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Seeing Machines announces US$10m license deal with Collins Aerospace

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Seeing Machines has announced its much anticipated Aviation license deal with Collins Aerospace, the worldā€™s largest Tier 1 avionics company – as predicted here back in February. 

The ā€œexclusive” and ā€œperpetualā€ license deal provides a license payment of US$10m ($3m immediately and the $7m balance over the following 2 years). Collins will also pay Seeing Machines non-recurring engineering (NRE) payments to develop the solutions, evolving into potential future royalty payments as products are released to customers.

Although details as to what exactly is covered under the license were missing in the RNS, Iā€™m hoping to eventually get some answers to those questions from the company. Or, maybe, weā€™ll be treated to a video of Pat Nolan taking a bow in conversation with Paul McGlone. (Certainly, both deserve a round of applause for this deal!). 

Muted response

What has really surprised me is the muted response from brokers covering the stock. None issued an upgrade, although they were all positive on the stock. Unbelievably, at the end of a huge week, the price has barely risen in response.

I have a sneaking suspicion that the 333-plane deal mentioned in the infamous ā€˜Italian Jobā€™ video will materialise fairly soon. My guess is that some analysts are keeping their powder dry for that announcement. In the meantime, I can imagine paper-thin ā€˜Chinese wallsā€™ mean some salespeople are telling their very special institutional clients to: ā€œBuy, buy, buyā€.

The writer holds stock in Seeing Machines.

Amati has Seeing Machines on watch

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Amati Global Investors has revealed that it has Seeing Machines “on watch” in its latest video discussing Machine Vision.

In the video published today, Fund Manager David Stevenson is quoted at around 8 minutes saying that he has Seeing Machines on watch for its Smaller Companies Fund. However, he does state that the fact it is “early stage and loss-making” means he doesn’t consider it “oven-ready” for his fund.

I assume he is one of many fund managers adopting this view. The only issue they may face by deferring such an investment is that after huge contracts for Seeing Machines’ technology come through this year they’ll have difficulty purchasing stock at the current discounted price.

The writer holds stock in Seeing Machines.

Panmure maintains ā€˜BUYā€™ rating with 14.6p target price

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Panmure Gordon analyst Sanjay Jha has maintained his ā€˜BUYā€™ rating on Seeing Machines but lowered his price target from 16.8p to 14.6p.

In a note issued on 31st March he explained how he derived at this valuation: ā€œWe continue to use a Sum Of The Parts valuation model to value the shares, which now generates a 13% reduction in Target Price to 14.6p. The main detractors are Automotive, where we expect a lower market share by 2030 and the increase in the number of shares as the convertible loan is fully converted. This is partly offset by increased valuation for Fleet and Off-Road based on EV/sales multiples of SaaS companies.ā€

According to Jhaā€™s analysis, in Automotive he now expects SEE to gain a third of the available market by 2030 as opposed to 50% previously as it seeks to avoid highly competitive tenders, especially in China. That said, he still calculates that for the year ending June 30th 2030, SEE will generate US$162.7m from Automotive – based on it having a 33.7% share of the market with 32.5m cars in production, 110.2m cumulatively, and an average royalty of US$5.

While it remains to be seen if Seeing Machines really does take less than 50% of the market – something I personally doubt – he does believe the company is fully funded to be cash positive by the second half of the 2025 financial year. 

Market perception

Interestingly, Jha begins the note by stating: ā€œff the shares have failed to respond to upbeat trading updates followed by a Capital Markets Day in New York, it could be due to lower appetite for growing but loss-making stocks or because there is little confidence that the available cash resources will be enough to reach the long-promised goal of positive free cashflow. We hope it is the latter because it leaves management in no doubt that it must deliverā€.

Certainly, over the next 3 months I hope to see proof that management will deliver some of the long-awaited contracts in Aviation, Fleet and Automotive. Surely, some US funds must be watching in anticipation also.

The writer holds shares in Seeing Machines. 

Collins Aerospace license deal is imminent

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Itā€™s great to have confirmation that the long-awaited aviation license deal with Collins Aerospace is set to be announced imminently. Yes, really.

In a presentation to Italian investors back in November 2022, Paul McGlone, CEO of Seeing Machines, revealed that it was expected to be signed before the end of 2022. I assume the deal with Collins Aerospace was then slightly delayed while the fine details were negotiated and will be announced on or before the forthcoming US investor/analyst event on the 8th March in New York.

Iā€™d heard strong rumours a few months back of such a deal and so posted this blog back in August, since when further research has led me to conclude I was correct. However, the interview now confirms it and provides a lot more detail. For example, Paul McGlone reveals that around A$15m will be paid upfront with higher ASP and recurring maintenance fees being part of the deal. 

Collins has previously refused to comment but I assume this will now change. 

In addition, Seeing Machines is also bidding for a huge RFQ for an international airline to place its pilot monitoring technology in approximately 333 ā€˜7ā€™ series Boeing jets and 18 simulators. I’m assuming it may be Emirates but it could also be a US airline.

Itā€™s fantastic news for Seeing Machines and will finally prove the worth of the aviation business. Indeed, when officially confirmed the deal should produce numerous broker upgrades and have fund managers scrambling to buy into the stock.

The writer holds stock in Seeing Machines.

Chat GPT finds news of Collins Aerospace and Seeing Machines collaboration

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This Chat GPT is bloody good stuff in my humble opinion, as it has found information about Collins Aerospace and its use of Seeing Machines eye-tracking technology that I didnā€™t realise even existed.

Just read this Q&A session with the AI-powered search engine:

Q. Does Collins Aerospace have a pilot support system that uses eye-tracking?

A. Collins Aerospace, a subsidiary of Raytheon Technologies Corporation, offers a range of avionics systems, including pilot support systems. One of their products, the “Pro Line Fusion” avionics system, includes a feature called “Head-up Display (HUD) with Eye-Sensing Technology.”

This technology uses eye-tracking to provide pilots with a more intuitive and efficient way of interacting with the aircraft’s avionics. By tracking the pilot’s eye movements, the system can automatically adjust the information displayed on the HUD to match the pilot’s focus, making it easier for the pilot to keep their attention on the task at hand.

The system also includes a feature called “SmartView Synthetic Vision System,” which uses 3D graphics to provide pilots with a more comprehensive view of their surroundings, helping them to make more informed decisions.

So, in summary, yes, Collins Aerospace offers a pilot support system that uses eye-tracking technology as part of its Pro Line Fusion avionics system.

Q. Which company supplies this eye-tracking to Collins Aerospace?

A. The eye-tracking technology used in the Collins Aerospace Pro Line Fusion avionics system is supplied by Seeing Machines, an Australian-based company that specializes in developing advanced computer vision technologies.

Seeing Machines’ eye-tracking technology is based on machine learning algorithms that analyze eye movements and can accurately track eye gaze points in real-time. This technology is used in a variety of industries, including aviation, mining, automotive, and transportation, to improve safety and performance.

Collins Aerospace has a partnership with Seeing Machines to integrate their eye-tracking technology into the Pro Line Fusion avionics system. Seeing Machines’ technology is a key feature of the Pro Line Fusion system, helping pilots to maintain situational awareness and improve their overall performance.

Share price impact

This is potentially huge news for Seeing Machines if confirmed by either company, as it could materially impact its share price.

The writer holds stock in Seeing Machines.

Chat GPT and Seeing Machines

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While the world is going crazy for Chat GPT, I thought Iā€™d see if this AI-powered breakthrough technology could help answer who is the global leader in driver monitoring.Ā 

Its answer to my question was revealing: 

Q. Who is the global leader in driver monitoring?

A. It is difficult to identify a single global leader in driver monitoring, as there are many companies that offer products and services in this space, and the market is constantly evolving. However, some of the leading companies in the field of driver monitoring include Seeing Machines, Smart Eye, and Eyesight Technologies. These companies develop technology that uses cameras, sensors, and advanced algorithms to track a driver’s attention, fatigue, and other key factors, and provide alerts or other feedback to help improve safety on the road. Other major players in this field include Nauto, Omnitracs, and Guardian Optical Technologies, among others.

Iā€™d give the answer qualified approval, as it at least names Seeing Machines first – although it failed to categorically confirm it as the leader – unlike Mobileye CEO Amnon Shashua who, in a recent Autonocast interview (10m), stated: ā€œweā€™re working with the leading supplier in DMS; Seeing Machines.ā€

I canā€™t help thinking of Chat GPT as a smart geek who hasnā€™t yet spent years researching this area but has managed to pick up the basic players pretty quickly. Good for general research, certainly. Although it tends to be a bit behind the times: for example, it missed the fact that Eyesight Technologies changed its name to Cipia a while back.

A takeover of Seeing Machines

I couldnā€™t leave my questioning there and so asked it to give me the AI Moneyshot answer; who will acquire Seeing Machines?

Again it provided a fascinating response:

Q. Which is the company most likely to acquire Seeing Machines?

A. As an AI language model, I don’t have access to information about potential acquisitions or the future plans of companies, and it is difficult to predict which company might acquire Seeing Machines, if any. However, it’s worth noting that Seeing Machines has partnerships with a number of major players in the automotive and transportation industries, including Caterpillar, Boeing, and General Motors, and has also received investment from companies like Qualcomm and Samsung. This suggests that Seeing Machines is a company with valuable technology and expertise in the field of driver monitoring, and it could be an attractive acquisition target for companies looking to expand their capabilities in this area. That being said, any potential acquisition would depend on a range of factors, including the strategic goals and financial resources of the acquiring company, as well as the interests and priorities of Seeing Machines and its stakeholders.

However, despite a fair general answer (albeit a bit out-of-date), those who read my previous post, Take your seat for the ā€˜Battle of the Titansā€™ will have a better idea of the likely players in a future takeover battle. 

The writer is long Seeing Machines. If you’d like to know more about how to make money from stocks he is available for long boozy lunches ā€“ provided someone else picks up the tab. Alternatively, just read this blog.

Take your seat for the ā€˜Battle of the Titansā€™

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Ladies and Gentlemen, please take your seats. The ‘Battle of the Titans’, the heavyweight takeover of the decade, is about to begin. The winner will be the champion of interior vehicle monitoring for the next decade, opening up billions in new revenue streams in vehicles while also preventing accidents. It should also be able to help robots care for us humans long after that. 

With the news that Mobileye has been granted non-exclusivity to market SEE technology in the Aftermarket sector, itā€™s clear that the company (majority owned by Intel) needs SEEā€™s driver monitoring technology to complement its Advanced Driver Assistance Systems (ADAS). It is now able to offer a one-stop active auto safety solution to its truck and bus customer base (who according to one source currently deploy over 2m vehicles). 

I’m even willing to bet that Mobileye wanted exclusivity, but Seeing Machines preferred to play the field, as it possesses the world’s most effective driver monitoring system (DMS).

Now that the dream of fully autonomous vehicles on all our roads has been seen to be just that, a reality that is decades away, DMS has come centre stage. As Colin Barnden, analyst at Semicast, astutely realised a while back: Mobileye needed DMS, the best DMS. And it now has access to it.

With Gen 3 Guardian likely to be available from Q1 of this calendar year, it opens up the possibility of a one-stop solution for Aftermarket being available in H2 of this financial year for millions of existing Mobileye customers as well as millions more truck and bus operators in Europe who arenā€™t.

As the scale of the market it will capture becomes crystal clear to players (and investors) Seeing Machinesā€™ share price should rise substantially. Explosive growth in its Aftermarket revenues will also be coupled with sizeable Auto contracts and the much-anticipated Aviation deal. Financial analysts (commonly referred to as City scribblers) will then finally start producing broker notes with spiraling upgrades, as Fund Managers pile in. Professional investors can exhibit Fear of Missing Out (FOMO) just like private investors.

Whatā€™s the timeline? Itā€™s starting now and will be increasingly apparent with every passing month. Notably, Iā€™m expecting a trading update on the 22nd of February with a US investor show on the 8th March. Not to mention some big contract news between now and June.

Battle of the Titans

It seems my ‘Battle of the Titans‘ prediction is slowly (oh, so slowly) coming to pass.

However, unlike a boxing contest, the battle to acquire Seeing Machines wonā€™t be a 2-person contest with Marquis of Queensbury rules. Itā€™s set to be a bare-knuckle bout involving strategy and multiple bidders, more akin to a contest in an episode of Alice in Borderland. As I see it, there are at least 4 main contenders:

  • Intel (majority holder in Mobileye). 
  • AMD (owner of Xilinx)
  • Qualcomm
  • Nvidia – the dark horse? 

However, lurking in the shadows are many more players who must covet the technology that Seeing Machines possesses. Some are subsidiaries of Chinese companies, such as Omnivision, but I doubt that Australia (one of the Five Eyes intelligence alliance) would allow a Chinese company to acquire such sensitive technology which could have military applications. Do the remainder have the financial muscle and nerve to outbid the above chip companies? That remains to be seen.

Once the contest really gets going, I expect one of the three ‘A’s; Apple, Alphabet and Amazon to show their hand. They have the nerve, nous and financial strength to not only outbid the above chip companies but take Seeing Machines technology to the consumer market in a huge way.

I believe that this year is finally going to be fun for holders of Seeing Machines shares. Let the contest commence.

The writer holds stock in Seeing Machines.

US$32m Stellantis win boosts intrinsic value of Seeing Machines

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The latest auto contract awarded to Seeing Machines carries ā€œan initial lifetime value of US$32M (A$45M)ā€ and brings the official initial cumulative lifetime value of the auto contracts won to US$321m. Opinions may vary as to who the OEM is, but Iā€™m confident itā€™s Stellantis, marking an impressive follow-up on an earlier contract win in June with the European headquartered car manufacturer.

Of course, followers of this blog wonā€™t be surprised to learn that the actual lifetime value of all these contracts is likely to be multiples of the so-called ā€˜initial lifetime valueā€, as car manufacturers make Driver/Occupant Monitoring a standard feature and these initial contract values expand.

Bizarrely, Mr Market hasnā€™t yet properly priced in the value of SEEā€™s stated auto pipeline, never mind its likely long term value, which Iā€™d judge to be approximately US$1bn. Seeing Machines adopts a very conservative stance on the value of its auto contracts, which also hasnā€™t helped investors understand the intrinsic value here.

It may take a short while longer before the market cottons on, so investors must remain patient. Although, the Consumer Electronics Show (CES) in early January should bring announcements that will make SEEā€™s value in automotive clearer.

Catalysts

Fortunately, there are two catalysts that I expect will make Mr Market re-evaluate SEEā€™s value in the second half of this financial year.

  1. I expect the transformational aviation license deal that has long been anticipated will soon materialise, triggering upgrades from all brokers.
  2. I expect the Gen 3 Fleet product to be available in Q4 of this financial year, enabling huge Fleet contract wins. This will also trigger broker upgrades.

Iā€™d urge all holders of Seeing Machines to have faith in their research and the intrinsic value of Seeing Machines. Never forget that price does not equal value, for as Warren Buffett noted: ā€œPrice is what you pay.Ā Value is what you get.ā€ In my opinion, at its current share price Seeing Machines is laughably undervalued.

Of course, all investors should do their own research and be prepared to suffer the slings and arrows of outrageous fortune for a little while longer. Covid, Ukraine and market jitters have previously held its share price back and, while I do fear the effects of a global recession and a possible market crash, Seeing Machines progress as a business appears unstoppable. Ultimately, a takeover will unlock the true value here regardless of overall market conditions.

The writer holds stock in Seeing Machines.

Smart Eye fairytale reaches a climax

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With the news that Smart Eye is desperately using a SEK 60m (Ā£4.8m) bridging loan to finance its business while it attempts a SEK 325m (Ā£25m) discounted rights issue, the greatest Scandinavian fairytale since Hans Christian Anderson wrote ā€˜The Emperor has no clothesā€™ appears to be coming to a dramatic climax.

It’s sad news for investors who thought that the Emperor really was the leading global provider of driver monitoring systems and who believed that the 103 design wins it has long boasted of, and still boasts of, will ever go into production.

Indeed, the press release announcing this news reads like a profit warning, as it seeks to blame Covid for its problems, stating:

ā€œThe consequence for Smart Eye has thus been that the implementation of the Companyā€™s software for DMS and Interior Sensing, as well as licensing revenues from existing design wins have been postponed. Hence, commercialization of design wins is expected to be realized later than originally estimated.ā€

Notwithstanding the massive dilution that investors will experience at the discounted rights issue, investors should really ask themselves how likely it is that Smart Eye will achieve its stated intention of a positive cash flow by the second half of 2024, given the parlous present state of its finances. 

How many public companies can you name who are forced to use a bridging loan to stay afloat?

Investors will have to wait until January 24th to find out the price of the rights issue. Given the likelihood of the price plummeting before then, they are likely to sell in droves. This is turn will likely increase the resulting dilution necessary to raise the required funds.

Of course, investors should do their own research as I freely admit that Iā€™m a long-term holder of shares in Seeing Machines — and had until a few years ago regarded Smart Eye as a serious rival.

Magna-ificent performance from Seeing Machines

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Following recent announcements relating to Magna, reinforced by analysis from CEO Paul McGlone at an investor event in London, Iā€™m confident that Seeing Machinesā€™ technology lead across, auto, fleet and aviation will soon start to be reflected in its share price.

The recent news that auto Tier 1 Magna is paying US$17.5m for the exclusive rights to use Seeing Machines technology in its rearview mirrors until the end of 2025, while also agreeing to invest up to an additional US$47.5m, just confirms its global leadership position in Driver and Occupant Monitoring Systems (DOMS). 

Crucially, the cash injection removes any concerns that Seeing Machines needs to raise cash. It is now fully funded to profitability in 2024.

The Canadian Tier 1 Magna has gone exclusive with Seeing Machines in rearview mirrors because it aims to the vast majority of that market, 100% has been suggested by one expert, as no real rival to their DOMS offering currently exists. By partnering with Seeing Machines it has a product that is apparently superior to that of its competitors in terms of price, performance, and time to market. Thatā€™s presumably why it won the huge A$125m VW contract in December 2021. 

By 2026, itā€™s likely that Magna will have won as much as 50% of the overall auto DOMS market in partnership with Seeing Machines – since half of DOMS is forecast to be delivered via rearview mirrors. Thus it will have done to its main rival Gentex what Qualcomm has done to Intel in auto. The huge VW win with Magna should have confirmed this, future wins certainly will. 

Itā€™s no coincidence that both Magna and Qualcomm have chosen to partner exclusively with Seeing Machines. These moves should be seen as part of a strategic land grab that I expect to deliver Seeing Machines at least 75% of the auto DOMS market by volume by 2026.

That is because its competitors (Smart Eye, Cipia, and Jungo) arenā€™t winning anywhere near the number or volume of RFQs that Seeing Machines is. For example, Smart Eye appears to have effectively been replaced by Seeing Machines in forthcoming BMW models. The 10 BMW models featuring Smart Eye technology are from past wins, such as the X5 (2015) and M8 (2018). 

Of course, OEMs may do some dual sourcing. Speaking to Smart Eye last week its CEO Martin Krantz tentatively said that Smart Eye ā€œwill probably be in future BMWsā€. I wish him luck but I donā€™t think it is going to be a threat to Seeing Machines going forward. 

Indeed, investors need to beware of looking in the rearview mirror at market share unless they want to crash their prospects for significant financial gains. For those paying attention to the road ahead, itā€™s Seeing Machines that is in the fast lane to market dominance. 

Over the past year, Seeing Machines states that it has won 80% of the RFQs for which it has bid. Iā€™m confident it will maintain that win rate with the $A1-2 billion of contracts for which it is currently bidding.

Looking at design wins, Smart Eye currently boasts 94, while Seeing Machines has 120. However, even this figure fails to reflect the latterā€™s dominance. Not all of Smart Eyeā€™s 94 ā€˜winsā€™ made it into production, in contrast, every Seeing Machines design win has hit the road. 

Iā€™ve long admired the Smart Eye people – not least for their PR bravado – but it canā€™t blind me as to where I should invest my hard-earned dough. Iā€™d also be doing readers a disservice if I didnā€™t state what I honestly believe. 

Following the Seeing Machines investor presentation Friday, (when the video is posted I will provide a link) Iā€™m very confident that an inflection point has been reached.

Increased margins

From now on license revenues for vehicles hitting the roads will begin to ramp up for Seeing Machines. This is a very high-margin business as the main costs have already been borne in the development phase. It currently has a pipeline of A$395m in auto but this is expected to grow substantially over the next few years on the back of further wins.

Similarly, in aftermarket more large enterprise customers such as Shell are coming along. These margins for selling the product and the monitoring service are much higher than selling indirectly via distributors.

It should also be noted that Seeing Machines Gen 3 Guardian will be launched by the end of this financial year, opening up the prospect of huge scale-up in Fleet sales. The product has apparently been re-engineered to reduce costs yet will be better, with automotive-grade additions and much faster install times. In addition, there is huge money to be made from the service element of monitoring the drivers.

Thus, now there is clear visibility of increasing revenues and cashflows with SEE set to make huge profits over the next few years.

In addition, Iā€™m still confident that a lucrative license deal will soon be struck to deliver Seeā€™s pilot monitoring technology into the cockpits of aircraft. Being early is the same as being wrong but I hope by Christmas Iā€™m proven right.

Bids coming

As readers know, Iā€™ve long believed that SEE will face a near-term bid. To that view some have argued that such is its success that it really doesnā€™t need a takeover to prosper, unlike some of its rivals who hope to be saved by one. Iā€™d certainly agree with the assessment that Seeing Machines could perfectly well prosper as an independent.

However, even if Seeing Machines isnā€™t ā€˜up for saleā€™, it doesnā€™t mean that it cannot be bought. A wise man recently told me: ā€˜Great companies get bought NOT soldā€™. Well, I believe Seeing Machines is a great company.

Ask yourself, how badly must some company want what Seeing Machines has? Its technological lead, data, and market leadership would take years and many billions to replicate for even a company of the stature of Google, Apple, or Amazon. If you had the money (and they do) why wouldnā€™t you just buy it?

If Magna is prepared to pay millions for the exclusive use of SEE technology for a couple of years, why wouldnā€™t they want it permanently? Qualcomm, AMD, Intel, and Nvidia also have reasons to enter a bidding war when the starting gun is fired. Indeed, even Gentex does if it wants to win future DOMS rear-view mirror contracts and protect its market share from rivals such as Magna.

Thereā€™s even the argument that a consolidator might want Cerence and Seeing Machines to create something very special.

Value stock

As legendary value investor Irving Kahn taught, investing is an art rather than a science but I think were he alive today, heā€™d take an interest in Seeing Machines as it ticks many of the criteria he looked for in an investment.

The good news for investors is that they can now sit back and enjoy the ride. It has been substantially de-risked, which is why Cenkos upgraded to 25p last week. I expect the other analysts following the company to do likewise in short order as the contracts and license deals roll in. 

The writer holds stock in Seeing Machines.