Yahoo Finance ECARX Holdings, Inc. (NASDAQ:ECX) Q4 2023 Earnings Call Transcript
ECARX Holdings, Inc. (NASDAQ:ECX) Q4 2023 Earnings Call Transcript February 28, 2024
ECARX Holdings, Inc. beats earnings expectations. Reported EPS is $-0.12, expectations were $-0.13. ECARX Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to the ECARX Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Rene Du. Please go ahead.
Rene Du: Thank you, operator. Good morning and welcome to ECARX fourth quarter and full year 2023 earnings conference call. With me today for ECARX are Chairman and Chief Executive Officer, Ziyu Shen; Chief Operating Officer, Peter Cirino; and Chief Financial Officer, Phil Zhou. Following their prepared remarks, they will all be available to answer your questions during the Q&A session that follows. Please note today’s call is being recorded. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which also applies to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC.
In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP measure to GAAP measure can be also found at the bottom of our earnings release. With that, I’d like to hand the call over to Ziyu. Please go ahead.
Ziyu Shen: Thank you, Rene. Hello, everyone and thank you for participating in our fourth quarter and full year 2023 earnings call. 2023 was a pivotal year for China’s automotive industry. China exported 4.9 million vehicles in 2023, supporting Japan to become the world top auto exporter. Global auto sales topped at 74 million as EVs continue to gain significant market share with their global penetration hitting another record high of 23% in December. With demand for EVs expanding globally, the software [indiscernible] they offer will grow in tandem. According to PCG, software platforms for vehicles are forecast to grow at a 12% CAGR by 2030 with a market value of $13 billion, creating normal market opportunity that we are uniquely positioned to benefit from, with our innovative product portfolio.
There are now over 6 million vehicles on the road that incorporate our technology across 25 brands offered by our 15 automotive OEM customers. ECARX equipped vehicles on the road increased 8% from last quarter and 30% from the same period last year. We are starting out the year strongly with a solid pipeline that includes the expected launch of 49 vehicle models over the next 18 months, which we expect to translate into an additional 1 million vehicles on the road that incorporate our technology. This growth is reflected in our financial results where our revenue during the fourth quarter hit a record high of RMB1.87 billion, up 22% year-over-year, while for year 2023, revenue hit RMB4.67 billion, up 31% year-over-year. The sector continues to present enormous opportunities for growth despite increased employee pressure and competition intensity.
While we continue to invest in our future long-term growth, we are simultaneously working to improve operating intensity across our supply chain to build a sustainable path towards profitability as our business grows to scale. Our net loss for the year narrowed significantly to RMB1 billion compared to RMB1.6 billion in 2022. Our customer base continues to grow as automotive OEMs increasingly recognize the significant value proposition that our solution offer them. We added 1 new mass-market Japanese brand in December and the motive for our EV project wins through our strategic collaboration with one of China’s top automotive OEM growth. This is all in addition to winning three new projects within the Geely Ecosystems during the quarter. Our international portfolio and the brand awareness continues to strengthen alongside our expanding customer base.
Last month, we showcased our full [indiscernible] and met with a number of well-known global automotive OEMs at CES in Las Vegas. Quarter four also saw the launch of the Polestar 4 and Volvo Car EX30, which showcase the Polestar OS, the customized OS based on Flyme Auto and ECARX Cloudpeak software stack. Both vehicles are equipped with Google Automotive Service, which highlights our ability to deploy these services at scale and support both Chinese and global automotive OEMs with the launch of their vehicles internationally. All our unique partnership ecosystem continues to be a key driver of our success. During quarter four, we embarked on our new joint venture with smart to collaborate on intelligent automotive products and the strength to our existing partnership with Black Sesame to further develop our intelligent driving ecosystem.
This is in addition to our partnership with Mobileye which was on April 4 with the launch of the Polestar 4. I am extremely pleased with the progress we have made throughout the year with our profile growing internationally, strong partnerships and cutting-edge solution. We couldn’t be in a better position to benefit from the enormous growth opportunities ahead. I will now pass the call over to Peter, who will go through the operating results for the quarter in more detail.
Peter Cirino: Thank you, Ziyu, and good day, everyone. We gained significant momentum in diversifying our business and partners during the quarter. As Ziyu mentioned, we added a mass-market Japanese brand to our customer base and recently picked up multiple project wins for EV models throughout our collaboration with one of China’s top automotive OEM groups with the start of production expected by the end of 2024 or early 2025. To sustain this momentum and boost the visibility of our solutions, we had 8 tech shows across 5 cities in China in Q4, which generates significant engagement with over 2,000 attendees. We also won 3 new projects from existing customers within the Geely Group and Ecosystem brands during Q4. Our recent progress underscores the significant market opportunity for our innovative product portfolio and the strength of our technology.
I’ll start with the ECARX Antora series, which embodies the fundamental requirements needed for a truly intelligent vehicle. The Antora series integrates the world’s leading 7-nanometer high-performance automotive grade SoC, SE1000, which features unique hardware architecture, including built-in function and information safety islands that don’t require virtualization and a high-performance programmable MPU with 8 TOPS AI computing power and multiple acceleration engines. Building on the Q3 debut of the Lincoln 208, the first vehicle to launch with our full stack solution, Q4 saw the mass production of the Antora 1000 computing platform to be integrated into the updated version of the Lincoln 206. The Antora series has become a benchmark platform for a number of car models in our pipeline.
The Makalu platform is one of the most powerful intelligent cockpits available on the market with its ultra high-performance digital cockpit computing platform with unparalleled 3D graphics, security and entertainment features. The Makulu platform is expected to begin production in the first half of this year on 2 car models, which we are very excited about. ECARX Skyland Pro, our first-generation autonomous driving control unit with L2 plus capabilities, integrated safe parking and driving solutions. Highway NoA and remote parking assist was deployed on the Lincoln 208 last September. With computing power of 118 TOPS and a high safety MCU, ECARX Skyland Pro is able to support more advanced software such as bird’s-eye view and LiDAR perception.
Its integrated ADAS solutions combined with our cockpit solutions, strengthen the loyalty of our automotive OEM customers while providing end users a seamless in-car experience. One of the key growth drivers for ECARX has been our focus on innovation. We continue to invest in research and development to ensure a steady pipeline of cutting-edge technologies and features for our products. This keeps us ahead of the curve. As of December 31, 2023, we had 563 registered patents and 557 pending patent applications globally. We have a clear product roadmap that spans from entry-level solutions to premium level with plans to integrate next-generation supercomputing platforms starting later this year and into 2025, a key driver for our ambitious market share objectives.
Our profile continues to grow globally as more vehicles with our technology hit the road. The Polestar 4 launch was a significant milestone during this quarter. It is the first model to feature Polestar OS and an operating system based on Flyme Auto, which highlights our ability to build custom operating systems with iconic brand designs for global automakers. Polestar 4 also marked the debut of the integrated driver assist system we developed in partnership with Mobileye. This mass produced one box solution is a strong testament to our ability to put advanced technologies from our partner ecosystem onto the road. The Volvo EX30 was launched across 33 markets internationally during the quarter and comes equipped with ECARX Cloudpeak cross-domain software stack and Google Automotive Services.
ECARX Cloudpeak manages the seamless integration of all the information an EX30 drivers needs, including navigation instructions from Google map and hands-free help from the Google Assistant and apps of Google Play. Of particular note, it also integrates wireless CarPlay for the first time in Volvo in addition to wireless Android Auto. Cloudpeak is also networked into the vehicle’s comprehensive suite of ADAS features, including collision avoidance and mitigation, traffic genesis, lane change assist, pilot assist, door opening alerts and 360 camera views. Cloudpeak is a fully flexible modular platform created to provide global automotive OEMs with a customized and intelligent platform for state-of-the-art infotainment and advanced driver assist systems in the market today.
This is a key product line for us and leverages our unique ability to develop full SaaS solutions in-house in close collaboration with other suppliers, technology companies and automotive OEMs. The successful launch of the Volvo EX30 will significantly boost our brand recognition in the industry. We also had a great presence at this year’s CES in Las Vegas where we showcased our latest cutting-edge technology offerings and sought to make new connections with global automotive OEMs. It was a highly productive week as we were able to meet over 50 customers and partners on the sidelines of the events. Lastly, I’ll share a couple of key updates on our partnership ecosystem. In December, we formed a new joint venture with smart to locally develop intelligent experiences within smart vehicles.
We previously worked with smart to co-develop a customized Smart OS operating system for two of their earlier models and are excited about what we can accomplish as we deepen our collaboration. We also strengthened our partnership with Black Sesame, which will pave the way for us to bring a powerful new ADAS solution into the market. We have lots of synergies with Black Sesame and are incorporating their cutting-edge intelligent driver technologies into our products, and this will enable us to offer a compelling full stack solution to automotive OEMs. In conclusion, our growing commercial momentum, leading technology and rich partner ecosystem ideally positions us to seize the tremendous opportunities created by the growth of the EV and software-defined vehicles in China and globally.
While we are pleased with the progress we’ve made in 2023, we recognize that we are still in the early stages of our journey with a lot of work ahead of us to meet our ambitious market share goals. With confidence at all-time highs, we usually look forward to execute our plan and our vision for the future. I will now turn the call over to Phil, who will go through our financial results.
Phil Zhou: Thank you, Peter, and hello, everyone. We closed out the year with strong momentum as our business continues to grow and our financials improve. Total revenue for the quarter was RMB1.87 billion, a significant increase of 22% year-over-year. Computing hardware goods revenue was RMB1.31 billion, up 26% year-over-year, driven by volume increases in digital cockpit sales for new vehicle programs. Software license revenue came in at RMB93 million, a decrease of 62% year-over-year and 32% sequentially, primarily due to the timing of booking intellectual property license revenues and the decrease in volume of software sales. Service revenue maintained a strong growth momentum, surging 95% year-over-year to RMB463 million.
This remarkable increase was primarily due to launch of Volvo EX30 and Polestar 4 during the quarter. Gross profit was RMB432 million, an increase of 1% year-over-year, which translates into a gross margin of 23.1%. Total cost of revenue was up 31% year-over-year, primarily driven by an increase in sales volume of digital cockpits and service revenue. As discussed on the last earnings call, we expected margin pressure on our hardware products continue over the medium term, driven by enhanced industry-wide pricing competition, customer EE architecture evolution and transition, acquisitions and strategic progress we have in the pipeline. Our focus going forward will remain on enhancing the adaptability of our business and improving operating efficiency.
We will do this by driving products and solutions around growth, strategically cutting costs and making targeted new investments. This will allow us to strike a balance between top line growth and profitability as well as mitigate any potential impact on our margins. Operating expense during the quarter increased 28% sequentially and decreased 37% year-over-year. The sequential increase was primarily due to the impact of seasonality as well as continued investments in our core product road map and international R&D expansion. The year-over-year decrease was mostly due to lower share-based compensation expenses. Adjusted EBITDA loss was RMB232 million, up from a loss of RMB222 million during the same period last year, primarily attributable to change in fair value of equity investment.
Loss per share was minus RMB0.87 compared to minus RMB3.26 due in the same period last year. Having finished the year on a solid footing, 2023 full year revenue came in at RMB4.67 billion, up 31% year-over-year, with gross profit of RMB1.27 billion, an increase of 38% year-over-year, giving a gross margin of 27.2%. Throughout the year, we further optimized and improved operating efficiency by prioritizing investments in our global expansion and the technology development. Full year operating expenses decreased 17% year-over-year with adjusted EBITDA loss of RMB710 million, an improvement of RMB37 million from last year. Moving on to our balance sheet. As of December 31, 2023, we had RMB588 million of cash and restricted cash, which gives us sufficient resources to invest in our future and accelerate growth.
Going forward, we will further optimize our operating expenses with a particular focus on product, sales and supply chain and manufacturing strategies. On the product side, we will continue to invest in R&D to drive mid to long-term growth opportunities. On the sales side, we will focus on engaging with new automotive OEM partners, both in China and internationally. And finally, we will further optimize the supply chain management and improve cost of structure of products and components. This will also support the strategic transition of our manufacturing strategy from ODM to an OEM model. To summarizing all of this, a focus on a balanced portfolio and a wider area of higher-margin premium products. Lastly, in order to proactively mitigate the impact of an increasingly challenging geopolitical environment, we are strategically expanding our global presence for both R&D and customer acquisition.
We want to build two closed loop systems, one for China and the other for global markets. Each closed loop system will span the entire process from R&D to delivery. To do so, we have had to make acquisitions, strategic investments and the supply chain upgrades that will take time to mature, but are critical to ensuring the sustainability of our business model. The acquisition of GCAR and investments in ADAS over the past few quarters reflect the careful and strategic nature of this approach. We will ensure our business will be in a healthier and more sustainable position over the long-term. In conclusion, we are pleased with the strong finish to 2023 and easily look forward to the enormous opportunities ahead of us. That concludes our prepared remarks today.
I would now like to hand the call back to the operator to begin the Q&A session.
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