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spk09: Good day and welcome to the RBA Robotics second quarter 2022 financial results. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MSIR. Please go ahead.
spk01: Thank you, everyone, for joining us today. Welcome to RBA's second quarter 2022 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. in 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 Malrenko, ARBE's co-founder and CEO, who will begin the call with a business update. Then we will turn the call over to Corinne Pinto-Flomenboim, CFO, who will review the financials. Finally, we will open the call up to our listeners for the question and answer session. With that, I'd like to turn it over to Kobi Marenko. Kobi, please go ahead.
spk05: Thank you, Mary. Good morning, everyone, and thank you for joining us. I would like to begin by reviewing some of our recent business highlights. In July, we introduced LINX, the industry's first surround imaging radar, fulfilling a significant market need for 360 long range, high resolution sensing at an affordable price. With 24 by 12 channels, LINX outperformed the most advanced industry radars on the market today, even the highly priced front radar, making it the first surround radar able to announce perception and sensor fusion. The Lynx imaging radar was designed to complement OBE's flagship product, Phoenix Perception Radar, which processes 48 by 48 channels. Both radars will walk in sync to deliver unified perception and interference avoidance and to provide full sensor coverage around the vehicle, enabling unparalleled safety for vehicles. LINX is designed to be a corner and back radar for L2 plus and higher autonomous vehicles. We anticipate that four to six surround imaging radars will be integrated per vehicle in addition to one or two perception radars. Further, LINX can be utilized as a front radar for ADAS, and we believe it is the only product on the market that can fulfill the NCAP safety requirements. We believe that this launch represents an enormous business opportunity for Aave and for the Tier 1s that build and sell radars based on Aave's chipset. I am also happy to share with you that we reached a major milestone with our strategic partner, Global Foundries, in the second quarter. As many of you know, Global Foundries is a major semiconductor supplier for the automotive and other industries, and it has established a designated area dedicated to the production and sampling of our best chipsets within their fab. Global Foundries has delivered the first significant customer sample shipment of our chips in the second quarter. In addition, both companies have signed a long-term manufacturing agreement that covers quality assurance, assembly, and testing and marked tremendous progress going into mass production. We believe this will provide us with the quality and capacity necessary to meet our customer requirements. China is the largest vehicle market in the world. During the second quarter, a leading Chinese ADAS-T1 supplier, high-end technologies, announced that it is undertaking major OEM and autonomous driving projects with imaging radar based on the ARVE chipset. HyREN announced that it expects to reach full mass production of radar system by 2023. HyREN's radar system utilizes ARVE chipset with 48 transmittal channels and 48 receiving channels and a dedicated processor to map the environment and sense the surrounding of the vehicle in high resolution. In parallel to this announcement, Hirin has been shortlisted for leading Chinese OEMs RFQs, which is a major business milestone. Albe's pipeline continues to grow. During the second quarter, Albe added two new customer engagements, including a track OEM that is leading in level 2 plus track design, and a new mobility company that is focusing on level four vehicles. Additionally, Tier 1 submitted five RFPs and RFQs with Albe's chief set to major OEMs, committing to supply the customer with volume ranging from 400,000 to 1 million systems per year. Albe is now shortlisted for eight RFPs, RFQs. This includes top OEMs from North America, Europe, and Japan. Winning all these contracts would generate $7.5 billion in revenues for us by the end of the decade. On the corporate front, we have made some key organizational changes at Arbe that we believe will help boost our company to the next level of growth. We formed consolidated, highly focused R&D groups to scale our business, allowing us to deliver the revolution in radar solutions to our customers. With these changes in place, we will accelerate product execution while maintaining technological excellence as we focus on the next generation of solutions. Finally, just last month, Arbe's early shareholders initiated an extension to the local period. This gives us great confidence that our shareholders believe in the long-term potential of Arbe's business and in our ability to seize the opportunities ahead. Full details about the extended period can be found on our investor website and in our filings with the SEC. As we enter the second half of 2022, we are shifting our focus to production and execution. We believe that our expanded offering, Phoenix Perception Radar and Lynx Surround Imaging Radar, can open new and vast industry verticals and further expand Alves' business potential. This is our time to win new businesses and monetize our engagement by building on our innovative technology and strong execution capabilities. In addition, the production timeline announced by Hiren Technologies, coupled with the progress achieved by all Alves' D1s, is positioning us ahead of the rest of the industry. Now I'd like to turn it over to our CFO, Corinne, to go over our financials.
spk03: Thank you, Kobi, and hello, everyone. First, let me apologize for my voice today. I woke up this morning and lost my voice, so I hope you'll bear with me when I'll do my best in reviewing our financial results for the second quarter in more details. Total revenue in the second quarter was $1.2 million, compared to $0.5 million in the second quarter of 2021. Backlog as of June 30, 2022 was $1.5 million, consisting mainly of chipsets, services, and samples orders from Tier 1s. Gross margin in Q2 2022 was 72.8% compared to 31.9% in the same period in 2021. The growth margin increase was primarily related to economy of scale and lower cost per unit as we expand toward production. Moving on to expenses. In Q2 2022, we reported total operating expenses of $13 million and increased from $6.9 million in the second quarter of 2021. The increase in operating expenses were primarily driven by non-cash-shared base compensation expenses, labor costs increased, research and development material and subcontractor costs, and additional general overhead costs related to our status as a public company. Operating loss for the second quarter of 2022 was $12.1 million compared to a $6.7 million loss in the second quarter of 2021. Operating loss reflected our growing investment, mainly in research and development. Looking at adjusted EBITDA in Q2 of 2022, a non-GAAP measurement which excludes expenses for non-cash-shared base compensation and for non-recurring items was a loss of $9.5 million compared to loss of $6.4 million in the second quarter of 2021. Net loss in the second quarter of 2022 increased and was $11.6 million, which included half a million dollars of financial income compared to a net loss of $10.6 million in the second quarter of 2021. which included $3.9 million of financial expenses. Q2 2022 financial income resulted from the revaluation of warrants, partially offset by exchange rate revaluations and financial interest. Moving on to our balance sheet. As of June 30, 2022, Arbe had $79.3 million in cash and cash equivalents. We repaid our last loan on June 30, 2022, and we have no debt on our balance sheet. With respect to our guidance for 2022, we would like to reiterate what we previously shared. Revenue is expected to be in the range of $7 million to $11 million, heavily weighted toward the end of the year. Adjusted EBITDA is expected to be a loss in the range of $34 million to $38 million. Additionally, we believe that we are on track to reach our $312 million revenue goal for 2025. Now we will be happy to take your questions. Operator, please start the Q&A session.
spk09: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question The first question comes from Joshua Buchhalter with Cowan & Company. Please go ahead.
spk02: Hey guys, thanks for taking my question and congrats on all the progress. It's starting to clear in the tone that you're focused on operations and it sounds like things at Global Foundries are pretty much ready to go for volume production. Are you able to give a timeline of when you expect to fully enter volume production and we should be still expect AutoX to sort of lead as the first customer as you ramped to volume and then followed by Asian OEMs in 2023? Thank you.
spk05: Yeah, so first of all, it's actually two questions. One question is regarding our production, and the second question is about the production of AutoX. So first of all, regarding our production, We believe that early 2023 we're going to be in full production of the chipset like we're assuming and likewise our original projection. We don't see any change in the production timeline. The other way around, we see here today in our lab, our three chips that are production ready in the final stages of testing, I can say working quite good, like we designed, and from here we believe this is just the process or the things that needs to to be taken in order to take it to production, but we don't see anything that should stop us from achieving our goal. We have weekly meetings with GF on this project and the project is on schedule, which is quite amazing, taking into consideration that it's almost a two-year project to take those chips into production. The second question is about the Auto-X production. So, Auto-X designed their own antenna for their radar. And this antenna is already working with our chips. And from here, the next stage is going to be make it production-ready, and we believe that early next year we will be able to start the game shipping production-ready radar for AutoX. Regarding AutoX, as opposed to our, let's say, usual model that we are selling chips to Tier 1 here on the AutoX project, There is a contractor that is doing for AutoX custom designs and we are working with them to support them. So in terms of the revenues, we are not just counting the chipsets, but we will count the entire radar. So to summarize, the answer is yes, but of course, this is on the side of the customer. they must get into production system with their B sample. As of now, it looks like it's on schedule, and they will be able to start ramping up B samples next year.
spk02: Got it. Thank you for all the color. Then I wanted to ask about links. Was this developed due to customer demand pull, or is it more – You know, it's something that you're now taking to customers and waiting to see the response to a 24 by 12 product. And, you know, how incremental to the TAM is Lynx and what's a realistic timeline for revenue contribution? Thanks, guys.
spk05: Now, Lynx, we saw the need from the specs of the car companies and we designed the reference design of the Lynx. and we announced that we have a reference design product in the performance. I can say that two European tier ones that are working with us closely already has their own 24 by 12 like LINX product and it's already in RFQ part of them already submitted. So this work has been done in the last nine months together with OEMs to make sure that the product is according to the specs. And from the other end, we, the tier 1s, in parallel to our reference design, build our own reference design. And our two European tier 1s has their own 24 by 12 working product already in test vehicles as we speak. We believe that the next stage would be that in China, Hirin and Wefu will do their own 24 by 12 as well in the coming future.
spk02: Got it. Thank you. I appreciate all the color and feel better, Karine.
spk03: Thanks, Josh.
spk09: The next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
spk08: Hello, everyone. Thanks for taking my question. I apologize, Corinne, but I'm going to start with a question for you. The 73% gross margin for the quarter is notable, although it's off of a small revenue base. And if I'm not mistaken, the long-term view by the company is offered in your long-term guidance as maybe something in the high 60% range. So my question is, is this low 70% gross margin a permanent fixture, or are you still standing by that high 60% long-term gross margin view?
spk03: Thank you, Gary. Good question. So we're still standing behind the higher 60% for the long run. This specific quarter margin consisted mainly of some services without any cost. Also, as we get ready for production, our specific costs also reduced. But I think, and also we have an economy of scale here for some fixed costs. But in the long run, also some of the fixed costs will increase as well. So to your question, we're still standing behind a higher 60% margin for the long run.
spk08: Okay. Thanks for that clarification. One for Kobi, how many customers have seen samples or received sample shipments from GlobalFoundries? And, you know, normally automotive grade customer qualifications can be quite lengthy. So maybe if you could talk about the different lengths of the qualification period, you know, for the different types of customers that you have in the queue.
spk05: Yeah, so first of all, One customer got a direct shipment from GlobalFoundries and we did it in June actually, so we just started. So this was the first and successful one and it made all of us happy, including GF. But next customer will get the chips from them during this quarter, but You know, more and more we begin to have this working mechanism that we can support more and more clients from this site. Regarding tests, the chips are getting out of the fab after all of the testing on the automatic testers, so the customer don't need to test them. Global Founder is basically provide them approval that the chips were tested. Qualification, of course, just to be clear, they are not yet automotive qualified and the full automotive qualification process, this is what basically separating us from being in the situation that we are today and for a full a PPAP full commercialization of the chips. So basically, looking at the process, global foundries have testers for the three chips, the Everest processor, the transmitter, and the receiver. They are testing the chips automatically with tests that we design together with them. After those tests and after the chips pass the test, And of course, there is some chips that don't pass, which is basically what is influencing our yield. Those are counted on the yield. I can say that our numbers now in the yield side, even before we made the improvements are better than we expected in the past. And this is, again, influencing margins and influencing everything. So after the chips are tested and the testers making sure that they are 100% functioning, those that are 100% functioning are shipped to the customer. So the customer don't need to check anything. In parallel, the same lot, that went out of the frack is going through the qualification process to make sure that it's automotive grade. And then when we finish the automotive grade, the chip's getting a different part number, which means that there are not samples anymore and there are full production qualified chips.
spk08: Thank you both. Appreciate it.
spk03: Thank you, Gary.
spk09: The next question comes from Suji De Silva with Roth Capital. Please go ahead.
spk07: Hi, Kobe. Hi, Corinne. Congrats on the progress here. The full year guidance, I know it's early, but the $7 million to $11 million of revenue, what would roughly separate you guys from the low end versus the high end? Is that production volume or is that more prototype shipments to more customers?
spk03: No, I think it's production volume completely and Regarding our guidance, as we see it today, we're currently in line for the first two quarters. We achieved our plan, and we expect currently to continue achieving it, again, based on the fact there will be no other delays in the industry, which we do not see them currently.
spk07: Okay. That's very helpful. Thanks. And as we look ahead to the $300 million that you reiterated today in the out years, you know, Kobe, how do we think about the number of customers you'd need in production to help get to that number if that's something, you know, because you have eight RFQs shortlisted and so forth. I know they each vary in size, but maybe some idea of, you know, when you'd have visibility to that, you know, based on wins. Like, what would it take?
spk05: So, first of all, the visibility we will have, I believe, in the next two, three quarters. So, we are now shortlisted, as we mentioned in the around 10 different RFPs, RFQs. Decisions are expected from September to March next year, and each one of those contracts represents for us something like, I would say, on the low volume, $30 million, on the high volume, around $100 million per year. If you think of it like this, the $300 million is more or less two or three big wins and some small projects that we already have, like AutoX, like delivery robots, like other projects.
spk03: But to add to that, I think for the entire project, business case here is, and this forecast is based on already identified customers. It's not something that if we'll have more, I think this number will even go higher.
spk07: That's very helpful. Thanks, guys. And then one last quick question. With the Lynx product, how should we think about the attached rate of Lynx to when you win a Phoenix project for a customer? Is that the right way to think about it?
spk05: In a nutshell, I think that the majority of the clients will buy one Phoenix and four Lynx, but we believe that the fact that the Lynx price and performance are superior, we might find them also in pure level 2 ADAS NCAP related applications, which is something that we were not was not on our radar till now. And I think we have the ability to be very competitive with the current, let's say, the current long-range radars in terms of price. And in performance, of course, we are differently. Okay.
spk07: Thanks, Toby. Thanks, Torin.
spk03: Thanks, Suzy.
spk09: The next question comes from Jamie Perez with RF Lafferty. Please go ahead.
spk04: Good day, everybody, and thanks for my question. It's more hypothetical. As we go into production in 23, I mean, what changes with the customer base? I mean, I know customers are right now looking to integrate your chipset into their product, but there's Are we going to see any turn contracts? I mean, customers saying now that you've entered production, we're going to take a look at today. I mean, how does that dynamic change in the market?
spk05: I think that right now, all of our customers, especially the tier ones, already have the confidence that we will get into production early 2023. They have this confidence, first of all, because they saw the chips and they understand that they are really mature, but second, because they spoke to global foundries that gave them the comfort that they are behind the company and they are behind the aggressive plan of taking three chips into production. What happened in the last quarter is that the OEMs themselves that we are solving under RFPs, RFPs got this confidence directly from a global founder. As you probably know, the automotive companies today are aware of supply chain issues and aware of how this market works. So they asked to get this guaranteed directly from global founders. And we have a very strong statement from their VP of Automotive, that they are standing behind the production timeline, they are standing behind our capacity, and this is something that they are offering to all of the OEM's customers. So I think right now the customers looking into selection of radar based on our chipset have the confidence that and the sales loudest pub in the world is behind our chipset.
spk04: It's awesome. Seems like everything's ready to go. Thanks for my question. See you next quarter.
spk03: Thank you. Thank you.
spk09: The next question comes from Matthew Galenko with Maxim. Please go ahead.
spk06: Hey, thanks for taking my questions. Just a couple of clarifications. One, you talked about the $7.5 billion of total potential revenue in RFPs and RFQs by the end of the decade. I just want to make sure I understand that to mean by the end of, you know, by 2030, or did I understand that incorrectly?
spk05: Yes, this is when we are talking and when we are taking now all of the RFPs, RFQs that we are in. And the anticipated volume and revenues for us from 2023 till 2029, this sums up in $7.5 billion. Of course, we don't expect to win all of the RFPs, RFQs that we are in. just 95% of them. But this is the, if you take this aggregated amount, you reach the $7.5 billion in revenue.
spk06: Thank you. Appreciate that. And, you know, good luck with that win rate. And maybe secondly, I think you mentioned restructuring your R&D and team a little bit or something along those lines in your prepared remarks. Can you just go back to that for a moment and maybe talk about why the timing and what that means for your R&D spend and efficiency going forward?
spk05: Thank you. It's a good question. I think early this year when this year started and we saw that the market is getting to a kind of a storm and the economic situation as well is not as it used to be. We decided to take a close look on our yearly budget and try to reduce costs whatever we can. And this is one side of the story. The other side of the story, when we're going to production, we saw that it's a good idea to separate between the R&D that is developing the chips from ID to production. And the team that is doing the radar reference design, like the Lynx, like the Phoenix, those are two different sides of this business. So the side of the chipset can run separately and take the chips to full production. Without those chips, it will be related to an actual radar. From the other end, the radar team takes the chipset, builds a full reference design, and so they can support the tier one easier in a much more efficient way than it used to be. The fact that we did this separation, offering us inside the company to mimic the client, and to solve for the client many problems before the client will even be able to see them. Overall, this restructuring allowed us to save costs overall and to give a much better support and a product to our customers.
spk09: Thank you. Now I will turn the conference back over to Kobi Marenko, Arbe's CEO. Any closing remarks?
spk05: Thank you. We were so pleased to have you join us today. To our employees and partners, your continued dedication is deeply appreciated. We look forward to updating you further on ARBA's progress in the coming months. Until then, you are invited to reach out to the team with any questions or comments. Thank you all.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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