Hesai Group

Hello, ladies and gentlemen. Thank you for standing by for Hersey's Group's first quarter 2024 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, Yuan-Ting Shi, the company's Investor Relations Director. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining Herstead Group's first quarter 2024 earnings conference call. Our earnings release is now available on our IR website at investor.hersteadtech.com, as well as via Newswire Services. Today, you will hear from our CEO, Dr. David Lee, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings trust release, which applies to this call, as we will 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 comparable measures reported on the GAAP in our earnings release and SEC filings. With that, I'm pleased to turn over the call to our CEO, Dr. David Li. David, please go ahead.

Thank you, Yuanqing, and thank you, everyone, for joining our call today. We demonstrated great financial resilience in the first quarter, navigating typical seasonal factors as well as slower demand in our robo-taxi business compared with the previous year as guided. Despite the challenges, our dedicated effort yielded first quarter net revenue and total LIDAR shipment exceeding our earlier forecast. Moreover, our effective cost management endeavors and the flywheel strategy we have implemented brought us closer to achieving profitability in the fourth quarter of this fiscal year. As automotive industry landscape continues to evolve, it's essential to understand the development trajectories and strategies that will shape our future progress. Let's start with a brief review of the LiDAR industry in recent years. The past decade has been a pivotal period for the LIDAR industry marked by significant growth. LIDAR applications have expanded from robo-taxis to ADAS, transitioning from prototype to product, and presently to merchandise, where customers now seek a balanced blend of price and performance. Looking closely at 2024, we believe it's likely to be a decisive year for the LiDAR industry's leap to mass market popularity. According to GGII, a renowned automotive research and consulting firm, the LiDAR adoption rate among EVs priced above 150,000 RMB is projected to surpass 16% this year. varying towards 50% in alignment with the famous crossing-the-cages innovation adoption model. Given this industry's inflection point, we need a flexible and competitive product roadmap to support HSAI's future development. To better explain our dual-strategy approaches for ADAS LiDAR development, I'll refer to Moore's Law, which delineates two pathways for technological advancement. ultimate performance and ultimate value to cost. First, a quick comment about ultimate performance. The trend towards more advanced ADAS function is clearly gaining traction among OEMs, particularly global players, driving demand for high-performance LiDAR with significantly enhanced specifications to power advanced features for level 3 autonomous driving. In response, Hesai has leveraged its technical know-how to define the next generation of groundbreaking lighters with products such as AT512. This 512-channel ultra-high-performance LiDAR sets new industry standards by pushing the boundaries of every core performance metric for long-range LiDARs, boasting a detection range of over 300 meters at 10% reflectivity and image quality with a point rate of 12.3 million points per second. We designed AT512 to provide our OEM partners with the necessary components to craft autonomous driving solutions with the highest level of safety. In terms of ultimate value to cost, LiDAR technology's expansion to mass market is an inevitable trend poised to reshape the landscape. As mainstream consumers increasingly appreciate LiDAR's intrinsic value through its integration into autonomous driving systems and its pivotal role in enhancing safety, LiDAR is playing a great role in decision-making for car buyers. On the OEM side, LiDAR has become a necessity as it enables OEMs to quickly and affordably elevate their autonomous driving features. Current market dynamics support this view. LiDAR technology once exclusive to premium car models, is now being integrated into more affordable vehicles. The growing demand for mass market LIDAR presents a golden opportunity for us, revealing an enormous market with a potential tens of million level shipment volume. We've implemented a flywheel strategy to capitalize on these prospects. By leveraging our strong capabilities in vertical integration, our higher value-to-cost products will empower us to crack larger LIDAR markets and elevate shipment volume. Economies of scale will further dilute cost per unit, creating a self-threading virtuous cycle. This flywheel strategy derived from our deep understanding of the industry's competitive landscape has been steadily gathering momentum since the inception of our aid assistance and will be the driving force behind our future triumphs. By the end of the first quarter, HSI has cumulated the shift over 380,000 LIDAR since our establishment. Our leading-edge technology and proven track record create tailwinds that propel our success and amplify the long-term benefit of scale. We are beyond thrilled to unveil recent collaborations with esteemed new customers, including two additional top-ten global automotive OEMs by revenue to provide aid as LIDARs for their upcoming series production programs. We have now secured design wins with four prominent global OEMs, including three global OEMs joint ventures, and most importantly, one global automotive OEM with worldwide shipping programs. These partnerships are landmark commercial wins for us, showcasing the trust we have diligently established with esteemed global OEMs' renown for its highest standard in vehicle safety and performance. Notably, some of those customers had prior engagement with our peers but have now chosen to partner with us for the first time. We are genuinely excited to receive their votes for confidence in our LiDAR technology, and we couldn't be more thrilled to play an integral role in the next phase of this global OEM satanic journey. Domestically, we forged a partnership with another new customer, GAC, one of China's leading OEMs, to jointly develop and integrate our next-generation LiDAR products into their forthcoming line of passenger vehicles. These global and domestic partnerships reflect a substantial and steady stream of opportunities ahead. As our market share and delivery volumes continue to climb, our production cost per liter will decrease, bolstering our competitive edge in terms of value to cost and making our value proposition to partners even more attractive. While our flywheel strategy has already produced tangible positive outcomes, they are just the beginning of our journey. Our latest innovation, the ATX, a cutting-edge, ultra-compact, high-performance, long-range ADAS LiDAR, embodies the next phase. This groundbreaking innovation, where the X symbolizes endless possibilities for every vehicle, is priced competitively among similar products. while offering better performance across key metrics, representing a significant leap forward in our commitment to excellence and scalable safety. The ATX inherits the main capabilities of our best-selling AT128 LiDAR, retaining its market-validated, one-dimensional scanning architecture while featuring a broad array of technological advancements. First, Leveraging our state-of-the-art fourth generation technology platform, the ATX demonstrated our mastery in seamlessly integrating internally developed core components. Boasting a maximum detection range of 300 meters and the world's first 140-degree horizontal FOV in a long-range ADAS LiDAR, the ATX sets a new standard for mass market LiDAR. With its 7x optical zoom capability, the ATX maximum detection range can be extended even further, reaching 500 meters with a more concentrated FOV. This versatile feature enables the ATX to flexibly provide either a wide view of complex road conditions, such as in nearby vehicles and pedestrians, or ultra-long range of visibility, depending on the situation's need. Additionally, the ATX optimized optical and mechanical design makes it 60% smaller and 50% lighter than AT128. Its accurate structure not only optimizes bomb cost, but also simplifies several manufacturing processes. This makes scale manufacturing significantly more efficient, boasting our flywheel strategy. In addition, the ATX's delicate and compact design coupled with its ultra-low power consumption of only 8 watts enables ATX's versatile installation in various locations within a vehicle. Whether mounted on a car's roof, behind a windshield, or integrated into a headlamp, the ATX offers unparalleled flexibility. On a related note, we're proud to announce the strategic collaboration with Morelli, a global leader in automotive lighting, to integrate the ADX into Morelli's innovative headlight designs. This ingenious placement provides the vehicle with extraordinary environmental protection capabilities, significantly improving safety. On top of that, it saves cost without altering vehicle's appearance and aerodynamics performance. Last but not least, the ATX is equipped with HACCP proprietary first-of-its-kind intelligent point cloud engine, IPE, which integrates 256 waveform processing cores and features a high sampling frequency of 24.6 billion per second. This innovation enables the ATF to intelligently mitigate the impact of rain, emitted gas, dust, etc., effectively filtering out 99.9% of the environmental noise. It also ensures reliable recognition and minimizes false triggers, providing all weather safety perception for intelligent vehicles. Moreover, the ITE alleviates pressure on the OEM to develop algorithms with similar functions, showcasing our deep understanding of customers' needs and pain points. With its cutting-edge features and robust design, the ATX has already received design wins and collaborative programs from four leading global domestic OEMs, including a leading domestic traditional OEM, a top-tier EV manufacturer in China, a leading new EV maker in China, and a major global OEM joint venture. These partnerships reflect industry-wide recognition of the ATX potential to revolutionize intelligent vehicle technology and catalyze widespread adoption of LIDAR across various vehicle types. The ATX is expected to enter production in the first quarter of 2025, further propelling our flywheel strategy. Now, Let's briefly go through our operating and financial results for the first quarter of 2024. To be mindful of the length of our earning call today, I encourage listeners to refer to our first quarter earnings press release for the details. We delivered a resilient financial performance for the first quarter with a net revenue of RMB $359.1 million, U.S. dollar $49.7 million, at the higher end of our forecast, in line with our expectations, factor in typical seasonal effects. Strong growth in domestic ADAS adoption drove quarterly total ladder shipment over 59,000 units, a 70% year-over-year increase, offsetting slower demand in our robo-taxing business compared to the previous year. Particularly noteworthy is our progress towards achieving profitability by the fourth quarter of this fiscal year, driven by effective cost management and our flywheel approach to cost and scale optimization. Now, moving to our financial outlook. For the second quarter of 2024, we expect net revenue to be between RMB $440 million, $60.9 million, and RMB $460 million, $63.7 million, representing a year-over-year increase of approximately flat to 4.5%. For the full year of 2024, we anticipate annual revenue to be within a range of RMB $2.5 to $2.8 billion, roughly U.S. dollars $350 to $400 million as compared to our previous guidance of U.S. dollars $400 to $450 million, an adjustment around 10%. In terms of shipment, we expect total LIDAR shipments to reach approximately 90,000 units in the second quarter of 2024 and over 500,000 units for the entire year of 2024. This updated forecast reflects our prudence in LIDAR fluctuation in downstream EV sales during this year. With this adjustment, the contribution from high-margin robo-taxi business is expected to increase to roughly half of our total revenue in 2024, pushing our blended gross margin guidance toward the higher end of 30% to 35% range. Meanwhile, we anticipate that the proportion of the revenue derived from the U.S. will be less than 20% of the total revenue in 2024, driven by increasing demand outside the U.S. This outlook is based on the current market conditions that reflect the company's preliminary estimate of market and operating conditions and customer demand, which are all subject to change. The automotive industry worldwide is undergoing a significant revolution, driven by the rapid advancement of autonomous driving solutions. We're thrilled to be recognized as a pioneer leader in this transformative way. To date, We've secured eight design wins with a total of 18 OEMs and Tier 1 suppliers globally across approximately 70 vehicle models. With a robust pipeline of SOP, we eagerly anticipate an exhilarating second half of the year and beyond. As we look to the future, we remain committed to leading through innovation and Using our technological capabilities to enhance safety, save lives, and create a more intelligent global transportation system will continue to foster our financial strength and global competitiveness as we progress towards profitability by the fourth quarter of this year. Thank you for your steadfast support and trust in our vision. We're excited about what lies ahead and remain confident in our ability to maintain our leading position and achieve sustained growth in our dynamic automotive industry. This concludes our prepared remarks today, and operator, we're now ready to take questions.