Good morning and good day, and welcome to Arbe's fourth quarter and full-y ear 2021 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your touch tone phone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch- tone phone. To withdraw your question, please press star then two. 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, Andrew, and everyone for joining us today. Welcome to Arbe's fourth quarter and full- year 2021 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. We will then open the call 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 today for Arbe's first earnings call as a publicly traded company. It's an important time for us at Arbe, and I want to begin by expressing our deep appreciation to our investors, our customers, and our partners who have collaborated with us till now. I'm also incredibly proud of the Arbe team who drove our 2021 achievements by their commitment and hard work. The recent completion of our SPAC merger and becoming a public company was a major milestone. In fact, Arbe is the first automotive imaging radar company to go public in the U.S. Since this is our first earnings call, I'd like to take a few moments to share our story, explain the core value proposition, and why we believe that we will lead the automotive sensors market.
Arbe is the leading 4D imaging radar company in the market and the only pure play radar public company traded on Nasdaq. We are driving the radar revolution, paving the way towards fully autonomous driving. We are a semiconductor company and our imaging radar chipset offers the best performance in the industry, enabling free space mapping for safe Level 2+ and Level 3 autonomy that relies solely on radar. Arbe maintains significant product leadership, and we believe that our technology today is superior to the performance competitors projected that they will have even in three years from now. Our mission starts with safety.
The first goal of our radar is to improve the safety of the entire vehicle system to allow automatic braking in any condition, to enable safe adaptive cruise control, lane change assist, and many other advanced features scaling up with the industry's evolution towards full autonomous driving. Radars in cars need a change, and the entire industry understands that performance needs to improve dramatically. In 2025, the total market of radar will be $11 billion, and a major part of it will belong to imaging radar. When we founded Arbe in 2015, the general industry consensus was that radar had already achieved as much as it could. It was widely believed that LIDAR was more promising for advanced applications. However, as time went by, it became clear that achieving high-performance LIDAR at reasonable price was really unrealistic.
Also, LIDAR is unable to reach performance targets at necessary ranges and does not function well in bad weather or when the sun shines directly on the sensor. In the past few years, the market has shifted back to radar. The majority of OEMs car companies are beginning to understand that imaging radar is the key for any kind of Level 2+ and Level 3 applications and is mandatory for higher autonomy. We believe that in the next few quarters, we will start to see announcements from the largest companies choosing to base majority of their stack on imaging radars. This is where we specialize in imaging radar, which is a completely new sensor that drives all the advantages of traditional radar while enhancing them with real physical high resolution in 4D, on the azimuth, on the elevation, on the Doppler, and on the range.
This allows our technology to support the development of perception algorithms and to deliver much higher value to the industry. Currently, and for some time now, we have the only ultra-high-resolution solution in the market. In fact, we believe that our radar has the best performance in terms of resolution, dynamic range, and sensitivity, even when it comes to future radars that are still in an early development stage announced by competitors. Our assumption is based on the specification of those radars which were released by the competitors. Today, we can proudly say that we added 30 customers from companies that have purchased a low volume of units to pre-production projects and full designing. Based on the subset of those clients, we expect more than $300 million in revenues in 2025.
As we look back at 2021, I'd like to summarize our main achievements. AutoX selected imaging radar to enable their fully-autonomous robotaxi fleet. Our pre-production project with the top five global OEM is on schedule, progressing towards selection in 2022. We were selected by a top 10 global OEM for an imaging radar based perception project. BAIC Group announced that our technology will be installed on its mass-produced Level 2+, Level 3 models. We are shortlisted with 17 opportunities, eight OEMs, five robotaxis and new mobility players and four truck manufacturers. Five Tier 1s, including a leading radar player that recently started working with us, are building production radars based on our chipset. We made low-volume sales to more than 30 customers during the year.
Our 2021 development and commercial objectives were fully achieved, and we're ahead of schedule for full production of our chipset by the end of this year. At this year's CES conference, Arbe was selected as 2022 Innovation Award honoree in a vehicle intelligence and transportation product category. Our perception imaging radar was recognized for driving a revolution in autonomous vehicle sensing at an affordable cost of the mass market. The highlight of our innovation was the introduction of free space mapping. This is the first time an automotive radar can contribute to free space mapping, a critical function of autonomous driving that requires great accuracy and redundancy. The imaging radar complements camera sensors at long range and wide field of view, sensing the environment in all weather, lighting, and visibility conditions.
We believe that the ability to generate a free space map and enhance perception algorithms is truly game-changing for the future of autonomous driving, and we are enabling greater safety than even before for drivers, pedestrians, bicycles, and anyone sharing the road with autonomous vehicles. I'd like to highlight some of our recent announced collaborations with major car manufacturers who plan to adopt for the radar. Recently, BAIC, one of the largest players in China and one of Arbe's investors, announced that our sensor will be brought to the market by HiRain, a Chinese Tier 1 , and will eventually be in every one of BAIC's Level 2+ and Level 3 cars. AutoX, the leading robotaxi in China and one of the first movers in the United States, announced that all of their cars will use Arbe's radar and anticipated 400,000 units in the next five years.
A few months ago, one of the top five car manufacturers selected Arbe and Valeo as Tier 1 for a pre-production project that will lead to design selection next year. In November, Weifu High-Technology Group, a major Tier 1 in the Chinese market, announced that it begins the road pilot phase of its Arbe-based radar system and is scheduled to be in full production by the end of 2022. We believe that it could become one of our flagship projects. Hyundai Mobis recently announced that it conducting a large-scale pilot with Arbe's technology for Level 2+ and Level 3. Hyundai is also investor in Arbe. This pilot was successfully completed, and the final radar selection will take place in the coming months. Additionally, Qamcom, Arbe's Tier 1 for the non-automotive vertical, is making an impressive progress, holding pilots with robotaxis, autonomous trucks, and delivery robots.
As we look at 2022 and beyond, we are optimistic about the long-term future and market need to improve safety by using Arbe's superior solution. While experts assume that the chip shortage and supply chain challenges will continue to impact global markets in 2022, it's important to understand that one of Arbe's major advantages is our relationship with GlobalFoundries. As one of their strategic customers, we are the first company to go to production with chips that are automotive-grade based on their 22 nm process. GlobalFoundries has taken full responsibility for chip production and supply chain management. They are guaranteeing the supply we promised to our customers for the coming years. Despite the current silicon shortage, we will have the capacity necessary to meet our commitments.
In terms of our goals for 2022, we aim to close eight design wins with OEMs, autonomous trucks, delivery robots, and non-automotive companies this year, and we are laser-focused to achieve this target. Based on current market trends, we estimate that Tier 1s will show increased demand for Arbe's chipset. Our goal was to establish a relationship with two leading Tier 1s this year, and one of them is already working with us, and we are only in the beginning of 2022. A major strategic goal for 2022 is to go to production with our chips. This is an ambitious plan and is supported by GlobalFoundries. We believe we can reach that milestone. Our Tier 1 partners are following closely, and they are in the advanced stages of a plan that will take a full radar model to production in parallel.
In China, we will be in production by the end of this year, as our Tier 1s have announced, and in Europe and U.S., we believe it will be in the second half of 2023. To summarize, we are confident in our vision for this market. Everything we see leads to the following conclusions. High-definition imaging radar is about to change the auto market, and then it is going to work its way into many other markets and change them as well. We believe that our current solution is miles ahead of competition. We intend to gain a significant market share as the leader and innovator of this space. I'd like now to turn the call over to our CFO, Karine.
Thank you, Kobi, and thanks to everyone for joining us today. I would like to review our financial results in more detail. Total revenue in the fourth quarter was $0.5 million, compared to $0.2 million in the fourth quarter of 2020. For the full- year of 2021, total revenue was $2.2 million, an increase of 577% compared to $0.3 million in 2020. Backlog as of December 31, 2021 was $2.3 million, consisting mainly of services, chipset orders, and NRE from several leading car manufacturers and Tier 1s . Gross margin for Q4 2021 was 37.7% compared to 41.8% in the same period in 2020.
For the full- year of 2021, gross margin was 36% compared to a -2.4% in 2020. The gross margin increase was primarily related to economy of scale. Moving on to expenses. In Q4 2021, we reported total operating expenses of $14.2 million, an increase from $3.9 million in the fourth quarter of 2020. The increase was primarily related to additional investment in R&D towards production, labor costs, share-based compensation, and costs resulting from the additional legal, accounting, and general overhead resulting from our status as a public company. Operating expenses for the full- year totals to $34.1 million, compared to $15 million in 2020. The increase was in line with our expectations as we continue to grow the company and add to our employee base to support our future growth.
The company continues strengthening its research and development investments with R&D expenses totaling at $11.6 million for Q4 2021, compared to $3.3 million in Q4 2020. R&D expenses for the full- year were $28.6 million compared to $12.8 million in 2020. Looking at adjusted EBITDA in Q4 2021, a non-GAAP measurement, which excludes expenses for non-cash share-based compensation and for non-recurring items, was a loss of $11.9 million compared to a loss of $3.7 million in the fourth quarter of 2020. EBITDA for the full- year of 2021 was a loss of $30.4 million compared to a loss of $14.2 million in 2020.
Net loss in the fourth quarter of 2021 was $15.8 million compared to a net loss of $4.5 million in the same period of 2020. Net loss for the full- year of 2021 was $58.1 million compared to $15.6 million in 2020, which included $24.8 million of financial expenses, mostly related to the revaluation of convertible loans and warrants. Moving to our balance sheet. As of December 31, 2021, Arbe had $100.8 million in cash and cash equivalents. Most of the cash is as a result of the $118 million in gross proceeds following the business combination with Industrial Tech Acquisitions, Inc., which was completed on October 2021.
With respect to our guidance for 2022, revenue is expected to be in the range of $7 million-$11 million. Adjusted EBITDA is expected to be a loss in the range of $34 million-$38 million. We anticipate rapid growth following 2022 as Tier 1s move to mass production and OEMs scale up order volumes. We are on track to reach our $312 million revenue goals for 2025. Now I will turn the call back over to Kobi, and then we will be happy to take your questions.
Thank you, Karine. As we move into 2022, I'm confident in our strategic plan. Our product is leading the market and our customers are fully engaged. This is the right time to join us on this ride. We look forward to updating you on our progress next quarter. Thank you, and we are now ready to open the call for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Joshua Buchalter with Cowen. Please go ahead.
Hey, guys. Thanks for taking my question and congrats on the results. In the press release, you mentioned the project with the top five OEM progressing towards selection in 2022. I was hoping you can give any more details here on the process regarding either timeline or the overall how competitive it was. Thank you.
Yeah. Basically, we're not really allowed to elaborate about this project since we are under an NDA with the customer. What I can say is that, as you mentioned, the project is on track. We together with Valeo need to provide the customer with two kinds of radars, one for the front and one model for the side. This should be done during this quarter Q1. We believe that selection gonna be in the second half of 2022.
Thanks for the detail there. I understand on that note, there's only so much you can share, but any more you can give us on the perception project with the top ten global OEM? Is this a similar type of application and volume potential as the top five pre-production project? Thank you.
Yes. Basically, with the top 10 OEM, they're basically trying to achieve the same. The idea is to have a radar that can actually do a full free space mapping. On the project with the top five OEM, we are responsible only for the radar. We are providing a radar that can enable this kind of free space mapping. In the other project on top of the radar, we are providing also our stack of the software of the free space mapping, at least as a reference code for the OEM, so it can take the radars. The radars are already installed in their testing cars, and they are driving with our software.
They can take our software and connect it into their full stack and see how a free space mapping based on the radar is improving the total system, especially with the fusion with the camera and how it helps to solve the entire Level 2+ Level 3 problems.
All right.
We believe selection gonna be here, or by the end of this year.
Awesome. Okay. Thanks, guys. We'll head back in the queue.
Again, if you have a question, please press star then one. The next question comes from Suji Desilva with Roth Capital. Please go ahead.
Hi, Kobi. Hi, Karine. Congratulations on the progress in calendar 2021 here. So, Kobi, on the Tier 1s , the five that you have, do you expect all of those will be in production readiness at the end of calendar 2022 or will they phase in at different times? I'm just curious, are they all leveraging GlobalFoundries supply chain?
First of all, by end of 2022, we believe that the Chinese Tier 1 will be in production. The European and American will be during 2023. Basically, everyone that is buying chips from us buying the chips from GlobalFoundries or actually from us, but the supply chain is managed by GlobalFoundries. GlobalFoundries are our only source for production and the chipsets will be shipped to the Tier 1s from GlobalFoundries. Technically, by the way, it will pass through our Israel office, but just touch and go to the customer.
Okay. That's helpful color, Kobi. Thanks. Then, in your calendar 2022 revenue, I know you talked about AutoX being a significant number of units over the next five years. Is any of that in calendar 2022 or is that in the guidance for 2022 or is that starting calendar 2023?
AutoX will start generating meaningful revenues already in 2022.
2022. Okay, got it. Lastly, can you just talk about the decision to choose imaging radar versus the traditional radars? You know, just give us a thumbnail of the OEM's decision points. Are they just all doing studies to validate that imaging radar can work and be you know, perhaps even a lighter alternative? Is that what's going on in the OEM and Tier 1 base now? Thanks.
I think that basically there is two trends here in the market that are moving in the opposite direction. The regular radars what we call a 3 x 4 or 6 x 8 radars, so radars with low amount of transmitters and receivers which has also a low amount of pixels and low resolution. Those radars that are basically part of any vehicle that is manufactured more or less those radars are basically going into commodity mode. Their price is going down and the chips behind it the AI chips NXP and Infineon the prices of those chips are going down. The processing power that is needed to process it is the same.
It is commodity today, and there's no real innovation in those kinds of radars. From the other end, the car manufacturers beginning to understand that those radars won't serve them for Level 2+, Level 3. More and more OEMs taking decisions to put a more advanced hardware on their cars, even if the software stack for Level 3 is not yet there. Those radars will be there to enable the system to be in Level 3 or Level 2+ with just a software update over the air. The advantage of 4D imaging radar as opposed to regular radar is 4D imaging radar is actually generating a picture of the environment almost as good as the camera.
This is a picture that almost a human being can see and understand what is going on, as opposed to the traditional radars that basically are based on Doppler. They see the Doppler, the relative speed of the object, and they basically have the ability to identify the objects based on the fact that they have a Doppler. If they don't have a Doppler, they won't be recognized. This is what is also creating some kind of phantom braking phenomena with the false targets that those radars are generating. I would say that till the last few months or maybe till 2021, the radar was not part of the perception stack.
The perception stack was built mainly on a camera, on vision. The radar was used mainly for blind spot detection and for automatic braking. There was no real connection between those two stacks. This creates a huge problem because the vision sensors, including the LIDAR, that is a laser-based sensor, are vulnerable to weather. Also they cannot see a target on the long range. They are very good in 50 m, 70 m, sometimes even 100 m. After that they are useless.
Basically, the way to get to a real safe Level 2+, Level 3 must have a kind of sensor like the radar that can see up to 350 m , can see a pedestrian in 250 m, motorcycle in 300 m, and have a good resolution and can work in any weather and any lighting condition. Now, there is a huge effort in integrating this kind of sensor into the full stack. Our free space mapping is actually a shortcut for the OEMs to do that. We are coming with this stack, and we are saving to the OEMs years of development from scratch for this technology.
Without it, basically, they just need to take our radar and start the development now. Our radar is the only one that you can take the point cloud that is coming from this radar and generate a full free space mapping on that. Earlier, we mentioned the top ten OEM that selected Arbe for perception project. It's actually, we were competing against another one or two radars and we were order of magnitude better. Actually, all of the other radars were not qualified for this perception task.
I believe that 2022 is going to be a year of imaging radar perception, and the fact that it's doable and the fact that you can take an image out of a radar, merge it or fuse it with a camera and get to a point cloud that is 100% reliable, 100% safe, is a breakthrough for Level 2+, Level 3. I think this will even accelerate the acceptance and the readiness of those technologies to the market.
Kobi, I appreciate the incredibly detailed and very helpful commentary. I'll step back in the queue. Thank you.
The next question comes from Matthew Galinko with Maxim Group. Please go ahead.
Hey, yeah. Thank you for taking my questions. First one is on, can you speak to the gross margin potential or difference between selling, you know, just the radar versus selling the full perception stack?
Sure. First of all, we are not selling the full radar, we are selling the chipset. We are a semiconductors company and, as a semiconductors company, we have around 60%-something gross margin. Of course, the software stack is software and the gross margins in software are much better than in hardware. But the price that you can get for this per car is very limited. I would say very few dollars. In our model, at least, for until 2025, the software is not part of the revenues. Right now the software is just expense. We are just investing in R&D for that. Our entire model is based on selling chips.
By the way, we believe that the software stack will find its way also to the silicon. In the next generation of our processor that's gonna be in the market in 2025, we will also support deep learning algorithms that will help with this perception. Things that today we are doing on the central unit, and by that we will reduce the total cost and the total power consumption of the car.
Got it. Thanks. Maybe just to go a little bit deeper into that, is there a significant latency benefit to integrating the software into the chip? You know, is that important in, you know, higher levels of autonomy?
No. The software is a different stack from the chip. If you take our chips, basically we have three chips: transmitter, receiver, and a processor. The processor is generating a point cloud, something like a picture, a video, sorry. This is going to the central processor of the car. Then all of this post-processing, like the free space mapping, is done on the central unit of the car. There's no latency here. It's an Ethernet 1 Gb/s . Basically the data is moving very, very, very fast, and there's no latency that is caused by that.
What we're trying to achieve with our next generation of the chip is to reduce the total processing power that is needed to enable autonomous driving. I think right now today, the central units like the NVIDIA, Qualcomm and what Mobileye is offering cannot really deal with the amount of processing power that is needed for full autonomous driving because they are doing some kind of processes like we can do on our chip. The idea is to move some of those items to the edge and by that, reduce the total power and the total processing power that is needed for the car.
Got it. That's very helpful. Then, last one for me. Just, in terms of the guidance range for revenue for 2022, can you just cover kind of how you get to the high end versus the low end? Is that just, you know, mostly timing on how things move through the pipeline or, you know, what gets us to the top versus the bottom?
I would say about our 2022 revenues, a few things. First of all, basically, 2022 is the pregame. The real game starts in 2023, when we will be in full production. When we will be in full production and there will be exact timelines of deliveries, of course, our guidance will be much more accurate than today. Today, we are selling low volume of evaluation chips, and we are charging NRE. Basically, when you're doing that, the revenue recognition is based on a milestone that achieved by the customer.
For example, if we got an NRE of $1 million, and this NRE already paid to us, actually, this is one of part of our backlog is like this, that already paid to us. The customer, I don't know, delayed with his production. The radar unit that is building with our chipset instead of going to the market on Q1, they move to Q2, then those revenues are shifted accordingly to Q2. When we are giving this kind of guidance, we basically say that the sales team will do the sale, our delivery will do the delivery.
This year, because we are not in full production, we're a bit dependent on the timetable of the customer in terms of the revenue recognition. Because of that, we gave this kind of borders between full revenue recognition and partly revenue recognition. From the business perspective, there's no real difference for us between $7 million this year and $11 million this year because the sales and the orders will be there. If we will have $7 million, we will have more bookings, and if we will have $11 million, we will have less bookings. From cash, from any other aspect, there's no real difference between the two figures. It's just about revenue recognition.
Thank you.
Just to add, I think, closing the gap going forward to 2025, it will be of course closed by the mass production. We anticipate, of course, to reach the revenues that we wrote.
I guess not to put words in your mouth for 2023, but, you know, we'll be seeing just more traditional product revenue and less NRE, you know, come next year?
Exactly. As we are in a production, there's no NRE. It's just delivery of-
More towards, I assume, 2024, 2025, and the back end of 2023.
Thank you. The next question comes from Jaime Perez with R.F. Lafferty. Excuse me, R.F. Lafferty. Please go ahead.
Morning, everybody. Thank you for taking my questions. We've been hearing a lot of the OEMs saying that they're looking at this supply chain shortage lasting at least to 2022. I mean, I know you started to ramp up production at the end. Do you think that because customer demand for automobile is still strong and you think there's gonna be a pent-up demand where these OEMs will just require product because they're backed up in their production? Do you foresee that environment? Yeah, that's my first question.
Basically, when we are shipping chips in 2023 to our Tier 1, just to understand the timetable. Let's assume that we are shipping chips in Q2 2023 to the Tier 1. They're shipping a full radar model to the car manufacturer just by the end of 2023. That's gonna be on a car only on 2024. I think right now the supply chain issue for us is not really not gonna affect the actual results in 2023, 2024 because the chips that we are shipping now is for cars that gonna be sold to the customer by the end of 2024, which is part of it is practically year model 2025.
In China, maybe a bit earlier, but it's not on the timetable that this shortage is influencing the total amount of cars. Also, we remember that imaging radar and any other new technology are getting into the high-end cars, and those are cars that from the OEM perspective are the most profitable. They are focusing their supply chain and their inventory on delivering those cars instead of cars that their gross margins are lower. I think overall the supply chain is an issue. I don't see it affecting our results in the next few years.
All right. Based on the business model and the production ramp-up of you're basically gonna miss the next couple quarters of the supply chain issues. Pretty much when all this issue is history, you'll be in full production. You pretty much, you know, it's a good timing on that end. Second question. Have you looked at any non-automotive applications?
Sure. There is, I would say, near-automotive and non-automotive at all. Delivery robots, for example, are, I would say, near-automotive. It's not really clear yet today if those robots need a full automotive-grade component. We are actively in this market. Same as the other applications like shuttle. We are also in some projects of non-automotive at all, even smart cities, mining, and heavy machinery and agriculture. In all of those markets, there is potential. We have a partnership for this market with a large Swedish company called Sensrad, and they are basically supporting the customers in those low-volume, high-margin markets.
All right. Due to your lower competitive costs, these, it's probably very profitable at Arbe Robotics radar into some projects like robotics or drones as opposed to the other technologies. $2,000.
Yeah, when we started, our vision was to enable also robotics and drones, and we're still with this mission. We believe that those verticals are valuable for us. Of course, automotive is our main market because of the volume and because of the value that our technology brings to automotive.
All right. That sounds great. All right, all right. Thank you for taking my questions. Have a great day.
Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Kobi Marenko, CEO, for any closing remarks.
Thank you everyone for joining us today. We look forward to seeing you in our next conference call. Have a great day. Thank you.
The conference has now concluded. Thank you for attending.