Arbe Robotics Ltd

NASDAQ:ARBE

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, everyone, and welcome to the Arbe Robotics First Quarter 2024 Earnings Results Conference Call. [Operator Instructions] Please note that today's event is being recorded. At this time, I'd like to turn the floor over to Miri Segal Segal. CEO of IR. Please go ahead.

[Miri Segal-Scharia]

Thank you, everyone, for joining us today. Welcome to Arbe's First Quarter 2024 Financial Results Conference Call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statement outlined in today's release also applies today's call. If you have not received a copy of the PR, please view it in the Investor Relations section of the company's website. Kobi Marenko, Arbe's Co-Founder and CEO, will begin the call with a business update. Then we will turn the call over to Karine Pinto-Flomenboim, Arbe's CFO, who will review the financials in more detail. Finally, we will open the call for the question-and-answer session.

With that, I'd like to turn it over to Kobi Marenko, Arbe's CEO. Kobi, please go ahead.

[Jacob Marenko, executive]

Thank you, [ Miri ]. Good morning, everyone, and thank you for joining us. I'd like to start by sharing some exciting updates with you. We congratulate hiring 1 of our Tier 1s in China on being selected to supply radar systems powered by the Arbe [indiscernible] to a global leader in autonomous driving with net production scheduled in 2025. We look forward to providing more details about this announcement soon.

Arbe also reached a significant milestone in Q1, the successful development of post-point cloud algorithms, including tracking classification and free space mapping. These algorithms have been integrated into high-end imaging radar for [indiscernible] production. This advanced advancements were tested by OEMs, demonstrating their potential to improve automotive safety. Importantly, HiRain announced it will begin the net production of these imaging radar by the end of this year.

During the first quarter, Arbe and our Tier 1 made significant progress in reaching our goal of serial production by the end of this year. We work with major OEMs on data collection for their Level 2 plus and Level 3 solutions as well as on improving the radar specification. As part of our progress in Japan, we'd like to update that the large Japanese automotive client is working to complete a massive data collection initiative with other radar solution this year as part of the development of an advanced ADAS and AD architecture. There's a wide demand for next-generation radar systems with a high-channel count now considered essential for road safety.

In March, the ADAS radar and radar Perception [indiscernible] emphasizes publicly that ADAS radars require an array of at least 32x32 channels. Few companies meet these requirements and Arbe [indiscernible] with the largest channel array on the market. We see similar requirements in our speed from other major OEMs. We are expressed by the outstanding progress we are making with top OEMs worldwide. Despite industry delays, we are confident in our opportunity pipeline and our goal to secure 4 design wins this year, especially with promising times coming from leading top 10 OEMs. We look forward to sharing more updates very soon.

Collaborations are key for Arbe. The NVIDIA GTC conference and WIDIA shared that it has brought together a select group of the [indiscernible] sensors from industry leaders, including Arbe Perception Radar to create a rich ecosystem of simulation tools and applications as part of the Omniverse cloud APIs, give us design to accelerate the path to autonomy. Additionally, at a 2024 Beijing International Automotive Exhibition Horizon Robotics, a leading provider of computing solutions for ADAS and autonomous driving in China showcased the integration of WiFi imaging radar powered by the Arbe chipset with [indiscernible] journey 6 automotive AI processors as part of their partner ecosystem.

As many of you know, there have been important developments within our industry and shift towards new safety standards and regulations. These are needed to drive the future of road safety. We certainly believe that Arbe has the best solution to effectively address these changes, and we are well positioned to help meet the revolution. The new [indiscernible] federal safety standards from the U.S. mandates automatic emergency braking or AEB, including pedestrian AEB for all passenger cars and light trucks by September 2029. This safety measure is set to reduce collision and accidents with pedestrian. At the same time, Euro NCAP 2030 road map aim for 0 road fatalities requiring proactive crush presentation in all scenarios.

A key to success for [indiscernible] will be in the sensors used to power the advanced safety standards and requirements. This creates a growing opportunity for the adoption of our technology, which is the leading solution for tracking pedestrians and vehicles in challenging weather and lighting position even at high speed and overlong distances. We expect that by the end of the decade, over 15% of new cars will feature high-end imaging radars like ours, providing real safety and level 3 autonomy.

Lastly, we are in the final stages of dual listing with an additional listing on the Tel Aviv Stock Exchange. At the same time, we are advancing [indiscernible] the convertible bond issuance on the Tel Aviv Stock Exchange to secure working capital and support the expected production ramp-up in 2025. We are excited about the potential opportunities for Arbe, and we believe that 2024 will prove to be a turning point for our company.

Now I'd like to turn it over to our CFO, Karine, to go over the financials.

[Karine Pinto-Flomenboim, executive]

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the first quarter of 2024 in more detail. Total revenue in the first quarter was $0.1 million a decrease from $0.4 million in Q1 2023. Backlog as of March 31 was $1 million and is expected to be recognized as revenue during 2024. Negative gross margin for Q1 '24 was 194% compared to a positive gross margin of 11% in Q1 2023. The margin decrease was mainly related to a reduction in revenue and an increase in our workforce.

Moving on to expenses. In Q1 2024, we reported total operating expenses of $12.5 million compared to $10.7 million in Q1 2023. The increase in operating expenses was primarily driven by an increase in noncash share-based compensation expenses totaling $1.9 million. To a lesser extent, labor cost increase was offset by bonus accrual release, favorable exchange rate and reduction in D&O insurance rates. Operating loss in the first quarter of 2024 was $12.8 million compared to an operating loss of $10.6 million in the first quarter of 2023. Adjusted EBITDA, a non-GAAP measurement, which excludes expenses for share-based compensation and for nonrecurring items, was a loss of $8.5 million in Q1 of 2024 in accordance with our plan. This is compared to a loss of $8.4 million in the first quarter of 2023. Net loss in the first quarter of 2024 increased to $12.8 million compared to a net loss of $9.9 million in the first quarter of 2023.

Net loss in Q1 '24 included $45,000 of financial expenses, resulting mainly from exchange rate revaluation. Expenses, partially offset by interest from deposits and warrant revaluation. This is compared to a $0.7 million in financial income in the first quarter of 2023.

Moving to our balance sheet. As of March 31, 2024, Arbe had $5.4 million in cash and cash equivalents and $30.3 million in short-term bank deposits with no debt. With respect to our guidance for the year, we would like to reiterate what we previously shared. Our goal of achieving 4 designing with automakers remains unchanged as we observed continued strong interest in our market-leading offerings. We have strengthened our positioning in all our RFQ engagements even though the OEMs have shifted their decision time lines for late 2023 to 2024. The 2024 annual revenue are expected to be in line with those of 2023, followed by revenue growth in 2025. These revenue projections are based on the intention to be in full production in the second half of 2024 as well as our decision to focus exclusively on getting our chipset into production. We are committed to maintaining a strong and well-managed balance sheet, focusing on cost effectiveness and the ability to fund our revenue growth. Adjusted EBITDA for 2024 is projected to be in the range of $30 million loss to $36 million loss.

Now we will be happy to take your questions.

[Operator]

[Operator Instructions] Our first question comes from Joshua Buchalter from Cowen.

[Joshua Buchalter, analyst]

I wanted to ask about the confidence in the -- achieving the 4 design wins this year. Any incremental data points or what you can give us and what gives you confidence that those are going to convert in the second half of the year? And maybe what led to the we've litigated in the past, but maybe an update on the time line given it got pushed from 2023 into 2024. Any clues by geography or type of application that these wins are going to be for?

[Jacob Marenko, executive]

Yes. So basically, as we said, out of those opportunities were pushed from last quarter, and are now coming to a decision point. What we see as a main change between last year and this year, is that even in our RFQ that were in the market, the conditions were changed and the threshold for the radar gets much higher and basically, in majority of the opportunities, leaving 2 or 3 only players that can provide the solution. And this gives us a lot of comfort that majority of the market, all of the, I think, the top 10 OEMs, at least, understand that multi-channel -- high-channel count radar is key for Level 2++ and Level 3 and the fact that the regulation change and added the need for automatic braking, especially in all use cases gives our radar basically, I think, backwind, -- a dramatic backwind because any OEM will need to have this kind of solution. And the only way to solve it is with a high [indiscernible] imaging radar and camera. Single camera alone cannot solve those scenarios. Even camera and LiDAR cannot solve it. But anyway, the LiDAR is much too expensive for a feature that is basically not something that the OEMs can really charge the customer on it. .

To add to some light to your -- to the numbers. So we are today engaged with 11 car companies coming from Germany, from Sweden, from other countries in Europe as well as from Japan and China. In all of those RFPs and RFQs, we are already past long process with, of course, our Tier 1 partners of evaluation of the radar, testing the radar in [indiscernible] cases and showing the advantage of our radar based on our chips at a high-end channel count imaging radar based on our chipset as opposed to the solutions in the market that are based on TI or NXP chipsets that are called imaging radar. This is not really an imaging radar. And I think all of the OEMs understand the difference between really missing radars like the ones that are based on our chipset or one of our competitors -- our main competitor that is coming also from Israel. And the existing legacy solutions that are based on the legacy chips that were not designed to meet the spec of tomorrow. There was a design for the spec of yesterday and taking everything -- all of this into consideration, we are sure that out of 11 opportunities that were shortlisted, we will win at least 4 in the coming months, and we will be able to announce them to the market. This is the reason why we are raising loan. The loan in Tel Aviv is based on a condition that we will win a contract. Our confidence in the fact that we are very close to winning the contract I think, allowed us to raise this money and also the confidence of the investors that we are close to that are willing to give us a loan with a conversion price that is more than 30% higher than our today share price. So I believe that -- we have -- we will have a very good year, like we said, a turning point for the company coming from development to business very soon.

[Joshua Buchalter, analyst]

Thanks for the extensive color, Kobi. For my follow-up, I think in the press release, you mentioned you're getting close to receiving full auto-grade qualification. It feels like that process has been going on for a while. Can you maybe talk about what are the last few things you need to complete to get the auto grade sign-off? And then is that a hurdle and something that needs to be completed before you sign one of these OEM wins? Or is that not the case?

[Jacob Marenko, executive]

I think our chipset -- the process of taking chipset to qualification on automotive is the structured process GlobalFoundries are leading it and managing it for us together with us and together with our engineers. We are more or less on the time frame to finish it by the end of this quarter, early next quarter. And as we mentioned in the last quarter, basically before you're starting a full qualification, you're doing many qualification to make sure that there's no major items. We passed this prequalification, mini qualification, and we are now in the middle of finishing the technical process, which includes thousands of hours of chips working in high temperatures and in low temperatures to make sure that they are -- they will be able to stand in all conditions that the automotive market one. It doesn't look today that this is a showstopper for us in calls with our OEM partners, GlobalFoundries, giving their objective assessment that the chips going to be in production in very few months from now. So I think that all of the OEMs that are going to select our chipset with [indiscernible] with high end or with other Tier 1 are really they're crafting GlobalFoundries that Global will bring those chips through production, and I believe it's not a major issue for us. .

[Operator]

Our next question comes from Suji Desilva from ROTH Capital.

[Sujeeva De Silva, analyst]

Kobi, you talked about some of the progress with HiRain and [indiscernible] in China. Can you just elaborate on the the ramps, the times of revenue? And what the -- how many programs that those involve?

[Jacob Marenko, executive]

So we already stated that HiRain and [indiscernible] gave us a preliminary order for 2025. HiRain is $30 million, [indiscernible] $10 million. And we are now engaged with a few programs to make sure that the customers will get radars based on our chipset in this volume in 2025. .

[Sujeeva De Silva, analyst]

Okay. And those are for automotive, Kobi, automotive?

[Jacob Marenko, executive]

Yes. Some of them is trucks and robotaxis and we have a HiRain won a project in 1 of the [indiscernible] of China for track I would say that around 25% of it is non-OEMs, no passenger vehicles, the rest is for passenger vehicles.

[Sujeeva De Silva, analyst]

Okay. Great. Very helpful color, Coby. And then secondly, on the -- you mentioned the NVIDIA Omniverse element. Is Arbe's radar the kind of exclusive radar element there? Or are there multiple radar elements involved? Are they looking for imaging radar? What's the color there on that partnership and inclusion? .

[Jacob Marenko, executive]

The only imaging ran not only is our best imaging radar. Of course, there is also low rate out there for [indiscernible] low end 4x4 radar, but the high-end imaging radar is on the [indiscernible].

[Sujeeva De Silva, analyst]

Okay. Great. All right. I think lastly, maybe the in China, can you talk about the significance of working with Horizon and Horizon and way for working together in terms of further penetrating the China market versus working with the Tier 1s like [indiscernible]?

[Jacob Marenko, executive]

So we are not allowed to elaborate a lot about our corporation there. But what I can say is that basically, Aurizon is like NVIDIA. So it's the ECU, [indiscernible] not a Tier 1. By the end of the day, there is a Tier 1 that's taking their chips and building the central compute and integrating our radar into this processor. And the same as we have integration with NVIDIA. We have this -- there is this kind of integration with Horizon. And we believe that this is a main condition for part of the OEMs in China. As you're probably aware, I think that the Chinese market is basically divided between NVIDIA and [indiscernible] they are controlling the ECU market in China. So with the fact that we are integrated with both of them, I think, gives us a lot of advantage in this essence.

[Operator]

Our next question comes from Jamie Perez from Lafferty.

[Jamie Perez, analyst]

Over the last couple of quarters, we've seen a some change for the early adapters and going more to it, and I think hybrid is also gaining share. I mean, could you give us a little bit of color whether you -- do you have any exposure to hybrids and ICE vehicles? And my follow-up question for that is a lot of EV focus is now on affordability, especially with the Chinese in to ship a low price cost. So could you tell me what does that mean for your margins and pricing power? .

[Jacob Marenko, executive]

I think those are 2 great questions. So first of all, regarding the EV shift. So I think that this is part of the reason for the delays. So we, last year, majority of the OEMs were focusing on moving almost totally to EV by 2030. And according to that, they decided that all of the new features like Level 3 and Level 2++ would be launched solely on EV. Last quarter -- in the last quarter of '23, the market strategically understood that the move to -- the shift to EV will take longer than expected due to price due to customers' adoption due to charging problems and so on. And this basically brought all of those programs of Level 3 into a state that they will reevaluate and the schedule was basically delayed. As we see it by the end of Q1, majority of the OEMs took a decision to launch those services on both EV and regular engines as well as, of course, for the hybrid. So from this perspective, there's no change right now. It caused the delay, but right now, we are on the go. The second question that you raised, I think, is dramatically interesting. The price pressure for is really pushing for sensors that are cheaper and imaging radar, I would say, is dramatically cheaper than LiDAR, and we believe that this dramatically helps us at least on the net AEB standout. And also for Level 3, I think that our radar is affordable better than the other sales source.

[Jamie Perez, analyst]

So basically, you have -- we know -- so you have a price advantage versus radar now. Most of it -- like I said, most of the focus has been on passenger. I think on the electric vehicle to commercial market has been doing a little bit better. I mean, could you -- maybe talk about the initiative in the commercial or commercial or transit market, if you have any?

[Jacob Marenko, executive]

We are not focused -- it's not us, but our -- most of our Tier 1s are not focusing on that. So at least on the Western world of China, we won a project with is truck company, and HiRain also have some trucks projects. But outside of China, we Magna is not bidding on any tracks the volume in trucks is lower adaptation and the cost of integration is higher and.

[Audio Gap]

They make it economical for these kinds of solutions as of now.

[Operator]

Our next question comes from Matthew Galinko from Maxim Group.

[Matthew Galinko, analyst]

I was hoping you could maybe provide a little more detail around the investments you expect to make or need to make as you move into production in the back half of this year. And I think to your point is you plan to support through the note issue?

[Jacob Marenko, executive]

So majority or basically all of our expenses, service production were already done. This quarter, Q1, we had last item that was related to increasing the capacity of the burning boats. So we will be able to supply much higher volumes next year. But all of the expenses that are related to production, which are majority of them is CapEx are already done and now behind us. And I think we are ready for revenues. .

[Operator]

Ladies and gentlemen, with that being our final question for today, we'll be ending today's conference call as well as today's presentation. We thank everyone for joining. You may now disconnect your lines.