Q1 2023 Arbe Robotics Ltd Earnings Call
Participants
Jacob Marenko; Co-Founder, CEO & Director; Arbe Robotics Ltd.
Karine Pinto-Flomenboim; CFO; Arbe Robotics Ltd.
Miri Segal-Scharia; CEO; MS-IR LLC
Gary Wade Mobley; Senior Analyst; Wells Fargo Securities, LLC, Research Division
Jaime Perez; Senior Energy Analyst; R.F. Lafferty & Co., Inc., Research Division
Joshua Louis Buchalter; VP; TD Cowen, Research Division
Matthew Evan Galinko; SVP & Senior Research Analyst; Maxim Group LLC, Research Division
Suji Desilva; MD & Senior Research Analyst; ROTH MKM Partners, LLC, Research Division
Presentation
Operator
Good day, and welcome to the Arbe Robotics First Quarter 2023 Conference Call. (Operator Instructions) 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.
Miri Segal-Scharia
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, Arbe's Co-Founder and CEO; and Karine Pinto-Flomenboim, CFO. Kobi will begin the call with a business update, 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.
Jacob Marenko
Thank you, Miri. 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. Finally, we will open the call for the question-and-answer session.
This quarter, we have taken 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. Weifu has successfully established a production line and has a functional B sample in 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 Weifu production line is currently capable of producing tens of thousands of units per year. Weifu is in the final stages of upgrading their production line to allow them to manufacture hundreds of thousands of radars annually.
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 Arbe and Weifu signed a strategic cooperation agreement with DiDi Global's autonomous freight company, KargoBot. DiDi Global is a leader in innovative mobility technology in China, providing safe and sustainable transportation worldwide. KargoBot will be integrating Weifu's radar system, which utilize the Arbe chipset into their Level 4 trucks.
As we have stated many times, safety is in the heart of Arbe's focus and commitment. Together with Weifu and KargoBot, we intend to develop advanced technological products and accelerate the commercialization of autonomous driving solution 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 Weifu, Hirain and our customers in China and observing the progress made by our Tier 1 Valeo and Veoneer in engaging potential customers across Europe and America, we are confident that we will achieve our target of securing OEM selection by the end of this year that will generate significant revenue. 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 longstanding partner, Qamcom. Sensrad is dedicated to developing radar systems based on the advanced Arbe chipset. In a significant development, Sensrad has received a strategic investment from Gapwaves, a leading provider of high-performing radar antenna technology. This strategic partnership enables Sensrad to deliver cutting-edge radar systems to various industry verticals, including infrastructure, heavy machinery, surveillance and autonomous mobility. By leveraging the power of Gapwaves' antenna technology, along with the exceptional capabilities of the Arbe chipset, we believe that Sensrad's radar system will provide unparalleled safety and enhanced autonomy across a wide range of industries. The potential for radar application in nonautomotive verticals is enormous, and we are pleased 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.
Now I'd like now to turn it over to our CFO, Karine, to go over the financials.
Karine Pinto-Flomenboim
Thank you, Kobi, and hello, everyone.
I'd like to review our financial results for the first quarter of 2023 in more detail. Total revenue in the first quarter was $0.4 million, a decrease from $0.9 million in Q1 2022 and in line with our expectations given our decision to shift focus to chip for production. Backlog as of March 31, 2023, was $0.4 million, 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. In Q1 2023, we reported total operating expenses of $10.7 million compared to $11.1 million in Q1 2022. The decrease in operating expenses was primarily driven by exchange rate favorability and to a lesser extent, savings 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 first quarter of 2022 at a loss of $10.6 million. The company continues strengthening its research and development investments with R&D totaling $8.1 million for Q1 2023 compared to $7.8 million in Q1 2022.
Looking at adjusted EBITDA, a non-GAAP measurement, which excludes expenses for noncash share-based compensation and for non-reoccurring items, was a loss of $8.4 million in Q1 of 2023, which exceeds company's expectations and compared to a loss of $8.5 million in the first quarter of 2022. Net loss in the first quarter of 2023 increased to $9.9 million compared to a net loss of $7.9 million in the first quarter of 2022. Net loss in Q1 2023 included $0.7 million of financial income compared to a $2.8 million of financial income in the first quarter of 2022.
Moving to our balance sheet. As of March 31, 2023, Arbe had $44.9 million 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. Revenue is expected to be in the range of $5 million to $7 million, 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 million to $35 million.
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 to updating you on our progress in the coming quarters.
Now we will be happy to take your questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) The first question comes from Gary Mobley with Wells Fargo Securities.
Gary Wade Mobley
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?
Jacob Marenko
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. We are today focusing on year model '25 in China, which means that the radar start is end of '24, which means that our revenues from the chipset will start ramping up in '24. In Europe and U.S., we are focusing now on year model -- a year after '26, sometimes even '27 and the radar will start production early '25 -- sorry, middle of '25 and a ramp up of revenues in early '25.
Gary Wade Mobley
As my follow-up, I wanted to probe a little bit deeper on Hirain 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?
Jacob Marenko
So I think that Hirain 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 40 new EV models coming out of China. So as opposed to Europe and Germany, in Europe and the U.S., that new model is announced somewhere around the end of the summer. In China, it might be every quarter. So what Hirain are waiting 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.
Karine Pinto-Flomenboim
Regarding your backlog question, Gary, so it's currently, as we said, it's not including in our backlog. Of course, when it will be an order, it will be part of our backlog.
Operator
The next question comes from Joshua Buchalter with TD Cowen.
Joshua Louis Buchalter
I wanted to ask as a follow-up to Gary's question on the 4 potential design ins for this year. Anything you can give us on the scope or magnitude or use case on those? Where are you working? Is it for front-facing perception radar? Just any scope on the magnitude of those engagements? Is it across vehicle models? Is it for different OEMs? Would just love more clarity there.
Jacob Marenko
Yes. So basically, I think almost every OEM today is evaluating imaging radar for their next-generation platform. And we have presented today in those opportunities with our Tier 1 partners, of course. By the end of the day, the selection is the Veoneer or Valeo or Hirain or of Weifu 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 an engagement that is basically RFP, RFQ and LiDAR that we are not involved, the Tier 1s, of course, updating us about submitting these RFPs, RFQ. And they are competing there. Sometimes, against just imaging radar, other imaging radar, lower in the performance of car, but sometimes also against the legacy radar, which basically means that there's not yet a real decision to add imaging radar to the stock.
On the second group, I would say, those are companies that involving us in the evaluation stage. They gave Veoneer and Valeo and also us a very detailed use cases, 10, 15, sometimes even 20 use cases where they see today a problem with their existing central suit from their existing radar, cameras and also from the LiDAR that they are testing for those platforms, and they are involving us in 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. 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 deeper engagement. 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 will be using imaging radar. Of course, those companies, we believe that we have the most chances to win.
Joshua Louis Buchalter
As my follow up, I wanted to ask about, I guess, the competitive environment. We've seen some announcements from large incumbents in the auto radar market that say they're doing imaging radar functionality. Can you compare and contrast, I guess, what you're bringing with a 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?
Jacob Marenko
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 are chipset from NXP NCI as our competition. There was a midterm solution that is based on 4 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 cascade 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 4 ships cascade, whether it's based on the IRF or an XPRF, whether it's an FPGA inside or NXP processor inside, they are not solving the problem.
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 '25, '26. 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 will 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 the legacy radar and on the problematic scenarios today, as far as we know, we have the only available solution that we can really solve the problem, not on paper, not on spec, not in demos in conferences, in real vehicles, in real testing with a leading premium European car manufacturer.
Operator
The next question comes from Suji Desilva with ROTH MKM.
Suji Desilva
So 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 with in the 3 categories you just discussed, like 1 versus 2 versus 3?
Jacob Marenko
So first of all, the ones that are in category to be, we -- by definition, facing them in low probability to win. So on the first category, where we are engaged with the perception team, this is what -- 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 there 4 is a good number that we feel very comfortable with. On the second category, there is another bunch of companies that we feel from them and from the Tier 1 that we have a very high chance to win. Some of those selections might slip to '24. 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 will not slip to early '24.
Suji Desilva
Okay. Very helpful. And then just to understand how backlog is going to be for the next few quarters, is that, Karine, 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? How should we think about that number?
Karine Pinto-Flomenboim
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 OEMs 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 agreement to revenue recognition. So we assume in that phase that in presumably at least 12 to 18 months that we get the bookings ahead, and it will be considered in our backlog and included.
Operator
The next question comes from Jaime Perez with RFL.
Jaime Perez
My question, I think I want to focus on the nonautomotive segment. I mean, how far are we in that segment? Are we looking to and sort of what's the time frame of shipping product, maybe decide and do you expect new wins in that segment in the next year or 2?
Jacob Marenko
So in this segment, I think that the fact that Qamcom started a full dedicated arm that is called Sensrad, dedicated for that they will, of course, accelerate it. We expect revenues from nonauto to start as early as '24. And of course, it's not yet a high volume and higher volume in '25.
Jaime Perez
So are you going to be shipping product in '23? I mean, how much lead time do they need? Is it just in time? Maybe give some color on that?
Jacob Marenko
So I think what we need now, first of all, is for us to start production, so they can achieve a product, 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.
Jaime Perez
And my follow-up, given -- I mean, in the next couple -- let's look forward next 4 years, I mean, what size -- is it not order going to be compared to the orders more or less order is going to be the bulk of our revenues?
Jacob Marenko
4 years from now, where the nonauto would be single digit in percentage up to 10% from our entire revenues. The gross margins 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 million to $30 million a year. So all of the segments of the nonauto together, I think if in '26, we'll reach $25 million, it would be amazing for us.
Operator
The next question comes from Matthew Galinko with Maxim Group.
Matthew Evan Galinko
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 if you 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?
Jacob Marenko
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 -- also with a single camera solution. All of those started with a premium OEMs that were focused on safety, like Volvo, like Mercedes and then it moved to other followers. And I think also in ADAS, there is the leaders that trying to develop it by themselves trying to improve it by themselves. And there is the followers that might wait to see that these technologies 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 as emergency braking, the current radars are, I would say, good enough. They sometimes face, but still there is a man in the loop that holds the wheel. This is not really critical. But companies that are trying to get off to get to hands off solution and once this hands off solution to be fully safe, I think, needs an imaging radar and the companies that are trying to go eyes off is even critical.
Operator
This concludes our call. I will turn the call to Kobi Marenko, Arbe's CEO, for closing remarks.
Jacob Marenko
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 Arbe'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 for on May 24; the TD Cowen Virtual ESG Week on June 6; and the Needham Virtual Automotive Tech Conference on June 7. Please contact us at investors@arberobotics.com or visit our website to schedule a meeting.
Thank you, and goodbye for now.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
