Q1 2024 Arbe Robotics Ltd Earnings Call

Participants

Miri Segal; Investor Relations; MS-IR LLC

Kobi Marenko; Chief Executive Officer, Co-Founder, Director; Arbe Robotics Ltd

Karine Pinto-Flomenboim; Chief Financial Officer; Arbe Robotics Ltd

Joshua Buchalter; Analyst; TD Cowan

Suji Desilva; Analyst; Roth Capital Partners

Jaime Perez; Analyst; RF Lafferty & Co. Inc.

Matthew Galinko; Analyst; Maxim Group

Presentation

Operator

Good morning, everyone, and welcome to the Arbe Robotics first-quarter 2024 earnings results conference call. (Operator Instructions)
Please note that today's event is being recorded. At this time, I'd like to turn the floor over to Miri Segal, CEO of MS-IR. Please go ahead.

Miri Segal

Thank you, everyone, for joining us today. Welcome to Arbe's first-quarter 2024 financial results call. Before we begin, I would like to remind our listeners, that certain information provided on this call may contain forward looking harbor statement and safe harbor statement outlined in today's release also applies to this call.
If you have not received a copy of the PR, please view it in the Investor Relations section of the company's web. Kobi Marenko, Arbe's Co-Founder and CEO, will begin the call with the business update, then we will turn the call over to Karine Pinto-Flomenboim Arbe's CFO. Paul will review the financials in more. 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.

Kobi Marenko

Thanks, [Eric]. Good morning, everyone, and thank you for joining us. I'd like to start by sharing some exciting updates with you. We congratulate hiring one of our Tier-1 in China and being selected to supply radar systems, followed by the Arbe chipset to a global leader in autonomous driving, which met production scheduled in 2025. We look forward to providing more details about these announcements soon.
[Irene] also reached a significant milestone in Q1. The successful development state-of-the-art post-point cloud algorithm, including tracking classification and free space mapping. These algorithm have been integrated into hiring imaging radar for serial production.
These advanced advancements were tested by OEMs demonstrating their potential to improve automotive safety. Importantly, hiring announced it will begin mass production of the imaging readout by the end of this year.
During the third quarter, Arbe's Tier 1 made significant progress in reaching our goal of serial production by the end of this year, we will with major OEMs on data collection for their Level two plus and Level three solutions as well as on improving the rate of specification.
As part of our progress in Japan, we'd like to update that allow Japanese automotive client is working to complete and massive data collection initiative with our radar solution this year as part of the development of the ADAS/AD architecture, there's a wide demand for next-generation radar system with a high channel count now considered essential for road safety.
In March, age of radar and radar perception is [miloitary] emphasize publicly that Asia's radars require an array of at least 32 by 32 channel. Few companies meet this requirement in Albert exceeds the fleet, the largest channel array on the market.
We see similar requirements in our feed from other major OEMs. We are pleased by the outstanding progress we are making with top OEMs worldwide. Despite industry delays, we are confident in our opportunity pipeline and our goal to secure full design wins this year, especially with promising time coming from leading top 10 OEMs.
We look forward to sharing more update very soon. Collaborations are key for Arbe again, the CTC conference in video share that it has brought together a select group of the TAM Penfolds from industry leaders, including Arbe's perception radar to create a rich ecosystem of simulation tools and application as part of their own leverage, cloud APIs, these are designed to accelerate the path to autonomy.
Additionally, 2024 Beijing International Automotive exhibition Horizon robotics, a leading provider of computing solutions for ADAS and autonomous driving in China showcased the integration of vehicles for the imaging radar, followed by the other chips that will arise and Journey six automotive AI processors as part of their partner ecosystem.
As many of you know, there have been important developments within our industry and shift towards new safety standards and regulation. These are needed to drive the future of flow safety. We currently believe that how that has affected us to effectively address these changes, and we are well positioned to help lead the revolution.
Then you need the federal safety standards for the US mandate automatic emergency braking or ATP, including pedestrian AEB for all passenger cars and light trucks by September 2029. This safety measure is set to reduce collision accidents with congestion.
At the same time, Euro end cap 2030 road map aim for zero fatalities requiring proactive credit presentation in all scenarios, a key to success or failure will be in the sensors used to power the extent safety standards and requirements.
These creates a growing opportunity for the adoption of our technology, which is the leading solution for tracking pedestrians and vehicle in challenging weather and lighting condition, even at high speed and over long distances. We expect that by the end of the decade, over 15% of new cars will feature high end imaging radars like ours, providing real safety levels we are currently.
Lastly, we are in the final stages of dual listing with an additional listing on the Tel Aviv Stock Exchange. At the same time, we are advancing silver, the convertible bond issuance on the Tel Aviv Stock Exchange to secure working capital and support the expected production ramp up in 2025.
We are excited about the potential opportunities for our business, and we believe that 2024 will prove to be a turning point for our company. Now I'd like to turn it over to our CFO, Karine, to go over the financials.

Karine Pinto-Flomenboim

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the first quarter of 2024 in more detail, total revenue in the first quarter was $0.1 million, a decrease from $0.4 million in Q1 2023. Backlog as of March 31 was $1 million and is expected to be recognized as revenue during 2024.
Negative gross margin for Q1 '24 was 194% compared to a positive gross margin of 11% in Q1 2023. The margin decrease was mainly related to a reduction in revenue and an increase in our workforce.
Moving on to expenses. In Q1 2024, we reported total operating expenses of $12.5 million compared to $10.7 million in Q1 2023. The increase in operating expenses was primarily driven by an increase in noncash share-based compensation expenses totaling $1.9 million to a lesser extent, labor cost increase was offset by bonus accrual release, favorable exchange rate and reduction in D&O insurance rates.
Operating loss in the first quarter of 2024, it was $12.8 million compared to an operating loss of $10.6 million in the first quarter of 2023.
Adjusted EBITDA, a non-GAAP measurement, which excludes expenses for share-based compensation and for nonrecurring items was a loss of $8.5 million in Q1 of 2024. In accordance with our plan, this is compared to a loss of $8.4 million in first quarter of 2023.
Net loss in the first quarter of 2024 increased to $12.8 million compared to a net loss of $9.9 million in the first quarter of 2023. Net loss in Q1 '24 included $45,000 of financial expenses, resulting mainly from exchange rates, revaluation expenses, partially offset by interest from deposits and warrants revaluation. This is compared to a $0.7 million in financial income in the first quarter of 2023.
Moving to our balance sheet. As of March 31, 2024, our bank had $5.4 million in cash and cash equivalents and $30.3 million in short-term bank deposits with no debt.
With respect to our guidance for the year, we would like to reiterate what we've previously shared. Our goal of achieving for design-ins with automakers remains unchanged as we observed continued strong interest in our market-leading offer.
We have strengthened our positioning in all our RFQ engagements, even though the OEMs have shifted their decision timelines from base 2023 to 2024 to 2024. Annual revenues are expected to be in line with those of 2023, followed by revenue growth in 2025.
These revenue projections are based and the intention to be in full production in the second half of 2024, as well as our decision to focus exclusively on getting our chipset into products. 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. Now we will be happy to take your questions.

Question and Answer Session

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. (Operator Instructions)
Joshua Buchalter, TD Cowan. Please go ahead with your question.

Joshua Buchalter

hi, team, good afternoon. Thanks for taking my questions. I wanted to ask about the confidence in achieving the four design wins this year. Any incremental data points or what you can give us and what gives you confidence that those are going to convert in the second half of the year and maybe what led to that?
We've litigated in the past, but maybe an update on the time line, given you got pushed from 2023 into 2024 any clues by geography or type of application that these wins are going to be for? Thank you.

Kobi Marenko

Yeah, so basically, as we said, out of those, the opportunities were pushed from the last quarter and the are now coming to a decision point. What we see as a name change between last year and this year is that even in the RFQs that were in the market, the conditions were changed and the threshold for the radar got much higher.
And basically a majority of the opportunity is living to me only player that can provide definition. And this gives us a lot of comfort that majority of the market, all of the things that top 10 OEMs, at least understand that multichannel high channel count radar is key for Level two plus plus and Level three and the fact that the regulation change and added the need for automatic braking, especially in all use cases, given our rigs are basically, I think a dramatic backwind because any OEM will need to have this kind of solution.
And the only way to solve it is with the high channel count, imaging, radar and camera, it seems a camera alone cannot solve those scenarios. A even color and light cannot solve it. But anyway, the [night-time] is much too expensive for a feature that is basically not something that the OEMs, can we charge the customer on it, to add to some light to the numbers.
So we are today engaged with the 11 call companies coming from Germany and from Sweden from the other countries in Europe as well as from a Japan and China in all of those RFPs and RFQs, we are already past a long process with the, of course, our Tier 1 prepared partners of evaluation of the radar, testing the radar in a [coden] and is showing its advantage of our wholesale radar based on our chipsets and high end channel counts, imaging radar based on our chipset as opposed to a solution in the market that are based on the TI or NXP chipset that are called imaging radar.
This is not really an imaging radar. And I think all of the OEMs understand the difference between really imaging made out like the ones that are based on our chipset or one of our competitor, our main competitor that is coming also from Israel and the existing legacy positions that are based on a legacy chips that were not designed to meet the specs of tomorrow.
There will be time for the spec of yesterday and taking everything all of this into consideration. We are sure that out of 11 opportunities that now shortlisted, we will win at least for the coming months and then we'll be able to announce them to the market this is the reason why we are raising the loan at the loan in Tel Aviv is based on a condition that we will win a contract.
Our confidence in the fact that we are very close to winning the contract, I think allowing us to raise this money and also the confidence of the investors that we are close to that are willing to pay. It gave us a loan with a conversion price that is the or more than 30% higher than our today share price. And so where I believe that we have we will have a very good year, like we said, a turning point from the company of the company coming from development to a business very soon.

Joshua Buchalter

Thanks for the extensive color, Kobi. For my follow-up. I think in the press release you mentioned you're getting close to receiving full auto grade qualification. I feel like that process has been going on for a while. Can you maybe talk about what are the last few things you need to complete to get the auto grade sign off? And then is that are fertile and something that needs to be completed before you sign one of these OEM wins? Or is that not the case? Thank you.

Kobi Marenko

I think the our chipset and the process of taking chips to quote a qualification on automotive is the structure, the process global foundry of leading it and managing it for us together with us and together with our engineers, we are more or less all the timeframe to finish it by the end of this quarter, early next quarter.
And as we mentioned in last quarter, basically before you're starting at full qualification yields with many qualification to make sure that there's no major items. We passed this prequalification many qualifications and we are now in the middle of finishing the technical process which includes the thousands of hours of chips walking in high temperatures and low temperatures to make sure that the they are they will be able to stand in all conditions that the automotive market.
It doesn't look today that this is a showstopper in calls with our OEM partners, a global foundry giving there and objective the assessment that the chips are going to be in production in very few months from now. So I think that all of the OEMs that are going to select our chipset with the [magna] with hiring with other Tier 1. And those are really they are trusting global boundary that global will bring those chips to production. I believe it's not a major issue for us.

Joshua Buchalter

Thank you.

Operator

Suji Desilva, Roth Capital. Please go ahead with your question.

Suji Desilva

Hi, Kobi, hi, Karine. Kobi talked about some of the progress with hiring and way through in China. Can you just elaborate on the ramps that have time to revenue and what the how many programs that are those involved?

Kobi Marenko

So we already stated that hiring. And we gave us a preliminary order for 2025 higher and it's $30 million with $10 million. And we are now we're engaged with the fuel programs to make sure that the customers there will get and radars based on our chipset in this volume in 2025.

Suji Desilva

Okay, and those are for automotive, Kobi?

Kobi Marenko

Yeah, some of them is, you know, is the tracks in there robo-taxis and we have a for a highway and water project in one of the ports of China full-track. I would say that around 25% of it is the i's non-OEM, a well-known for passengers vehicles directly for passengers.

Suji Desilva

Okay, great. Very helpful color. And then secondly, on the you mentioned the NVIDIA Omniverse element is our base radar, the kind of exclusive radar element there? Or are there multiple radar elements involved? Are they looking for imaging radar? What's the color there on that partnership and inclusion?

Kobi Marenko

The only imaging radar audiology is the Albert's imaging radar filter is also low and made of their written for a rental belt, you know, with web low-end four-by-four radar out, but the high end imaging radar is only [hoping.]

Suji Desilva

I think lastly, maybe beyond in China, can you talk about the significance of working with Horizon and Horizon away for working together in terms of further penetrating the China market versus OEM, working with the Tier ones like Horizon like Weifu's.

Kobi Marenko

So we are not allowed to elaborate a lot about our operation there. But what I can say is that it basically at horizon is like in NVIDIA.
So it's the ECU, they are not the Tier 1 day by the end of the day, there is the Tier 1 that's taking their chips and building the central compute and integrating our radar into this processor and the same as we have integration within NVIDIA.
We have this there is this kind of integration with horizon, and we believe that this is a main condition for part of the OEMs in China. As you are probably aware, I think that the Chinese market is basically divided between and NVIDIA and horizon now controlling the steel market in China. So with the fact that we are integrated with both of them, I think gives us a lot of advantage in this.

Suji Desilva

Okay. Again, very helpful color. Kobi, thanks.

Operator

Jaime Perez, RF Lafferty. Please go ahead with your question.

Jaime Perez

So thank you and good day, everybody, and thanks for taking my question. I mean, over the last couple of quarters, we've seen a sentiment change for the EV early adopters and going more towards IT. And I think hybrid is also gaining share. I mean, could you give us a little color what do you do you have any exposure to hybrids and ICE vehicles? And my follow-up question for that is a lot of EVs are focusing on affordability, especially with the Chinese relating to ship a low price Cosco. Could you tell me what does that mean for your margins and pricing power? Thanks.

Kobi Marenko

I think those are two great questions. So first, of all regarding the EV shift, though, I think that this is part of the reason for the delays. So well, last year, the majority of the OEMs were focusing on moving almost totally to EV by 2030. And according to that, they decided that the all of the new features, the like Level three and Level two plus would be launched a solely on EV.
In last quarter in the last quarter of '23, the market strategically understood that the move to the shift to EV will take longer than expected due to price due to a customer's adoption due to the challenging problems and so on.
And it basically broke all of those programs of Level 3 to be into a state that they were we evaluate and the schedule was the basically a delay as we see it by the end of Q1, maturity of the OEMs. A took a decision to launch those services on both EV and the regular engines as well as, of course, of the hybrid. So from this perspective, there's no change right now. It's called the delay. But right now we are on the go.
The second question that you raised, I think is dramatically interesting. The price pressure for EV is really pushing forward essential that are cheaper and the imaging radar, I would say is dramatically cheaper than radar.
And we believe that this dramatically helps us, at least on the need to be a standout. And also for Level three, I think that our radar is the foldable better than other sensors.

Jaime Perez

Is there basically you have a we know you have a price advantage versus radar. Now, most of it like I said most of the focus has been on passenger. I think on the electric vehicle, commercial market has been doing a little bit better. I mean, could you maybe talk about the initiative in the commercial or transit market. If you have any? Thanks.

Kobi Marenko

We are not focusing. It's not us, but our Tier 1 most of our Tier 1 are not focusing on that. So on a case on the western world and China, we won a project with a it, the tracks, the company and in their hiring also have some trucks the project, but outside of China to modernize and not bidding on any drug as of now. And the volume in trucks is lower adaptation and the cost of integration is higher and the volume is not merely make it economical for these kinds of solutions as of now.

Jaime Perez

Okay, I'll pass it back. Thanks for the questions.

Operator

Matthew Galinko, Maxim Group. Please go ahead with your question.

Matthew Galinko

Thanks for taking my question. I was hoping you could maybe provide a little more detail around investments. Do you expect to make or need to make as you move into production in the back half of this year. And I think to your Q1 to support through the node issue? Thanks.

Kobi Marenko

So majority or basically all of our expenses towards production were already done this quarter Q1, we had less an item that was related to increasing the capacity of the burning boats. So we will be able to supply a much higher volumes next year.
But all of the expenses that are related to production, which are majority of the CapEx already done and now behind us. And so I think we are ready for a revenue.

Matthew Galinko

Great. Thank you.

Operator

Ladies and gentlemen, with that being our final question for today, we will be ending today's conference call as well as today's presentation. We thank everyone for joining. You may now disconnect your lines.