Smart Eye

July – September 2024

• Net sales amounted to SEK 79.1 (77.7) million, an increase of 2% compared to the corresponding period the previous year. Automotive increased 35% while Behavioral Research decreased 13%.
• Gross profit amounted to SEK 70.5 million (70.2) and gross margin amounts to 89% (90%).
• EBITDA amounted to SEK -17.4 (-23.4) million.
• Operating loss amounted to SEK -61.5 (-63.1) million. Depreciation of the surplus value created in conjunction with the Affectiva and iMotions acquisitions amounts to SEK -28.8 (-29.8) million.
• Earnings after tax per share are -1.46 (-1.75), and after full dilution -1.46 (-1.75).
• Cash and cash equivalents totaled SEK 45.5 million at the end of September. The cash ending balance including credit facilities amounts to SEK 127.8 million. After the end of the quarter, an additional credit facility of SEK 150 million was procured.
• Smart Eye have during the quarter announced 37 new design wins with a total estimated order value of SEK 735 million.

January – September 2024

• Net sales amounted to SEK 254.8 (210.9) million, which corresponds to an increase of 21%.
• Gross profit amounted to SEK 228.8 (186.9) million, an improvement of SEK 41.9 million compared to last year.
• Operating loss amounted to SEK -187.2 (-215.8) million. Depreciation of the surplus value created in conjunction with the Affectiva and iMotions acquisitions amounts to SEK -86.5 (-86.7) million.
• Profit/loss after financial items amounted to SEK -187.5 (-215.4) million.
• Earnings after tax per share are -4.45 (-6.01), and after full dilution -4.45 (-6.01).

Comments from the CEO

The third quarter was characterized by continued ramp-up of production programs in automotive and a slowdown in the behavioral research market. This resulted in slower than expected overall growth but thanks to tight cost control we came out with an improved EBITDA. It is currently at SEK -17 million and is expected to continuously improve during Q4 and 2025.

As the car sales statistics for July came in it was clear that Q3 was going to be challenging for the whole automotive industry. We did not sit on our laurels but immediately started to work with our cost base in order to optimize it to our revenue yet ensure that we can meet our customers’ expectations. Furthermore, we also procured a debt facility of SEK 150 million just to be sure that we have funding for all circumstances.

These two actions are the cornerstones going forward towards profitability, as we expect the license revenues from production cars to rise very fast in the near future, supported by ramp-up of the car models affected by the European safety regulation GSR for 2024.

Automotive
The general automotive market faced headwinds during the third quarter. The sales of new cars went down significantly in July, with some recovery seen in the later part of the quarter. Nevertheless, we announced no less than 37 new design wins in Q3, bumping the total number up to 359. These design wins are the foundation for the profitable growth of the company in the years to come.

The overall growth for Automotive was 35% but the licenses grew with more than 100% year on year (with non-BMW volume growing even faster). We expect the license growth rate to increase in Q4, followed by even higher growth in 2025. The non-license revenue declined due to some engineering projects (NRE) getting close to final delivery, for production programs that will ramp up next year.

More than 67 car models had reached production by the end of Q3 with an expected 80 before year’s end. Next year we expect an increased rate of ramp up of car models affected by GSR. The legislation also mandates bus manufacturers to install the new generation safety systems, and for that purpose the fleet and aftermarket product AIS have recently been sourced to numerous bus manufacturers. At present we are selected by 14 brands, Solaris being one of them (in addition to the 22 brands for cars and trucks). The production volumes are expected to start picking up in this year’s fourth quarter.

We are in the best position for nominations that we have ever been in. It looks extremely good for DMS, CMS, software T-1 as well as for our fleet business.

Behavioral Research
The Behavioral Research business area had an unusually weak third quarter and fell by 13%. All three business units came in lower than expected. The whole market shrunk and was characterized by slowdown of the procurement cycles and price pressure, with some competitors using aggressive discount tactics. We, however, kept our gross margin intact.

The normal seasonal effect is that Q4 is the strongest quarter, due to research budgets being spent on calendar year basis. We expect the same market behavior this year. It is very likely that Q4 will bounce back and become the strongest quarter of the year for us.

Final Words
The measures that we have taken and continue to take enable us to retain our goal of being EBITDA positive in early 2025 with positive cash flow following 2-3 quarters thereafter. This is our primary focus.

At the same time, we see the rate of industry consolidation picking up pace since the summer. However, for the time being and all things equal, short-term profitability is more important than pursuing M&A opportunities for Smart Eye, given the current market climate.

Martin Krantz
CEO Smart Eye

Find the full report and all previous financial reports at https://smarteye.se/investors/financial-reports/.