Arbe Robotics Ltd.

Good day and welcome to the Arbe Robotics first quarter 2023 conference call. 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 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Mary Sagal, CEO of MSIR. Please go ahead.

Thank you everyone for joining us today. 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 press 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 Kobi Marenko, Arbaez, co-founder and CEO, and Karin Pinto-Flomenboim, CFO. Kobi will begin the call with a business update. Then we will turn the call over to Karin, 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.

Thank you, Mary. Good morning, everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights. Then, Karin Pintoffel-Flumenbeim, our business CFO, will review the financials in more detail and share our outlook. Finally, we will open the call for the question and answer session. This quarter, we are taking significant steps for production and increasing revenue through our collaboration with tier ones and leading car manufacturers who look to adapt our technology for enhancing safety and autonomy in their next generation platforms. WIFU has successfully established a production line and has a functional B sample in operation, which represents the production configuration. Four other tier ones are actively constructing their production lines and are in the final stages of B sample development as well. The WIFU production line is currently capable of producing tens of thousands of units per year. WIFU is in the final stages of upgrading the production line to allow them to manufacture hundreds of thousands of radars annually. I recently returned from China, which was my first time visiting since COVID, and I was very encouraged by the commitment and progress achieved with car manufacturers. While there, I participated in the Shanghai Auto Show, where Ave and Mifu signed a strategic cooperation agreement with Didi Global's autonomous freight company, Cargobot. Didi Global is a leader in innovative mobility technology in China, providing safe and sustainable transportation worldwide. Cargobot is will be integrating WIFU's radar system, which utilize the ARBE chipset into their level four tracks. As we have stated many times, safety is in the heart of ARBE's focus and commitment. Together with WIFU and Cargobot, we intend to develop advanced technological products and accelerate the commercialization of autonomous driving solutions in the field of logistics and freight. Additionally, we are collaborating with the perception teams of leading European and Asian premium car manufacturers who are implementing our radar technology in their next generation solution. This collaboration aims to bridge the gap between current driver assist systems and the desired next generation of safety and autonomy. By working closely with these teams, we demonstrate the advantages of our radar technology and illustrate its role in driving forward advancements in the automotive industry. After meeting with WeFu, Hirin, and our customers in China and observing the progress made by our Tier 1s, Valeo and Vionir, in engaging potential customers across Europe and America, we are confident that we will achieve our targets of securing four OEM selections by the end of this year that will generate significant revenue. With our cutting-edge technology, we are well positioned to meet the growing demand for safe driver assist systems, providing unparalleled performance and paving the way for a future where road safety is significantly enhanced. Finally, we are delighted to announce the exciting news about SenseRad, a spin-out venture from our long-standing partner, Camcom. SenseRad is dedicated to developing radar systems based on the advanced Albert chipset. In a significant development, SenseRad has received a strategic investment from GetWave, a leading provider of high-performing radar antenna technology. This strategic partnership enables SENSRAD to deliver cutting-edge radar systems to various industry verticals, including infrastructure, heavy machinery, surveillance, and autonomous mobility. By leveraging the power of Gateway's antenna technology, along with the exceptional capabilities of the ARBA chipset, we believe that SENSRAD radar systems will provide unparalleled safety and enhance autonomy across a wide range of industries. The potential for radar application in non-automotive verticals is enormous, and we are thrilled to join this journey. As we look ahead, we are confident in our strong position for sustained growth in 2023. With the support of our partners in China, Europe, and the US, we are fully prepared to achieve our commercial objectives and mass production this year. Now, I'd like now to turn it over to our CFO, Corinne, to go over the financials.

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the first quarter of 2023 in more detail. Total revenue in the first quarter was $0.4 million, a decrease from $0.9 million in Q1 2022. and in line with our expectations, given our decision to shift focus to chips for production. Backlog as of March 31st, 2023 was $0.4 million, not including the previously announced higher-end preliminary order. Gross margin for Q1 2023 was 11% compared to 56.1% in Q1 2022, mainly related to economy at scale and to a lesser extent, revenue mix. Moving on to expenses. In Q1 2023, we reported total operating expenses of $10.7 million compared to $11.1 million in Q1 2022. The decrease in operating expenses was primarily driven by exchange rate favorability and to a lesser extent, saving in expenses and labor costs. partially upset by an increase in our research and development. As a result, our operating loss remained unchanged from the first quarter of 2022 at a loss of $10.6 million. The company continues strengthening its research and development investments, with R&D totaling $8.1 million for Q1 2023, compared to $7.8 million in Q1 2022. Looking at adjusted EBITDA, a non-GAAP measurement, which excludes expenses for non-cash shared base compensation and for non-recurring items, was a loss of $8.4 million in Q1 of 2023, which exceeds company's expectations, and compared to a loss of $8.5 million in the first quarter of 2022. Net loss in the first quarter of 2023 increased to $9.9 million compared to a net loss of $7.9 million in the first quarter of 2022. Net loss in Q1 2023 included $0.7 million of financial income compared to a $2.8 million of financial income in the first quarter of 2022. Moving to our balance sheet. As of March 31st, 2023, our BEH had $44.9 million in cash and cash equivalent with no debt. With respect to our guidance for the year, we would like to reiterate what we previously shared. Our goal for 2023 is to achieve four design-ins with automakers. Revenue is expected to be in the range of $5 million to $7 million, which will be heavily weighted towards the back end of the year. Adjusted EBITDA is expected to be a loss in the range of $32 million to $35 million. As Coby said, we believe that we are well positioned for sustained growth in 2023 as we plan to go into mass production. And we look forward updating you on our progress in the coming quarters. Now we will be happy to take your questions. Operator,

We will now begin the question and answer session. To ask a question, you may press star then 1 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 has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, everyone. Thanks for taking my question. Regarding the goal for the four OEM design wins with automakers for the year, can you give us a sense of what model years that would be focused on? Sure.

So there is, of course, a difference between China and US and Europe. So China is today working faster in terms of bringing new hardware into the car. We are today focusing on new Model 25 in China, which means that the radar SOP is end of 24, which means that our revenues from the chipset will start ramping up in 24. In Europe and U.S., we are focusing now on year model, a year after 26, sometimes even 27, and the radar will start production early 25, sorry, middle of 25, and ramp up of revenues in early 25.

Thanks, Colby. This is my follow-up. I wanted to probe a little bit deeper on high rain with a multi-part question. What would it take to translate preliminary orders into shipments, and what sort of impact would those preliminary orders have on your backlogs?

Well, I think that the hiring are waiting for the final announcement of the OEM about them receiving the designing and also on the exact date of the start of production of the car. As opposed to Europe, in China, Models can be in start-up production in almost every month of the year because of the amount of models that they are launching. Just when I was in Shanghai Auto Show, this year there were 14 new EV models coming out of China. So as opposed to Europe and Germany, Europe and the U.S., A new model is announced somewhere around the end of the summer. In China, it might be every quarter. So what hiring are waiting is to get the exact date of the start of production of the car, and based on that, they will place the order to the exact date, and this is what will turn it from a preliminary order to a booking.

Regarding your backlog question, Gary, so it's currently, as we said, it's not included in our backlog. Of course, when it will be in order, it will be part of our backlog.

Thanks, Grant.

The next question comes from Joshua Buchhalter with TD Cowan. Please go ahead.

Hi, team. Thank you for taking my question. I wanted to ask, as a follow-up to Gary's question on the four potential design names for this year, anything you can give us on the scope or magnitude or use case on those? Where are you working? Is it for front-facing perception radar? Just any scope on the magnitude of those engagements. Is it across vehicle models? Is it for different OEMs? We'd just love more clarity there. Thank you.

Yeah. So, yeah. Basically, I think almost every OEM today is evaluating imaging radar for their next generation platform, and we are presented today in those opportunities with our Tier 1 partners, of course. By the end of the day, the selection is Vionier, or Valeo, or Hiren, or Wifu, and not Arbe. We are not a direct Tier 1 for that. What we see, I would say, is maybe I would divide it into three models of engagement. So there is engagement that is basically RFP, RFQ, and that's it, that we are not involved. The T1s, of course, updating us about submitting this RFP, this RFQ, and they're competing there. Sometimes, again, just... other imaging radar, lower in performance, of course, but sometimes also against the legacy radar, which basically means that there's not yet a real decision to add imaging radar to the stack. On the second group, I would say, those are companies that are involving us in the evaluation stage, they gave Leonir and Valeo and also us a very detailed use cases, 10, 15, sometimes even 20 use cases, where they see today a problem with their existing sensor suit from their existing radar, cameras, and also from the LIDAR that they are testing for those platforms. And they are involving us and our radar, making sure that our radar closes all of those use cases. And as we see today, and we have those use cases from, I would say, around 10 different car manufacturers. 90% of it, of course, is similar. So everyone is dealing with the same problems. And our radar solves them all. So I would say this is the second part, and on those OEMs we, of course, today the only sensor that can bridge the gap between today's, let's say, ANZOV calls to next-generation ANZOV and to next-generation ISOV. Last is even deeper engagement. Those are companies that already installed our cars in their development vehicle. They are already collecting data to their perception stack from our radar and making sure that their next generation of perception will be using imaging radar. Of course, those companies we believe that we have the most chances to win.

Thank you for all that, Colby. I mean, as my follow-up, I wanted to ask about, I guess, the competitive environment. We've seen some announcements from large incumbents in the auto radar market that say they're doing imaging radar functionality. Can you compare and contrast, I guess, what you're bringing with your single chip solution versus what some of the larger peers who have been selling products to the radar market for a while, but are calling their products imaging radar. I'd love to hear you walk through what's changed in the competitive environment recently. Thank you.

I think that the competitive landscape didn't change at all, actually, since we started. So from the beginning, we saw NXP's processor and the existing RX chipset from NXP and TI as our competition. There was a mid-term solution that is based on fault cascade TTI chip and a single FPGA and the NXP announced that finally on their processor that is trying to compete with it. When I'm telling, when I just detailed the situation that we are in with all of those car manufacturers, they tried this four-chip cascade, and those four-chip cascades don't solve the problem. And we saw that all of those use cases that we are using that I spoke about, our radar solves the problem where the four-chip cascade, whether it's based on TIRF or NXPRF, whether it's an FPGA inside or a NXP processor inside, they are not solving the problem. And this is the reason why Mobileye, I believe, decided to develop a radar more or less on the spec that we are doing and bringing it to the market in 25, 26. So I think that even... that everyone that will analyze the performance of our radar against NXP radar based on our chipset and based on NXP chipset will see the difference in all of those scenarios. I would say in the easy scenarios, we are equal, but for the easy scenarios, you don't need an imaging radar. You can use a legacy radar. And on the problematic scenarios, today, as far as we know, we have the only available solution that can really solve the problem. Not on paper, not on spec, not, you know, in demos in conferences. in real vehicles in real testing with the leading premium european cow manufacturers thanks kobe the next question comes from suji de silva with roth mkm please go ahead hi kobe hi corinne um so um you target four oems by the end of the year i'm curious how many um are you talking to now roughly engaged with and what portion are those you're engaged with in the three categories you just discussed like uh one versus two versus three uh so first of all uh the ones that are in category three uh we by definition patients have been low in low probability to win so the on the first category where we are engaged with a perception team. Those are companies that we believe that we have more than 50% probability to win. And if you take the amount that we have there and multiply by the probability, I think that four is a good number that we feel very comfortable with. On the second category, there is another batch of companies that we feel from them and from the tier ones that we have a very high chance to win. Some of those selections might slip to 24. So when we are talking about four, we take the entire car companies that We are confident that we have a very good chance to win, and also that the decision would be taken this year and not slip to early 2024. Okay. Very helpful.

And then just to understand how backlogs are going to be reported in the next few quarters, is that, Corinne, a three-month backlog of all the shipments you expect in the coming quarter, or...? the 12-month backlog, and will that grow when you have more design wins out? How should we think about that number?

Okay, so backlog is 12 months ahead, even further, but usually it's 12 months. When we have an agreement, again, it depends if it's the Western OEM or Chinese OEM, because it differs. It takes either between 18 to 24 months in the more traditional OEM side and quicker for 12 to 18 in the Chinese market from agreement to revenue recognition. So we assume in that space that in presumably at least 12 to 18 months that we get the booking ahead and it will be considered in our backlog and included.

Okay. Thanks.

The next question comes from Jamie Perez with RFL. Please go ahead.

Good day, everybody. My question, I think I want to focus on the non-automotive segment. I mean, how far are we in that segment? Are we looking to and sort of what's the timeframe of shipping product, maybe the size, and do you expect any wins in that segment in the next year or two?

So in this segment, I think that the fact that Comcom started a fully dedicated arm that is called Sensorad, dedicated for that, will, of course, accelerate it. We expect revenues from non-auto to start as early as 2024. Of course, it's not yet a high volume and a higher volume in 25.

All right, so are you going to be shipping product in 23? I mean, how much lead time do they need? Is it just in time? Let me give some color on that.

So I think what they need now, first of all, is for us to start production. So they cannot ship... products, of course, without us starting production. So we will start production by the end of this year. So we should expect that they will start providing systems around Q2 next year.

And my follow-up, given, I mean, in the next couple, let's look forward to the next four years. I mean, what size is the non-auto going to be compared to the auto? Is it going to More or less, auto is going to be the bulk of your revenue.

Four years from now, the non-auto would be single-digit in percentage, up to 10% from our entire revenue. The growth margins are a bit better than auto, but it's still, I think, nothing compared to auto. When we are talking about each one of those four design wins that I mentioned, I think it's... The minimum yearly revenues for us is something like $25 to $30 million a year. So all of the segments of the non-auto together, I think if in 26 we'll reach $25 million, it would be amazing for us.

That's all the questions I have. Thank you.

Thank you.

Thank you.

The next question comes from Matthew Galenko with Maxim Group. Please go ahead.

Hey, good morning. Thanks for taking my question. I wanted to sort of, if we take the, from your models of engagement answer, the OEMs that haven't decided yet to add imaging radar and contrast that with, you know, your position that your imaging radar is the only way to resolve some corner cases, between other sensors. Can you help us understand if those reluctant OEMs are just not as advanced in their ADAS ambitions, or is it something that you expect they'll get to at some point in the future? Where's the divide there?

I would say that in the automotive space, in general, there is the leaders, the innovators, and there is the followers. And same with ADAS and new sensors. So it was back then with the airbag. It was also with a single camera solution. All of those... started with a premium OEMs that were focused on safety, like Volvo, like Mercedes, and then it moved to other followers. And I think also in ADAS, there is the leaders that are trying to develop it by themselves, trying to improve it by themselves. And there is the followers that might wait to see that this technology is in the mainstream and the demand of the customers is already there in order to start it, or they also might choose a different direction of not developing it and buying a full system from other suppliers. So as long as car OEMs don't try to go beyond the adaptive cruise control, maybe lane maintain, and very basic functionalities, emergency braking. The current radars are, I would say, good enough. They sometimes fail, but still, since there is a man in the loop that holds the wheel, this is not really critical. But companies are trying to get off to get to an ENSOF solution and wants this ENSOF solution to be fully safe, I think needs an imaging radar and companies that are trying to go to ISOF, it's even critical.

Got it. Thank you.

This concludes our call. I will turn the call to Koby Marenko, ARBE's CEO, for closing remarks.

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 further on ARBE's progress in the coming months. Look out for updates as we prepare for several investor events, including the Evercore Virtual Autotech and AI Forum on May 24, the TD Core and Virtual ESG Week on June 6, and the NIDAM Virtual Automotive Tech Conference on June 7. Please contact us at investors at auberobotics.com or visit our website to schedule a meeting. Thank you and goodbye for now.

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