Gauzy Ltd.

Good morning and welcome to the Gauzy Limited 3rd 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 Dan Scott, Investor Relations. Thank you. Please begin.

Thank you, operator, and thank you everyone for joining us today. Hosting the call today are Gauzy's CEO and co-founder, Al Peso, and CFO, Mayor Pelleck. 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, which 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 were in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, .gauzy.com. We do not undertake any duty to update any forward-looking statements. This call contains time-sensitive information that is accurate only as of today, November 12, 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 also includes references to non-GAP financial measures. You should refer to the information contained in the company's third quarter press release for definitional information and reconciliations of historical non-GAP 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. Thank you for joining. This is our second quarterly earnings call as a public company following our June IDO, and I want to express my deepest appreciation to our exceptional team for their hard work, dedication, and continued professionalism, and to our investors for your strong support. Throughout 2024, we've achieved impressive growth driven by both exciting new commercial opportunities and the expansion of existing relationships with our loyal customer base. The strong performance reflects just the beginning of what our talented team can accomplish, and we remain focused on executing our strategic vision and delivering upon our commitments. I'm going to focus my opening remarks today on three topics. First, the strong and growing demand across our four business divisions along with some highlighted strategic new customers and contracts. Second, I'll give a high-level summary of how we performed in the third quarter and year to date, including actions we have taken to expand our production output to meet continued accelerating demand while maintaining our short-term goals to reach profitability. Finally, I'll discuss how we are positioned to deliver on our strong backlog while advancing our pipeline of innovation to achieve our positive outlook for the business in the fourth quarter and in 2025. Following that, I will turn it over to GAUSE's Chief Financial Officer, Mayur Pedic, who will provide financial highlights from the third quarter as well as give details on our initial fourth quarter guidance. The third quarter was an important one for our company in many ways, one where we demonstrated the underlying strength and agility of our platform as we balanced accelerating demand with our focus on steadily improving profitability. Case in point was demand on our aeronautic division that outpaced our ability to deliver based on labor constraints and typical seasonality at our production facilities in Europe. Rather than rapidly adding new staff at a high cost that would require additional training and a much higher cost in the long term, we worked closely and diligently with our unions to add a second shift in France, a first for GAUSE. The support and partnership with our unions allows us to 1. More effectively manage our fixed labor costs and 2. Efficiently and quickly ramp up production without sacrificing profitability. As that's a key point that speaks to how we operate and scale our business, we are adding products and technologies constantly, fueling accelerating demand from our customers across our four business divisions, but we won't sacrifice profitability in the pursuit of outsized growth. As you can see in our narrowing net losses, we are continuing on our trajectory of improving profitability as we stay laser focused on driving the business towards the EBITDA positive followed by operating cash flow and eventually pre-cash flow and net income. The growing demand we talk about is real and tangible. You can see it in some of the largest companies and brands in the world. They choose us not just for a single order, but for multi-year deliveries of key technologies that are fundamental for the products they make. In the third quarter, we announced new business with Ferrari, one of the most iconic auto EMS and fourth largest by market cap in the world. Utah, the largest bus manufacturer in the world, a major international airline and one of the largest cruise ship manufacturers in the world. So now let me expand upon some of those and other key demand drivers across our four business divisions. In our safety tech division, Utah, who I mentioned is the world's largest bus manufacturer, increased orders for Q3 by 250% compared to the previous year. You can see some of the impact of that order in our 68% revenue growth in the division year over year. This growing relationship with a major OEM positions us to expand our already market leading global position on passenger buses as they expand installation of our SmartVision data system on both single and double decker models. That system is now installed on tens of thousands of buses in more than 80 cities worldwide. In this quarter alone, we delivered on a record number of buses in Australia, reflecting 100% growth year over year. Both of these are testaments to how our relationships with OEMs and regional transportation authorities are a driver of growth. Gauzy is still the only company in the world today covering complete cities with ADAS, no mirrors on public transportation. In the same division in September, we unveiled our next generation AI powered advanced driver assistance systems or ADAS for commercial trucks. Ford Trucks is among the first OEMs to select this exciting technology and has signed us for a minimum of 10 years of serial production on their trucks. Our SmartVision ADAS for trucks replaces traditional mirrors with high definition cameras and displays that deliver real time audio visual alerts based on image analysis and predictive learning, increasing safety by eliminating blind spots and increasing ROI through fleet efficiency. In our aeronautics division, we signed an agreement with the major international airline to provide cabin shading systems with our LCG or light control smart glass products. For their business class cabins on both new and existing 737 MAX fleets. This is an important development as it represents penetration into the cabin shading market in commercial aircraft where we grow rapidly. As we discussed before, we have reached 95% market share globally in cockpit shading for commercial and private aircraft. We announced during the quarter how we expect that to represent a minimum of $240 million in revenues in aggregate for GAUSI over the next 10 years. This win is an example of how we leverage our strong business relationships and presence with OEMs to expand into additional applications that represent high volume. In our automotive division, we landed our largest auto contract to date. Earlier this year, we signed a nine-year contract to deliver our product into an average of 50,000 cars per year with a major European OEM. Activity to support this contract is ramping up right now and we expect to realize first revenues from this contract in early 2025. Additionally, we announced recently that Ferrari has selected GAUSI as a strategic supplier to provide SPD SmartGlass Technology for serial production for their new four-seater. This is the first time Ferrari has implemented SmartGlass Technology on a mass production level for any of its designs and we are proud to be part of this exciting offering for the next eight years committed. In our architecture division, we had a number of new awards. First, a large cruise ship maker has selected GAUSI for their new terminal in Miami, Florida, which will host over 11,000 square feet of GAUSI PDLC to enable a transparent display facade. We also expect our technology to be implemented into current and future vessels of that manufacturer. Additionally, one of India's largest developers in the commercial sector has signed with GAUSI for multiple new buildings in the country, starting with over 5,000 square feet in a new establishment in the center of New Delhi. We have further orders in the pipeline to address the hospitality sector with this customer and we are excited about the opportunities to come in this region. And finally, we revealed the first ever solar-powered LCG SmartGlass at GlassTech, supporting sustainability initiatives in built environments. We expect to commercialize this revolutionary offering in 2025 and capitalize on a growing market. Next, allow me to provide some high-level thoughts on our performance in this quarter and year to date. We grew our total revenue .6% in the third quarter and .2% year to date versus the same period of 2023. Our third quarter strength was particularly impressive considering we were late on certain shipments that we now expect to ship in the fourth quarter. This was primarily in our aeronautics division as we worked with our unions to add additional ships to meet increasing demand. Importantly, the demand for our products was already there and just continues to accelerate. With the second shift now staffed, we are already shipping that backlog and are well positioned to fulfill increased demand into 2025 and beyond. As we shared in our pre-announcement, approximately 4 million U.S. of orders scheduled for the quarter will now ship in the current quarter, Q4. Our results for the quarter featured particular strength in safety tech and architecture. The increase in revenues was the primary driver of higher gross profit in the quarter. When you look at our performance on a trailing 12-month basis, our revenues is up an impressive 29.8%. A helpful reminder would be that in a typical year, our first quarter is our weakest. Our fourth quarter is our strongest by far. And the middle two quarters are typically similar largely due to vacation patterns in Europe. We have been very busy in the few months since our IPO. We have increased our labor output utilizing a second shift with the support of our unions. We have introduced new offerings like the next generation of our ADA Smart Vision for commercial trucks and we continue winning key business. Our end markets are growing fast, our backlog is ramping, and our products are winning market share. The demand is there, the orders are there, and we are fully confident we will deliver on our goal. With that, I will turn it over to Meir for an update on GAUSI's financial results.

Thank you, Eyal. For the third quarter, we generated revenues of $23.3 million which was up .6% from the previous quarter. Demand for our products across safety tech, architecture, and automotive were strong. Revenues from these divisions more than offset a decline in aeronautics that reflected the timing of deliveries on a full year contract. As Eyal said, our typical contracts involve full year order quantities and there can be a variability in those shipments across the quarters based on customer demand and in the case of this quarter, our ability to ship. 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 third quarter was $5.6 million and .5% increase from $5 million in the prior year period. This equated to gross margin in the third quarter of .9% compared to .8% in the prior year period. This was mainly due to the mix of revenues from divisions. Amongst our divisions, aeronautics produces our highest margins which held up well during the quarter. However, a lower mix of aeronautics in gross profit resulted in an overall lower gross margin due to the mix of gross profit from divisions. SG&A for the quarter was $4.8 million, up .1% for the prior year quarter mainly to high revenues and investment in growth. R&D expenses in the quarter were $4.6 million, up .5% from the prior year quarter and reflective of our strong commitment to innovation. Net loss for the quarter was $5.5 million compared to a net loss of $21.3 million in the prior year period. Adjusted net loss for the quarter was $7.8 million compared to adjusted net loss of $9.8 million in the prior year period. Adjusted net income excludes the monetization of intangibles, stock-based compensation, and other non-core items. Please see the adjusted net income table presented in our third quarter press release. Turning to our division results, starting with aeronautics. Revenue in this division was $7.8 million in the quarter compared to $8.4 million in the prior year quarter. The .6% decrease was mainly driven by delays in shipments as the company worked with its European unions to add a second shift to meet increasing demand. As Yael said, we expect the majority of those shipments representing approximately $4 million to occur in the fourth quarter. Gross profit in aeronautics was $2.6 million, a decrease of .2% year over year. This equated to a gross profit margin of 34%, down from .9% in the year-ago quarter. Lower gross margin was primarily the result of lower revenues across a fixed cost base. Now turning to our architecture division results. Revenue in this division was $3.8 million in the quarter compared to $3.2 million in the prior year quarter. The 21% increase reflects our growing demand in this division worldwide. Gross profit in architecture was $1.2 million, an increase of .2% year over year. This equated to a gross profit margin of 31.4%, up from .6% in the year-ago quarter. The higher gross margin reflected higher revenues, a favorable product mix, and operating efficiencies. Now turning to our automotive division. Revenue in the automotive division was $0.5 million in the quarter compared to $0.4 million in the prior year quarter. We are proud of our continued growth in this division, which does not yet reflect the rapidly expanding committed backlog for our customers. One example we just announced today is our biggest ever Science Hero production program to deliver our product into an average of 50,000 cars per year on average for nine years, starting in 2025 with a large European OEM. Gross loss in automotive was approximately $0.1 million in both periods. And in our safety tech division, revenue was $11.2 million in the quarter compared to $6.6 million in the prior year quarter. The .1% increase was largely driven by strong demand for our ADAS Smart Vision 2. Gross profit in safety tech was $2.1 million, an increase of .1% year over year. This equated to a gross profit margin of 19% compared to 23% in the prior year quarter. The 400 basis point decline was mainly a result of product mix. Moving to our balance sheet. On our last call, we told you how early in the third quarter we completed a number of actions to simplify our balance sheet and capital resources for the long term. As a reminder, the provider of our original $60 million credit line, of which $25 million was previously drawn, chose to participate in our IPO while reducing total availability of their credit line to the undrawn $35 million amount. As a result, we used a portion of our IPO process to repay what we had drawn plus fees. We have a highly supportive lending group and we expect to add additional borrowing capacity under favorable terms by year end, further enhancing our liquidity. We ended the quarter with $9.4 million of cash on the balance sheet, which when combined with our un-drawn $35 million credit line, results in total liquidity of $44.4 million, which provides us with ample financial flexibility to execute our growth objectives and achieve profitability. Before I turn it back to Eyal, let me give you some color on our expectation for the fourth quarter. We are off to a strong start in the quarter and we are reiterating our previously announced guidance for $28 million to $34 million. We continue to 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.

Thank you, Mayor. Our outlook for the fourth quarter and beyond is exceptionally strong, driven by robust demand across all four of our divisions. And the continuous introduction of game-changing technologies that we expect will accelerate our growth trajectory. In particular, our automotive division is experiencing rapid expansion through growing OEM orders globally as we ramp up serial production, demonstrating the scalability of our business model. Simultaneously, we are seeing exciting momentum across our other divisions, from the ongoing expansion from airline cockpits to advanced cabin shading solutions in commercial aircraft, to expanding deployments of our innovative building façade with marquee clients, to massive adoption in bus fleets and truck OEMs worldwide. We are confident that investors will increasingly appreciate the intrinsic value of Gauzy the same way that companies such as Ferrari and Ford, Utah, or Boeing and many others have entrusted us with an important part of their future growth. Thank you for your time today. Now we will open up the line for questions.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And if you wish to decline from the polling process, please press star followed by two. And if you're using your speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. First, we will hear from Matt Sheeran at Stiefel. Please go ahead, Matt.

Yes, thank you. And good morning. A couple of questions from me, Ayal. First, in terms of profitability, I know you've been talking about getting to sort of break in, break even from an EBITDA standpoint in Q4 with sequential growth. You still expect that or there's some other issues there. So let's start there in terms of the profitability.

Hi, Matt. Good morning. Thanks for the question. So, yes, I'd like to reiterate that we're on track. I mean, on track for EBITDA, I would break even and positive as previously mentioned in our previous calls and in talks together with you. What we have announced and this comes to show that this is a main and major focus for us is that the delayed or late shipments that we had to ship in Q3 and were pushed into Q4 because of, really because of manpower and what we have done to resolve that is add a second shift rather than hiring more production teams that would be then more heavy on that break even point. So our focus is that, as mentioned before, to reach that break even point and positive, we're doing that based on our current expenses, both on cost of goods and both on OPEC. So that my answer to that is yes. And if we're delivering on our targets in Q4, I believe you'd be, this is exactly what we're going to be.

Okay. Thank you for that. And then in terms of your outlook, it sounds like an automotive, it sounds like you're more bullish. You talked about some wins. When should you start to really gain traction in terms of revenue run rate? Should it be first half of next year or second half? And then in terms of capacity, obviously you have to prove to your customers that you can ramp. You've had some labor issues in other parts of your business. So how are you positioned to ramp capacity as those orders come on?

That's a very good question, Matt. I'd like to say that the capacity issues, again, very important to note that it's not production lines and machinery. It's only HR. And moving to a second shift resolves that in the aero business. It's very different in the automotive where we are shipping product on roll to roll basis or at the FIT where our current capacity, extending it just a little bit is well enough to support the 25 numbers that we're projecting. So it's a different production lines require different needs. Currently, I'm saying this again, we are well positioned to support all of this automotive demand that we have. You are not seeing it in Q3 and you'll be seeing it, I expected towards end of the first half of 2025. Our bookings are growing dramatically. And I'd like to reiterate again the point where our serial production programs signed with, for instance, with Ferrari and this big European OEM, our eight and nine years respectively committed commitments with a minimum take rate per year. Ferrari we already started this year ramping up next year heavily and the other OEM is initiating its production next year. You do not see it in the $38 million backlog. That is really what we need to ship in the coming quarter, maybe quarter and a half. We do not apply all the minimum commitments, minimum per year commitments that we get into the backlog, only those that are actually on purchase orders. So to answer your question, it's going to be mid 25 later in first half 25 towards Q2. You're going to see all this demand kicking in also on shipments. But the booking is there on these agreements signed and sealed for as we said many years.

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

Thank you. Next question will be from Dan Levy at Barclays. Please go ahead,

Dan. Hi, good morning. Thank you for taking the questions. I wanted to first just ask a question on the free cash flow dynamics. Maybe you can just provide us with some further color on the dynamics. You talked about some working capital, perhaps you could just address the working capital there, timing of reaching EBITDA breakeven. And then maybe you could just remind us, you mentioned something about improving the liquidity position, perhaps further color on that. Thank you.

Thank you, Dan. Good morning. So the free cash flow for the quarter was minus 17.5 million. It is mainly driven if I want to bridge from EBITDA to the free cash flow, it's mainly comes from interest paid in the quarter mainly for the repaid facility we repaid beginning of July and disclosed in our Q2 financials. This is 4.3 altogether interest payment. Working capital difference, as we said, that many of the IPO expenses will be paid in Q3 rather than when we include them in Q2. This is 3.5 and this is a major change from EBITDA to free cash flow. Additionally, we spent capex at 2.7 million and this represents our full free cash flow. Regarding liquidity, as you said, I want to remind the provider with the 60 million credit line, which we have drawn out of it 25, we participated in the IPO and we repaid his facility beginning of July. We are in the process of adding lending capacity by year end, which we expect would be at a fair rule terms. Together with what Yael said regarding improvement on Q4 results EBITDA wise and being the 2025 full year EBITDA positive, we are well funded in our business objectives.

I would like to add to that, if it is okay, Dan, that we have the $35 million of credit undrawn, which adds to the liquidity and gives us everything we need on top. We are supposed to be closing that extra financing that we talked about until year end and that will give us some more liquidity. I want to add that the capex invested about $1.3 million more in Q3 is instead of capex projected for 2025. We are going to reduce the amount of capex we plan to spend in 2025. We had to complete our production line for the Smart Vision 3 ahead of time. We announced the product release with four trucks on IAEA and that was already in Q3. We expect to start to ship this product already in Q1. We advanced a little bit of capex from 2025. We are going to remove that from our budget in 2025. It is not on top, it is instead. That is important to say as well.

If we were to look at the pro forma free cash, just considering that you have paid down some interest, you have sounds like a reduced capex, what is a better rate to consider going forward?

For the additional borrowing?

Trying to get a better run rate of free cash flow going forward. Pro forma the

items that you have talked about here.

Maybe we are looking at each other just to understand the question better. You talk about, again, we have enough liquidity. The capex is adjusted. It does not change our plan at all with becoming a bit of positive on the short term on a quarter basis and also for the full year for next year. We reiterate the message that even now with no extra funding we were offered by our lenders with favorable terms, we still have enough liquidity to get to EBITDA positive and cash flow positive the following year.

If you ask the current quarter free cash flow, it takes all those one-time cash flow topics. It is 3.6 for the facility we paid, the big one, and additional 3.6 for the cash flow and 3.5 working capital totals to about $7 million which would be reduced in a pro forma basis. Of course, we were affected by the lower gross profit this quarter so this hit us by an additional $1 million as well. Great. Thank you.

Maybe if I could follow up on Matt's question on the revenue side and the bookings. I appreciate the color that you provided here on some of the wins but maybe you could give us a sense of the level of commercial activity or discussions that you are having that we do not see in what is disclosed today but that maybe gives confidence that there is future revenue acceleration coming and future commentary hopefully of additional bookings activity ahead.

Sure. I will take that. We are trying to reiterate this again and again. When we book a serial production program with Ferrari for eight years, really I would like to say that they put a very big bet on Gauzee Tech, I like to say invested, not invested money but invested in us in our product on one of their most important growth engines for the next eight years. They committed for a minimum take rate which is a very high number right now. They did not expect to be as high as it is because it was first an option. We have signed a contract with them like with others for eight years on a minimum take rate. If I would put this in a number of a committed order book, it would be eight times bigger than what we would ship between Q2 to Q1 of 2025. That is the real order book we have which is committed. Now usually the minimums that they make, that they commit on, they never hit a minimum. They always hit at least 15%, we usually find a 15% uptake that we are committed to deliver but it is usually even more than that. Another good opportunity that we made public and announced to give a good answer to what you asked. We have right now in our increasing backlog of $38 million that we are supposed to ship next quarter maybe a little bit into 2025, we have about $10 million of cockpit. We have announced last month that we have right now an order book committed to us of $240 million. How do these things live together exactly like I mentioned with Ferrari? We have signed committed minimum orders for five, ten and more years in the aero business with how many of cockpit with every model we have to ship. But the POs on which we base the $10 million within the backlog, they come in every month or two and then we ship and get paid. So to reflect if you would like how big and healthy our business is and for how long, you take the $10 million that we right now have in our backlog for cockpit and within the $38 million that we have to ship, this is a few four and a little bit into Q125 and then you have to multiply it by the 24 figure you saw to realize how much of that product we have in our committed order book in the coming years. So aeronautics is 10 years is not even a long period. Automotive would average seven, eight years. I'd say with safety tech and ADAS, it's also going to be an average of 10 years of signed serial production programs. With Ford trucks, we have 10. So that's how I'd like you to maybe get confidence on the very big order book. And when I say order book, it's not in the air. It's signed serial production programs with minimum commitments that we must be ready to ship. Okay. So that's that's I hope that answers

the question then. Great. Thank you.

Thank you. Next question will be from Jeff Osborne at TD Cowan. Please go ahead, Jeff.

Thank you. Good morning. A lot's been answered, but just a couple questions here. Mayor, how should we think about the OPEX run rates? It's been a lot of focus on the questions around margin mix, cash, EBITDA, but looking ahead, do you anticipate a meaningful uptick in OPEX over the next quarter or two?

So if I compare the OPEX during 2024, along the quarters were quite stable. Of course, I'm adjusting the one time expenses we have for the IPO. Of course, we have to consider that now being a public company, this is the first full quarter that we are a public company, we have expenses as a as a public company, meaning directors compensation and you know, insurance and also a bit of PwC and other legal expenses that we hadn't we didn't have as a private company. We do expect that the OPEX next quarter mainly and also along 2025 will be a bit reduced in a way of R&D, OK, but become stable. But having much more revenue and gross profits will bring us as we expect in 2025 to be EBITDA positive.

Got it. And then maybe just the final line of questioning is on the new European OEM that you mentioned starts revenue towards the tail end of the first half. I assume the OEM itself is that a 2026 model year car that you would then rent shipments over the summer aggressively to meet that launch cadence? Or how do we think about the OEM's positioning of that vehicle?

Yes, exactly. So they need they they're starting to ship their product to customers for easy, the new in late 25, early 26. But for us to be ready for we have we wrote an average of 50,000 cars per year. These are all glass roofs for four EVs. We're starting to ship I'd say heavily is going to be real heavy is going to be a late 25. But it's already a sizable amount towards Q2, Q3, like you said, to make sure they have enough inventory because it takes time until they you know, we're a tier two provider here with a very, very, very big and well known tier one glass manufacturer that has selected us for this together with the OEM. And they need to build up inventory so that they can embed these roofs on cars and start shipping it to customers. So you're right. I'd say a little bit before August. But yes.

Got it. Maybe just a couple other nitpick ones on the if you're willing to share is first of all, is it a PDLC or SPD solution or a combination?

Yeah, it's an LC. It's a special auto grade LC product. I cannot there are other features to this that are very interesting. I cannot disclose at this point. But once we, you know, we announced the OEM itself will provide more details on the deal. Can you

got it? And then can you share is it an option for the car that we need to monitor or is it a standard feature? And then any kind of content per vehicle, it's helpful to 50,000 ranges. Sounds impressive. But how should we think about the content, especially given it's a specialized product?

Yes, it's 50,000 between four models. It's important to say. But I'd like to say that, you know, it looks like it might be a mix of some would be 100% take rate, kind of not an option, and some it would be an option. I'd like to say that also with Ferrari, our announcement was an option, but the take rates are at a point where, you know, it became fundamental for them to sell the car.

And then just lastly to follow up, is there any kind of range or how should we think about the content per vehicle for that?

I'd like to keep that for later disclosure. Permission, Jeff? I do want to say that, yeah, I'd like to keep that for further. I'd like to say that the 50,000 average per year, this is a minimum take rate. This is what we have a financial commitment on. This is not wishful thinking. It could be either that or more between the four models.

Got it. That's all I had. Appreciate the detail. Thanks much.

Thank you.

Once again, ladies and gentlemen, as a reminder, if you do have any questions, please press star followed by one on your touch-down phone. Next is Joshua Nichols at B Riley. Please go ahead, Joshua.

Yeah, I think just wanted to clarify, I think you touched on a point. The aeronautics revenue in the quarter moved down a bit relative to last year or to last quarter. But I think you mentioned in the backlog, there's $10 million of aeronautics revenue. Is it fair to assume that that business is going to get back to that $10 million plus per quarter run rate in the fourth quarter if you deliver on that backlog overall?

Hi, Josh. Good morning. I'll take it. To answer your question simply as yes, I'd like to say that most of our late shipments that we have announced at last quarter that we didn't ship on time, meaning because of the vacation patterns in Europe and having the second shift approved by our unions only in late in the quarter, most of it comes from Aero. So I'd say that is also very conservative. If we're on track like we claim to ship all these late shipments in Q4, you should be seeing us back on track with relatively much more than the 10 that we already shipped quarters before. So yes, it's going to be significantly higher

with

the late shipments. Yeah. Yep.

Got it. So over the trend in the first half that you guys saw then. I think we've talked a lot about the automotive opportunity. Good to see some of the new wins there. I was just curious, like the margin profile, as you start to ramp up, let's call it like the second half of next year with some of these customers, what's the expectation in margin contribution and how we think the automotive revenue could drive some expansion there potentially?

So it's a good point because on the figures that we've been showing the market, we've taken ourselves a big task to break down our business into four as a young public company. And we're happy to do that because we want you and everyone to have as much transparency. That's the kind of company we want to be. And that creates fair questions like you just asked because the numbers are not representative of the massive automotive scale that we have. What I can tell you is one, margins are going to be very healthy towards helping the average that we announced previously as a gross margin in the long term. I expect automotive very soon to help that margin from the top, so averaging better than other business divisions. And obviously that is a matter of scale. And I'm saying this with conviction because both in Ferrari and also in this European OEM and others, especially in SPD, we're a single source supply. So, I mean, of course we're working closely with our customers to make sure everyone is profitable with our products embedded in their vehicles. But we have a very strong position because single source supplies, it's a unique kind of opportunity for us as a tier two, tier one for this industry. But I'd like to reiterate this. It's going to be in scale helping us on our average margins from above.

Thanks. And then last question for me. I think in one of your press releases you touched on that you expected to hit the $100 million in aggregate revenue received from your CMS offering by the end of next year. I'm just curious like how much of that $100 million revenue is expected to be generated like next year relative to what you've generated

so far? Yeah.

So, I'm trying to be careful with future guidance on specific business, but I'm reiterating that message. When we said that we had that in our backlog, it's, you know, if you take Ford Trucks, Josh, as the case that we announced, we haven't announced all the business that we have yet. But we will, you know, with time towards end of the year, towards beginning of next year, we have tremendous and tremendous traction on our Smart Vision 3 platform that we announced in IAA. But if you only take Ford Trucks and you take them, you know, you take a fair share of their 25,000 trucks they're selling per year on that, on the one truck that we are offered at the beginning of next year for 10 years, you'd see that these numbers ramp up very, very fast. And that's just one model of six in one OEM, which is not the biggest one in the truck industry. And we're really today replying on RFPs for quantities of over, you know, hundreds and thousands of trucks per year per OEM. Because ADAS in trucks, I claim, and many do, that it's becoming a must by regulation also because of ROI, because it's going to become a must in the next platforms of 27, 28, 29. And you look at the production, the scale of production for OEMs reported. So, you know, Volvo Trucks are going to be making 300,000 trucks per year. Mine, between the three brands, they have 240,000 trucks. And I believe, I believe they're going to select one platform for ADAS, which is really how you drive a truck. If you take, you know, if you take an ADAS system, I can't disclose exact figures of how much it costs, you know, we're selling it, but per truck and multiply it, you're going to get $100 million on an order book very quickly. I think that two models of one OEM covers that, and we're talking about much more. Okay, so my short answer is we're reiterating that message. I'm hoping to provide more input once we start shipping in Q1, our Smart Vision 3, and to announce more wins like

for trucks that we're working on. Appreciate it.

Thanks. Thank you. Thank you,

Josh.

At this time, I would like to turn the call back over to Mr. Pesso.

So, thank you for joining us today. We look forward for future discussions and announcements to update you on our progress. And have a great rest of the day. Thank you, everyone.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.