Mobileye Global Inc.

Hello, everyone, and welcome to Mobileye's fourth quarter and full-year earnings conference call for the periods ending December 31st, 2022. As a matter of formality, please note that today's discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainties. Please refer to the accompanying press release, which includes additional information on the specific risk factors that could cause actual results to differ materially. Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. Joining us on the call today are Professor Amnon Shashua, Mobilize CEO and President, and Anat Heller, Mobilize CFO. Thanks, and now I'll turn the call over to Amnon.

Thank you, Dan. Hello, everyone, and thank you for joining our earnings call. 2022 was a really important year for Mobilize. We executed a successful IPO at a time when this was only possible for very unique companies. I see many benefits to being public again, but most important is we have already seen a big increase in visibility of Mobileye from our customers and partners, driven by more focus and attention by the broader media and analysts. This drives incremental business opportunities by amplifying attention on our advanced solutions and we think this plays into the incremental momentum we are experiencing. Financial results in 2022 were clearly very good. Revenue grew up by 35%, adjusted operating profit grew by 25%, and we generated almost $550 million of operating cash flow. More important than those headlines is that the source of our growth started to shift from pure volume to a combination of volume and higher content for vehicles. Our advanced products carry much higher price per vehicle than our historical products, and we saw a clear evidence of that in 2022, where one-third of our revenue growth came from higher ASPs. In terms of future business generation, 2022 was a record year. Just in that year alone, we generated new business-representing $6.7 billion of estimated future revenue at about $105 per unit on a content-per-car blended basis. This is about three and a half times our actual revenue in 2022 and double our current ASP. Overall, we estimate that our current book of business represents over $17 billion of total future revenue through 2030. As long as our new business wins continue to outpace our actual shipment in a particular year, this number will continue to grow. Also to be clear, this number excludes our consumer AV and mobility as a service backlog. Beyond the high-level numbers, we saw positive business trends across all business lines. The front-facing camera, single-chip ADAS business continues to run like a machine. We grew revenue with every one of our top 10 customers in 2022 and continue to win significant new business in this segment. A key development in 2022 is that many large-volume ADAS platforms now have a variant that includes cloud-enhanced ADAS through our REM map. This volume will drive higher ASP and recurring revenue from the maintenance of the map. We also saw a very significant uptick in interest and secured volume in our supervision product in all regions from both traditional and startup OEMs, really across the board. There are many reasons for the increased traction. There is a big difference between a development product and a launched product. Launching supervision with Zeker in China was a major catalyst in driving interest from other OEMs. A program like supervision is a major commitment from an OEM in time and capital. Offering a solution that is already in production means that the investment will result in a valuable product with high probability. This is very important in the current environment. Number two, we now have the ability to demonstrate the full feature set of supervision anywhere, not just in Israel. Our REM maps now cover nearly all roads in the U.S. and Europe. As a result, we have been able to execute long-distance expeditions with car makers, customers covering thousands of miles in both U.S. and Europe with little human intervention. This ability to show that the technology truly works everywhere has been critical in moving discussions to the decision phase. Mobilize IQ kits. software development tool is another important development. The ability for an OEM to mobilize truly differentiated assets like surround computer vision, OEM mapping, and our decision-making software as is, but then customize the consumer-facing parts of the system with their own software is something we couldn't offer until recently. It has served as a catalyst for strategic partnership discussions for supervision and beyond with many of our OEM customers, particularly ones that began their own software development at the earliest. In the meantime, the competitive environment among OEMs has ramped up with Chinese automakers and Tesla benefiting from surround camera-based systems, both in profit and technology prestige. This is creating an overall sense of urgency among other OEMs to invest in wide operational design domain, eyes-on, hands-off systems, that have high probability of success in terms of performance and validation. We expect Supervision to be a very large growth driver in 2023 and beyond, and shared our expected volume forecast in our CES presentation, which is available at our IR website. But this product also serves as a launch point for our eyes-off consumer AV product, Chauffeur. Because Supervision operates across a very broad operational design domain, It makes the transition to a series of eyes-off ODDs an incremental and modular step instead of a series of moonshots. In other words, all the heavy lifting of describing the environment in great detail, the driving policy required to maneuver the car in any traffic scenario, and the requirement for high-definition maps covering all types of roads are all done in the supervision system. From here, Adding redundancies to the perception system to take eyes on to eyes off becomes incremental work. The successful productization of supervision with Zeker and this concept of modularity to eyes off has created a lot more interest from our customers to develop consumer AV products. Essentially, every supervision discussion we're having now is also including scope for follow-on chauffeur eyes off programs. We saw recent evidence in this with a premium European OEM, which kicked off a supervision program in Q4. During discussions, the scope of the program expanded to include a chauffeur program that will launch in 2026 timeframe. The chauffeur portion of this program alone represents an expected $1.5 billion opportunity through 2030. Finally, on mobility as a service, our plan continues to develop relationships on the supply and demand side, and then use our self-driving system to enable supply and demand to come together into a scalable business. We have many relationships on the demand side with transportation network companies and public transit operators. We also have engagements with three vehicle builders, which are developing purpose-built vehicle platforms that integrate our Mobileye Drive self-driving system. We expect to generate our first revenue in this business in 2023, and our supply-side relationships have orders for self-driving systems that total an estimated $3.5 billion of future revenue through 2028. So overall, 2022 was the year where traction for supervision really accelerated, and this led to an increased interest from OEMs for eyes-off systems as well. Continuing the productization process of these solutions and supporting testing and launch, of course, requires resources. This is why our operating expenses growth in 2022 was unusually high, and it will be again in 2023. This growth is supporting areas like growth in teams to support supervision launches with OEMs, radar and LADAR productization, and expansion of mobility as a service validation and testing sites, and development work of our next generations of IQ chips. I would note that approximately 70% of our R&D expenses is related to products that are either just beginning to generate revenue, like supervision, or are still pre-revenue, like chauffeur, drive, and active sensor products. Thank you, and I now turn it over to Anat to go through the results.

Thank you, Amnon, and thanks for joining the call, everyone. Before I begin, please be aware that all my comments on profitability will refer to non-gap measurements. The primary exclusion in Mobileye's non-GAAP numbers is amortization of intangible assets, which is mainly related to interest acquisition of Mobileye in 2017. We also exclude stock-based compensation and IPO-related expenses. Starting with a few words about the full year, revenue growth of 35% year-over-year in 2022 continues our consistent track record of top-line growth. Compared to 2018, our revenue is up 170% and global production is down 13%. As Amnon mentioned, our advanced portfolio made a meaningful impact on average system price, which rose to $53 in 2022, up from $47 in 2021. That alone drove about 13 points of revenue growth in 2022. The increase in average system price was mainly driven by supervision, as well as, to a lesser extent, deriving cheap costs which we passed along to our customers. The addition of supervision to our product mix led to a certain decrease in gross margin as we deploy a full system solution which contains higher hardware content. But more importantly, supervision generates much higher gross profit per unit than our core IQ product. As a result, IQ and supervision combined gross profit per unit rose by 9% in 2022. Turning to Q4, revenue grew 59% year-over-year. Our IQ-related revenue was up 48%, with the supervision product driving most of the remainder of the growth, despite being less than 1% of our overall volume. Q4 operating margin was 38%, up from 34% in prior year. This was above our guidance expectation due to a better than expected revenue growth, but also due to about $14 million of R&D expenses that we expected in Q4 but shifted to 2023. Turning to 2023 guidance, we are pleased that the midpoint of our guidance remains in line with internal expectations at the time of our October IPO, despite overall macro assumptions for 2023 coming down since then. On the revenue side, I'll give you a sense of our assumptions. Focusing on the high end, we are assuming IQ volume that is somewhat below the commitment that we've received from our customers for 2023. We want to remain conservative and acknowledge that the macro uncertainty remains elevated. That volume level corresponds to about 1% global production growth, 4 to 5 points of ADA seduction growth, which is somewhat lower than the prior few years, and consistent market share. On the supervision side, we are assuming a bit more than 100% growth versus 2022, which was about 96,000 units. Demand is higher than this, but we are still experiencing some supply chain constraints in one particular component of the ECU. On the positive side, we have commitment forms from our suppliers at the level we are forecasting, including a second half run rate that supports our 2024 forecast as well. In terms of quarterly cadence, historically our revenue has ramped up over the course of the year. This year is expected to be even more pronounced, with around 41% of revenue expected in the first half of the year. On both the IQ and supervision businesses, volume and revenue are expected to be lower in Q1 2023 versus Q4 2022. This appears to be general conservatism on the part of our customers, as well as some impact from elevated purchases ahead of the IQ price increase that went into effect on January 1st. On supervision, the lower volume in Q1 and Q2 versus Q4 2022 is related to the key ECU component mentioned earlier. On the average system price side, we expect Q1 and Q2 to be a bit lower than Q4 due to the supervision constraints but we expect to exit 2023 in the low $60, which is an excellent trajectory. On the operating income side, there are a few things to point out. Gross profit per unit will increase again year over year, but the percentage gross margin is expected to be down due to the higher mix of supervision revenue mentioned above. On the OPEX side, as Amnon mentioned, we will continue to invest heavily in our high ROI advanced portfolio, which is only beginning to impact our results. We estimate operating expenses to grow in the low 30% range in 2023 versus 35% growth in 2022. OPEX growth rates are expected to moderate in 2024, which combined with operating leverage is expected to lead to higher operating margin during that year, also consistent with our internal expectation at the time of the IPO. Before taking your questions, I just wanted to thank my team and many others at Mobileye for supporting what is a pretty accelerated earnings timeline for a newly public company. Thank you, and we will now take your questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from the line of Itay McAuley with Citi. Please proceed with your question.

Great, thanks. Hello, everybody. Just two questions, one financial and one on supervision. On the financial, I'm hoping you can maybe talk about what you're expecting for gross margins just in the kind of core ADAS and enhanced ADAS business in 2023. And then on supervision, I'm hoping you could talk about what portion of customer engagements there are perhaps looking at a camera-only solution for supervision, as well as what you're seeing for the supervision light offering versus the full ODD supervision offering. Thank you.

So, on the IQ side, we are seeing consistent growth models for 2023. On the supervision side, we're seeing approximately 35% for this year.

Okay, I'll add a bit more that with the supervision, there are two drivers to increase our gross margin there. One is efficiency of production. We're creating a new version, an EVO version, which with the lower cost will increase our margin. Second is customer bundles. The launch of supervision in China, at the moment, it's highways. The urban and arterial roads will be unlocked during 2023, and that would also increase our revenue for content for cars, and of course, naturally, will increase the gross margin. We are targeting reaching between 50% to 60% gross margin of supervision in the long run. In terms of your second part of the question about camera only, supervision is a camera only plus a front-facing radar. So, for example, on the vehicle, there's a front-facing radar as well. Although we can satisfy all the functionality without the radar, but having a front-facing radar adds another element of redundancy, which can improve the MTBF of the system. In terms of supervision light, this is a product offering which has been done very recently, so we don't yet have traction for it. All the traction that we have and is growing is for the full supervision with two IQ6 and the full camera suit. Perfect. That's all very helpful. Thank you.

Thanks, Itai.

Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.

Yes. Thank you very much for taking the question. With respect to the opportunity for mobile, I was familiar with more advanced solutions like supervision. Can you elaborate a bit more on the breadth and depth of the discussions you're having with OEMs to use those products relative to, say, 90 or 180 days ago, and if you're seeing that traction improve with just a few programs in OEMs, or if perhaps it's broader-based?

As we said, we have now supervision design went into six car makers, nine brands. The scope is expanding towards chauffeur, the eyes-off system, and additional supervision traction we expect to come out in the second half of the year.

We have customers that we haven't We have customers that we haven't named yet, but I think, yeah, the additional traction in the second half would be ones outside of those six OEMs.

That's very helpful. Thanks. And one more from you, please, if I could. The company said its supply chain limits, including for supervision, and you call that an ECU component. Could you elaborate a bit more on the steps that Mobileye and your supply chain partners are taking to alleviate that and your visibility in potentially having that supply chain constraint alleviated and intermediate to longer term. Thank you.

So we have an issue with one component in the supervision motherboard. This is why we have, out of the full volume of the supervision, it's really tilted towards the second half of the year rather than the first half of the year. It's one component from a particular supplier, and we are confident that in the second half of the year that, you know, that constraint will be alleviated and we can deliver the rest of the volume.

Yeah, maybe if I could just add a couple more words on this. So, in 2022, we delivered every ECU we could possibly produce. And in the fourth quarter, it was a little bit more than we had expected to be able to access. We have so much additional demand in 2023 that in order to satisfy that, the supplier really needed to sort of take down the production for a period of time in order to install more capacity so we could get to you know, much higher levels. And just to reiterate what Anat said, in the second half, we have commitments to be at a run rate that would satisfy not only the 2023 demand, but also get us to a capacity where we could satisfy 2024 as well. Thank you, Mark. Next question, please.

Our next question comes from the line of Joshua Routalter with Cowan & Company. Please proceed with your question.

Hey, guys, thanks for taking my question, and congrats on the results. I guess I wanted to ask first about the premium European automaker that you announced for supervision. Any way you can give us sort of a, I don't know, a scope versus what you're currently doing with Zeker and Geely, and in particular, how much does moving to, it sounds like, hands-off, eyes-off with that program, how much can that be a material needle mover, the potential for that program? Thank you.

With respect to ISOF, we announced with Zeker, we streamlined the hardware at the time when we announced it. It was with six IQ5 chips. We are now streamlining it to one piece of hardware called CH663, so three IQ6. That will be in the 2025 timeframe. We have additional OEM with an ISOF and an additional one, this European... which is not yet named, for a 2026 timeframe. And there's a potential additional one, which I believe could be announced in the second half of the year for an ISOF system based on the 3iq6. Thanks.

I appreciate the caller. And so I wanted to ask about your R&D and OPEX spending. You know, you called out It was helpful caller giving the 70% number on forthcoming products, but you have a lot of irons on the fire. And I was wondering if you could rank order, you know, where you're spending priorities, which ones are the ones that you're particularly focused and excited about between, let's say, AMAS, consumer AVEs, but even, you know, bringing your own internal LIDAR and radar to market, as well as just broader software adoption like mapping. Thank you.

You know, our expenses is very diverse, and you mentioned a number of them, right? We have expense on active sensors, the radar. There we are working on productization middle of the 2024 timeframe, both of the radars and the ladders. So this is ongoing. We have expense on mapping, on the REM mapping. This is mostly a compute. The headcount is not much increasing. It's really the compute that is increasing based on more and more programs that require mapping. We have expense in R&D as we go forward from supervision to chauffeur to drive, which is the mobility as a service. That's another source of expense. We have expense on supervision to support those six car makers. This is very diverse. It's hardware, just like as a tier one. It is software, not algorithmic software, but more infrastructure software. There's a lot going on there to support six car makers with supervision all coming around the same timeframe, starting from 2024 till 2026. So this creates also a need for investment. So our investments are very diverse. We think that now last year, 2022, we made a jump on investments. This year, another jump. And it will taper off from 2024 forward.

I'd just say, you know, the last thing I'd say on that is it's all supporting the portfolio that we've talked about for the last few months with so much value. and additional content per vehicle. Got it.

Thank you.

Thanks, Josh.

And our next question comes from the line of Chris McNally with Evercore ISI. Please proceed with your question.

Thanks so much, Tim. Quick one on just the numbers and one on orders. Just on the timing for gross profit progression in 2023, it looks like you're going to be down something like 400 basis points, and I think you've explained that that's the STM increase on the chip side. Could you just help us through? Does that pass-through happen as early as Q1, Q2? Obviously, it doesn't matter for gross profit dollars, but just for the gross profit margin, Walt, could you just help us on the timings?

Yes, so the timing is from January 1st. We are passing over this cost that was increased at the beginning of the year. We're passing it over to our customers without additional margin, and this is the reason for a slight decrease in our margin for IQs.

And then the second thing that we mentioned in the prepared remarks was, you know, supervision becoming a bigger mix of our revenue, you know, has a kind of a mathematical effect on the percentage margin. You know, gross profit per unit is much higher, but gross margin is lower. But that'll be a bigger effect in the second half because the volume of supervision is significantly higher in the second half.

And then on the chauffeur win, obviously, congrats if it's the scaled OEM that a lot of us think that's a huge deal. But can you talk a little bit about just the timing of some of these supervision walks into chauffeur? I mean, if you're talking about launches and supervision in 25, what's a typical sort of conversation around that transitioning to chauffeur? Is it 27? Is it 28? And then Any idea of, you know, are we starting with level three and then working up to level four? Because it's obviously such an important sort of part of the later half of the decade. Just curious, you know, when these programs may launch.

Yeah, so in our taxonomy, there's no difference between level three and level four. It's an eyes-off or eyes-on system, but this is what I spoke about at the CF. So an eyes-off system with OEMs, except Zikro that starts in 2025, The rest of the OEMs are starting in 2026. But we have quite a nice traction, as I said. Three OEMs and the fourth one should be closed the second half of this year for eyes of systems for 2026.

Yeah, because supervision really serves as the baseline, you know, the timing gap between a supervision launch and a chauffeur launch doesn't have to be you know, a significant number of years.

That's great. And just to confirm, in the prepared remarks, you said that most of your supervision conversations, you're having discussion of this walk to chauffeur.

Yes, yes. It's not most, all. Every customer that bought in into supervision, we have a meaningful and deep discussion about expanding to chauffeur. Thanks so much. Thanks, Chris.

Our next question comes from the line of Antoine Tecabin with New Street Research. See if we'll see it with your question.

Hi, thank you for taking my question. Maybe a quick one first. I was wondering where you stand on deploying the key mapping-based features via the OTA update to Zikr users in China and what features that will unlock exactly what additional features we should expect in upcoming updates as well.

So in China, with Zeker, about three months ago, we OTA'd Highway Assist. Recently, we OTA'd to leading a customer the full supervision limited to highways. This is including the REM maps as part of it. And we believe that in the next month or two months, we'll be able to do the OTA for the entire fleet with full REM capability of supervision for highways. And then throughout 2023, together with Zika, as our map coverage will increase, we'll start unlocking additional road types like arterial and urban. Okay, thank you.

And maybe as a follow-up, a broader follow-up, I think one important differentiating factor that Mobileye has is that you offer an end-to-end solution while your main competitor today offers really like a reference platform. Can you help us better understand how in practice the integration work differs when you kick off a development project versus when your main competitor does? And I am assuming that in the case of the other offering out there, there is still some significant development work that needs to get done by the OEMs themselves. But anything you can tell us on how things typically happen in practice would be very helpful.

Mobileye in the supervision is offering an end-to-end system. So the Zeker is an end-to-end system. All the other supervision launches that I talked about, the six OEMs, the nine brands, is still an end-to-end system. Vertical handle of an end-to-end system I think is crucial because you're talking about perception. You're talking about integrating with the map. You know, the map is built together with the teams that are building the perception. So if you try to separate the map from perception to two different suppliers, you get into a sea of issues. Either it will be over-engineered or it will be under-engineered. Cost-wise, it could be crazy. The fact that the same team is integrating both the sensing, both the perception, and the way the map is being built and served, is crucial. Then you have driving policy. The driving policy is also integrated with the perception. Again, if you try to separate that into a supplier doing the driving policy and another supplier doing the perception, you end up with an over-engineered system and in some places it will be under-engineered, be too conservative, too slow. I think in such a complex system, an end-to-end where everything is done by one supplier has a lot of advantages and has also not only performance advantages but also cost advantages. Everything under one house, under one chip offers incredible cost advantages. But we are not shy from, you know, cooperating in other ways. For example, there are OEMs that would like to take control of the driving policy where Mobileye provides only the perception. We're open to that. This is why we offer the IQ Kit, which enables the OEM or a supplier to write code onto our chip on top of our software, whether it is fusion with other sensors, whether it's a driving policy. We don't resist that. But having an end-to-end system can be much more efficient. than breaking it down to different suppliers.

Super helpful. Thank you, Antoine. Next question, please.

Our next question comes from the line of Vijay Rakesh with Mizuho. We'll proceed with your question.

Yeah, hi, guys. Great call. Just a quick question on supervision, just to go back to that. In terms of the six OEMs outside of Geely and Zika, Can you give us some idea of, as they wrap in the second half, and you talked about significantly higher supervision volume there, what kind of volumes are you looking at at the OEMs outside of the two zillions equal for the other OEMs?

Yeah, but did we say the number of the volume? No, we did not reveal the actual volume, but I think... What did we reveal there?

We've said that we'll more than double volume in 2023 for the overall year.

The first half will be much weaker than the second half. Yeah, we're not revealing specific quarterly, but we talked about revenue being about 40, 41%. in the first half versus the second half. That's a combination of IQ and supervision. But yeah, the second half ramp up of supervision is significant because of the new capacity that's coming online.

And overall, 2020 supervision will be more than double of 2022. So more than 100% year-on-year growth.

Got it. And then as you have these OEMs accelerating to 24, we should probably expect, you know, and you talked about kind of building capacity for that, we should expect that site to kind of grow pretty nicely into 2024 as well, right?

Yeah. So 2024, there will be additional OEMs. It's not only Zeker. Zeker is not... Currently, it's Zeker 001. That's one brand. There's another brand of Zeker coming to launch throughout end of 2023, beginning of 2024. And then there are additional OEMs Geely OEMs that are kicking in in 2024. And then 2025, we're talking about OEMs outside of the Geely group.

Got it. And just quickly, I know in 2023 you have on the Core IQ side, you have Toyota ramping. Can you talk to what drove the win? How you were able to kind of, you know, displace incumbent? What really drove that win? Maybe that would help all of us. Thanks.

With which? With Toyota. With Toyota. That was a design win of two years ago. I don't think we displaced anyone. It was a bid, and we won the bid. And the program is ongoing. It hasn't launched yet.

Got it. Thank you.

Thank you, Vijay. Our next question comes from the line of Adam Jones with Morgan Stanley. Please proceed with your question.

Hey, everybody. So I was wondering if you could give a little bit of a guide on CapEx. Where is it going, even directionally, in 23? And I'm curious if operating cash flow can keep pace with growth in operating profit, or does that kind of lag as well, given some of the expenses?

Yeah, so we expect CapEx to be similar to the investment in 2022. Our new campus is planned to be completed during the second quarter. And the additional investment required for completion is about $60 million. The remaining capital investment relates to storage, data centers, and computer equipment and such.

Thanks, Anat. And just to follow up, could you help quantify The shifted engineering expenses that shifted from 4Q into 23, either in margin or dollar terms. And the same, I guess, if you could, if it's possible to quantify that pull forward of volume ahead of the price increase. But mainly the engineering expense is something I would hope you could just help quantify for bridging purposes. Thanks, Anat.

Yeah, so it's about $14 million that shifted from 4Q. 14, to be clear, from this year to next year. It's mostly about the NRE expenses, but it's not a very significant number, you know, out of the total OPEX in 2023. Thank you. Thanks a lot.

Our next question comes from the line of Sameek Chatterjee with JP Morgan. Please proceed with your question.

Hi, thanks for taking my questions. I guess for the first one, I was just wondering if you can talk about what you're seeing on the enhanced ADAS solutions, particularly in terms of being able to upsell customers when it comes to sort of basic ADAS and layering on that. How much of a, you talked about the ASP increase you're expecting for 2023, but How much of that is going to be driven by being able to sort of sell enhanced data solutions? How are you seeing OEMs adopted at this point? Is it really more of a high-end sort of adoption, or are they looking to move a bit more down market? And I have a quick follow-up.

Thank you. Beyond the Volkswagen that launched a year ago, the Travel Assist 2.5, We have now two additional OEMs with big programs with cloud-enhanced ADAS, and it's ramping up. I believe at the end of the day, every carmaker with a front-facing camera would include also the option, maybe a higher trim option in an ADAS because it doesn't add any hardware to the mix. It's just a software update. And it makes a lot of sense by significantly increasing the ADAS capability by having the data from the cloud about where the landmarks are, the drivable path, location of traffic lights, association of traffic lights with drivable paths. All of this creates new opportunities for enhancing driving assist at quite a reasonable cost of a few tens of dollars per car per year or something like that.

Got it. follow-up. We get a lot of questions about sort of how to think about performance in the recession and if the macro goes to get worse. I know you talked about sort of haircutting some of the OEM demand that you're seeing in terms of volumes, but how are you sort of thinking about the likelihood of push-outs, particularly if programs are planned towards the end of the year, pushing out timelines in terms of launches or adoption of certain programs and Also, how would you sort of flex your offense in this scenario that macro does end up being a bit worse?

Thank you. Yeah, so, I mean, this is Dan. You know, obviously, we're susceptible to swings in global production a bit, but, you know, as you've seen, you know, in the past years, you know, we're growing so much faster than overall production that it's it's not as big of an impact to us as probably to others. We acknowledge kind of the risks around production, and that's why we set our forecast to basically flat to 1% global production growth, even though, and set our volume forecast below the orders and commitments we've gotten from our customers. We're definitely not hearing about any kind of like push out of programs or anything like that. And also, you know, we have the driver of adoption growth that, you know, that wouldn't impact us too much as well, but not hearing, just to be clear, not hearing anything about that. So, you know, overall, like we've, you know, done well in all kinds of environments over the last 10 years. And, yeah, that's – so that's – and, oh, in terms of flexing operating expenses, I don't think we would. You know, I think that our business is built, you know, for the long term to drive content per vehicle growth, to drive new solutions, you know, for the next 10 years plus. So I don't think we would pull back on operating expenses. Got it. Thank you. Thanks, Samik. Thanks, Samik.

Our next question comes from the line of Luke Dunk with Baird. Please proceed with your question.

Morning. Thanks for taking the questions. First, I wanted to ask, so we've talked about supervision quite a bit, cloud-enhanced ADAS as well. I'm wondering about IQ Kit, if we could discuss the evolution of those conversations with customers, how that's developed over the past six-plus months, let's say, and could it or has it been intersecting with supervision at all at these customers?

Yes, indeed. All the advanced systems, chauffeur and supervision, IQ Kit comes as a critical component, especially when you talk about the chauffeur. Some of the supervision programs include also IQ Kit. Some do not. But IQ Kit is becoming a major component in our discussions of advanced assistance. So advanced assistance is something beyond the supervision and beyond.

Thank you for that. And for my follow-up, I just want to ask a question on near-term expectations. So in light of the component issue that you said with supervision, which sounds like it's just timing and the timing of expenses, are there any additional guide rails we should be keeping in mind when it comes to near-term, especially first quarter expectations? Thank you.

Can you repeat the question, Luke? Sorry about that.

Yeah, so sorry about that. So the question is in terms of the first quarter on the financial side of things. So, you know, clearly I want to be looking at timing around supervision and component availability, expense timing as well around R&D. Just wondering if there's any additional guardrails or things that would be specific to the first quarter we should be keeping in mind beyond just the revenue weighting first half versus second half, let's say. Thank you.

Yeah, I mean, I think we covered that we think Q1 revenue will be below Q4. We're not going to get more specific than that and kind of talked about the reasons. I mean, every year we have more revenue in the back half versus the first half. We do think it's going to be a little bit more pronounced this year because of the constraints on supervision, supply in the first half, as well as we do think that there was you know, some additional buying of IQs before the price increase, which I think is natural. We don't think it was major. But, you know, that's our read of why Q1 is a little bit below Q4. But hopefully that gives you enough information.

Thanks, Lou. And our next question comes from the line of Raj Gil with Needham and Company. Please proceed with your question.

Yeah, thank you, and congratulations on great results. A question on the ASPs. You mentioned that, you know, a third of your revenue growth last year came from higher ASP growth, and this appears to be a very strong kind of investment thesis as your ASPs kind of move higher. How do we think about the balance between kind of unit growth versus ASP growth as you kind of ramp up more of the supervision products?

I mean, I think, you want to take that?

So then there's a big difference between ASP of IQ and supervision. Therefore, when you're going with the volume of supervision, you don't need to grow a lot in order to produce these or generate these high revenues. So there's a big difference there, and we think that as we go further with a higher supervision in the mix, you'll see this ASP continue to grow.

Exactly. I mean, I think we have a lot of visibility on content for vehicle growth. The design wins that we achieved in 2022 came in at $105 per unit. on a blended basis, right? That's a mix of, you know, base IQ, you know, cloud-enhanced ADAS, supervision. You know, supervision was definitely the biggest contributor to the year-over-year growth in ASP that we saw in Q4, even though it was like 0.5% of the volume. And like we said in the prepared remarks, we see a trajectory to the low 60s in the back half of... 2023, you know, still with really one, you know, customer plus, you know, an additional, you know, Geely brand in the back half. So, it's a very powerful driver and, you know, the fact that Chauffeur is becoming a bigger part of the discussions, you know, with OEMs, you know, brings even more potential upside in the future. It takes time to play out like everything in this business, but, you know, we're feeling really good about the content per vehicle trajectory.

I appreciate that. And for my follow-up, a lot of the questions we receive from investors is trying to analyze the evolving competitive landscape with very large semiconductor suppliers as well as some niche competitors that are developing certain types of computer vision applications. So I'm wondering, as you are increasing the content per vehicle, as you're adding more and kind of upgrading and upselling your customers to higher levels of autonomy. You know, how do you currently see the competition, and how do you, you know, foresee it evolving as OEMs kind of adopt higher levels of autonomy? Thank you.

I think when you go to, you know, those high levels of complexity of systems, the semiconductor is really a small part of the mix, you know, You have so much on top of the semiconductor. You have the perception software, the driving policy software, the control of the car software, the mapping, the integration of all of them together. It is way, way beyond the semiconductor business. Even when you talk about the basic ADAS, which is the front-facing camera with a chip behind it, Now, the optimization and the economy of scales over the last decade of this particular product, you know, makes it very, very unlikely to a newcomer to gain market share. It's highly optimized. The validation is very, very expensive. It requires hundreds of petabytes of data to properly validate. And if you don't have any disrupting new idea there, being able to take market share in that particular highly optimized business is very, very unlikely. Unless the incumbent, for some reason, stops to deliver, and I don't see us stopping to deliver. So, really, the game in terms of market share is on the complex systems, supervision and beyond. I think there, Mobileye is clearly at a very, very leading position. You know, a supervision type of a product, I don't see anything outside of the Tesla FSD that even comes close to it. And we are having a very strong traction for it, more and more car makers, more in brands. Chauffeurs, another step up. So this is where the competitive game is going to be, not on the low end ADAS. And there, it's way beyond a semiconductor business.

Thank you, Raji.

Appreciate that. Thank you.

Our next question comes from the line of John Murphy with Bank of America. Please proceed with your question.

Hi, guys. Just two quick ones. First, if you could just discuss exactly what went on with the January price hike so we can understand why folks may have pre-bought in front of that just to understand how big that is. And then the second one, Amnon, as you're making this progress, with supervision as far as book business and discussions, are the customers just kind of throwing up their hands and saying, listen, we just can't do this ourselves or these other partners, so we're just kind of handing the keys and becoming exclusive with you? Or are they sort of parallel processing other systems? And how is that developing?

I don't think the story is so dramatic as to where you get the keys, right? You know, OEMs do what makes the most sense. They want to deliver a product. They want to deliver a competitive product. They need to compete with other OEMs. They need to provide value to the customers. And they see what Mobileye is doing. I think the launch of the Zico supervision created a kind of a significant moment because it's one thing to show a development system Another thing is to show a production system doing something very impressive. So it's not that OEMs decided to throw in the towel. It's simply a natural evolution of a competitive landscape. You need to be able to deliver brands with the best technology and use the suppliers for it. The IQ kit allows the carmaker... I think the IQ kit was a very important moment here. It allows the carmakers... not to completely treat our system as a black box, but to add to it their own software and to create further differentiation. But trying to simply replicate what Mobileye has been doing, personally, I don't think it makes sense, really, because I know the amount of investment that's being done, and this kind of investment cannot be done just through money. There's a time factor for it, a significant time factor for it. So I think that the Zikr launch created kind of a reality check in many of our OEM partners.

And about the IQ cost.

Yeah, in terms of the IQ cost, we're talking about a... One to two dollars of an increase. One to two dollars.

And it's not a significant impact in terms of buying ahead, you know, before this price increase.

Thank you very much. Thanks, John.

This is going to be our last question. Shamali.

No problem. Our last question comes from the line of Steven Fox with Fox Advisors. Please proceed with your question.

Hi. Good morning, and thanks for squeezing me in. Two questions, if I could. First of all, at CES, the conversation around your radar innovations were pretty interesting. I was wondering, beyond just the technology roadmap, what else is going to drive your ability to start disrupting in that product space? I guess you're talking about going to market in 2024 to try and win new business. And then secondly, as you sort of right-size for the volumes needed on the supervision by the end of this year with your manufacturing partner, Is that when we should start thinking about gross margins and supervision improving or do we need more volumes beyond like end of calendar 23 to start seeing that improvement? Thank you.

I'll start with the second half of your question. The gross margin in terms of the cost of production is not the volume dependent. We simply did another spin of the hardware. would better optimize the components so that would reduce our cost. Another part of increasing our gross margin of supervision is higher bundles. Once the bundles, once software bundles will include beyond highway, that will increase our gross margin. What's the first half?

The radar.

The radar. It's important to mention that our motivation for building those radars is not just to enter into a new marketplace. It was to create a very streamlined eyes-off system where you don't need a 360-degree awareness from ladders, because that is expensive. We want to limit the ladder only for front-facing, and the remaining 360 to be handled by imaging radars. And those imaging radars that we're developing are really cutting edge in terms of 48 by 48 channels, 100 dB of sensitivity. And they can create an end-to-end autonomous driving experience as another layer of redundancy. And that would considerably reduce the cost of an ISOF system. I'm talking about an ISOF with full capability, full ODD.

Great. That's very helpful. Thank you so much. Thank you.

Thanks, Stephen. Thanks, everyone, for joining our first earnings call as a public company. And we will see you next quarter. Thank you.