Seeing Machines Ltd (AIM:SEE, OTC:SEEMF) CEO Paul McGlone talked with Proactive about several significant updates for the company. The conversation began with McGlone discussing the recent acquisition of Asaphus Vision, emphasizing its importance for machine learning capabilities, data acquisition, and collaboration benefits. McGlone highlighted that this acquisition brings deep expertise in AI and machine learning, expected to enhance the company’s technology and efficiency.
McGlone elaborated on the enriched data set the acquisition provides, which will improve features like driver identification and phone use monitoring. Additionally, the company’s collaboration with Valeo, a leader in automotive systems, was discussed as a crucial step forward. McGlone also mentioned the extended agreement with Caterpillar, which includes a significant upfront payment of $16.5 million and access to new market segments.
Finally, McGlone provided an updated outlook on Seeing Machines' financial expectations, noting factors affecting EBITDA and the anticipated impact of upcoming regulations on their automotive business. He reassured that the company is focused on achieving its cash breakeven run rate by 2025 despite some volatility in regulatory implementations.
Proactive: Joining me is Paul McGlone. He's the CEO of Seeing Machines. Paul, thanks for joining us today. Lots of news recently from the company. Let's start with yesterday's announcement. Seeing Machines has acquired Asaphus Vision. Can you tell us a bit about that? Why it's important and what it brings to the company?
Paul McGlone: This acquisition is all about people, machine learning capability, data, and collaboration. This group is small but extremely capable. We’re acquiring some deep expertise in machine learning and AI, which should help us significantly reduce the size of our machine-learning models and the computational power required to run them on small embedded devices.
This is very important for our customers. We see a lot of leverage here. From a data point of view, it’s mission-critical. We’re acquiring a large amount of high-quality data in head and gaze tracking, which is important for driver identification and phone use applications. Our existing data set is already significant, but this acquisition will enrich our data, making it more diverse in terms of demographics, age, and gender.
This enriched data set enables us to develop features better and faster. The Asaphus team is based in Berlin, and most of our business is in Europe, so this will allow us to have experienced people working during the daytime. The collaboration with Valeo is also very important. They have been a strong customer for years, and this acquisition paves the way for a new collaboration.
Proactive: Paul, can you maybe build on that? How will the Valeo relationship help Seeing Machines?
Paul McGlone: Valeo is a world leader in developing exterior and interior systems and the technology that enables software to come to life. They have been extraordinarily successful in this area and in collaborating with third parties. Integrating Asaphus Vision into Seeing Machines and collaborating more formally with Valeo will benefit all parties. Valeo’s experience and technical expertise will be a real advantage to us.
Proactive: Looking back to last week, you signed an extension of your agreement with Caterpillar. Can you break that down for us?
Paul McGlone: Yes. We’ve been working with Caterpillar for a long time, and they are a very important partner. Our contract was up for renewal, which gave both companies a chance to reflect on our relationship. We developed a new path forward, allowing us to rethink the products we develop for Caterpillar. We will have access to new fields of use, such as construction on-road vehicles, which we couldn’t address before. This expands our addressable market.
Paul McGlone: As part of the negotiation, we’ve brought forward $16.5 million in royalties into a single upfront payment. This is beneficial for us from a cash perspective. However, the accounting perspective is complex, and we’re working with our auditors to determine revenue recognition for FY24 and FY25. This new relationship will deliver real benefits, and we’re locked in for another five years with Caterpillar.
Proactive: Paul, in the same announcement, you provided an altered outlook for your full-year 24 cash EBITDA results. Can you explain what that means and why this has happened?
Paul McGlone: Yes. There are two key reasons for the adjustment in our EBITDA outlook: margin mix in our fleet (aftermarket) business and our automotive business, and timing. In automotive, we had a drop in royalty volume driven by one particular program. This drop was not systemic but caused a slight reduction in royalty volume. Additionally, OEMs are choosing between high-level and NCAP-based lower value features, affecting our EBITDA.
Paul McGlone: In our Guardian fleet business, we launched our Gen 3 product, but it took longer than expected to resolve technical issues and get certifications. As a result, we sold more Gen 2 products, which have a lower margin. These factors have driven a reduction in EBITDA. We expect both issues to resolve, but we had to call them out.
Proactive: As regulations approach this month, do you expect to see a significant increase in quarterly results for automotive? Will it be in situ as GSR and Euro NCAP deadlines approach?
Paul McGlone: Probably not instantly, but we expect our royalty growth rates to continue performing well. We’re still expecting 100% year-on-year growth. The General Safety Regulation requires all new vehicles sold in Europe to have driver drowsiness and attention warning systems. There are direct and indirect methods to achieve this, and by 2026, a camera-based system will be required. This transition will bring some volatility, but we expect royalties to grow as planned.
Proactive: Given all these factors, can you confirm that you’ll still meet revenue and cash expectations for full-year 24 and the full-year 25 goal of achieving a cash breakeven run rate?
Paul McGlone: Yes. Achieving a cash breakeven run rate by 2025 is mission-critical. We still believe we will achieve this, possibly a quarter later. Our royalties and recurring revenues are growing, and we have strong measures in place. We are focused on managing costs and delivering revenue to meet this goal.