Hesai Group

Hello, ladies and gentlemen. Thank you for standing by. Welcome to HESI Group's third 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 will now turn the call over to our first speaker today, Huangting Qi, the company's investor relations director. Please go ahead.

Thank you, our creator. Hello, everyone, and thank you for joining Closet Group's third quarter Kisan 24 earnings conference call. Our earnings release is now available on our IR website at investor.closettech.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. Next, we would like to welcome our new CFO, Mr. Andrew Fan, who will 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 compatible measures reported on the GAAP in our earnings release and the SEC filings. With that, I'm pleased to turn over the call to our CEO, Dr. David Li. David, please go ahead.

Thank you, Yuanjing, and thank you, everyone, for joining our call today. Let's start with an overview of this quarter's progress. First, we surpassed the high end of our revenue guidance for the third quarter, delivering net revenue of RMB 539.4 million and maintaining a strong growth trajectory. We also continued to accelerate LIDAR adoption among our customers. We delivered a total of over 134,000 units during the third quarter, marking our second consecutive quarter of nearly 50 percent sequential growth this trend underscores a growing recognition of the value that lidar brings to autonomous driving systems and we're confident that this momentum will carry into remainder of 2024 and next year second Our strong commitment to operational efficiency and financial discipline has enabled us to consistently reduce our gap net loss for four consecutive quarters. Fueled by powerful trends and exceptional finance performance, We're moving full speed ahead towards a monumental goal, a projected revenue of US$100 million with an estimated net profit of US$20 million for the fourth quarter alone. We couldn't be more excited as we're now projecting full-year profitability on a non-GAAP basis for 2024. making us the first automotive LiDAR company worldwide to reach this remarkable milestone. This put us on a path to close the physical year with an unprecedented overall financial performance. Looking at the broader industry landscape, LiDAR technology is increasingly recognized as a key driver in the advancement of autonomous driving. According to recent data from Gasco, a leading automotive industry information service platform, approximately two-thirds of the models with highway NOA are now equipped with LiDAR, and the city NOA models have achieved 100% LiDAR adoption. Moreover, a recent research report projected a strong increase in level 2 and level 2 plus ADAS adoption in China, estimating a 40% penetration rate for 2024 and 50% by 2025. A key turning point is anticipated in 2026 with the introduction of Level 3 autonomous driving solutions, which will demand even higher standards for perception and safety capabilities. This evolution marks an exciting phase of market expansion and technological progress in the autonomous driving sector as the analysis indicates that not only will more advanced vehicles adopt LiDAR technology, but they will also likely employ multiple LiDAR units to create a 200 to 300 meter safety buffer, significantly enhancing overall safety standards. A recent U.S. safety investigation highlights the critical role of LiDAR technology in vehicle safety systems. The National Highway Traffic Safety Administration, NISTA, has launched a probe into around 2.4 million vehicles equipped with vision-only ADAS systems after collisions occur in low-visibility conditions like fog and glare. These incidents have exposed the limitations of relying solely on a camera-based system for vehicle safety, raising a critical question. Is a vision-only approach truly sufficient for autonomous driving? While future AI and vision language models will undoubtedly enhance vision-only systems, they will still require extensive training and remain vulnerable in low-visibility scenarios. In contrast, LIDAR generates its own light and offers a real depth measurement without depending on vision algorithms, which may struggle in poor visibility conditions or with irregular objects. With LIDAR becoming more affordable and scalable, it directly addresses the limitations of vision-only systems. that adopting LiDAR, which functions like an active seatbelt or airbag, alongside with cameras, is essential for improving safety in autonomous driving, making it as safe, if not safer, than human drivers. Now let's shift our discussion to our roster of ADUS clients who are strong advocates for integrating LiDAR into their system. LiAuto, our largest ADS client, achieved a remarkable milestone by producing its one millionth vehicle in October, which also marked a proud moment for us, showcasing our success in supporting LiAuto's rapid growth as well as maintaining a leading share of the LiDAR market in China. We're confident that this momentum will continue as our OEM partners pursue new goals further cementing our role as a key supplier in the ADA sector. We also recently secured a new platform win with Leap Motor, a leading EV maker in China, and the facelift of two flagship models with a premium EV brand backed by a leading Chinese automotive group. Production of these models is expected to commence in 2025. Kasai will be serving as the exclusive mainline supplier for these new wings. This exclusivity reflects the trust and confidence that these manufacturers place in our technology while broadening our presence in the rapidly growing EV market. What's more, we're thrilled to announce a new collaboration with a leading EV manufacturer in China. As one of our top customers by shipment volume and a leader in the EV industry, this pioneering OEM has also exclusively selected our next generation Level 3 Ultra High Performance LiDAR alongside with the cost-effective ATX LiDAR to power their upcoming models slated for release in 2025. Building on this momentum, our ATX LiDAR is rapidly approaching its SOP phase. Its innovative integrated design and exceptional cost efficiency have already sparked significant interest with multiple customers planning to adopt it as a standard feature in their 2025 lineups. The future of scalable intelligent driving is here, and we're proud to lead the way. This quarter's success extends beyond the domestic alien market with new progress in expanding our global reach. First, our worldwide shipping programs with a leading global automotive OEM have advanced through several critical phases to the successful delivery of B-sample units, a key step in validating our technology's performance and ensuring that it aligns with our partners' rigorous standards. These samples are essential for assessing how our LiDAR solutions perform under real-world conditions and verifying their integration into the OEM's vehicle platforms. Our progress also enhances our position as a vital contributor to the global automotive ecosystem, helping shape the next generation of vehicles that will define the future of mobility. Furthermore, we recently signed a collaborative framework with SAKE Volkswagen for an automotive LiDAR program, marking a new chapter in our partnership and elevating our position to a strategic supplier for the top-selling automotive joint venture in China by sales volume. Together, We aim to innovatively integrate advanced LiDAR technology into vehicles, enhancing safety and automation features while propelling the OEM's vision for smart vehicle innovation. To date, we have secured the design wins with five prominent global OEMs, including four joint ventures in China with two Americans and two European automotive companies. These joint venture collaborations enable us to leverage our partners' established network resources and expertise. Their guidance has been instrumental in enhancing our collaborative capabilities, helping us streamline operations and meet global standards more effectively. We believe our strategic alignments will position us to capitalize on emerging opportunities and pave the way for our participation in the global supply chain. Our efforts to expand our global footprint across the broader Asia market have also yielded promising results. We're delighted to announce two newly secured development projects, both proof-of-concept POT programs with a top-three OEM in Japan. These programs cover both level 2 plus passenger vehicles and level 4 robotaxi applications, highlighting our growing influence and capabilities in diverse segments of the ADAS and AM markets. Securing these POC projects with a leading OEM in Japan underscores the trust placed in our technology and expertise while providing a valuable opportunity to showcase our LiDAR systems functionality across various scenarios. Currently, we have four POT programs underway with three global OEMs, and we're excited about the potential of these partnerships as they move into the next phase. Over the past two years, both Hazai and the broader LiDAR industry have largely concentrated on the ADA sector which has seen substantial growth driven by rapid advancement in intelligent driving, particularly in China. While the data sector will remain a key focus, we're also committed to exploring the opportunities in the broader autonomous mobility market, where we have traditionally held a significant global share as a market that prioritizes performance over price sensitivity, autonomous mobility offers exciting growth opportunity as a new valuable use cases to continue to emerge. In September, we unveiled our latest flagship 360 degree mechanical automotive grid long range LIDAR OT128 at the 2024 IAA Transportation Fair in Germany. inheriting 95% of the key components from Hazet's best-selling AT120P ADAS LiDAR, OT128 boasts a point rate of 3.45 million per second and a 200-meter detection range at 10% reflectivity. This high-performance, 360-degree perception LiDAR with a market-proven, vertically integrated architecture makes OT128 is an ideal solution for scalable applications, including robotaxis, industrial robotics, smart factories, and logistics. OT128 also integrates HESAI's proprietary all-weather perception system, the intelligent point cloud engine, to enable effective detection of rain, fog, exhaust fumes, and water splashes, distinguishing it as a unique and innovative mechanical LiDAR offering in the market. Since its debut, OT128 has made a strong impression in the market. emphasizing our technology's potential across diverse application scenarios and autonomous systems. We have already secured contracts for OT128 with 90-plus global and domestic clients, such as WeRed, Westwell, Ambotech, and EasyMile, and the production and delivery have already begun. Notably, our OT128 LiDAR played an instrumental role in the success of the champion autonomous race car at Formula Student Germany 2024, the world's largest competition for electric and driverless vehicles. These early successes highlight the growing recognition of our advanced LiDAR solutions across a wide range of industries. We remain committed to exploring new use cases and engaging new customers in both the ADA and AM sectors, leveraging our lineup of versatile libraries. Last but not least, I would like to introduce Mr. Andrew Pham, who has recently joined HSI as our new CFO. With over 18 years of experience in accounting and corporate finance, We're confident that he will further strengthen our financial management, enhance our engagement with the investor community, and help us create sustainable value for Hosei and our shareholders. Welcome, Andrew. At this point, I will now turn the call over to Andrew to share more details on our financial performance and outlook. Andrew, please go ahead.

Thank you, David, and hello, everyone. Let's go through our operating and financial figures for the third quarter of 2024. To be mindful for the length of our earnings call today, I encourage listeners to refer to our third quarter earnings release for further details. Starting with numbers, in the third quarter, we achieved quarterly revenues of RMB 539.4 million or USD 76.9 million, surpassing the high end of our revenue guidance. The robust momentum across our revenue streams was supported by strong LIDAR shipments of over 134,000 units this quarter, marking our second consecutive quarter of nearly 50% sequential shipment growth. Shipments this year are distributed more broadly across a diverse range of customers, reflecting a significant increase in customer diversification compared to the previous year. Meanwhile, our blended gross margin remained robust at approximately 47.7% thanks to effective cost management and our flywheel approach to cost and scale optimization. The margin was further bolstered by NRE revenues from our L4 LiDAR. which is being prepared for potential large-scale deployment by a leading global robo-taxi player in the coming years. As a result, our quarterly gap net loss has narrowed for four consecutive quarters. This consistent improvement reflects our commitment to operational efficiency and financial discipline, enabling us to better manage resources while focusing on sustainable growth. Looking ahead, we are expecting a record-breaking fourth quarter with light shipments projected to reach 200,000 units, an astounding volume nearly matching our total shipments in 2023. Based on our current estimates, fourth quarter net revenues are expected to soar to nearly US dollar 100 million. delivering an estimated net profit of US dollar 20 million and a positive operating cash flow. Additionally, we anticipate achieving full-year profitability on a non-GAAP basis for 2024, positioning us to become the first automotive LiDAR company worldwide to reach this notable milestone. This anticipated explosive growth underscores our unstoppable momentum as we drive towards a landmark fiscal year finish. We would like to remind you that this outlook is based on the current market conditions and reflects the company's preliminary estimates of market and operating conditions and customer demands, which are all subject to change. In conclusion, our strong market acquisition capabilities robust financial performance, and commitment to operational excellence have positioned us for a successful close to 2024. We are proud of the progress we have achieved and are enthusiastic about the opportunities ahead. Thank you for your continued trust and support as we work to build a stronger future for Hathai and the global industry. This concludes our prepared remarks today. Operator, we are now ready to take questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question. Your first question comes from Cindy Huang with Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. This is Cindy from Morgan Stanley. So my first question is, what's the latest development of the contention between HOSI and USDOD? While this bill involves no ban, when do you expect the overhang could be fully removed? And are all projects scheduled for 2025 launch in the United States are still on track?

Hi, Cindy. Thank you for the question.

This is David Lee. I want to give you some updates on the 1268 lawsuit progress. Well, first, we're glad to see that the DoD actually removed Hezai from the 1268 list in October. And this delisting was undoubtedly a win for us, as the DoD has acknowledged and corrected their erroneous and baseless decisions from January by removing us from the list. We believe it's also validated the truthfulness of our position, which has remained consistent throughout this entire process. However, we are disappointed that DOD relisted us on a different basis. After acknowledging that its original evidence was insufficient, we had hoped that the DOD would correct its mistakes and move on. But instead, it has continued to falsely accuse us of associating with the Chinese military. This is especially frustrating because the government never really asked us a single question or tried to confirm any facts with us before it made the decision to relist us. The government did share with us the new basis of our relisting, though due to the ongoing nature of the lawsuit, we're currently limited in what we can discuss. From our first reading, we immediately realized that DOC quote-unquote new evidence and it's a quote-unquote new rationale are just as faulty and flawed as the original listing was. We can state definitely that DOD has not accused Hasai of being owned or controlled by any military bodies. selling products to any military bodies or otherwise directly supporting any military bodies. The DoD instead puts forward vague claims that HSAI somehow supports Chinese military-civil fusion. And protecting the interests of our shareholders remains our top priority. We've been very transparent and consistent in sharing these facts. But the moment when the DoD released us, it challenged our integrity. It also caused confusion for our customers and investors, and they were concerned that we might be hiding something. We will continuously seek open dialogue with the DoD so that we could correct those errors. What we look forward to providing that the government's new analysis is unlawful in court in the coming month. And these are the current status of the 1260H situation. Cindy, do you believe this is helpful?

Yeah, that's very helpful. Thanks for the callers. Great, great.

Thank you.

I think in the previous remarks, yeah, you also mentioned HOSAI will achieve GAAP net profit in 4Q. Should we expect 2025 to be the first four-year gap profitable as well?

Thank you, Cindy. This is Andrew, and let me take this question. Before I address this question, let me express my gratitude for your continuous support to Hesai, and I look forward to all of you in the future together with Hesai's IR team. For this question, we are happy to share that we are on a steady path towards profitability in the fourth quarter of this year, a major milestone for us. Q4 is set to be our peak season every year, with projected revenues approaching $100 million and deliveries reaching 200,000 units, an unprecedented achievement since our inception. Besides, our cost management remain robust, ensuring financial strength as we scale up mass production. To our knowledge, no other player in the global LiDAR industry matches our financial resilience while operating at such an impressive delivery schedule. As highlighted in our financial statements, our Q3 gross profits nearly doubled year-over-year, while operating expenses grew by only 10% year-over-year. showcasing our exceptional operating leverage. We also anticipate the blended gross margin for Q4 to exceed 40%, with operating expenses remaining stable quarter over quarter. Additionally, our average quarterly other income and interest income, typically around 30 million renminbi, positions us well to reach breakeven in Q4. Taking it to the next level, we have received additional payments from a leading customer, preparing us toward an estimated $20 million net profit in Q4. This is an incredible achievement and a testament to the solid financial foundation we are building as we continue to drive growth and scale our success. Hopefully that covers your question.

And for 2025, I think what's relevant to your question, Sandy, so our top line growth will be very solid because more and more customers both domestically and internationally are adopting the LiDAR. We see the penetration rate has been ramping up very fast. And on the other side, cost is well controlled. Expense will be well controlled. So for four-year 2025, we'll be targeting for profitability as well.

Thank you. That's very helpful. Your next question comes from Tina Ho with Goldman Sachs. Please go ahead.

Thanks, management, for taking my question. So the first question is regarding our 2025 volume revenue as well as margin guidance, since we're onboarding more OEMs. But at the same time, there might be more mix of the ATX product. So just wondering what we should think about in terms of 2025 overall. And also for third quarter 24, wondering excluding the NRE project impact, what is our more like normalized LIDAR growth margin? Thanks.

Okay. Let me take this question. Looking forward in year 2025, we believe that we have already secured the significant design wins for new car models which are achieving SOP in year 2025 and beyond. Some of our major customers' best-selling modules, including those from the world's largest EV manufacturer, are expected to begin production with our LiDAR solutions very soon. Additionally, Some of our clients are adopting LiDAR as a standard configuration starting next year. This positions us to ship millions of units throughout 2025 and 2026, based on our customers' forecasts. As of now, we have two manufacturing facilities in operation, one in Shanghai and one in Hangzhou, and are expanding with new production lines to meet our clients' needs for the coming year. Revenue-wise, by our year-end earnings next March, we'll have a clear view about that. As of now, for year 2025, we will have three different modules of AT in production. The first one is the current ATP, which will experience a moderate annual decline in ASP in teams. The second module is the ultra-high performance AT designed to meet L3 standards, which will enjoy a much higher price tag. Lastly, the cost-effective compact ATX will begin production in year 2025, with some flagship series cars modules adopting it as a standard configuration. I expect that the revenue contribution from ATX will start to increase relatively quickly in year 2025. Second question about Q3 margins. If we exclude that NRE revenue, I would expect that this will be largely the same as our normalized quarters, which is about 40 percent plus gross margins.

That's very clear. Thanks.

Your next question comes from Zhang Yu with Huatai Securities. Please go ahead.

Hi, David. Thanks for taking my question.

My first question is about robotics. I want to know currently what's the main ladder of production for the customer in robotics? And in the long term, 我想问一下就是我们现在是哪款雷达主要给这个机器人领域用 然后长期来看不知道机器人领域的这个雷达 在技术上和ASP上和车载领域是不是有差异 谢谢

Let me address these questions in English first.

For the industrial robotics applications, e.g. in logistics and hub operations, they are rapidly growing and we have successfully secured some new orders from both domestic and international clients. Regarding the product series that we are selling to these segment markets, I think Panda, OT, XT, et cetera, these all have their own clients. Whether through autonomous vehicles or robotic platforms, our goal is always to deliver superior services and experiences to our users in alignment with our mission to empower robotics and elevate lives. Regarding the ASPs, I think we have to monitor the developments of the revenue contributions from different clients from different segments. We'll have to give you a clearer forecast where we see more visibilities from the revenue contributions.

Hi, this is David Lee, and I wanted to give a few more remarks regarding the robotics industry. First, let's define robotics. I think it's pretty much everything we cover that's not ADAS and not strictly RoboTaxi. Okay. So, a few direct comparisons. First, the robotics LIDARs, the ASP is much higher. than ADAS because of the volume, right? When we talk about ADAS, we're talking about close to a million units a year volume and even bigger very soon. For robotics, it's still in the tens of thousands at the most optimistic side. And secondly, it's about application on the technical side. For ADAS, as we clearly see, it needs extremely miniaturized packaging as well as a forward-looking, like a box looking forward, right? For most of the robotics applications, that is not the highest priority. The priority is to cover wider FOV, hopefully with better resolution. It does not need to see longer range. So as a result, for longer range, we have OT, and for shorter range, we have XT and QT. It's a different type of product. Having said that, that they share a great level of similarity in terms of HSAI's fundamental capabilities of semiconductors, our manufacturing capability, and on the very strong capability of our quality system, especially on the integrated design of the ASICs. You might think that the ADAS LiDAR and the robotics LiDAR vary a great deal in terms of functions and performance, etc. The truth is that if you boil down to the different parts of robotics, all robotics LIDAR, it's really in the end the laser, the receiver, the driver, and the signal processing units, the computational units, the backboard and power, etc. If you break down them into each of them, a lot of them will already have a preparatory chip that can support both ADAS and robotics. So in other words, The great strength and capability we develop from ADAS, especially China ADAS, we leverage them to go after extreme cost and quality and performance and use those technologies on robotics. It's like a Jiang Mei Da Ji. That's why we are extremely competitive and remain high profitable companies. especially on an extremely high growth margin on robotics LIDARs compared to ADAS for that reason. Thank you.

Thank you, David. Thanks very much. It's very clear. And my second question is about the ADAS area. Just now you mentioned that the ATX will grow rapidly next year, and I want to know what's the estimated supplementation shipment proportion of the new production and the AT128 in next year, and also in the long term.

Okay, let me take this question. Again, if we look at year 2025, I believe that the total shipment in year 2025 will exceed millions of units in that year. However, regarding the detailed breakdown between ATX and AT128, We can only share more details as we go along, probably until, say, March next year. But no matter how the mix turns, we are still confident with our long-term blended gross margins, which will stay healthy thanks to the effective cost management and our flywheel approach of cost and scale optimization.

Thank you. Thanks very much. That's all my questions.

Your next question comes from Olivia Zhang with HTI. Please go ahead. Hi, thanks for taking my question. This is Olivia from Haitong.

My question is, you know, Huawei has become an important role in intelligent driving markets I want to know, I know we have established cooperation with some OEM brands in the Huawei ecosystem. So how do we see the cooperation going forward?

Thank you, Olivia. This is David Lee. Yeah, sure. Let me try to clarify our view on the collaboration slash competition with Huawei. First, Huawei is a very competitive player. As of now, I use a Huawei tri-fold phone and a Huawei watch, which are very good products. They build very good products. And having said that, I feel like our competition against Huawei is a clear situation in the sense that as far as what we see today and the people who use Huawei LIDARs are within the Huawei ecosystem, namely the Wenjie, Xiangjie, Zunjie of the world. And they not only use Huawei's components, they use Huawei's solution at a system level. So they essentially use everything from Huawei. And we believe for that reason, it's unlikely that we will become an individual component supplier within the Huawei ecosystem today because we only sell components, right? We don't sell solutions. And so that's why today, The market has been sort of divided between the Huawei's brand and their own supply chain and the rest of the world. And so far, it seems to be very clear for both sides. Our goal, of course, is to hopefully maximize our market share in our own world. So that has been our strategy. Of course, having said that, There are overlaps. There are brands who have their Huawei cars and have their own branded cars. We have a few of OEM customers are like that. But in my mind, it works the same way. The car models, they work with Huawei system. It's very likely it will have only Huawei LiDAR, no one else's LiDAR. That has been their strategy. The cars that OEMs build with their own effort will have very little or zero Huawei components. That's the market we're going after, and we have been fairly successful in working with those customers when they don't use Huawei solutions. Our belief is that, in the end, Huawei will continue to have a significant share as an OEM. The rest of the world is still much bigger, and we'll also continue to work with our global customers who are not working with Huawei today.

Thank you, David. That's all my questions. Thank you.

Thank you.

The next question is a follow-up from Cindy Huang. Please go ahead.

Hi, thank you for checking my question.

I have a follow-up question on OT128. Who will be the first batch of customers adopting this new product? And also, can we also get some data regarding our partnership with Kurz?

Okay, let me take this question.

Regarding OT, yes, this new flagship mechanical LiDAR is built for scalable applications. like robotaxi, industrial, robotics, smart factories, and logistics. It has already got deals locked in with over 90 clients worldwide. Financials, around 95% of its key components come from our best-selling ADAS LiDAR, which keeps costs down. Also, thanks to vertical integration, like our ADAS products, we can scale production and take advantage of economies of scale. For clients, this means it can be priced more competitively, especially for large volume orders. Its gross margin is comparable to our typical L4 products, or even slightly higher. With large orders, the gross margin can improve even further. We have already started production and deliveries and it has already brought in over $10 million in revenues so far. The AM sector is more about performance, less on price, and it's full of exciting growth opportunities with new use cases popping up. We are thrilled about what's ahead. Your other question regarding CM Cruise updates. Based on public information, Cruise has made significant progress this year. Its group has invested additional funds into Cruise to support its ongoing operations and strategic initiatives. Following a temporary halt in operations since late 2023, the NHTSA closed its investigation into Cruise vehicles in August 2024. Recently, Cruise has resumed supervised autonomous driving tests in cities like Phoenix, Dallas, and Houston. Cruise is clearly making efforts to overcome challenges and solidify its position as a leader in autonomous vehicle technology. As you see, we recorded NRE revenues in Q3 from our L4 LiDAR, which is being prepared for potential large-scale deployment by a leading global Robotaxi player in the coming year. International Robotaxi players are expanding. Zoox and Neuro were also recently reported to be actively scaling their testing operations, making strides towards the commercial deployment of their autonomous vehicle technologies. We remain optimistic about the business opportunities in L4, Autonomy, and beyond. as the industry continues to evolve and grow. That's my answers to this question.

Yeah, that's very clear. Thank you.

Your next question comes from Jeff Truong with Citi. Please go ahead.

Hi, this is Jeff from Citi.

Excellent result and the guidance. Thank you, sir, for the good work. And then my question is, number one, we recognize that OPEX for each quarter, for the third quarter, is around $350 million. And in order to approach a 20% net margin level into the fourth quarter, the OPEX into the fourth quarter would be around $250 million. So could you let us know what should be the normalized OPEX Going forward into two to five Number one number two is about a low season impact into first quarter two to five As we all know that there should be a potential pre buying happening in the fourth quarter this year result in a sloppy Demand growing into the first quarter potentially so could you give us the margin guidance in the first quarter and and also the normalized GDP margin guidance throughout the 2025. Those are my first two questions. Thank you.

Your first question regarding OPEX. Yes, on a full-year basis, 2023, our OPEX on a non-GAAP basis is about 1 billion RMB, out of which 65% is R&D, 15% is sales and marketing, and the rest... goes to GNA. On a full year basis, we believe that 2024, the OPEX will grow by less than 5% on GAAP basis and 10 to 15% growth on non-GAAP basis. For year 2025, we have committed to take more active expense management to ensure a better efficiency and financial discipline. That actually is my response to a question for OPEX. Regarding the guidance on Q1, typically due to the seasonality reasons, Q1 tends to be weaker than Q4 on a quarter-over-quarter basis. But in order to give you a clearer guidance for Q1, probably we have to wait until end of this year.

Okay, thank you. I have no more questions. Thank you.

Your next question comes from Cherry Lu with JP Morgan. Please go ahead.

Yeah, thanks for taking my question. I can actually just have one question about the ATX. I'm wondering, among your 75 design wings, how many of them are kind of pending SOP, and how many of that will be for ATX and also for the security design wings? I'm wondering, do you see any clients willing to kind of switch from the AT128 to ATX for better cost structure, and how do you think of that potential trend? Thank you.

Thank you for the question. So maybe I'll first give you a more fair comparison of the product ATX versus AT. So the AT started its journey of SOP in July of 2022, right? So which means that ATX is two to three years behind AT. It has an equally competitive performance, and some parts are optimized, and sometimes are slightly worse than AT. But overall, it's a highly competitive product, but it's a much more affordable one. It's in the $200 range, which means that for people who are looking to do similar level which is the level 2 plus driving with AT, it's a natural and a rational choice. By the way, it's also smaller, right? So it's a natural and a rational decision to switch from AT to ATX as long as they can accommodate the change design. And it's really because the ATX is our fourth generation semiconductor. It has a lot of new innovations in making sure that we process a large amount of point cloud with very low power and low cost. On top of it, it has additional features like the IPE, the intelligent point cloud engine to analyze different weather conditions, etc. It has a lot of great features. So that's why the takeaway is that for anybody who is looking at the similar level of performance of AT, it's kind of a no-brainer to switch over as long as you can accommodate the engineering changes and you can enjoy the saving. However, if you look at the direction the industry is moving towards, especially the fact that for the past year we see great trend of adoption of LiDAR. To me, it's not only a signal of the increased demand of LiDAR and intelligent driving, it's also a statement on the value of such a system creates. So naturally, when it creates more value, people want more and a better version of it, which what we call is level three, right? So if you look at the global level three market, As we already announced, we have a global design wing as one of the most famous automotive brands in the world. And that's a level three system that is a much higher price, much more powerful in terms of everything, in terms of distance, resolution, capabilities. So that will be a much higher ASP product that is in the AT512 family. So that's why it is true that a lot of the customers will be using ATX while they already use AT. They will also have a premium trim line with ATX. strictly level 3 functions with a much more powerful LIDAR to handle the different conditions with close to 10 times of the resolution and roughly 50% of the distance increase. So that's the situation we're facing. Are there more to it? Yeah, hopefully this answers your question.

Yeah, that's very helpful. May I just follow up that could you share a bit color in terms of the price gap between your ATX and also this advanced AT product?

Thank you. So without disclosing the actual numbers, because it's always case by case depending on the volume and SOP time, and ATX is a $200 product. $200 range LiDAR, depending on the configuration, could be higher or lower. The AT512 family, which will remain at the AT range, which is more than double of that. It's a much, much more expensive LiDAR. But again, it handles level three functions. So the value proposition is a completely different equation.

And we are hoping to ship the ultra-high-performance LiDAR, which is in the family of AT512, starting from 2025 or 2026. And shipping overseas will enjoy a better margin as well. Okay?

And that's it. Thank you, Yanting.

Thank you.

As there are no further questions, I'd like now to turn the conference back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact our IR team. This concludes today's call, and we look forward to speaking to you again next quarter. Thank you, and goodbye.

This concludes today's conference call. You may now disconnect your line. Thank you.