Mobileye Global Inc. (NASDAQ:MBLY) Q4 2022 Earnings Call Transcript

Mobileye Global Inc. (NASDAQ:MBLY) Q4 2022 Earnings Call Transcript January 26, 2023

Operator: Greetings. Welcome to the Mobileye Q4 2022 Business Update. Please note this conference is being recorded. I’ll now turn the conference over to your host, Dan Galves. You may begin.

Dan Galves: Hello, everyone, and welcome to Mobileye’s fourth quarter and full year earnings conference call for the period ending December 31, 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 Prof. Amnon Shashua, Mobileye’s CEO and President; and Anat Heller, Mobileye’s CFO. Thanks. And now I’ll turn the call over to Amnon.

Amnon Shashua: Thank you, Dan. Hello, everyone, and thank you for joining our earning call. 2022 was a really important year for Mobileye. 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 analyst. 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 per vehicle. Our advanced products carry a 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 3.5 times our actual revenue in 2022 and double our current ASP. Overall, we estimate that our current book of business represent over $17 billion of total future revenue through 2030.

As long as our new business wins continue to outpace our actual shipments 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 businesses. 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 to our REM map. This volume will drive higher ASP and recurring revenue from 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 start-up 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 ZEEKR 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 a SuperVision anywhere, not just in Israel. Our REM map now cover nearly all roads in the U.S. and Europe. As a result, we have been able to execute long-distance expeditions with carmakers, 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. Mobileye’s EyeQ Kit, software development tool is another important development. The ability for an OEM to take Mobileye’s truly differentiated asset like surround computer vision, REM mapping and our decision-making software as is, but then customize the consumer-facing part 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 one 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 served as a launch point for our eyes-off Consumer AV product super. Because SuperVision operates across a very broad operational design domain, it makes the transition to experience of eyes-off ODDs and 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 require 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 ZEEKR 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 top five follow-on Chauffeur eyes-off the program. 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 engagement 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 increase 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 terms of — in teams to support SuperVision launches with OEMs, radar and lidar productization and expansion of Mobility as a Service validation and testing site and development works of our next-generations of EyeQ chip. 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 a still pre-revenue like Chauffeur, Drive and active sensor-ready product. Thank you. And I now turn it over to Anat to go through the results.

Anat Heller: 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-GAAP measurements. The primary exclusion in Mobileye’s non-GAAP numbers is amortization of intangible assets, which is mainly related to Intel’s 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 continued 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.

This 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 the rise in chip cost 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 EyeQ product. As a result, EyeQ and SuperVision combined gross profit per unit grew by 9% in 2022. Turning to Q4. Revenue grew 59% year-over-year. Our EyeQ 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 volumes.

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 the internal expectations at the time of our October IPO, despite of our macro assumptions for 2023 coming down since spin. On the revenue side, I’ll give you a sense of our assumptions. Focusing on the high-end, we are assuming EyeQ volume that is somewhat below the commitment that we’ve received from our customers for 2023. We want to remain conservative and acknowledged that the macro uncertainty remains elevated.

That volume level corresponds to about 1% global production growth, 4 to 5 points of ADAS production 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 from our suppliers at the level we are focusing, 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 EyeQ 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 EyeQ price increase that went into effect on January 1. On SuperVision, the low 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’s 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 rate 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.

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Q&A Session

Operator: Our first question comes from the line of Itay Michaeli with Citi. Please proceed with your questions.

Itay Michaeli: Great. Thanks. Hello, everybody. Just two questions, one financial and one on SuperVision. On the financial, maybe for Anat, hoping to maybe talk about what you’re expecting for gross margins, kind of core ADAS and enhanced ADAS business in 2023? And then on SuperVision, 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 Lite offering versus the full ODD SuperVision offering? Thank you.

Anat Heller: Okay. So on the EyeQ side, we are seeing consistent gross margin through 2023. And on SuperVision side, we’re seeing approximately 35% for this year.

Amnon Shashua: 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 evil version, with the lower cost, that will increase our margin. Second is the customer bundles. The launch of the SuperVision in China at the moment at highways, the urban and arterial roads would be unlocked during 2023 and that would also increase our revenue per content per car, and of course, naturally will increase the gross margin. We are targeting reaching between 50% to 60% gross margin of SuperVision kind of 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 ZEEKR vehicle there is a front-facing radar as well. Although we can satisfy all the functionality without the radar, but having a front-facing radar add another element of redundancy, which can improve the MTBF of the system. In terms of SuperVision Lite, this is a product offering which has been done very recently. So we don’t yet have the traction for — all traction that we have and is growing is for the full SuperVision with two EyeQ 6 and the full camera suit.

Itay Michaeli: Perfect. That’s all very helpful. Thank you.

Amnon Shashua: Thank you, Itay.

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

Mark Delaney: Yes. Thank you very much for taking the question. With respect to the opportunity for Mobileye versus your 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 perhaps this is broader based?

Amnon Shashua: As I said, we have now SuperVision design win into six carmakers, 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 named yet, but I think the additional traction in the second half would be ones outside of those six OEMs.

Mark Delaney: That’s very helpful. Thanks. And one more from me please, if I could. The Company said the supply chain limit including for SuperVision and you called that a ECU component. Do you have 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 constraints alleviated intermediate to longer-term. Thank you.

Amnon Shashua: 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’re confident that in the second half of the year that constraints will be alleviated and we can deliver the rest of the volume.

Dan Galves: Yes, 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 supply really needed to sort of take-down the production for a period of time in order to install more capacity, so we can get to much higher levels and just really reiterate what I said in the second half, we have commitments to be at a run-rate; that would satisfy not only the 2023 demand, but also gas to a capacity where we could satisfy 2024 as well.

Amnon Shashua: Thank you, Mark. Next question please.

Operator: Our next question comes from the line of Joshua Buchalter with Cowen and Company. Do proceed with your question.

Joshua Buchalter: Hi, guys. Thanks for taking my questions and congrats on the result. 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 first is what you’re currently doing with ZEEKR 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.

Amnon Shashua: With respect to eyes-off, we announced with the ZEEKR, we streamlined the hardware at the time when we announced it, it was with six EyeQ 5 chips, we are now streamlining it to one piece of hardware called CH663, so three EyeQ 6, that will be in the 2025 timeframe. We have additional OEM with an eyes-off and an additional one, this European, which is not yet named for 2026 timeframe, and there is a potential additional one, which I believe that could be announced in the second half of the year for an eyes off-system based on the three EyeQ 6.

Joshua Buchalter: Hi, appreciate the color. And then so I wanted to ask about your R&D and OpEx spending. You called out, it was helpful color, giving the 70% number on forthcoming product, but you have a lot of irons on the fire. And I was wondering if you could rank order where you’re spending priorities, which ones are the ones that you’re particularly focused and excited about between, let’s say, AMAS, Consumer AV, but even bringing your own internal lidar and radar to market, as well as just broader software adoption like mapping. Thank you.

Amnon Shashua: Our expenses is very diverse and you mentioned a number of them. We have expense on active sensors, radar, lidar, there we are working on productization middle of a 2024 timeframe, both of the radars and the lidars. 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 the expense in R&D as we go forward from SuperVision to Chauffeur to Drive, which is the Mobility of the Service, that’s another source of expense. We have expense on SuperVision to support those six carmakers, this is very diverse, it’s hardware, just like as a Tier 1, it is software, not algorithmic software, but more infrastructure software.

There’s a lot going on there to support six carmakers with SuperVision, all coming around the same timeframe, starting from 2024 till 2026. So this creates also a need for investments. 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.

Dan Galves: And 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.

Joshua Buchalter: Got it thank you.

Dan Galves: Thanks, Josh.