Hesai Group

Ladies and gentlemen, thank you for standing by for HESI Group's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Please note that today's conference call is being recorded. I will now turn the call over to our first speaker today, Yan-Ting Shi, the company's investor relations director. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining HESI Group's third quarter 2023 earnings conference call. Our earnings release is now available on our AI website at investor.hecitec.com, as well as via newswire services. Today, you will hear from our CEO, Dr. David Lee, who will start the call with an overview of our recent updates. Next, our global CFO, Mr. Louis Tse, will address our financial results before we open the call for questions. We also invite participants to view the slide that we have prepared for part of our discussion today. This doc is available on our IELTS website at investor.cursivetech.com in the financials followings quarterly results section. Before we continue, I refer you to the safe harbor statement in our earnings press release, which applies to this call, as we'll make forward-looking statements. Please also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparative measures reported on the GAAP in our earnings release and SEC followings. With that, I'm pleased to turn over the call to our CEO, Dr. David Lee. David, please go ahead.

Thank you, Yandy, and thank you, everyone, for joining our call today. We're delighted to report that our third quarter financial performance surpassed our expectations. Our quarterly net revenues rose to reach another record high, and our total delivery doubled year over year. Both metrics outperformed our initial projections. We're also thrilled to announce that we successfully maintained a growth margin of over 30% in the third quarter, despite the challenges posed by the transition and upgrade phases for both RoboTaxi and Ada's products. The transition of Ada's product is now fully wrapped up. This accomplishment was made possible through exceptional efforts, as well as our robot manufacturing, engineering, and supply chain optimization capabilities. As a result, we're now learning step-by-step The dip in gross margin at the lower end of the V-shaped trajectory we initially anticipated at the beginning of the year, but it made a direct leap into a stable long-term gross margin step. Upon careful comparison with our six US listed peers using publicly available information, we can probably say that our performance metrics have excelled across entire sectors. This includes stellar achievement in revenue scale, delivery, market share, and gross margin. Remarkably, we have maintained a robust balance sheet throughout this process. Of particular significance is the fact that we have achieved positive operating cash flow for the third consecutive quarter, totaling RMB US$121 million for the first nine months of 2023. This places us as the sole standout company among the peers to achieve this feat, demonstrating our unwavering commitment to operational efficiency amid continuing growth. These financial milestones are a testament to our devoted team's hard work and underscore our steadfast dedication to achieving a long-term, sustainable growth and profitability. Let's delve into the third quarter business update, starting with notable agencies on wings. We're making significant strides on the domestic front. In the third quarter, we achieved a global milestone by proudly announcing the first of this kind series production design win for our long-range, ultra-thin, in-cabin ET25 LiDAR with FAW Group, one of the top OEMs in China for the next-generation EV models under their prestigious Hongqi brand, defined by quality, luxury, and safety. ET25's revolutionized in-cabin placement protects the LiDAR unit itself From dirt, grime, and well, allowing OEMs to design car models with diminished aerodynamic resistance and sleep, the statics would please the exteriors. Fueled by our next generation vertically integrated high performance module, ET25 has emerged as the in-cabin LiDAR forerunner in terms of range detection, achieving an impressive 250 meters at 10% reflectivity rate. This success of this new design wing with FAW groove signifies robust progress in the commercialization of this in-cabin product and marks an immersed leap forward towards its mass production scheduled to materialize by the first half of 2025. Furthermore, we recently broadened our client portfolio and secured exclusive partnerships, including multiple new design wings with great wall motor, one of the largest automakers in China, as well as Leap Motor Linpao Qizhe and Neta Nezha Qizhe, two leading EV automakers in Chinese market. Their new EV models will feature our flagship AG series LiDAR, are set to debut starting in 2024 and 2025. It is noteworthy that among these recent design wins, several of them have prior engagement with our industry peers. Their choice to switch to our LiDAR products for certain existing or future models is a strong endorsement of the superior performance of our high-quality LiDAR products and our proven record of timely delivery. We're also excited to witness a rising trend where more OEMs are making the switch over to partner with us while none of our existing customers have made the move to a competitor. With these recent partnerships, we have secured design wins with 14 OEMs and Q1 suppliers, including the top five OEMs in China across over 50 vehicle models, a robust testament to our global market leadership. We eagerly look forward to contributing to the fulfillment of these automotive manufacturers' vision of creating more intelligent and safer vehicles. In international developments, we're delighted to announce that we are currently deeply engaged in nine RFI and RFQ discussions with six leading global OEMs from North America and Europe. While none of these were slated for conclusion in the third quarter, we expect three RFQs to be finalized in Q4 per customer's projection, including one from global OEMs and two from global OEMs joint ventures in China. It's worth noting that these vehicles are not exclusive to the Chinese market. Some of them are intended for global distribution. For two of these global OEMs, we have attained supplier qualification status following extensive audit procedures that include evaluation of the product quality, production line, supply chain, certification, financial stability, and other essential aspects, complemented by multiple round-up site visits. We are enthusiastic about the potential partnerships that may emerge, and we look forward to sharing more exciting news and development in the near future. In addition, we have broadened our collaboration with the prominent European OEM mentioned in our last earning call, including additional strategic development programs focused on the research and development of integrating our cutting-edge LiDAR technology into a multi-sensor package, targeting car models with SOP dates in 2028 and beyond. This expansion marks a deepened and reinforced partnership with this esteemed OEM, underscoring our acknowledged technical excellence and strategically positioning for us for potential future design wins for them. As I highlighted in my previous quarterly update, development programs of this nature are an integral to our international market strategies. they provide us with distinctive opportunity to showcase our technological prowess and engineering capabilities for OEM customers before they make final decisions regarding vendor selection. Given our accelerating number of global and domestic OEM design wings, it is becoming clear that OEMs prefer Hasai's LiDAR's superior performance in range and resolution and higher quality to that of our competitors offering. Next, I'd like to share an update on our manufacturing and the product enhancement. As you're aware, Hussain is dedicated to expeditiously advancing new products towards the SOP phase. In September, we celebrated a new milestone with our FC120, the world's first fully solid-size blind spot LIDAR to attain SOP and to be installed on a series production vehicle model, Postone 01. The first full-size luxury SUV model from Rockmotor was harnessing the advantages of the FT120's ultra-wide FOV field of view and the minimum blind spot, coupled with our flagship long-range AT series LIDAR. The resulting car model features a powerful 3D high-precision perception system, providing smarter and safer driving experience across a wide range of road scenarios. Turning our attention to our AT series LiDAR, in the third quarter, we officially launched AT128P model, the upgraded iteration of our flagship AT128A, the long-range LiDAR. AT-128P boasted an impressive set of improvements, including range extension to 240 meters at 10% reflectivity rate, higher resolution, enhanced point cloud regularity, and a 20% reduction in power consumption. Achieving a seamless transition from SOP to full-scale production at our Hearst Center in Hangzhou represents a momentous achievement that strategically positions us to leverage economies of scale through the highly automated production line in this facility, which is specifically tailored for the mass production of our mature products. We're now poised to reap the rewards of improved cost efficiency with substantial volume shipment expected in the fourth quarter of this year. The success of our recent product upgrade and the seamless ramp-up production at Hertz Center not only reflects our unwavering commitment to meeting market demand, but also stands as an invaluable learning experience. This endeavor has provided us with crucial insights and knowledge that will play a pivotal role as we contemplate expanding our production capabilities in the future. Moreover, it has strengthened our present market leadership in lighter deliveries, positioning us for sustained success. By leveraging our in-house manufacturing capabilities, we are well prepared to innovate and thrive in the dynamic landscape of every evolving industry. Lastly, I'd like to share what we have recently completed, the construction of our R&D and in-house manufacturing facility Maxwell Center, located in Jialing, Shanghai. In addition to actively preparing to produce our new fully solid-state FT-120 LiDAR, This facility is now equipped with spearhead research and development of our next generation LiDAR products. We've established 90 functional and performance testing programs with plans to scale this number to hundreds in the near future. The seamless integration of R&D activities and the production processes in this state-of-the-art facility not only amplifies efficiency but also expand our capability to introduce groundbreaking solutions to the market. We're enthusiastic about the potential this facility outlocks, driving our research initiative and enhancing the overall quality and time to market of our future product offering. To summarize, we steadily and effectively navigated our product transition during third quarter. This triumphs along with stronger-than-expected quarterly revenue, deliveries, and growth margins, put us on track for a strong finish to the year. Our continuous run of design wings and development programs from leading domestic and global OEMs is not just a remarkable feat. It's a resounding testament to our market leadership and strengthens our foundation and enduring growth. Our steady-fast commitment to performance Quality, safety, and reliability will continue to guide our endeavors as we remain dedicated to advancing the cause of autonomous transportation by enhancing safety systems and saving lives worldwide. I'll now turn the call over to Louis to share more details on our financial performance and outlook. Louis, please go ahead.