Smart Eye AB (publ)

Good day and a warm welcome to SmartEyes Q3 2025 earnings call hosted by RedEye. My name is Jacob Benon, I'm an equity analyst here at RedEye and we will start off today as usual with a company presentation and thereafter we will follow up with a Q&A session. And I would like to remind all the viewers online to start submitting your questions in the chat box and we will have management answer them in the Q&A session afterwards. And with us today we have SmartEyes CEO Martin Krantz and the CFO Mats Benaminsson. So without further ado I'll leave the floor over to you Martin.

Thank you. I'm happy to announce the third quarter of 2025. It's an amazing quarter for SmartEye. It is the best quarterly report that we have ever. submitted in terms of the results but of course we are in the beginning of ramp up so we expect many more quarterly results to be in the near future to be better than this. Anyway We had 99 million in net sales. Organic growth, excluding FX, was 33%. We're very happy with that growth rate. EBITDA, 11.5 million SEC. We're also very content with that. We had 1 million last quarter, which was the first quarter with positive EBITDA in ages or in 10 years. But Now we're going in the right direction. Automotive is growing with 61%. But I think the most interesting part of that growth is the license growth. It's growing not quite 200% but well above 150% is the license revenue growth. we that comes from that we have 105 car models in production compared to 90 car models end of last quarter and these 15 new car models are starting to ramp but also the whatever came into production during q2 q1 and q4 is still in a ramp up phase so we have a lot of car models now building up these these volumes 15 OEMs in production, three more this quarter. And we expect both these numbers, the number of car models and number of OEMs to grow during the coming quarters. Behavioral research is growing with 18%. Finally, I should say, it's been a challenging year for behavioral research. Let's say that the rest of the world outside of the United States has been okay, but the US North American market has been challenging throughout the year until now. We completed the savings program in Q2 and we were laying flat on the OPEX level in Q3. There was a vacation salary effect that decreased the costs a little bit but basically was a flat line if you look below behind that. So we have 15% reduction compared to last year. We're happy with that. This is an interesting picture. You can see that back in 2016, 17, 18, we had a few customers, BMW mainly and some other premium OEMs. BMW went into production in 2018 we started to have our first license revenue back then and we were supposed to get several other premium OEMs in Europe to go into production and start ramping in 2019-2020 that got delayed a bit due to covid and semiconductors and whatnot And then, you see, we have a quite big ramp up, a big rise in, let's say, 2019 to 2020. We go from 50 design wins to 100 design wins. Those are the design wins that should have gone in production in 2023. So the ramp up that we see right now in 2025, it's approximately two years delayed compared to the original And you can see also that there's a huge increase in the design wins in 2023 and 2024. That's what's going into production now, this year, coming year and also in 2027. So that's the sort of logic behind that we expect such big increase in the license revenue over the coming quarters and years. Of the 105 design wins they are divided like this. 24 car models in North America with one OEM. A very big OEM from Detroit of course. We have nine OEMs now in production in Europe. Many are still small in volumes, many are still ramping up. 36 car models in Europe has entered production. And in Asia we have five OEMs entered production and 45 car models out of the 95 are in production in Asia. Up until Q3 we have 30 car models that went into production for this year. We expect to be 40 to 50 more car models in Q4. We have a lot of planned SOPs. Hopefully, we will reach that level. Of course, it could spill over into Q1, possibly. It's not the first time you would see a delay if that happened. But still, most of the, let's say, revenue ramp up comes from the car models that already has entered production, the 105 car models. Whatever happens here in terms of exactly when the SOP is being launched, we see a very strong momentum in our license revenues. Looking at the total DMS market we are very happy with the 11.5 EBDA with the 105 car models in production and whatnot. Let's not forget this picture here. So the gray line It's the take rate, the solid line, not the bars, but the solid line. And you can see that we expect to have a take rate globally of 10% this year. going to above 20 percent next year and going to go close to 30 let's say 27 28 percent in 2027 The biggest driver of this enormous increase of global take rate is the 16 million cars in Europe. So you have a full 100% take rate in 2027. And the second half of 2026 will also have a 100% take rate in Europe. And the first half of 2026 will have a fairly high take rate in Europe. So this is the underlying industry logic behind why we are growing so fast. With that, I leave over to you, Mats.

Thank you, Martin. Hello, everyone. So let's look into the financial development in the quarter. We have had a good growth, 25% coming up to 99 million. And we have an impact on FX in the quarter as well. So that is negative minus 6 million. But you can see here in the graphs that automotive growing with 18 million and behavioral research, 8 million. Talking a little bit about the gross margin. The gross margin is going down from 89% to 87%. And that is due to that we have had both of course good growth in license revenue but also the product sales have increased. So the balance there is that we are a little bit more hardware in the quarter. For automotive we have growth of 50% and if we take out the FX effect and also that adjustment that we did in Q4 last year then we came up to organic growth of 61%. The growth for the rolling 12 is also very high, 28% and then we have excluding FX 32%. There is a good drive in the car production ramp up both from the Asian OEMs but especially also from the European OEMs and also the North American OEMs. It's also good to see that we have three more OEMs coming in with car volumes in this quarter. Also, not forget to mention the AIS product. We have said before in the press release that we had a good order intake in the quarter and we have started to deliver on that. And also to other OEMs programs that we have for these products. So the AIS revenue is also increasing very well. So it's well above 200%. But it's starting from small amounts, but it's picking up quite well. The project revenue is slightly lower this quarter compared to last year and that is due to that we have finalized and are close to finalize a number of customer projects. Behavior Research also very good growth 8% and then if we take out the FX effect of 4.6 million it's up 18%. And iMotion is with their multi-model software platform. They are selling really well in the quarter and there is the background for this growth. The other portfolio referring to research instrument and media analytics, if we take out the FX effect, they have reporting almost the same revenue compared to the last year. We improve our profitability in all levels. The EBITDA is up 29 million. And of course we have a good sales and then we have a good gross profit. That's adding on 16 million. And then we keep the cost base as low as possible and good cost control and everything around that. So the OPEX is down 13 million. On the operational results, we improve even more, 32 million, and that is due to less depreciation and also amortization of intangible assets in the quarter compared to last year. The earnings before tax improving also but not as much but still 28 million. And of course we have some financial expenses that increasing in the quarter compared to last year. Referring to the balance sheet, looking into the cash ending balance, we increased that to 25 million in Q3. We haven't utilized our bank overdraft facilities. And we had additional 50 million in additional credit facility. So in total, that ending up to available cash ending balance of 107 million. We have a debt now that have increased with 50 million in the quarter. So we have a total debt of 150 million. And then looking into the free cash flow, the total cash flow improved with 13 million. And then the cash flow from the operational activities also improving with 11 million. But the cash flow is negative for the change in the working capital. The reason for that is that we have had a quarter now with less incoming payments. This is mainly referring to our customer projects and how they are invoiced and how they are paid. In Q4 we expect to have more incoming payments. And the investments we have done in the quarter ending up to 25 million. And it's less compared to last quarter. And it's usually in this area, around 23-25 million. So in total we have 107 million in available cash and in balance and we have free cash flow 37 million but we see that and expect that the free cash flow will improve quarter by quarter And this is due to the ramp up that is now ongoing for our customers. And the 107 million will be enough for us to secure the cash until we are cash flow positive. And we have previously said that we will become cash flow positive around two to three quarters after we have gone breakeven on EBITDA. So that was all from our financial performance in this quarter. Thank you very much.

Great. Thank you very much, both of you for the presentation as usual. We have received a lot of questions from investors, but I have some of my own as well. So I'll start with them. And then we'll move over to questions from the web. But firstly, maybe you stated that 15 car models reached start of production this quarter. Is there any specific OEMs that are driving this or any specific geographies? wasn't it like across the board this time yeah okay so yeah yeah and and any of those that you consider like maybe more of tilted towards high volume design wins or is there is it also kind of broad-based level for me I would say it's broad broad-based Yeah. And I mean, you expect 70 to 80 car models to enter production for the full year of 2025. And now you're at 30. So I guess you assume a pretty back heavy, I mean, Q4 with a lot of starter productions.

Absolutely, a lot of startup productions in Q4 and as we get closer to the European law taking full effect, it's going to be like a ketchup effect with lots of car models before July 26th.

And just some questions for you, Mats. You reached EBITDA of 11, 12 million now in Q3. And as we know, Q3 is a pretty seasonally strong quarter because you have the vacation effect. But you also state in the report that you expect good improvement from here. Just to be clear, does that mean you expect improved EBITDA in going into Q4 compared to this quarter? Or how should we view this improved development?

Yes, we see a continuing increase in the license revenue. We have a number of customers within AIS that will continue to pick up in volumes as well. And then, of course, OPEX is expecting to be a little bit higher in Q4 compared to Q3. It's more referring to the seasonal effect rather than that we have employed more people. We are in FTEs, we are in the same level. So that all in all will give us a better profitability in Q4.

encouraging. And just just a follow up here on cash flow in the quarter. You mentioned like some working capital effects affecting the cash flow here with payments. But I believe you also stated that you expect more payments to come in in in q4. So this quarter, I believe changes in working capital had a negative impact of like 22 million. Do you expect that maybe to be better in q4 than nice, I assume?

Yeah, you can say more than half of that negative development on working capital that is referring to our customer projects. So, you know, sometimes we are and then we have an invoicing plan for them. And that is depending on milestones in the in the projects. So there we have therefore we will see that you predict that we can we will have more incoming payments in Q4.

Okay, perfect. And last one for you maybe Mats regarding the credit facility of 50 million that you secured in this quarter. Do you want to comment on the terms on this facility? And is there any potential to increase facilities even further if you deem it necessary?

Referring to the terms, it's the same terms that we had on the previous and that we have done a press release about. And yes, I think we can enlarge that credit facility as well. But at the same time, this is expensive credit facilities that we have. We are aware of that. So we really need to have a cost efficient financing for the company in the long term. And we have said that these 107 million that we have in available cash and in balance, that will be enough until we are cash flow positive.

So these facilities, I mean, they should not be compared to low-interest bank loans. They should be compared to the alternative to make a direct-to-share issue, which would have diluted...

the shareholders in a in a point in time where we were just ramping up so that's why we made a decision to to go with credits yeah yep good and if we move on a bit to automotive then i have a couple of questions uh first regarding ais you stated that it saw very good growth above 200 in the quarter compared to last year i believe But from low levels of course. I'm just thinking about the order that you received from Optics. Does it have to do anything with that or how far have you come in delivering on the Optics deal?

We have started to make some deliveries on the Optics deal like we announced. It was a big number of cars that will be equipped together with Optics. But it's also the bus OEMs, the commercial vehicle OEMs, they're also starting to ramp up a bit. But we expect the largest effect of all this will come in Q4. So then we have a bigger ramp up with all these different types of customers.

okay and and 200 this was compared to a very low number in q3 last year and um just a quick comment on nre development uh like going into q4 up down stable from here i say stable like approximately the same yeah And one thing that caught my interest in the report is that you stated that you have a bit better visibility now when it comes to your OEMs and the ramp up so what kind of visibility are we talking about here and do you have any like insights you can share maybe?

What we have done is that during the last years you can say we have built up our own model to monitoring the OEMs and the car models and how much they are selling, producing and then looking into the take rates that we have on these models and so on. So we build it from the bottom, so to say, instead of trusting our customers forecasting and so on because what Martin mentioned is that that has been delayed in the for the OEMs and in their programs and that could happen and so we should not be reliable on rely on those on those forecasts so we build our own model and if you look on the last year we actually try mitigate it quite well

Have you compared your model to the actual results in the past couple of quarters and do you think it tracks better than the OEM forecasts?

I think we have fine-tuned it quite well. For the last four quarters I think we were on top of it for three of those four. So maybe it was one that was a little bit lower, so to say.

Okay, good. And regarding some of the news flow during the quarter, you press release that you were nominated as a software tier one on a new platform for electric vehicles, but with an existing OEM, so an existing customer. Exactly. But this was the first time you were nominated as software tier one for this specific OEM, if I'm not mistaken. Yeah. And do you believe going forward that you will win more procurements as a Software Tier 1 or as a Software Tier 2?

Absolutely. We will win a lot of businesses Software Tier 1. But those two business models, being a Tier 2 or being a Tier 1, they will coexist for many years to come. But the advent of the software defined vehicle in the automotive industry is perfectly suited for SmartEye to become software tier one. And working closer to the OEM means that we can have faster, shorter development cycles, continuous improvement, agile development. And I really believe that's the future. okay and uh regarding uh just procurements um and whether it would be a soft either if it will be software tier one or software tier two house like procurement activity uh right now and going into q4 yeah in in automotive solutions is a very active procurement activity many big procurements rfq processes is ongoing at the same time And we are working very hard to be successful in this round of nominations that is coming.

Is it mainly DMS or also interior sensing?

Yeah, the bulk is definitely DMS but interior sensing is coming and due to Euro NCAP is going to award points for interior sensing or occupant monitoring. as early as 26 and of course it's not that difficult to reach five stars in your rank up in 26 but that level will gradually increase in 27 28 29 so the OEMs are preparing for that and OMS or cabin monitoring that that is really coming strong But if you look at the bulk of it, it's still, I'd say, more than two thirds, even more than 70%, I should say, is DMS at the moment.

And I mean, in the past, you have been very successful, of course, in winning many big procurements. Do you believe you will be equally as successful or has competition tightened in the lately?

We have a very strong offering. We're offering more capability and more features than anyone else in the industry. We have a strong team. We have a strong track record. And I'm very optimistic about the future.

Perfect. Regarding procurements, a follow up on that one. Is there any procurement activity regarding your Iris authentication feature that you licensed in from another company? Maybe it was like nine months ago or something like that? How's like development going with Iris?

It's a very interesting field and we were already, before we acquired this Iris asset, we were already working with Face ID and had Face ID put it into production and so on. I say Iris is the next level of that. You can really be sure on a bank level, that security level, that the person in front of the camera is that actual person

don't have any design wins yet but i hope of course to be able to announce it sooner rather than later but it's up to the customer yeah and i think it was also interesting you mentioned in the report regarding uh like there's much happening in the industry right now and we we have seen harman which is a subsidiary subsidiary of samsung acquired a competitor of yours sepia And I mean, CPI has been struggling with profitability for quite some times and struggling to win design wins. And we have seen other competitors to you as well as struggling with profitability. So do you think it would make sense to consolidate the industry? And like, what role would you play in such a consolidation?

The industry is consolidating right now whether or not SmartEye participates. I think it's hard. You need to have a certain market share in order to become long-term profitable if DMS or OMS is your business. So, but we have been standing on the sideline for now. We did two strategic mergers in 2021, and since then we have been sitting tight. If something extremely compelling would come up with high strategic relevance, then of course we will look very careful at it and so on. But up until now the consolidation was mostly happening without us participating in it.

Yep. And a quick one on behavioral research before I will start with some investor questions here. But I mean, that business unit often like experience a very strong Q4 due to the budget cycle of the customers there. Do you expect it to like

grow now in Q4 year over year if you talk organic growth or because last quarter last year was a pretty high comparison if you talk organically organically without FX effects I don't know if we will surpass last year's Q4 because that was extremely strong we had a good really good inflow of deals in Q4 last year. So that remains to be seen, I should say. But I expect a much stronger Q4 than Q3 for behavioral research.

Thanks for the color. I will start to take some questions from the web here and there's one investor that wonders if you see any risk regarding the general safety regulation and if there can be like if it could be pushed forward following problems with semiconductors or chips and tough German car industry

I think it's too late to postpone this now and I don't know of anyone in the industry who is preparing for some sort of delay. Everyone is preparing to be compliant in July next year. I'm not aware of anything.

There are some questions here which you may or may not be able to answer but I'll ask them anyway and you can choose. When will SmartEye be a bit positive?

That's my question.

Yeah, basically a question about write offs.

Yeah, I suppose. So now, but we said, I think, in the approximate way, approximately around when we are cash flow positive, I think that will fall, I think that will follow. Yeah.

And how many AIS units are now installed in trucks?

Oh, I don't know it by heart. I would say like, yeah. three thousand plus minus thousand maybe and when will installations of ai1 start ai1 is still something which we developed as a conceptual product it has not been yet hardened in the like the development processes that you need to do for automotive so it's still early days and we are mainly using it let's say as conceptual work or prototype work or or doing testing with the customers and things like that so it's a very very new product but very exciting product I should say the the customers love it

That sounds encouraging. How many quarters did it take for SmartEye to increase the number of cars on road, I suppose, from 2 million to 3 million?

We don't really count it that way and we don't communicate it that way. We know that especially one of our competitors do it. But that doesn't mean that we will do it just because a competitor does it. So we choose to talk about that. revenue per business unit instead.

And I suppose maybe you can't answer the next question as well then, which is how many cars on the road with smart technology are there now?

But there's more than 3 million though.

More than 3 million.

But not yet 4.

Yet. And there has been a slow phase of new design wins lately. How come? What is your position? We'll start with that.

Yeah, but you have to realize that the car OEMs, they are no gazelles when it comes to quick action, and especially the purchasing department of big car OEMs are particularly slow. So these are slow processes, long processes. They're grinding for a very long time, and then all of a sudden it all just happens. So I would say it's nothing strange about it.

Just the cycle of the industry.

If you follow Smarter and Smarter as Competitor, you know that there's been a sort of a hiatus for design wins, but it will come.

And a follow up from the same investor is what is your position at your first client, BMW, now? Have you lost them to competitors?

Yeah, so we were in generation one for BMW. That was our first design win, so it was the BMW X5 back in 2015. That X5 went into production in July of 2018. And then in a fast succession, we got 11 more BMW models. So at the peak, we had... 12 BMW models. I think the volumes, the license volumes peaked around 21, 22 there about. 22 probably. And then the ramp down started because one of our competitors had one generation too for BMW. So we were ramping down from 22 until now. There's still a tiny BMW volume left each quarter, but I guess it's just one or two, let's say, small cars, low volume cars, let's say luxury cars. And now generation three at BMW is starting to ramp this fall with yet another competitor. So these are normal life cycles of automotive, I should say.

And a follow up from me then, I mean, BMW, you lost it to competitors, but I mean, is there any other OEMs that you have taken from competitors?

Absolutely, yeah. You win some and you lose some. I wish I would win 100%, but I mean, you win and lose. We take OEMs from competitors as well, but BMW was lost.

okay and moving on here then when does the depth mature of some 200 million sick will you finance that by an equity issue

think when we had this first 150 million in credit facility we actually press released about the terms then and that we had the possibility to have it over 18 month and then of course we have picked those in different three different transfers and so that is during you can say actually during the second half of 2026 yeah and then of course the second part of that question if i may start martin is that i mean we see that profitability is coming and then the cash flow will come and then we we will build up our cash flow and be able to and we also said that when we have the cash flow our cash flow positive We are more in a banking mode. We can take another type of financing. I see no risk for taking that way.

I think it should be clear that the way we have maneuvered during the last year is we have maneuvered in order to not do a directed share issue that we believed would dilute the shareholders on a very low share price. So that's the reason.

I guess that will be answering the question. What about the only 15 new models in production in Q3 2025 with SmartEyes DMS and the guided 55 to 65 more totally in H2?

We have a lot of car models planned to go into production to meet European regulation. And this will happen in Q4, in Q1 and Q2 next year. And then the regulation starts and becomes mandatory and everyone needs to... If you sell a car in Europe, it has to have DMS at a certain level. So we just see in front of us a few really strong quarters in terms of new car SOPs.

And from the same investor is kind of wondering, I believe, in Q2, the free cash flow then was minus 38 million and now it's minus 37 million. So pretty flat, but you have improved the DIA and other profitability metrics quite much. Mats, you explained it a bit in the presentation. Maybe if you would like to answer it again or add some comment.

Yeah. It's about, mainly it's referring to the NRE revenue, the product revenue that we have from our customer development projects.

The invoicing.

The invoicing and they have an invoicing plan according to milestones and Q3 was a quarter with low incoming payments and Q4 will be with more incoming payments. So I think that is one thing to keep in mind that we will expect to see an improvement in Q4. When we are talking about the AIS product, we have shorter payment terms there and we have longer payment terms for when we buy hardware. So we try to mitigate the working capital in that way for that area. And also referring to the good growth and revenue we had for license revenue that have been invoiced now in Q4 and that will turn into cash most of that in Q4. So there is no delay for the license revenue.

There are a lot of questions here. I'm trying to get as much of them as possible. I don't think we will manage to get them all. Sorry for the delay here. This one we have already talked about. This one we have already talked about as well. Can you please talk about ASP development going forward and if this is to increase due to you expect a step change? Okay, maybe we'll just start with the first part of the question. Can you please talk about ASP development?

ASP consists of like you have a base DMS package which is like the minimum. the least common denominator, so to say, that everyone needs. That has a certain value per car. And then if you're adding features, you're adding value per car. So if you add something like drowsiness or intoxication or child left behind or these kind of features, they all have a value. So the more features customers buy, the higher is the value. And customers tend to buy more and more features of us over time. So the thing that was in production in 2018 with BMW, that's not even bare minimum anymore. And then you have also this cabin monitoring evolution that is happening that you put either a second camera. that films the whole cockpit, or you can put just one camera in the rear view mirror or close to the rear view mirror and try to do as good DMS as possible with that one camera. Anyway, filming the whole cabin enables a bigger feature set to be sold. You can do analysis of the passenger, the backseat, if the backseat is visible from the camera and so on. So over time we see that the average ASP is increasing over time.

Okay. And I think maybe we will end with this question from an investor. And I'll tie that in with the question that I have as well. I mean, a competitor of yours reported their quarterly figures pretty recently, and they stated that it says some like uncertainty regarding exactly when OEMs will ramp up DMS production ahead of the general safety regulation in Europe. And you have stated as well that you can't know for sure when they will do. Maybe they will stock up some inventory before or something like that. So the investor is wondering, like, when is the latest that an OEM can enter production so it has reached a level of reasonable volumes to satisfy a normalized level of demand? Tough question.

No, it's not a tough question, but it's It's a very much detailed question. I think the background is that some investors want to know, when is that step happening? Is it on July 6th or is it before July 6th or is it after July 6th? You did some analysis, Mats. What did you find out when you analyzed it?

I think, first of all, the Q4 will be the first quarter, full quarter, where you have all the production with the DMS. Q4 2026. Q4 2026, yeah. And then, of course, in Q3, it should be also full production, I think. But at the same time, when you have new models coming in, you maybe have a stock of old cars, and maybe you would like to sell them. So the question is how if there are a stock on old cars that needs to be going out on the market. So that could be one part in that you will have a minor delay into the water.

so so basically if a car oem were to take the cars that were produced in q3 and register them or qt i mean in q2 yeah next year and register them in q2 yeah and instead of having them standing unsold unregistered they will be standing unsold but registered yeah and but isn't this just a transient effect though

I think this is a minor, it's not there, the discussion is when you really have the full effect. I mean it will come in Q1 and Q2 I assume.

Perfect. I believe that's all the questions we had time to answer. I hope we have answered them all. I mean, if there are further questions from investors, maybe you can reach out to Mats and Martin and they will happily answer you to the best of their ability. And if you have questions regarding our analysis on Smarta, you can reach out to me, of course. And with that, is there anything you would like to say to round off the conference call today?

The best quarter in the history of SmartEye yet.

Thank you very much for participating today and thanks everyone for watching.