Arbe Robotics Ltd (ARBE) 2023 Q3 法說會逐字稿

Good morning and welcome to the Arbe Robotics third quarter 2023 financial results conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Alexis Pascal of [MSIR]. Please go ahead.

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, Arbe's Co-Founder and CEO, who will begin the call with a business update. Then we will turn the call over to Karim Pinto-Flomenboim, 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, Arbe's CEO, Kobi. Please go ahead.

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, Arbe and our Tier 1 made significant progress. So, as commercial production supporting our goal to become a leader in perception radar solutions for the automotive industry.

The selection process by vehicle manufacturers involve multiple steps during the quarter of Arbe's Tier 1, the radar B samples of radar systems based on our chipset to leading OEM. These samples facilitate the evaluation of production functionality and not a crucial milestone in the OEM selection process. Additionally, they enable OEM perception team to gather data for their L2 plus and L3 applications within ongoing development projects using all these cutting-edge technology.

Our advanced technology plays an increasingly pivotal role in enhancing the next-generation product offering of our Tier 1 partners. Test performed on radar systems using the Arbe's chipset have consistently demonstrated performance that meets or exceeds target benchmarks, reaffirming the superior quality of our technology.

Our base currently engaged with four Arbe's top Tier 1 companies, Magna, HiRain, Weifu and Sensrad 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 OEM that are in the final selection stages for our technology represents 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 have fully committed to realizing it.

As previously announced, we have received preliminary chipset orders from China for '24 and '25. We put high technology group at key Tier 1. We've been working with since 2019, has placed an 11.6 million preliminary order for all their radar chipset meeting their projected sales demand for customers in China.

In addition, higher-end technologies, a leading Chinese [Aida] Tier 1 supplier has placed the preliminary order of 340,000 radar chipset to serve the customers throughout China. Our current cash balance ensures sufficient funds until the second half of 2025. The current plan and the preliminary orders from China will allow the company to reach break-even with its existing cash.

On the [con call], 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's known for her groundbreaking on sub-Nyquist sampling. In addition to our goal is of great significance, and we are proud to choose 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 our base, the public company, the manufacturing and production of our chipset are carried out in Germany by Global Foundries, a multinational semiconductor manufacturing and design company. As a result, we don't have that, we do not anticipate any changes in product availability.

While around 20% of our team were called for military duty. This primary effect long-term projects, that we are involved with no impact on our immediate plans support capabilities. Arbe has successfully continued to operate as planned. Thanks to the commitment and dedication of our employees.

Now, I'd like to turn it over to our CFO, Karine, to review the financial results in more detail.

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 30, is $1.1 million, not including hiring, and Weifu 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 the 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 rate as well as reductions in our D&O insurance costs. Partially offset by an increase in our share-based compensation costs. Sales and marketing expenses increased from $1.1 million in Q3 2022, to $1.3 million in Q3 2023. Share-based 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 nonrecurring items, was a loss of $7.5 million in Q3 of 2023.

Overperformed companies' expectations and compared to a loss of $8.4 million in the third quarter of 2022. Net loss in the 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 offset 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 30, 2023, Arbe had $23.5 million in cash and cash equivalents and $25.6 million in short-term bank deposits with no debt.

With respect to our guidance for the year, our base and final selection stages with leading OEM 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.

Excuse me, (Operator Instructions)

Gary Mobley, Wells Fargo Securities. Please go ahead.

Hi Kobi, hi, Karine. I hope your you and your families are safe and remain safe and relating to the conflict that I wanted to ask about the day-to-day operational challenges that the conflict brings. I know you mentioned 20% of workforce getting call to the military. Maybe you could 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?

Yeah. 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, where the company knows how to operate in a remote way. Part of the team is working from home.

Part of the team is working from the office. From the beginning, we prioritize their task. So first of all, everything that is related to our next generation of chipset would be delayed and this team will be, was moved to work, namely on the current activities with the customers. I don't think it's really, makes the difference away.

Anyways, our next generation should be in the market in ['25 or '26 over months], here and there is not really influencing, we have the team outside of Israel, especially support and itself and this helps us support our customers in China and in Germany and in US 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 plan and especially all of the tasks that are needed for Arbe's Tier 1 partners to go to production and all of the tasks that are related to OEM evaluation and to OEMs integration are prioritized.

And I can ensure that no touch task is hurt, due to the situation and we hope that the case will come back to the Middle East soon.

Thank you for that, Kobi. It's my follow-up, I wanted to ask about some of the preliminary orders you have driven some of your China Tier 1s, [Weifu, Sensrad and HiRain], it sounds like you have multiple tens of millions of dollars of potential sales there. What has to happen, what have to go right before those preliminary orders, to actually turned into to shipments.

It's actually, what we need to do right now is to close the last phases of winning sorry, the Tier 1s need to close that phases of winning contracts with the OEMs. The preliminary orders are based on their forecast for next year and the year after. And we believe that, till the end of the year or early very early next year, they will be able to finalize the details with the OEMs based on their B samples and will turn those preliminary orders into actual orders.

All right. Thank you both.

Thank you Gary.

Joshua Buchalter, TD Cowen. Please go ahead.

Hi, this is [Lannie] on for Joshua Buchalter. Can you hear me, okay?

Yes.

Great. I'd like to echo Gary's comment and wish the best safety for you, your family and 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 one and being in the final talk with OEMs now, can you talk a little bit more about the volumes where you expect it to be driven by and where they're going?

Yes. So we are in the final phases, as we mentioned in the call within the area, 11 OEMs, we believe that at least the five or six with them will take decisions before year end or early next year, part of them in China, part of them in Europe, in the Western countries. With all of them, I think that the process is almost done, and we are in at least in the with all of them, we are in a new ones are in final stages and negotiating prices and negotiating a year of production.

We are top of the car, we've seen China. So, for our radar for the column 25 and outside of China, we are now in that process of the project for top 26. So, [27 fold the car], which means that we will going to see the revenue ramping from the second half of '24, mainly in '25, '26 and '27.

That's really helpful color. Thank you. And for my education standpoint, who are you seeing in the final processes as your competitors? Like how many competitors are you seeing narrowed down into the final decision?

I think that the competitive landscape in the radar has not really changed. So, there is a on imaging radar bucket, there is the low-end imaging radar that is based on their full cascaded. It is coming from the [IRS XP] and an FPGA or a process or Phoenixp, give the something like 200 virtual channel, compared to our 2,300 full virtual channels.

And that though basically those products grow the market by two Tier 1 Continental and [death] We see in the last few months aggressive that Mobileye trying to get aggressively also into the imaging radar business they have before 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 the production and readiness for getting into account.

Thank you very much.

Suji Desilva, ROTH MKM. Please go ahead.

Hi, Kobi, hi Karine. I also echo my hopes that you and your folks are staying safe. So, you talked about the customers looking at the B sample and integrating the datasets from the 4G imaging, where Kobi, how long does that process typically take in terms of, how long you think it'll take for them to have that the 4G imaging data set integrate with their perception, software and data?

So basically, what we see is the going all over the OEM is that the need is for something like a say, 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 space.

And then improving the stock for that. It can be it from 6 months to 12 months depends on the ability of the software team. I think that even in the decade in the data collection in parallel that beginning, to train the stack. 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 stage us on the radar. And we are the only company today that brings a touch value.

Okay. That's very helpful.

And then my other question is on the HiRain, the 340 K units. I think you talked about [seems] like you'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 at HiRain [PODF].

We are not yet sure when we expect we will begin to ship the chip, but it's mainly going to the main volume would be in '24. We had, we are not sure if we will be able to start shipping in by the end of '23 or only in the beginning of the '24. But anyway, as we assume the majority of the shifting of the chips will be in '24.

Okay, great. Thanks.

Jamie Perez, R.F. Lafferty. Please go ahead.

All right. Thank you for taking my question. (inaudible) thoughts and prayers to everybody in the firm and the people of Israel.

My first question, I noted you noted on the press release that you have two projects for trucks, commercial sites. 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 as far as dynamics. So, could you give a little bit more color on that? Thanks.

Yeah. So, I think the truck market today is the base is becoming a bit complicated. So, do we say truck manufacturers themselves, which this is what we referred to they working on adding data Level 2+ Level 3 functionality to the trust and also to have a machinery.

And this is the two projects that we are engaged with, and there is the fleet or all of that by the end of the day need to buy those trucks with the service. And there is a, I'll say, operation, operating companies like, we announced in China, the subsidiary of TD, they're doing the service of a of truck. And this is also on our agenda to support those companies, but they're referred to those two projects, it's a big brands of trucks company.

But and my follow-up question on the market development and what the passenger sites are you going to have a maybe I apologize if you touched upon this before. Are you going to be part of a suite or standalone radar component and not so concerning that, especially here in the US were cars become more expensive.

There is a question of affordability. I mean, what's your price comparison between Arbe's chipset and let's say the light because I know there's a significant difference, especially with no consumer's been strapped for cash.

So, (inaudible) the radar is part of the stock. The stock consist of course, the 8 to 10 cameras and sometimes also with the light out comparing to the price of a lighter imaging, radar is much cheaper. Actually, the damaging radar is quite close to the price of the current front-facing radar, and we see that we are on that path to achieve with our Tier 1 partners, a price that is around $150, $160 for front-facing radar imaging radar, 48 by 48, 2312 channels.

All right, all right. Thanks for my question. Thanks.

Thank you

Matthew Galinko, Maxim Group. Please go ahead.

Thank you for taking my question. I think you mentioned you're potentially touching 31% of the global passenger market with the OEMs during 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 markets, is their reticence to imaging radar among the other OEMs, is the geographically, you're just kind of touching those areas yet just 31% a great number, but where is the rest of the market? Thank you.

I think so, there is few things here that related to adoption of an imaging radar. So first of all, there is the early adopters, and we all have the early adopters of the premium car manufacturers. And this is our first target and also there is the premium adapters in China. And that, again, I'm not say the old-school car companies, but a more of the private ones, not the government control 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 a premium cars on a high-end cars and the early adopters of the new technologies.

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?

Yeah. [Like a camera].

Got it. Okay, thank you.

This concludes our Arbe's third quarter conference call. I would like to turn the conference back over to Kobi Marenko for any closing remarks.

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 and Israel's armed forces all 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 attending with us. Thank you and goodbye for now.

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