Arbe Robotics Ltd

NASDAQ:ARBE

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to the Arbe Robotics Second Quarter 2024 Financial Results Conference Call. [Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

[Miri Segal-Scharia]

Thank you, operator, and everyone, for joining us today. Welcome to Arbe's Second 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 earnings release also applies to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website.

Today, we are joined by Kobi Marenko, Arbe's Co-founder and CEO, who will begin the call with a business update. Then we will turn the call over to Karine Pinto-Flomenboim, 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. On this conference call, we are happy to share significant progress and market endorsement from major industry players. We've hit a major milestone by securing 2 key customers for the development of our imaging radar for production. We see these selections a strong endorsement of Arbe's technological superiority and evidence that we are strategically positioned and on track to capture additional OEMs this year.

Let me elaborate on the 2 important announcements. First, One of the top 10 OEMs in the world selected Arbe's chipset for the development of its next-gen imaging radar gears for serial production. This leading OEM has confirmed that preparation for serial production will begin immediately. The decision came after a deep competitive evaluation and careful field testing of our chipset providing just how reliable and high-performing our technology is. The adoption of Arbe's technology by this major automotive OEM not only validates our innovative solutions, but also opens a significant opportunity.

Our [indiscernible] chipset can be used across a wide range of vehicle classes, boosting market appeal and potential for broad adoption. Secondly, we are proud to be teaming up with a well-known European truck manufacturer who will revolutionize truck safety using our imaging radar. We are gearing up to include our radar in the next-generation sensor suit, a big step forward in the move to more advanced technology. The trucking industry faces distinctive challenges that our imaging radar technology is designed to tackle including larger vehicle sizes, longer braking distances and greater collision potential. These factors make it essential for trucks to operate safely in all weather and lighting conditions.

As with did OEM selection, our imaging radar went through rigorous testing and evaluation before being selected and was compared directly against other front-end sensors like LiDAR and conventional radar. We view these selections as an acknowledgment of Arbe's technological edge, highlighting the confidence that leading manufacturers have in our technology. These approvals not only validate our innovative solutions, but also demonstrate that our technology stands out in a competitive market. Further, they serve as a clear indicator that we are well positioned to increase our market share and appeal to other key OEMs. The auto industry continues to constantly evolve with new safety standards and regulatory changes driving widespread demand for high-channel count solutions.

Since Arbe's solution is widely recognized by leading OEMs as the radar with the largest channel array at the best price per channel, we believe that the opportunities are only beginning to emerge. In fact, in Q2, we supported the final stages of OEM RFQs processes in collaboration with our Tier 1 Magna, HiRain, Weifu and Sensrad, and we look forward to sharing more updates very soon. We are actively engaged in obtaining four design wins with leading global automakers, and we expect those decisions in the coming months.

Finally, we are happy to report that we have successfully begun trading on the Tel Aviv Stock Exchange. In June, we raised approximately $30 million through a convertible bond offering, and we expect it will help increase our cash reserves in anticipation of upcoming OEM selection. The proceeds from the bond offering we held in escrow and will be released upon meeting certain conditions by March '21, 2025 (sic) [March 31, 2025]. We are progressing in fulfilling the conditions for the release of the fund, and we will be sharing updates along the way.

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

[Karine Pinto-Flomenboim, executive]

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the second quarter of 2024 in more details. Total revenue in the second quarter was $0.4 million, an increase from $0.3 million in Q2 2023. Backlog as of June 30 was $0.8 million and is expected to be recognized as revenue during 2024. Negative gross margin for Q2 2024 was 9.5% compared to a negative gross margin of 1% in Q2 2023. The increase in the negative gross margin was primarily related to a headcount increase.

Moving on to expenses. In Q2 2024, we reported total operating expenses of $11.6 million compared to $12.6 million in Q2 2023. The decrease in operating expenses was primarily driven by a decrease in research and development expenses as we progress towards finalization of our production and to a lesser extent, a decrease in our labor cost and favorable exchange rate impact. Operating loss in the second quarter of 2024 was $11.6 million, a decrease from second quarter of 2023 operating loss of $12.6 million.

Net loss in the second quarter of 2024 decreased to $11.8 million compared to a net loss of $12.6 million in the second quarter of 2023. Net loss in the second quarter of 2024 included $0.1 million of financial expenses. Adjusted EBITDA, a non-GAAP measurement, which excludes expenses for share-based compensation and for nonrecurring items, was a loss of $7.5 million in Q2 of 2024. This is compared to a loss of $8.4 million in the second quarter of 2023.

Moving to our balance sheet. As of June 30, 2024, and Arbe had $8.8 million in cash and cash equivalents and $17.7 million in short-term bank deposits. In June, we issued a convertible bond in the principal amount of ILS 110 million or approximately $30 million. The proceeds from the sale of the bond which were approximately ILS 112.4 million or approximately $30.5 million are held in escrow and will be released upon meeting certain conditions by March 31, 2025. As Kobi stated, we are in the process of fulfilling the conditions for the rate and we will be sure to update as we progress.

With respect to our guidance for the year, we would like to reiterate what we previously shared. Our goal of achieving four design-ins with automakers remains unchanged, as we observed continued strong interest in our market-leading offering. We have strengthened our positioning in all our RFQ engagements, even though the OEM have shifted their decision time lines from late 2023 to '24. 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 our expectation that we will be in full production in the second half of 2024 as well as our decision to exclusively focus 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]

[Operator Instructions] And our first question will come from Joshua Buchalter with TD Cowen.

[Joshua Buchalter, analyst]

Congrats on all the progress intra-quarter. For my first one, I wanted to ask about the selection of the top 10 OEM. Obviously, a great sign there. You mentioned in the press release when it was initially signed it aimed at serial production. Can you maybe walk us through some of the milestones that need to be hit and when you -- to enter serious production and when you would expect that decision to be made?

[Jacob Marenko, executive]

So further on the decision to go to production with this radar was already made. So what the process that we are going through now is basically that this OEM has the internal Tier 1 that takes reference design from us adapted to their needs and start developing a full radar model for production based on that.

And based on the time line of this process, the OEM will decide on the exact year model or the exact timing of full production. But right now, it's basically -- the train is already moving, and we know where it should go. It's just a matter of how long will it take to bring up this kind of production -- full production. We have our estimations from the current Tier 1s that we're already working with them. So we expect to start gaining revenues from this win by end of '25, early '26.

[Joshua Buchalter, analyst]

And then on the goal of achieving the four design-in this year, any more details you can share on what types of applications and maybe time lines or revenue you would expect if you are indeed able to convert those wins that you're in discussions for?

[Jacob Marenko, executive]

So first of all, we already achieved 1 out of these 4, so we're still left with 3. So 25% already done. And we are now in last phases with few major RFQs. Actually, one of them stated for us in the last few weeks that we are in a [ firm ] position to win this contract. With all of the RFPs that we are now in final stages, we expect Tier model to be 28, application to be safety, the new regulation for emergency braking and hence driving mainly on the highway, and we expect to start gaining revenues from that since its Tier model 28, we will start shipping chips to Magna. This is our main Tier 1 for those projects by the second half of '26.

[Joshua Buchalter, analyst]

Last one for me. I mean you mentioned in the press release reaffirming the 2024 annual revenue in line with 2023, followed by revenue growth in 2025. Any initial guardrails or a range of revenue growth you'd like to provide for 2025?

[Jacob Marenko, executive]

So we have a preliminary orders from China and HiRain and Weifu both are in a great progress towards production. So we would expect to get those revenues that HiRain and Weifu indicated for us for '25. I can also add to that, that Weifu just announced a few weeks ago that they spin off their radar business into a new company. And Bosch is one of the investors in this subsidiary. So we expect it also to help Weifu gain more business and gain more traction in the Chinese market. So overall, our target is the numbers that we are in a preliminary order from the Chinese market more or less.

[Operator]

And the next question will come from Suji Desilva from ROTH Capital.

[Sujeeva De Silva, analyst]

Congratulations on the progress here. Kobi, now that you've had some wins here, maybe you can revisit the key factors you're seeing in selection of Arbe's radar? And maybe you can update us on the competitive landscape that you're seeing three months later?

[Jacob Marenko, executive]

So the main advantage of automotive and the main disadvantage of automotive is that the landscape is not changing. So what we saw 3 months ago and 6 months ago and actually a year ago is the same that we see today because of the fact that it's so complicated to bring chips to production in automotive. Actually, when we started this company seven or years ago, if we even imagine how complicated would it be to take 3 chips to production in automotive, we would probably choose a much easier industry like [ pharma ]. So we don't see here a huge difference since last quarter. So what we see is a major shift in the understanding of the OEM there's a multichannel radar -- a high multichannel radar is must for any kind of safety application.

And the fact that [indiscernible] stated on stage that 32 by 32 channels radar is a minimum. And the fact that we see major RFPs that basically putting a line that's below that, you cannot even get to the RFP. This is the major change that we saw in the industry since the beginning of this year, and we are seeing it more and more companies that took lower channel count like 6 by 8 in China or 12 by 15 in Europe understand that this is not sufficient that basically, if you want to see a potential that is coming out of his car on the highway or you want to see tire on the road on the highway near the guardrail or you want to drive in an urban area and to understand that there is a bridge or there is a pedestrian below the bridge or there is a motorcycle on the side of the road.

It's clear for everyone that the amount of channel that is less than 32 by 32 is meaningless. Also the fact that we are able to bring down chipset that's allowing Magna to sell and HiRain to sell a radar in a price that is similar to the 12 by 16, I think, also makes the difference. And this is our current advantage as opposed to mobilize that their product is much more expensive and much more power hungry, which is also a major issue in today's car.

[Sujeeva De Silva, analyst]

And then maybe you can talk about the trucking opportunity separate from the auto opportunity and distinguish the addressable market size. I'm sure it's different units. Understanding the unit TAM and then the pricing difference? And maybe is the content per truck one radar per truck similar to cars?

[Jacob Marenko, executive]

So truck basically is the lower volume and some of the Tier 1s are not even selling to trucks. So the price there of the radar is more than regular automotive, but the volume is much lower. And the patient that is needed is also much more important in regular automotive in private vehicles. So truck is not a major part of our business and won't be a major part of our business. But I think that the fact that the truck company selected our radar means that this is basically the highest level of safety that is needed in the market. And I think for us, it's a major milestone.

[Sujeeva De Silva, analyst]

And then maybe a last question on the financials or just the -- I think Karine, you mentioned the headcount went up. I'm just curious what areas of the company are you increasing headcount?

[Karine Pinto-Flomenboim, executive]

So the headcount went up in our cost of sale, which is mainly our customer support. When we actually finalize our production stages and we want to be ready for the next stage of full production, serial production and also supporting our customer support. So these are mainly the areas where we boost our headcount...

[Operator]

[Operator Instructions] The next question will be from Matthew Galinko from Maxim Group.

[Matthew Galinko, analyst]

I just wanted to get a sense for -- as you look into the pipeline a little bit beyond the 4 design-ins that you're targeting for this year. What does the pipeline look like geographically into 2025?

[Jacob Marenko, executive]

So the current pipeline of I would say like this short term customers that we assume we will have wins in Q3 and Q4 all of them are headquarters European, of course, they are selling cars all over the world. For next year, we see of course, China and Japan as the major countries and Europe just after that.

[Operator]

And ladies and gentlemen, this concludes today's question-and-answer session. I will turn the conference back over to Kobi Marenko for any closing remarks.

[Jacob Marenko, executive]

So thank you, everybody, for joining us today, and we look forward to update you shortly on the new news coming from us and thank you, everyone.

[Operator]

And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.