Arbe Robotics Ltd

NASDAQ:ARBE

Earnings Call Analysis

Arbe Robotics Q4 and Full-Year 2023 Financials

Arbe Robotics reported a promising but challenging year as they drive a radar revolution with their high-channel count imaging radar that is seeing increased demand from the auto industry. With the anticipation of significant customer wins in 2024, they released a production version of their radar processor and announced forthcoming mass production through partnership with HiRain. Q4 revenue increased to $0.35 million from $0.15 million in the same quarter last year, although annual revenue dropped to $1.5 million in 2023 from $3.5 million in 2022. They reported a backlog of $1 million and a negative gross margin of 54.5% in Q4 2023. Operating expenses decreased and they achieved an adjusted EBITDA loss of $8.2 million in Q4, with a full-year loss of $32.5 million. Arbe holds a strong cash position of $44 million, with a focused strategy on dual listing and issuing bonds, aiming for 4 automaker design-ins in 2024.

Progress and Expectations

Arbe Robotics has demonstrated resilience through a transformative period, successfully navigating industrywide adjustments and OEM program delays outside of their control. The company's leadership is confident in Arbe's standing as a key radar supplier for OEMs and anticipates notable successes, including securing wins with 4 customers in 2024.

Financial Highlights

For the fourth quarter of 2023, Arbe reported an increase in total revenue to $0.35 million, up from $0.15 million the prior year. Despite annual revenues falling to $1.5 million in 2023 from $3.5 million in 2022, the company holds a backlog expected to manifest as $1 million in revenue over the course of 2024.

Margins and Profitability

The company encountered challenges with profitability, experiencing a negative gross margin of 54.5% for Q4 2023, deteriorating compared to 45.6% in Q4 2022. The full-year gross margin also swung from a positive 63.5% in the previous year to a negative 2.6% in 2023. This was attributed to the overall dip in annual revenue.

Operational Efficiency

Arbe managed to reduce operating expenses slightly, from $50 million in 2022 to $46.8 million in 2023. This decrease reflects the company's advancement towards production and the tail-off of costs associated with reaching this mature stage of production. Despite the reduction, the operating losses were still pronounced, registering at $46.9 million for the year.

EBITDA Performance

Arbe reported a Q4 adjusted EBITDA loss of $8.2 million, a marked improvement from the $11.5 million loss in the same quarter of the prior year. The total loss for 2023 narrowed to $32.5 million, bettering the preceding year by $5.5 million and aligning with the company's own projections.

Net Loss and Cash Position

The Q4 2023 net loss decreased to $9.3 million, marking an improvement from an $11.1 million loss in Q4 2022. However, the full-year net loss widened to $43.5 million from $40.5 million in 2022. Despite the net losses, Arbe maintains a solid cash position with $44 million in cash and equivalents, with the added advantage of being debt-free as of the end of 2023.

2024 Strategic Outlook

Continuing its focus on R&D and product development, Arbe's 2024 guidance remains optimistic, targeting 4 design-ins with automakers, reflecting ongoing strong interest in their innovative offerings. The company has fortified its position and is likely to make strides in the radar technology market as it aims for further growth and market penetration.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, and welcome to the Arbe Robotics Fourth Quarter and Full Year 2023 Earnings Results Conference Call and Webcast. [Operator Instructions]

I would now like to hand the call over to Miri Segal of MS-IR. Please go ahead.

[Miri Segal-Scharia]

Thank you, everyone, for joining us today. Welcome to Arbe's Fourth Quarter and Full Year 2023 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 pertains 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 Koby 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. Finally, we will open the call for the question-and-answer session.

With that, I'd like to turn it over to Koby Marenko. Koby, please go ahead.

[Jacob Marenko, executive]

Good morning, everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights. Then Karine Pinto-Flomenboim, Arbe's CFO, will review the financials in more detail and share our outlook. Finally, we will open the call for the question-and-answer session.

Throughout the year, we were focused on driving a radar revolution with our industry-leading solutions. We are pleased with the progress we have made as we continue to innovate and develop our offerings in 2023. Although some OEMs push their decision time lines into later this year, the anticipation surrounding our offerings is high, and we expect to announce significant customer wins in 2024.

Industry time lines have been extended as the auto industry realigns its autonomous driving ambitions with a focus on enabling meaningful Level 2+ and Level 3 applications to differentiate their offering and meet customers' needs. As a result, OEMs have redirected their engineering resources and adjusted product road maps.

The dream of safe hands-free driving is within reach. According to Evercore analysts, in 2028, around 30% of all new vehicles will offer hands-free driving. The industry is currently selecting the next-generation sensor solution to fuel this revolution. We see that the core sensor needed to solve the problem is a high-channel count imaging radar like Arbe's. This demand is well reflected in all RFPs we encounter in the market.

One of the most exciting developments of Q4 was our announcement of the production version of our radar processor. It supports the processing of a reach point cloud that is 10x more detailed than any other radar in the market, offering the first radar-based solution that is detailed enough to support OEMs ambition to launch Level 3 and higher autonomy applications. Our sophisticated Perception Radar supports the needs of hands-free driving at an affordable price, providing unmatched safety that we believe can scale the industry to full autonomy.

Also on the product front, we recently announced the availability of our production intent chips, which includes the transmitter receiver and processor for the manufacturing of Perception Radar. This is an important step leading to the production and the revenue phase. Now our chips are in the -- sorry, now our chipset is in the automotive qualification phase, which is the final step before mass production this year. The production intent chips is already in use by Arbe's Tier 1s in their sample systems and has been delivered to OEMs for data collection and algorithm development.

In January, we were proud to announce an important milestone, HiRain, one of our long-time Chinese Tiers 1s, announced that it will begin the mass production of state-of-the-art 4D Imaging Radars powered by Arbe's chipset by the end of this year. In addition, HiRain announced it will start a data collection phase using a vehicle fleet, equipped with Arbe-powered imaging radars with plans to cover 1 million kilometers. The goal of the data collection project is to optimize the fusion and perception systems to enable key safety and comfort features.

On top of HiRain, 5 other leading OEMs selected Arbe's chipset for perception projects. Additionally, Arbe received a second order for evaluation systems from a leading Western truck company. This level of commitment from Tier 1s and OEMs marks an important final step before moving into the commercial phase.

Shifting gears as part of our growth strategy, we are also targeting the nonautomotive market, which is moving faster than the traditional auto market. One of our Tier 1 sales rep recently announced that it has significant customer orders for Hugin Imaging Radar, which is based on our chipset. These orders include an American autonomous transportation global manufacturer, a robotized professional outdoor power equipment manufacturer as well as a key player in the transportation sector. We view this achievement as a strong validation of our technology. Collaborating with Sensrad in the nonautomotive market increases our total addressable market and accelerates our time to market.

Finally, we are initiating a dual listing on the Tel Aviv Stock Exchange to enhance our trading volume. At the same time, we plan to issue bonds to the public to secure working capital, to support the predicted production ramp-ups in 2025. This proactive and strategic approach underscores our commitment to optimizing investor value and fortifying our financial position in a dynamic market landscape.

In summary, we are encouraged by our progress during the past year as well as the progress of our Tier 1. Despite selection process and OEM program delays that are out of our control, we see that customers are excited about our solutions and the possibilities we can achieve together. We believe that Arbe remains strongly positioned as a long-leading radar supplier in those OEMs, and we expect to announce 4 customers' wins in 2025 -- in 2024.

Additionally, our efforts in targeting new areas around the nonautomotive industry is providing to be successful, and we see faster go-to-market opportunities in these markets. Arbe continues to innovate, and we believe we can lead the safe hands-free revolution.

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

[Karine Pinto-Flomenboim, executive]

Thank you, Koby, and hello, everyone. Let me review our financial results for the fourth quarter and the full year 2023 in more detail. Total revenue in the fourth quarter was $0.35 million compared to $0.15 million in the fourth quarter of 2022. For the full year of 2023, total revenue was $1.5 million compared to $3.5 million in 2022. Backlog as of December 31, 2023, is $1 million and is expected to be recognized as revenue during 2024. Negative gross margin for Q4 2023 was 54.5% compared to a negative gross margin of 45.6% in Q4 2022. Gross margin for the full year of 2023 decreased to negative 2.6%, compared to a positive 63.5% in 2022. The margin decrease was primarily related to low annual revenue as we shifted our focus on to chips for production.

Moving on to expenses. In Q4 2023 we reported total operating expenses of $11.9 million compared to $14 million in Q4 2022. The decrease in Q4 2023 was primarily driven by a reduction in research and development expenses, favorable exchange rate, offset with an increase in share-based compensation.

Operating expenses for the full year totaled to $46.8 million compared to $50 million in 2022. The decrease reflected our advanced production stage and the finalization of costs related to this production maturity stage, and to a lesser extent, favorable exchange rates and the reduction in D&O insurance rates, partially offset by an increase in share-based compensation. Operating loss for the fourth quarter of 2023 was $12.1 million compared to $14.1 million in the fourth quarter of 2022. Operating loss for the full year of 2023 was $46.9 million, improvement of $0.8 million compared to 2022.

Looking at adjusted EBITDA in Q4 of 2023, a non-GAAP measurement, which excludes expenses for noncash share-based compensation and for nonrecurring items, was a loss of $8.2 million compared to a loss of $11.5 million in the fourth quarter of 2022. Adjusted EBITDA for the full year of 2023 amounted to a loss of $32.5 million, a $5.5 million improvement from 2022 and within our projected guidance.

Net loss in the fourth quarter of 2023 decreased to $9.3 million compared to a net loss of $11.1 million in the fourth quarter of 2022. Net loss for the full year of 2023 was $43.5 million compared to $40.5 million in 2022. 2023 net loss includes financial income of $3.4 million, resulted mainly from deposit interest and foreign exchange rate revaluations.

Moving to our balance sheet. As of December 31, 2023, Arbe had $44 million in cash, cash equivalents and short-term bank deposits with no debt. With respect to our 2024 guidance, our goal of achieving 4 design-ins with automakers remain unchanged as we observe continued strong interest in our market-leading offering. We have strengthened our positioning in all our RFQ engagements even though the OEMs have shifted their decision time lines from 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 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 our 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] Today's first question comes from Gary Mobley with Wells Fargo Securities.

[Gary Mobley, analyst]

I think last quarter, you highlighted how perhaps as much as 20% of your workforce was called to military duty since the war. Maybe if you can give us an update on where that stands today and how that's affecting your R&D activity.

[Jacob Marenko, executive]

Yes. So during Q4, we had around 20% of our team in military reserve. In January, most of them came back home and came back to work. And right now, we have less than 5% of our employees on reserve duty. Definitely, Q4, I would say, was our less productive quarter ever. But people try to compensate in hard work. And overall, we were able to achieve all of our milestones with the customers. And right now, we are back to almost normal, at least to the new normal.

[Gary Mobley, analyst]

Okay. If I go back to the last earnings call, I believe you highlighted 11 major OEMs that were in the final stages of selection, and you expected about 5 or 6 of these to conclude with final decisions. It sounds like now you're counting on 4 of those to go to final decision in calendar year '24. So maybe you can give us sort of an update there in terms of like the total pool of OEMs that are still in various stages of selection.

[Jacob Marenko, executive]

The pool didn't change. So where we spoke about 11 OEMs in Q4, actually, it's now 12. Another RFP was opened with an OEM that last year did not stop this process yet. We haven't lost any RFP since we started participating in RFPs or since our Tier 1 began submitting proposals with our chipset.

And the other way around, I think we are very, very close to major wins during end of this quarter, early next quarter. As time goes by, the decisions are in the final stages, and we hope to be able to announce major news before end of Q1, at least before we will report our Q1.

[Gary Mobley, analyst]

Okay. Last question for me, if I can. It sounds like more of the same with respect to China, that is China will be the first geography to really adopt and embrace L2+ autonomous driving. Maybe you can just speak to some of the impediments that you're seeing in terms of direct customer or consumer adoption for L2+ autonomous driving outside of China.

[Jacob Marenko, executive]

Yes. So China, I think, right now, looking on this market in 2 segments. There is the luxury car segment that, of course, would be launched first in 2025, but this is very, very narrow volume. And most of those OEMs are focusing on launching radar together with LiDAR, sometimes even two LiDARs for L2+ plus L3.

But the main segment, I would say, is the mainstream in China, and they are trying to launch these kind of services only with radar. We spoke about HiRain fusion project. We can say that at least 2 major OEMs are doing these kind of projects as well, fusion of radar imaging -- our imaging radar with cameras in order to support Level 2+ plus Level 3 application without LiDAR. Because on the mainstream of China, the LiDAR price is too expensive, even the Chinese LiDAR are too expensive. And we believe that imaging radar will have a significant role in those launches.

[Operator]

The next question comes from Joshua Buchalter with TD Cowen.

[Lannie Trieu, analyst]

This is Lannie on for Josh today. Just a few questions from me. To start, can you walk me through the main drivers of your adoption and pushouts? Is it slower for Arbe or the imaging radar in general? And then are there any implications to the slower 2024 ramp on your expectations for '25 and '26? Or is there a separate decision tree?

[Karine Pinto-Flomenboim, executive]

Can you repeat? You're too close to the microphone. So can you repeat your question, please? Thank you.

[Lannie Trieu, analyst]

Yes. Sure. Is this better? Can you hear me better now?

[Jacob Marenko, executive]

Yes. Now it's much better.

[Lannie Trieu, analyst]

Okay. Sorry about that. Just to start, I suppose, can you walk through the main drivers of slower adoption and pushouts at the OEM level? We've seen this across other sensors like LiDAR. But is it slower for Arbe or imaging radar in general? And then can you talk about the implications of a slower '24 ramp in '23 on your 2025 and 2026 expectations?

[Jacob Marenko, executive]

Okay. So I think that we are suffering from the same -- from the main problem of the industry. So the full stack of Level 2+ plus Level 3 or so defined vehicles that can run this kind of software and do over-the-air updates and improve their ADAS systems over the air, over time. This -- all stack is pushed because it's too complicated than the OEMs basically thought at the beginning.

But what we see clearly is that majority of the OEMs putting a lot of R&D efforts on this area, maybe more than before. They are shifting part of their investments in EVs into those R&D projects. All of them want to control this stack and to compete on this stack and offer their customers a better and safer experience for highway autopilot and then for [indiscernible] autopilot. So we see that this pushing the industry is across the board, even it's influencing the ramp-up of the central compute and other sensors.

As of our revenues, our '25 revenues are built mainly from China, which we believe that will ramp up earlier and we know it will ramp up earlier and from nonautomotive applications. So we don't see a real influence on our '25 revenues. It's mainly on the shift in '24. And also, we believe that in '26, we will see major -- the wins that we will have this quarter and next quarter, will be in our revenues in '26.

So overall, I think that the main shift is -- the main delay is in '24 revenues, which were -- which have shifted a bit to '25. We have enough cash to pass this hiccup. And we believe that on the long run, Arbe will be a leader player and a very strong company.

[Lannie Trieu, analyst]

I guess on that, you've previously mentioned the preliminary order for about $11.6 million from Weifu and the 304,000 chipsets from HiRain, I think worth tens of millions of dollars. Are these expected to -- like when can we expect these to layer into the model? And are they waiting final OEM decisions before revenue recognition?

[Jacob Marenko, executive]

Yes. We are waiting for final OEM approval for -- before recognition. And also in chipsets, you need to deliver -- deliver the chipset in order to be able to recognize it. We expect that we -- as HiRain stated by the end of this year, last quarter of '24, they will be in full production with our radar. So it means that we will start shipping them chips. And the majority of the revenues from those preliminary orders, we believe, are going to be recognized in '25.

[Operator]

The next question comes from Suji Desilva with ROTH MKM.

[Sujeeva De Silva, analyst]

In the press release, you talked about a production intent chipset and there's an auto qual being conducted. Is that being conducted by you or a Tier 1 or a potential customer?

[Jacob Marenko, executive]

No, no. Basically, as you know, our fab is GlobalFoundries. And GlobalFoundries are doing for us also a full turnkey solution of taking the chips to production. So the chips are in final stage of automotive qualification. They are running the automotive qual. In the pre qual we saw that they are fine, and we finished all of the preliminary tests, and we are now running on the formal stage of -- last stage of automotive qualification. And we hope to start shipping fully qualified production chips by end of Q2.

Of course, in the beginning, in the first few 2, 3 months, the volume will be low because it takes time for a ramp-up in automotive. But in '25, we will be in full capacity and be able to supply any volume that is needed in the market.

[Sujeeva De Silva, analyst]

Okay. All right. And then my other question is on the competitive landscape, if you could update us on the traditional radar competitors and maybe some of the more software-centric models and what you're seeing in various geographies and OEMs in terms of the competition.

[Jacob Marenko, executive]

We are not seeing those kinds of companies in the competition. The other way around, what we see more and more is OEMs that's stating that in the RFP, the minimum requirement is a minimum high-channel count that as much as we know, there is other than us, maybe 1 or 2 players that are able to meet this qualification.

And all of those software-centric or software radars are not qualified to those RFPs and RFQs that wants to support Level 2+ plus Level 3. Those solutions are very good for low-end radar to meet the challenges of NCAP, but not for real solving the problems of radar.

So if we're looking on the competitive landscape, I think that in the last quarter, our situation improved dramatically. So from one end, there's no new competitors. From the other end, there is clear understanding almost in every OEM that we are making that high-channel count above 16 by 16 is a mark for year model 27.5.

So right now, as it was announced, there is a radar of us that is based on our chipset and the radar that is based on the chipset of Mobileye. Those are the only solutions that we know that are available in the market. It might be that someone is working on something too, that we don't know. But all of the solutions with software or with less channels are not qualified for next-generation solutions.

[Operator]

The next question comes from Jaime Perez from R.F. Lafferty.

[Jamie Perez, analyst]

The order you received from the Western truck company, can you give us a little bit color? Is it a production order, test order? So if you could give -- appreciate it if you could give a little bit of color on that.

[Jacob Marenko, executive]

So the preproduction -- the preliminary order that we got from HiRain is mainly focused on OEM that HiRain already won their central ECU and they assume that the best radar to connect to this central processing unit is our radar and are in the final stages of the nomination with the OEM for this project.

[Jamie Perez, analyst]

Is this going to be a main radar or a redundant -- part of a redundant system?

[Jacob Marenko, executive]

No, it would be the main radar.

[Jamie Perez, analyst]

The main radar. Okay. Now I mean, given -- also focusing on your automotive market since the automotive market, it's been a little bit choppy lately due to weak demand. And in the press release, you mentioned you're going to look for other markets that may be -- have a shorter lead time and less choppiness. Could you give a little color on your nonautomotive strategy?

[Jacob Marenko, executive]

Yes, there is -- so first of all, our nonautomotive strategy was there from the beginning. But what we see is that Sensrad are gaining a lot of traction with their products, mainly in robotics in transportation and even in online security. And we believe that we will see major revenues from this nonautomotive market already in '24 and of course, in '25.

[Operator]

This concludes our question-and-answer session. I'd like to turn the call back over to Mr. Koby Marenko for any closing remarks.

[Jacob Marenko, executive]

Thank you. We were very pleased to have you join us today. To our employees and partners, your continued dedication is deeply appreciated. We look forward to updating you on Arbe's progress in the coming months. Look out for updates as we prepare for several investor events. We'd love to meet you in person for additional discussion. Please contact us at [e-mail] or visit our sites to schedule a meeting. Thank you all.

[Operator]

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