Good morning, and good day, and welcome to Arbe's Fourth Quarter and Full Year 2021 Conference Call. [Operator Instructions]. 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 rate of 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 3 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 economic brake -- sorry, 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…

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 31st of December 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 negative 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 totaled to $34.1 million compared to $15 million in 2020. The increase was in line with our expectation, 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 '20. R&D expenses for the full year were $28.6 million compared to $12.8 million in 2020. Looking at adjusted EBITDA in Q4 of 2021, a non-GAAP measurement, which excludes expenses for noncash share-based compensation and for nonrecurring items, was a…

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.

[Operator Instructions]. The first question comes from Joshua Buchalter with Cowen.

Congrats on the results. In the press release, you mentioned the project with the top 5 OEM progressing towards selection in 2022. I was hoping you can give any more details here on the process regarding either time line or the overall -- how competitive it was?

Yes. So basically, we are not really allowed to elaborate about this project since we are under NDA with the customer. But what I can say that, as you mentioned, the project is on track. We, together with Valeo, need to provide the customer with 2 kinds of radars, one from -- for the front and 1 model for the side. This should be done during this quarter, Q1. And we believe that selection going to be in the second half of '22.

Thanks for the detail there. And 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 10 global OEM? Is it a similar type of application and volume potential as the top 5 preproduction project?

Yes. So basically, with this top 10 OEMs, they are 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 5 OEM, we are responsible only for the radar. So we are providing a radar that can enable this kind of free space mapping. In the other projects, 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 are already installed in their testing cars and they are driving with our software, so 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 plus, Level 3 problems. Again, we believe selection going to be here by the end of this year.

[Operator Instructions]. The next question comes from Suji Desilva with ROTH Capital.

Congratulations on the progress in calendar '21 here. So Kobi, on the Tier 1s, the 5 that you have, do you expect all of those will be in production readiness at the end of calendar '22? Or will they phase in a different times? And I'm just curious, are they all leverage in Global Foundries' supply chain?

So, first of all, by the end of '22, we believe that the Chinese Tier 1 will be in production. The European and American will be during '23. Yes, basically, everyone that is buying chips from us, buying the chip from Global Foundries, actually from us, but the supply chain is managed by Global Foundries. So Global Foundries our only software production, and the chipsets will be shipped to the Tier 1 from Global Foundries. Technically, by the way, it will pass through our Israel office, but -- just touch and go to the customer.

That's helpful color. And then in your cal '20 revenue, I know you talked about AutoX being a significant number of units over the next 5 years. Is any of that in calendar '22? Or is that just to answer that in the guidance for '22, or is that starting calendar '23?

Although, it will start generating meaningful revenues already in '22.

In '22. Got it. And lastly, can you just talk about the decision to choose imaging radar versus the traditional radars? 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 perhaps even a lighter alternative? Is that what's going on in the OEM and Tier 1 base now?

Yes. So I think that, basically, there is 2 trends here in the market that are moving in the opposite direction. So the regular radar, what we call a 3x4, 6x8 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. So their price is going down. And the chips behind it, the i-Chips and NXP and Infineon, the prices of those chips are going down. The processing power that is needed to process it is the same. It's commodity today, and there's no real innovation in those kinds of radars. From the other hand, the car manufacturers are trying to -- beginning to understand that those radars won't serve them for Level 2+, Level 3, and more and more OEMs taking decisions to put a more advanced hardware on their car, even if the software stack for Level 3 is not yet there. So those radars will be there to enable the system to be in Level 3, or Level 2+ with just a software update over the year. So the advantage of 4D imaging radar as opposed to regulator radar is that both the imaging radar is actually generating a picture of the environment almost as good as the camera. This is the picture that almost a human-being can see and understand what is going on, as opposed to the traditional radar that basically are based on doppler. So 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 the doppler. So if they don't have a…

The next question comes from Matthew Galinko with Maxim Group.

First one is on -- can you speak to the gross margin potential or difference between selling just the radar versus selling the full perception stack?

Sure. So first of all, we are not selling the full radar, we are selling the chipset. So we are a semiconductor company. And as a semiconductor company, we have around 60-something percent 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 until 2025, the software is not part of the revenues. Right now, the software is just expense. So 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 itself its way also to the silicon in the next generation of our processor that's going to be in the market in 2025. We will also support a 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. And maybe just to go a little bit deeper into that, is there a significant latency benefit to integrating the software into the chip? And is that important in higher levels of autonomy?

No. So the software is a different stack from the chips. So if you take our chips, basically, we have 3 chips, transmitter, receiver and a processor. The processor is generating a point cloud, something like a picture -- a video, sorry. And this is going to the central processor of the car, and then all of these post processing, like the free space mapping is done on the central unit of the car. And there's no latency here. It's an Ethernet 1 giga per second. So 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 Mobilis 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. And the idea is to move some of those items to the Edge. And by that, they reduced the total power and the total processing power that is needed for the car.

Got it. That's very helpful. And 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 mostly timing on how things move to the pipeline? Or what gets us to the top or the bottom?

I think that -- I would say about our '22 revenues, a few things. First of all, basically, '22 is the pregame. The real game starts in '23 when we will be in a full production. And when we will be in a full production, there will be exact time lines 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 milestones that achieved by the customer. So for example, if we have -- 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. But the customer, I don't know, delayed with his production and the radar units 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. So when we are giving this kind of guidance, we basically say that the sales team will do the sale. Our delivery will do the deliveries, but we're -- this year, because we are not in full production, we're a bit dependent on the time table of the customer in terms of the revenue recognition. And because of that, we gave this kind of borders between full revenue recognition and, partly, revenue recognition and -- but 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. So 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 2 figures. It's just about revenue recognition.

And just to add, I think closing the gap going forward to 2025, it will be, of course, closed by the mass production and we anticipate, of course to reach the revenues that we wrote.

So, I guess, not to put words in your mouth for 2023, but we'd be seeing just more traditional product revenue and less NRE come next year?

Exactly. So as we are in production, there's no NRE. Just delivery...

Of course, towards I assume '24, '25 in the back end of Q3.

The next question comes from Jaime Perez with R.F. Lafferty.

So we've been hearing a lot of the OEMs saying that they're looking this supply chain shortage last into -- at least to 2022. And I mean, I know you started a ramp-up production at the end. Do you think that once -- because customer demand for automobile is still strong, and I think there's going to be a pent-up demand where these OEMs will just require a product because they're backed up in their production. And would you be able to handle -- do you foresee that environment? And yes, that's my first question.

So basically, when we are shipping chips in '23 to our Tier 1, just to understand the time table, so let's assume that we are shipping chips in Q2 '23 to the Tier 1s. They're shipping a full radar model to the car manufacturer just by the end of '23. And that's going to be on a car only on '24. So I think right now, the supply chain issue for us is not really -- it's not going to affect the actual results in '23, '24 because the chips that we are shipping now is for cars that are going to be sold to the customers by the end of '24, which is -- part of it is practically year model '25. In China, maybe a bit earlier, but it's not on the time table that this shortage is influencing the total amount of the car. Also remember that imaging radar and any other new technology are getting to the high-end cars. And those are cars that, from the OEM perspective, are the most profitable. So they're focusing their supply chain and their inventory on delivering those cars instead of cars that their gross margins are a little lower. So I think, overall, the supply chain is an issue, but I don't see it affecting our results in the next few years.

So based on the business model and the production ramp-up, you basically missed the next couple of quarters of the supply chain issues. And pretty much, when all this issue is accessed to be you'll be in full production, so are you pretty much -- pretty good timing on that. And second question on, have you looked at any nonautomotive applications?

Sure. So there is, I would say, new automotive and nonautomotive at all. So delivery robots, for example are, I would say, new automotive. It's not really clear yet today. If those robots needs a full automotive-grade component, but we are actively in this market. Same as the other applications like shuttle. And we are also, in some projects of nonautomotive at all, even smart cities, mining and heavy machinery and agriculture, in all of those markets, there is a potential. We have a partnership for this market, a large Swedish company called Qamcom, and they are basically supporting the customers in those low volume, high-margin markets.

All right. And due to your lower competitive cost, these are -- it's probably very profitable Arbe Robotics radar into some projects like robotics or drones as opposed to the other technologies, couple of thousand dollars.

Yes. So when we started our vision, it was to enable also robotics and drones and we are still with this mission. So -- and we believe that those verticals are valuable for us. But of course, automotive is the main -- our main market because of the volume and because of the value that our technology brings to automotive.

This concludes our question-and-answer session. I would like to turn the conference back over to Kobi Marenko, CEO, for any closing remarks.

So 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 today's presentation. You may now disconnect.