Gauzy Ltd.

Good morning and welcome to the Gauzy Limited Second Quarter 2024 Earnings Conference Call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Mr. Dan Scott, Investor Relations. Thank you. You may begin.

Thank you, Operator, and thank you, everyone, for joining us today. Hosting the call today are Gauzy's CEO and co-founder, Eyal Peso, and CFO, Meir Peleg. On this call, management will be making forward-looking statements, not historical facts, which are based on management's current expectations, beliefs, projections, and assumptions, many of which, by their nature, are inherently uncertain. These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key expectations, beliefs, projections, or assumptions are incorrect because of other factors discussed in today's earnings news release and the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.gauzy.com. We do not undertake any duty to update any forelooking statements. This call contains time-sensitive information that is accurate only as of today, August 8th, 2024. Except as required by law, Gauzy disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Today's presentation will also include references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Eyal.

Thank you very much, Dan, and good morning, everyone. This is our first conference call since completing our initial public offering in June. And I would like to start out by thanking our team for their outstanding execution, as well as our new shareholders for their tremendous support. The IPO was an important milestone for our company, and we are all excited about the new opportunities that being public creates for us. Our results so far in 2024 reflects record growth attributed to new commercial opportunities and the expansion of existing programs with our strong and sticky customer base. I know that our team is just getting started on what they can achieve, and we look forward for continuing to deliver on our objectives. I'm going to focus my opening remarks today on three topics. One, providing a brief overview of Gauzy for those of you who are new to the story. a high-level summary of how we performed in the second quarter and first half. And three, and finally, our strong backlog and pipeline of innovation, driving our positive outlook for the business for the rest of the year. Following that, I will turn it over to Gauzy's Chief Financial Officer, Mayer Pelling, who will provide financial highlights from the second quarter. So first, a brief overview of Gauzy and what we do. We are a global leader in light and vision control technologies, specializing in advanced materials and systems that enable the electronic control of light through transparent temperatures. We are headquartered in Tel Aviv with a significant global presence that includes over 650 employees across 14 locations worldwide. Gauzy serves more than 1,000 customers today in over 30 countries. Through both direct sales and a network of over 95 certified partners, our innovation is backed by 141 patents across multiple countries, including the U.S., Germany, France, Israel, China, Japan, and more. We are a deep science company that is fully integrated from developing our own IP to research and development through to production, manufacturing, and delivery. Leveraging our expertise in material science and software-embedded electronics, we create world-leading products, including smart glass and advanced driver assistance systems, or ADAS, serving our rapidly growing key markets, including aeronautics, automotive, and architecture. We are focused on the research, development, and manufacturing of smart materials and systems that enable control of light through transparent apparatus. We have the most comprehensive portfolio of technologies, including polymer dispersed liquid crystal, or PDLC, and suspended particle devices, or SPD. Both PDLC and SPD technologies allows us to electronically control light through transparent materials such as glass to control privacy, reduce glare, control temperature for energy savings and comfort. Our technologies allow any window to transition from transparent to fully opaque. Our products are already widely adopted in both the interior and exterior glazing of buildings, cars, and aircraft. This technology can already be found on the sunroofs of McLarens, Mercedes, GM Cadillacs, and Ferraris, and is expected to be widely adopted in mass market cars in coming years. In Vision Control, we are focused on the development, manufacturing, and delivery of ADAS, for commercial vehicles, including buses and trucks. Our core ADAS product offerings include our AI-powered TMS, or camera monitoring system, called Smart Vision. Smart Vision eliminates the need for side and rear view mirrors and replaces them with high-definition exterior cameras and interior displays. Expanding the driver's visible range to eliminate blind spots and delivering audio-visual alerts for real-time hazards enables drivers to make faster, more informed decisions that dramatically reduce accidents. By developing our proprietary AI module, we have created a self-learning system that allows us to understand and resolve the most important challenges drivers and fleets experience. One example of how AI can be experienced in our system is with automatically generated adaptive lines that resolve depth perception constraints inherent to long and changing body vehicles such as semi. Gauzy delivers our ADAS and CMS technologies both as a Tier 1 to OEM and as a retrofit solution to existing fleets. Smart Vision is chosen by Ford trucks and for buses by the world's largest manufacturers such as Yutong, Mons, Scania, Irizal, and more. Gauzy is comprised of four distinct business divisions serving four key end markets. In aeronautics, Gauzy operates as a tier one supplier of cockpit and cabin shading systems for commercial and business aviation. We are involved in production programs with major aircraft manufacturers like Boeing, Airbriar, and Bombardier. Our well-established OEM relationships resulted in newly awarded programs for various aircrafts this year, which increased our share in cockpit shading to a staggering 95% market share. We have also leveraged this leadership position to move beyond cockpit shading into cabin shading, where we have been selected by airlines to utilize both our light-controlled glass and electromechanical shades. The addressable market for shading and lighting systems in commercial and business jets is estimated at $600 million annually, and we currently have very few competitors. This division is already profitable and generates cash. In May of this year, we showcased our innovative cabin shading systems and transparent display technologies with an emphasis on the commercial industry in Hamburg at AIX, the world's largest aircraft interior exhibition. In architecture, we operate as a tier two supplier serving various architectural applications, including interior partitions, exterior facades, and skylights. We have an extensive distribution network, which includes more than 95 certified and trained glass fabrication partners in more than 30 countries that deliver our products to their local markets. We have a strong and growing presence with the world's best architectural firms, designers, and builders. In automotive, Gauzy operates as a Tier 2 supplier, working with both OEMs and auto glass manufacturers. We have initiated serial production programs with six different OEMs, such as Daimler, and continue to add new OEMs and models at a rapid pace. Our technologies are highly relevant for electric vehicles, which typically have large glass roofs. Shifting now to our safety tech business, where we are a Tier 1 supplier of our ADAS products to commercial vehicles, such as buses and trucks. Our SmartVision product line is already replacing mirrors in more than 80 cities around the world. Last month, we announced our deployment in Paris ahead of the Olympics, adding to our successful deployment in London, where we are installed on over 3,000 buses and growing. Each of our four business divisions has its own unique growth drivers. I'll make two important points. First, we address both OEM and aftermarket retrofit, which dramatically expands our addressable market across segments. Second, Sustainability tailwinds are driving regulations such as the US Inflation Reduction Act, or the IRA, that are promoting the adoption of our product. Our business model typically involves long-term supply agreements with minimum annual commitments from our customers, allowing for stronger visibility. Next, allow me to provide some high-level thoughts on our strong performance in the quarter and the first half. We grew our total revenues 22.4% in the second quarter, and 31.5% in the first half of 2024. Our second quarter strength was highly impressive considering the significant pull forward of sales we saw in the first quarter due to accelerated demand from some of our customers. Our results for both the quarter and the first six months featured particular strengths in safety tech, aerospace, and automotive. The impressive increase in revenues was the primary driver of significantly higher gross profit in both periods. When you look at our performance on a trailing 12-month basis, or TTM, our revenue is up an impressive 43%. Our backlog is strong and growing, with a number of exciting project wins year-to-date across multiple segments that support our favorable outlook. We have been busy since our IPO. Our end markets are growing fast, our backlog is ramping, our products are winning market share, and we're executing well on our plan. Backed by a strong balance sheet and liquidity position, we are confident we will deliver on our goals. With that, I will turn it over to Meo for an update on Gauzy's financial results.

Thank you, Eyal. For the second quarter, we generated revenues of $24.4 million which was up 22.4% for the prior year period and ahead of our expectations. Demand for our products across aeronautics, safety tech, and automotives were strong. This more than offset a decline in architecture that reflected the timing of deliveries in full-year contracts. As we all mentioned, it's important to note that our typical contracts involve full-year orders quantities and there can be a variability in those shipments across the quarters based on our customer demand. This was evident in the first quarter of 2024. We saw several of our customers pull forward deliveries to meet faster than expected demand. As such, quarter-to-quarter results can vary, but when you look at us on a full-year basis, the strength of our model becomes far more apparent. Gross profit for the second quarter was $6.6 million, an increase of 64% from the prior year period. This equated to gross margins in the second quarter of 27%, a 680 basis points improvement from the prior year period. This was mainly due to the high revenues and favorable product mix. SG&A for the quarter was 9.4 million. up to 24.7%, mainly to support higher revenues as well as one-time expenses related to the company's initial public offering. R&D expenses in the quarter were 4.1 million, up 7.7% and reflective of our strong commitment to innovation. Net loss for the quarter was 19 million, compared to a net loss of 18.3 million in the five-year period. Adjusted net loss for the quarter was $7.8 million, compared to adjusted net loss of $8.9 million in the prior year period. Adjusted net income excludes amortization of intangibles, stock-based compensation, and other non-core items. Please see the adjusted net income table presented in our second quarter press release and earnings presentation. Now turning to our segment results, starting with aeronautics. Revenue in the segment was $10 million in the quarter, up 28.5% versus the prior year for $7.8 million. The increase was mainly driven by strong demand broadly across our suite of product offerings. Gross profit in Aeronautics was $3.9 million, an increase of 82.9% year-over-year. This equated to a gross profit margin of 39% up from 27.4% in the year-ago quarter. Higher gross margin was the result of higher revenues across a fixed cost base. Now turning to our architecture segment results. Revenue in the segment was $2.6 million in the quarter compared to $3.3 million in supplier year quarter. The decrease mainly reflected the timing of certain deliveries, which clients nominate on a full-year basis, but as we said, can vary from quarter to quarter. Gross profit in architecture was $0.9 million, a decline of 11.8% year-over-year. This equated to a gross profit margin of 36.3%, up from 31.2% in the year-ago quarter. The higher gross margin reflected a favorable product mix and operating efficiency. Now turning to our automotive segment. Revenue in the automotive segment was $0.9 million in the quarter, up 79.5%. The increase mainly reflects the start of serial production since the second quarter of 2023 supported by our strong contracting activities and expansions of existing orders. Ross Lawson Automotive was approximately $0.9 million in both periods. In our safety tech segment, revenue was $10.8 million in the quarter, up 30.7% versus the prior year quarter's $8.3 million. The increase was largely driven by strong demand across our pseudo-product offerings. Gross profit in safety tech was $2.2 million, an increase of 80% year over year. The equated to gross profit margin of 20.6%, up 560 basis points as a result of having more revenues to absorb fixed costs and favorable product mix. Moving to our balance sheet. We are well-funded for the future. In June, we completed our IPO, raising gross profits of $75 million. We closed out the quarter with total liquidity of nearly $100 million. Since that time, we have completed a number of actions to simplify our balance sheet and capital resources for the long term. First, the provider of our original $60 million trade line, of which $25 million was previously drawn, chose to participate in our IPO while reducing total availability of their credit line to the un-drawn $35 million amount. As a result, we used the portion of our IPO proceeds to repay what we had drawn plus fees. From a liquidity perspective, support from our lending group has been strong, and we expect to replace a like amount of that borrowing capacity under better terms in the near future. Finally, let me give you some color on our expectation for the rest of the year. We are off to a strong start, and our internal expectations for the full year are largely unchanged. I would point out that revenue is usually seasonally, consists from Q2 to Q3, due to the timing, occasionally impacted shipments in Europe or in others. In 2024, we expect that trend to continue. Based on our anticipated geographic mix, we expect Q3 revenue to be modestly higher sequentially, followed by a bigger increase in Q4. We expect gross margin in the second half to be higher as compared to the first half based on the timing of revenues and associated operating leverage. Finally, we expect adjusted net loss to narrow in 2024 as compared to 2023. Now I will turn it back over to Eyal for closing remarks.

Thanks, Meir. These are exciting times for Gauzy. We have demonstrated a very strong initial quarter as a public company, which is on track with our plan. We have grown revenues 43% over the past 12 months, while significantly expanding our gross margin. As we look to the back half of 2024, we are on pace to dramatically accelerate our revenue and profitability. The demand catalysts that we discussed today are poised to continue the wide adoption of our innovative product to an expanding customer base. In the upcoming quarters, we plan to introduce exciting new products that we expect will further accelerate our growth and expand our share in our key market. We are well-funded following our successful IPO. We look forward to achieving our goals of growing the business, becoming adjusted EBITDA positive, followed by EPS and cash flow generation. I am confident in our strategy, our team, and our bright future. Thank you for your time today. Operator. Could you please open up the line for further questions?

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Our first question comes from the line of Mr. Dan Leddy from Barclays. Please go ahead.

Hi, good morning, and thank you for taking the question. Wanted to start with a question on the backlog, and maybe you can help us understand how to interpret or read this figure of $36 million And maybe, you know, how this gives us some confidence on the visibility of forward revenue for you.

Hi, Dan. Good morning. And thanks for the question. So our backlog is really what we have booked and we need to ship. It's booked in our system and we need to ship. Usually this number is, you know, the nature of our four businesses is is such that these POs that are committed, hard commitments from customers in the likes of a PO, that we need to ship usually between a quarter to two quarters ahead. So this gives us very good visibility on top of our annual commitments, and most of our customers sign annual commitments. This backlog also provides us you know, 100% on this number, it's 100% going to be shipped in a quarter or two ahead. So that's where this number is coming from.

Okay, great. Thank you.

As a second question, I wanted to ask about the free cash flow. Maybe you can help us understand. Appreciate the commentary you provided on you know, improved revenue in the back half, gross margins narrowing, gross margins improving as well. But maybe you could just talk about the free cash flow, which was negative $20 million in the first half. There was some working capital. And maybe you can just provide us some comments on sort of the cadence to expect on free cash flow. How much was the first half maybe negatively impacted by some one-time items on working capital or just negative seasonality?

Thank you, Dan. So per your question, the net free cash flow was affected in Q2 and for the whole half, the first half of 2024 by CapEx investments. We invested $4.5 million for the first half and three out of it in Q2. And also we had one-time payments in Q2, which are not going to be this kind of expense. Of course, we might have some one-time, but won't be in the coming quarters for the rest of the year related to the IPO, of course.

So one-time expenses, I'd like to add just that. I mean, there were quite a lot of one-time expenses related to the IPO, of course. in Q2. So that's something that we're not going to see in the back half of the year.

Okay. So how much, you know, of that negative $20 million of free cash in the first half, how much of that would maybe sort of not, you know, above normal CapEx or above, you know, the one-time expenses? Just trying to get a sense of, you know, how much substantially the free cash flow should improve in the back half of the year.

So For the first half, including IPO and other one-time expenses, it's about $4 to $5 million in the first half.

Okay, so $4 to $5 million in sort of one-time expenses. Okay, thank you. Maybe if I could squeeze in one last one, and maybe you could just give us a sense on the relative segment dynamics that are feeding into the backlogs. I appreciate, you know, you know, there's strong, I would say, demand on air right now. That's what's being produced. But, you know, our understanding was that safety tech was the one where there was, you know, a very robust stream of programs coming on, of retrofits, et cetera. So how do you expect the backlog to shift from a segment perspective in the quarters to come? And what does it take for automotive to go from, you know, what's a relatively smaller portion of the backlog to something more substantial.

Thanks, Dan. So I'll start with the second half of the question. I'm not sure that we're going to see the backlog of automotive substantially increasing on POs in the system that we still need to ship when we're looking at the end of a period. Because usually once we get the order from an OEM in the automotive segment, unlike other segments, we ship it rather quickly. So many, many times you'd see the backlog going up and then going down because we just shipped it. So it is going to be, you know, it is going to increase, but it's not going to go to the numbers of aeronautics where you get the purchase order and the backlog is purchase orders committed, committed to ship in the very short term. So you'd see bigger orders for a little bit more time, so it can be even two quarters in aero. So the number in aero is kind of naturally bigger because the POs are bigger when we have more time to ship it. In automotive, it tends to be shipped quite quickly after we receive the PO, so you won't see the purchase order on the book. But on an annual basis, this gives you a lot of information for the next quarter or two. But again, it doesn't take away from our annual minimum commitments in these segments. And in safety tech, it's a little bit the same. So I'm coming back to the first half of the question. You see the big number in aeronautics a lot because there is really... There's record traveling in the last year where the cycles that the regulation mandates the operators, the airlines, to replace, for instance, a cockpit shade, shortens a lot. And once they foresee a lot of travel and more time in the air, they're picking up the orders to be ready for these replacements in the short term. It's a lot because of that, and we expect that to kind of settle down a little bit. It's still going to grow very, very nicely, and even we're going to expect accelerated growth on this. But the backlog or the orders that we need to ship, the time for shipping from the minute we get a PO is going to shorten. So you're going to see a balance on that. And I want to say it's kind of the same in safety tech. When we had to ship systems into the Paris Olympics, You know, we got the order and we had to ship it almost immediately, so it didn't live much in the backlog. So, you know, so it's kind of the same like automotive. You get the order and you ship it quite immediately, so it doesn't live a long time in this hard commitment pile we call a backlog.

Great. We'll leave it there. Thank you.

Thanks, Dan.

Thank you, Mr. Dan Leddy from Barclays. Our next question comes from the line of Mr. Joshua Nichols from B. Reilly. Please go ahead, sir.

Thanks for taking my questions. I wanted to ask a little bit on the gross margin. You saw a nice sequential improvement in margins up to 27%. You talked about expecting very good sales growth for this year. Can you elaborate a little bit about the gross margin expansion opportunities in the second half of the year, given the revenue trajectory that you expect to increase as well?

Thank you, Josh. So, in general, we have quite an infrastructure which can support much higher revenues. So the higher the revenue, the fixed cost will remain mostly the same and all the variable costs will increase. So as we expect that the H2 revenue top line will be higher than H1, this will, considering that the fixed cost will remain mostly the same, it will enable us to increase the gross margin in H2 compared to H1 and for the whole year in general compared to at 2023.

Maybe just I'd like to add, Meir, with your permission. It's also that we see a positive change in the mix of products with every division. You see less legacy and more of the new product lines being sold, for instance, in safety tech, Hence, improving our gross profit in that measure, because we have different gross profits for different product lines. Of course, the same way we demonstrated this in age one, and we did well on our plans in our gross profit in age one, we're expecting the same and accelerated performance into age two, also due, of course, to scale, but also due to a better product mix.

Thanks for the detail there. And then I know automotive, we've talked about that as a big long-term opportunity. You're working with, I think, six or so OEMs, including Daimler already. I'm kind of curious about the expectations for adding new customers to the company's platform, potential announcements on that front in the second half, and then how long it takes from a new customer addition to ramp up and actually start delivering some of these products.

So thanks, Josh. I'll say that we have quite a few that are in line to initiate cereal production. So the market, of course, doesn't know. We have some that we've been working on for a few years that are expected to announce the commence of cereal production soon. So you should expect announcements in that respect with new OEMs, but also with new models. And that takes me to the second half of your question. If an OEM needs to homologate our SPD or our LC on a rooftop, it can take some time. It depends. It varies between EVs, I have to say. It depends if it's... more a traditional OEM. It can vary between months and even years. But once you homologated that product within an OEM, the next model and the next model and the next one, and usually the next models are those who are more mass of production, that is only a discussion about price. So you can see a very steep acceleration in volume after you had one OEM do one model, that same OEM can do many more because it's already homologated. So that's how you need to view the automotive business.

Thanks. And then last question, just to pivot back about profitability and cash flow a little bit. I know you mentioned that you expect the net income loss to narrow significantly. I'm curious on an EBITDA basis what the company's expectation is in terms of getting to kind of like break even profitability level and how long that may take.

Sure. So we are very happy with our top line revenue and gross margin for Q2 and H1. And we are on the way to be profitable and on track with our plan. Yeah. For the rest of the year, yeah.

So the EBITDA measure for GAUZI, as we say often, is something that we like to see on an annual basis. There's sometimes pull forward on, I'll give you an example, R&D expenses that are not considering the specific top line of that quarter. But we're very accurate on an annual basis, same as we say on the revenue on which we base the budget that we provide for R&D, for example, which is an EBITDA expense. So I think that while we're in line with the top line in gross profit, we're on track with the EBITDA measure as well for the full year.

Thanks, guys. Thanks, Josh.

Thanks, Josh.

Thank you, Mr. Joshua Nichols from B Reilly. Your next question comes from the line of Mr. Jeff Osborne from TD Cowan. Please go ahead.

Great. Thank you. Just maybe following up on that question, you mentioned to Dan that $4 to $5 million, I think, of the cash consumption was sort of one time in nature. Is there a way of thinking about, for 2Q in particular, how much of the OPEX was associated with the IPO or others that the figure did come in above our expectations? And I heard you just say you budget things on an annual basis. If you could just articulate in further detail any one-time items that might have been flowing through the OPEX lines in 2Q, that would be helpful.

Thank you, Jeff. So, first, regarding the IPO expenses, it's not just IPO expenses in H1. There are some other one-time expenses. which were included in H1, but we expect and project H2 to be much better because of the top line and gross margin will be increased and that will back up our better free cash flow in that period.

Jeff, I think that If there are any kind of one-time expenses which are not IPO related or more like OPEX related in H1 that we're not going to see in H2, I'd say that's rather minor. There are some, but the way to look at H2 with Gauzy, We're going to see, as we always do years back, an accelerated growth into age two, providing us more cash to stabilize the EBITDA measure. Of course, removing all the one-time expenses that we had in age one unrelated to OPEX, like IPO, but you should view this mainly because of more cash we have left because of accelerated growth in age two.

Got it. And then maybe switching gears, but can you just touch on the SB3 product cycle for safety tech? I think you were going to start introducing that in Q4 and then ramp that up in 2025. I just want to ensure that that's on track.

Yep. Thanks, Jeff. It's 100% on track. I think we even mentioned this, that we're going to announce the product out in Q3. We're going to do that in the IAA show in Germany, which is this year all about trucks, bus, and coach. It's going to be a big, big event for us, and that's where we're going to announce it. Inviting anyone who wants to come and see us there is going to be a big, big event for us. So it's on track, very soon to be announced commercial. and on track to be launched commercially towards the end of this year, as you mentioned.

Great to hear. And then maybe just the last question on safety tech. I think you mentioned in the prepared remarks 80 cities, and you mentioned Paris, which you had put a press release out about. I think during the IPO process, most of the focus was on Melbourne, Lyon, and London, I believe. But is there any other notable cities that have hundreds of units that have been ordered? that you can articulate or the bulk of the 80 just sort of in the testing phase?

So it's a good question, Jeff. It's Brisbane in Australia. It's also a major metropolis, but it's Brisbane, not Melbourne yet. But we're working on that as well. I'd like to say that when we say it's already running the streets on buses with no mirrors at all, collecting great statistics, it's very important to be big and be first in these cases. We're in many cases, so there are cities that I am not able to mention right now, and we have a pipeline of this for a year or two from now. But I can give you color on this. When we say 80 cities, it's not only demos. We are embedded on, you can find us in Bilbao in Spain on Irizar because Irizar sells its bus with an option and the local city doesn't have to sign a whole agreement with us for, so it's a small operator in one part of the city using Irizar and they already run it with our ADAS because they're using that. So when I'm saying that we're deployed commercially in 80 cities or more, it's really not demos. It's really many times coming from the OEM and then being used by local municipalities or local fleets like VIP buses and things like that.

Great to hear. That's all I have. Thanks so much.

Thank you, Mr. Jeff Osborne from TD College. Ladies and gentlemen, we are still in our question and answer session. Should you have a question, please press the star followed by the one. You'll hear a prompt that your handset has been raised. If you're using a speakerphone, please leave the handset before pressing any key. Our next question comes from the line of Mr. Matthew Sherin from CIFO. Please go ahead.

Matthew Sherin, CIFO Yes, thank you. Good morning, everyone. Lots of good data points here and information. I did have a couple of modeling questions just regarding interest expense. I know you raised a lot of money on the IPO, and I know your debt has come down. So could you talk us through expectations for interest expense for the rest of the year?

Thank you, Max. So, as you said, part of the financial expenses came from interest expenses. Some came from valuation, fair value valuation. We did repay part of our debts in Q3, but we have enough liquidity to get to profitability, so we're still on track. And we were offered, by the way, with the new facility with better terms, And we are considering it right now.

So maybe I think that you're going to expect, Matt, the interest expenses into the second half to be reduced because we have repaid some of the debt with the IPO proceeds. We're also, as May mentioned, we have a few offers right now on the table to... potentially replace existing debt with better terms, and we're exploring it right now. Does that answer your question?

Directionally, it does. Are we talking about getting that cut in half? You were at $13 million last year, and you were at $7 million or $7. whatever million in the first half of this year, so it's Do you expect that to be down dramatically, like to one or two million a quarter?

It should be down dramatically in H2, yeah.

Okay. And then, you know, thanks for all the commentary around the backlog and opportunities with the end markets. But one potential concern that we're getting from investors is, in the slowdown of EV across the globe and still growing, but still slower. We're seeing pushouts of model years. And I know a lot of your growth opportunity within auto is tied to EV, particularly on the sunroof. Are you seeing any concerns with customers? Are you sort of small enough and niche enough where you're focusing on sort of the high end and that's not a concern near term?

Thanks, Matt. I'll take that. It's a great question. I'd like to say that we're not experiencing any slowdown ourselves. And I think that in many cases, slowdown is interpreted, at least from what we see, it's still growing. but only the acceleration is not as expected. But it's still growing, and that change in acceleration of the adoption of EV is really so much, so far from what we're doing right now, what we're experiencing. We're working with numerous OEMs on programs and not even one has either stopped or delayed plans. So on the big, big numbers, you're right, and it's a good It's a good point, but the matter of the fact is that it is still growing, and we are still in the very, very beginning. We're talking about six OEMs today. We have way more than six in the pipeline. A lot of them are also EV. No one has indicated anything like stopping anything or whatnot. And again, the need in our product, we think, and we have OEMs agreeing with us, is in every EV that has a glass roof. And that number is so big and so far from what we're doing right now. And I have to say, you should expect this to be not only on niche and high-end EVs, That's always how it starts in automotive. If you're going to go in Daimler, you're going to start with the S class and take your way down to the E class and C class. That's how it goes. But these OEMs negotiate terms and annual contracts with us, taking into consideration the next models within every OEM. So you should expect this also on, say, more regular passenger cars soon.

Okay, that's very helpful. Thank you very much.

Thank you, Matt.

Thank you, Mr. Matthew Sherry. There are no further questions at this time. I'd now like to turn the call back over to Mr. Eyal Pesso, Chief Executive Officer for Final Calls and Comments.

Thank you for joining us today. We look forward to future discussions and announcements to update you on our progress Have a great rest of your day. Thanks.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. I hope you all have a great day.