Q2 2026 ECARX Holdings Inc Earnings Call
Operator: Welcome to the ECARX Q2 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Hankinson. Please go ahead.
Speaker #1: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone.
Speaker #1: You will then hear an automated message advising your hand is raised. To whisper your question, please press *11 again. Please be advised that today's conference is being recorded.
Speaker #1: I would now like to hand the conference over to your speaker today, Mark Hankinson. Please go ahead.
Speaker #2: Thank you, operator. Good morning and welcome to ECARX's second quarter 2026 earnings conference call. With me today from ECARX are our founder and chief executive officer, Ziyu Shen; chief operating officer, Peter Cirino; and chief financial officer, Dylan Zheng.
Mark Hankinson: Thank you, operator. Good morning and welcome to ECARX's second quarter 2026 earnings conference call. With me today from ECARX are our Founder and Chief Executive Officer, Ziyu Shen, Chief Operating Officer, Peter Cirino, and Chief Financial Officer, Dylan Jeng. Following their prepared remarks, they will all be available to answer your questions. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which also apply to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the GAAP financial measures can be found at the bottom of our earnings press release.
Speaker #2: Following their prepared remarks, they will all be available to answer your questions. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which also apply to this call.
Speaker #2: Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the GAAP financial measures can be found at the bottom of our earnings press release.
Speaker #2: With that, I'd like to hand the call over to our founder and CEO, Ziyu Shen. Ziyu, please go ahead.
Mark Hankinson: With that, I'd like to hand the call over to our Founder and CEO, Ziyu Shen. Ziyu, please go ahead.
Speaker #3: Thank you, Mark. Hello everyone, and thank you for joining us today. Last quarter, we outlined our vision to push the boundaries of automotive intelligence globally and how we are transforming into a truly global business.
Ziyu Shen: Thank you, Mark. Hello everyone and thank you for joining us today. Last quarter, we outlined our vision to push the boundaries of automotive intelligence globally and how we are transforming into a truly global business, uniquely positioned to capitalize on the surging demand for higher value software and physical AI. At our earnings in May, we said we expected a significant rebound in the market from Q2, both in terms of vehicle launches and shipments. The second quarter delivered exactly as expected. We delivered a strong financial result, and we continue to build momentum and make strong progress on our strategic objectives. The second quarter continued to be defined by disciplined execution and accelerating global momentum. Our top-line revenue increased 45% year over year and up 71% from Q1. We reduced our operating expenses year on year despite the increased revenue.
Speaker #3: We are uniquely positioned to capitalize on the surging demand for higher-value software and physical AI. At our earnings in May, we said we expected a significant rebound in the market from Q2, both in terms of vehicle launches and shipments.
Speaker #3: The second quarter delivered exactly as expected. We delivered a strong financial result, and we continue to build the momentum and make strong progress on our strategic objectives.
Speaker #3: The second quarter continued to be defined by disciplined execution and accelerating global momentum. Our top-line revenue increased 45% year-over-year, and was up 71% from Q1.
Speaker #3: We reduced our operating expenses year-on-year, despite the increased revenue. We grew gross margin to 19.8%, up from 10.8% this time last year. Most notably, we delivered our fourth consecutive quarter of positive adjusted EBITDA.
Ziyu Shen: We grew gross margin to 19.8%, up from 10.8% this time last year. Most notably, we delivered our fourth consecutive quarter of positive adjusted EBITDA. I want to be clear about the market in which we achieved this. Demand in Chinese automotive has remained challenging through the H1 of this year, and global memory costs continue to be a significant factor. The growth in our revenue and profitability in this environment clearly demonstrates that the lean operating strategy we built through 2025 is doing exactly what we designed it to do. Throughout the quarter, we executed on our core priorities for the year with focus, accelerating our global strategy and investing in our R&D roadmap. That progress has strengthened our confidence going into the H2 of 2026.
Speaker #3: I want to be clear about the market in which we achieved this. Demand in Chinese automotive has remained challenging through the first half of this year, and global memory costs continue to be a significant factor.
Speaker #3: The gross in our revenue and profitability in this environment clearly demonstrates that the lean operating strategy we built through 2025 is doing exactly what we designed it to do.
Speaker #3: Throughout the quarter, we excluded on our core priorities for the year with focus: accelerating our global strategy and investing in our R&D roadmap. That progress has strengthened our confidence going into the second half of 2026.
Speaker #3: First, our global expansion was accelerated during the quarter with more new models entering mass production, expanding the visibility and scale of our solutions. Our partnership with Volkswagen Group continues to make good progress.
Ziyu Shen: First, our global expansion was accelerated during the quarter with more new models entering mass production, expanding the visibility and scale of our solutions. Our partnership with Volkswagen Group continues to make good progress. We are now putting the engineering, supply chain, and support infrastructure in place across the Latin America region and remain on target for launch in 2027. Second, we continue to invest in our robust product and R&D roadmap. We expanded in two important ways this quarter. In June, we signed a definitive agreement to acquire the entire Flyme software business for approximately $266 million. This brings a highly strategic piece of our full stack ecosystem into the business. Flyme Auto is already deployed in more than 2 million vehicles, and Flyme OS is already a core part of our Cloudpeak middleware used globally.
Speaker #3: We are now putting the engineering, supply chain, and support infrastructure in place across the Latin America region, and remain on target for launch in 2027.
Speaker #3: Second, we continue to invest in our robust product and R&D roadmap. We expanded in two important ways this quarter. In June, we signed a definitive agreement to acquire the entire Flyme software business for approximately 266 million dollars.
Speaker #3: This brings a highly strategic piece of our full-stack ecosystem into the business. Flyme Auto is already deployed in more than 2 million vehicles, and Flyme OS is already a core part of our Cloudpeak middleware, used globally.
Speaker #3: So, we are acquiring a mature platform that our own business already depends on. Flyme's momentum continues; it has recently been nominated to provide software for a leading international luxury brand in China.
Ziyu Shen: We are acquiring a mature platform that our own business already depends on. Flyme's momentum continues. It has recently been nominated to provide the software for a leading international luxury brand in China. In May, we entered into a strategic partnership with TPK Holding Co., Ltd. to co-develop the ORCA LiDAR platform. As part of the process, ECARX will lead the systems integration capability, and TPK will provide its manufacturing expertise. We are looking forward to seeing mass production begin in 2028. Lastly, we signed a share exchange agreement with Qualcomm Ventures last month. Qualcomm has been a strategic partner of ours for many years. We have collaborated deeply across multiple generations of solutions, including Zenith, which will be built on the upcoming Snapdragon Elite Automotive Platform. This agreement reflects another major milestone in our relationship to jointly develop highly specialized and integrated solutions.
Speaker #3: In May, we entered into a strategic partnership with TPK Holding to co-develop the Orca LiDAR platform. As part of the process, ECARX will lead the systems integration capabilities and TPK will provide its manufacturing expertise.
Speaker #3: We are looking forward to seeing mass production begin in 2028. And lastly, we signed a share exchange agreement with Qualcomm Ventures last month. Qualcomm has been a strategic partner of ours for many years.
Speaker #3: We have collaborated deeply across multiple generations of solutions, including Zenith, which will be built on their upcoming Snapdragon Elite Automotive platform. This agreement reflects another major milestone in our relationship to jointly develop highly specialized and integrated solutions.
Speaker #3: The progress we made during the quarter all points in the same direction: our financial results are delivering even in difficult markets. We own more of our technology stack than we did before, allowing us to capture higher value opportunities.
Ziyu Shen: The progress we made during the quarter all points in the same direction. Our financial results are delivering even in difficult markets. We own more of our technology stack than we did before, allowing us to capture higher value opportunities. We enter the H2 of the year with continued confidence in our strategic and financial direction. I will now pass the call over to Peter Cirino to discuss our operational progress in more detail.
Speaker #3: And we enter the second half of the year with continued confidence in our strategic and financial direction. I will now pass the call over to Peter Cirino to discuss our operational progress in more detail.
Speaker #2: Thank you, Ziyu. Good morning, everyone. At our earnings in May, we described Q1 as being a historically subdued quarter for both seasonal and quarter-specific reasons.
Peter Cirino: Thank you, Ziyu. Good morning, everyone. At our earnings in May, we described Q1 as being a historically subdued quarter for both seasonal and quarter-specific reasons. We guided to increasing momentum from Q2 onwards, both in terms of vehicle launches and shipment volumes. This has played out in Q2 as we expected. We achieved the launch and volume rebound we guided to in the first quarter, underscoring our strategy for a global commercial build-out through executing complex global programs across diverse vehicle lineups and markets. Shipments in the second quarter were approximately 550,000 units, an increase of 51% quarter-on-quarter that directly contributed to strong top-line growth. Against same quarter last year, volumes were 2% lower. While year-on-year shipments were marginally down, overall revenue and revenue quality was significantly increased.
Speaker #2: And we guided to increasing momentum from Q2 onwards, both in terms of vehicle launches and shipment volumes. This has played out in Q2 as we expected.
Speaker #2: We achieved the launch and volume rebound we guided to in the first quarter, underscoring our strategy for a global commercial build-out through executing complex global programs across diverse vehicle lineups and markets.
Speaker #2: Shipments in the second quarter were approximately 550,000 units, an increase of 51% quarter-on-quarter that directly contributed to strong top-line growth. Again, same quarter last year, volumes were 2% lower.
Speaker #2: While year-on-year shipments were marginally down, overall revenue and revenue quality were significantly increased. Sales of goods revenue increased both quarter-on-quarter and year-over-year as shipments of our high-end solutions continued to grow and demand accelerates.
Peter Cirino: Sales of goods revenue increased both quarter-on-quarter and year-over-year as shipments of our high-end solutions continue to grow and demand accelerates. Shipments of our high-end Antora solutions, in particular, increased 92% quarter-over-quarter and 52% year-over-year. Furthermore, shipments of our high-end performance AI-driven computing platform, Pikes, increased 43% quarter-over-quarter and over 2,000% year-over-year. Antora and Pikes now make up 42% of shipments. These are the direct results of the decision we took during Q2 last year to begin phasing out our lower margin legacy platform business and concentrate on high-end, fully ECARX architected solutions. That decision moderated our unit volumes for a period, but is now improving the quality of what we sell. The second quarter is also where our 2026 model launches began landing at scale, and every launch pulls hardware volume and associated engineering revenue with it.
Speaker #2: Shipments of our high-end and tourist solutions in particular increased 92% quarter-over-quarter and 52% year-over-year. Furthermore, shipments of our high-end performance, AI-driven computing platform PICS increased 43% quarter-over-quarter and over 2,000% year-over-year.
Speaker #2: And Tora and PICS now make up 42% of shipments. These are the direct results of the decision we took during Q2 last year to begin phasing out our lower-margin legacy platform business and concentrate on high-end, fully ECARX-architected solutions.
Speaker #2: That decision, moderated our unit volumes for a period, but has now improving the quality of what we sell. The second quarter is also where our 2026 model launches began, landing at scale.
Speaker #2: And every launch pulls hardware volume and associated engineering revenue with it. Software revenue decreased from the same quarter last year by 42% due to lower sales volume, whereas services revenues increased substantially from the same quarter last year by 21%, driven by new model launches.
Peter Cirino: Software revenue decreased from the same quarter last year by 42% due to lower sales volume, whereas services revenues increased substantially from the same quarter last year by 21%, driven by new model launches. Services revenue comprise of reoccurring software fees, but the bulk of it today tracks the timing of design and development contracts and the vehicle launch cycles they support. It can be lumpy by nature. We are pleased to see this improvement as we guided to expect three months ago. As launches accelerate, we anticipate software and services revenue will accelerate with them. To provide some context here, revenue in any given quarter is a function of three things. Those are vehicle model launch timing, shipments driven by end market demand, and component pricing.
Speaker #2: Services revenue comprised of reoccurring software fees but the bulk of it today tracks the timing of design and development contracts and the vehicle launch cycles they support.
Speaker #2: So it can be lumpy by nature. We are pleased to see this improvement, as we guided you to expect three months ago. As launches accelerate, we anticipate software and services revenue will accelerate with them.
Speaker #2: To provide some context here, revenue in any given quarter is a function of three things: those are vehicle model launch timing, shipments driven by end-market demand, and component pricing.
Speaker #2: We manage the first through operational discipline, the second through geographical and customer diversification, and the third through pricing adjustments to structurally support top-line revenue and protect profitability.
Peter Cirino: We manage the first through operational discipline, the second through geographical and customer diversification, and the third through pricing adjustments to structurally support top-line revenue and protect profitability. This business will show quarter-to-quarter variability, and we encourage you to look at the trailing four quarters rather than any single one. Turning to our customer base and growth strategy. During the quarter, we began mass production for nine new models across four brands, of which a majority are using our next generation Pikes or Antora series solutions. Of these new models, four are designated for markets outside of China, including Europe, Southeast Asia, and South America. We are pleased to see this type of growth that further reinforces our strategy on transforming into a global company. We now have 12 million vehicles with our technology on the road.
Speaker #2: But this business will show quarter-to-quarter variability, and we encourage you to look at the trailing four quarters rather than any single one.
Speaker #3: Turning to our customer base and growth strategy, during the quarter we began mass production for nine new models across four brands, the majority of which are using our next-generation PICS or Antora series solutions.
Speaker #3: Of these new models, four are designated for markets outside of China, including Europe, Southeast Asia, and South America. We are pleased to see this type of growth that further reinforces our strategy on transforming into a global company.
Speaker #3: We now have 12 million vehicles with our technology on the road.
Speaker #2: As Ziyu mentioned, our partnership with Volkswagen Group continues to drive forward during the quarter, as we continue to build out engineering, supply chain, and support infrastructure in the first region to support its expected launch in 2027.
Peter Cirino: As Ziyu mentioned, our partnership with Volkswagen Group continues to drive forward during the quarter as we continue to build out engineering, supply chain, and support infrastructure in the first region to support its expected launch in 2027. The program integrates our high-end Antora 1000 with Cloudpeak and Google built-in for premium segment vehicles alongside our cost-effective Antora 500 for entry-level segments. I want to, again, highlight the flexibility and scalability of the unique value proposition we are offering here, one portfolio of solutions that covers the full price ladder. Ziyu has already covered the strategic rationale of the pending Flyme acquisition. Flyme consists of two distinct but related pieces of software. The first is Flyme Auto, which is the application layer which we use for the interface for products sold in China. In international markets, we use Google built-in for this layer.
Speaker #2: The program integrates our high-end Antora 1000 with CloudPeak and Google built-in for premium segment vehicles. Alongside our cost-effective Antora 500 for entry-level segments. I want to again highlight the flexibility and scalability of the unique value proposition we are offering here.
Speaker #2: One portfolio of solutions that covers the full price ladder. Ziyu has already covered the strategic rationale of the pending Flyme acquisition. Flyme consists of two distinct but related pieces of software.
Speaker #2: The first is Flyme Auto, which is the application layer which we use for the interface for products sold in China. In international markets, we use Google built-in for this layer.
Speaker #2: The second piece is Flyme OS, which is the Android platform that we embed into our CloudPeak middleware. This is the core of our software stack due both in China and internationally.
Peter Cirino: The second piece is Flyme OS, which is the Android platform that we embed into our Cloudpeak middleware. This is the core of our software stack used both in China and internationally. Let me turn to what this acquisition will change operationally in both of these markets. The first is roadmap control. A competitive advantage of ECARX is our ability to tightly integrate our product solutions across layers, from silicon to sensors to software. Owning Flyme allows for deeper hardware and software integration and greater customization. That shortens the integration timelines for automakers, provides them with standardized, flexible solutions for diverse vehicle lineup, and accelerates time to market. More importantly, this will also create a competitive moat, strengthening our ability to execute complex vehicle programs at scale. The second is a revenue stream that is not tied to hardware volume.
Speaker #2: Let me turn to what this acquisition will change operationally in both of these markets. The first is roadmap control. A competitive advantage of ECARX is our ability to tightly integrate our product solutions across layers, from silicon to sensors to software.
Speaker #2: Owning Flyme allows for deeper hardware and software integration and greater customization. That shortens the integration timelines for automakers, provides them with standardized, flexible solutions for a diverse vehicle lineup, and accelerates time-to-market.
Speaker #2: More importantly, this will also create a competitive moat strengthening our ability to execute complex vehicle programs at scale. The second is a revenue stream that is not tied to hardware volume.
Speaker #2: Flyme generates revenues today from software licensing, from custom development work, and from intelligent cockpit system delivery. Adding a licensable software asset will allow us to move up the automotive value chain and capture greater margin.
Peter Cirino: Flyme generates revenues today from software licensing, from custom development work, and from intelligent cockpit system delivery. Adding a licensable software asset will allow us to move up the automotive value chain and capture greater margin. The third is interoperability. Flyme OS, which is embedded in Cloudpeak, already spans vehicles, smartphones, and wearable smart devices, which means the car connects seamlessly to these devices which drivers already carry. What differentiates Flyme OS from current products is its speed and close integration with the rest of the stack, delivering a superior user experience. This fully integrated cross-domain ecosystem equips automakers with solutions they can deploy, whether that is Flyme Auto in China or Google built-in outside of China, across a lineup to differentiate their vehicles in an intensely competitive market. We will operate Flyme as an independent software division, which will preserve R&D continuity and ensure a seamless transition for existing customers.
Speaker #2: The third is interoperability. Flyme OS, which is embedded in CloudPeak, already spans vehicles, smartphones, and wearable smart devices. This means the car connects seamlessly to these devices, which drivers already carry.
Speaker #2: With differentiated Flyme OS, from current products, is its speed and close integration with the rest of the stack, delivering a superior user experience. This fully integrated cross-domain ecosystem equips automakers with solutions they can deploy whether that is Flyme Auto in China or Google built-in outside of China, across a lineup to differentiate their vehicles in an intensely competitive market.
Speaker #2: We will operate Flyme as an independent software division which will preserve R&D continuity and ensure a seamless transition for existing customers. Existing operators of Flyme OS will continue to receive updates and user data remains in each operator's ownership.
Peter Cirino: Existing operators of Flyme OS will continue to receive updates, and user data remains in each operator's ownership. The second addition to our portfolio is our partnership with TPK to co-develop the ORCA LiDAR platform, making our formal entry into the LiDAR sector. Under that agreement, we will lead system integration, sensor fusion, and global commercialization, drawing upon our relationships with international automakers and robotaxi operators. TPK will contribute optical design, engineering, and high volume precision manufacturing. Mass production is scheduled for 2028 at TPK's facility in Thailand, and we are excited about the additional options this will allow us to provide automakers as we continue to drive further hardware and software integration. Before I pass the call to Dylan, I want to leave you with one final thought. What these partnerships and solutions provide are critical to our broader strategy.
Speaker #2: The second addition to our portfolio is our partnership with TPK to co-develop the Orca LiDAR platform. Making our formal entry into the LiDAR sector.
Speaker #2: Under that agreement, we will lead system integration, sensor fusion, and global commercialization, drawing upon our relationships with international automakers and robotaxi operators. TPK will contribute optical design, engineering, and high-volume precision manufacturing.
Speaker #2: Mass production is scheduled for 2028 at TPK's facility in Thailand, and we're excited about the additional options this will allow us to provide automakers as we continue to drive further hardware and software integration.
Speaker #2: Before I pass the call to Dylan, I want to leave you with one final thought. What these partnerships and solutions provide are critical to our broader strategy.
Speaker #2: When a global automaker asks us for a solution, we can answer with our own silicon heritage, our own computing platform, and soon our own operating system.
Peter Cirino: When a global automaker asks us for a solution, we can answer with our own silicon heritage, our own computing platform, and soon, our own operating system and our own expanding sensor technology. Very few companies in the industry can offer this sort of closely integrated stack comprising silicon to software to sensors. With that, I will turn the call over to Peter.
Speaker #2: And our own expanding sensor technology. Very few companies in the industry can offer this sort of closely integrated stack, comprising silicon to software to sensors.
Speaker #2: With that, I will turn the call over to Dylan.
Speaker #4: Thank you, Peter. And hi, everyone. The second quarter performance is a clear demonstration of the operating leverage we have been building into this business.
Dylan Jeng: Thank you, Peter, and hi, everyone. The second quarter performance is a clear demonstration of the operating leverage we have been building into this business. Revenue rebounded as strongly as launches and volumes recovered after a historically weak Q1. Our cost structure continued to improve, and we delivered our fourth consecutive quarter of a positive adjusted EBITDA. We achieved this while managing a memory cost environment that has moved sharply against our industry. Starting with the top line, total revenue was driven by four factors: growing demand outside of China, higher value products, new model launches, and the DDR memory price adjustment flowing through our pricing. Sales of goods revenue was RMB 196 million, increasing 73% sequentially and 50% year over year. Software revenue was RMB 0.7 million or a 42% decrease year over year due to lower sales volume.
Speaker #4: Revenue rebounded strongly as launches and volumes recovered after a historically weak Q1. Our cost structure continued to improve and we delivered our fourth consecutive quarter of positive adjusted EBITDA.
Speaker #4: We achieved this while managing a memory cost environment that has moved sharply against our industry. Starting with the top line, total revenue was driven by four factors: growing demand outside of China, higher value products, new model launches, and the DDR memory price adjustment flowing through our pricing.
Speaker #4: Sales of goods revenue was $186 million, increasing 73% sequentially and 50% year over year. Software revenue was $0.7 million, or a 42% decrease year over year, due to lower sales volume.
Speaker #4: Service revenue was 28 million, or a 21% increase year over year, driven by the new model launches in the quarter. The Chinese auto market remains challenging, however, as we guided in the first quarter, market condition improved overall in the second quarter.
Dylan Jeng: Service revenue was RMB 28 million or a 21% increase year over year, driven by the new model launches in the quarter. The Chinese auto market remains challenging. However, as we guided in the first quarter, market condition improved overall in the second quarter. Particularly momentum related to the first quarter. Shipped volumes were up 51% quarter to quarter. I want to spend a moment on ASPs, because arithmetic this quarter points directly at it. While volume was slightly lower year over year, revenue was up 45%. This was driven by two main factors. The first is the quality of the revenue. With our high-end products increasingly accounting for a larger share of our shipments. Our Antora and Pikes solution both increased in volume year over year, resulting in a combined 71% gains in unit shipments.
Speaker #4: Particularly momentum-related to the first quarter. Shipment volumes were up 51% quarter to quarter. I want to spend a moment on ASPs because arithmetic this quarter points directly at it.
Speaker #4: While volume was a slightly lower year over year, revenue was up 45%. This was driven by two main factors. The first is the quality of the revenue without a high-end products increasingly accounting for a larger share of our shipments.
Speaker #4: Our Antora and pipes solution both increased in volume year over year, resulting in combined 71% gains in unit shipments. This is the deliberated mixed shift we began executing last year and it is working as intended.
Dylan Jeng: This is the deliberated mix shift we began executing last year, and it is working as intended. The second is the memory cost. Higher global memory costs have structurally supported our top-line revenue as those costs pass through into our pricing. Gross profit was RMB 44.5 million, with the gross margin expanding to 19.8%. A significant improvement on the same quarter last year, where the margin was at 10.8%. Looking forward, our margin profile will continue to be influenced by global memory cost. While higher memory costs drive higher revenue, we continue to expect that gross margin and the operating profitability may be negatively impacted by memory cost dynamics in the coming quarters. Our response to manage this impact is the one we have executed consistently. That means managing our supply chains, controlling our cost structure, maintaining pricing discipline, and concentrating R&D on the higher impact solutions.
Speaker #4: The second is the memory cost. Higher global memory costs have structurally supported our top-line revenue, as those costs have passed through into our pricing.
Speaker #4: Gross profit was a 44.5 million, with the gross margin expanding to 19.8%. A significant improvement on the same quarter last year where margin was at 10.8%.
Speaker #4: And looking forward, our margin profile will continue to be influenced by global memory costs. While higher memory costs drive higher revenue, we continue to expect that gross margin and operating profitability may be negatively impacted by memory cost dynamics in the coming quarters.
Speaker #4: Our response to manage this impact is the one we have executed consistently. That means managing our supply chains, controlling our cost structure, maintaining pricing discipline and concentrating R&D on the higher impact solutions.
Speaker #4: Our lean operating strategy continued to deliver substantial efficiency gains. Operating expenses actually declined 11% year over year, set that against the 45% revenue growth.
Dylan Jeng: Our lean operating strategy continued to deliver substantial efficiency gains. Operating expenses actually declined 11% year-over-year. Set that against the 45% revenue growth, and you have the cleanest single measure of how this business has been transformed over the past 12 months. A contributor to efficiency is the internal deployment of AI across our organization. This is changing the cost curve of software development for us, with over 90% of our developers now use Claude Code and other solutions in their workflow. This becomes structurally more valuable as our software footprint expands with the addition of Flyme. On a sequential basis, we realized improvements across almost every key metric. Revenue up, cost down, profitability increased. The only exception is the adjusted EBITDA, which remained positive but was down from RMB 4 million last quarter to RMB 0.5 million in Q2, and improved annually by RMB 30.2 million.
Speaker #4: And you have the cleanest single measure of how this business has been transformed over the past 12 months. A contributor to efficiency is the terminal deployment of AI across our organization.
Speaker #4: This is changing the cost curve of the software development for us. With the over 90% of our developers now use Claude's code and other solutions in their workflow.
Speaker #4: This becomes structurally more valuable as our software footprint expands with the addition of FlyMe. On a sequential basis, we realized improvements across almost every key metric.
Speaker #4: Revenue up, cost downs, profitability increased. The only exception is the adjusted EBITDA, which remained a positive but was down from 4 million last quarter to 0.5 million in Q2.
Speaker #4: And improved annually by $30.2 million. To explain in more detail, last quarter's adjusted EBITDA of $4 million included $14 million of partial monetization of our shareholdings in Sign Engine.
Dylan Jeng: To explain in more detail, last quarter's adjusted EBITDA of RMB 4 million included that RMB 14 million of partial monetization of our shareholdings in SiEngine, which was a one-time item, and there was no similar one-time item this quarter. We are very pleased to have delivered our fourth consecutive quarters of a positive EBITDA, which is a testament both to the recovery in the market that we guided to at Q1 and our robust cost discipline. Our confidence going into the H2 of the year rests on three things. The first is the launch cadence Peter described, which leaned heavily toward the H2 of this year. The second is the order backlog underpinning those programs. The third is the historical seasonality of our business, where the H2 would consistently carry the largest shares of annual revenue.
Speaker #4: Which was a one-time item. And there was no similar one-time item this quarter. We are very pleased to have delivered our fourth consecutive quarters of a positive EBITDA.
Speaker #4: Which is a testament both to the recovery in the market that we guided to a Q1s in our robust cost discipline. Our confidence going into the second half of the year rests on three things.
Speaker #4: The first is the launch cadence, as Peter described it, which leans heavily toward the second half of this year. And the second is the order backlog underpinning those programs.
Speaker #4: The third is the historical seasonality of our business, where the second half has consistently carried the largest share of annual revenue. With that confidence in mind, we are reaffirming our four-year 2026 revenue guidance of $1 billion to $1.1 billion.
Dylan Jeng: With that confidence in mind, we are reaffirming our full year 2026 revenue guidance of RMB 1 billion to RMB 1.1 billion. In summary, the Q2 delivered the rebounds that we guided to in April. Our cost structure continues to improve, and we have added materially to the strategic assets of this business to drive growth. We remain focused on the disciplined execution and creating long-term value for our shareholders. With that, I will hand back to Ziyu for his closing remarks.
Speaker #4: In summary, the second quarter delivered the rebounds that we guided to in April. Our cost structure continues to improve, and we have added materially to the strategic assets of this business to drive growth.
Speaker #4: We remain focused on the discipline of execution and on creating long-term value for our shareholders. With that, I will hand back to Ziyu for his closing remarks.
Speaker #1: Thank you, Dylan. As you've heard today, we have made meaningful progress across our strategic priorities for 2026. This positions us for growth in the near and long term.
Ziyu Shen: Thank you, Dylan. As you have heard today, we have made meaningful progress across our strategic priorities for 2026. This positions us for growth in the near and long term. In the H1 of the year, we entered into an agreement to expand our capabilities with the addition of the Flyme business portfolio.
Speaker #1: In the first half of the year, we entered into an agreement to expand our capabilities with the addition of the FlyMe business portfolio. We extended our global reach with the Volkswagen commercial build-out.
Ziyu Shen: We extended our global reach with the Volkswagen commercial build-out, and we delivered a strong financial result on both top line and gross profit against a challenging backdrop. I'd now like to open the call for questions. Operator, please open the line.
Speaker #1: And we delivered a strong financial result on both the top line and gross profit, against the challenging backdrop. I'd now like to open the call for questions.
Speaker #1: Operator, please open the line.
Speaker #2: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. Do we hear your question?
Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Once again, that's star 11 to ask a question. Please stand by while we compile the Q&A roster. We will now take our first question from the line of Wei Huang from Deutsche Bank. Please go ahead.
Speaker #2: Please press star 1, and then 1 again. Once again, that's star 1 and then 1 to ask a question. Please stand by while we compile the Q&A roster.
Speaker #2: We will now take our first question. From the line of Wei Huang from Deutsche Bank, please go ahead.
Speaker #4: Thank you very much for taking my question. So first I would like to ask a bit about our gross margin. You have guided in one Q that's and in this quarter that our memory the memory price are going to be pressuring our gross margin this year.
Wei Huang: Thank you very much for taking my question. First, I would like to ask a bit about our gross margin. You have guided in Q1 and in this quarter that our memory prices are going to be pressuring our gross margin this year. But Q2 hardware gross margin was quite strong, actually at 15%, even though memory prices also increased quite a bit this quarter as well. What is the outlook for the H2 of the year?
Speaker #4: But to Q hardware gross margin was quite strong. Actually that's 15%. Even though memory prices also increased quite a bit this quarter as well.
Speaker #4: What is the outlook for the second half of the year?
Speaker #1: Yeah, thanks. We have reiterated our comments about the margins at sets of earnings, and obviously, the higher memory cost to support structurally higher revenue, as the balance is memory cost with our customers.
Dylan Jeng: Yeah, thanks. We reiterated our comments about the margins at sets of earnings, and obviously the higher memory cost to support structurally the higher revenue as the balance is memory cost with our customers. However, this sort of a pass-through does come at the understandably lower margins, and we do the right things and it doesn't really indicate any negative about this business. In terms of the Q2s, you're right about this was a strong performance, and that was really driven by a few things. First, as with any cost increase in components in some of the, which that we already have in stock, there are timing discrepancy between the purchasing and the passing through. Also, they're selling higher value products than we did last year. Pikes and Centaurus are up significantly, which support both the revenues and revenue quality.
Speaker #1: However, this sort of a pass-through does come at understandably lower margins. And we do the right things, and it doesn't really indicate anything negative about this business.
Speaker #1: And in terms of the Q2s, you're right—this was a strong performance, and that was really driven by a few things. First, as with any cost increase, in components and some of those which we already have in stock.
Speaker #1: And there are timing discrepancies between the purchase and the passing through. And also, we are selling higher value products than we did last year.
Speaker #1: So, pipes and then tore us up significantly, which support both the revenues and revenue quality. And very importantly, we also did a great job managing costs in the business, and we reduced our operating cost year over year, despite growing revenue by 45%.
Dylan Jeng: And very importantly, we also did a great job on managing costs in the business, and we reduced our operating costs year-over-year despite the growing revenue by 45%. I think with all the elements and the reasons that really helped during the second quarter.
Speaker #1: So I think with all the elements and the reasons that really helped during the second quarter.
Wei Huang: Thank you very much. Just to follow up on that, can I assume that our memory purchase inventory is going to be depleted and I guess the memory price hike is going to hit us more, I guess, in Q3 and Q4?
Speaker #4: Thank you very much. Just to follow up of that. So can I assume that our memory purchase inventory maybe depleted and I guess the memory price hack is going to hit us more I guess in the third quarter and fourth quarter?
Speaker #3: Wait, I'm sorry. The question wasn't very clear. Would you mind repeating it, please?
Mark Hankinson: Wei, I am sorry. The question was not very clear. Would you mind repeating it, please?
Speaker #4: Yes, no problem. You stated that one of the factors that led to the strong hardware gross margin this quarter was the memory that was already had in stock.
Wei Huang: Yes, no problem. You stated that one of the factors that led to the strong hardware gross margin this quarter was the memory that you already had in stock. So I assume as this gets depleted, our margin is going to be more under pressure in Q3 and Q4.
Speaker #4: So I assume as this gets depleted, our memory is going to be our margin is going to be more under pressure in the third quarter and fourth quarter.
Speaker #1: Yeah, it is. And we're working very closely with our supply chain teams and also working very closely with the marketplace. So we'll continue to manage that going forward.
Dylan Jeng: Yeah, it is. We are working very closely, our supply chain teams are also working very closely with the marketplace. We will continue to manage that going forward. We do anticipate.
Speaker #1: We do anticipate.
Speaker #3: Yeah. So, this is Ziyu speaking. Sorry, I jumped in here. So, I will say our supply chain team did a great job. We built a very strong strategic partnership with ZXT.
[Company Representative] (ECARX): Yeah. This is Zhi speaking. Sorry, I jumped in here. I will say, our supply chain team had a great job. We built a very strong strategic partnership with SiEngine and also Samsung. We are RF partner with them. From memory supply point of view, we are very leading. We had a very strong inventory and future pipeline. Also, principally, I want to say, and confidently, that I think most of increase actually pass over to the customer. No impact on our gross margin, that for sure. But we will strongly maintain our good supply chain operation to sustainably support our customers. That is our very strong advantage in market currently. Is that all clear?
Speaker #3: And also Samsung. So, we are an RFR partner with them. From a memory supply point of view, we are very leading, and we have a very strong inventory and a future pipeline.
Speaker #3: Also, principally, I want to say confidently that I think most of the increase actually passes over to the customer. So, no impact on our gross margin, that's for sure.
Speaker #3: But we will strongly maintain our good supply chain operation to sustainably support our customers. That's our very strong advantage in the market currently. Is that all clear?
Wei Huang: Understood. Very clear. Yes, very clear.
Speaker #4: Understood. Very clear. Yes, very clear. And then the second question is on our high-end and current pipes. You mentioned an increase quite a bit sequentially as well.
[Company Representative] (ECARX): Thank you.
Wei Huang: And then the second question is on our high-end Antora Pikes, you mentioned it increased quite a bit sequentially as well. Did you have a number for what percentage of our volume was it in the first quarter? Because you said Q2 was 42%. I wanted to do a comparison year-on-year basis.
Speaker #4: Did you have a number for what percentage of our volume? Was it in the first quarter? Because you said two Q was 42%. I wanted to do a comparison to actual basis.
Speaker #3: Yeah, I don't know if we have that number to hand. We can come back to you on that. I think we did talk about it at the Q1s, but let us confirm.
Mark Hankinson: Yeah. I don't know if we have that number to hand. We can come back to you with that. I think we did talk about it at the Q1s, but let us confirm. I don't think we have that number to hand.
Speaker #3: I don't think we have that number to hand.
Peter Cirino: Yeah. Wei, maybe I just make some comments. I mean, we see very good traction on these two product lines, and they continue to roll out across multiple customers for us in China and in the global market. And I think they're two strong lighthouse project programs for the organization. As I mentioned in my comments, Antora saw a 52% increase year-on-year. And I think, on a year-on-year basis and on a quarter-on-quarter basis, I do suspect we'll continue to see increases in that platform. Pikes was just launched last year, so it saw over a 2,000% growth year-on-year. And again, I'm very confident it will continue to grow. We're offering a great user experience to our customers on those two platforms, and I think they're solid performers for us in the market and show exceptional technology leadership.
Speaker #1: Yeah. Maybe I just make
Speaker #3: some comments. I mean, we see very good traction on these two product lines and they continue to roll out across multiple customers. For us, in China and in the global market.
Speaker #3: And I think they're two strong lighthouse project programs for the organization. So as I mentioned in my comments and Tora saw a 52% increase year on year.
Speaker #3: And I think on a year on year basis and on a quarter on quarter basis, I do suspect we'll continue to see increases in that platform.
Speaker #3: Pikes was just launched last year, so it saw over 2,000% growth year on year. And again, I'm very confident it will continue to grow.
Speaker #3: We're offering a great user experience to our customers on those two platforms. And I think they're a solid performers for us in the market and show exceptional technology leadership.
Speaker #4: Well noted. And I assume our improved product mix is also one of the reasons our ESG has increased roughly around 360 US dollars in the second quarter.
Wei Huang: Well noted. And I assume our improved product mix is also one of the reasons our ASP has increased to roughly around $360 US in the second quarter. Do you have an idea on what's a reasonable level to assume for the third quarter and fourth quarter, assuming with the new product launches and the old models upgrading to these newer platforms? How much higher can this go?
Speaker #4: Do you have an idea on what's a reasonable level to assume for the third quarter and fourth quarter, assuming with a new product launches and those models upgrading to these newer platforms?
Speaker #4: How much higher can this go?
Speaker #3: Well, I'm sorry, the question again was quite muffled. Would you mind repeating it?
Mark Hankinson: Wei, I am sorry, the question again was quite muffled. Would you mind repeating it?
Speaker #4: Yes, no problem. I wanted to ask about our AST outlook for Q2 and 4Q. Since it reached around 360 US dollars in the second quarter due to, I assume, a higher shipments of Antora and Pikes.
Wei Huang: Yes, no problem. I wanted to ask about our ASP outlook for Q3 and Q4 since it reached around $360 US in the second quarter due to, I assume, higher shipments of Antora and Pikes. Given the new model launches and the old models upgrading their chips to the newer platform, how much higher can this ASP go?
Speaker #4: And given the new model launches, and the old models upgrading their chips to the newer platform, how much higher can the CSP go?
Speaker #3: I mean, so, I don't think we'll announce a specific number on that, but that's a trend that you should see from us, I think — and you see from most of the industry — who's investing in new platforms and delivering these high-end user experiences.
Peter Cirino: Wei, I do not think we will announce a specific number on that, but that is a trend that you should see from us, I think, and you see from most of the industry who is investing in new platforms and delivering these high-end user experience. You will see that as just an industry trend, which we will feel as a tailwind. As our older products roll off and these newer, higher performance products roll on, the customer experience is actually a net decrease in their vehicle architecture cost because more functions go onto these platforms. More of the vehicle becomes software-defined. It actually enables the automaker to deploy additional features inside their vehicle environment. But with a higher performance computer in the car and higher performance software, we should continue to see, I would say, an increase in ASP.
Speaker #3: You'll see that as just an industry trend, which we'll feel as a tailwind. So as our older products roll off and these newer, higher-performance products roll on, the customer experiences actually a net decrease in their vehicle architecture cost because more functions go on to these platforms.
Speaker #3: More of the vehicle becomes software defined. It actually enables the automaker to deploy additional features inside their vehicle environment. But with a higher performance computer in the car and higher performance software, we definitely will we should continue to see I would say an increase in ASP.
Wei Huang: Well noted. My last question is on our software license as well as our service business. Gross margin for these two actually declined sequentially for the second quarter. Software license went to almost zero breakeven, and service gross margin declined as well. Do you have anything to highlight that contribute to this or just normal business amount?
Speaker #4: Well noted. My last question is about our software license, as well as our service business. Gross margin for these two actually declined sequentially for the second quarter.
Speaker #4: Software license went to almost zero break even. And service gross margin declined as well. Do you have anything to highlight that contributed to this?
Speaker #4: Or just normal business analogy?
Mark Hankinson: Wei, perhaps if I comment on that. The software line item in our financials is one that gets a lot of attention because it moves up and down by a big percentage every quarter. It is a very, very small number.
Speaker #3: The way perhaps I comment on that, I mean, the software line item in our financials is one that gets a lot of attention because it moves up and down by a big percentage every quarter.
Speaker #3: But it's a very, very small number. And the way that we think about that is that's generally around, say, a million to two million dollars a quarter.
Mark Hankinson: The way that we think about that is that is generally around, say, 1 million to $2 million a quarter, except when there is a significant event in the quarter. We saw that in Q1 2025, for instance. We would encourage people not to focus too much on the movement within software. I think it is important to understand as well that a lot of what people might think of as software comes into our services line item as well. I think the movements around margin on those are just general business dynamics as the quarters move over. It is principally driven by new product launches and being specified on platform.
Speaker #3: Except when there's a significant event in the quarter—we saw that in Q1 2025, for instance—but we'd encourage people not to focus too much on the movement within software.
Speaker #3: I think it's important to understand as well that a lot of what people might think of as software comes into our services line item as well.
Speaker #3: I think are just general business dynamics as the quarters move over. It's principally driven by new product launches and being specified on platform.
Speaker #4: Thank you very much. That's all from me. Thank you.
Wei Huang: Thank you very much. That is all from me. Thank you.
Speaker #3: Thanks, Wayne. Appreciate it.
Mark Hankinson: Thanks, Wei. Appreciate it.
Speaker #2: Thank you. To ask a question, please press star one one on your telephone. Once again, that's star one and one to ask a question. There are no further questions at this time.
Operator: Thank you. To ask a question, please press star one one on your telephone. Once again, that is star one and one to ask a question. There are no further questions at this time. I would now like to turn the conference back to Mark Hankinson for closing remarks.
Speaker #2: I would now like to turn the conference back to Mark Hankinson for closing remarks.
Speaker #3: Thank you very much, operator, and thanks to everyone for joining today. The second quarter clearly reflected strong execution. We saw this demonstrated through our financial performance, and we saw it in progress against our strategic objectives.
Mark Hankinson: Thanks very much, operator, and thanks for joining today. The Q2 clearly reflected strong execution. We saw this demonstrated through our financial performance, and we saw it in progress against our strategic objectives. ECARX is positioned to become a leading global supplier of innovative, next-generation solutions for OEMs, and we look forward to providing more updates on our progress in the H2 of the year. Thank you very much. With that, we will conclude the call.
Speaker #3: Ecarx is positioned to become a leading global supplier of innovative next-generation solutions for OEMs. And we look forward to providing more updates on our progress in the second half of the year.
Speaker #3: So, thank you very much. And with that, we'll conclude the call.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
