Yahoo Finance ECARX Holdings, Inc. (NASDAQ:ECX) Q3 2023 Earnings Call Transcript
ECARX Holdings, Inc. (NASDAQ:ECX) Q3 2023 Earnings Call Transcript November 11, 2023
Renee Du: Good morning and welcome to our Third Quarter 2023 Earnings Conference Call. With me today are ECARX Chairman and Chief Executive Officer; Ziyu Shen, Chief Operating Officer; Peter Cirino and Chief Financial Officer. So Joe, following their prepared remarks, they will be able 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. Please refer to our earnings release which contains a conciliation of the non-GAAP measure to GAAP measures. With that, I'd like to hand the call over to Ziyu.
Ziyu Shen: Thank you, Renee. Hello, everyone and thank you for joining our third quarter earnings call. Let me start by saying a few words about China market. This quarter saw again a growing share of vehicles [ph] and the train is clearly accelerating with global NAV adoption rate reached a record high at 90.8% in the third quarter. This year, China is well positioned to become a large automotive explorer in the world. This year is also likely to be the first year where domestic brands will also foreign brands in China. One of the important wins that will we witnessed this quarter was the launch of car-specific mobile phones, whose over seamlessly integrated into the vehicle ecosystems to create a value experience with major, we are pushing a similar integration strategy.
At ECARX, we delivered another strong quarter of growth with revenue up 50% year-on-year as we continue to benefit from increased spending by OEMs on enhancing the in-car experience and meeting consumer demand for greater creativity and more ticketed digital copay technologies. There are now over 5.6 million vehicles on the road that incorporate our technology across 24 brands offered by our 15 automotive OEM customers. Vehicles on the roads equipped with our products increased 8% from last quarter and 31% from the same period last year. With our dedicated team of over 2,000 people, 70% of whom are engineers, we are firmly positioned as the leading tech provider in the industry. I'm pleased to report that we further expanded our customer base outside of JD Group in China during the quarter with [indiscernible], the joint venture between [indiscernible] coming above onboard as a significant customer in ECARX Holdings Inc.
We also added 6 design wins for flagship car models in the third quarter, paying the way for further growth which I will let Peter go over in more detail later. Internationally, Chinese EV makers and technology deployers have truly arrived on the global stage following their massive presence at the IAA mobility model show in Munich in September. We are investing significant resources into growing our business and prices outside of that and have several key milestones coming up that will significantly raise our feasibility internationally, including the upcoming launch of the Volvo Ex review that will feature our digital copy solution. The recent debut of the Lincoln Co-08 SUV equipped with our fourth stack solution is a great showcase for the full range of technologies we have to offer as our industry profile continues to grow.
We are also attracting increased attention as a technology provider within the mobility space through the ecosystem partnerships we announced with Baidu and Mobile this quarter. In summary, we delivered a very strong quarter, both from our commercial technology and ecosystem point of view. 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. Our innovative product portfolio enabled us to secure a number of new design wins during the quarter. Operationally, we were focused on strengthening our portfolio internationally, expanding our partner ecosystem and delivering additional product advancements with operations in 11 major locations across 3 continents. Our global footprint facilitates close working relationships with local OEMs and access to a truly global talent pool. As Ziyu mentioned, we have gained significant momentum in the China market by adding 3 additional OEMs to our customer base. We also added 6 new design wins in the third quarter. Three of these will utilize the ECARX and Antora 1000 Pro platform, 2 will utilize the ECARX Makalu platform, with the remaining to adopt ECARX and Toro 1000 platform.
These achievements underscore the increasing demand for software-defined vehicles and enriched in-car experiences, reflecting the significant value proposition and market opportunity for our innovative product portfolio. Our ECARX and Tora series offers customers with a high-end digital intelligent cockpit experience at an attractive price point. ECARX is well integrated and Antora SoC also enables them to save on engineering cost and decrease the time needed to bring their vehicles to market. ECARX Makalu, on the other hand, offers clients an ultra-high-end performance digital cockpit computing platform, supported by a powerful AMD SoC and unreal engine graphics solutions. With unparalleled 3D graphics, security and entertainment features, it is one of the most powerful intelligent pockets available on the market.
As Ziyu mentioned, our solutions are now being integrated into Dongfeng Peugeot Hisron automobiles, new Citron Tani, Pugeout-4008 compact SUV and Peugeot's flagship 508L Sedan which began mass production in the first half of August. These vehicles are equipped with our E02 intelligent cockpit computing module which has already been installed in more than 1 million vehicles across 32 separate models from a variety of automotive brands. While we continue to grow in China, we also made significant progress with our global expansion during the quarter. The Volvo EX 30 which is equipped with ECARX Cloud Peak, began starter production in late September and will be launched globally later this year. We are confident its launch will significantly raise our international profile and provide customers globally a demonstration of the cutting-edge technology and enjoyable in-car experience we can deliver.
To support our expanding international profile, we showcased our ultra-high-end performance digital cockpit capabilities and more notably, our immersive Makalu platform at IAA Mobility in Munich in September. Our on-site demo allowed visitors to fully experience these innovative solutions and get a taste for the technologies that will shape the vehicle industry for years to come. In November, we will be presenting at the Reuters Automotive USA 2023 industry gathering in Detroit, where we will also meet with many North American prospects. On the technology front, we expanded our product portfolio to include the ECARX Sky land ADAS platforms. ECARX Skylane Pro is our first-generation autonomous driving control unit which integrates automated parking and active safe driving solutions, such as lane changes sit on controlled access highways.
These ADAS capabilities will allow us to further expand content per vehicle and strengthen customer loyalty by providing a more secure and supportive driving experience. The Peugeot4008 is the first vehicle to launch which contains our full stack solution. It reflects our ability to drive technological innovation and it is representative of the direction that we are headed. Its digital cockpit is powered by the Antora 1000 Pro platform integrated with the ECARX Cloud Peak software stack and Flame Auto to deliver a smooth and seamless interactive in-car experience. Together with ECARX Skyline Pro ADAS platform and 5R10V sensor configuration, these technologies bring L2s capability to this flagship car. The Lincoln 208 recently received a high score in preliminary ADAS tests under China's new car Safety Assessment program, the NCAP.
With such stellar results, we are confident we can leverage the full stack solution for the Lincoln 208 to approach new customers. We continue to carefully invest in the development of new cutting-edge technologies and have a strong development pipeline that we eagerly look forward to updating you on in the months ahead. Let me now share with you some updates on our partnership ecosystem which is helping us develop disruptive technologies that will sustainably drive growth and innovation across the automotive sector. In August, we began collaborating with Mobileye to build a one box solution, integrating automotive driving and parking features that will enable hands-off and eye off self-driving on controlled access highways. This solution will be used in the mass production of the Polestar 4 electric SUV Coupe, the world's first mass-produced car to adopt mobilizer consumer AV technology.
As part of this collaboration, ECARX will be responsible for the development of Parking related algorithms and functions, local production of hardware used in domain control units and quality management and supply chain management. This represents significant progress in terms of both innovation and our go-to-market strategies. Going forward, ECARX and Mobileye will partner on a driver-assisted solution and a cockpit driving parking integrated solution based on the latest IQ-6 automotive-grade SSC. We also expanded our partnership with Baidu Apollo during the quarter which will see us become one of the first automotive technology partners to explore the intelligent cockpit application of its AI large language model. Through this partnership, multiple innovative functions have been integrated into ECARX competing platforms some of which are expected to be launched on select mass-produced linking to models in the near future.
This partnership will leverage each party's respective strengths and will usher in a new era of innovative automotive intelligence solutions that will shape the industry at large. We expect these solutions to enable ECARX to help OEMs provide more natural and differentiated speech recognition, offering unique smart experiences and propel further innovation in automotive intelligence. To further enhance our technological leadership, we will also incorporate LLM capabilities into our integrated intelligent ecosystem. Our strategic partnership with Shenzi Meizu is also very important. The Flame auto ecosystems foundational content is the integration of smartphone computing and storage capabilities into vehicles to create seamless interconnection with unique features such as small window display mode, dynamic effects and sophisticated in-car climate control, Plameto became the first operating system in the automotive industry to receive certification from China's TL Certification Institute for its superior performance, providing customers with a unique and smooth interactive entire experience.
Finally, an update on ECARX coupe, Peak our cross-domain system developed in collaboration with our joint venture with Volvo. ECARX Coupe Peak was built to meet strict vehicle safety and information security requirements. It supports multiple operating systems and global mobility ecosystems with security protocols that meet both Chinese and international standards. In late August, ECARX Coupe Peak was awarded the EAL4 certification for information security. In closing, as the automotive industry progresses towards software-defined vehicles and thus, from distributed EV architectures to central computing platforms, our innovative solutions and strategic partnerships with some of the world's leading tech companies and OEMs will enable us to build and solidify our market leadership and position ourselves at the forefront of this global transition.
Now, I will turn the call over to Phil to review our financial results for the past quarter.
Phil Zhou: Thank you, Peter and good day to everyone. We delivered another solid quarter of growth which further strengthened our position as a key player in the automotive and technology sectors. Total revenue for the quarter was RMB1.08 billion, a significant increase of 50% year-over-year. Computing hardware goods revenue was RMB734 million, up by 38% year-over-year, driven by an increase in demand for our new digital carpet solution. We increased penetration into GD ecosystem brand, smart and Lotus. While our share of wallet in GD auto business remains stable. We have shipped our product and solution offering for the new EV market segment and capture the market growth curve. Software license revenue came in at RMB137 million, an increase of 73% year-over-year and 21% sequentially, primarily due to demand from our 2 framework agreements with strategic partners, Patio and Shinji Meitu.
The related demand was high for ECARX and Antora platform software and ECOs automotive service IT licenses which reflects the unique value proposition offered by our cutting-edge solutions. Service revenue maintained a strong growth momentum as well, with a search of 92% year-over-year to RMB209 million. This remarkable increase was primarily due to revenue recognition timing for nonrecurring engineering revenue. As we discussed on our last earnings call, we expected the bulk of lease revenue to be booked in the second half of 2023. Gross profit reached RMB331 million, an increase of 140% year-over-year. This was well above the nearly 29% year-over-year increase in cost of revenue due to timing differences in completing nonrecurring and generating contracts which we plan and manage from a full fiscal year perspective.
We expect this as part of the recovery of low year-over-year gross profit growth delivered last quarter. Looking at quarter 4 which is the big season for the industry. We see challenges in maintaining the same level of gross margin considering the fierce competition to drive demand and top line growth. As well, there may be further pressure on our hardware product margin performance in the coming quarters due to industry-wide price cut and evolving customer EE architectures. We will focus on driving software and service revenue growth and improving operating efficiency to mitigate the margin impact. Operating expense increased 22% sequentially and 36% year-over-year for 2 main reasons. First, the increase of 27% sequentially and 71% year-over-year as we invested to keep pace with advancements made in technology.
Second, our global expansion into Europe and the United States, where we are taking into growing demand as OEMs transition towards new EVs and we are assessing a truly global talent pool. Adjusted EBITDA loss was RMB179 million, an improvement from the loss of RMB181 million last year. This is a slight improvement but we need to be aware that such results has already included our accelerated R&D investment in ADAS solutions and the GCAR, the JV with the July Group. If we take out the loss from JV, the profit could be improved by around RMB50 million in quarter 3. However, we certainly believe the investment in ADAS solutions is worthwhile and it will empower our long-term growth. The performance of the ADAS product on Lincon O08 is quite impressive at kind of example.
The loss per share also improved year-over-year from RMB1.48% to 0.79%. This is mainly attributed to the revenue growth in computing platform products, gross margin improvement and operating cost control. Cost control did not impede our investments in advanced technology development and global expansion. Moving on to our balance sheet. At quarter end, we had RMB688 million of cash and restricted cash. With a solid foundation for growth now in place, we expect to allocate additional capital to accelerating our growth trajectory. Maintaining a solid balance sheet is of paramount importance. So we will focus on improving operating efficiency across our supply chain, inventory and cash flow. Looking forward, we will maintain our operational focus on optimizing efficiency and cost management while allocating resources towards opportunities that can enhance future growth projects and drive innovation.
Sustainable and fiscally responsible business practice are backbone of our long-term financial health. With that, I will turn the call back to Ziyo for some concluding remarks, then we will start the Q&A session. Ziyo?
Ziyu Shen: We are excited about our position in a significant and encouraging market where industry trends are driving robust set growth. We are pleased to witness that our customer base has further extended beyond the GD Group. Our unique technology and diverse product offerings have enabled new design wins and forces the strategic ecosystem partnerships. We are committed to continued progress in these areas. Meanwhile, we are predicting allocating resources towards opportunities that can enhance future growth prospectives and drive innovation, much like our ongoing efforts to strengthen our international business and prices. Operator, we will now open the floor for questions. Thank you.
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