Q4 2023 Arbe Robotics Ltd Earnings Call

Participants

Kobi Marenko; CEO, Co-Founder & Director; Arbe Robotics Ltd

Karine Pinto Flomenboim; CFO; Arbe Robotics Ltd

Miri Segal; Analyst; MSIR

Gary Mobley; Analyst; Wells Fargo Securities

Joshua Buchalter; Analyst; TD Cowen

Suji Desilva; Analyst; ROTH MKM

Jamie Perez; Analyst; RF Lafferty

Presentation

Operator

Hello and welcome to the Arbe Robotics Fourth Quarter and Full Year 2023 earnings results conference call and webcast. (Operator Instructions)I would like to hand the call over to Miri Segal of MSIR. Please go ahead.

Miri Segal

Thank you, everyone, for joining us today and welcome to Arbe'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, Arbe's Co-Founder and CEO, who will begin the call with the business update. Then we will turn the call over to Karine Pinto Flomenboim, CFO, who will review the financials. Finally, we will open the call for the question and answer session.
With that, I would like to turn it over to Kobi Marenkoo, Kobi, Please go ahead.

Kobi Marenko

Good morning to everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights, then Karine Pinto Flomenboim, Arbe's 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 evolution with our industry-leading solutions. We are pleased with the progress we have made, as we continued to innovate and develop our offerings in 2023. Although some OEMs push their decision time lines into later this year. The anticipation surrounding our offering is high, and we expect to announce significant customer win in 2024.
Industry timelines have been extended, as the auto industry realigns its autonomous driving ambitions with a focus on enabling meaningful level two plus and level three application to differentiate their offering and meet customers' needs. As a result, OEMs have redirected their engineering resources and adjusted product road map.
The dream of safe hands-free driving is we didn't reach according to ever call analyst 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 central needed to solve the problem is the high channel count imaging radar like albids.
This demand is well reflected in all our bids we encounter in the market. One of the more exciting developments of Q4 was our announcement of the production version of our radar processor. It's the both the processing of a reach point cloud, that is 10 times more detail than any other rate of the market offering the first radar based solution that is detailed enough to support OEM's ambition to launch Level three 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 in 10 chips, which includes the transmitter receiver and processor for the manufacturing of perception radar. This is an important test leading to the production and the revenue base.
Now our chips in, sorry. Now our chip set 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 all the Tier ones in their big sample system and has been delivered to OEMs for data collection and algorithm development. In January, we were proud to announce an important milestone.
Hiram, one of our long time Chinese [steel] one announced that it will begin the mass production of state of the art for the imaging radars, followed by all the chip sets by the end of this year. In addition, Hiram announced, it will start a data collection phase using a vehicle fleet equipment with all the power of the imaging radars with plans to cover 1 million kilometers.
The goal of the data collection project is to optimize diffusion and perception systems to enable key safety and comfort features. On top of high rate, five other leading OEMs selected Arbe's chipset for perception projects. Additionally, our (inaudible) received a second order for evaluation systems from a leading west of rock company. This level of commitment from Tier ones 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 nonautomotive market, which is moving faster than the traditional auto market. One of our Tier one sense(inaudible) recently announced that it has significant customer order for (inaudible) imaging radar which is based on our chipset. These orders include an American autonomous transportation, global manufacturer, 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 Sensrad 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 (technical difficulty) secure working capital to support a predicted production ramp-ups in 2025. This proactive and strategic approach underscore 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 one. Despite selection process and OEM program delays that are out of our control, we see that customers are excited about our solution and the possibilities we can achieve together. We believe that Arbe remain strongly positioned as a long leading radar supplier in those OEMs, and we expect to announce four customers win 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 fluid evolution.
Now I would like to turn the call over to our CFO, Karine, to go over the financials.

Karine Pinto Flomenboim

Thank you, Kobi, and hello, everyone. Let me review our financial results for the fourth quarter and 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 31, 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 or 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 totaled 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 D&O insurance rates, partially offset by an increase in share-based 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 share based compensation and for nonrecurring 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 with in 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 includes financial income of $3.4 million resulted mainly from deposit interest and foreign exchange revaluation.
Moving to our balance sheet. As of December 31, 2023, Arbe has $44 million in cash, cash equivalents and short-term bank deposits with no debt. With respect to our 2024 guidance, our goal of achieving for design ends with automakers remain unchanged as we observed continued strong interest in our market leading offering.
We have strengthened our positioning in all our RSQ engagements, even though the OEMs have shifted their decision time lines 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 cash and 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 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?

Question and Answer Session

Operator

Thank you very much. We will now begin the question and answer session. (Operator Instructions)
Gary Mobley, Wells Fargo Securities.

Gary Mobley

Hi, everyone. Thanks for taking my question. I think last quarter, you highlighted how perhaps, as much as 20% of your workforce was called the military duty (inaudible) If you can give us an update on where that stands today and how that's affecting your own your R&D activity?

Kobi Marenko

Yes. So, during Q4, we had around 20% of our in military reserve. In January, most of them came back home and came back to work. And right now we have a 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 the in house work, when overall we were able to achieve all of our milestones with the customers. And right now we are back to almost normal, at least to the new normal.

Gary Mobley

Okay. I will go back to the last earnings call. I believe you highlighted 11 major OEMs that were in the final stages of selection and you expected about five or six cities to conclude with the final decisions. Sounds like now you are counting on for those to go to final decision in calendar year '24. So, maybe you can give us sort of an update there in terms of like the total pool of OEMs that are still in various stages of selection?

Kobi Marenko

They are putting a didn't change. So, where we spoke about the 11 OEMs on Q4, actually, it's now 12 another(inaudible) way it was open. We didn't, OEM that last year did not stop this process yet. We haven't lost any RSP since without the participating in RSPs or since our Tier ones 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 the major news before end of Q1, at least before we will report our Q1.

Gary Mobley

Okay. Last question for me, if I can. It sounds like more or the same with respect to China, that is China will be the first geography to really adopt and embrace L2 plus (inaudible) driving. Maybe you can just speak to some of the impediments that you are seeing in terms of direct customer or consumer adoption for L2 plus the time is driving outside of China?

Kobi Marenko

Yes. So, China, I think there are 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 a radar together with light out sometimes even two lightout for L2 plus L3. But the main segment, I would say is the mainstream in China, and they are trying to launch this kinds of services only with radar.
We spoke about hiring fusion project. We can say that at least two major OEMs are doing these kinds of projects as well. Fusion of radar, imaging radar with cameras in order to support Level two plus plus Level three application without a light [out] because, on the mainstream of China, the light (inaudible) is too expensive, even the Chinese radar are too expensive and we believe that imaging radar will have a significant role in those launches.

Gary Mobley

Thanks, Kobi.

Operator

Thank you very much.
Joshua Buchalter, TD Cowen.

Joshua Buchalter

Hello everyone, this is (inaudible) Josh Buchalter, just a few questions from me. I will start (inaudible)drivers for adoption and push outs. It is slower for, are they imaging radar in general? And then are there any implications to this lower 2024 on your expectations for '25 and '26? (inaudible)

Karine Pinto Flomenboim

Can you repeat your close to the microphone? So can you repeat your question, please? Thank you.
Yes, sure. Can you hear me better now?

Kobi Marenko

Yes, now it's much better.

Joshua Buchalter

Okay. Sorry about that. Just to start. First, can you walk through the main drivers of slower adoption and push-outs at the OEM level? We have seen this across are there sensors like LiDAR, but is it slower for RFA or imaging radar in general? And then can you talk about the implications of a slower '24 and '23 on your 2025 and 2026 expectations?

Kobi Marenko

Okay. So, I think that we are suffering from the same problem, the main problem of the industry. So, the full stack of Level two plus plus, Level three define vehicle that can run this kind of software spend, do over-the-air update and improve the Ader systems over the, over time. This all stack is pushed because, it's too complicated then the OEMs basically sold at the beginning. But what we see clearly is that may majority of the OEMs putting a lot of R&D effort on this area, maybe more than before.
They are shifting part of their investments in EVs into those R&D projects. All of them wants to control this stack and to compete on this stack and offer the customers a better and safer experience for a highway autopilot and then for (inaudible)autopilot. We see that this push in the industry is across the board, even it's influencing the ramp-up of the central compute and other sensors.
As of our revenue, our '25 revenues are built mainly from China, which say, we believe that ramp up earlier and we know it will ramp up earlier and from non-automotive applications. So, we don't see a real influence on our '25 revenues, if may, on the shift in 2014. And also, we believe that in '26, we will see major wins that we will have this quarter and next quarter, will be in in our revenues in '26.
So, overall, I think that the main shift is the main delay is in '24 revenue, which were, which have shifted a bit to '25. We have enough cash to pass this pickup and we believe that on the long run out there will be a leader player and a very strong company.

Joshua Buchalter

Okay. Thank you for that color. I guess on that, you have previously mentioned a preliminary order for about $11.6 million from (inaudible) and the 304,000 chipsets from Hiram, I think were tens of millions of dollars. Are these expected to like, when can we expect these (inaudible) model and are they waiting final OEM decisions before revenue recognition?

Kobi Marenko

Yes, we are waiting for final OEM approval for the full recognition. And also, you know in chips that you need to deliver (inaudible) deliver the chipset in order to be able to recognize it. We expect that, as Hiram stated by the end of this year, the last quarter of '24, there will be in full production with our radar. So, it means that they will start, we will start shipping the chip and majority of the revenues from those preliminary orders, we believe going to be recognized in '25.

Joshua Buchalter

Great. Thank you and that's all for me.

Operator

Suji Desilva, ROTH MKM.

Suji Desilva

Hi, Kobi, Hi, Karine. In the press release you talk about a production and 10 chipset and there is an auto qual being conducted. Is that being conducted by you or a Tier one or a potential customer?

Kobi Marenko

No. Basically, if you know our fab in GlobalFoundries with GlobalFoundries or Blue Cross also a full turnkey solution of taking the chips to production of the chips that are in final stage of automotive qualification. They are running their global automotive quel in the prequel. We saw that they are fine and there we finished all of the preliminary tests, and we are now riding on the formal stage of last stage of the automotive qualification.
And we hope to start shipping full qualified production chip by end of Q2. Of course, in the beginning, in the first few two, three months, the volume will be low because, it takes time for ramp-up in automotive. But in '25, we will be in full capacity and be able to supply any volume that is needed in the market.

Suji Desilva

Okay. Thanks, Kobi. And then my other question is on the competitive landscape, if you could update us on the traditional radar competitors and maybe some of the more software centric models and where you are seeing in various geographies and OEMs in terms of the competition?

Kobi Marenko

We are not seeing those kinds of companies in the competition. The other way around what we see more and more is OEM, this stating that in the RFP, the minimum requirement is the minimum high channel count, that as much as we know, there is the 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 a low end (inaudible)to meet the challenges of the income. It, but not for a real solving the problems of radar. So, if we are looking on the competitive landscape, I think that in the last quarter, our situation improved dramatically. So, from one hand, there is no new competitors, 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 a year more than 27 and a half.
So, right now as it was announced, there is a radar up, but that is based on how chipset and the radar that is based on the success of [Mobileye's]. Those are the only solution that we know that available in the market. It might be that someone is working on something through this, we don't know. But all of the solutions (inaudible)channel are not qualified for next-generation solutions.

Suji Desilva

Okay, thanks, Kobi.

Operator

Jamie Perez, RF Lafferty.

Jamie Perez

Hi, everybody, good day. Thanks for taking my question. The order we received from the Western truck company. Can you give us a little bit color? Is it a pre-production order, task order? So, if you could give us, I appreciate if you give a little bit color on that.

Kobi Marenko

So, the pre-production and a preliminary order that we got from Hiram is mainly focused on OEM that Hiram already worn their central issue and they assume that the best radar to connect to this central processing unit is our radar and are in the final stages of the nomination with the OEM for this project.

Jamie Perez

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

Kobi Marenko

No, it would be the main radar.

Jamie Perez

Main radar. Okay, thanks. Now I mean, give also focusing on your automotive market since the automotive e market, it's been a little bit choppy lately to weak demand. And I mean, your press release, you mentioned you are going to look for other markets, that may be have a short lead time and less choppiness. Could you give a little color on your non automotive strategy?

Kobi Marenko

Yes, there is so(inaudible) non-automotive strategy was there from the beginning. But what we see is the sense that they are gaining a lot of traction with their product, mainly in robotics, in transportation and even in homeland security. And we believe that we will see a major revenues from this nonautomotive market already in '24 and of course, in '25.

Jamie Perez

Alright, okay. That's all the questions I have. Thanks. Thanks for taking my question.

Operator

Thank you very much. This concludes our question and answer session. I would like to turn the call back over Kobi Marenko for any closing remarks.

Kobi Marenko

Thank you. We were very pleased to have you join us today to all employees and partners for 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. With us to meet you in person for additional discussion, please contact us at investorsarberobotics.com or visit our sites to schedule a meeting. Thank you all.

Operator

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