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spk08: Good morning and welcome to the RBAE Robotics third quarter 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Alexis Pascal of MSIR. Please go ahead.
spk06: Thank you. And thank you everyone for joining us today. Welcome to ARBE's third quarter 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 Kobi Marenko, Arby's co-founder and CEO, who will begin the call with a business update. Then we will turn the call over to Karine Pentil-Flomanboim, CFO, who will review the financials. Finally, we will open up the call for the Q&A session. With that, I'd like to turn it over to Kobi Marenko, RBCEO. Kobi, please go ahead.
spk04: Thank you, Alexis. Good morning, everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights. In the third quarter, our BAE and our Tier 1s made significant progress towards commercial production, supporting our goal to become a leader in perception radar solutions for the automotive industry. The selection process by vehicle manufacturers involves multiple steps. During the quarter, Arbetium once delivered pre-samples of radar systems based on our chipset to leading OEM. These samples facilitate the evaluation of production functionality and mark a crucial milestone in the OEM selection process. Additionally, they enable OEM perception teams to gather data for their L2 plus and L3 applications within ongoing development projects using always cutting edge technology. Our advanced technology plays an increasingly pivotal role in enhancing the next generation product offering of our tier one partners. Tests performed on radar systems using the ARBE chipset have consistently demonstrated performance that meets or exceeds target benchmarks, reaffirming the superior quality of our technology. ARBE is currently engaged with four top Tier 1 companies, Magna, Hiren, Wifu, and Sensrat. In Q3, all four advanced to the production of radar systems based on our chipset and are now in the final stages of selection with prominent European, American, and Asian OEMs. Additionally, we are awaiting the final confirmation of success in securing two prominent truck projects. Collectively, the OEMs that are in the final selection stages for our technology represent 31% of the global passenger vehicle market. The fact that they are currently opting for imaging radar shows a strong preference for imaging radar technology, and it will likely become the standard technology of choice for most passenger vehicles by the end of the decade. We are sizing this opportunity and are fully committed to realizing it. As previously announced, we have received preliminary chipset orders from China for 2024 and 2025. WIFU High Technology Group, a key Tier 1, we've been working with since 2019, has placed an 11.6 million preliminary order for Aube radar chipsets, meeting their projected sales demand for customers in China. In addition, Hiren Technologies, a leading Chinese ADAS tier one supplier, has placed a preliminary order for 340,000 radar chipsets to serve the customers throughout China. Aube's current cash balance ensures sufficient funds until the second half of 2025. The current funds and the preliminary orders from China will allow the company to reach breakeven with its existing cash. On the corporate front, we are delighted to welcome Professor Yonina Eldar to our Board of Directors. Professor Eldar is a known expert in electrical engineering and radar theory at the Weizmann Institute of Science. She is known for a groundbreaking role in sub-Nike West sampling. Her addition to our board is of great significance, and we are proud she chose to join ARBE. Regarding the current situation in Israel, we want to emphasize that our operations and ability to conduct business activities are not affected. We continue to monitor the situation and will adjust as needed to ensure the continuity of our business while prioritizing the safety and the well-being of our employees. I would also like to highlight that Arbeil is a fabless company. The manufacturing and production of our chipsets are carried out in Germany by Global Foundries, a multinational semiconductor manufacturing and design company. As a result, we do not anticipate any changes in product availability. While around 20% of our team were called for military duty, this primary affects long-term projects that we are involved with, with no impact on our immediate client support capabilities. Arbe has successfully continued to operate as Blend, thanks to the commitment and dedication of our employees. Now, I'd like to turn it over to our CFO, Corinne, to review the financial results in more details.
spk05: Thank you, Kobi, and hello, everyone. Total revenue in the third quarter was $0.5 million, a decrease from $1.3 million in Q3 2022, in line with longer OEM implementation timelines. Backlog as of September 30th is $1.1 million, not including Hirin and WIFU's previously announced preliminary orders. Gross margin for Q3 2023 was 24%, compared to a 72.5% gross margin in Q3 2022, as a result of our reduced quarterly revenue with a fixed cost portion in our cost of goods sold. Moving on to expenses. In Q3 2023, we reported total operating expenses of $11.7 million compared to $11.8 million in Q3 2022. The decrease in operating expenses was primarily driven by a decrease in research and development from $8.6 million in Q3 2022 to $8.4 million in Q3 2023. and a decrease in general and administrative expenses from $2.2 million in Q3 2022 to $2 million in Q3 2023. The decrease in both was primarily due to a lower subcontractor expenses, favorable exchange rates, as well as reduction in our DNO insurance costs, partially obsessed by an increase in our shared base compensation costs. Sales and marketing expenses increased from $1.1 million in Q3 2022 to $1.3 million in Q3 2023. Shared base compensation increased from $2.3 million in Q3 2022 to $3.9 million in Q3 of 2023 related to equity grants from Q2 2023 under our stock option plan. Operating loss in the third quarter of 2023 was $11.6 million, compared to an operating loss of $10.9 million in the third quarter of 2022. Adjusted EBITDA, a non-GAAP measurement which excludes expenses for share-based compensation and for non-recurring items, was a loss of $7.5 million in Q3 of 2023. overperformed company's expectations and compared to a loss of $8.4 million in the third quarter of 2022. Net loss in third quarter of 2023 was $11.7 million compared to a net loss of $9.9 million in the third quarter of 2022. Net loss in Q3 2023 includes $0.1 million of financial expenses, mainly related to exchange rate revaluation expenses, partially upset by interest from deposits and warrants revaluation. Net loss in Q3 2022 included financial income of $1 million, mainly related to exchange rate revaluation income. Moving to our balance sheet. As of September 30th, 2023, ARBE had $23.5 million in cash and cash equivalent and $25.6 million in short-term bank deposits with no debt. With respect to our guidance for the year, ARBE is in the final selection stages with leading OEMs in Europe, the US, and Asia Pacific. These OEMs account for 31% of the global passenger vehicle market. Revenue is expected to be in the lower range of $5 million to $7 million. Adjusted EBITDA is expected to be a loss in the range of $32 million to $35 million. Now, we will be happy to take your questions.
spk08: Excuse me. We will now begin the question and answer session. To ask a question? You may press star then one on your telephone touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
spk01: Hi, Colby. Hi, Corrine. I hope you and your families are safe and remain safe. And relating to the conflict, I wanted to ask about the day-to-day operational challenges that the conflict brings. I know you mentioned 20% of your workforce getting called to the military. Maybe you can speak to how that affects your long-term R&D roadmap, and as well, what has been the feedback and support that you've received from your prospective customers since this began a month ago?
spk04: Yep, so thank you for this question and thank you for the kind words. So first of all, it's not easy, but I think it came to us after the corona, so the company knows how to operate in Europe a remote way. Part of the team is working from home. Part of the team is working from the office. From the beginning, we prioritized the tasks. So first of all, everything that is related to our next generation of chipset would be delayed. And this team will be what was moved to work mainly on the current activities with the customers. I don't think it really makes a difference. Anyway, our next generation should be in the market in 25 or 26. So a month here and there is not really influencing. We have a team outside of Israel, especially support and... and this helps us support our customers in China and in Germany and in the U.S. even at that time. And we are trying to do the best with the team we have right now. We are able to support the majority of our plans and especially all of the tasks that are needed for our C1 partners to go to production, and all of the tasks that are related to OEM evaluation and to OEM integration are prioritized, and I can ensure that no such task is hurt due to the situation, and we hope that this will come back to the Middle East soon.
spk01: Thank you for that, Colby. This is my follow-up. ask about some of the preliminary orders you have from some of your China tier ones, I think between waifu and high rain, it sounds like you have multiple tens of millions of dollars of potential sales there. What has to happen? What has to go right for those preliminary orders to actually turn into shipments?
spk04: It's actually what we need to do right now is to close the The last phases of winning the... Sorry, the T1s need to close the last phases of winning contracts with the OEM. The preliminary orders are based on their forecast for next year and the year after. And we believe that until the end of the year or early, very early next year, they will be able to finalize the deals with OEMs based on their repeat samples and will turn those preliminary orders into actual orders.
spk01: All right, thank you both.
spk08: Thank you, Gary. The next question is from Joshua Buchalter with TD Cowan. Please go ahead.
spk07: Hi, this is Lani on for Joshua Buchalter. Can you hear me okay?
spk05: Yeah.
spk07: Great. I'd like to echo Gary's comment and wish the best safety for you, your family, as well as your staff. Moving on to my question. My first question is reading your guidance for 2023 implies quite a steep ramp in 4Q with your true ones. And being in the final talk with OEMs now, can you tell us a little bit more about the volumes, where you expect it to be driven by, and where they're going?
spk04: Yeah, so we are in the final stages as we mentioned in the call with 11 OEMs. We believe that at least five or six of them will take decisions before year-end or early next year. Part of them in China, part of them in Europe and the Western countries. With all of them, I think that the process is almost done. And we're in a... With all of them, we are in... The tier ones are in final stages and negotiating prices and negotiating... year of production. We're top of the car. We see in China, so for our radar, for the car in 25, and the outside of China, we are now in that process of projects for 26, so 27 for the car, which means that we will gonna see the revenue ramping from the second half of 24, mainly in 25, and 26 and 27.
spk07: That's really helpful, Keller. Thank you. And for my education standpoint, who are you seeing in these final processes as your competitors? Like how many competitors are you seeing narrowed down into these final decisions?
spk04: I think that the competitive landscape in the radar has not really changed. So there is an imaging radar bucket. There is the low-end imaging radar that is based on four cascaded chips coming from TI or NXP and an FPGA or a processor of NXP. This gives something like 200 virtual channels compared to our 2,304 virtual channels. And so basically those products grow to the market by two tier ones, Continental and ZS. We see in the last few months that Mobileye is trying to get aggressively also into the imaging radar business. They have a product that is more or less close to the performance that we are bringing to the market, but we are a year and a half or two years ahead of them in terms of production and readiness for getting into a car.
spk07: Thank you very much.
spk08: The next question is from Suzy De Silva with Roth MKM. Please go ahead.
spk09: Hi, Coby. Hi, Corinne. I also echo my hopes that you and your folks there are staying safe. So you talked about the customers looking at the B sample and integrating the data sets from the 4G imaging. Coby, how long does that process typically take in terms of how long do you think it will take for them to have the 4G imaging data set integrated with their perception software and data?
spk04: So basically what we see as going all over the OEMs is that the need is for something like 100,000 hours of driving of data in order to train the basic algorithms between two to three months. the data collection, which we are in the middle of this phase. And then, you know, improving the stack for that. It can be from six months to 12 months. It depends on, you know, the abilities of the software team. I think that even in the data collection, in parallel at the beginning, to train the stock, they already see the value in an imaging radar and the ability to use an imaging radar like we are bringing to the market for a full free space mapping based just on the radar, and we are the only company today that brings such value.
spk09: Okay. That's very helpful. And then my other question is on the high-range, the 340K units, I think you talked about, it seems like they'll start shipping in 4Q. I want to understand if the rest of it is still expected to ship in calendar 24, or if any factors are shifting the shipment plan for that high-range PODF.
spk04: We are not yet sure when we exactly will begin to ship the chips. But it's mainly going to, the main volume would be in 24. We are not sure if we will be able to start shipping by the end of 23 or only in the beginning of 24. But anyway, as we assume, the majority of the shipping of the chips will be in 24. Okay, great. Thanks.
spk08: The next question is from Jamie Perez with RF Lafferty. Please go ahead.
spk03: Thank you for taking my question. Thoughts and prayers to everybody in the firm and the people of Israel. My first question, you noted on the press release that you have two projects for trucks, commercial side. Can you talk a little bit about that? Because we're seeing there's a big difference between especially in the EV between the passenger and the commercial fleet market, you know, as far as dynamics. So could you give a little bit more color on that? Thanks.
spk04: Yeah, so I think the truck market today is becoming a bit complicated. So there is the trucks manufacturers themselves, which this is what we referred to. They are working on adding ADAS level 2 plus level 3 functionalities to the trucks and also to have a machinery. And this is the two projects that we are engaged with. And there is the fleet owners that by the end of the day need to buy those trucks with this service. And there is, I would say, operations or operating companies, like we announced in China, the subsidiary of Didi, they're doing the service of Trax. And this is also on our agenda to support those companies. But to refer to those two projects, it's a big brand of Trax company.
spk03: All right. And my follow-up question on the... The market you're developing with the passenger side, are you going to, maybe, I apologize if you touched upon this before, are you going to be part of a suite or standalone radar component? And also concerning that, you know, especially here in the U.S. where cars are becoming more expensive, there's a question of affordability. I mean, what's your price comparison between Aubrey's chipset and let's say the the LiDAR, because I know there's a significant difference, especially with consumers being strapped for cash.
spk04: First of all, the radar is part of the stack. The stack consists of, of course, at least eight to 10 cameras, and sometimes also with the LiDAR. Comparing to the price of the LiDAR, imaging radar is much cheaper. Actually, the imaging radar is quite close to the price of the current front-facing radar. And we see that we are on the path to achieve with our T01 partners a price that is around $150, $160 for a front-facing radar, imaging radar, 48 by 48, 2,312 channels. All right. All right. Thanks for my question. Thanks. Thank you.
spk08: The next question is from Matthew Galinko with Maxim Group. Please go ahead.
spk02: Thank you for taking my question. I think you mentioned you're potentially touching 31% of the global passenger market with the OEMs you're in the final selection process for. So I think we've visited this question in the past in various forms, but for the rest of the global passenger market, Is there reticence to imaging radar among the other OEMs? Is it geographically you're just not touching those areas yet? Just, you know, 31% is a great number, but where is the rest of the market?
spk04: Thank you. I think so. There is a few things here that are related to adoption of an imaging radar. So, first of all, there is... early adopters, and the early adopters are the premium car manufacturers, and this is our first target. And also there is the premium adopters in China that, again, are not the old-school car companies, but more of the private ones and not the government-controlled ones. So we are approaching those companies first, and of course, as I mentioned, we believe that by the end of the day, every car will have an imaging radar, but the first adoption would be on premium cars, on high-end cars, and on early adopters of new technologies.
spk02: Thank you. And I think you just mentioned this, but did you say towards the end of the decade you expect imaging radar to be standard on all cars?
spk04: Yes. Thank you, Kamala.
spk02: Got it. Okay. Thank you.
spk08: This concludes our RBA's third quarter conference call. I would like to turn the conference back over to Kobi Marenko for any closing remarks.
spk04: Thank you all for joining us today. I'd like to extend my gratitude to our team for their contribution. Whether they are currently serving in Israel's armed forces or fully dedicated to ensuring we continue to execute our business priorities as planned, Israeli babies, children, women, and men are currently held in Hamas captivity. Our lives will not be whole before each of them is returned home safely. Throughout this period, we have experienced outstanding support from our customers, partners and investors. We thank you for standing with us. Thank you and goodbye for now.
spk08: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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