Gapwaves AB (publ)

Hi and welcome to RedEye. My name is Rasmus Jakobsson and I will be moderating this live queue with Gapwaves about the Q2 report that they published today. With us we have CEO Jonas Ehinge who will give us a brief presentation about the quarter which will also be followed by a Q&A session. So before I hand it over to you, Jonas, I just want to remind everybody to please fill out the question form that is online on the website and we will process the questions after the presentation. But with that, please go ahead with your presentation.

Thank you, Rasmus. Great to be here together with you and Red Eye and also have the opportunity to present our Q2 report for 24. which was published earlier this morning. I'll come back to the report along with some updates on the company in my presentation. So just as a recap for viewers and participants that are new to Gapwaves or the other way around. Gapwaves is a Swedish tech company based in Gothenburg. originate from innovation research at Chalmers Technical University in Gothenburg around waveguide antenna technologies. And the company was formed in 2011 and was listed on the Nasdaq First North in 2016. Coming out of research, Of course, we started with a very good technology base protected by patents and patents has remained a core activity at Gapwaves to ensure that we have a strong protection, but also strong technology advantage versus other potential competitors in the market. And today we have more than 44 patent families in all of the relevant and important markets. Gap waves started out with a focus on telecom applications, specifically 5G. However, the telecom industry did not migrate into higher frequencies, which require waveguide antenna technologies. our waveguide antenna solutions. They found other ways to upgrade networks to provide bandwidth and handle capacity needs from users. However, I want to emphasize that telecom remains a core focus or a core future opportunity for gap waves. And as such, we're also keeping a very close eye because there is no doubt that the telecom industry will migrate and move into utilization of higher frequencies. those frequency bands have already been allocated and specified for the industry. And I'll come back to that when I start to summarize the Q2 report. Our main focus as a company today is the application of waveguide and our version of waveguide antennas within automotive radar sensors. And our technology has a very strong potential in this industry because the waveguide antennas that gap waves can provide have a very strong performance, but also very important. They provide cost efficiency benefits in high volume production and utilizes more established production methods that are very suitable for the high volumes in the automotive industry, namely millions of units of specific antenna versions every year. And we also have a related market segment related to automotive radar sensors, which we call mobility. That's similar sensors, but for different applications in smart cities where you can use radar sensors to monitor traffic and direct traffic flows. And you can use it for surveillance or presence detection, energy control, based on the density of people during nighttime, for instance, for a city. And also other types of vehicles that can be automated. In fact, industry vehicles such as trucks in harbors or mines or in farming or at airports. are in a way much easier to automate because those environments are confined and they are very very well defined and we see that in this segment that there are a lot of very interesting opportunities for our antenna technology but also for radar sensors. Gapwaves is around 42 employees today, and we work with very prominent customers in the automotive market, such as Bosch, Hella. And Hella is also an investor, an industrial investor in Gapwaves with 10%. of the shares and the stock market. And they made an investment in company in 2021 of 182 millions. We also have other customers such as Smart Micro. I'll come back to that in a bit. So coming over to our Q2 report, I'm very happy to report and to publish a very strong report for Gapwaves following the strong report we had for Q1. And some of the highlights in our second quarter is, of course, the expansion of additional development assignments from Bosch. It's a frequent question we get, you know, what's going on with Bosch, what's the status, etc. So this very much shows that the ongoing project with Bosch is progressing as planned. And during the development, of course, Bosch has realized that they also want to cover some other aspects in this project, which they have contracted us for. So I'm happy to report that expansion of their current contract. And I want to remind also you and the market that we have a supply contract with Bosch, not only development and licensing our technology and put it into production, but also to where the stipulated supplier of the antennas we now develop together with Bosch. Another dear question or frequent question is, of course, the undisclosed tier one, European based, which has during the quarter, as in previous quarters, continued with the joint development efforts of a new antenna in the automotive segment. In addition to to progressive or progression in the development project, We have also concluded a letter of intent defining the intention of the parties to enter into a production and supply agreement of the antenna that we now develop. And we think this is a major step forward and a clear indication of the potential in this collaboration with that customer. We have talked about production start for our antennas and in Q1 we emphasized that we went into production together with Hella for the first automotive antenna that we developed with Hella in 21 and that has now entered the production phase in the first quarter. In the second quarter, this production ramp up is still ongoing. It will continue into 2025. But another important milestone in the second quarter was that one of the antennas that we developed together with Smart Micro in the smart city segment has also been completed and is now entering the serial production and production phase. During the quarter we were also awarded, together with some other selected companies, research grants from Vinnova. One was related to future telecom applications related to 6G and the other was also related to to more automotive radar applications but at higher frequencies both the frequencies used today but also even higher frequencies at 140 gigahertz that will be utilized in the future so it's a clear indication that gap waves is at the forefront and we're maintaining this technology edge that we have built uh utilized as a base for our our business and our relationships with our customers A very important milestone for us is of course the first Asian based tier one project and order and we're very much looking forward to engaging in this project now it has started and of course this has also a huge opportunity in the future like for every automotive tier one. Sensrad, which is an associated company of Gapwaves. We're currently 30% owner of Sensrad. And it's an important strategic company, strategic initiative from Gapwaves with Sensrad. And the Sensrad product is now entering into a launch phase and being finalized. to be put into production during the fall. And that includes the antenna, and Gapwaves is the supplier of the antenna to Sensrub, of course. In general, as you may have noticed, Gapwaves has during the second quarter had a strong order inflow, and also that is reflected in the numbers during the quarter. And in summary, and you can find, of course, more information in the report that was published this morning, but the sales in the quarter was 14.5 million up more than 60% from the same quarter last year. And of course, we also improved the result coming up from minus 9.5 to minus 8.8 this quarter. But look at the first six months where we see very significant progress. Sales for the first six months, 30.1 million versus 13.8 last year. So more than 100% growth in the first six months. And also for the first six months, we see a stronger result, significantly stronger result than the same period last year at 17.6 million versus minus 25.6 last year. I'm also happy to emphasize that we see the effects of this growth on our operating cash flow, which was positive at 5.2 million. We're supporting the commercialization at Sensrad uh through through loans and we uh which amounted to 6.8 million in in the second quarter generally strong sales and and in growing sales growing gross profit in the company we're still in the same scale up phase that we have discussed in earlier conversations, Rasmus. And it's targeting building capability and capacity to deliver on the contracts we have already entered into, but also the ones that we expect will come in the coming years. And as such, we see an increase in personnel costs comparing to last year, not necessarily within the second quarter this year. But when you compare with the same period last year, of course, the increase in competence and the organization can be noticed in terms of increased number of employees in the company. Finally on this slide, I also want to emphasize that if you look at the first quarter and second quarter this year, comparing historically going back three additional years, they are strong quarters. Most of our revenue is project-based revenue and that is natural because there are development projects and customers pay us to do developments or products that they will utilize in their own products. But as we enter the production phase, more and more of this revenue will change into product revenue from our deliveries to our customers. And that's a very important takeaway message from this quarter, that also in this quarter, like in the first quarter, we have entered a production phase for yet another antenna for our customers. Now I will switch over to just outlining the market and the pipeline that we see for Gapwaves with our current customers and what we have been able to disclose so far in our reports and news messages. So Gapwaves market and the automotive industry in terms of radar sensors, that's a very important fast-growing market at least 25 percent per year for the rest of this decade and that is driven by legislation legal requirements on safety features and driver assistance systems in the cars and eu is leading the way but also north america are implementing the same type of regulations And combined with this, there are also technical requirements, i.e. at which frequency bands can automotive radar sensors operate. And that has been a change since... six, seven years ago when they could operate at lower frequencies. And back then they could also utilize other traditional antenna technologies. Moving up into the 77 gigahertz band means that these customers need to switch and transition into a new antenna technology, waveguide antennas. And Gapwaves has a competitive advantage with our version of antenna technology. waveguide antenna technologies. So Gapwaves is in a perfect position to capture this potential going forward. Of course, a very important driving factor is also that we as users of cars or owners of cars, we get successively higher and higher expectations on the driver assistance and user interaction with the cars. So there is a consumer Driving force also going through the OEMs and then being expressed as requirements on the Tier 1 radar sensor systems. So we are looking at a situation where we go from few sensors, radar sensors per car into significantly higher or almost three times higher the average number of radar sensors per car during this decade. So we're very confident and very positive about the market situation and market outlook going forward. Now, an update to this list as we have added more contracts and more customers and we enter into more development projects that will result in products and product deliveries in the future. This is an update and guidance. Those of you who have listened to Gapwaves and myself before know that in the automotive industry, the startup production is really a key moment. Because once you pass that date, then you can be very confident about growing volumes and a number of years or many years, six to eight years of high volume product deliveries. And with Hella, we've communicated before that this would happen in 2024. In fact, it started already in Q1. Now with SmartMicro, we are also following the plan. And one of the antennas, we're developing several antennas for SmartMicro. One of the antennas is now going into production in the second quarter and will be supplied to SmartMicro, the customer, during the remainder of the year and for several years to come. also Sensrad as part of our plan and Sensrad's plan is of course that we're commencing serial production and deliveries during 2024 and then you can see the timelines for our other customers Bosch as before late 26 or early 27 the European tier one that we started to work with first quarter 2023 for development is planning startup production in 26. And the same based on the information we have from Magna and Bionir, they're also planning a rollout and startup production in 26. And the new Asian tier one, which we entered into a development contract with in the second quarter, they're planning for startup production in 2027. Now, the automotive tier ones, they tend to stick to the plans of startup production because it's very complex and very costly to change the timing because of the number of suppliers and the rather expensive investments involved. So as we've seen with Hella and also the others, we expect these timelines to stay as per plan. So coming to an end in this shorter quarterly presentation, Gapwaves is very well positioned in an existing, strongly growing market, which we see will be growing for a long time. And it's driven by regulation and customer needs in parallel. So it creates a very strong market situation for our company and our products. We have now a complete antenna offering, which means that we do not only provide development services and technology that customers can license. We prefer to be the complete antenna partner for our customers. they can come to Gapways, we can design and develop their antennas which they integrate into their radar sensors but we will also put it into production, ensure that production can happen with the right quality at the right place and with the right capacity for scale up into high volumes and we're positioning ourselves as a complete antenna partner for our customers. And that's a change compared to a few years ago when we were more of a technology and engineering company. And our scale up journey is focused on building capability and capacity to be this full partner with the right competence in the organization, but also the right capacity for the scale up, not only for one automotive tier, but for several, where we have a high ambition in terms of market share in this segment. And we also partner with external factories and production companies. So Gapways don't have to build its own factories around the world. We select, certify, qualify production partners based on their competence in production and work very closely with them to set up production of our antennas. But Gapways is the interface towards the customer. And again, coming back to our customers, in just a few years, Gapwave's automotive journey started in end of 2018, early 2019. Bionair was the first agreement. But in just five years, we've added very strong customer relationships with the top-notch, the absolutely leading companies. automotive radar sensor suppliers, the tier ones in the world. And I cannot emphasize enough the relevance of being able to work together with companies like Hella and Bosch and also the other tier ones. where we've not been able yet to disclose their names. And also other customers in the other segments like smart city and transport solution in the mobility segment. So all in all, we're We're very happy about the progress that we've made during the quarter. And also, we are confident about the rest of the year. And we expect the rest of the year to continue in the same way as we've seen during the first six months. I think I'll stop there, Rasmus. I know you've received quite a few questions, and I think it's more interesting for the audience that we discuss those questions. And for the other information related to the report, it's of course available in the published report.

great thank you very much for that presentation i thought we start off with some more short-term questions and then we move on to to the more longer term plans so if we start off uh hella started production in q1 you had smart micro in q2 and what should we expect from these customers in the next half of the year