Arbe Robotics - Q1 2024
May 22, 2024
Transcript
Operator (participant)
Good morning, everyone, and welcome to the Arbe Robotics First Quarter 2024 Earnings Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone telephone. To withdraw your questions, you may press star and two. Please note that today's event is being recorded. At this time, I'd like to turn the floor over to Miri Segal, CEO of MS-IR. Please go ahead.
Miri Segal (CEO)
Thank you everyone for joining us today. Welcome to Arbe's first 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 release also applies to this call. If you have not received a copy of the PR, please view it in the investor relations section of the company's website. Kobi Marenko, Arbe's Co-Founder and CEO, will begin the call with a business update. Then we will turn the call over to Karine Pinto-Flomenboim, Arbe's CFO, 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.
Kobi Marenko (CEO)
Thank you, Miri. Good morning, everyone, and thank you for joining us. I'd like to start by sharing some exciting updates with you. We congratulate HiRain, one of our Tier 1s in China, on being selected to supply radar systems powered by the Arbe chipset to a global leader in autonomous driving, with mass production scheduled in 2025. We look forward to providing more details about this announcement soon. HiRain also reached a significant milestone in Q1, the successful development of post point cloud algorithms, including tracking, classification, and free space mapping. These algorithms have been integrated into HiRain's imaging radar for serial production. These advanced advancements were tested by OEM, demonstrating their potential to improve automotive safety. Importantly, HiRain announced it will begin the mass production of these imaging radars by the end of this year.
During the first quarter, Arbe and our teams made significant progress in reaching our goal of serial production by the end of this year. We worked with major OEMs on data collection for their Level 2++ and Level 3 solutions, as well as on improving the radar specification. As part of our progress in Japan, we'd like to update that a large Japanese automotive client is working to complete a massive data collection initiative with Arbe radar solution this year as part of the development of an advanced ADAS and AD architecture. There is a wide demand for next-generation radar systems with a high channel count, now considered essential for road safety. In March, the head of radar and radar perception at Mercedes emphasized publicly that ADAS radars require an array of at least 32 by 32 channels.
Few companies meet this requirement, and Arbe exceeds it with the largest channel array on the market. We see similar requirements in RFPs from other major OEMs. We are thrilled by the outstanding progress we are making with top OEMs worldwide. Despite industry delays, we are confident in our opportunity pipeline and our goal to secure four design wins this year, especially with promising signs coming from leading top 10 OEMs. We look forward to sharing more updates very soon. Collaborations are key for Arbe. At the NVIDIA GTC conference, NVIDIA shared that it has brought together a select group of advanced sensors from industry leaders, including Arbe's Perception Radar, to create a rich ecosystem of simulation tools and applications as part of the Omniverse Cloud APIs. These are designed to accelerate the path to autonomy.
Additionally, at the 2024 Beijing International Automotive Exhibition, Horizon Robotics, a leading provider of computing solutions for ADAS and autonomous driving in China, showcased the integration of Weifu's 4D imaging radar, powered by the Arbe chipset, with a Horizon Journey 6 automotive AI processors as part of their partner ecosystem. As many of you know, there have been important developments within our industry and shift towards new safety standards and regulations. These are needed to drive the future of road safety. We firmly believe that Arbe has the best solution to effectively address these changes, and we are well positioned to help lead the revolution. The new NHTSA federal safety standard for the U.S. mandates automatic emergency braking, or AEB, including pedestrian AEB, for all passenger cars and light trucks by September 2029. This safety measure is set to reduce collisions and accidents with pedestrians.
At the same time, Euro NCAP 2030 roadmap aims for zero road fatalities, requiring proactive crash prevention in all scenarios. A key to successful realization will be in the sensors used to power the advanced safety standards and requirements. This creates a growing opportunity for the adoption of our technology, which is the leading solution for tracking pedestrians and vehicles in challenging weather and lighting conditions, even at high speeds and over long distances. We expect that by the end of the decade, over 15% of new cars will feature high-end imaging radars like ours, providing real safety and Level 3 autonomy. Lastly, we are in the final stages of dual listing, with an additional listing on the Tel Aviv Stock Exchange.
At the same time, we are advancing toward the convertible bond issuance on the Tel Aviv Stock Exchange to secure working capital and support the expected production ramp-up in 2025. We are excited about the potential opportunities for Arbe, and we believe that 2024 will prove to be a turning point for our company. Now, I'd like to turn it over to our CFO, Karine, to go over the financials.
Karine Pinto-Flomenboim (CFO)
Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the first quarter of 2024 in more detail. Total revenue in the first quarter was $0.1 million, a decrease from $0.4 million in Q1 2023. Backlog as of March 31 was $1 million and is expected to be recognized as revenue during 2024. Negative gross margin for Q1 2024 was 194%, compared to a positive gross margin of 11% in Q1 2023. The margin decrease was mainly related to a reduction in revenue and an increase in our workforce. Moving on to expenses. In Q1 2024, we reported total operating expenses of $12.5 million, compared to $10.7 million in Q1 2023.
The increase in operating expenses was primarily driven by an increase in non-cash, share-based compensation expenses, totaling $1.9 million. To a lesser extent, labor cost increase was offset by bonus accrual release, favorable exchange rates, and reduction in D&O insurance rates. Operating loss in the first quarter of 2024 was $12.8 million, compared to an operating loss of $10.6 million in the first quarter of 2023. Adjusted EBITDA, a non-GAAP measurement, which excludes expenses for share-based compensation and for non-recurring items, was a loss of $8.5 million in Q1 of 2024, in accordance with our plan. This is compared to a loss of $8.4 million in the first quarter of 2023.
Net loss in the first quarter of 2024 increased to $12.8 million, compared to a net loss of $9.9 million in the first quarter of 2023. Net loss in Q1 2024 included $45,000 of financial expenses, resulting mainly from exchange rate revaluation. Expenses partially offset by interest from deposits and warrants revaluation. This is compared to $0.7 million in financial income in the first quarter of 2023. Moving to our balance sheet. As of March 31, 2024, Arbe had $5.4 million in cash and cash equivalents and $30.3 million in short-term bank deposits with no debt. With respect to our guidance for the year, we would like to reiterate what we previously shared.
Our goal of achieving four designs with automakers remains unchanged, as we observe continued strong interest in our market-leading offerings. 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 revenue 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 focus exclusively 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-$36 million loss.
Now, we will be happy to take your questions.
Operator (participant)
Ladies and gentlemen, at this time, we'll begin the question-and-answer session. Once again, to join the question queue, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question comes from Joshua Buchalter from TD Cowen. Please go ahead with your question.
Joshua Buchalter (Managing Director and Senior Equity Research Analyst)
Yeah. Hi, team. Good afternoon, thanks for taking my question. I wanted to ask about the confidence in achieving the four design wins this year. Any, you know, incremental data points or what you can give us and what gives you confidence that those are gonna convert in the second half of the year? And maybe what led to the, we've litigated in the past, but maybe an update on the timeline given that, you know, it got pushed from 2023 into 2024. You know, any clues by geography or type of application that these wins are gonna be for? Thank you.
Kobi Marenko (CEO)
Yeah. So, basically, as we said, out of those, opportunities were pushed from last quarter and are now coming to a decision point. What we see as a main change between last year and this year is that even in RFQs that were in the market, the conditions were changed and the threshold for the radar got much higher. And basically, in majority of the opportunities, leaving two or three only players that can provide the solution. And this gives us a lot of comfort that majority of the market, all of the, I think, the top 10 OEMs at least, understand that multi-channel, high channel count radar is key for Level 2++ and Level 3.
The fact that the regulation changed and added the need for automatic braking, especially in all use cases, gives our radar basically, I think, a backwind, a dramatic backwind, because any OEM will need to have this kind of solution. The only way to solve it is with a high channel count imaging radar and a camera. Single camera alone cannot solve those scenarios. Even camera and LiDAR cannot solve it, but anyway, the LiDAR is much too expensive for a feature that is basically not something that the OEMs can really charge the customer on it. To add some light to the numbers.
So, we are today engaged with 11 car companies coming from Germany, from Sweden, from other countries in Europe, as well as from Japan and China. In all of those RFPs and RFQs, we are already past a long process with, of course, our Tier 1 partners of evaluation of the radar, testing the radar in corner cases, and showing the advantage of our radar based on our chipset and high-end channel count imaging radar based on our chipset, as opposed to the solutions in the market that are based on TI or NXP chipsets that are called imaging radar.
This is not really an imaging radar, and I think all of the OEMs understand the difference between real imaging radar, like the ones that are based on our chipset or one of our competitors, our main competitor, that is coming also from Israel, and the existing legacy solutions that are based on the legacy chips that were not designed to meet the spec of tomorrow. They were designed for the spec of yesterday. Taking everything, all of this into consideration, we are sure that out of 11 opportunities that were shortlisted, we will win at least four in the coming months, and we will be able to announce them to the market. This is the reason why we are raising the loan.
The loan in Tel Aviv is based on a condition that we will win a contract. Our confidence in the fact that we are very close to winning the contract, I think, allowed us to raise this money, and also the confidence of the investor that we are close to that are willing to give us a loan with a conversion price that is more than 30% higher than our today share price. So, I believe that we have-- we will have a very good year, like we said, a turning point from the com- for the company, coming from development to business very soon.
Joshua Buchalter (Managing Director and Senior Equity Research Analyst)
Thanks for the extensive color, Kobi. For my follow-up, I think in the press release you mentioned you're getting close to receiving full automotive grade qualification. It feels like that process has been going on for a while. Can you maybe talk about what are the last few things you need to complete to get the automotive grade sign off? And then is that a hurdle and something that needs to be completed before you sign one of these OEM wins, or, or, or is that not the case? Thank you.
Kobi Marenko (CEO)
... I think our chipset, the process of taking the chipset to qualification for automotive is a structured process. GlobalFoundries are leading it, and they're managing it for us, together with us and together with our engineers. We are more or less on the timeframe to finish it by the end of this quarter, early next quarter. And, as we mentioned in last quarter, basically before you're starting a full qualification, you're doing mini qualification to make sure that there's no major items.
We passed this pre-qualification, mini qualification, and we are now in the middle of finishing the technical process, which includes thousands of hours of chips working in high temperatures and in low temperatures to make sure that they will be able to stand in all conditions that the automotive market wants. It doesn't look today that this is a showstopper for us. In calls with our OEM partners, GlobalFoundries giving their objective assessment that the chips are gonna be in production in very few months from now.
I think that all of the OEMs that are going to select our chipset with Magna, with HiRain or with other Tier 1 are really trusting GlobalFoundries, that Global will bring those chips to production, and I believe this is not a major issue for us.
Joshua Buchalter (Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Our next question comes from Suji Desilva, from Roth Capital. Please go ahead with your question.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Hi, Kobi. Hi, Karine. Kobi, you talked about some of the progress with HiRain and Weifu in China. Can you just elaborate on the ramps, the time to revenue and what the, you know, how many programs those involve?
Kobi Marenko (CEO)
So we already stated that HiRain and Weifu gave us a preliminary order for 2025. HiRain is $30 million, Weifu is $10 million. And we are now engaged with a few programs to make sure that the customers will get radars based on our chipset in this volume in 2025.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Okay. And those are for automotives, Kobi? Automotive?
Kobi Marenko (CEO)
Yeah, some of them is, you know, is, is, trucks and robotaxis. And, we have HiRain won a project in, in, one of the ports of China for trucks. I would say that, around 25% of it is, is, is non-OEMs, non, non, passengers vehicles. The rest is for passengers vehicles.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Okay, great. Very helpful color, Kobi. Thanks. And then, secondly, on the... You mentioned, the NVIDIA Omniverse element. Is Arbe's radar the kind of exclusive radar element there, or are there multiple radar elements involved? Are they looking for imaging radar? What's the color there on that partnership and inclusion?
Kobi Marenko (CEO)
The only imaging radar is Arbe's imaging radar. Of course, there is also low-end radar there.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Mm.
Kobi Marenko (CEO)
for a radar belt, you know, where low-end 4x4 radars, but the high-end imaging radar is only Arbe.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Great. All right. I think lastly, maybe in China, can you talk about the significance of working with Horizon and, you know, Horizon and Weifu working together in terms of, you know, further penetrating the China market versus working with the Tier 1s like Horizon, like Weifu?
Kobi Marenko (CEO)
So, we are not allowed to elaborate a lot about our corporations there, but what I can say is that basically Horizon is like NVIDIA, so it's the ECU.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Mm-hmm.
Kobi Marenko (CEO)
They are not a Tier 1. By the end of the day, there is a Tier 1 that's taking their chips and building the central compute and integrating our radar into this processor. The same as we have integration with NVIDIA, we have this kind of integration with Horizon, and we believe that this is a main condition for part of the OEMs in China. As you're probably aware, I think that the Chinese market is basically divided between NVIDIA and Horizon. They are controlling the ECU market in China. So with the fact that we are integrated with both of them, I think gives us a lot of advantage in this essence.
Suji Desilva (Managing Director and Senior Equity Research Analyst)
Okay. Again, very helpful color, Arbe, Kobi. Thanks.
Operator (participant)
Our next question comes from Jaime Perez from Lafferty. Please go ahead with your question.
Jaime Perez (Senior Research Analyst)
Thank you. Good day, everybody. Thanks for taking my question. I mean, over the last couple of quarters, we've seen a sentiment change for the EV early adopters and going more towards ICE, and I think hybrid is also gaining share. I mean, could you give us a little bit of color, do you have any exposure to hybrids and ICE vehicles? And my follow-up question to that is, you know, a lot of EVs are focusing now on affordability, especially with the Chinese threatening to ship low-price cars go. So could you tell me what does that mean just for your margins and the pricing, you know, pricing power? All right, thanks.
Kobi Marenko (CEO)
I think those are two great questions. So first of all, regarding the EV shift. So, I think that this is part of the reason for the delays. So where last year, majority of the OEMs were focusing on moving almost totally to EV by 2030, and, as according to that, they decided that all of the new features, like Level 3 and Level 2++, would be launched solely on EV. Last quarter, in the last quarter of 2023, the market strategically understood that the move to the shift to EV will take longer than expected, due to price, due to customers' adoption, due to charging problems and so on.
This basically brought all of those programs of Level 3 into a state that they were re-evaluate, and the schedule was basically delayed. As we see it, by the end of Q1, majority of the OEMs took a decision to launch those services on both EV and regular engines, as well as, of course, for the hybrid. So, from this perspective, there's no change right now. It caused a delay, but right now, we are on the go. The second question that you raised, I think is dramatically interesting.
The price pressure for EV is really pushing for sensors that are cheaper, and imaging radar, I would say, is dramatically cheaper than LiDAR, and we believe that this dramatically helps us, at least on the NHTSA AEB standout. Also for Level 3, I think that our radar is affordable, better than other sensors.
Jaime Perez (Senior Research Analyst)
All right. So basically, you have a, you know, we know, so you have a price advantage versus LiDAR now. You know, most of the, like you said, most of the focus has been on passenger. I think the electric vehicle commercial market has been doing a little bit better. I mean, could you maybe talk about the initiative in the commercial or transit market, if you have any? All right, thanks.
Kobi Marenko (CEO)
We are not focused, it's not us, but our Tier 1—most of our Tier 1s are not focusing on that. So, at least on the Western world. On China, we won a project with DiDi's trucks company, and then HiRain also have some trucks project. But outside of China, Magna is not bidding on any trucks bid as of now. The volume in trucks is lower, adoption and the cost of integration is higher, and the volume is not really make it economical for these kinds of solutions as of now.
Jaime Perez (Senior Research Analyst)
All right. Okay, I'll pass it back. Thanks for the questions.
Operator (participant)
Our next question comes from Matthew Galinko, from Maxim Group. Please go ahead with your question.
Matthew Galinko (SVP and Senior Equity Research Analyst)
Hi, thanks for taking my question. I was hoping you could maybe provide a little more detail around the investments you expect to make or need to make, as you move into production in the back half of this year. And, you know, I think to your point, as you plan to support through the note issue. Thank you.
Kobi Marenko (CEO)
So majority or basically all of our expensive service production were already done. This quarter, Q1, we had last item that was related to increasing the capacity of the burn-in boards, so we will be able to supply much higher volumes next year. But all of the expenses that are related to production, which are majority of them, is CapEx, are already done and are behind us. And I think we are ready for revenues.
Matthew Galinko (SVP and Senior Equity Research Analyst)
Great. Thank you.
Operator (participant)
Ladies and gentlemen, with that being our final question for today, we'll be ending today's conference call as well as today's presentation. We thank everyone for joining. You may now disconnect your line.