Gapwaves AB (publ)

Welcome to Red Eye and this live queue with Gapwaves. Today we have Jonas Ehingo, CEO of Gapwaves, with us to give a brief presentation about the third quarter that was published this morning, followed with a Q&A session. And before the presentation, I also made sure that you are asking all the questions in the chat on the website below the video player. But with that, I hand it over to Jonas to present. The stage is yours.

Thank you. Thank you, Rasmus. And thank you to Redeye for organizing this. So today I will present part of the Q3 report that was published earlier this morning and also provide a background, which I think is useful in the discussion that we'll have after a presentation. So I'm really happy to be here and to share also Gapwave's very positive situation currently. And in this presentation, I'll be going through some of the market background and the market drivers. I think that's really relevant and important to be aware of. Same with our strategic strategy. partnerships where Gapwaves is not only providing technology, but a complete antenna partnering solution for our customers and their needs. I'll also touch on the order and contract, the contracts that we have and the timeline for those and what technology they'll be utilizing. In Gapwaves, last five years since we started to focus on automotive with been successful in recruiting and adding very strong customers to the company. And obviously we'll talk about the production capabilities and also some key elements in how we approach high volume production for our customers. So Gapwaves as a background is a Swedish tech company based in Gothenburg. We have a patented waveguide technology developed at Chalmers and the company was started in 2011 by Professor Per-Sidman Kildal. We have a very strong patent portfolio, which is growing and we pay a lot of focus or attention to our patents, both in monitoring the market, but also developing new patents. And importantly, we focus the IP on the IP when it comes to production, because that gives us a very strong protection. The company is listed on NASDAQ First North since 2016. We now currently focus mainly on radars for automotive and mobility applications, like passenger cars, but also other types of vehicles. We do, however, have a close eye to the development in wireless communication applications, such as mobile phones and satellite communication, et cetera. We are a tier two supplier. So our unique technology and the products we develop for our customers are being integrated in the customer's products. And our customers are tier one suppliers. to car manufacturers that are typically referred to as OEMs in the industry. But let me start with discussing the Q3 report. I'm really happy that we continue the growth this year. We've had strong quarters earlier in the year and Q3 is also another strong quarter continuing for Gapwaves in 2024. So our sales came in at 18.4 million, which is a very strong growth, 160% up versus same period last year. And year to date, our sales are growing at more than 130% compared to the same period last year. And we ended up closing the quarter with a year to date sales of 48.5 million. of course, strong sales should translate into improved results. And we can see that also in the quarter, even if we have a slightly different product mix or product sales mix. So the result was minus 6.7, which is an improvement versus last year, third quarter of 31%. And that improvement is also true for the full year where we're looking at minus 24.3 million in EBITDA for the first nine months on the year. You can see on the right in the graph that we have a number of strong quarters this year consistently compared to previous years since 2020. There are a few quarters that are a bit of a outliers because they contain one-time license payments from Hella and from Bosch. But generally speaking, the growth we see this year is made up from the inflow of new products and scaling up production. Looking at some of the highlights in addition to the revenue growth, we see a continuous strong interest in the automotive industry and also increased interest from new customers. And we'll probably be talking in the Q&A session afterwards about the automotive market status. And we see that the interest from Gapwaves is growing from our tier one customers, regardless of some OEMs having problems, not all OEMs, however, and not in all markets. We're on a scaling up journey in Gapways, as we have discussed before. Really important for us and for our continued growth is to commence production at our pilot line, which is being established in Gothenburg next to our headquarter. And this pilot line will come online in November, in the middle of the month, so in just a few weeks from now. And that is a key step for GapWaves and it will also allow us to fully control the production and production processes and also to accelerate high volume production as we can pilot production lines, we can pilot production processes in our own facility and then relocate that or replicate that in external facilities for high volume production. We are adding more capability and competence to the organization, which is a must in the automotive industry. So we're adding capacity. We're adding organization in terms of supply chain, production, quality management and assurance. which are requirements from the automotive industry. We have also seen in the year so far, and also in the quarter, increasing interest from other sectors outside of automotive, like smart city applications for traffic monitoring or traffic flow management. And another sign of this is also that our associated company, Sensrod, has also been able to close a larger agreement, frame agreement, with TNG, a leading ITS or smart city player in China that are populating cities with ITS solutions using 4D imaging radar sensors from Senstrap. And they, of course, contain GapWaves antennas. It's actually a very unique antenna. It's kind of a world record in terms of capability and performance, given its size. And it has also generated interest from new customers. After the close of the quarter on Sunday, we were able to finally announce the development contract with Valeo. Valeo is the European tier one that we've been working with since the first quarter of 2023. It's a large scale production agreement. So it means that Gapwaves will industrialize the antenna that we have designed and developed for Valeo. And we will also commence high volume production for Valeo. Valeo will buy the antennas from us. I'm also happy to see that we can meet customer requirements and accelerate the start of production from 2026 to 2025. And this is partially due to the antenna technology, the MLW antenna technology that we introduced into the market officially last year. And we see a large interest and a growing interest for the MLW antennas in the automotive industry. It allows us and customers to be faster and commence production faster. And obviously adding yet another leading tier one adds a lot of weight and strength to Gapwave's automotive position or to our position in the automotive market. And obviously with a contract of this size and this term or duration also adds a quite solid business base for our growth going forward. So again, looking at the market as an investor and potential shareholder in GaffWaves, I think it's really important to understand the underlying market fundamentals. And we have talked about this before, but I think it deserves to be repeated and brought up again. In our market, meaning radar sensors for ADAS applications in passenger cars, that's how we define the automotive market. There are legal requirements that are strong drivers. So cars need certain safety functions for them to be allowed to be sold in a specific market like Europe or North America. In addition, there's also technical requirements defining what frequencies that can be used. And since 2017, it has been decided that automotive radar must operate in higher frequency band, the 77 gigahertz frequency. This means that all the tier ones need to upgrade their radar sensors, regardless of the number of cars being sold, because the older sensors will not be allowed to operate in newer versions. So anytime a tier one places a new radar sensor on the market, it needs to operate at 77 gigahertz band. And at these higher frequencies, GapWave's waveguide technology excels. It outperforms traditional antennas. And in addition, it's also a very cost-effective production for our antennas. And we think we have a competitive advantage, both in terms of performance, but also producing the antennas, especially in high volumes. So all in all, these market drivers, they create a very strong market situation for waveguide antennas and for gap waves. So we're looking at 25% or more annual growth in the market for the rest of the decade. And I think that's a very important fundamental fact for shareholders and investors. Coming over to our business model, that's also another fundamental aspect to consider. GapWaves has chosen what we call a hybrid model. It's very flexible. It also means that we can minimize the upfront capex investments in infrastructure, like factories or factory organizations, staffing, and other facilities. So GapWaves partner with external partners that we certify and we qualify. And they already have those facilities, which means that we don't have to invest in those or create those. So we become very fast, but we can also minimize the capex and the investments needed. GapWaves approach is symbolized or illustrated in the graph on the left, in the picture on the left-hand side. But we are a full partner solution for the customers. We do the antenna design and development, of course. We develop prototypes. They are being produced in our own facility, which we call the Gapways Flexline. And then we start the industrialization process for lower volume production. And lower volume production for Gapways is around Our internal capacity is around 500,000 units per year. But automotive typically needs much higher volumes than that annually. And that means that once we enter the high volume phase during the ramp up, we place that production in external facilities with our partners. And Gapways remain the sole interface with the customers. So customers, they contract with us for the development, for the industrialization, but also for the high volume production and supply of antennas. This is one of the most important slides and information in this presentation. This is the pipeline and status of the contracts. Pipeline, meaning the intended start of production for the antennas that we have developed or are developing. Some of these customers and their antennas that we have designed and developed have already commenced production, like for Hedla. It started in Q1 this year, and so far we're well into the ramp-up, which will continue well into 2025. These ramp-ups going from zero to to more than 1 million or multi-million units per year take time. But it's really important when that start of production happens, the process is ongoing and there is not really any question marks about if and when. It's rather gaining speed and gaining capacity while maintaining quality, of course, in the produced units. So far, we've hit around 100,000 antennas just for Hella. And this is typically, this is around four times the number of antennas that Gapwaves as a company has produced during its entire lifetime. It gives an idea of the scale that we're talking about. You can also see Valeo. And as I mentioned, we've passed through all the different stages. And now there is a supply contract. Startup production will happen in 2025. It was earlier planned for 2026, but Valeo and Valeo's customer required an earlier start, which is good news for us and for our shareholders. And thanks to the MLW technology, which is faster to put into production, we were able to meet that requirement. And other tier ones, as you see on this list, our plan for the following years and Gapwaves will continue to grow as a company, as our product deliveries grow with these contracts. Obviously, it's almost that I don't have to say it, but I want to say it anyway, we're adding more customers to this list and we're working to recruit more customers, both in automotive, but also outside of automotive. Finally, before we enter into the discussion, I'd also like to mention again Sensrad, which is a strategic initiative for Gapwaves to assume a different position in the value chain for the market segments outside of automotive. In automotive, we'll be developing and supplying antennas in high volume. In other segments, we want to come closer to the customers and a stronger value chain position by helping to provide complete radar sensors. In this case with Sensrad, it's a very high end. To our knowledge, it's actually the most capable radar sensor in the market right now. And we have a 30% ownership from our investment last year. And Sensorad is gaining momentum now. They've entered into a partnership with a Chinese partner for smart city applications regarding traffic flow and traffic flow management in China, in a number of cities in China. And the first few units have been delivered to this customer. And now there is an expectation on both sides to ramp this up in the coming months and quarters. And Sensrad also has some very interesting customers outside of the ITS segments in terms of industrial type of vehicles that can be automated. So we're very positive when it comes to Sensrad. And they are launching their first commercial product version in this year, before the end of the year. So in summary, GapWaves and we feel in the management and the company and the board that we're very well positioned for profitable growth and strengthening the company going forward. The market is there. It's not a question of if. It's actually an adoption rate topic. And we're seeing that adoption rate increasing. And we have in just a few years, Gapways has only been active in the automotive market for five years. But in those five years, which is really short in the automotive world, we've been able to add a majority of the leading tier ones as customers and in long-term agreements, which will build a very strong base for the future in the company. And these companies also have an inherent interest in Gapwave succeeding in its supplier journey or in its journey towards becoming a full service supplier and partner for these companies. And with our business model and our production set up, we think we have also a competitive advantage Because we don't have to build and construct and design factories. We can rely on very knowledgeable and strong partners for that. I also, before we wrap up the presentation part, want to highlight our update on the investor relation pages on our website, please. Take a look and let us know what you think. You can also contact us directly with any questions or comments there. Thank you very much. I'm looking forward to the discussion and the questions.

All right. Thank you very much for that presentation. And just as a reminder for the people watching online, please make sure that you ask the questions in the box on the website. So we have received a lot of questions and I hope we can manage to get all of them answered today. But to start off, you delivered strong net sales in the quarter. partly driven about the equipment sales that were delivered. If we exclude the equipment sales from the quarter, is it reasonable to expect that the remainder is related to the Hela start of production?