Arbe Robotics Ltd. Q2 FY2024 Earnings Call

Good day, and welcome to the Arbe Robotics Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.

Thank you, operator, and everyone, for joining us today. Welcome to Arbe's Second Quarter 2024 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 applies 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 Karine Pinto-Flomenboim who will review the financials in more detail. Finally, we will open the call for the question-and-answer session. With that, I'd like to turn it over to Kobi Marenko, Arbe's CEO. Kobi, please go ahead.

Thank you, Miri. Good morning, everyone, and thank you for joining us. On this conference call, we are happy to share significant progress and market endorsement from major industry players. We've hit a major milestone by securing two key customers for the development of our imaging radar for production. We see these selections as a strong endorsement of Arbe's technological superiority and evidence that we are strategically positioned and on track to capture additional OEMs this year. Let me elaborate on the two important announcements. First, one of the top 10 OEMs in the world selected Arbe's chipset for the development of its next-gen imaging radar gears for serial production. This leading OEM has confirmed that preparation for serial production will begin immediately. The decision came after a deep competitive evaluation and careful field testing of our chipset, providing just how reliable and high-performing our technology is. The adoption of Arbe's technology by this major automotive OEM not only validates our innovative solutions but also opens a significant commercial opportunity. Our Arbe pin chipset can be used across a wide range of vehicle classes, boosting market appeal and potential for broad adoption. Secondly, we are proud to be teaming up with a well-known European truck manufacturer who will revolutionize truck safety using our imaging radar. We are gearing up to include our radar in the next-generation sensor suite, a big step forward in the move to more advanced technology. The trucking industry faces distinctive challenges that our imaging vendor technology is designed to tackle, including larger vehicle sizes, longer braking distances, and greater collision potential. These factors make it essential for trucks to operate safely in all weather and lighting conditions. As with the OEM selection, our imaging radar went through rigorous testing and evaluation before being selected and was compared directly against other front-end sensors like LiDAR and conventional radar. We view these selections as an acknowledgment of Arbe's technological edge, highlighting the confidence that leading manufacturers have in our technology. These approvals not only validate our innovative solutions but also demonstrate that our technology stands out in a competitive market. Further, they serve as a clear indicator that we are well positioned to increase our market share and appeal to other key OEMs. The auto industry continues to evolve with new safety standards and regulatory changes driving widespread demand for high-channel count solutions. Since Arbe's solution is widely recognized by leading OEMs as the radar with the largest channel array at the best price per channel, we believe that the opportunities are only beginning to emerge. In fact, in Q2, we supported the final stages of OEM RFQs processes in collaboration with our Tier 1 Magna, HiRain, Weifu, and Sensrad, and we look forward to sharing more updates very soon. We are actively engaged in obtaining four design wins with leading global automakers, and we expect those decisions in the coming months. Finally, we are happy to report that we have successfully begun trading on the Tel Aviv Stock Exchange. In June, we raised approximately $30 million through a convertible bond offering, and we expect it will help increase our cash reserves in anticipation of upcoming OEM selections. The proceeds from the bond offering are held in escrow and will be released upon meeting certain conditions by March 21, 2025. We are progressing in fulfilling the conditions for the release of the funds, and we will be sharing updates along the way. Now, I'd like to turn it over to our CFO, Karine, to go over our financials.

Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the second quarter of 2024 in more detail. Total revenue in the second quarter was $0.4 million, an increase from $0.3 million in Q2 2023. Backlog, as of June 30, was $0.8 million, and is expected to be recognized as revenue during 2024. The negative gross margin for Q2 2024 was 9.5% compared to a negative gross margin of 1% in Q2 2023. The increase in the negative gross margin was primarily related to a headcount increase. Moving on to expenses, in Q2 2024, we reported total operating expenses of $11.6 million compared to $12.6 million in Q2 2023. The decrease in operating expenses was primarily driven by a decrease in research and development expenses as we progress towards the finalization of our production and to a lesser extent, a decrease in our labor costs and favorable exchange rate impact. Operating loss in the second quarter of 2024 was $11.6 million, a decrease from the second quarter of 2023 operating loss of $12.6 million. Net loss in the second quarter of 2024 decreased to $11.8 million compared to a net loss of $12.6 million in the second quarter of 2023. Net loss in the second quarter of 2024 included $0.1 million of financial expenses. Adjusted EBITDA, a non-GAAP measurement that excludes expenses for share-based compensation and for non-recurring items, was a loss of $7.5 million in Q2 of 2024. This is compared to a loss of $8.4 million in the second quarter of 2023. Moving to our balance sheet, as of June 30, 2024, Arbe had $8.8 million in cash and cash equivalents and $17.7 million in short-term bank deposits. In June, we issued a convertible bond in the principal amount of ILS 110 million or approximately $30 million. The proceeds from the sale of the bond, which were approximately ILS 112.4 million or approximately $30.5 million, are held in escrow and will be released upon meeting certain conditions by March 31, 2025. As Kobi stated, we are in the process of fulfilling the conditions for the release, and we will be sure to update as we progress. With respect to our guidance for the year, we would like to reiterate what we previously shared. Our goal of achieving four design-ins with automakers remains unchanged, as we observed continued strong interest in our market-leading offering. We have strengthened our positioning in all our RFQ engagements, even though the OEM has shifted their decision timelines from late 2023 to 2024. The 2024 annual revenue is expected to be in line with those of 2023, followed by revenue growth in 2025. These revenue projections are based on our expectation that we will 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.

Thank you. We will now begin our question-and-answer session. And our first question will come from Joshua Buchalter with TD Cowen. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking my question, and congrats on all the progress intra-quarter. For my first one, I wanted to ask about the selection of the top-10 OEM. Obviously, a great sign there. You mentioned in the press release when it was initially signed it aimed at serial production. Can you maybe walk us through some of the milestones that need to be hit and when you would expect that decision to be made? Thank you.

The decision to move forward with production on this radar has already been made. Currently, the OEM has a Tier 1 partner that is taking our reference design, modifying it to meet their requirements, and developing a full radar model for production. The timeline for this process will determine when the OEM will finalize the model year or production schedule. However, progress is already underway, and we have a clear direction for it. The main consideration now is how long it will take to scale up to full production. Based on our expectations from the current Tier 1 partners we are collaborating with, we anticipate starting to see revenue from this initiative by late 2025 or early 2026.

Got it. Thank you for all the color there. And then on the goal of achieving the four design-ins this year, any more details you can share on what types of applications and maybe timelines or revenue you would expect if you are indeed able to convert those wins that you're in discussions for?

Yeah. So, first of all, we already achieved one out of these four, so we're still left with three. So 25% already done. And we are now in the last phases with a few major RFQs. Actually, one of them stated for us in the last few weeks that we are in a firm position to win this contract. With all of the RFPs that we are now in final stages, we expect Tier Model 28 applications to be safety, the new regulation for emergency braking and hence driving mainly on the highway, and we expect to start gaining revenues from that since it's Tier Model 28. We will start shipping chips to Magna, that is our main Tier 1 for those projects, by the second half of 2026.

Thank you, Jacob. Last one for me. I mean, you mentioned in the press release reaffirming the 2024 annual revenue in line with 2023, followed by revenue growth in 2025. Any initial guardrails or a range of revenue growth you'd like to provide for 2025? Thank you.

So we have preliminary orders from China, and HiRain and Weifu are both making great progress towards production. So we would expect to get those revenues that HiRain and Weifu indicated for us for 2025. I can also add to that Weifu just announced a few weeks ago that they spun off their radar business into a new company, and Bosch is one of the investors in this subsidiary. So we expect it also to help Weifu gain more business and gain more traction in the Chinese market. So overall, our target is the numbers that we are in a preliminary order from the Chinese market more or less.

And the next question will come from Suji Desilva from ROTH Capital. Please go ahead.

Hi, Kobi and Karine, congratulations on the progress here. Kobi, now that you've had some wins here, maybe you can revisit the key factors you're seeing in the selection of Arbe's radar? And maybe you can update us on the competitive landscape that you're seeing three months later?

So, the main advantage of automotive and the main disadvantage of automotive is that the landscape is not changing. So what we saw three months ago and six months ago, and actually a year ago is the same that we see today because of the fact that it's so complicated to bring chips to production in automotive. Actually, when we started this company seven or eight years ago, if we even imagined how complicated it would be to take three chips to production in automotive, we would probably choose a much easier industry like pharma. So we don't see here a huge difference since last quarter. What we see is a major shift in terms of the understanding of the OEM that the multi-channel radar, a high multi-channel radar is a must for any kind of safety application. The fact that Miri has stated on stage that 32 by 32 channels radar is a minimum, and the fact that we see major RFPs that basically put a line below that you cannot even get to the RFP. This is the major change that we have seen in the industry since the beginning of this year, and we are seeing it more and more companies that took lower channel counts like six by eight in China or 12 by 16 in Europe understand that this is not sufficient. If you want to see a potential that is coming out of his car on the highway, or you want to see tire on the road on the highway near the gauge way, or you want to drive in an urban area and to understand that there is a bridge or a pedestrian below the bridge, or there is a motorcycle on the side of the road, it's clear for everyone that the amount of channels that is less than 32 by 32 is meaningless. Also, the fact that we are able to deliver chipset that's allowing Magna and HiRain to sell radar at a price that is similar to the 12 by 16, I think also makes the difference. This is our current advantage, as opposed to our competitors whose products are much more expensive and much more power-hungry, which is also a major issue in today's cars.

Okay. Thank you for that detailed answer there, Kobi. And then maybe, you can talk about the trucking opportunity, separate from the auto opportunity and distinguish the addressable market size. I'm sure it's different units. Understanding the unit TAM and then the pricing difference? And maybe, is the content per truck, one radar per truck, similar to cars?

Yes. So, truck basically is the lower volume, and some of the Tier 1s are not even selling to trucks. So, the price there of the radar is higher than in regular automotive, but the volume is much lower. The patience required is also much more important in regular automotive than in private vehicles. So, truck is not a major part of our business and won't be a major part of our business. But I think that the fact that the truck company selecting our radar means that this is basically the highest level of safety that is needed in the market. And I think for us, it's a major milestone.

Okay. That's really helpful. And then maybe a last question on the financials or just the aspect of headcount. I'm curious about which areas of the company are you increasing headcount? Thanks.

So the headcount went up in our cost of sale, which is mainly our customer support. When we actually finalize our production stages and we want to be ready for the next stage of full production, material production, and also supporting our customer support. So these are mainly the areas where we boost our headcount.

Okay. Very good. Thanks, guys.

Thank you, Suji.

The next question will be from Matthew Galinko from Maxim Group. Please go ahead.

Hi. Thanks for taking my question. I wanted to understand what the pipeline looks like geographically going into 2025, beyond the four design-ins you are targeting for this year.

So the current pipeline of, I would say, like this short-term customers that we assume we will have wins in Q3 and Q4, all of them are headquartered in Europe, of course, they are selling cars all over the world. For next year, we see, of course, China and Japan as the major countries and Europe just after that.

And ladies and gentlemen, this concludes today's question-and-answer session. I will turn the conference back over to Kobi Marenko for any closing remarks.

So thank you everybody for joining us today, and we look forward to updating you shortly on the new news coming from us, and thank you, everyone.

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