Hesai Group

Hello, ladies and gentlemen. Thank you for standing by for HESI Group's second quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. Please note that today's conference call is being recorded. I'll 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. Thank you for joining Herceg Group's Second Quarter 2024 Earnings Conference Call. Our earnings release is now available on our IR website at invested.herceg.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 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 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 Lee. David, please go ahead.

Thank you, Yuan Ting, and thank you, everyone, for joining our call today. Let's begin with an overview of the LiDAR market trends and some recent business highlights before moving on to our second quarter financials and operational results. We are thrilled to announce that Hassan has been recognized as the number one automotive LiDAR company by market share for the third consecutive year, according to the latest LiDAR 4 automotive reports from Yule Intelligence, a world-renowned European independent research firm. was a stellar year for Hasei, marked by record-breaking revenues and shipments, strategic design wins, and expanded product lineup and new partnerships. Our expertise in both passenger cars and robot taxis enabled us to capture 37% of the global LIDAR market and an impressive 74% share of the global robot taxi LIDAR market in 2023, demonstrating our clear leadership of the global automotive LIDAR market. Youth recognition inspires us to aim even higher as we continue to deliver the most advanced and powerful LiDAR products, driving further growth and innovation in the dynamic automotive industry. Next, a brief update on autonomous mobility business. At present, one of the most exciting developments in China is the thriving robot taxi market, which is scaling and commercializing at an impressive pace. We're delighted to witness this momentum and proud of Hesai's key role in promoting this train. Baidu's Apollo Go, an autonomous driving travel service platform, has recently launched operations in Wuhan, one of China's largest cities. This launch has garnered significant market interest and numerous orders, highlighting the clear development path and the tremendous potential of the robot taxi business. According to media reports, ApolloGo has provided over 6 million robotics rides in 11 Chinese cities since 2019, which is serving as Baidu ApolloGo's exclusive supplier for their vehicle's main perception LiDAR. With their sixth generation rolling out this year, each vehicle is equipped with four of our AT128A LiDARs, marking the first large-scale application of ADAS LiDAR solutions on robot taxis in China. Our collaboration with Baidu Sapporo Gold is a prime example of how our advanced LiDAR solutions at attractive price points can provide a comprehensive object perception, accelerating the adoption and the commercialization of driverless vehicles globally. Let's now turn our attention to the ADAS market. In the last quarterly update, we underscored the significance of 2024 as a decisive year for the LiDAR industry leap to mass market popularity. According to GGII, a renowned automotive research and consulting firm, LiDAR adoption rate among EV price above RMB 150,000 is projected to surpass 16% this year. varying towards 50% in alignment with the famous crossing the chasm innovation adoption model. We are pleased to note that this critical 16% inflection point was reached earlier than the market anticipated. According to the latest data, our overall LIDAR penetration rate in China reached an impressive 22% in June of this year. driven by consistent monthly increases of approximately 2% over the past three months. Additional June statistics also reflect this trend, revealing that average LiDAR adoption rate among the top 10 best-selling new EV makers in China exceeds 60% of their total sales and volume. In the first half of the year, LiDAR installations increased remarkably by approximately 260% year-over-year, outpacing the growth rate of other sensor installations by almost 10 times. These figures highlight LiDAR's accelerated acceptance and its critical role in enhancing vehicle safety and comprehensively improving autonomous driving capabilities. we anticipated that LiDAR will continue to drive innovation across automotive industry and shape the future of smart transportation. In light of these LiDAR market trends, our strategic approach of offering both ultimate performance and ultimate value to cost products has positioned us to adaptively address the diverse need of our extensive client base. Our next-generation flagship products, such as ATX and AT512, are gaining significant traction among OEM's competing intelligent driving functions. Maintaining a flexible and competitive product roadmap has also enabled us to secure crucial design wins for new car models scheduled for SOP in 2025 and beyond. In the second quarter, we recorded a series of new design wins within the domestic market. Our deliveries for those models are scheduled to begin next year. These include a flagship model from a top-selling EV maker new to our client roster, which currently has 15,000 vehicle shipments per month. Our existing customers, who are among the largest EV shippers in China, have also extended their partnerships with us to include multiple new models and facelifts set to launch starting in 2025. The rapid adoption of our products by these key players reflects our competitive edge and the substantial value we provide. Notably, as L3 autonomous driving technology promises an unprecedented consumer experience, There is a growing trend in the domestic market to prioritize high-performance lighter products for next-generation vehicles targeting L3 standards alongside domestic OEMs' historical focus on cost efficiency. Among the previously mentioned new design wings, a leading EV maker has already signed an agreement with us to exclusively adopt Hussite Next Generation L3 Ultra High Performance LiDAR for all their new models scheduled for release in 2025. These further solidifies our position as a leader in advanced LiDAR technology and opens the gate for more domestic OEMs to follow. On an international front, We have secured design wins with four prominent global OEMs, including three joint ventures in China with two American and one European automotive companies. Some of their models will be shipped both domestically and globally. Most notably, we have been selected by a global automotive OEM for its worldwide shipping programs. Unlike some of the competitors who are still in the B-sample development phase, we are progressing towards the actual delivery of B-samples for this milestone design wing. Additionally, we've been awarded new POC programs with two leading global OEMs from Europe, including a prestigious sports car brand to test HECI's next-generation high-performance, long-range, and short-range UIDARs. While these two POCs are not yet fully design wings, we believe they have potential to convert into real deals in the future. To date, we have secured the ADA's design wins with a total of 19 OEMs globally across over 70 vehicle models. This includes ADA series production partnerships with six out of the top 10 global OEMs directly or through entities within their group and 8 out of the top 10 domestic OEMs measured by their revenue in 2023. Among these 19 OEMs, 13 of them have chosen Tasai as their exclusive long-range liner supplier, further demonstrating the trust and confidence the industry places in our products and capabilities. Now, let's briefly go through our operating and financial results for the second quarter of 2024 To be mindful of the length of the earning call today, I encourage our listeners to refer to our second quarter earning press release for further details. In the second quarter, we achieved quarterly revenue of RMB 458.9 million, US dollar 63.1 million, reaching the high end of our guidance. In addition, our LIDAR shipment rose to over 86,000 units marking an increase of 66% year-over-year and 46% quarter-over-quarter. Our blended growth margin was robust at approximately 45%, improving quarter-over-quarter thanks to effective cost management and our flywheel approach to cost and scale optimization, as well as additional service revenue contribution during the quarter. As a result, our quarterly net loss narrowed significantly by 33% quarter over quarter to RMB $72.1 million, US dollars $9.9 million. These accomplishments highlight our best-in-class execution within the global LIDAR industry in streamlining our operations. We continue to anticipate stronger performance in the second half of the year, both in terms of revenues and shipments. For the third quarter of 2024, we expect net revenue to be between RMB $460 million, $61.9 million, and RMB $500 million, $68.8 million, representing a year-over-year increase of approximately 1 to 12.2%. In light of our downstream adjustments to accommodate the postponed SOP timeline for certain client vehicle models, we've revised our full-year revenue forecast to be within a range of RMB 2.0 to 2.3 billion, roughly US dollars 280 to 320 million. Additionally, we anticipate that less than 20% of our total revenue will come from the US market, the vast majority of our revenue will be generated outside the U.S., driven by the increasing demand for LiDAR technology elsewhere. Despite the recent downstream adjustment in ADAS and unexpected production delays on the RoboTech side since late 2023, our financial strength remains robust, reflecting the resilience of our business. Our cost management initiatives have yielded better-than-expected results in terms of our blended growth margins. Compared to our earlier guidance, which projected a blended growth margin at the higher end of the 30% to 35% range for the full year of 2024, we now foresee the blended growth margin for the third and fourth quarter is expected to be close to 40%. This expectation holds true even with the notable year-over-year growth in the ADAS business, which although expanding rapidly, has traditionally had a lower margin. We are not aware of any other player in the global LiDAR industry that matches our financial strengths while operating on such a massive delivery scale. We anticipate that effective expense controls and optimized operational efficiencies will bring us closer to achieving profitability in the fourth quarter of this fiscal year. We'd like to remind you that this outlook is based on the current market conditions and reflects the company's preliminary estimate of the market and operating conditions and customers' demands, which are all subject to change. Looking ahead, we see strong growth opportunities. Our strategic initiatives and market positioning lay a solid foundation for future success. We're confident in our growth potential for 2025 and 2026 and expect to continue outperforming our LiDAR peers through the following key factors. First, we're strategically positioned to benefit from the rapid growth of the robot taxi market, particularly in China. The recent launch of Baidu's Apollo goal across 11 major Chinese cities marks the beginning of a new era. Industry analysts estimate that this LiDAR deal is worth 200 to 300 million US dollars based on Baidu's plans to deploy approximately 100,000 robot taxi vehicles in China. This move is expected to be the first extensive deployment of robot taxi technologies in the Chinese market, and Baidu's advancements are just the tip of the iceberg. Other leading robot taxi players are also making significant strides. Notably, all of the top five robo taxi companies in China have selected Hezai as their exclusive main perception liar supplier. As our robo taxi customers continue to enhance cost efficiencies and scale their operations, we anticipate a strong rebound in our robo taxi-related revenues in the coming years. Second, the ADA sector, with fewer key design wins with 19 leading OEMs globally, 13 of which have selected us as their exclusive long-range LiDAR supplier. Our strategic approach of offering both ultimate performance and ultimate value to cost products is generating a robust ADAS order pipeline for 2025 and 2026, stronger than that of our peers. Our ATX ADAS LiDAR, designed for mass market and large-scale adoption, has secured design wins from seven OEMs as of the end of second quarter. This positions us for millions of units in use throughout the coming years based on customer demand forecasts. Furthermore, We are the sole recognized provider of ultra-high-performance LiDAR, particularly our AT512, for OEMs aiming to achieve Level 3 standards in their next generation of intelligent vehicles. Notably, we're executing Level 3 series production programs using this advanced technology, including collaborations with a leading EV maker in China and a leading global OEM. These achievements position our ADAS business for exceptional growth both domestically and internationally supported by our cutting edge technology improvement track record of over 450,000 LiDAR deliveries since inception as of end of the second quarter. Third, we anticipate that the introduction of regulations mandating higher safety standards will be transformative for the LiDAR industry. Initiatives such as China's newly launched Level 3 policy and the NISTAS AED speed requirements in the U.S. are propelling advancement in intelligent driving with an unprecedented emphasis on safety. Meanwhile, more OEMs and consumers are recognizing LiDAR configurations as essential safety features, just like safety belts or airbags. As a global leader in automotive LIDAR, HSAI is exceptionally well positioned to capitalize on these dynamic safety trends. Last but not least, before I conclude, I'm delighted to announce that the publication of HSAI's inaugural ESG report. This report outlines our efforts and accomplishments in ESG across our business operations and underscores our ongoing commitment to sustainable development. As a leader in the automotive LiDAR industry, Hosea is delighted not only to elevate people's lives within cutting edge LiDAR technology and products, but also fostering greener and more sustainable operations. Moving forward, we'll continue to align our business goals with ESG best practices to ensure long-term value for our stakeholders and society. For more details on the ESG report, please visit our IR website. In summary, we're poised to capitalize on emerging opportunities in the automotive industry backed by our efficient operations, a robust financial foundation, and outstanding technological capabilities. As we look to the remainder of 2024 and beyond, we remain committed to driving innovations and providing top-tier LiDAR solutions that enhance vehicle safety and autonomous driving worldwide while adhering to our ESG objectives. This concludes our prepared remarks today. Operator, we're now ready to take questions.