10 questions to Seeing Machines

I’m expecting Seeing Machines to provide positive news and an upgrade for its 2020 financial year when it releases its full year results for 2019 on 23rd September.

However, this is no time for complacency, especially given the errors of the past under the previous management. In particular, questions have been raised about its operational costs and whether it has sufficient cashflow to avoid another raise. I hope we’ve entered a new chapter but we’ll soon know.

Unfortunately, for a few months now Seeing Machines has refused to engage with me and answer my questions. Fine.

However, it would be a shame if hard questions aren’t asked and answered by management when these results come out. To aid that transparency, here are 10 that I hope investors will be asking when the results are published.

1. Analyst Sanjay Jha at Panmure Gordon has previously stated, in a note dated 5th June, 2019 that Seeing Machines isn’t funded to breakeven. “We continue to believe the funds raised in April are not going to last 18 months as the company continues to pursue opportunities in 4 different sectors (Automotive, Fleet, Aviation, Off-road).” When do you now anticipate breakeven and will you need to raise again before then?

2. Regarding operational costs: how many people are now employed by SEE? Did operational costs increase in 2019 and by how much? How much are operational costs planned to increase in the current financial year (2020)?

3. Are you actively seeking to renegotiate the Rail contract with Progress Rail? If so, when do you expect it will be concluded?

4. Given you don’t have the cash to develop automotive, are you actively seeking a CAT-style licence deal for aviation? Do you expect it will be concluded before the calendar year end?

5. Is the monthly growth in fleet revenues sufficient to avoid any further fundraise? Can you quantify this growth?

6. Why has the relationship with Mix Telematics failed to produce much revenue? Is this likely to change in this financial year? How and why?

7. What is the number of Guardian installations you  expect to have in place by June 30, 2020. What is the monthly installation rate? Can you confirm that these are generating cash immediately? What’s the lag?

8. Re. Auto, are you now gunning for the low, mid and high end auto market?

9. Is it the case that if a budget OEM needs a cheap DMS you can provide a DMS chip with less functionality at a reduced price?

10. Are you actively working with Japanese OEMs. Have they finalised exactly how they want DMS to work? (Eg. Integrated into ADAS).

I’m far from infallible and I’m sure investors may have additional questions. Good luck to all holders!

 

The writer holds stock in Seeing Machines.

 

Webcast for Seeing Machines results?

I’d like to request that Seeing Machines hold a live webcast for investors when it announces its results in late September (no firm date has yet been communicated). This would go some way to improving the transparency of its communications to private investors who don’t have the luxury of regular one-to-one meetings with management.

With its headquarters in Canberra most shareholders aren’t in position to attend results presentations/AGMs in person and it would provide demonstrable proof that the new management is committed to clear and timely communication to all.

Other AIM-listed companies do this already. Veoneer, Aptiv and others do it also and Seeing Machines should walk the walk on investor communications.

Never mind spending a fortune on engaging a US PR outfit, there are simple ways to engage existing investors and grow your global profile among investors.

Regardless of the good news that is coming (yes, no rush Seeing Machines we can wait for the official announcements), private investors deserve a clear and transparent communications strategy, not just videos interviews put out on an obscure website where only easy questions are asked (albeit from a skilled interviewer).

I don’t have the influence to make this happen but the investors reading this do. Agitate for it and make it happen. Good luck.

The writer holds stock in Seeing Machines.

 

 

 

 

 

 

Volvo XC90: another win for SEE

The evidence is stacking up that Seeing Machines has won Volvo in the teeth of opposition from its Swedish rival Smart Eye.

Read this article on the Volvo XC90 and note the way it describes how the DMS system will work. Congrats to Nick DiFiiore and his team on this one. All we need now is the RNS.

I believe the delay in announcing auto OEM contract news is due to their being re-scoped and enlarged by car manufacturers in the light of EU legislation that will mandate DMS in all new type cars from 2022.

Of course, fund managers have been getting the inside track on developments this week so I am optimistic we will get some big buys.

Still, rather than a soft-focus video, private investors also deserve to meet the management. Hey, SEE, how about organising a webinar and answering some tough questions from people who’ve invested their hard earned money over a number of years? Or better still, call another meeting in London.

Certainly, in his most recent interview the new CEO, Paul McGlone, seemed very confident. He can certainly talk the talk and it is my hope he will also walk the walk over the next 6 months. Time will tell.

The writer holds shares in Seeing Machines.

Silver lining in a cloud of investor misery?

Following today’s news that Seeing Machines is having a deeply discounted  conditional placing and subscription to raise £27.5m, the management of the company seems to have lost both the goodwill and trust of many private investors. 

Indeed, the fact SEE couldn’t get even get a placing with existing institutional investors away at 5p tells you a lot.

It’s quite frankly shocking that the company had to offer shares at 3p in order to raise cash and follows a long series of fleet and train related mishaps that Chris Grayling would be proud of.

The only silver lining I can see is that with the expected OEM wins still to be announced it becomes a sitting duck for an opportunistic bid. My sources tell me that last year, after numerous ‘discussions’, it came close to being snapped up by Bosch for around 17p. Well, I dare say, it is still available at a knock-down price.

Anyone want a to buy a company with great tech but poor management? 10p? Anyone? 7.5p?

UPDATE

For those investors despairing tonight, I’ve some hope. Ironically it comes from house broker Cenkos who put out a note today. Analyst Jean-Marc Bunce clearly cares about his reputation and though he lowered the price target to 9p, Bunce can’t help but admit on page 15:

“Strategic value is significant – 39p at 8% discount rate

To demonstrate the significant value in the increasingly visible future cash flows from Seeing Machines’ automotive license fees, we note that a large organisation with a market average Beta of 1 would have an equity cost of capital of 8%. At an 8% cost of capital our valuation for Seeing Machines rises to 39p and we note the weighted average cost of capital for a large corporate would likely be even lower through debt financing.”

In fact, the more times I read this note the more I get the sense that it is setting out a case for SEE being sold at a particular price. We’ll see.

The writer holds stock in SEE.

Is it time to React?

React Group is a tiny AIM-listed company that has a chequered history and recently decided to concentrate on specialist cleaning. It is also a sub penny stock. So far, so bad.

The good news is that star fund manager David Newton has a chunky 15.74% holding and the company’s management has been strengthened with the addition of a Non-Executive Director Michael Joyce, former CFO at InterQuest.

Joyce and his wife have recently bought stock in the company (management of SEE, please note) which has helped spark this week’s increase in the share price.

Mark Braund has also been brought in as an operational and strategic advisor. He is a former CEO of InterQuest and also ex-CEO of Redstone Connect.

I briefly held this stock about 3 years ago when Adam Reynolds (the cash shell king) was a holder. He has since moved on and I feel that with a clearer strategy the company is now gearing up for a period of accelerated growth.

It made a loss for the year ended 30 September of £1.93m but the net cash outflow from operations was far less at £625k, with turnover up 25% at £3.3m. If the business continues on its current growth trajectory it could easily multi-bag from here.

At this stage it has be regarded as a fairly speculative investment and is certainly not one to sink your pension pot into. Yet, it is certainly worthy of further investigation.

At the time of writing its share price was 0.27p.

The writer holds stock in React.

Seeing Machines wins strategic FCA contract estimated at US$200m

Seeing Machines has won the contract to supply US carmaker Fiat Chrysler (FCA) with its Fovio chip Driver Monitoring System, as predicted here months ago.

Ostensibly it is a US$6m contract (for Jeep or Ram, I believe) but as we all know the value is likely to end up far higher as DMS is swiftly rolled out across all its various car marques and models.

My estimate for the eventual worth of this deal is nearer to the hundreds of millions of US dollars. FCA produces 4m cars a year. Within 3 years I expect the Fovio chip to be in approximately 50% of them, say 2m cars. At US$20 a pop (volume discount from US$30) that is at least $40m a year. EVERY YEAR from 2022!

As the lifetime of a model is 5 years, my belief is that this strategic contract should end up being worth at least US$200m.

Clearly FCA couldn’t afford to let Ford with its F-150 pick-up outcompete in the premium DMS arena. They just had to have it.

I feel a twinge of sympathy for Smart Eye who at one stage hoped to win FCA. Indeed, as i believe the Tier 1 is Aptiv Seeing Machines are rubbing salt into its wounds — it is the equivalent of your partner running off with your worst enemy.

Unfortunately, Smart Eye don’t have an automotive grade chip, although they are trying to develop one. Unfortunately for them, Seeing Machines has already passed the finishing line where the US premium auto OEMs are concerned. After all it has now bagged FCA, Ford and GM.

In addition the next race has nearly been won in Europe where it will win VW to add to BMW and Mercedes and I don’t expect the result to be any different in Japan (Toyota and Honda are coming I believe).

This latest win brings an eventual bid for Seeing Machines much, much closer. So far as DMS is concerned SEE really is the next Mobileye. Indeed, I imagine the calculations I’ve roughed out will be replicated by many chip companies.

The writer holds stock in Seeing Machines.

Cadillac extension gives Seeing Machines US$10m boost

News from Motor Authority that Cadillac is rolling out Super Cruise across its entire range of Cadillacs from the end of 2020 is very positive for Seeing Machines, as the system incorporates its Driver Monitoring System (DMS).

Cadillac

Global sales for Cadillac were 356,00 in 2017 and at approximately US$10 a car (only software being used not the chip, apparently), Seeing Machines can look forward to initial revenues with milestone payments of up to US$10m. Thereafter, annually it is likely to be less unless GM moves to a Gen 2 chip or extends the DMS to its entire range of cars.

The Super Cruise system, which enables safe hands-free semi-autonomous driving, was only this week voted the 2019 Technology of the year by Autoblog.

This extension across the entire Cadillac range is certainly materially important, so I’d expect a full RNS at some point. Personally, I think its the first stage in what eventually will be a roll-out across all GM cars. For, just as every car now has seat-belts, DMS is going to be mandated as an essential system around the world to prevent accidents from driver fatigue and inattention.

I’m also expecting confirmation, whether from news articles or RNS announcements, of several other huge auto OEM wins over the next few months.

Fleet

It’s also very encouraging to learn that First Bus, one of the UK’s leading bus operators, to deploy Guardian to numerous bus services across the UK & Ireland.

In the blog post on the Seeing Machines website (why not via an RNS?) the company revealed: “Following an extended evaluation of at the Reading RailAir coach service, running from Reading train station to Heathrow Airport, First Bus has decided to rollout the technology further across their fleet.

“Phase one of the agreement is the fit-out of Guardian to a number of services in the UK and Ireland and has begun with Glasgow Buchanan Street Bus Station to Glasgow Airport. The installation across the region will comprise a mix of retrofit to existing coaches and new builds with Guardian pre-installed. This phase is expected to cover more than 70 buses and coaches and to be completed in early 2019.”

Broker notes

I look forward to Cenkos, and yes even Canaccord Genuity, soon producing updated estimates for this year and well beyond. This is because I believe projected revenue growth over the next 3 years, led by auto, will amaze many. Moreover, contracted revenues should grow exponentially this year, led by further deals with auto manufacturers who are keen to incorporate Seeing Machines Fovio driver monitoring technology into their cars.

The writer holds stock in Seeing Machines.

Waymo good news to come

I’m convinced Waymo has chosen to use Seeing Machines Backup Driver Monitoring System (BdMS). (As predicted by “The notorious blogger” a few months ago).

This follows hints on social media, great reporting from US journalist Amir Efrati at The Information about the incorporation of a BdMS in Waymo ‘driverless’ vehicles and the reluctance of Waymo to refute suggestions that it is using Seeing Machines’ eye-tracking technology.

Oh, and let’s not forget an RNS issued by Seeing Machines on September 11th announcing its first BdMS win, which stated other customers were on the way.

Here’s the sentence from that RNS: “Seeing Machines has signed an agreement with one customer and is in advanced discussions with a number of companies at the forefront of autonomous vehicle development.”

In addition, I’m expecting much more positive contract news on the OEM front in the first quarter of 2019. Plus I’m looking forward to the launch of the Byton M-Byte SUV featuring the Fovio chip in late 2019 in China (US and Europe in 2020). What a great looking car it is.

Funding concerns

Now the share price is in the doldrums and fears of a dilutive fundraise are part of the reason.

Re. funding concerns, I think Seeing Machines will probably need more cash to service this growing demand by the end of June 2019 at the latest.

Note that Jean-Marc Bunce, analyst at house broker Cenkos, stated in a note published on September 19th that there was no immediate cash requirement and that SEE had a “clear cash runway through FY19.”

Still, he did add: “Our model indicates a cash requirement of A$15-20m in FY20, based on these projections.”

My own thinking is that when more OEMs officially come on board, cash requirements to fund that work will be needed sooner, more likely by April 2019.

I don’t see this as a negative, provided there is little or no dilution to existing shareholders. Indeed, Seeing Machines has to grab as much OEM land as possible next year.

I believe it will succeed in the doing the latter.

Funding options

Personally, I don’t think existing institutional investors will be keen to support yet another annual fundraise before more auto OEM contracts are announced. An alternative would be to trawl round new investors but why dilute existing investors with such an unimaginative move?

A CAT-style deal for fleet, with a chunky up-front payment (say A$30-50m) would be a better option.

Alternatively, a very imaginative option might be to raise some debt via a convertible bond. I noted that the new CFO, Luke Oxenham has experience of raising cash via bond issuance. Moreover, with big company experience I’m hoping he will be willing to consider big company actions.

Logically, there must have been a reason this sentence was included in the official RNS: “Luke has substantial experience of integrating business planning, business performance and capital modelling and of accessing various sources of capital from the debt and equity markets.”

Tesla used convertibles in 2014 to raise US$2bn. Twitter also recently used it to raise US$1bn according to Reuters.

So Luke, how about this? A 5-year convertible bond with a conversion price of 8p at around 6%–7% interest. (Okay, I admit the idea came from someone much smarter than me.) I’d prefer a 20p conversion price!

The writer holds stock in Seeing Machines.

Level 4 is dead, long live Seeing Machines

Here’s the latest piece of analysis from Colin Barnden, Lead Analyst at Semicast Research on Seeing Machines, Driver Monitoring Systems (DMS) and the auto industry.

“EuroNCAP has moved to 2022*. This is why contracts aren’t being announced, as OEMs and T1s have more time to do evaluations (see Hansen Report). Ironically, the delay takes away the ‘Takata penalty’ hanging over Seeing Machines. Had 2020 stood for camera DMS, pretty much every OEM would have had to go with SmartEye, other Tier 2s or the in-house Japanese Tier 1s. The first half of 2019 is likely to be busy for OEM direct wins, ready for 2022.

Level 4 is dead for mass market vehicles. The trend I see is ‘less autonomy, more DMS’ (L2/3 with DMS). That suggests to me the technically best DMS. The key part of Fovio is the hardware accelerators for real-time vision analysis (and to lower power consumption). ‘Hardware agnostic’ is a trade-off not a free ride. The significance of the 1.3 bn kms RNS in the summer is also now clear. Artificial Intelligence/Machine Learning is all about quantity of data. I see Seeing Machines even put live updates of the total on their website. This is smart.

OEMs are acutely aware of regulatory and political threats. Dieselgate was a disaster and emissions in general has been handled poorly. Now the political threat is number of road deaths (hence Vision Zero) and that issue is also being dumped on OEMs’ doormats. Waymo and robo-taxis are an existential threat, OEMs have got to find a way to reduce fatalities fast and win political points. They won’t mess up twice and DMS is the obvious way to proceed. Again that suggests technical excellence over anything. If they are smart, OEMs will ‘front run’ the politics and put DMS into everything as fast as they possibly can. There could be a huge ramp from 2023-2025. Again, a fast ramp up supports longer evaluation times and careful decisions for T1s and T2s.

That’s as far as market analysis can go. What matters now is the actual decisions OEMs make. My role is to make an argument but it is up to everyone to make their own individual decisions about how they think things will play out. No one has a crystal ball.”

*’Europe on the Move’ announced Advanced Distraction Recognition (camera-based DMS) from September 2023. EuroNCAP 5* requirements are looking like they will move to demand camera DMS about a year before.

Chris Menon holds Seeing Machines stock.