Business context and reporting period
Arbe Robotics Ltd. filed this Form 20-F for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter filing. The filing does not provide a clear set of Q4-only financial results. Arbe is an early-stage Israeli developer of 4D imaging radar chipsets and related software, primarily for automotive ADAS and autonomous-driving applications. Its audited consolidated financial statements are prepared under U.S. GAAP. Arbe completed its business combination with Industrial Tech Acquisitions, Inc. (ITAC) on October 7, 2021 and listed its ordinary shares and warrants on Nasdaq.
Financial performance and position
Amounts below are in U.S. dollars; financial results are for full years ended December 31.
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $2.249 million | $0.332 million |
| Cost of revenue | $1.440 million | $0.340 million |
| Gross profit (loss) | $0.809 million | $(0.008) million |
| Gross margin | Approximately 36% | Approximately (2%) |
| Operating expenses | $34.087 million | $14.950 million |
| Operating loss | $(33.278) million | $(14.958) million |
| Financial expenses, net | $24.814 million | $0.667 million |
| Net loss | $(58.092) million | $(15.625) million |
| Basic and diluted loss per share | $(2.64) | $(1.70) |
| Net cash used in operating activities | $(26.416) million | $(15.285) million |
Revenue grew substantially from a low base, principally from chipset and sample sales. The 2021 customer mix was concentrated: three customers accounted for 41.1%, 31.2% and 15.6% of revenue. Sweden, China and Germany represented approximately 41%, 31% and 16% of revenue, respectively.
The 2021 net loss included approximately $24.5 million of noncash warrant and convertible-loan revaluation and accretion charges, according to the cash flow reconciliation. R&D expense was $28.564 million, up from $12.794 million; sales and marketing was $1.814 million, versus $1.063 million; and general and administrative expense was $3.709 million, versus $1.093 million.
At December 31, 2021, Arbe reported cash and cash equivalents of $100.811 million, total current assets of $104.181 million and current liabilities of $15.467 million, implying working capital of approximately $88.7 million. Total assets were $105.346 million. The balance sheet included a $4.916 million short-term Scintilla loan, due July 1, 2022, bearing 10% interest and secured by substantially all company assets; Arbe reported compliance with its covenants. The company used $26.416 million of operating cash in 2021. Financing activities provided $125.082 million, including net proceeds from the business combination and PIPE.
The October 2021 business combination and PIPE generated approximately $118.3 million in gross proceeds, including $100 million from the PIPE, with approximately $16.7 million in transaction costs. At December 31, 2021, 63,016,856 ordinary shares were outstanding; the filing reports 63,067,693 as of March 28, 2022.
Material changes versus the prior comparable period
- Revenue increased by approximately $1.917 million, from $0.332 million to $2.249 million, and gross profit improved from a small loss to $0.809 million.
- Operating expenses more than doubled, driven primarily by expanded R&D, increased staffing and development work ahead of production, as well as higher public-company costs.
- Net loss widened by approximately $42.5 million, largely reflecting the noncash fair-value charges on convertible loans and warrants in addition to higher operating costs.
- Operating cash use increased by approximately $11.1 million. The company’s cash position rose sharply following the business combination, PIPE financing and other financing proceeds.
- Arbe completed its transition to a publicly traded company in October 2021 and converted its preferred shares and convertible loan into ordinary shares as part of the recapitalization.
Outlook, commentary and risks
Management expected expenses to increase in 2022 as Arbe continued R&D, prepared for automotive-grade production and expanded commercialization, sales and marketing. The company estimated it could offer chipsets in commercial quantities in 2022, but stated that this depended on completing development and achieving product readiness; it gave no assurance that commercial-volume sales or manufacturing capacity would be achieved on schedule. Management said cash on hand together with revenue was expected to fund operations until cash-flow positivity, but the filing provides no specific cash-flow-positive date or quantified revenue guidance.
Arbe reported work with five Tier 1 suppliers developing radars based on its chipset and more than 30 evaluation projects. It described customer selections, trials and potential production programs, but cautioned that evaluations, memoranda of understanding and development arrangements may not lead to production contracts or material revenue. It reported that AutoX had agreed to integrate 400,000 radars over five years, subject to product and support meeting its requirements. A $2.3 million aggregate amount of remaining performance obligations was expected to be recognized in 2022.
- Commercialization and customer conversion: Automotive design, validation and production cycles can take years; projects may be delayed, cancelled or fail to reach production. Revenue remains small and concentrated.
- Manufacturing and supplier dependence: Arbe does not operate manufacturing facilities and relies on third parties. GlobalFoundries is the sole supplier of key semiconductor chips; the filing says an alternative could require a redesign taking up to two years. A long-term manufacturing agreement was under negotiation, not reported as completed.
- Funding, losses and debt: The company expects continuing losses and rising costs. The Scintilla loan’s July 2022 maturity and asset security are relevant liquidity considerations, notwithstanding the reported cash balance.
- Market and execution risks: Automotive semiconductor shortages, supply-chain disruption, inflation, pricing pressure, competition, product defects, safety regulation and the uncertain pace of ADAS and autonomous-vehicle adoption could impair margins or delay sales.
- Macroeconomic and geopolitical risks: The filing discusses COVID-19 effects and, as of its March 2022 filing date, risks from the Russian invasion of Ukraine, including inflation and supply disruption. It also notes a Japan earthquake and lockdowns in China as potential business and supply-chain factors.
- Unusual accounting and dilution: Private warrants are recorded as liabilities and remeasured through earnings, potentially causing material noncash quarterly volatility. The filing also describes substantial outstanding warrants, equity awards and potential future share issuance.
- Other investor considerations: Arbe did not anticipate dividends in the foreseeable future. It disclosed that U.S. holders could face adverse tax treatment if the company is determined to be a passive foreign investment company (PFIC); its PFIC status for 2021 was not definitively established.
The auditor issued an unqualified opinion on the 2021 and 2020 consolidated financial statements. Management concluded disclosure controls and procedures were effective as of December 31, 2021; the company, as an emerging growth company, was not subject to auditor attestation of internal control effectiveness.
Important facts for investors to verify
- Whether customer evaluations and announced selections convert into binding production agreements, scheduled launches and material recurring revenue—and the conditions attached to the AutoX program.
- Whether GlobalFoundries capacity, the proposed manufacturing agreement and supply-chain readiness support commercial-volume deliveries on the expected timetable.
- How much of the reported $2.3 million remaining performance obligations was recognized in 2022, and whether subsequent revenue remains concentrated among a small number of customers.
- Cash burn, cash runway and repayment or refinancing of the $4.916 million Scintilla loan due July 1, 2022, including its security and covenant terms.
- The effect of warrant and convertible-instrument accounting on reported earnings, and the potential dilution from warrants, options, RSUs and other share issuances.
- Whether commercialization costs, production yields and customer pricing support improving gross margins as sales scale; the filing’s expected margin improvement is forward-looking.