Good day, and welcome to the Arbe Robotics First Quarter 2023 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.

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 Web site. Today, we are joined by Kobi Marenko, Arbe's Co-Founder and Chief Executive Officer; 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.

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 sampling operation which represents the production configuration. Four other Tier 1s are actively constructing 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 the 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 product and accelerate the commercialization of autonomous driving solutions in the field of logistics and freight. Additionally, we are collaborating with the…

Thank you, Kobi, and hello, everyone. I would like 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 HiRain 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 saving in expenses and labor cost. Partially offset by an increase in our research and development. As a result, our operating loss remained unchanged from the third 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 non-cash share-based compensation and for non-recurrent 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 $7.7 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've previously shared. Our goal for 2023 is to achieve four 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 updating you on our progress in the coming quarters. Now, we will be happy to take your questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, everyone. Thanks for taking my question. Regarding the goal for the four OEM design wins with automakers for the year, can you give us a sense of what model years that would be focused on?

Sure. So, 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 their car. We are today focusing on year model '25 in China, which means that their [radar stuff] (ph) 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 -- year after '26, sometimes even '27. And the radar will start production middle of '25, and ramp up of revenues in early '25.

Thanks, Kobi. As my follow-up, I wanted to probe a little bit deeper on Hirain with a multi-part question. What would it take to translate preliminary orders into shipments? And what sort of impact would those preliminary orders have on your backlog?

I think that Hirain are waiting for their final announcement of their OEM about them receiving the design-ins, 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 14 new EV models coming out of China. So, as opposed to Europe and 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.

Regarding your backlog question, Gary, so currently, as we said, not including in our backlog, of course, when it will be an order it will be part of our backlog.

Thanks, Karine.

The next question comes from Joshua Buchalter with TD Cowen. Please go ahead.

Thank you. And thank you for taking my question. I wanted to ask a follow-up to Gary's question on the four 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? We would just love more clarity there. Thank you.

Yes, so basically I think almost every OEM today is evaluating imaging radar for their next-generation platform. And are presented today in those opportunities with our Tier 1 partners, of course, but the end of the day the selection is Veoneer, or Valeo, or Hirain, or Weifu. And not Arbe, we are not a direct Tier 1 for that. What we see, I would say, is -- maybe I will divide it into three models of engagement. So, there is engagement that is basically RFP RFQ, and that's it, that are we are not involved. The Tier 1s, of course, are updating us about meeting these RFPs, RFQ. And they are competing there. Sometimes against just imaging radar, other imaging radar, lower in performance, of course. But sometimes also against the legacy radars, which basically means that there is not yet a real decision to add imaging radar to the stack. On the second group, I would say those are companies that involving us in their evaluation stage. They gave Veoneer, and Valeo, and also us very detailed use cases, 10, 15, sometimes even 20 use cases where they see today a problem with their existing sensor suite, from their existing radar, cameras, and also from the LIDAR that they are [testing] (ph) for those platforms. And they are involving us and 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's 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 would be using imaging radar. Of course, those companies, we believe that we have the most chances to win.

Thank you for all that, Kobi. 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 data during imaging radar functionality. Can you compare and contrast, I guess, what you're bringing with your 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. Thank you.

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 existing RF chipsets from NXP and TI as our competition. And there was a midterm solution that is based on four-chip cascaded 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 are in with all of those car manufacturers, they tried this four-chip cascade, and those four chips cascade don't solve their 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 four-chip cascade, whether it's based on TI RF or an NXP RF, whether it's an FPGA inside or an 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 specs that we are doing, and bringing it to the market in '25-'26. So, I think 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. 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 a legacy radar. And on the problematic scenarios, today, as far as we know we have the only available solution that can really solve their problem. Not on paper, not on spec, not in demos in conferences, in real vehicles, in real testing with the leading premium European car manufacturers.

Thanks, Kobi.

The next question comes from Suji Desilva with ROTH MKM. Please go ahead.

Hi, Kobi. Hi, Karine. So, you target four 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 within the three categories you just discussed, type 1 versus 2 versus 3?

So, first of all, the ones that are in category 3, we, by definition, taking them in low probability to win. So, on the first category where we are engaged with the perception teams, 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 multiplied by the probability, I think that 4 is a good number that we feel very comfortable with. On the second category, there is another batch of companies that we feel from them and from the Tier 1s, 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, and not slip to early-'24.

Okay, very helpful. And then just to understand how backlogs reports for the next few quarters, is that, Karine, a three-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?

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 OEM because it differs, it takes either between 18 to 24 months in the western, more traditional OEM side, and quicker or 12-18 in the Chinese market from agreement to revenue recognition. So, we assume in that space that in presumably at least 12 to 18 months that we get the booking ahead. And it will be considered in our backlog and included.

Okay, thanks.

The next question comes from Jaime Perez with RFL. Please go ahead.

Good day, everybody. My question, I think I want to focus on non-automotive segment. I mean how far we in that segment? Are we looking to - and sort of what's the timeframe of shipment product, maybe the size you expecting to win in that segment in the next year or two?

So, in this segment, I think that the fact that Qamcom started a full dedicated arm that is called Sensrad dedicated for that will, of course, accelerate it. We expect revenues from non-auto to start as early as '24. And of course, it's not yet high volume and higher volume in '25.

All right, okay, higher volume, this helps. Are you are going to be shipping product in 2023? I mean how much lead time do they need to just in time, maybe give some color on that?

So, I think what they need now first of all is for us to start production. So, they cannot ship products, of course, with 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.

All right. And my follow-up, I mean in the next couple -- let's look forward next four year. I mean what size is non-auto when we compare it to the auto? Is it going be more or less, auto is going to be the bulk of your revenue?

Four years from now, the non-auto would be single digit in percentage, up to 10% from our entire revenue. The gross margins there are bit better than auto, but still I think nothing compares to auto when we are talking about each one of those full design wins that they mentioned, I think it's the minimum yearly revenues for auto is something like $25 million to $30 million a year. So, all of the segment of the non-auto together I think if in '26 will reach $25 million, it would be amazing for us.

All right. That's all the questions I have. Thank you.

Thank you.

Thank you.

The next question comes from Matthew Galinko with Maxim Group. Please go ahead.

Hey, good morning, and thanks for taking my questions. I wanted to sort of -- if we think the from your models and engagement answer, the OEMs that haven't decided yet to add imaging radar and 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 advance in their ADAS ambitions, or is it something that you expect they will get to it some point in the future? Just where is the divide there?

I would say that in the automotive space in general there is the leader, the innovator, then there is the follower, and same with ADAS and new sensors. So, it was back then with the airbag. It was also with a single camera solution. All of those started with 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 leader that is trying to develop it by themselves -- trying to improve it by themselves. And there is the followers that might wait to see that this technology is in the mainstream and the demand of the customers is already there in order to start it. Or, they also might choose different direction 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, mainly lane maintain and very basic functionalities, emergency braking, the current radars are I would say good enough. They sometimes fail, but still there is man in the loop that holds the wheel. This is not really critical. But, companies are trying to get off -- to get end of solution. And once this end of solution to be fully safe, I think needs an imaging radar, and companies that trying to go to eyes-off, it's even critical.

Got it. Thank you.

This concludes our call. I will turn the call to Kobi Marenko, Arbe's CEO for closing remarks.

Thank you. We are very pleased to have you join us today. To our employees and partners, their continued dedication is deeply appreciated. We look forward to updating you further on Arbe's progress in the coming month. Look out for update as we prepare for further investor event including the Evercore Virtual Autotech & AI Forum, May 24; the TD Cowen's virtual ESG Week on June 5, and the Needham Virtual Automotive Tech Conference on June 7. Please contact us at investor at arberobotics.com or visit our website to schedule a meeting. Thank you and good bye for now.

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