay Raghavan Rakesh: This is an economical side on the geographical side the big game that was going from highway to orbit.
Speaker Change: HD maps.
Speaker Change: Scaling to orbit lots economical scalable none of those.
Speaker Change: In house developments.
Speaker Change: There'll be using high definition maps and urban.
Speaker Change: Some of them are claiming they'll go map list good luck for them.
Speaker Change: Several of them say they will only provide the commute feature where you record your normal commute and Youll get performance only on desktop.
Speaker Change: <unk> has the has ramped.
Speaker Change: And also they want to export outside of China. There's also close the regulations.
Speaker Change: The localized.
Nimrod Neuston: There is very good.
Nimrod Neuston: So thats also.
Nimrod Neuston: An advantage.
Nimrod Neuston: So geographic performance if you want to go to is off this this is the.
Nimrod Neuston: The Holy Grail of all of this is in hived off the system.
Nimrod Neuston: Safety is paramount.
Nimrod Neuston: You cannot just to provide a system that you feel comfortable but you know it.
Nimrod Neuston: You'll have all sorts of safety safety issues there because the driver is responsible in our lives off system.
Nimrod Neuston: There are no discounts you have to be perfect.
So this also as an advantage to mobilize so alright, I think China, China is very dynamic, which I think is a very good thing competitive wise moving forward very fast with the technology, we like that very much and I think the Oems are doing in house development.
Nimrod Neuston: Now keeping all their options open.
Nimrod Neuston: Example, zika or they have an in house developers working also with the with mobilized.
Nimrod Neuston: Lower visibility too.
The continuation of work with Zika.
Nimrod Neuston: Got it and just on the question on supervision.
Nimrod Neuston: Obviously, there is good ramp, but as you look out through 2005 2006 can you talk to what kind of consolidated embedding either on the OEM unit side or on the.
Speaker Change: On the number of Oems I guess.
Speaker Change: Look as you build that outlook under supervision site.
Speaker Change: So I mentioned that previously.
Previously.
So.
Speaker Change: In 2024 are going to be five car models all from the jewelry group two of Zico Smart Volvo.
Speaker Change: Pollstar folks dark pool.
Speaker Change: And then starting and the 344, beginning with total 45, 4% to six it's a W car models.
Speaker Change: Would be would be added.
Speaker Change: And then the big jump as in 2026, where we have Porsche we have the 17 models of car models of the western.
Speaker Change: The OEM and we have Mahindra.
Speaker Change: In China and in all cases.
Speaker Change: In the Haynesville in India and in all cases, when I'm talking about the standard fit.
Speaker Change: It would.
Speaker Change: Alright, great. Thank you just a follow up just to follow up VJ.
Yes, we want to be more conservative right and this is why we provided more of a tracking document with the number of model the OEM to launch dates.
Speaker Change: For analysts to make their own estimates for these years and like we said before kind of the analysts that are calibrated to this and adjusted their forecast, we see those as reasonable and achievable. So thank you.
Great next question please.
Speaker Change: Scott are there are there additional questions.
Our next question comes from Luke junk from Baird. Please proceed.
Luke L. Junk: Good afternoon, Thanks for taking my question.
Luke L. Junk: First question you stated in the prepared remarks IQ visibility has improved in recent weeks just hoping you can expand on what is better understood sitting here in late January.
Luke L. Junk: Liquidities, Brazil.
Yeah, Yeah, yeah. So.
Luke L. Junk: Yeah. So first of all I mean, Nathan and.
Luke L. Junk: The shipment schedule for 2024.
And our information as we have on specific inventory level.
Luke L. Junk: Our own research and based on so on our customer's input.
Luke L. Junk: Of course, we view the detailed production forecast.
Luke L. Junk: And as we mentioned we expect the majority of the excess inventory should be cleared by the end of Q1 most of that risk clearing in Q2.
Luke L. Junk: Of course actual production levels.
Luke L. Junk: OEM will OEM customers will play a role but based on our projection again, we believe the excess inventory will be fully cleared by by year end.
Luke L. Junk: At the end of the day, we had a very through analysis.
Speaker Change: Then Asia southeast maintained lower production payment OEM to understand that.
Speaker Change: In order to.
Speaker Change: Meeting our production of this year, that's what we need to provide of course taking into account the.
Speaker Change: The inventory issue. So we have better visibility we also of course.
Speaker Change: We've mentioned in Q1, we have.
Also some visibility to Q2 that we send.
Speaker Change: It will be.
Speaker Change: At least 100% higher than Q1, so yes and for the rest of the year again.
Speaker Change: Nine month production expectation in that analysis, and what we get from our customers, that's where we think we're going to land.
Speaker Change: Thanks, Martin I'll, just follow up with a couple of things because we've been obviously looking very closely so the visibility since January 4th has improved because we have commitments for Q1.
Martin Smith: We know what the.
Martin Smith: Generally what the volume is going to be in Q1, we have more visibility in terms of Q2.
Martin Smith: Starting to adjust into commitments. So that's why we have the confidence to.
Martin Smith: Say that.
Martin Smith: Q2 will be at least 100% higher than Q1, and then in terms of the back half we have the indications from the tier ones and these kind of match up with kind of the market base forecast that we're looking at as well.
Martin Smith: So overall, we feel good about kind of the visibility towards the 31% to 33 million units of IQ volume.
Martin Smith: In 2024 and that that level of.
Martin Smith: Production will or that level of shipments will result in.
Martin Smith: The elimination of the excess inventory almost completely by the middle of the year, and then potentially with a little bit left in the back half.
Martin Smith: Understood Thanks for that Dan.
Martin Smith: And then my follow up question, hoping you could comment on some of the key facets of the anticipated expense growth in 2024 in particular, there has been certainly an increasing focus on the AI related facets of driving policy development I think it'd just be clarifying to understand how mobilized investing incrementally in generative AI tools.
Dan: This year. Thank you.
Dan: Our opex.
Dan: Our opex growth.
Dan: It is mostly devoted on.
Dan: Our desire to execute the.
All of these programs and supervision the pause the western Oems.
Dan: All of those are converging to $40 six to continue supporting Zika.
Dan: Of course with many otas that are going to do that going forward, our move from a tier two to tier one.
Dan: With the with Porsche the Western OEM, where I think is the tier one supplier.
Some other cases, where I think of the tier one five but all of this requires more resources to support this.
In a very good way.
Dan: As of today using AI. This is this does not need growth. This is our normal activity with the existing manpower that the that we have is more moving from a tier two to tier one and supporting so many car models that are coming up in production in the next few years does require some growth.
Dan: Yeah.
Dan: I mean, the head count costs, increasing again, a few tens of million.
Dan: It has been a.
Dan: A higher number of employees and.
Dan: <unk> made me more and hence that salary raises and also the savings that we had in 2023.
Dan: We need to we probably in Q4, we had some reimbursement for military service.
Dan: Is it necessarily will happening in 2024 also the ILS effect.
Nimrod Neuston: In Israeli shekel affecting in 2023.
Moron Shemesh: Besides that we have also a significant facilities club.
Moron Shemesh: I'll have a few tens of millions and we are moving to the new Kansas depreciation there is approximately $20 million higher so also in terms of facilities and.
Moron Shemesh: And besides that also.
Moron Shemesh: Two platform IQ six and seven.
Moron Shemesh: Radar product.
Moron Shemesh: Hum.
Moron Shemesh: As we approach 2025.
Moron Shemesh: And then Linda and domain, we have some growth in 2024.
Moron Shemesh: Thank you. Thank you.
Thanks, Luke next question please.
Moron Shemesh: Our next question comes from Chris Mcnally from Evercore. Please proceed.
Moron Shemesh: Thanks, so much.
Keith: Thanks, Keith so maybe.
Just some quick math batting clean up here on the Das Tam. So I think previously <unk> discussed, 50% 21 penetration for the industry moving to about 75% to 25 26.
Keith: This seems slightly pushed out now looking at $25 26, something like in the lower mid 60% penetration. So first can we talk about industry adoption on based AI.
Keith: Then second round global market share.
Moron Shemesh: You discussed.
Moron Shemesh: Lower share on maybe some of the domestic so China sure, maybe 50% or below is it fair to see your 65% to 70% historical share.
Moron Shemesh: Maybe move to this kind of about 64% 65 on that that mix effect over the next couple of years.
Moron Shemesh: So any new high level math that you could provide us on an industry trip chips sort of later in the decade would be really helpful.
Moron Shemesh: I think on the Western Oems our market share is continuing to grow just based on all the design wins that we had in 2023 and 2022.
Martin Smith: We are growing our market share.
Martin Smith: As I said before eight of the 10 biggest Oems, we have more than 99 zero, 90% market share.
With the China the growth of the Chinese Oems is faster than the growth of our market share. So our market share there is reducing naturally as I mentioned before China on.
Is growing very very fast and we have the zero.
Martin Smith: We have no relationship with the China and BYD is growing very fast we have only 30% of their market share with BYD.
Martin Smith: But we are continuing to work to get to that to get.
Martin Smith: To win to get design wins in both the low low end data and the high end Adas like like supervision.
Martin Smith: So we will see how the market share in China will play out in the next in the next few years, but now it's really an unstable.
Martin Smith: <unk> positioned because it's the market that's growing very very fast.
Martin Smith: If I may add I think that since you referred to the to a question to the market share calculation based on the inventory level.
Martin Smith: We really think that the inventory levels that we've disclosed were accumulated over a period of time that is longer than a year likely.
Martin Smith: Likely closer to three years since you kind of strike the compound will be effect for the annual volumes that we've disclosed it's more about a $2 million reduction per year on average, which is which accounts for maybe 1% 2% of the market share of installation that we've had.
Martin Smith: In the past, we don't think that this indicates for a significant change in our market share our forecast on a global level.
Martin Smith: All makes sense.
Martin Smith: The explanation on market, maybe if we can go back to that industry adoption sort of the when we hit on a global basis, 75% penetration obviously some of those western players on that I've been pretty slow to make standard fit obviously outside of Toyota, but any view on what is sort of a ballpark year, we could think about it.
Martin Smith: Industry ADR penetration being around 65%.
Martin Smith: From external sources. This is the number that is being projected till the end of the decade, 75% market share of Adas.
Martin Smith: We have no reason to believe this is going to this is going to change.
Even possibly higher and I think that.
Martin Smith: India is an area, where we see a lot of growth I mean, so you know.
Martin Smith: The western markets are fairly well penetrated probably above 70%.
Martin Smith: But theres still some growth there, but I think.
Like India, which is.
Martin Smith: Maybe single digit paid off penetration, but.
Martin Smith: The systems that have been on the road in production in the last couple of years have been extremely successful. So now everybody is trying to kind of catch up and we have a very good position. There. So I think that that's going to be good.
Martin Smith: For <unk> adoption as well as our share over the next couple of years.
Martin Smith: If I may ask.
Martin Smith: So we do see.
Martin Smith: Last year, we did start to see a growing pools from regulatory bodies being in emerging markets.
Martin Smith: In order to kind of start promoting the adoption of laser systems in new markets like South America, India as Dan mentioned in.
Martin Smith: In addition in Europe, and the United States. There is a move towards mandating safety systems for vehicle production. They started just recently in Europe with GSR, which is a not just a kind of a bonus.
Our teachers to mandates in order to sell cars. So these two driving forces are what we think we're pushing the industry towards higher adoption rates within the next few years.
Martin Smith: Yes.
Martin Smith: Okay.
Martin Smith: Thank you.
Martin Smith: Thanks, Chris.
Martin Smith: This concludes our question and answer session I would like to turn the floor back over to Dan <unk> for closing comments.
Martin Smith: Thank you Pat for managing the call. Thanks to the management team of mobile <unk> and thanks to everyone for joining.
We will talk to you next quarter. Thank you.
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Daniel V. Galves: Hello, everyone and welcome to mobilize fourth quarter 2023 earnings conference call for the period ending December 30, <unk> 2023.
Daniel V. Galves: Please note that today's discussion contains forward looking statements based on the business environment as we currently see it such statements involve risks and uncertainties.
Daniel V. Galves: Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially. Additionally on this call. We will refer to both GAAP and non-GAAP figures a reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.
Daniel V. Galves: Joining us on the call today are professor unknown, Shashoua mobilized CEO and president.
Daniel V. Galves: And Maran Shemesh mobilized CFO.
Daniel V. Galves: Also joining today for the Q&A session is Nimrod Neuston mobilize executive Vice President of strategy and business development, Thanks, and now I'll turn the call over to Ahmad.
Thanks, Dan Hello, everyone and thanks for joining our earnings call.
Ahmad Khan: Starting with our results in Q4 that were in line with the press release, we provided on January four.
Ahmad Khan: And with the prior guide so no surprises here.
Ahmad Khan: At a high level Q4 was a strong quarter in terms of revenue growth of 13% and adjusted operating income growth of 14%. We are pleased with the sequential growth in supervision volumes and we expect to see continued excellent growth in that product in 2024.
Ahmad Khan: Also call attention to our operating expenses, which were significantly lower than what we expected in 2023 much of which relates to transit.
Ahmad Khan: Transitory issues, but also some of which captures efficiencies that should benefit our cost structure over the long term.
Ahmad Khan: Looking ahead the guidance we provided today is unchanged from the outlook. We provided in early January the inventory correction that is impacting the first half of the year has been well publicized while we did not learn of this buildup until late in the year. We believe we have our arms around this issue and the clear out plan we have.
Martin Smith: <unk> additional processes to more closely monitor shipments versus demand and we believe we have good visibility into how to put this behind us and get back to normalized revenue in the back half of 2024, where I will provide some additional color.
Martin Smith: Switching gears as we close out 2023 and come out of CES. It's a good time to remind you of our high level strategy and assess the progress made in.
Martin Smith: Our strategy the strategy is very simple our products, we're in about 40% of auto production in 2023 and.
Martin Smith: The higher percentage of vehicles with Adas.
Martin Smith: <unk> continued to grow to grow that in the coming years as a bigger and bigger percentage of cars are equipped with some level of driving us is technology.
Martin Smith: But the more important growth driver is average revenue per vehicle driven by our advanced portfolio products supervision chauffeur ends right will generate much higher average system prices than our core Adas products.
Martin Smith: Events and progress in 2023 gave us more confidence than ever that a very large market for these advanced products is developing and that our technology and business model makes us the best positioned to enable and win in that market.
Martin Smith: The industry segment itself, we see three clear distinct value propositions that we expect will drive consumer demand and turned into a very into a new very large automotive Tam.
Martin Smith: Number one is a meaningful improvement in safety related to the surround cameras that are a must of the next generation of eyes on hand, three level, two plus systems like our supervision platform.
Moron Shemesh: It is underappreciated that in addition to the convenience of hands free driving the 360 degree perception can support a step change in safety Curt.
Moron Shemesh: <unk> single camera systems don't support the many invasive maneuvers that can limit accidents like margin like merging into an open lane to avoid the rear end collision or avoids vehicles running red lights.
Moron Shemesh: Number two is the higher productivity for the car owner ISR systems like chauffeur can offer valuable time back to the car owner.
Moron Shemesh: If the operational design domain is only 80% to 90% of the time. This is seen as very high value by automakers.
Emmanuel Rosner: Number three is turning vehicles into highly utilized resources. This corresponds to a fully autonomous drive forward, we'll be able to offer self driving systems four lower than the annual cost of its vibrant this unlocks an ability for our customers to generate revenue at a much lower operating cost per mile.
Emmanuel Rosner: No need to pay or find drivers.
Emmanuel Rosner: We believe these value propositions aligned perfectly with our advanced product portfolio.
Emmanuel Rosner: And there was much evidenced in 2023 to support our view that those products are the highest performing most scalable and lowest cost available options in the market.
Emmanuel Rosner: At the high level, all the industry trends, we're in our direction.
Speaker Change: The pace of innovation really picked up in China, and the pressure on OEM capital efficiency Rose.
Speaker Change: These both are pushing global Oems to focus more on programmatic issues like time to market cost and performance exactly we're mobilized has advantages.
Speaker Change: At the same time, we launched the Zika supervision software to high praise, which was significant proof point.
Speaker Change: Finally, we recently brought to our customers the collaboration framework called DXP that enabled the automaker to control the driving experience of supervision or shop floor based system.
Speaker Change: Finding sweet spot that enables the Oems to control the look and feel of persistent but rely on our core technologies for all the objective and safety critical aspects is already paying dividends with customers.
Speaker Change: On a more specific basis, we announced the value of our 22023 design wins at tier two weeks ago.
Speaker Change: Future projected revenue was $7 billion.
For the second year in a row. This compares to our 2023 revenue of $2 billion.
Speaker Change: Implied ASP of these agreements was $122 in 2023.
Speaker Change: $105 in 2022. This compares to ASP for 2021 design wins of $65 and the ASP of our actual revenue in 2023 of $53.
Speaker Change: The volume associated with the design wins, the last two years 60 million plus compared to mid $30 million today.
Speaker Change: Beyond the design wins 2023 was an important year for execution customer acquisition and expansion of Oems in the opportunity set.
Speaker Change: Supervision system is now on more than 190000 vehicles, we delivered the full highway software in August and it is providing to be a highly capable system and is proving to be highly capable system and we have expanded design domain to 2022 22 cities.
Speaker Change: Cities from only two back in September.
Speaker Change: We believe that proving ourselves in what is the most challenging environment for mobile light given data restrictions.
<unk>, our global scale and Thats unique selling point that is underappreciated.
Speaker Change: We were awarded supervision design wins with Porsche Iffy W. Mahindra and the major western OEM over the course of 2023.
Speaker Change: The number of models included in all of our design wins are now projected a 30 30 models as compared to nine models at the beginning of 2023.
Speaker Change: Our portfolio strategy, where supervision serves as a bridge to chauffeur is being proven out as a poster at the W. And a multi brand major western OEM all awarded production programs on the show floor platform during 2023.
Speaker Change: We diversified the business significantly during 2023 for most of the Chinese Oems and mostly electric vehicles to a diverse set of Oems price points in powertrain types.
Speaker Change: The most important catalyst was a landmark design win to bring our entire product set to a major wisdom.
Martin Smith: The first global OEM to align behind our complete portfolio.
Martin Smith: Especially mirroring their future intelligent driving product development plan to our portfolio.
Martin Smith: It is it's more than doubles the number of vehicle models in the pipeline and spans across all markets and powertrain types.
Martin Smith: And the endorsement of this automaker will be high value in terms of closing additional deals.
Martin Smith: We were successful in moving many Oems into our business development funnel.
Martin Smith: High level trends I described earlier increase the sense of urgency in the marketplace and the confidence in our solutions.
Martin Smith: We now have design wins or are in advanced discussions with 11, Oems representing 37% of industry production as compared to three Oems, representing 9% of industry production as of the start of 2023.
Martin Smith: In summary, we know of no other competitor in the Adas space with a similar breadth of design wins that has actually that has actual navigate on pilot systems in production and has production programs for highest off systems with multiple automakers.
Martin Smith: Overall as we have shared previously we do not expect 2024 financial results to be where we want them to be given the inventory correction, but we expect the leverage but we expect to leverage all the groundwork laid in 2022 and 2023 to take a leap forward in terms of visibility toward the next leg of our growth story.
Martin Smith: I'll now turn the call over to Mohan.
Mohan: Thank you Adnan and thank for joining the call everyone. Before I begin please be aware that all my comments on profitability will refer to non-GAAP measurements.
Mohan: Granted exclusion and mobilized non-GAAP numbers is amortization of intangible assets, which is mainly related to <unk> acquisition of <unk>. In 2017, we also exclude this compensation.
Mohan: Starting with Q4 results, we had another very good quarter with revenue up 13% year over year, adjusted operating income up 14% and adjusted operating margin at 39% supervision volumes were 38000 units in Q4 up from 29000 in Q3.
Mohan: 7000 unit to redeemed in the second half was significantly higher than 35000 in the first half.
Mohan: Operating expenses were again meaningfully below expectation about $30 million this quarter.
Mohan: There are two main areas each about the same many several expenses were lower due to favorable FX and used to some reinvestment for employees on military reserve duty.
Mohan: <unk> was higher than expected engineering investment for pre design win activities with turbine Oems.
Emmanuel Rosner: Over the course of 2020, our operating margin rose from 27% to 39% on a sequentially higher revenue and consistent operating expenses. Obviously this is a backward looking but it should give investors some sense of the operating leverage possible last more meaningful.
Emmanuel Rosner: The provision in Xiaofeng volumes start to drive revenue significantly higher than that.
Emmanuel Rosner: Cash flow basis, we generated almost $400 million of operating cash flow in fiscal year 2023, and it's important to note that we invested around 200 million in rebuilding the safety buffer of IQ chips.
Emmanuel Rosner: Our on balance sheet, we expect to maintain a consistent level of balance sheet inventory in 2024 episode expenditure just below 100 million for the year in line with our prior comments.
Looking ahead, we are all aware that as part of this process of setting orders scheduled for Q1 and the remainder of 2024, we learned that there is six to 7 million units of excess inventory of IQ chips at our customers. We understand that much of this excess inventory expected decision by tier one customers to build inventory.
Emmanuel Rosner: The basic items category due to supply chain constraints and a desire to avoid part shortages in 2021, and 2022 as well as lower than expected production in certain Oems during 2023.
Emmanuel Rosner: The inventory situation is related to the base <unk> business.
Emmanuel Rosner: Provision inventory normal level.
Emmanuel Rosner: We noted in our January press release, and 8-K, we expect Q1 revenue to be down approximately 50% to around $230 million.
Speaker Change: <unk> volume to be around $3 4 million units in Q1.
Moron Shemesh: So expect to provision in the low 30000 unit range, reflecting normal seasonality in China, giving.
Moron Shemesh: Given the unusually low IQ volume supervision will be a larger portion of revenues in Q1, which will result in a gross margin in the mid 60 range addressing.
Moron Shemesh: Adjusting our operating expenses, which will likely be a bit higher in the recent 200 million running the outlook for Q1 adjusted operating income is for a loss of $65 million to $80 million, but we see real revenue and volume netting back fairly quickly and believe we have very good visibility on.
Moron Shemesh: Due to the nature of our business all of this inventory is quite specific Oems and production of specific vehicle platform.
Moron Shemesh: Process to clear the inventory is simply to stop shipping chips.
Moron Shemesh: Vehicles and have our customer use that existing inventory to satisfy demand.
Moron Shemesh: Uncertainty regarding who their customers are there is no alternative product that can be used and there is no discounting or other economic action needed to clear the inventory.
Moron Shemesh: As we compare arrow perspective shipments with vehicle production schedules, we delivered approximately 5 million units can be cleared in Q1 and the vast majority as a reminder in Q2.
Moron Shemesh: In terms of our full year guidance.
Moron Shemesh: Change from the preliminary outlook, we provided in January.
Moron Shemesh: Our visibility has improved over the last several weeks from a volume perspective, we are assuming 31.
Moron Shemesh: Eight 2 million IQ shipment and 175000 to 195000 supervision shipments in 2024, we expect the cadence of IQ, assuming the midpoint of the guidance to be around $3 4 million in Q1 and.
Moron Shemesh: An increase of at least 100% in Q2 versus Q1, and then the balance of unit shipments in the second half of the.
Moron Shemesh: We believe that this cadence.
Moron Shemesh: Our analysis and discussions with government should result in is that the majority of excess of inventory to be cleared by the middle of 2024.
Moron Shemesh: We expect elevated and price to increase in 2024 as compared to 2023 due to any creative supervision as a percentage of total revenue.
Moron Shemesh: In terms of gross margin, we looked at it on a product by product banking on the Asia side, we expected not slight downtick in gross margin this year.
Moron Shemesh: One as you know the cost of ICU chips from our supplier went up as the beginning of 2023.
Moron Shemesh: Let alone to our customers.
Moron Shemesh: There were a decent number of units in 2020 thinking where we generated revenue of 2023 prices, but you achieved purchased in 2022.
Moron Shemesh: A minor headwind this year Youre also assuming some continued normalization of production mix after a very rich mix doing supply chain crisis.
Moron Shemesh: 72 headwind to be partially offset by higher cloud announced Adas volume and revenue accounting revenue.
Moron Shemesh: Regarding supervision the optimized domain controller is now in production disk.
Moron Shemesh: This comes at a meaningfully lower cost and we are sharing a portion of that with our customers.
Moron Shemesh: ASP will be down a bit compared to last year, but we expect gross margin to be up meaningfully to low 40% as of Q2 2024 as compared to low to mid 30%. In 2023. In addition, we would expect some level of software licensing revenue to begin making an impact in Q4.
Moron Shemesh: This year once the Zika a free trial.
Moron Shemesh: Any consumer debt to pay for the supervision may feature after the free trial will drive incremental revenue and profit from mobile.
Moron Shemesh: With respect to operating expenses, we are assuming 20% increase over the final 2020 number on an adjusted basis, excluding amortization of intangible assets and stock based compensation.
Moron Shemesh: Opex, there's a bit more discussion on that.
Moron Shemesh: Forecast for 2024 is unchanged from what we projected several months ago and not too far above our original forecast for 2023 much of the lower cost in 2022 related to more transitory things like foreign exchange and delayed move into our new Kansas. Good news on some engineering investment.
Moron Shemesh: <unk> and reimbursement of certain payroll costs for employees on military we get with <unk>.
Moron Shemesh: Some of the structural certain adjustments to the way, we collaborate with the Oems, including DXP mean, the supervision and shall harp programs can scale more efficiently than we originally envisioned.
Moron Shemesh: Refinement of our mobility as a service tragedy to focus on supplying the self driving system needs to lead to structurally lower costs, but we don't believe a reduction in the opportunity.
Moron Shemesh: Bottom line is that we do believe our operating expenses in the near and long term should be structurally lower than expected as of a year ago and we continue to believe that opex percentage growth in 2025 and beyond should be significantly lower than in 2020 full lastly in terms of tax range. We are assuming a non-GAAP tax effective.
Moron Shemesh: Tax rate of between 15, and 17% from 2000 to infer in comparison to 11% evenings lengthening.
Moron Shemesh: We will now take your questions.
Moron Shemesh: Thank you moron.
Moron Shemesh: If you could compile the Q&A queue.
Moron Shemesh: Please analysts if you could limit your questions to <unk>.
Moron Shemesh: One main question and one follow up thank you.
Moron Shemesh: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Moron Shemesh: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
Moron Shemesh: Yeah.
Moron Shemesh: Our first question comes from Mark Delaney from Goldman Sachs. Please proceed.
Mark Delaney: Yes. Good morning, Thanks, very much for taking the question I was hoping to start with an update on the engagements with the Oems with some of your more advanced solutions like supervision and chauffeur I think as of the <unk> call. You said you were either booked are in advanced discussions with 10 Oems I think I'm glad you said today that is now at 11.
Mark Delaney: And then I believe there's another four Oems, where there was more preliminary discussions underway can you give any more color on how those discussions are going your general sense of progress and where any Oems maybe deciding to go another direction or would you or do you still feel like you're well positioned with that set of customers.
Mark Delaney: SB essential for our complex systems, so early adopters they need to link the due diligence process.
Moron Shemesh: For example, before winning supervision of Bosch, we underwent thousands of miles of public globalized in Europe and in the U S. With a due diligence that took almost a year, but now we're facing the effects of COVID-19. The law of innovation of the fusion, which means that more Oems buy into supervision to Florida.
Moron Shemesh: The shorter the due diligence phase.
Moron Shemesh: So after winning the big Western the OEM.
Moron Shemesh: I believe the due diligence phase is getting much shorter and we foresee a number of design wins, both in western and in China during the 2024.
Moron Shemesh: And I believe that the announcements of those design wins would be in the second half of the year.
Emmanuel Rosner: That's helpful. One other thing I'm, hoping for an update on was the DXP platform. It was a big part of your speech and presentation at CES. This year I imagine you met with a number of.
Current and potential customers at CES, you, maybe you could share more around how impactful DXP is and the receptivity of auto Oems.
Emmanuel Rosner: DXP and maybe touch a little bit on how DXP is different from IQ Kevin. Thank you.
Kevin Smith: I think that the DXP really so.
Kevin Smith: The problem of how the OEM can own.
Kevin Smith: The driving experience in a very efficient and a very efficient manner. So previously before DXP Oems would come to us and say look we want to take care of two IQ <unk> IQ six chips add another.
Kevin Smith: Micro courses strong microprocessors.
Kevin Smith: Cost hundreds of dollars.
Kevin Smith: <unk>.
Moron Shemesh: And worldwide, our driving policy called on that micro microprocessor.
Moron Shemesh: Or there was commentary about writing our code on your IQ six the chip would create all sorts of clashes because our code and yaacov.
Moron Shemesh: Fighting a lot of resources. So we prefer to have the political as separate separate chip now this means that the cost of the system is higher.
Moron Shemesh: And the economical scalability is very very important with DXP.
Moron Shemesh: They do not need to add any additional microprocessor they do not need to write code on our IQ six chip.
Moron Shemesh: Right codes on the on the MCU.
Moron Shemesh: And the right high level growth in the use of our infrastructure for writing they're driving the policy. So it reduces it does two things it reduces the bill of materials of the system, because you don't need to add another chip.
Moron Shemesh: And it allows the mobilized to scale much faster because of all what is all the code with an on the IQ six chip is the.
Moron Shemesh: And at the same for all the for all the platforms.
Moron Shemesh: The differences are in the LCD.
Moron Shemesh: Letting them globally.
Moron Shemesh: If I may add we have the opportunity during CES to present this concept to multiple Oems in the meeting.
The reception was very compelling in the sense that although Oems now have more focus on medical corporations by cost performance and time to market. This does not come at the expense of owning user experience and being able to influence and craft their own user experience for their customer base and what's really missing in India.
Moron Shemesh: Three to find the sweet spot in between the best performance cost and time to market solution and full flexibility in crafting a unique user experience and this is where the extra tons.
Moron Shemesh: <unk> comes in and it is really perceived as in driving operating system by Oems, which is kind of simplify the task for Oems, who are now interested in offering new driving experiences in this new generation of driver assist and autonomous driving that product.
Moron Shemesh: Thank you next question please.
Moron Shemesh: Our next question comes from Emmanuel Rosner from Deutsche Bank. Please proceed.
Emmanuel Rosner: Alright, Thank you very much.
Emmanuel Rosner: My first question is around this.
Emmanuel Rosner: This chip Destocking.
Emmanuel Rosner: Jason that you flagged a few weeks or so ago can you maybe just go back over.
Emmanuel Rosner: How.
Emmanuel Rosner: You became aware of it how do you get confidence around the magnitude of the issue on the timing of it.
Emmanuel Rosner: Being resolved.
Emmanuel Rosner: In line with what you reiterated today please.
Emmanuel Rosner: Yes so.
As I mentioned in my script on the inventory buildup issues got election, two years ago and in periods when production went down.
Emmanuel Rosner: Dramatically and it was all about.
Emmanuel Rosner: The desire to secure production and to go after every chip that was also.
Emmanuel Rosner: The atmosphere for us with the suppliers and also from the sense that we sense of urgency that we industrial Merck estimate.
And that of course, we believe led to summer.
Emmanuel Rosner: Stocking billing entity in addition.
Emmanuel Rosner: Next to your question in 2022 and 2023.
Emmanuel Rosner: The ordering process change so we needed to make full year commitment to our chip supplier. So we asked our customers to do the segment make full year commitment on <unk>.
Emmanuel Rosner: For 2022, and 2023, which led to less ability from their side to Jeff Richardson.
Emmanuel Rosner: To demand.
Emmanuel Rosner: They did pre COVID-19 period so.
Emmanuel Rosner: Adjusting again, the quantities was impossible actually in 2023.
Emmanuel Rosner: In 'twenty guidance, mainly on the supply.
Emmanuel Rosner: Supply chain questions largely was over but it was still unclear.
Emmanuel Rosner: When will double production again back to normal to pre quality levels.
Emmanuel Rosner: She might be the reason that the tier one cap hoarding inventory through the year and it will also again obligated with commitments.
Emmanuel Rosner: But they had it for the year and we went to employment of course are of such quantity over the course of 2023.
Emmanuel Rosner: We believe that alcohol customers underperformed in terms of production.
Emmanuel Rosner: I felt customers a week.
Emmanuel Rosner: Sure majority of IHS estimate.
Emmanuel Rosner: They grew 4%.
Emmanuel Rosner: The overall market volume of 9% and then towards the end of the year when the commitment.
Emmanuel Rosner: Ending and now in 2024, we got back to normal in terms of orders and we have quarterly order then.
And adjusted Accordingly.
Emmanuel Rosner: We think that the reason it came after the end of 2023 and as of the beginning of the year or some other timing during this period.
Emmanuel Rosner: Okay.
Emmanuel Rosner: Understood.
Emmanuel Rosner: Helpful. And then just a quick one on the supervision I guess as part of this update a few weeks or so ago. You also sort of tweak down expectations for supervision units in 2024, I think part of it was maybe in exercising derisking around like timing launches.
Moron Shemesh: Could you provide us sort of like similar a couple of calls you know derisking around what the trajectory looks like.
Moron Shemesh: Beyond 2024, obviously.
Launches of generally for back half a little bit later than expected.
Moron Shemesh: Yes about a year or so ago.
Moron Shemesh: I want to make sure that.
Moron Shemesh: That's our expectations are properly calibrated for what's beyond 2024 in the ramp up initially when you only have a few.
Moron Shemesh: Your initial customers.
Moron Shemesh: At the beginning of 2023 that we had a small number of car models and it's difficult to make accurate forecast today. We have 30 car models that we can improve our forecast.
Moron Shemesh: So for 2023 in production, we had two car models in China to based our forecast on Halloween.
Moron Shemesh: Almost we had to rely on was the OEM numbers, which turned out to be optimistic.
Moron Shemesh: Now we know that most of the production of supervision is coming out in 2026 by 2025, we will have between nine to 11 models of.
Moron Shemesh: Supervision.
Moron Shemesh: The five the <unk>.
Moron Shemesh: Models.
From the <unk> group to form the Veeco, one smaller one from polestar one.
Moron Shemesh: Well, Hello, and then between 4% to six car models from the FAA W. So that the production in the <unk>.
Moron Shemesh: Politically forward in 2025 and that is already 46, we have or shall we have the western the big Western Oems with 17 car models as we have the we have behavior.
Moron Shemesh: And just just one follow up from me this is Dan.
Moron Shemesh: In terms of calibration for the leading edge analysts that have calibrated their model and estimate to the tracking document that we provided at CES as well as their own updated analysis. These estimates look reasonable and achievable for us.
Moron Shemesh: Thank you next question Brian.
Dan: Our next question comes from Dan <unk> from Barclays. Please proceed.
Moron Shemesh: Hi.
Daniel V. Galves: Good afternoon. Thank you for taking the question.
Daniel V. Galves: I wanted to start with.
Daniel V. Galves: Tying to your comments about the.
Daniel V. Galves: Engagements with 11 Oems.
Daniel V. Galves: I think broadly there is this narrative out there that like you said automakers do you want to own the technology, but the challenge is it's been very difficult to scale and there is a notable example of a north American automaker that is pulling back on some of their more advanced Adas plans given some struggles there.
Daniel V. Galves: No.
Daniel V. Galves: To what extent are you seeing more engagement with automakers that despite the desire to own the technology really are coming to the realization that.
Daniel V. Galves: They have no choice, but to come to you because you are the easiest and fastest way to scale to what extent are are you seeing automakers come around to you.
Daniel V. Galves: Yes, I'll take it so.
Daniel V. Galves: I think what we are seeing is this.
Daniel V. Galves: Domino effect that in one sense.
Daniel V. Galves: It is becoming a realization in the industry that the next few years are going to be very.
Daniel V. Galves: Very heavily influenced by Oem's ability to offer these products with upper hands free driving eyes off driving.
Daniel V. Galves: It is going to become a more a growingly more important feature for our consumers.
Daniel V. Galves: And this this is what gives rise to the sense of urgency amongst Oems to create the shortest path. The can for a high quality product and maybe a few years ago. It was silly.
Daniel V. Galves: Oems had the perception that they have some time to invest and they can take the longer path to get there while still owning the technology stack now the clock is ticking for them and they are looking for the kind of the best performance at the shortest time to market. So that they can compete and we already see this dynamics happening in China, and it's growing Lee growing outside of China.
Daniel V. Galves: Already today, so we do see more and more traction from Oems, who were maybe in the past more bullish on owning the technology stack with come to realization that they need to at least find a parallel path inside their company to derisk the.
Daniel V. Galves: The activity towards the next generation of native product.
Daniel V. Galves: Yes.
Daniel V. Galves: Certain portion of our engagements are with Oems.
Daniel V. Galves: <unk> invested significantly in the past and in house activities can you say that.
Speaker Change: Other than that it's really a flywheel effect.
Speaker Change: There are a few years ago, the only reference to such assistant was this Tesla autopilot in FSD.
Now you have Chinese automakers with with systems of the similar.
Speaker Change: Setup.
Speaker Change: Those Chinese automakers.
Speaker Change: Automakers.
Speaker Change: Also some of the models are being exported to the west.
Speaker Change: And those are mobilized the systems.
They that they know that portion of the big Western the OEM are also going to introduce the system. So it creates a flywheel effect.
Speaker Change: And as an OEM.
Speaker Change: Unique to cater to the.
Speaker Change: The rising competition in terms of intelligence.
Speaker Change: So this creates more and more incentive to start working with local Io. These advanced products, whether instead of their in house development or regardless of their in house development.
Speaker Change: Great. Thank you.
Speaker Change: Follow up somewhat related.
Speaker Change: Maybe you could just provide us with an update on the competitive landscape in China.
Speaker Change: Appreciate that some of the earlier engagement, you've had with supervision or based on China, but we also know that.
Speaker Change: China is the market, where there is right now the most rapid development cycle.
Speaker Change: There are also data barriers.
Speaker Change: Within China, so to what extent are you.
Speaker Change: Maybe you could talk about share trends, our win rates and in China.
Speaker Change: And to what extent are you as competitive in China as you are in the west.
Speaker Change: Okay, so actually it's going to be a lengthy answer.
Speaker Change: Bear with me, that's really complicated landscape.
Speaker Change: As always I'll start with west with the Western Oems.
Speaker Change: We have about 90% share in eight out of the 10 biggest Oems.
Speaker Change: This is true not only today, but given all the design wins to date. This is true for the foreseeable future actually given all the current design wins our market share is good.
Speaker Change: Now in China, there are a number of Oems, where we have above 90% market share, including some local Oems like Jerry there are also some local Oems, where we have around 30%.
Speaker Change: In summary, which we do not have the relationship here. So for example at BYD, we have 30% market share and with Shanghai, We have zero.
Speaker Change: So Chinese Oems.
Speaker Change: Chinese oem's growth is faster than our market share growth BYD in China.
Speaker Change: During the first.
Speaker Change: In terms of competition.
Speaker Change: Low end and high end at the low end Adas, we have some supplier competing at the very low end solutions very low cost very low end solutions and at the high end, we have the in house development before yes.
Speaker Change: Hello, and competing systems suffer from a large performance gap of the very basic features like autonomous emergency braking for example.
Speaker Change: The performance will never pass any western regulator.
Speaker Change: For them to catch up they will need to have more expensive system, which will reduce their competitive offering.
Speaker Change: Moreover, we are adding win to the low end Ada to provide the cloud enhanced distant and Jerry just announced.
Speaker Change: Within two months cars car models with mobilized club enhanced solution will be launched.
Speaker Change: This will add more pressure on our competitors by creating a moving target for a single camera Adas.
Now for the high end systems.
Speaker Change: Those are developed in house by some Oems there are still significant proof points in the past.
Moron Shemesh: I will tell you along three three axis. There is Joe girth geographic scalability performance scalability and economics scalability. So geographic wise. There is this move from highway to orbit. This is a big challenge because high definition maps provided by Mapmakers are done manually do not scale to orbit Mobilise has rent this is a bit.
Moron Shemesh: Advantage.
Moron Shemesh: So geographic wise Oems want to export systems outside of China and meter regulation Lobolo has advantage there.
Moron Shemesh: Performance wise the goal is to move from IV onto <unk>. This is a significant step up in performance and focus on safety localized hesitant about the generic.
Moron Shemesh: Economical wise in house systems are more expensive and require more sensors to reach a reasonable performance level Mobilise has an advantage there.
Moron Shemesh: No.
Moron Shemesh: Chinese I think the Chinese market is the most interesting and dynamic market to date and I think we're doing very well there and our market share will grow but the growth of the market is faster than our growth of the market share and I hope, we'll catch up soon.
Moron Shemesh: Thank you.
Moron Shemesh: Thank you Dan next question please.
Moron Shemesh: Our next question comes from E. K Micheli from Citi. Please proceed.
Moron Shemesh: Great. Thanks, everybody. Good afternoon, just two quick questions from me on the pipeline first hoping you could kind of dimension.
Moron Shemesh: A portion of the pipeline is both looking at supervision and so for a combined just given the momentum you've seen Michel for recently second question since the big announcement at CES have you seen an increase in activity and conversations including maybe with the second wave of Oems. We described in our last earnings call.
Moron Shemesh: Yes.
Moron Shemesh: Yes, so regarding the first question.
Moron Shemesh: In defense and some of the engagements we have we have parallel engagements for both supervision answer for with the same OEM. This isn't the case, where the Oems are interested in a few car models.
Moron Shemesh: With which may be the one to have different offerings for different segments in the market different price levels of cards.
Moron Shemesh: On the other hand, there are some Oems who might be more interested in specific.
Moron Shemesh: All of our specific product offering and maybe to start from chauffeur or to focus on hands off.
Moron Shemesh: For their cars because of whatever considerations. The house. So we can say we have a mixed bag of engagements in general we see a good mixture of both shelter and supervision and are in our pipeline of engagements.
Moron Shemesh: And I think regarding what was the second question. Please.
Moron Shemesh: <unk>.
Moron Shemesh: Just instance, CES any increased activity and engagement second.
Moron Shemesh: Second wave.
Moron Shemesh: Yeah. So I think one of the interesting outcomes of <unk> is that we have had just over a couple of weeks after CES, we already have.
Moron Shemesh: I think three engagements within our pipeline.
Moron Shemesh: Specifically want to focus on evaluating DXP hands on to actually start working technically on the XP to start to experiment with it to start feeling the tool is seeing how they can influence the driving experience.
Nimrod Neuston: Just after a couple of weeks since we've announced that for the first time. So it is a very promising start to this promotion process that we are executing.
Nimrod Neuston: Executing.
Nimrod Neuston: Perfect. That's very helpful. Thank you.
Nimrod Neuston: Thanks, Steve next.
Nimrod Neuston: Next question please.
Nimrod Neuston: Our next question comes from Joe Spak from UBS. Please proceed.
Joe Spak: Thanks, everyone.
Joe Spak: You talked a lot about.
Joe Spak: The progress on the supervision program wins I was wondering if you could shed a little bit of light on.
Joe Spak: When you have those conversations with customers how do they think about <unk>.
Joe Spak: Implementation on those programs are take rates like are they are they convince they can charge for these features or.
Joe Spak: You mentioned that as you sort of get to more higher end features like so far where you get time back maybe.
Joe Spak: Do we need features like that to see to really see significantly higher levels of adoption and willingness to pay.
Joe Spak: Yeah.
Joe Spak: Okay.
Joe Spak: In the West we have a restaurant and that the cost of its first life is deep.
Joe Spak: This is why it's so important to have a very economical very low cost system to allow the carmaker flexibility in pricing.
Joe Spak: Mobilized system.
Joe Spak: With the sensors is less than $2000. So this gifts.
Joe Spak: The OEM lots of flexibility and pricing considering that the <unk> $12000.
Joe Spak: To the end customers.
Joe Spak: Most of our engagements the system is.
Joe Spak: The standard fit so it's not with a take rate calculations, but it comes on every in every color.
Joe Spak: So this is this is the situation right.
Right now.
Okay.
Joe Spak: Sure.
Joe Spak: Thank you and then just the second one.
Joe Spak: You mentioned just with respect to the.
The inventory build that occurred you mentioned that.
Joe Spak: But you are implementing some procedures to put in place to make sure.
Joe Spak: Keep better track of sell through.
Joe Spak: Can you talk a little bit more about what youre doing there or is this really just you mentioned also that.
Joe Spak: For the past couple of years, you went to full year commitment. So have you sort of pulled back on full year commitments is that part of that procedure.
Joe Spak: Yeah, So I'll take it though.
Joe Spak: First of all of course, I must say that we never experienced the situation before is custom.
Joe Spak: Customers have done all through that 10 plus years, a very good job.
Joe Spak: Ordering and demand.
Joe Spak: Given.
Joe Spak: The recent history, an inventory issue of course, we are.
Taking a tuning and our upfront.
Joe Spak: <unk> and <unk>.
Joe Spak: Capabilities to monitoring our shipments versus demand.
Joe Spak: So the first thing that you mentioned, yes, we the order process is now back to normal.
Joe Spak: Our commitment is for 12 months is no longer relevant so the commitment.
Joe Spak: As only a quarter ahead. So we do get forecast 12 months forecast was that just a forecast.
Commitment, though it's the same thing with our suppliers so again.
Joe Spak: Industry and.
Joe Spak: So let me say that the 12 months' commitment is now no longer relevant in 2024, and we don't expect it to development also in the future.
Joe Spak: Okay.
Joe Spak: I think you covered it.
Joe Spak: We will also try to receive some input from our customers inventory level method is not something that we have visibility to is appointed to mention.
Joe Spak: In terms of actions, we're taking internally. So we have established a regulatory process to met shipments too detailed vehicle production, both looking backward and forward.
Joe Spak: We are putting more focus on market bank forecast that incorporate the added production rates and OEM share gains.
Joe Spak: We always had US then and update the forecast in comparison to the market, but we will now put more weight on this.
Joe Spak: Another influence the customer provided forecast.
Joe Spak: Also consider working with that with external vendors to get some statistical model forecast.
Joe Spak: To incorporate macro level data and additional head count to support the Mustang.
Joe Spak: That's what we that's the steps.
Joe Spak: We are taking.
Joe Spak: Thank you very much.
Joe Spak: With vacation that Dan mentioned it wasn't came in my script.
Joe Spak: The full guidance for 2024 Hasnt changed.
Joe Spak: From January five so.
Joe Spak: For <unk>, we anticipating 31 33 million unit.
Joe Spak: Of anchor shipment.
Joe Spak: Just a clarification Sir your line was dominantly. Thank you.
Moron Shemesh: Thank you Moron next question please.
Moron Shemesh: Our next question comes from Vijay Rakesh from Mizuho Securities. Please proceed.
Moron Shemesh: Just a quick question on the Gulf.
Moron Shemesh: Again, I think and obviously mobilized doing very well.
Vijay Raghavan Rakesh: In the Western Hemisphere, and I think especially with the caveat gone in GM cruise, having problems as well, but in China.
Vijay Raghavan Rakesh: Are you seeing there's been some concerns on potentially nvidia gaining share any thoughts around that what's driving that is that.
Vijay Raghavan Rakesh: The price performance of just Oems trying to diversify.
Vijay Raghavan Rakesh: Can you talk to what you're seeing there.
I think in China.
Vijay Raghavan Rakesh: The in house.
Vijay Raghavan Rakesh: Development in China those systems.
Have significant proof points too.
Vijay Raghavan Rakesh: We're still undergoing that says about geographic scalability economic scalability performance scalability on the economical side. These systems are way more expensive than our than our system.
Vijay Raghavan Rakesh: For example on the Aneel they have for Oren chips.
Vijay Raghavan Rakesh: Sure.
Vijay Raghavan Rakesh: Video is a very expensive chip and they have four of them and they have leather for reaching the performance level is there is not even reaching the performance level of supervision.
Vijay Raghavan Rakesh: This is an economical side on the geographical side, the big game now with going from highway to Oregon.
<unk> HD maps.
Vijay Raghavan Rakesh: Scaling to <unk>, it's not economical scalable none of those.
Vijay Raghavan Rakesh: In house developments.
Claim that there'll be using high definition maps and urban.
Speaker Change: Some of them are claiming they'll go map list good luck for them.
Speaker Change: All of them say they will only provide the commute feature where you record your normal commute and Youll get performance only on that as well.
Speaker Change: <unk> has a has ramped.
Speaker Change: And also they want to export outside of China. There's also cafe regulations.
That the local law is very very good at.
Speaker Change: So that's also an advantage.
Speaker Change: So geographic performance you want to go to is off.
Speaker Change: This is the.
Speaker Change: The Holy Grail of all of the lives of the system.
Speaker Change: Their safety is Paramount.
Moron Shemesh: You cannot just provide a system that you feel comfortable but you know you can have all sorts of safety safety issues. There because the driver is responsible in our lives off system.
Moron Shemesh: There are no discounts you have to be perfect.
Moron Shemesh: So this also as an advantage to mobilize so alright, I think China, China is very dynamic, which I think is a very good thing competitive wise moving forward very fast with the technology.
Moron Shemesh: We like that very much and I think the Oems that are doing in house development now keeping all their options open.
Moron Shemesh: Example, zika or they have an in house development that they are working also with the with mobilized.
Moron Shemesh: Have lower visibility too.
Moron Shemesh: The continuation of work with the Zika.
Moron Shemesh: Got it and just on the question on supervision.
Moron Shemesh: Obviously, there is good ramp, but as you look out through 'twenty five 'twenty six can you talk to what kind of consolidated some of your embedding either on the OEM unit side or on the.
Moron Shemesh: On the number of Oems I guess.
Moron Shemesh: As you look as you build that.
Moron Shemesh: Outlook under supervision.
Moron Shemesh: Yes.
Moron Shemesh: Mentioned that previously.
Moron Shemesh: Previously.
Moron Shemesh: So.
Moron Shemesh: In 2024 are going to be five car models, all from the jewelry group to open Zika Smart Volvo.
Pollstar folks dark pool.
And then starting end of 2024, beginning of a total of 45, 4% to six it's a W car models.
Moron Shemesh: Would be would be added.
Moron Shemesh: And then the big jump is in 2026, where we have Porsche we have the 17 models of car models of the western.
The OEM and we have Mahindra.
Moron Shemesh: In China and in all cases.
Moron Shemesh: In the Haynesville in India and in all cases, we're talking about the standard fit.
Moron Shemesh: It would.
Alright, great. Thank you just a follow up just to follow up BJ.
Yes, we want to be more conservative right and this is why we provided more of a tracking document with the number of model the OEM the launch dates.
Moron Shemesh: For analysts to make their own estimates for these years and like we said before kind of the analysts that are calibrated to this and adjusted their forecast.
Moron Shemesh: We see those as reasonable and achievable. So thank you.
Moron Shemesh: Great next question please.
Moron Shemesh: Scott are there are there additional questions.
Moron Shemesh: Our next question comes from Luke junk from Baird. Please proceed.
Moron Shemesh: Good afternoon, Thanks for taking my question.
Moron Shemesh: First question you stated in the prepared remarks IQ visibility has improved in recent weeks just hoping you can expand on what is better understood sitting here in late January.
Moron Shemesh: The ability for those two.
Moron Shemesh: Yeah, Yeah, yeah. So.
Moron Shemesh: Yes, so first of all I mean make on shipment.
Moron Shemesh: The shipment schedule for 2024.
Moron Shemesh: And our information as we have on specific inventory level from.
Moron Shemesh: Our research and based also on our customer's input.
Moron Shemesh: Of course, we've used a detailed production forecast.
Moron Shemesh: And as we mentioned we expect the majority of the excess inventory should be cleared by the end of Q1 most of that risk clearing in Q2.
Moron Shemesh: Of course actual production levels of Aero OEM will OEM customers will play a role but based on our projection again, we believe the excess inventory will be fully cleared by year end.
Moron Shemesh: At the end of the day, we had a very through analysis of again, Ada southeast maintained and longer production Oems to understand that.
Moron Shemesh: In order to.
Moron Shemesh: Meeting our production of this year, that's what we need to provide of course taking into account the <unk>.
Moron Shemesh: Inventory issue. So we have better visibility we also of course.
Speaker Change: We've mentioned in Q1, we have.
Speaker Change: Some visibility to Q2 that we will be.
Moron Shemesh: <unk> hundred percent higher than Q1, so, yes and for the rest of the year again.
Moron Shemesh: Nine month production expectation in that analysis than what we got from our customers, that's where we think we're going to land.
Martin Smith: Thanks, Martin I'll, just follow up with a couple of things because we've been obviously looking very closely so the visibility since January <unk> has improved because we have commitments for Q1.
We know what the.
Martin Smith: Generally what the volume is going to be in Q1.
Martin Smith: We have more visibility in terms of Q2.
Starting to adjust into commitments. So that's why we have the confidence to.
Martin Smith: I'll say that.
Q2 will be at least a 100% higher than Q1, and then in terms of the back half we have the indications from the tier ones and these kind of match up with kind of the market base forecast that we're looking at as well.
Martin Smith: So overall, we feel good about kind of the visibility towards the 31% to 33 million units of IQ volume.
Martin Smith: In 2024 and that that level of.
Martin Smith: Production will or that level of shipments will result in.
Martin Smith: The elimination of the excess inventory almost completely by the middle of the year.
Martin Smith: Potentially with a little bit left in the back half.
Understood Thanks for that Dan.
Martin Smith: And then my follow up question, hoping you could comment on some of the key facets of the anticipated expense growth in 2024 in particular, there has been certainly an increasing focus on the AI related facets of driving policy developments I think it'd just be clarifying to understand how mobilize investing incrementally in generative AI tool.
This year. Thank you.
Martin Smith: Our opex.
Martin Smith: Our opex growth.
Martin Smith: It is mostly devoted on.
Martin Smith: Or the desire to execute the all of these programs and supervision the pause the western Oems.
Martin Smith: All of those are converging through 2026 to continue supporting Zika.
Of course was there are many otas that are willing to do that with our going forward our move from a tier two to tier one.
Martin Smith: With the with Porsche the Western OEM work, because the tier one supplier.
Martin Smith: Some other cases, we're acting as a tier one five but all of this requires more resources to support that.
Martin Smith: In a very good way.
Martin Smith: As of today using AI that is this is this does not need growth. This is.
Martin Smith: Our normal activity with the existing manpower that the that we have is more moving from a tier two to tier one.
Martin Smith: Supporting <unk> car models that are coming up in production in the next few years does require some growth.
Martin Smith: Yeah.
Ahmad Khan: Yes, I mean, the head count cost increasing.
Ahmad Khan: A few tens of million relate.
Ahmad Khan: A higher number of employees and.
Ahmad Khan: Maybe more and hence that salary raises and also the savings that we had in 2023.
Ahmad Khan: We need to be probably in Q4, we had some reimbursement for military service.
Ahmad Khan: This necessarily will happening in 2024 out of the ILS effect.
Ahmad Khan: In Israeli shekel affecting in 2023.
Ahmad Khan: Besides that we have also a significant facilities growth.
Ahmad Khan: A few tens of millions we are moving to the new Kansas depreciation there is approximately 20 million higher so also in terms of facilities and.
Ahmad Khan: And besides that also.
Two platform IQ <unk> IQ seven.
Ahmad Khan: Radar product.
Ahmad Khan: Hum.
Ahmad Khan: As we approach 2025.
Speaker Change: And then Linda and domain, we have some growth in 2024.
Speaker Change: Thank you. Thank you.
Speaker Change: Thanks, Luke next question please.
Speaker Change: Our next question comes from Chris Mcnally from Evercore. Please proceed.
Speaker Change: Thanks, so much.
Kim: Thanks, Kim so maybe.
Just some quick math batting clean up here on the Das Tam. So I think previously <unk> discussed, 50% 21 penetration for the industry moving to about 75% in 'twenty five 'twenty six.
Kim: This seems slightly pushed out now looking at $25 26, something like in the lower mid 60% penetration. So first can we talk about industry adoption on based AI.
Kim: Then second round global market share.
You discussed.
Kim: Lower share on maybe some of the domestic China share, maybe 50% or below is it fair to see your 65% to 70% historical share.
Kim: Maybe move to this kind of I don't know 64 65 on that that mix effect over the next couple of years.
Kim: So any new high level math that you could provide us on an industry trade chips sort of later in the decade would be really helpful.
Kim: I think on the Western Oems our market share is continuing to grow just based on all the design wins that we had in 2023 and 2022.
Kim: We are growing our market share.
Kim: As I said before eight of the 10 biggest Oems, we have more than 99 zero, 90% market share.
Kim: With the China the growth of the Chinese OEM this faster than the growth of our market share. So our market share there is reducing laterally as I mentioned before China on.
Kim: It is growing very very fast and we have the zero.
Kim: We have no relationship with the China and BYD is growing very fast we have only 30% of their market share would be likely.
Kim: But we are continuing to work to get to that to get to win to get design wins.
Kim: Both the low low end Adas and the high end Adas like like supervision.
Kim: We will see how the market share in China will play out in the next the next few years, but now it's really an unstable.
Kim: Position because the market is growing very very fast.
Kim: If I may add I think that since you referred to the to a question to the market share calculation based on the inventory level.
Kim: We really think that the inventory levels that we've disclosed for accumulated over a period of time that is longer than a year.
Kim: Actually closer to three years since you've kind of strike the compound.
Kim: The effect for the volumes that we have disclosed.
Kim: About $2 million reduction per year on average, which is which accounts for maybe 1% 2% of the market share calculation that we've had in.
Kim: In the past, we don't think that this indicates for a significant change in our market share our forecast on a global level.
Kim: All makes sense on the exploration market, maybe if we can go back to that industry adoption sort of the when we hit on a global basis, 75% penetration obviously some of those western players I've been pretty slow to make standard fit obviously outside of Toyota, but any view on.
Moron Shemesh: What is sort of a ballpark year, we could think about industry adas penetration being around 65%.
Moron Shemesh: From external sources. This is the number that is being projected till the end of the decade, 75% market share of Adas.
We have no reason to believe this is going to this is going to change.
Moron Shemesh: Even possibly higher and I think that.
Moron Shemesh: India is an area, where we see a lot of growth I mean so.
Moron Shemesh: The western markets are fairly well penetrated probably above 70%.
Moron Shemesh: But theres still some growth there, but I think.
Moron Shemesh: Like India, which is.
Moron Shemesh: Maybe single digit paid off penetration, but.
Moron Shemesh: The systems that have been on the road in production in the last couple of years have been extremely successful. So now everybody is trying to kind of catch up and we have a very good position. There. So I think that that's going to be good.
Moron Shemesh: For Adas adoption as well as our share over the next couple of years.
Moron Shemesh: If I may add.
Moron Shemesh: So we do see.
Moron Shemesh: Last year, we did start to see a growing pools from regulatory bodies being in emerging markets.
In order to kind of start promoting the adoption of laser systems in new markets like South America, India as Dan mentioned in.
Moron Shemesh: In addition in Europe, and the United States. There is a move towards mandating safety systems for vehicle production. This started just recently in Europe with GSR, which is a not just a kind of a bonus.
Moron Shemesh: Turning to mandates in order to sell cars. So these two driving forces are what we think will push in the industry towards higher adoption rates within the next few years.
Moron Shemesh: Okay.
Moron Shemesh: Yes.
Moron Shemesh: Thank you.
Moron Shemesh: Thanks, Chris.
Moron Shemesh: This concludes our question and answer session I would like to turn the floor back over to Dan <unk> for closing comments.
Cat: Thank you cat for managing the call. Thanks to the management team of mobile iron and thanks to everyone for joining.
Cat: Talk to you next quarter. Thank you.