Smart Eye AB (publ)

Good day and a warm welcome to SmartEyes Q4 2024 earnings call hosted by RedEye. My name is Jacob Benon and I will be moderating the session where we will start with a company presentation followed by a Q&A. And with us today, we have SmartEyes CEO Martin Krantz and CFO Mats Benaminsson. And without further ado, I will leave the word over to Martin and Mats. Welcome.

Thank you, Jacob. Let's get going. SmartEye, we are doing technology that understands, supports, predicts human behavior in complex environments, including cars of course. We have a good quarter behind us. For the first time we have more than 100 million SEK in quarterly revenue. 10% more than last year, but the organic growth goes all the way up to 18%, which we are very happy with. It's mainly driven by that we have 75 car models in production at the end of Q4. That's eight more than the previous quarter and it's ramping up at a good speed. One more OEM, 10 OEMs instead of nine. That all in all gives us 42% organic growth for automotive. But automotive revenue consists of two things. It consists of licenses and other stuff such as services and prototype systems and aftermarket products and so on. And the licenses are growing at a very brisk pace, 200% last quarter. So although that is very good, I'm very happy with 200% growth of license revenue, it's going to be better. 2025 the licenses will grow faster than 200%, I should also say significantly faster than 200%. We are really ramping up right now. Behavioral research had a good quarter in Q4, 7% better than last year. The same quarter last year, which was a record quarter. So this is our new best quarter ever for behavioral research. revenue is growing and if we were to sort of separate behavioral research from the rest of the company that part of the company is has a solid profitability right now so we are growing with profit we are super happy with that EBITDA is 19 million, minus 19 million in Q4. And the underlying EBITDA, we have some restructuring costs, we have some other one-time items. The underlying EBITDA or the operational EBITDA is just minus 3 million SEX. So we are close now to that target of being EBITDA positive, I should say. We have a savings program in progress. We talked about it last quarter. We continued to do savings during Q4 and we are also continuing to do it in Q1. It will be finished by the end of Q1 and it's going to give us 10 million SEK in savings per quarter on the operational expenses. The cars are increasing, we have 75 cars in production or let's say that have reached production because some of them are actually phasing out. So 75 cars reached production up until now and during 2025 we are estimating or guiding 70 to 80 car models that will go into production this year. Which is of course good, as many as has ever been going into production during all years. And that's the main driver for the increase in license revenue. This is a graph that we have shown before. It shows how the development of design wins, the orders for new car models are coming in. You can see that it starts out with humble beginnings in 2015-2016. We have just two models. Back then it was one from BMW and one from Audi. But it's slowly progressing during the 2010s and then it's standing a bit flat during Covid. Covid sort of delayed everything in the automotive industry. and then it really picks up speed from the end of 2022 and the curve is very steep from that point up on up until 359 design wins which is the current level of design wins and then we can see here we have sort of tried to mark out that how many of these cars went into production during which period that's the pink numbers on this graph so up until 2022 there was a certain let's say block of design means that went into production up until 23 another block 20 end of 24 where we are right now and that's the 75 car models of the Q4 report you can see that we were still mostly looking or getting into production those car models that were won during the 2010s. But in 2025 we are getting moving forward into that steep end of this curve, the steep slope of this curve. So when we say 70 to 80 car models this year we are getting into that really quick acceleration phase. and what i'm saying by that is of course when you look at 2026 you will go even further on that steep end so we will get during 2026 we will get much closer to towards the top of this graph But of course, this graph will not look the same in 2026 because we keep on winning more business. We have a strong standing in the industry. We have good quality, many OEMs, many cars in production. So when it looks to design wins and automotive licenses, we have a very bright future ahead of us. Here is a little bit of a recording that I thought could be interesting to show. This is what we call cabin monitoring. The driver monitoring, the thing that we've been selling since 2015, it focuses mostly on the gaze or the head, I should say, of the driver. You have a close-up image of a driver's head and you analyze as much as possible, as good as possible, from gaze behavior, eyelids and things like that. Cabin monitoring, on the other hand, you have different types of cameras. I'm actually going to run this recording one more time. You have a different type of camera. You see, in this case, the whole upper body of the driver. You can see the seat belt. You can detect how the body is moving, arms, gestures. You can also detect child seats and things like this. So this is a different technology. We currently have seven design wins where the customers have sort of moved from DMS only into DMS plus cabin monitoring. And we see this as a great upsell opportunity for our DMS, these 359 design wins, which are for DMS. Many of these customers, many of these cars and OEMs and T1s have an interest in upselling and getting more out of the cameras that are in the car and also to add more cameras into the car. There are really, let's say, three different configurations. You have a configuration where you have a close-up of the driver's head and looking at very accurately the eyes of the driver and determining with high fidelity the distraction level, the drowsiness level and things like that. Then you have these cabin monitoring features where you're looking at a much bigger image and detecting more stuff. And then you also have an intermediate solution when you put a camera in the rearview mirror and try to do everything with that camera in the rearview mirror. It's a little bit of a compromise. The best performance is, of course, if you can have a system which are measuring with at least two cameras. But also some customers choose that compromise solution. So it's a very interesting field of technology for AI in cars. And we are, I should say, right in the epicenter of this development right now. Why is the market growing so fast? I would say that the main driver, why the curve was kind of flat from 2015 up until Covid and then moves so rapidly up after that, the curve of the design wins. It's because of legislation. So there is a new European legislation kicking in in 2026 called General Safety Regulation GSR. And you're not allowed to sell a car in Europe if it doesn't have a driver monitoring. This becomes like a seatbelt or an airbag. It has to be in every car sold in Europe. and this when the law came in 2019 it felt like this is forever before this law actually kicks in now we're in 2025 it's just one and a half year before this is mandatory so that's why the main that's the root cause that's the main cause why it's growing so fast But also Euro NCAP has picked up on this new technology and sort of moving the bar upwards and challenging the industry to implement even more advanced technology and put it into the cars and save even more lives. And of course we are super thankful for the support by Euro NCAP for the DMS industry and cabin monitoring industry. We see that these kind of regulations will probably come in other parts of the world but right now Europe is most progressive. and last but not least we have during this after the end of q4 i should say we we announced it in the beginning of january we have done a collaboration with fingerprint cards fingerprint cards had the leading technology for iris authentication this is something which enables a lot of cool features in the car if you can be absolutely sure who is driving i mean if you just use the key fob you can loan someone else's key fob and step into the car but if you have this technology you can start doing stuff in the car that you can do already with your iphone or with your smartphone So you can do transactions and all sorts of interesting stuff. Health wellness, for example, are also an interesting field for this new feature. So we have a lot of requests from the industry for authentication and we are super excited to be able to upsell this new technology to the market. And with that, I'm going to leave to you Mats.

Thank you. So, yes, look, let's look into the financial result for the quarter. We had, as Martin said, a very good net sales development reporting over 100 million SEK in net sales with a growth of 10%. As we have said before, we have a stable gross margin, so it's around 90%. And we have also reported improved profitability both on EBITDA operational result and earnings before tax. But then we have two one-time items that we need to explain a little bit more about and that is the automotive NRE revenue distribution. We have gone through this one of the NRE projects and we have recalculated the distribution over the project life cycle. So this is amounted to 6.2 million and 1.1 million refers to Q4 2023. The other part is that we working with our cost savings activities. So in the quarter we have restructuring costs amounted to 9.8 million. We continue with the cost savings activities in Q1 2025 here and we expect from Q2 2025 that we will have less OPEX from these cost savings activities. So around 10 million per quarter we expect to have the effect of the cost savings activities. So with that said, the adjusted organic growth amounts to 80% and the gross profit adjusted plus 16 million and the underlying EBITDA amounts to minus 2.7 compared to 19.5 last year. So a good improvement of the profitability with 16.8 million. The automotive business reports a growth of 60% year on year. Adjusted growth amounts to 42% and adjusted rolling 12 amounts to plus 55%. And of course, this is driven by the good growth in license revenue that in the quarter amounts to 200%. If you take out the adjustment for the net NRE revenue, also we have a good development in the project revenue for the quarter. Behavioral research also a very strong development in Q4. All time high. It's amounted 62 million for the quarter. The highest we have reported for the business area. And this has been a strong order intake and sales development for iMotion. Media analytics also have a strong development in net sales for the quarter. And research instruments improve their net sales compared to Q3. So good closing for the year. We have cost control working very hard with our spending and in the quarter the OPEX is 4.4 higher. But if you compare the underlying, if you take out the one time out items, we're actually having quite slightly lower OPEX compared to last quarter. Sorry, compared to the same quarter last year. And of course, this improves the profitability. And of course, this is driven by the higher sales. Finally, the cash flow development. We have available cash ending balance amounted to 229.7 million. And this includes all the facilities that we have. Per the end of December we have utilized 25 million and the cash flow net is minus 23.1 million. The operating cash flow is 9.8 million and the one-time payments that we have had in the quarter and this refers both to the restructuring that we have done and also the financing part and this amounts to 8.9 million. And finally the investments in the activities are a little bit higher in Q4 compared to previous quarters and that is due to that we invest in more in our new coming features. Going forward we expect it usually is around 23 to 25 million and we expect it to be a little bit higher in the coming quarters. So I think that was the final from the presentation.