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. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to hand the call over to Miri Segal of MS-IR. Please go ahead.

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.

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 financial in more detail and share our outlook. Finally we’ll open the call for the question-and-answer session. 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 push 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 offering and meet customers' needs. As a result, OEMs have redirected their engineering resources and adjusted product roadmap. 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 reach 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…

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 to $46.8 million compared to $50 million in 2022. The decreased reflected 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 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 for non-recurring items was a loss of…

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

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

Yes. So during Q4, we had around 20% of our team in military reserve. In January, most of them came back home and came back to work. And right now we have less than 5% of our employees on reserve duty. Definitely Q4, I would say was our less productive quarter ever, but people try to compensate in 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.

Okay. If I go back to the last earnings call, I believe you highlighted 11 major OEMs that were in final stages of selection and you expected about five or six cities 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 like the total pool of OEMs that are still in various stages of selection?

The pool didn't change. So, we spoke about 11 OEMs on Q4, 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 during the end of this quarter, early next quarter. As time goes by the decisions are in the final stages, and we hope to be able to announce major news before end of Q1, at least before we will report our Q1.

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?

Yes. So, China I think right now looking on this market in two segments. There is the luxury car segment that of course would be launched first in 2025, but this is very, very narrow volume and most of those OEMs are focusing on launching radar together with LiDAR, sometimes even two LiDARs 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 HiRain fusion project. We can say that at least two major OEMs are doing this kind of projects as well. Fusion of radar imaging radar, our Imaging Radar with cameras in order to support Level 2+ plus Level 3 application without a LiDAR because on 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.

Thanks, Kobi.

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

Hi, everyone, this is Lanny, on for Josh today. Just a few questions for me. To start, can you walk through some of the main drivers of slower adoption and push out? Is it slower for Arbe or the Imaging Radar space in general? And then are there any implications to the slower 2024 ramp on your expectations for ‘25 and ‘26 or are there separate decision, please?

Can you repeat, you’re too close to the microphone, so can you repeat your question, please? Thank you.

Yes, sorry. Is this better? Can you hear me better now?

Yes, now it's much better.

Okay. Sorry about that. Just to start, it says, can you walk through the main drivers of slower adoption and push outs at the OEM level? We've seen this across other sense like LiDAR, but is it slower for Arbe or Imaging Radar in general, and then can you talk about the implications of a slower ‘24 ramp and ‘23 on your 2025 and 2026 expectations?

Okay. So, I think that we are suffering from the same, from the main problem of the industry. So, the full stack of Level 2+ plus Level 3 also defines vehicles that can run this kind of software and do all of the updates and improve the ADAS systems over the year over time. This all stack is pushed because it's too complicated than the OEMs basically sold at the beginning. But, what we see clearly is that majority of the OEMs putting a lot of R&D efforts on this area maybe more than before they are shifting out of their investments in EVs into those R&D projects. All of them want to control this stack and to compete on this stack and offer the customers a better and safer experience for highway autopilot and then for urban autopilot. So, we see that this push in the industry is across the board even it's influencing the ramp-up of the central compute and other sensors. As of our revenues, our ‘25 revenues are built mainly from China which we believe that will ramp-up earlier and we know it will ramp-up earlier, and for non-automotive applications, so we don't see a real influence on our ‘25 revenues. It's mainly on the shift in ‘24. And also we believe that in ‘26 we will see major wins that we will have this quarter and next quarter will be in our revenues in ‘26. So, overall I think that the main shift is the main delay is in ‘24 revenues, which are shifted a bit to ‘25. We have enough cash to pass this hiccup and we believe that on the long run Arbe will be a leader player and a very strong company.

Great. Thank you for that color. I guess on that you previously mentioned a preliminary order for about $11.6 million from Weifu and 304,000 chipsets from HiRain I think were tens of millions of dollars. Are these expected to, like, when can we expect these to layer into the model and are they waiting final OEM decisions before revenue recognition?

Yes, we are waiting for final OEM approval before recognition and also in chipset you need to deliver the chipset in order to be able to recognize it. We expect that we as HiRain stated by the end of this year, last quarter of 24 they will be in full production with our radar. So, which means that they will start, we will start shipping them chips and majority of the revenues from those preliminary orders we believe are going to be recognized in ‘25.

Great. Thank you. And that's all for me.

Thank you. The next question comes from Suji Desilva with Roth MKM. Please go ahead.

Hi, Kobi. Hi, Karine. In the press release, you talk about a production intent chipset and there's an auto-qual being conducted, is that being conducted by you or a Tier-1 or a potential customer?

No, no. Basically as you know our fab is GlobalFoundries and GlobalFoundries are doing for us also a full turnkey solution of taking the chips to production. So, the chips are in final stage of automotive qualification. They are running the automotive qual. In the pre-qual we saw that they are fine and we finished all of the preliminary tests and we are now running on the formal stage of last stage of automotive qualification and we hope to start shipping full qualified production chips by end of Q2. Of course in the beginning, in the first few, two, three months the volume will be low because it takes time for ramp-up in automotive, but in ‘25 we will be in full capacity and be able to supply any volume that is needed in the market.

Okay. All right. Thanks, Kobi. And then, one other question is on the competitive landscape, if you could update us on the traditional radar competitors and maybe some of the more software centric models and what you're seeing in various geographies and OEMs in terms of the competition?

We are not seeing those kinds of companies in the competition. The other way around, what we see more and more is OEMs that are stating that in the RFP the minimum requirement is a minimum high channel count that as much as we know there is other than us maybe two or two players that are able to meet this qualification and all of those software centric or software radars are not qualified to those RFPs and RFQs that wants to support Level 2+ plus Level 3. Those solutions are very good for low-end ADAS to meet the challenges of the NCAP, but not for real solving the problems of radar. So, if we are looking on the competitive landscape, I think that in the last quarter our situation improved dramatically. So, from one end there is no new competitor, from the other end there is clear understanding almost in every OEM that we are meeting that high channel count above 16x16 is a must for a year more than 27.5. So, right now as it was announced there is a radar of us, that is based on our chipset and a radar that is based on the chipset of Mobileye. Those are the only solutions that we know that are available in the market. It might be that someone is working on something too that we don't know. But all of the solutions with software or with less channels are not qualified for next generation solutions.

Okay. Thanks, Kobi.

Thank you. The next question comes from Jaime Perez with RF Lafferty. Please go ahead.

Hey, everybody. Good day. Thanks for taking my question. The order that you received from the Western Truck Company, could you give us a little bit color? Is it a pre-production order, test order? So, you could give a little, we appreciate if you give a little bit color on that?

So the pre-production, the preliminary order that we got from HiRain is mainly focused on OEMs that HiRain already won their central ECU and they assume that the best radar to connect to this central processing unit is our radar and are in the final stages of nomination with the OEM for this project.

Now is this going to be a main radar or back or redundant part of the redundant system?

No, it would be the main radar.

The main radar. Okay. Thanks. Now, I mean give, also focusing on the automotive market since the automotive market has been a little bit choppy lately due to weak demand. And on your press release you mentioned you're going to look for other markets that maybe have a shorter lead time and less choppiness. Could you give a little color on your non-automotive strategy?

Yes, there is so first of all our non-automotive strategy was there from the beginning, but what we see is that Sensrad are gaining a lot of traction with their products mainly in robotics, in transportation and even in Homeland Security. And, we believe that we will see major revenues from this non-automotive market already in ‘24 and of course in ‘25.

Okay. That's all the questions I have. Thanks for taking my questions.

Thank you very much. This concludes our question-and-answer session. I'd like to turn the call back over to Mr. Kobi Marenko for any closing remarks.

Thank you. We are 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 on all this progress in the coming months. Look out for updates as we prepare for several investor events. We'd love to meet you in person for additional discussion. Please contact us at investors@arberobotics.com or visit our site to schedule a meeting. Thank you all.

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