Gapwaves AB (publ) (GAPWB) Earnings Call Transcript & Summary

Hello, and welcome to today's webcast with Gapwaves. CEO, Jonas Ehinger, will present the report for the second quarter of 2025. [Operator Instructions] And with that said, I hand over the word to you, Jonas.

Thank you. And it's great to be here, and thank you for joining us as I present our second quarter report that was released earlier this morning. I'm really happy to be able to publish this report together with our team at Gapwaves. And I'll show some and discuss some highlights and a short recap of some of the most important fundamentals when it comes to Gapwaves currently. But we want to ensure that there is enough time for questions. There has been several questions submitted already, and I think there will be more questions sent in during the presentation. So please send in any questions. We're prepared to answer them real time after this short presentation. So Gapwaves is well positioned for profitable growth. And I think that the second quarter report that we published this morning really shows this. The market potential is very strong for Gapwaves due to safety regulation, legal requirements, and customer needs. And although the market is uncertain in general, we -- the fundamentals have not changed, and it's important to remember that, that legal and technical requirements for higher performance radar sensors are still there. Gapwaves has transformed into a strategic partner for customers. So we can solve the entire antenna topic and antennas are a very efficient way to improve performance and cost effectiveness of radar sensors that are required for car manufacturers, for instance. And in a few years, for those of you who have followed Gapwaves, we've added and created a very strong customer list with several long-term and strong contracts. And Gapwaves is now also a partner for our customers in terms of full-scale production, even for automotive, where we're talking about millions of units of specific antennas for specific customers each year. Looking at the second quarter report, we have very strong sales. We're looking -- we had sales during the quarter of SEK 24.1 million, which is very strong growth compared to last year. And last year was also a strong year for Gapwaves. So we're looking at 66% growth year-on-year comparing to the same period last year. And also our result, the EBITDA improved strongly, 56% versus second quarter last year. So in summary, our strong growth momentum is sustained. It's driven, of course, by increasing number of development projects with increasing number of customers and also the sale of production equipment. Production equipment is being needed to produce the antennas that we have developed for our customers. So it's a natural result of our development contracts with customers. And improving the profitability is, of course, a result of increasing sales and growth combined with not adding cost to the same extent. So we have a fairly strict cost control. It's not only about control. It's also due to our business model, which I'll come back to a bit later in this presentation. Cash flow, importantly, improved quite a bit during the quarter. And of course, as we grow rapidly, the increase -- we see an increase in working capital from account receivables, meaning customers and customer invoices awaiting payments. I also want to comment on the market climate, especially in automotive. It's, of course, challenging, and I think it's challenging for all industries currently. However, as I mentioned earlier, the underlying market requirements for improved safety, active safety in cars requiring radar sensors with waveguide antenna technology has not changed. So it's still there, and it will still be there. So fundamentally, we're looking at a quite positive market growth in the coming years for our type of technology. Importantly, during the quarter, we commenced start of production for Valeo. And this happened during June and the first serial delivery for Valeo and the antennas that we have developed for Valeo since the beginning of 2024 -- sorry, since the beginning of 2023 commenced on July 1. And this was done. The production has started in our in-house pilot line facility in Gothenburg that was inaugurated and set up late last year. We also note and want to highlight that it seems like Valeo is gaining market share in the ADAS segment in the automotive market. And fundamentally, that is positive for us as we expect increasing volumes for Valeo in our production due to Valeo winning contracts with car manufacturers. If we look at the customer side, we continue to add new customers to our customer list. We want to highlight, especially in Asia and in the Chinese market. As I think most people know, the Chinese automotive market is very important, and it's gaining in size compared to other regions. And it's very important to be present in the Chinese market. And we're very happy to see that during the quarter, we could add a leading automotive Tier 1 from China, Desay SV and they have a very ambitious agenda and target for their market share growth in terms of ADAS radar sensors. So we are very happy to be able to communicate and start up this partnership with Desay. Also for Sensrad, we see a very positive development in the second quarter and during this year. So the product was launched late last year, during the fall, and we now see commercial traction and a very strong momentum for Sensrad. Interesting to note is also that the largest customer this year so far is within the defense industry for autonomous military vehicles, transport vehicles. And that, together with the Chinese customer within the ITS and transport traffic regulation sector makes up a very good base for Sensrad in terms of revenue and sales growth. Coming back to our business model. I think in today's world, it's very important to highlight Gapwaves' business model. It's different than what our competition can offer. So in addition to our technology, our strong technology advantages, we also have an advantage in terms of the business model, which I'll describe shortly. This slide shows the result of that business model. In just a few years, we've been able to add quite a few very prominent customers. We work with a majority of the leading -- the world's leading automotive Tier 1s in terms of providing antenna solutions for their upcoming radar sensors. And we've done this in a very few years in -- which is very fast in the automotive industry. So typically, as you probably already know and have heard me describe before, the development with the customer starts with a development contract for new antennas targeting or intended for new radar sensors. And there is a development phase. And then as the development gets finished, we move into preparations for start of production. And then the most important date here is the start of production, and that gives some guidance also when we can expect higher product sales and higher product volumes in terms of revenue. And then it is -- then it's being followed by a fairly long cycle of high-volume production for our customers. And as you can see in the pink bars, we've entered into production as planned and even faster in the case of Valeo according to customers' needs. So we're in production with quite a few antenna products that we have developed for customers. But we have more coming up, as you can see from the chart. There is quite a few customers in the development phase. And this is some customers that we have wanted to highlight, but there is also other customers that we're working with, obviously. In terms of our business model, I mentioned that this is a very important aspect of Gapwaves and the case and the positioning that we can offer to our customers. We contract with and select and qualify external production facilities or companies. We call them partners. And they can be located in various parts of the world. They already have the infrastructure, meaning factories, staff and personnel and competence. They are also already qualified as production units for and within the automotive industry. So that means that we can bypass all those investments. We have a very CapEx-light model. So we don't have to buy land, build factories and get all the permits, et cetera. That's already in place. So we qualify these partners. And we started in China with Chinese-based production because that's what our customers require. There's now already indications for Europe. So we have prepared a European production and supply chain. And now we're targeting the U.S. in a similar setup. So we're screening for suitable U.S.-based partners to localize production there. And in today's geopolitical and trade political world, this will be a very important competitive advantage for Gapwaves compared to competitors that are essentially factory companies that are located and restricted, limited to their factories and wherever they may be located. So in addition to that, we have our own pilot line facility in Gothenburg, as I mentioned, where we can serve customers with lower volume needs than passenger cars or the automotive industry for passenger cars. So we can serve customers outside the automotive segment with full-scale production in our own facility in Gothenburg, where we, of course, also manufacture all the prototypes and concepts, et cetera, for new customers coming in. And this was a key element for Valeo that we could initiate production very early for Valeo in Gothenburg in our existing facility. And without the pilot line, we would not have been able to meet the required timelines of Valeo and their customers. In terms of the market potential, I already indicated that the market is driven by the needs for active safety requiring sensors and radar sensors in cars. I've described this many times before, so just a short summary. So essentially legislation, but now also customer needs and competitive pressure among car manufacturers require better and more advanced driver assistance functions. This results in higher requirements on sensors, such as higher resolution and longer range detection, and it has to operate in higher frequency bands. And this makes Gapwaves is very well positioned in terms of technology advantages over traditional antennas, but also competition. And we see an increasing growth and need for radar sensors in cars, at least a 25% annual growth for the rest of the decade. And as I also described before, just 1 Tier customer represents very big volumes in the automotive market. And you can see examples here ranging from 100 million to 150 million antennas during a life cycle of a product for one customer, just one antenna variant for one customer. And for more advanced imaging radar sensors, the volumes may be 5 million to 10 million, so a lot lower. But the pricing because of the complexity and a much more advanced product is also much higher for those types of antennas and radar sensors. So all in all, Gapwaves is now very well and continues to be very well positioned for profitable growth and continue its growth journey and scale-up journey going forward. So we have all the fundamentals in place. There's a very strong market for us going forward, driven by legal requirements -- legal and technical requirements and now also consumer needs and competitiveness among car manufacturers. Gapwaves can now solve the entire problem for its customers. We have a unique, very well-performing antenna technology and we can design antennas in a very short time for our customers, and we can also put them to production. So we can do from everything from the inception of new radar sensors and the antenna needs to full-scale production for automotive industry volumes. And we can see the interest from our customers so that in very few years, Gapwaves had added a majority of the top 5 or top 6 automotive Tier 1s as customers. And we have also more undisclosed customers in development and in discussions right now. And the final element that we have also added is the capacity for high-volume production and also securing production processes in our own pilot line facility that we invested in and opened up for production by the end of last year. So that was the short presentation of Gapwaves second quarter, but also a short summary of Gapwaves positioning going forward. And as I mentioned in the beginning, we wanted to give enough time for questions that have been submitted already before this presentation, but also during the presentation. So with that, I finish my presentation, and we now turn over to the Q&A part.

Thank you so much for the presentation. As you mentioned, now we will carry on with the Q&A, and we have received a large number of questions. So I think we can get straight into it. Sensrad's largest customer so far is active in autonomous vehicles for military applications. Are the sales volumes to the Chinese customer, Tianyi is smaller than the sales volume to autonomous vehicles applications? Is the customer data speed?

I cannot disclose the customer. So far this year, that military industry customer has been the biggest customer in terms of sales revenue for Sensrad this year. But neither we or Sensrad can disclose the name of the customer at this point.

Thank you. Will there be a need for deposits to Sensrad AB also the second half of 2025?

Sensrad is growing rapidly, as I mentioned during my presentation, and the owners will support that growth financially as needed. So yes, we expect Sensrad to be needing further financial support. But as you can see in our report, the financial needs for Sensrad is being reduced significantly now as they grow significantly on the topline with their sales to customers.

When do you expect revenues from antenna sales and license fees to become the primary source of income, replacing the current reliance on project-based revenues, prototype sales and product equipment -- production equipment?

As we show in our slide with the status of different contracts in terms of start of production, et cetera. And we have several customers that are now ramping up their production, several automotive Tier 1 customers ramping up their production. So this will become significant as that ramp-up phase has passed and a ramp-up phase for automotive is typically around 2 years. It can vary between different Tier 1s. So definitely, by year 2027, we should see a majority coming from product sales instead of development and engineering revenue, which we think will remain on the same level as we see today because we have a steady influx of customers. But as projects -- development projects get finished and products are being put into production, revenue changes. And with the upscaling in production, obviously, product sales are growing in line with the customers' ramp-up.

I still see Bosch on your list on the PowerPoint here. Does it mean you still have a relation with them?

Yes, we still have relations with Bosch and discussions. All the companies, all the automotive Tier 1s are considering new product generations and increasing needs for improvements, better performance, better cost and pricing, et cetera. So definitely, all the leading Tier 1s are -- have an inherent interest per definition to discuss with leading technology and product suppliers like Gapwaves.

Thank you. Tesla is still not using radar in their autonomous coming models. Can they go to market despite regulations and safety aspect without radar?

Yes, they can go to market, but they cannot accomplish higher levels of self-driving, we think and most of the industry think. In fact, there's well over 100 car manufacturers for passenger cars in the world. And we only know of Tesla and one more that have so far chosen to be camera only. All the others, meaning well over 100 car manufacturers have chosen sensor combinations with cameras, radars and LiDARs. And it seems like you need to be able to use other sensor technologies than just camera because requirements will stipulate that sensor systems can operate during nighttime and poor visibility conditions, which would not work for a camera. If it's blocked by heavy snowfall or rainfall or dirt on the car, et cetera, it will not be able to detect a pedestrian or other cars early enough simply. So that's our assessment. And I think we're in line with a vast majority of the industry.

HELLA and when SOP for MLW antenna?

Sorry, can you repeat that question?

Yes, of course. HELLA and when SOP for MLW antenna?

We cannot disclose what type of antenna products we're developing for HELLA right now. It's too early. And of course, we'll communicate as things -- as new products are being put into production.

And another question regarding HELLA here. I'm curious if you are working on an agreement with HELLA for production sales as the next step in collaboration.

Yes. Of course, we discuss with our Tier 1s, HELLA included about production and production scenarios, et cetera. So that's almost a given with all the Tier 1s that they benchmark different technologies, they benchmark different production setups, et cetera.

Where do you see the company in 5 years? What are your priorities regarding regions? And where do you see the most money being made?

Obviously, it's no secret that the Gapwaves will scale up within the radar segment, where we're active now, high-frequency radars like radars used in automotive. So we continue -- so within 5 years, it's a realistic expectation to see the automotive and radar segment to be our largest area. But we will also see more new segments like wireless communication, not necessarily for mobile phones, the hand terminals or the phones that we hold in our hands, but more like backhaul applications between base stations, et cetera, or satellite communications. So -- but in 5 years, the radar segments, especially in automotive will be the largest. But there's also other radar segments. But as a rough divider, the radio segment will be the largest. And we will -- the largest revenue will be from production and production -- product sales, obviously, given the scale-up and ramp-up that we're in with our customers right now.

Valeo's production has started. When can we expect to see significant revenues 2027?

Valeo's ramp-up started 3 weeks ago. So they're very early. And as I mentioned before in my presentation, our ramp-up is around 2 years. So that means that we will see significant revenues from this contract and this production in '27 approximately. But as we have communicated, high-volume production line is being put in place locally in China with our partner, Frencken, for Valeo already next year. So obviously, from now onwards, product sales and revenue with Valeo from antenna production will grow. But they will be in the high-volume phase in 2027.

A 4.5 million antennas produced in 2026, what is the split between your customer project royalty versus product sales?

We cannot share that information. We have relatively few customers in automotive in production right now. And if we would give the split, it's disclosing too much information between these customers. So we'll have to come back to that later during the ramp-up.

Yes. A lot seems to be happening in Robot Access segment during the quarter. Waymo increased its operation, including an agreement with Toyota, Tesla launched its robotaxis in Texas, opened a new manufacturing facility in the Bay Area and China operates a large robotaxis fleet. How is Gapwaves positioned in this segment?

We're well positioned in that segment. We have ongoing contacts and dialogues with several of the leading robotaxi companies. Robotaxi as a segment is important for us because it drives the technology development and the requirements on radar sensors. And it also opens up the main market because the performance you need in a -- sorry, in a robotaxi is very high. And this technology and things that are being developed for robotaxis will then trickle down into the volume segments of passenger cars. So we -- you should remember that volumes for these companies are small. They are in the thousands of units, not millions of units like in the automotive industry. So -- but the technology aspect is very important because they drive the technology development and the performance levels of radar sensors, which then will influence and be implemented also in volume segments within the automotive industry.

How long will your cash last? Will there be a need for a rights issue?

We are evaluating different financing needs and options as we go forward. Right now, we're focused on the ramp-up. And as we have discussed before, it has been very important to get into production, so we can shift from project revenue and engineering revenue to product sales. And we've also made investments to make that happen. So right now, we're in a stable situation in terms of cash, and we're constantly keeping our eyes open, and the Board is evaluating different options. Gapwaves has no loans or no debt today. So there is, as we see it, several options available to us if the need should be there.

Can you elaborate on the outlook for the Asian/Chinese market for Gapwaves and how Gapwaves has changed its perspective compared before regarding risks such as copying, et cetera, and how the company itself or whether it takes a calculated risk in order not to miss a major opportunity there?

That was a long question, but I'll answer it anyway. We're well positioned in Asia and the Chinese market. We have several dialogues in addition to what we have already communicated. As I mentioned, during the second quarter, we entered into a partnership, which we were able to communicate also and disclose fully with Desay, a leading but also very ambitious Tier 1 targeting the Chinese market. And also in the Chinese market, the requirement and competitive position among OEMs or car manufacturers in terms of ADAS functionality is increasing a lot and rapidly. So it's very important that Gapwaves is available and present in that market, which we now are. And that also applies to Asia and the other major automotive markets in Asia. So we're well positioned. In terms of being copied, et cetera, we have had a very -- not very, but a cautious approach to Chinese companies. And we've had a number of dialogues and contacts, companies in China that have contacted us, but we felt that they've not offered the right partnership structure for us. And that's why we were very happy to be able to partner with Desay as a first Tier 1 to show the Chinese market that we are competitive and that we are open for business with Chinese Tier 1s on the right conditions and that these conditions can be competitive also for Chinese customers and Tier 1s.

Can you comment on Valeo's wins, which they have communicated during the quarter? What does it mean for Gapwaves?

Yes. In short, it's positive for Gapwaves. Obviously, the more ADAS contracts they win, it should mean higher volumes for Gapwaves and a stronger customer is always positive because it means opportunities for increasing business with Valeo going forward compared to only 6 months ago or last fall when we enter into the contract.

Are you targeting the DFS and military market for detecting drones around airport, nuclear plants and military infrastructure and so on?

Yes. I mean, like I said, the radar segment, as I mentioned in my presentation, is a key area for Gapwaves. And there are some interest from industrial companies producing and developing radar sensors that are also targeting military applications or defense applications. So definitely, it's an area for us that has interest, but we sell the antenna solution, not the radar sensor. And these customers typically need a radar sensor. So it's the suppliers of the radar sensors that approach us, not the military itself or governments, et cetera.

Robot lawn mowers with LiDAR have been a lot on the news. Is this an application for Gapwaves and Sensrad?

Yes, I think so. And it's similar to the military question that you just asked, meaning that these companies for lawn movers, they need a radar sensor. So in some cases, we have some dialogues there, but mostly, it comes via providers of radar sensors, such as Sensrad, for instance. And we know and we have also communicated before that Sensrad has customers that are evaluating its radar sensor for -- within agriculture and farming, including lawn movers.

Moving on to the last question here. Have you noticed any new competition or progress from your competitor, Huber+Suhner?

No, no new additions. We know that there are factories or producers in all the plastic parts in China that have tried to produce waveguide antennas. So far, they have not been able to succeed in terms of quality and price point. And Huber+Suhner is a public company. And to our knowledge, they haven't reported any major contracts in the last few years actually. So we haven't seen any new progress or developments in the competitive landscape when it comes to Gapwaves. Gapwaves, on the other hand, has added quite a few new customers, and we've also made significant progress in terms of getting products into production. And obviously, within the automotive industry, there are no free launches. So if we were not very competitive and customers see a value in partnering with Gapwaves, they would not have partnered with Gapwaves simply. So we're quite optimistic about our competitive position.

That was all the questions we had. So thank you so much, Jonas, for presenting here today and answering all questions, and thank you all at home. We wish you a pleasant weekend.

Thank you.