Earnings Call Transcript - ARBE Q4 2023

Operator, Operator

Hello, and welcome to the Arbe Robotics’ Fourth Quarter and Full-Year 2023 Earnings Results Conference Call and Webcast. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. I would now like to hand the call over to Miri Segal of MS-IR. Please go ahead.

Miri Segal, Investor Relations

Thank you, everyone, for joining us today. 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 a business update. Then we will turn the call over to Karine Pinto-Flomenboim, CFO, who will review the financials. Finally, we will open up 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, CEO

Good morning, 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. Throughout the year, we focused on driving a radar revolution 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 pushed their decision timelines into later this year, the anticipation surrounding our offerings is high, and we expect to announce significant customer wins in 2024. Industry timelines have been extended as the auto industry realigned its autonomous driving ambition with a focus on enabling meaningful Level 2+ and Level 3 applications to differentiate their offerings and meet customers' needs. As a result, OEMs have redirected their engineering resources and adjusted product roadmaps. The dream of safe, hands-free driving is within reach. According to Evercore analysts, 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 sensor needed to solve the problem is a high-channel count Imaging Radar like Arbe’s. This demand is well reflected in all RFPs we encounter in the market. One of the most exciting developments of Q4 was our announcement of the production version of our Radar Processor. It supports the processing of a rich point-cloud that is 10 times more detailed than any other radar on the market, offering the first radar-based solution that is detailed enough to support OEM's ambition to launch Level 3 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 intent chips, which include the transmitter, receiver, and processor for the manufacturing of perception radars. This is an important step leading to the production and revenue phase. Now, our chipset is in the automotive qualification phase, which is the final step before mass production this year. The production intent chips are already in use by Arbe's Tier-1 in their V Sample system and have been delivered to OEMs for data collection and algorithm development. In January, we were proud to announce an important milestone. HiRain, one of our long-time Chinese Tier-1s, announced that it will begin mass production of state-of-the-art 4D imaging radars powered by Arbe’s chipset by the end of this year. In addition, HiRain announced it will start a data collection phase using a vehicle fleet equipped with Arbe powered imaging radars with plans to cover 1 million kilometers. The goal of the data collection project is to optimize the Fusion and Perception systems to enable key safety and comfort features. On top of HiRain, five other leading OEMs have selected Arbe's chipset for perception projects. Additionally, Arbe received a second order for an evaluation system from a leading Western truck company. This level of commitment from Tier-1s 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 non-automotive market, which is moving faster than the traditional auto market. One of our Tier-1, Sensrad, recently announced that it has significant customer orders for its Hugin Imaging Radar, which is based on our chipset. These orders include an American autonomous transportation global manufacturer, a 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 to secure working capital to support the predicted production ramp-ups in 2025. This proactive and strategic approach underscores 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-1s. Despite the selection process and OEM program delays that are out of our control, we see that customers are excited about our solutions and the possibilities we can achieve together. We believe that Arbe remains strongly positioned as the leading radar supplier in those OEMs, and we expect to announce full customer wins in 2024. Additionally, our approach in targeting new areas around the non-automotive industry is proving 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 hands-free revolution. Now, I would like to turn the call over to our CFO, Karine, to go over the financials.

Karine Pinto-Flomenboim, CFO

Thank you, Kobi, and hello, everyone. Let me review our financial results for the fourth quarter and the full-year 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 for 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 $46.8 million compared to $50 million in 2022. The decrease reflected the 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, showing an 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 non-recurring items resulted in 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 within our projected guidance. The 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. The net loss for the full-year of 2023 was $43.5 million compared to $40.5 million in 2022. 2023 net loss included financial income of $3.4 million resulting mainly from deposit interest and foreign exchange revaluations. Moving to our balance sheet. As of December 31, 2023, Arbe had $44 million in cash, cash equivalents, and short-term bank deposits with no debt. With respect to our 2024 guidance, our goal of achieving four design-ins with automakers remains unchanged, as we observe continued strong interest in our market-leading offering. We have strengthened our positioning in all our RFQ engagements, even though the OEMs have shifted their decision timelines from late 2023 to 2024. The 2024 annual revenues are expected to be in line with those of 2023, followed by revenue growth in 2025. These revenue projections are based on 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 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.

Operator, Operator

Thank you very much. We will now begin the question-and-answer session. Today’s first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.

Gary Mobley, Analyst

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

Kobi Marenko, CEO

Yes. So during Q4, we had around 20% of our team in military reserve. In January, most of them came back home and back to work. Right now we have less than 5% of our employees on reserve duty. Definitely, Q4 was our least productive quarter ever, but people tried to compensate with hard 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, Analyst

Okay. If I 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 to conclude with final decisions. It sounds like now you're counting on four of those to go to final decision in calendar year '24. So, maybe you can give us sort of an update there in terms of the total pool of OEMs that are still in various stages of selection?

Kobi Marenko, CEO

The pool didn't change. We spoke about 11 OEMs in Q4, and actually it's now 12; another RFP was opened with an OEM that last year did not stop this process yet. We haven't lost any RFP since without participating in RFPs or since our Tier-1s began submitting proposals with our chipset. And the other way around, I think we are very, very close to major wins by the end of this quarter or early next quarter. As time goes by, the decisions are in the final stages, and we hope to announce major news before the end of Q1, at least before we will report our Q1.

Gary Mobley, Analyst

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

Kobi Marenko, CEO

Yes. So, in China, I think right now looking at this market in two segments. There is the luxury car segment that of course would be launched first in 2025, but this is a very narrow volume, and most of those OEMs are focusing on launching radar together with LiDAR, sometimes even two LiDAR sensors for L2+, plus L3. But the main segment, I would say, is the mainstream in China, and they're trying to launch this kind of services only with radar. We spoke about the HiRain fusion project. We can say that at least two major OEMs are doing these kinds of projects as well. Fusion of radar imaging radar, our Imaging Radar with cameras in order to support Level 2+ plus Level 3 applications without a LiDAR because in the mainstream of China, the LiDAR price is too expensive, even the Chinese LiDARs are too expensive, and we believe that Imaging Radar will have a significant role in those launches.

Gary Mobley, Analyst

Thanks, Kobi.

Operator, Operator

Thank you very much. The next question comes from Joshua Buchalter with TD Cowen. Please go ahead.