Arbe Robotics Ltd.

The conference will begin momentarily. Please stay on the line. Thank you. Thank you. Hello and welcome to the RBA Robotics fourth quarter and full year 2023 Earnings Results Conference call and webcast. 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 telephone keypad. And to withdraw from the question queue, please press star, then two. I would now like to hand the call over to Miri Segal of MSIR. Please go ahead.

Thank you, everyone, for joining us today. Welcome to our Bay'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 Kobi Marenko, our base co-founder and CEO, who will begin the call with a business update. Then we will turn the call over to Corinne Pinto-Flommenboim, 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 Kobi Marenko. Kobi, please go ahead.

Good morning, everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights. Dan Karim Pinto Flumenborn, our 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 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 pushed their decision timelines into later this year, the anticipation surrounding our offerings is high and we expect to announce significant customer wins in 2024. Industry timelines have been extended as the auto industry realigns its autonomous driving ambitions with a focus on enabling meaningful Level 2 Plus and Level 3 applications to differentiate their offering and meet customers' needs. As a result, OEMs have redirected their engineering resources and adjusted product roadmap. 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 our base. 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 10 times more detailed than any other radar on the market, offering the first radar-based solution that is detailed enough to support OEM's 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 radars. This is an important step leading to the production and the revenue phase. Now our chipset is in the automotive qualification phase, which is the final step before mass production this year. The production in 10 chips is already in use by August Tier 1, in their rich sample systems and has been delivered to OEMs for data collection and algorithm development. In January, we were proud to announce an important milestone. Hiren, one of our long-time Chinese tier ones, announced that it will begin the mass production of state-of-the-art 4D imaging radars powered by our chipset by the end of this year. In addition, Hiren 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 HiRACE, five other leading OEMs selected ARBE's chipset for perception projects. Additionally, our Bayer received a second order for evaluation systems from a leading Western RAC 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 non-automotive market, which is moving faster than the traditional auto market. One of our Tier 1 sensors recently announced that it has significant customer orders for its Eugene 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 Sensra in the non-automotive 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 four customers wins in 2025, in 2024. Additionally, our efforts in targeting new areas around the non-automotive 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 and smooth evolution. Now I'd like to turn the call over to our CFO, Corinne, to go over the financial.

Thank you, Kobi. And hello, everyone. Let me review our financial results for the fourth quarter and the full year of 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 31st, 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 onto 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 totals 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 rate and the reduction in DNO insurance rates, partially upset by an increase in shared base 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 non-cash shared base compensation and for non-recurring 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 included financial income of $3.4 million, resulted mainly from deposit interest and foreign exchange revaluations. Moving to our balance sheet. As of December 31st, 2023, ARBE had $44 million in cash, cash equivalent, and short-term bank deposits, with no debt. With respect to our 2024 guidance, Our goal of achieving four 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 timelines 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 the ability to fund our revenue growth. Adjusted EBITDA for 2024 is projected to be in the range of $30 million loss to $36 million loss. Now, we will be happy to take your questions. Operator?

Thank you very much. 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. To withdraw your question, please press star then 2. We will pause momentarily to assemble our roster. Today's first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hi everyone. Thanks for taking my question. I think last quarter you highlighted how perhaps as much as 20% of your workforce was, uh, was called the military duty since the war. Maybe you can give us an update on where that stands today and how that's affecting your, um, your R and D activity.

Uh, yeah. So during Q4, uh, we had around 20% of our team in, uh, 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 tried to compensate in a hard work. When overall, We were able to achieve all of our milestones with the customers, and right now we're back to almost normal, at least to the new normal.

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

The pool didn't change. So we spoke about 11 OEMs on Q4. Actually, it's now 12, another RFP. was open with an OEM that last year did not stop this process yet. We haven't lost any RFPs since we started participating in RFPs or since our T1s began submitting proposals with our chipsets. 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.

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 plus autonomous driving. Maybe you can just speak to some of the impediments that you're seeing in terms of, you know, direct customer or consumer adoption for L2 plus autonomous driving, you know, outside of China.

Yeah. So China, I think right now looking on this market in two 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 light-outs, sometimes even two light-outs, for L2++, L3+. But the main segment, I would say, is the mainstream in China, and they're trying to launch this kind of services only with radar. We spoke about high-end fusion projects. We can say that at least two major OEMs are doing this kind of projects as well. Fusion of radar, imaging radar, our imaging radar with cameras, in order to support level 2++, 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. Thanks, Kobi.

Thank you very much. The next question comes from Joshua Buckalter with TD Cohen. Please go ahead.

Hi, everyone. This is Rani on for Josh today. Just a few questions from me. To start, do you watch this in between drivers with slower adoption and push-outs? Is it slower for ARBE or the imaging radar in general? And then are there any implications to this slower 2024 ramp on your expectations for 25 and 26, or are those separate decision trees?

Can you repeat your – too close to the microphone, so can you repeat your question, please? Thank you.

Yeah, sure. Is this better? Can you hear me better now?

Yeah, now it's much better.

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

So I think that we are suffering from the same, from the main problem of the industry. So the full stack of level two plus plus level three or social defined vehicles that can run this kind of software and do over the air updates and improve the data 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 The majority of the OEMs are 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 stock and to compete on this stock and offer their customers a better and safer market. experience for a highway autopilot and then for urban 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 for non-automotive 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 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, the main delay is in 24 revenues, which are shifted a bit to 25. We have enough cash to pass this quarter. and we believe that on the long run, Arbe will be a leader player and a very strong company.

Great. Thank you for that, Keller. I guess on that, you've previously mentioned a preliminary order for about $11.6 million from Weifu and the 304,000 chipsets from Hirane, 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?

Yeah, we are waiting for final OEM approval before recognition. And also, you know, in chipset, you need to deliver the chipset in order to be able to recognize it. We expect that we, as Irene stated, by the end of this year, last quarter of 24, they will be in full production with our radar, which 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. Great.

Thank you. And that's all from me.

Thank you. The next question comes from Suji De Silva with Ross MKM. Please go ahead.

Hi, Coby. Hi, Corinne. In the press release, you talk 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?

No, no. Basically, as you know, our FAP is Global Foundries, and Global Foundries are doing for us also a full-term key 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 the automotive qualification, and we hope to start... shipping full qualified production shifts by end of Q2. Of course, in the beginning, in the first two or three months, the volume will be low because it takes time for ramp-up in automotive, but in 2025, we will be in full capacity and be able to supply any volume that is needed in the market.

Okay. All right. Thanks, Gobi. And then One of the questions 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.

We are not seeing those kinds of companies in the competition. The other way around, what we see more and more is OEMs stating that in the RFP, the minimum requirements is a minimum high channel count that as much as we know there is other than us maybe one or two 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 two plus plus level three. Those solutions are very good for low-end ADAS to meet the challenges of NCAP, but not for real solving the problems of Florida. 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 competitor. From the other end, there is clear understanding almost in every OEM that we are meeting that high channel count above 16 by 16 is a must for year model 27 and up. So right now, as it was announced, there is a radar of us that is based on our chipset and a radar that is based on the chipset of Mobilize. 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.

Thanks, Coby.

Thank you. The next question comes from Jamie Perez with RF Lafferty. Please go ahead.

Hey, everybody. Good day. Thanks for taking my question. The order that we see from the Western Truck Company, can you give us a little bit of color? Is it a pre-production order, test order? So I'd appreciate it if you give a little bit of color on that.

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

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

No, it would be the main radar.

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

Yeah, there is, so first of all, our non-automotive strategy was there from the beginning, but what we see is that SENSROP are gaining lots of traction with their products, mainly in robotics, in transportation, and even in homeland security. And we believe that we will see major revenues from this non-automotive market already in 24, and of course in 25.

All right, okay, that's all the questions I have. Thanks for taking my question.

Thank you very much. This concludes our question and answer session. I'd like to turn the call back over to Mr. Kobi Marenko for any 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 on all this 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 investors at alberobotics.com or visit our site to schedule a meeting. Thank you all.

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