Mobileye Global Inc. (MBLY) Earnings Call Transcript & Summary

Greetings, and welcome to the Mobileye Fourth Quarter and Full Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Dan Galves. Thank you, sir. You may begin.

Thank you. Hello, everyone, and welcome to Mobileye's Fourth Quarter and Full Year 2024 Earnings Conference Call for the period ending December 28, 2024. 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 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, Mobileye's CEO and President; and Moran Shemesh, Mobileye's CFO. Also joining today for the Q&A session is Nimrod Nehushtan, Mobileye's EVP of Business Development and Strategy. Thanks. And now I'll turn the call over to Amnon.

Hello, everyone, and thanks for joining our earnings call. Starting with the results. Q4 was closely aligned with our expectations. EyeQ volume was a bit better than expected and was up 9% versus [indiscernible] in Q3. The upside was largely related to higher-than-expected volume from Chinese domestic OEMs, who continue to order above the levels we talked about back in July. ASP's gross margin and operating expenses were aligned with our review at the beginning of the quarter. Operating margin of 21% was almost 5 points higher than Q3. Operating cash flow was robust in 2024, finishing up by $400 million. That was flat compared to 2023, despite significant year-over-year revenue and earnings declines driven primarily by the previously disclosed inventory digesting period we experienced in the first half. Operating cash flow was approximately double our non-GAAP net income in 2024. Moran will cover the guidance in more detail in a few minutes, but I will first set the stage. [indiscernible] is that if we use indications from our customers for the full year, our guidance would be higher, but we prefer to take a conservative approach that accounts for the risk and uncertainties negatively affect earnings. Our top 10 customers were assuming global production volumes meaningfully worse than they assume than that assumed by third-party forecasters. With Chinese OEMs forecasting remains difficult due to the visibility we receive. Volumes appear to have stabilized in the $2 million-plus annualized range in the second half of 2024 higher than we had expected several months ago, but we're assuming a deterioration from that level simply to account for the low visibility. On SuperVision, we are assuming about half of the current run rate of end market demand for the vehicles we are on. On Zika, we are electing to account for the risk that Zika could choose to go with their in-house system on Zika 009, which is currently running at 2,000 to 3,000 units per month. We have no indication that this is planned, but we are unwilling to be surprised again. On Postal, we are assuming volumes of postal are 4 to remain at current levels, despite their stated plans for further geographic expansion. Turning to seasonality. As a percentage of the midpoint of the full year revenue guidance, our assumption for Q1 revenue is 25% of the full year. Typically, it would be lower. So this gives us further confidence that the full year outlook is achievable, even if macro conditions deteriorate somewhat. Turning to the commercial and new business side. We continue to win new ADAS business with our core customers at the same very high rate we have for years, and are seeing good opportunities with some new customers. We recently won a multimillion unit REM data harvesting and cloud-enhanced driving assist program from a very key customer, in parallel with continued due diligence for SuperVision. This deal strengthens our global data harvesting with another leading OEM with significant global volumes. This data plays a key role in our EyeQ 6 generation AI stack. Additionally, we moved forward with an Indian OEM on REM data harvesting for this important growth market. A number of upcoming launches from this customer will have cloud-enhanced driving assist capability. On the advanced day product side, we have the customer engagements in place to drive a steady cadence of announcements over the course of 2025, which is consistent with the messaging we delivered at the December Capital Markets Day. While our expectations for advanced product design wins remain intact, the exact timing of those announcements remain challenging to predict. The decision for an OEM on what path to take towards autonomy is very strategic, very long-term decision. And this is why the due diligence process is so intense and takes luck. But it is clear that the customers believe in our approach and that the far to outstanding products run through Mobileye technology. In the past few months, we have revealed through our AI Day back in October, the Capital Markets Day in December at the CES early this month, a lot of technological advancements underlying our stack. The common theme is efficiency of design, efficiency in our silicon design and we'll be revealing very soon detailed benchmarks of EyeQ 6 high versus competing high-performance chips. Efficiency of our AI, for example at AI Day, how to build a transformer network, which is a factor of 100 more efficient than the existing transformer architectures used by practitioners. This efficiency in design is also translated to the amount of resources, data and compute, which is required for [indiscernible] in our AI stack. Efficiency in our mind matters and goes against the [indiscernible] good force development. Good force development is a signature for our competitors as reflected by the massive investment in compute and data pipelines. Mobileye has a long tradition of excellence in efficiency, preproduction vehicles powered by our IQ6highstack showed good promise for a substantial leap in performance and precision of our next-generation SuperVision and Chauffeur. More updates will come in the course of 2025, as we get ready for start of production during 2026. Thank you, and I will turn the call over to Moran.

Thank you, Amnon, 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 in amortization of intangible assets, which is mainly related to Intel's acquisition of Mobileye in 2017. We also exclude stock-based compensation as well as the goodwill impairment that occurred in Q3. Our Q4 results slightly exceeded the Q4 outlook implied by the full year guidance we provided back in October, largely due to higher-than-expected volumes from Chinese OEMs that was down 23% year-over-year. There isn't much insight to be gaining from that comparison. As a portion of the meaningful inventory build off that impacted the first half of 2024, occurred in Q4 of 2023. Q1 will again be an apples to oranges year-over-year comparison, given the inventory digestion that occurred in Q1 of 2024. Beginning with Q2, the comparisons will be more relevant. Gross margin was consistent with expectations and up slightly versus Q3 due to lower percentage of SuperVision revenue in Q4 versus Q3. Operating expenses were down somehow versus Q3 as expected. This is related to the initial impact of the LIDAR unit wind down, an increase in military reserve duty refund, some adjustments based on the evaluation of benefit approvals and other items that are largely timing related. Turning to guidance. We provided 2025 revenue and adjusted operating income guidance in today's earnings release. At the midpoint, we expect $1.75 billion of revenue and $217 million of adjusted operating income. This represents approximately 6% year-over-year revenue growth and more than 10% growth in adjusted operating income. The revenue guidance is based on EyeQ volumes in the range of 32 million to 34 million units. Amnon mentioned, we are assuming the vast majority of SuperVision units this year are for postal 4 ,and expect overall volumes in the low 20,000 units at the midpoint, assuming no expansion into the U.S. I note that for the time base, we don't plan on expressly addressing SuperVision volumes in the near term. Until we began launching this system on more products with Western OEMs in 2026, we don't expect it to be significant enough to call out. And we got that expectation low enough that any variances to downside are not material. On the EyeQ volume side, based on our analysis and information from Q1, we believe that customer inventories are currently at normal seasonal levels. To give you better insight on our guidance, we thought it will be helpful to provide a bridge from the second half 2024 annualized run rate of 35.6 million units to the midpoint of our 2025 volume outlook of 33 million, which is somewhat below the indications we currently have from our customers. We don't plan to provide this level of detail on a quarterly basis but think it is helpful and context for our initial 2025 outlook. First of all, some pull forward of volume into Q4 is typical given annual price changes in [indiscernible]. We estimate this added about 0.5 million units annualized in Q4 2024. And we are not assuming this occurs again in Q4 2025. We assume 2025 over production of our core OEM customers, which represent about half of industry volume will be down almost 7% versus 2024 levels, similar to the decrease we saw in 2024 versus 2023. This is meaningfully lower and more conservative than IHS projection of minus 4% and would account for about 2.3 million units of reduction. Partly offsetting [indiscernible] production declines, we do expect share gains in ADAS adoption growth from these customers to drive approximately 1.5 million units of growth in 2025 or about 4 points of growth over market. These are not generic expectations, but rather relate to new programs in additional markets with specific OEMs. Regarding seasonality, second half production at our top customers is typically 2% higher than first half. This would represent almost 1 million unit reduction versus the second half run rate. Finally, regarding the China OEM, we are assuming approximately 0.5 million unit decline, as compared to the second half run rate. This is to reflect the volatility we've seen over the last several quarters. Turning to gross margin in 2025. We are assuming about 1.5 points higher than 2024, primarily due to the lower percentage of SuperVision-related revenue. In terms of operating expenses, we expect about $250 million per quarter during 2025 on average, which is consistent with our comments on the Q3 call when we said the run rate, at the same time, we sustained to 2025. Versus that Q3 run rate we will see savings from the win down of the LiDAR unit. We expect this reduction to be offset by typical employee compensation inflation as well as our expected military reserve investment. A reminder that headcount-related expenses represent well above half of our OpEx. Other areas of road such as AV testing and customer and cloud-related expenses are largely offset by efficiencies within our data levering activities, as well as expected higher year-over-year engineering reimbursement on production program spending. In terms of Q1, we expect revenue to be down about 11% versus Q4, which reflects EBITDA seasonality and a bit more than 80% growth year-over-year against the inventory digestion we experienced in Q1 of 2024. Our revenue expectation for Q1 implies about 25% of the midpoint of our full year revenue guidance. We expect overall gross margins about 100 basis points higher than Q4 levels and for adjusted operating expenses to be at or slightly lower than the $250 million per quarter I indicated earlier. Operating cash flow in 2024 was well above adjusted net income even after taking into account capital expenditure of $81 million. Cash flow generation in 2024 was consistent with 2023, despite substantially lower adjusted operating income, reflecting strong management and control of working capital in a variety of areas. Additionally, we anticipate continuing to reduce our strategic reserve of cheap inventory on our balance sheet in 2025, we should support another year of delivering operating cash flow above adjusted net income. Finally, we expect the full year effective tax rate to be approximately 20%, similar to 2024. Thank you, and we will now take your questions.

[Operator Instructions] Our first question comes from the line of Shreyas Patil with Wolfe Research.

Okay. Maybe just at a high level, as you're talking to legacy OEMs on adopting advanced automation like SuperVision, I'm just curious what kind of timelines they are considering for this kind of autonomy, because Amnon mentioned uncertainty by OEMs as it relates to making that position. So are the legacy automakers still viewing a 2027 and 2028 kind of launch for real adoption, particularly in markets like North America in Europe.

I'll start and then maybe Andy Nimrod would add. During 2024, we did a lot of buildup with the potential customers building and development vehicles with our stack, working with them on very very extensive testing. And we believe all of that will bear fruit in 2025. Exact timing in 2025, it's difficult to pinpoint. But all the indications that all what we did in 2024 are going to bear fruit, both in SuperVision and in surround ADAS. Surround ADAS is also a very interesting category that is being built right now. 2027 seems like still looks like the sweet spot in terms of introduction of these kinds of technologies. And the work of Tesla it's really creating a sense of urgency with our OEMs. So we still believe that 2027 is really the right timing for introduction of these systems. Nimrod, do you have anything to add?

I agree and support the majority of the RFQs that we have and the engagements that we have are addressing or aiming for 2027, '28 time frame. And especially for, I think, surround ADAS, which is kind of a new category that has been picking up in the past year, I think that there is an even more expedited sense of urgency, let's say, due to also regulatory -- and regulatory drivers, not just the competition. So that still remains intact, and we did not see any shift in the timeline so far.

Okay. So maybe just on that point, because I think typically you've talked about OEMs would have to kind of secure a win maybe 2 to 3 years ahead of deployment. I know it's hard to pinpoint timelines, but -- just trying to get a sense of what -- of your confidence level on some of these awards, particularly the chart that you had provided at the Capital Markets Day, which showed a number of OEMs that seems fairly closer to crossing the finish line. So just trying to get a sense of your confidence on those.

Yes, yes. So again, I think we've been maintaining steady progress in these engagements. And we kind of continue to do so. And as Amnon said in his remarks, we cannot really predict the exact timings of decisions, but we maintain steady progress since the Capital Markets Day in these activities.

We believe also that any stand of production until middle of 2027, if the nomination is within the next 4, 5 months, we meet it, especially if we're talking about the carryover of what we're doing with the portion SuperVision. And there's also a possibility to introduce EyeQ 7 in that time frame as well.

And just maybe to add one comment on this, if I may. I think what is also happening in parallel is that we continue to mature our next-gen products within our programs with Volkswagen Group that do address or have a concrete plan to start production in 2026 onwards. So our work in maturing the technology, the hardware, software, next-gen AI technologies is continuing as planned. So it does give some added confidence also to our future opportunities that we can meet even shorter time frames if and when decisions are going to maybe take a little bit longer, they can maintain the same SRP plan, because Mobileye is continuing to improve and kind of mature its products in parallel.

Okay. Great. And maybe just a quick one. How do we think about gross margins for 2025?

Yes, I believe I mentioned it. So we expect a slight increase in gross margin of 1.5% as a result, mainly of SuperVision being lower volume than 2024. What EyeQ, it's really flat within the year. So no issue with gross margin on 2025.

Our next question comes from the line of Chris McNally with Evercore ISI.

Just maybe around the 8-odd Qs, Amnon, I think one of the questions that we always get from investors is if you were to lose these, what would be the reasons that you were to lose? And I kind of always think about three buckets. The first bucket being sort of timing or pushout OEM just is unclear, which trims, which vehicle they want. They're constantly deciding and that changes year-by-year. The sort of the second, which is very clear within the legacy OEMs is there's no action, and they just decide to go with their basic Level 2 and they pass on advanced solutions. And then obviously, the third is sort of more Mobileye losing, which would be an OEM decides to go to in-house. So look, I don't want to hold you to percentages, but I'm just curious where you think the risk would be in those three buckets, timing, OEMs taking no action or an in-house solution?

I think the third bucket in terms of in-house development, we don't see a trend there. We don't see anything that is serious about in-house such advanced product. So it's mostly related to the first two buckets, which is all about now power trade. So sales of EPCs were below expectations. So car companies are kind of going back to the design board and putting more emphasis on combustion engine model. So the issues of powertrains, so that delays also driving assist or big driving assist decisions. But in terms of in-house development, we don't see any significant traction there. Nimrod, do you have anything to add?

I think that it's a little bit hard for us to answer this question, because we're not aware of all the behind-the-scenes considerations. So from our perspective, it's obvious that there is -- there are attempts in the market for in-house development and GM recently talked about their plans and so on. So we are aware of those, think for the kind of the opportunities that we are now pursuing, it's a combination of these buckets that you mentioned that can play into this, mostly the kind of -- whether or not the OEMs are ready for such a product at this time frame, what will it take from them and some perhaps more like a vehicle lineup considerations. Longer term, we cannot really predict what will be the outcome of this in-house development, but we can -- we've been working with customers that did have these attempts in the past, and we did manage to build a very successful business in parallel because eventually, we executed. So...

Very helpful. Just as a quick follow-on. In SuperVision, the launches you have in 2026 that are sort of known in the '27 ones that are in RFQ, are they mostly -- or the majority are they standard or take rate?

So it's not decided yet, to be honest, and it's something that we're discussing with our customer -- with our OEM partners, different models of how to sell these products to consumers. They're in a combination between standard fit and opt-ins. So the more we'll have information on this as we move forward, we can -- we will share this, of course.

Our next question comes from the line of Joe Spak with UBS.

Amnon and Nimrod, I'm just curious again on the OEM conversations if price at all comes up and if that's a pushback. And if so, I just wonder how you think about that, given like it seems like if you give a little bit there to gain a footing, it would seemingly make you stickier and perhaps more valuable to customers over time. And then I guess also on the conversations with your urgency comment, does that also mean that once -- if and when they do sign, they're also willing to move quicker to implement than they have historically?

Well, price is always a consideration. I don't think that price right now is any impediment to make decisions. We are very optimized on price, and we work with our customers to find the right solution. Nimrod, anything you want to add?

Yes, I don't think that we have lost the program on prices. I don't think it comes down to this at this stage. However -- and we are, we can say, aggressive and flexible relatively with our prices in negotiation. We don't want to make this a stepping stone. So I don't think this is right now a kind of a challenge that we need to overcome. I think that the sense of urgency that you asked about is more about how much -- how many vehicles they can deploy such as systems on and so on. That is more a question of OEMs plans and rollout plans. It's not just a question of they want to do this, but if they can really accelerate execution and deployment in a larger scale of cars. This is something that we are working with them, and we can we're not the bottleneck, let's say, for a broader expansion of vehicle integration. We are very, very efficient and have one of our strength actually in the execution side and being able to support multiple vehicle lineups, multiple vehicle architectures. So if and when this will become the chosen strategy, we can indeed support this.

Okay. And just as a second question, obviously, a lot of news in AI this week. And you guys have always talked about the efficiency of your development solution, but just wondering big picture, does any of the developments get you to reevaluate your own approach? Or do you have any views on whether the prevalence of open source foundational models can lower the barrier to entrance to others?

I think what we have seen with [indiscernible] now really aligns with the approach that Mobileye has been advocating for many years, is that you need to build a purpose-built approach, which means efficiency and at the AI Day we had in October, we build a transformer architecture that we built, which is 100x more efficient in terms of the run time and then compute than any standard transformer because it's purpose built for the task of autonomous driving. So everything we do in terms of the silicon design, if you look at the area, the area of our EyeQ 6 is 1/4 of the silicon area of our competing chips. We will provide in the next couple of weeks, significant benchmarks that we have been doing with the leading high-performance silicon chips. And EyeQ 6 is exceeding in terms of major KPIs like running both competitional net and transformers, all the chips that we have benchmarked against -- so efficiency is really the hallmark of what Mobileye is doing. And what [indiscernible] has shown is that if you innovate in engineering, there was nothing there scientifically new that community that I know about. But the fact that they created a very tight flow of their training, in terms of making use of memory bandwidth, making use of efficient reinforcement learning, like the GRP instead of working with quantized precision FP8. They really made the assembly language to bypass all sorts of cudabottlenecks that they have there. So if you are really purpose-built and you want to be efficient, you can gain a lot. And this is what Mobileye has been advocating for many years. So this is exactly aligned with our approach.

Our next question comes from the line of Dan Levy with Barclays.

I just wanted to ask a question on the guide for '25 and specifically on the EyeQ shipment guide. Maybe you could just talk about the extent to which launch activity is factored into that guide, to what extent is that based on launches? I think what we saw in the past was that although you're powertrain agnostic, it's typically EVs that are taking on more advanced content and we saw some slowdown in EV activity. So maybe you could talk about the extent to which launch activity factors into the guide?

I'll start by saying that maybe Nimrod can add and Moran that we took a very conservative approach with guidance. If we would have taken the numbers we received from our Tier 1s and OEMs, the guidance would have been much, much closer to the consensus than what we did. We took a conservative approach because we don't want to reguide during 2025. We don't want to risk that. And our guidance includes new ways, new launches as well. Nimrod, do you want to add something?

I think the mix of new launches versus kind of carryover programs is normal this year. There is no higher or lower percentages of new product launches versus carryovers. So it's pretty consistent with what we have been facing in the past few years.

And those new launches or that's -- sorry, go ahead.

I just wanted to say that on the new launches and our market share that has costed some of the [indiscernible] production reduction or volume reduction. This happened also in 2024. So it's an expectation for 2025. In terms of market share, we did above market also in -- also in 2024. That their customers went down -- top-down customers just went down like 6% or 7% from 2023 to 2024, or there was definitely some offset to that.

Understood. If maybe we could then just follow up on China. And if we could just mark where you are now. I think based on the disclosure given you're assuming something like 1 million units from the domestic OEMs something like 5 million from the multinationals in China, the volume outlook. And where do you stand now on resource allocation and efforts in China, especially amongst the domestics and taking into account maybe some of the challenges that you went through in China in '24.

Yes. I'll maybe address this and Amnon and Moran can add. So we have been -- our volumes in China next year for EyeQ is growing compared to 2024, and we're close to 2 million units for the Chinese OEMs. What we are finding is there, is that we have some good level of stability with the Chinese OEMs that have significant export volumes, and they are willing to -- they're willing and they're very much keen in partnering with Mobileye as a global proven solution that has proven performance and maybe the risk of potential technology restrictions in some Western markets is, of course, lower than adopting a Chinese solution. So that has really helped us in kind of maintaining and solidifying our position with our core customers and expanding our position with our core customers, Chinese customers. We have been optimizing mildly our investment in China. We still have a strong team there that supports of the local R&D needs that maintain full compliance with the local restrictions and regulation for data and so on. So just we're maintaining kind of a very tight investment compared to the business in China.

I wanted to follow up. This is Dan. So just to answer your question about kind of where we stand -- last year, we did about 5 million units with the kind of non-Chinese OEMs in China and somewhere in around the 1.5 million units with the Chinese OEMs. One of the main reasons why our kind of assumptions are deviating from IHS is the kind of the global OEMs in China were down 17%, 18% last year. And now the assumption is they're down kind of in the kind of mid-single digits or high single digits, we were taking the kind of the view that it could be worse. And if it's worse, we don't want to have to reguide like Amnon said. So a significant reduction in kind of non-Chinese OEMs within China is baked into our forecast. In terms of the Chinese OEMs like Nimrod mentioned, the volumes were encouraging in the second half of 2024. They ran at kind of well above a 2 million unit run rate in the second half, which was quite a bit above, where we thought that they would be back in July. I think for the reasons that Nimrod went through, we were not seeing any kind of change to that, but we're assuming that we have about 0.5 million deterioration versus kind of where we were in the second half, really just to be safe and due to the lack of visibility. So hopefully, that helps to kind of size the China business right now.

Our next question comes from the line of Adam Jonas with Morgan Stanley.

So Amnon, you said in your comments, you do not see significant in-house development from OEMs. You don't see that as a real trend. I'm just curious then the ZEEKR 009 example of moving in-house, is that -- do you see that as kind of a one-off limited to China. And I'm curious how you view NVIDIA Kosmos, even if it's not a direct competitor, are they offering tools that could help encourage and maybe accelerate in-house development from your OEMs that maybe you haven't seen yet? And then I have a follow-up.

I think Kosmos is not directly related to empowerment and enablement. There's a big difference between supporting humanity robotics and supporting autonomous cars. But human robotics, every robot is built differently, actuators are placed differently. And if you just train on real data, you'll not be able to generalize among a robotic platform. So relying on simulators is crucial. For example, in my other company made robotics, we built foundation models just on simulated environment, and we use a lot of NVIDIA tools. And autonomous driving structured, and you want to rely on real-world data in order to not to create a distribution shift. You do use simulations for edge cases, but you don't build your entire stack on simulators. So I don't think that, that would be a major enablement. ZEEKR 009 or whatever is going on in China, I think is separate on what's going in the Western economies. So when I mentioned about in-house development, I was referring to the Western world.