Arbe Robotics Q1 2023 Earnings Call Transcript

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May 17, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the RBE Robotics First Quarter 2023 Conference Call. All participants will be in listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to Mary Segal, CEO of MSIR. Please go ahead.

Speaker 1

Thank you, everyone, for joining us today. 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 press 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, Arbei's Co Founder and CEO and Karine Pinto Flomenboim, CFO. Kobi will begin the call with a business update.

Speaker 1

Then we will turn the call over to Karine, who will review the financials. Finally, we will open the call up to our listeners for the question and answer session. With that, I'd like to turn it over to Kobi Marenko. Kobi, please go ahead.

Speaker 2

Thank you, Mary. Good morning, everyone, and thank you for joining us. I will begin by reviewing some of our recent business highlights. Then Karine Pintoflueck Flumenbarn, our base CFO will review the financials in more detail and share our outlook. Finally, we will open the call for the question and answer session.

Speaker 2

This quarter, we are taking significant steps for production and increasing revenue through our collaboration with Tier 1s and leading car manufacturers who look to adapt our technology for enhancing safety and autonomy in their next generation platforms. WIFU has successfully established a production line and has a functional B sampling operation which represents the production configuration. 4 other Tier 1s are actively contracting their production lines and are in the final stages of B Sample development as well. The WIFU production line is currently capable of producing tens of thousands of units per year. WIFU is in the final stages of upgrading their production line to allow them to manufacture 100 of 1000 of radars annually.

Speaker 2

I recently returned from China which was my first time visiting since COVID and I was very encouraged by the commitment and progress achieved with car manufacturers. While there I participated in the Shanghai Auto Show where Abe and Mifu signed a strategic cooperation agreement with Digi Global's autonomous freight company, CargoBot. Digi Global is a leader in innovative mobility technology in China, providing safe and sustainable transportation worldwide. CargoBot will be integrating Refus radar system which utilize the Arvo chipset into their Level 4 trucks. As we have stated many times safety is in the heart of Harvest's focus and commitment.

Speaker 2

Together with Bifu and CargoBot we intend to develop advanced technological products and accelerate the commercialization of autonomous driving solutions in the field of logistics and freight. Additionally, we are collaborating with the perception teams of leading European and Asian premium car manufacturers who are implementing our radar technology in the next generation solution. This collaboration aims to bridge the gap between current driver assist systems and the desired next generation of safety and autonomy. By working closely with these teams, we demonstrate the advantages of our radar technology and illustrate its role in driving forward advancements in the automotive industry. After meeting with Wipu, Hyren and our customers in China and observing the progress made by our Tier 1 Valero and Veoneer in engaging potential customers across Europe and America, we are confident that we will achieve our target of securing 4 OEM selection by the end of this year that will generate significant revenue.

Speaker 2

With our cutting edge technology, we are well positioned to meet the growing demand for safe driver assist systems, providing unparalleled performance and paving the way for a future where road safety is significantly enhanced. Finally, we are delighted to announce the exciting news about Sensrad, a spin out venture from our long standing partner TAMCOM. CelsRad is dedicated to developing radar systems based on the advanced ARBA chipset. In a significant development, Sensra has received a strategic investment from Capwave, a leading provider of high performing radar antenna technology. This strategic partnership enables Sensra to deliver cutting edge radar systems to various industry verticals including infrastructure, heavy machinery, surveillance and autonomous mobility.

Speaker 2

By leveraging the power of Gateway's antenna technology along with the exceptional capabilities of the Argo chipset, we believe that Sensor's radar system will provide unparalleled safety and enhance autonomy across a wide range of industries. The potential for radar application in non automotive verticals is enormous and we are thrilled to join this journey. As we look ahead, we are confident in our strong position for sustained growth in 2023. With the support of our partners in China, Europe and the U. S, we are fully prepared to achieve our commercial objectives and mass production this year.

Speaker 2

Now, I'd like now to turn it over to our CFO, Corinne, to go over the financials.

Speaker 3

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the Q1 of 2023 in more detail. Total revenue in the first quarter was $400,000 a decrease from $900,000 in Q1 2022 and in line with our expectations given our decision to shift focus to March 31, 2023 was $400,000 not including the previously announced higher end preliminary order. Gross margin for Q1 2023 was 11% compared to 56.1% in Q1 2022, mainly related to economy of scale and to a lesser extent revenue mix. Moving on to expenses.

Speaker 3

In Q1 2023, we reported total operating expenses of $10,700,000 compared to $11,100,000 in Q1 2022. The decrease in operating expenses was primarily driven by exchange rate favorability and to a lesser extent saving in expenses and labor costs, partially offset by an increase in our research and development. As a result, our operating loss remained unchanged from the Q1 of 2022 at a loss of $10,600,000 The company continues strengthening its research and development investments with R and D totaling $8,100,000 for Q1 20 20 3 compared to $7,800,000 in Q1 2022. Looking at adjusted EBITDA, a non GAAP measurement, which excludes expenses for non cash share based compensation and for non recurring items was a loss of $8,400,000 in Q1 of 2023, which exceeds company's expectations and compared to a loss of $8,500,000 in the first quarter of 2022. Net loss in the Q1 of 2023 increased to $9,900,000 compared to a net loss of $7,900,000 in the Q1 of 2022.

Speaker 3

Net loss in Q1 2023 included $700,000 of financial income compared to a $2,800,000 of financial income in the Q1 of 2022. Moving to our balance sheet. As of March 31, 2023, Arbe had $44,900,000 in cash and cash equivalents with no debt. With respect to our guidance for the year, we would like to reiterate what we previously shared. Our goal for 2023 is to achieve 4 design ins with automakers.

Speaker 3

Revenue is expected to be in the range of $5,000,000 to $7,000,000 which will be heavily weighted towards the back end of the year. Adjusted EBITDA is expected to be a loss in the range of $32,000,000 to $35,000,000 As Kobi said, we believe that we are well positioned for sustained growth in 2023 as we plan to go into mass production. And we look forward updating you on our progress in the coming quarters. Now we will be happy to take your questions. Operator?

Operator

The first question

Speaker 4

Hi, everyone. Thanks for taking my question. Regarding the goal for the 4 OEM design wins with automakers for the year, can you give us a sense of what model years that would be focused on?

Speaker 2

Sure. So it's there is of course a difference between China and U. S. And Europe. So China is today working faster in terms of bringing new hardware into the car.

Speaker 2

We are today focusing on new model 25 in China, which means that the radar SOP is end of 2024, which means that our revenues from the chipset will start ramping up in 2024. In Europe and U. S, we are focusing now on year model a year after 'twenty six, sometimes even 'twenty seven. And the radar will start production early 'twenty five sorry, middle of 'twenty five and ramp up of revenues in early 'twenty five.

Speaker 4

Thanks, Colby. As my follow-up, I wanted to probe a little bit deeper on High Rain with a multipart question. What would it take to translate preliminary orders into shipments? And what sort of impact would those preliminary orders have on your backlog?

Speaker 2

Well, I think that the hiring are waiting for the final announcement of the OEM about them receiving the design in and also on the exact date of the start of production of the car. As opposed to Europe, in China, models can be in start of production in almost every month of the year because of the amount of models that they are launching. Just in when I was in Shanghai Auto Show, this year there were 14 new EV models coming out of China. So as opposed to Europe and Germany, Europe and U. S.

Speaker 2

That new model is announced somewhere around the end of the summer. In China, it might be every quarter. So what hiring a rating is to get the exact date of the start of production of the car. And based on that they will place the order to the exact date and this is what will turn it from a preliminary order to a booking.

Speaker 3

Regarding your backlog question, Gary, so it's currently as we said it's not included in our backlog. Of course, when it will be an order, it will be part of our backlog.

Operator

Thanks, Karen. The next question comes from Joshua Bookhalter with TD Cowen. Please go ahead.

Speaker 4

Hi, team. Thank you for taking my question. I wanted to ask, I guess, as a follow-up to Gary's question on the 4 potential design wins for this year. Anything you can give us on the scope or magnitude or use case on those? Where are you working?

Speaker 4

Is it for front facing perception radar? Just any scope of the magnitude of those engagements? Is it across vehicle models? Is it for different OEMs? Would just love more clarity there.

Speaker 4

Thank you.

Speaker 2

Yes. So basically, I think almost every OEM today is evaluating imaging radar for their next generation platform. And we are presented today in those opportunities with our Tier 1 partners of course, by the end of the day the selection is Veoneer or Valeo or Hyren or WIFU and not Arbe, we are not a direct Tier 1 for that. What we see, I would say is maybe I would divide it into 3 models of engagement. So there is engagement that is basically RFP, RFQ and that's it.

Speaker 2

That we are not involved. The Tier 1 is of course updating us about submitting this RFPs RFQ and they are competing there. Sometimes again just imaging radar, other imaging radar lower in performance of course, but sometimes also against the legacy radar, which basically means that there's not yet a real decision to add imaging radar to the stocks. On the second group, I would say those are companies that involving us in the evaluation stage, they gave Veoneer and Valero and also us a very detailed use cases, 10, 15, sometimes even 20 use cases where they see today a problem with their existing sensor suite from their existing radar, cameras and also from the LIDAR that they are testing for those platforms. And they are involving us and our radar making sure that our radar closes all of those use cases and as we see it today and we have those use cases from I would say, around 10 different car manufacturers.

Speaker 2

90% of it, of course, is similar. So everyone is dealing with the same problems and our radar solves them all. So I would say this is the second part. And on those OEMs, we of course today the only sensor that can bridge the gap between today's, let's say, hands off cars to next generation hands off and to next generation eyes off. Last is even different engagement.

Speaker 2

Those are companies that already installed our cars in their development vehicle. They are already collecting data to their perception stack from our radar and making sure that their next generation of perception would be using imaging radar. Of course those companies we believe that we have the most chances to win.

Speaker 4

Thank you for all that, Kobi. I mean, as my follow-up, I wanted to ask about, I guess, the competitive environment.

Speaker 5

We've seen some announcements

Speaker 4

from large incumbents in the I guess, what you're bringing with your single chip solution versus what some of the larger peers who have been selling products to the radar market for a while, but are calling their products imaging radar. I'd love to hear you walk through what's changed in the competitive environment recently? Thank you.

Speaker 2

I think that the competitive landscape didn't change at all actually since we started. So from the beginning, we saw NXP's processor and the existing RF chipsets from NXP and TI as our competition. There was a mid term solution that is based on 4th Cascade TI chip and a single FPGA and NXP announced that finally on their processor that is trying to compete with it. When I'm telling when I just detailed the situation that we have we are in with all of those car manufacturers, they tried this 4 chips cascade and those 4 chips cascades don't solve the problem. And we saw that all of those use cases that we are using that I spoke about, our radar solves the problem where the fall ship cascade, whether it's based on the IRF or NXP RF, whether it's an FPGA inside or NXP processor inside, they are not solving the problem.

Speaker 2

And this is the reason why Mobileye, I believe, decided to develop a radar more or less on the spec that we are doing and bringing it to the market in 2025, 2026. So I think that even that everyone that will analyze the performance of our radar against NXP radar based on our chipset and based on NXP chipset, we'll see the difference in all of those scenarios. In the I would say in the easy scenarios we are equal, but for the easy scenarios you don't need an imaging radar. You can use a legacy radar. And on the problematic scenarios today as far as we know we have the only available solution that can really solve the problem, not on paper, not on spec, not in demos and conferences, in real vehicle, in real testing with the leading premium European car manufacturer.

Speaker 4

Thanks, Kobi.

Operator

The next question comes from Suji Desilva with ROTH MKM. Please go ahead.

Speaker 6

Hi, Kobe. Hi, Corinne. So do you target 4 OEMs by the end of the year? I'm curious how many are you talking to now roughly engaged with? And what proportion are those you're engaged within the 3 categories you just discussed, like 1 versus 2 versus 3?

Speaker 2

So first of all, the ones that are in category 3, we by definition think that in low probability to win. So on the 1st category where we are engaged with the perception team, this is what we those are companies that we believe that we have more than 50% probability to win. And if you take the amount that we have there and multiple by the probability, I think that 4 is a good number that we feel very comfortable with. On the 2nd category, there is another batch of companies that we feel from them and from the Tier 1s that we have a very high chance to win. Some of those selections might slip to 24.

Speaker 2

So when we are talking about 4, we take the entire car companies that we are confident that we have a very good chance to win and also that the decision would be taken this year and not slip to early 2024.

Speaker 6

Okay. Very helpful. And then just to understand how backlogs can be reported in the next few quarters. Is that current a 3 month backlog of all the shipments you expect in the coming quarter or the 12 month backlog and will that grow when you have more design wins out? How should we think about that number?

Speaker 3

Okay. So backlog is 12 months ahead even further, but usually it's 12 months. When we have an agreement, again, it depends if it's the Western OEM or Chinese OEM because it defers, it takes either between 18 to 24 months in the Western more traditional OEM side and quicker for 12% to 18% in the Chinese market from agreements to revenue recognition. So we assume in that space that in presumably at least 12 to 18 months that we get the booking ahead and it will be considered in our backlog and included.

Speaker 6

Okay. Thanks.

Operator

The next question comes from Jamie Perez with RFL. Please go ahead.

Speaker 5

Good day, everybody. My question, I think I want to focus on the non automotive segment. I mean how far are we in that segment? Are we looking to and sort of what's the timeframe of shipping product, maybe the size and do you expect any wins in that segment in the next year or 2?

Speaker 2

So in this segment I think that the fact that Cancom started a full dedicated arm that is called Sensrad dedicated for that will of course accelerate it. We expect revenues from non auto to start in as early as 2024. And of course, it's not yet a high volume and higher volume in 2025.

Speaker 5

Got it. So, okay, higher volume. It. Are you going to be shipping product in 2023? I mean, how much lead time do they need?

Speaker 5

Is it just in time? Maybe give some color on that.

Speaker 2

So I think what they need now first of all is for us to start production. So they cannot ship products of course without us starting production. So we will start production by the end of this year. So we should expect that they will start providing systems around Q2 next year.

Speaker 5

And then my follow-up, given I mean in the next couple of let's look forward next 4 years, I mean what size is the non auto going to be compared to the auto? Is it going to more or less, is auto is going to be the bulk of your revenues?

Speaker 2

4 years from now, the non auto would be single digit in percentage, up to 10% from our entire revenues. The gross margins there are a bit better than auto, but it's still I think nothing compares to auto when we are talking about each one of those 4 design wins that I mentioned. I think it's the minimum yearly revenues for us is something like $25,000,000 to $30,000,000 a year. So all of the segment of the non auto together, I think if in 'twenty six we'll reach $25,000,000 it would be amazing for us.

Speaker 5

Yes. That's all the questions I have. Thank you.

Operator

Thank you. Thank you. The next question comes from Matthew Galinko with Maxim Group. Please go ahead.

Speaker 4

Hey, good morning. Thanks for taking my question. I wanted to sort of if we take the from your models of engagement answer the OEMs that haven't decided yet to add imaging radar and contrast that with your position that your imaging radar is the only way to resolve some corner cases between other sensors. Can you help us understand if those reluctant OEMs are just not as advanced in their ADAS ambitions or is it something that you expect they'll get to at some point in the future? Just where is the divide there?

Speaker 2

I would say that in the automotive space as general there is the leaders, the innovators and there is the followers. And same with ADAS and new sensors. So it was back then with the airbag, it was with and with also with a single camera solution. All of those started with a premium OEMs that were focused on safety like Volvo, like Novetta and then it moved to other followers. And I think also in ADAS there is the leaders that are trying to develop it by themselves, trying to improve it by themselves.

Speaker 2

And there is the followers that might wait to see that this technology is in the mainstream and the demand of the customers is already there in order to start it. Or they also might choose a different direction of not developing it and buying a full system from other suppliers. So as long as car OEMs don't try to go beyond the adaptive cruise control, maybe lane maintain and very basic functionality, the emergency braking, the current radars are, I would say, good enough. They sometimes fail, but still since there is a man in the loop that holds the wheel, this is not really critical. But companies are trying to get off to get to ANZOS solution and once this end of solution to be fully safe, I think needs an imaging radar and companies that are trying to go to eyes of it's even critical.

Operator

This concludes our call. I will turn the call to Kobi Marenko, Arbe's CEO, for closing remarks.

Speaker 2

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 further on Arove's progress in the coming months. Look out for updates as we prepare for several investor events including the Evercore Virtual Autotech and AI Forum on May 24, the TD Core and Virtual ESG Week on June 6, and the Needham Virtual Automotive Tech Conference on June 7.

Speaker 2

Please contact us at investorsarberrobotics.com or visit our website to schedule a meeting. Thank you and goodbye for now.

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Earnings Conference Call
Arbe Robotics Q1 2023
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