Arbe Robotics (ticker: ARBE), a leader in radar technology, has announced during their Q2 2024 earnings call that they have secured two significant customers, marking a strategic advance in their imaging radar development for production vehicles.
The company has been chosen by one of the top 10 global OEMs to supply chipsets for the development of next-generation imaging radar systems, with preparations for serial production starting immediately.
Additionally, a prominent European truck manufacturer will incorporate Arbe's radar into its next-gen sensor suite for trucks, signaling confidence in Arbe's technology. Despite reporting a net loss for the quarter, Arbe is optimistic about its growth prospects, expecting to see revenue from these deals by late 2025 or early 2026 and projecting revenue growth for the following year.
Key Takeaways
- Arbe Robotics has secured contracts with a top 10 global OEM and a European truck manufacturer for its imaging radar technology.
- The company expects to commence serial production immediately for the OEM and to see revenue contributions from these deals by the end of 2025 or early 2026.
- Arbe has begun trading on the Tel Aviv Stock Exchange and raised about $30 million through a convertible bond offering.
- Q2 2024 financials show $0.4 million in revenue, a gross margin of -9.5%, operating expenses of $11.6 million, and a net loss of $11.8 million.
- Arbe's 2024 guidance includes achieving four design-ins with automakers and projecting an adjusted EBITDA loss between $30 million to $36 million.
Company Outlook
- Arbe is actively working on securing four design wins with leading global automakers and anticipates decisions in the upcoming months.
- The company's radar technology is recognized for its affordability and power efficiency.
- European headquarters are a focal point for short-term design-ins, with China, Japan, and Europe being key markets for next year.
Bearish Highlights
- The company reported a negative gross margin and a significant net loss in Q2 2024.
- Revenue projections for 2024 are expected to be in line with 2023, suggesting no immediate revenue growth within the year.
Bullish Highlights
- Arbe's technology is gaining traction in the automotive industry, which is increasingly recognizing the importance of high multi-channel radar for safety.
- Preliminary orders from Chinese companies HiRain and Weifu could indicate upcoming revenue growth for 2025.
- The trucking industry's selection of Arbe's radar underscores the high level of safety provided by their technology.
Misses
- Despite the strategic partnerships and optimistic future projections, the company's current financials reflect a challenging economic position with a net loss and negative gross margin.
Q&A Highlights
- CEO Kobi Marenko emphasized the competitive edge of Arbe's radar chipset in terms of price and power efficiency.
- Marenko expressed gratitude and anticipation for future updates, highlighting the company's focus on customer support and production preparation.
In conclusion, Arbe Robotics is positioning itself for future growth by securing key partnerships and focusing on strategic markets. The company's current financial struggles are seen as a stepping stone towards anticipated revenue gains tied to their technological advancements in radar systems. With a clear focus on customer support and production readiness, Arbe is setting the stage for what they expect to be a significant revenue contribution in the coming years.
InvestingPro Insights
Arbe Robotics has shown a dynamic presence in the radar technology market with recent strategic customer acquisitions. However, a deeper look into the company's financial health through InvestingPro data reveals significant challenges ahead. With a market capitalization of $161.14 million and a negative price-to-earnings (P/E) ratio of -3.71, reflecting its current lack of profitability, the company's financial metrics indicate a need for cautious optimism.
InvestingPro Tips highlight that while Arbe holds more cash than debt, a sign of potential financial stability, it is quickly burning through its cash reserves. This is corroborated by a weak gross profit margin of -27.4% for the last twelve months as of Q1 2024. Additionally, analysts are not expecting the company to turn profitable this year, which aligns with the negative revenue growth of -58.21% over the same period.
Despite these challenges, it's worth noting that Arbe's liquid assets exceed its short-term obligations, providing some buffer for near-term financial obligations. Moreover, the company has seen a strong return over the last three months, with a 24.1% price total return, indicating some investor confidence in its growth potential.
For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/ARBE, which provide further insights into Arbe Robotics' financial performance and market position.
Full transcript - Arbe Robotics Ltd (NASDAQ:ARBE) Q2 2024:
Operator: Good day, and welcome to the Arbe Robotics Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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, 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.
Kobi Marenko: 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 a strong endorsement of Arbe 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 suit, 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 constantly 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 (TSX:MG), 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 selection. The proceeds from the bond offering we 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 fund 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.
Karine Pinto-Flomenboim: Thank you, Kobi, and hello, everyone. I'd like to review our financial results for the second quarter of 2024 in more details. 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. 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 finalization of our production and to a lesser extent, a decrease in our labor cost and favorable exchange rate impact. Operating loss in the second quarter of 2024 was $11.6 million, a decrease from 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 which 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 rate 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 have shifted their decision time lines 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 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. Operator?
Operator: Thank you. We will now begin our question-and-answer session [Operator Instructions] And our first question will come from Joshua Buchalter with TD (TSX:TD) Cowen. Please go ahead.
Joshua Buchalter: 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 -- to enter serial production and when you would expect that decision to be made? Thank you.
Jacob Marenko: So further on the decision to go to production with this radar was already made. So what the process that we are going through now is basically that this OEM has the internal Tier 1 that takes reference design from us adapted to their needs and start developing a full radar model for production based on that. And based on the time line of this process the OEM will decide on the exact year model or the exact timing of full production. But right now it's basically -- the train is already moving and we know where it should go. It's just a matter of how long will it take to bring up this kind of production -- full production. We have our estimations from the current Tier 1s that we're already working with them. So we expect to start gaining revenues from this win by end of 2025 early 2026.
Joshua Buchalter: Got it. Thank you for all the color there. And then on the goal of achieving the four design-in this year any more details you can share on what types of applications and maybe time lines or revenue you would expect if you are indeed able to convert those wins that you're in discussions for?
Jacob Marenko: 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 last phases with 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 to be 28 application 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 its 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.
Joshua Buchalter: 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.
Jacob Marenko: So we have a preliminary orders from China and HiRain and Weifu both are in a 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 that Weifu just announced a few weeks ago that they spin 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.
Joshua Buchalter: Thanks, Kobi.
Operator: And the next question will come from Suji Desilva from ROTH Capital. Please go ahead.
Suji Desilva: 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 selection of Arbe's radar? And maybe you can update us on the competitive landscape that you're seeing three months later?
Kobi Marenko: 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 years ago, if we even imagine how complicated would it 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. So 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 the mask for any kind of safety application. And the fact that Miri [ph] has stated on stage that 32 by 32 channels radar is a minimum. And the fact that we see major RFPs that basically putting a line that's below that you cannot even get to the RFP. This is the major change that we saw in the industry since the beginning of this year, and we are seeing it more and more companies that took lower channel count like six by eight in China, or 12 by 16 in Europe understand that this is not sufficient that basically 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 there is 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 channel that is less than 32 by 32 is meaningless. Also the fact that we are able to bring down chipset that's allowing Magna to sell and HiRain to sell radar in a price that is similar to the 12 by 16, I think also makes the difference. And this is our current advantage, as opposed to mobilize that their product is much more expensive and much more power hungry, which is also a major issue in today's car.
Q – Suji Desilva: 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?
Kobi Marenko: 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 more than regular automotive, but the volume is much lower. And the patient that is needed is also much more important, in regular automotive, 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.
Q – Suji Desilva: Okay. that’s really helpful. And then maybe a last question on the financials or just the -- I think Karine, you mentioned the headcount went up. I'm just curious what areas of the company are you increasing headcount? Thanks.
Karine Pinto-Flomenboim: 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.
Q – Suji Desilva: Okay. Very good. Thanks, guys.
Karine Pinto-Flomenboim: Thank you, Suji.
Operator: [Operator Instructions] The next question will be from Matthew Galinko from Maxim (NASDAQ:MXIM) Group. Please go ahead.
Q – Matthew Galinko: Hi. Thanks for taking my question. I just wanted to get a sense for -- as you look, into the pipeline a little bit beyond the four design-ins that you're targeting for this year. What does the pipeline look like geographically into 2025?
Kobi Marenko: 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 headquarters European, 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.
Q – Matthew Galinko: Great. Thank you.
Operator: 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.
Kobi Marenko: So thank you everybody for joining us today, and we look forward to update you shortly on the new news coming from us and thank you, everyone.
Operator: And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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