Gauzy Ltd. (GAUZ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Gauzy Second Quarter 2025 Earnings Call Conference. [Operator Instructions] This call is being recorded on Wednesday, August 13, 2025. I would now like to turn the conference over to Dan Scott. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call today are Gauzy's CEO and Co-Founder Eyal Peso; and CFO, Meir Peleg. On this call, management will be making forward-looking statements, not historical facts, which are based on management's current expectations, beliefs, projections and assumptions, many of which, by their nature, are inherently uncertain. These forward-looking statements, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key expectations, beliefs, projections or assumptions are incorrect because of other factors discussed in today's earnings news release and in the comments made during this conference call or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our website, www.gauzy.com. We do not undertake any duty to update any forward-looking statements. This call contains time-sensitive information that is accurate only as of today, August 13, 2025. Except as required by law, Gauzy disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's second quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable financial measures. With that, let me turn the call over to Eyal.

Thank you very much, Dan, and good morning, everyone. Thank you for joining us today as we discuss our second quarter 2025 results. For today's call, I'd like you to focus on 5 key takeaways. First, the significant sequential increase in our backlog of orders we shipped in '25 confirms our customer support and demand for our technology, which I will highlight with an example momentarily. Second, our full year expectation remain intact in light of certain changes in the timing of shipments during the second quarter that are reflected in our results. As a reminder, our business can vary from quarter-to-quarter, which is why we encourage investors to consider our results on an annual basis. Third, we continue to achieve new technological and business milestones that will drive our growth in 2025 and beyond. Fourth, since the beginning of the second quarter, we have closed on $15 million of debt financing under favorable terms as part of our plan to strengthen our balance sheet. And finally, our reaffirmed guidance supported by a strong backlog of purchase orders to be shipped in '25 and an enhanced balance sheet. Our teams worked hard in the quarter to execute despite the momentary disruption of the business caused by the conflict with Iran. This includes supply chain and operating disruptions for the majority of the month of June, which resulted in some shipping delays into the back half of 2025. I'm pleased to say that in light of this and tariff announcements earlier in the year, the strong demand we see from our customers continue as evidenced by our record jump in near-term backlog of $43 million to be shipped in 2025. An example of this is our largest customer in Asia today, Yutong, the world's largest bus manufacturer, more than doubled its orders for the year during this quarter. These factors resulted in lower revenues as compared to Q2 of 2024, which we again view as an issue of timing and doesn't impact our full year outlook for the business. We expect the second half to be significantly stronger than the first half, supported by a record spike in the backlog of purchase orders to be shipped in 2025. Now let me highlight some of the key business milestones we achieved during the second quarter and subsequent period. We achieved a major milestone with the first customer delivery of General Motors' Cadillacs CELESTIQ, featuring the industry's largest piece of dimmable smart glass ever used in serial production. Powered by our SPD topline, this multi-zone independently-controlled panoramic roof demonstrates our ability to bring advanced materials to serial production at scale. This long-term contract with GM represents a significant leap to forward in bringing dynamic glass from concept to reality. Building on our SPD integrations with Ferrari, McLaren, Mercedes-Benz, the Cadillac program, expands our presence in the EV segment and positions us to capitalize on the global automotive smart glass market projected to grow from $16 billion in 2024 to over USD 25 billion by 2028. Next, we launched our breakthrough prefabricated smart glass stack, a turnkey solution that accelerates OEM adoption of dynamic glazing in the automotive market. This fully industrialized product combines our dimmable smart glass films, conducting elements and adhesive interlayer into a single unit that eliminates costly post-processing steps and enables Tier 1 suppliers and OEMs to integrate smart glass at scale with speed. Our annual production capability of more than 1.9 million square feet positions us to capture significant market share through predictable, high-margin business-to-business channels. Multiple Tier 1 suppliers and vehicle programs are evaluating our prefabricated stacks for integration into late 2025 through 2027 production platforms. These two announcements better position Gauzy to win in the automotive smart glass market projected to reach $25 billion by 2028 and growing at over 11% CAGR. We're excited about our strategic expansion into the marine sector, where we see significant opportunity within the $6.2 billion global marine glass market. Following our successful implementation at the new MSC cruise terminal in Miami, the biggest terminal in the world. Our PDLC and SPD smart glass technologies are gaining strong traction with cruise lines seeking sustainable experience-driven vessel design. We've now secured 9 programs in the maritime section, validating demand in the higher-margin sending. With over 50 ships onboard globally and the cruise industry's aggressive focus on reimagining the onboard experience, our technology delivers the privacy, solar control and energy efficiency that operators need to meet their ESG goals while enhancing passenger experience. In our Architecture division, we continue to be selected by some of the biggest companies in the world to outfit their commercial spaces, including most recently, Moderna for their corporate headquarters. In Aero division, we're pleased to share that we will be revealing a new commercial airline cabin shading product at CES, early 2026. This is expected to serve as our main growth engine in this segment as we move from cockpit into commercial cabinet. As a reminder, the decision on how to control light in commercial aircraft has moved from the OEM to also include the airlines. This open our business to more than 700 individual airlines, both new production and retrofitting their existing fleet. And in our Safety-Tech business, I'm excited to announce that Gauzy Smart-Vision ADAS is now installed also in buses across the big metropolis of Strasbourg, France, and Manchester in the United Kingdom. We will also be launching our new AI-based ADAS product Smart-Vision for Buses, in October as a premier event for the bus industry in Brussels called Busworld. This follows the successful and ongoing deployment of Smart-Vision for trucks with customers like Ford Trucks like previously announced. With regards to governance, the sequence of quarter end, we announced important Board changes aligned with our public company evolution. Following our first Annual Shareholder Meeting. We welcome back long time investor and former Director, Alejandro Weinstein, to the Board of Director. His expertise in global expansion, M&A and public company leadership will be invaluable as we scale operations and advance our market leadership. Before I turn it over to Meir, I want to emphasize that we ended the quarter by exceptionally strong footing to accomplish our full year objectives. Our first half performance, together with our record purchase order backlog of $43 million to be delivered in 2025 are in cadence with our expected sales performance to meet the guidance. The entire Gauzy organization is excited to deliver on this tremendous momentum. And with that, I will turn it over to Meir for an update on Gauzy's financial results.

Thank you, Eyal. I'd like to begin by providing a detailed overview of our second quarter 2025 financial results. For the second quarter, we generated revenues of $20.1 million. At the segment level, all of our divisions experienced shifts in timings dynamics as we discussed at corporate level. At the same time, the improvements that we noticed across the board in our record backlog was represented within our Aeronautics division. Due to the lower top line over the same fixed cost base, our gross margin was 21.4% compared to 27% in the prior year period. Gross margin variance was primarily attributed to dynamics within our Aeronautics division, which reported a gross margin of 23% during the quarter compared to 37% in the prior year, reflecting lower segment revenue across a relatively fixed cost base and a change in product mix. Typically, our highest margin category has also had a compounding effect of bringing down our overall margin for the quarter. The remainder of segments collectively experienced more stability and margin performance. Total operational expenses for the second quarter was $16.8 million compared to $14.5 million in the prior year quarter. The change was mainly due to higher corporate expenses associated with being a public company versus a private during the same quarter last year. Additionally, there was higher depreciation and amortization accounting for 1/3 of difference and higher R&D expenses this quarter as compared to Q2 2024. The difference between the operating expenses of this quarter compared to the same quarter last year was planned, budgeted and executed to support dramatically strong quarters in the near term. Based on these factors, adjusted EBITDA in this quarter was negative $8.7 million compared to negative $3.9 million in the prior year quarter. Importantly, our production facilities across all divisions are site to accommodate more than double the current run rate of production, so we are well positioned to execute the order ramp-up and deliveries in the coming quarters. Turning to our capital resources. During the quarter, our free cash flow improved to an outflow of $5.2 million compared to negative $11.5 million in the prior year quarter. This is reflective of the operational discipline and cash management strategies we have implemented to accelerate our path toward cash flow positivity. We ended the quarter with total liquidity of $36.2 million, including $35 million of available capacity under our undrawn credit line. Total debt at quarter end was $53 million, including $9.2 million for short-term receivable financing. Since quarter end, we have raised an additional $5 million of plain vanilla debt with Mizrahi, under favorable terms. This brings our total borrowing with Mizrahi $50 million. We have received approval for our Board to raise an additional $10 million to $15 million of debt, and are in the process of working with new and existing lenders to expand our borrowing. We are committed to funding our business through non-dilutive capital sources, and we'll continue to pursue less granular debt as our primary focus until we achieve cash flow positivity. It is consistent with our previously announced plan to strengthen our balance sheet. We believe we are well positioned to meet our goals as we enter the second half of the year with a strong backlog and energize operations. We continue to expect revenue to be in the range of $130 million to $140 million, representing more than 30% growth at the midpoint compared to 2024. Based on the benefit of scale, the favorable operating leverage and the strong recurring revenue base that we have, we also continue to expect adjusted EBITDA to be positive for the full year 2025. This guidance reflects the strong demand we're seeing across all our segments, our record backlog at quarter end, the growing reduction of our technology by leading OEM and the expanded production capacity we put in place to meet this demand. Now I will turn it back over to Eyal for closing remarks.

Thank you, Meir. Looking ahead to the remainder of 2025, our enthusiasm for the opportunity before us continues to grow. Our business momentum keeps building with our record order backlog, delivering full year revenue visibility. From an operational standpoint, we're in a position to deliver on tremendous order and delivery growth. We're excited about recent enhancements we have made inside our organization. We have promoted a new Executive Vice President for the Aeronautics division. We have also moved each division's production teams from the business division to the global operations team reporting to the COO. This streamlines procurement supply chain and best practice sharing across the organization. I am more confident than ever in Gauzy as reinforced by my recent significant purchase of additional shares in June. Mr. Weinstein, our newly elected Director and long-time investor, joined me in this purchase of 560,000 shares, underscoring leadership's strong conviction in the company's strategic direction and future growth. We are energized by the accelerating adoption of our light and vision control technology across the industry. We have a strong innovation pipeline across all 4 business divisions. We're expanding our addressable markets and remain committed to delivering on our goal to increase shareholder value. In conclusion, I extend heartfelt appreciation to our dedicated employees, value customers, strategic partners and committed shareholders for their unwavering support and trust in Gauzy. Thank you for your time today. Now we will open up the line for questions.

[Operator Instructions] First question comes from Dan Levy with Barclays.

First, I wanted to ask if you could just double-click on some of the timing dynamics that drove the revenue, if you could just unpack what went on there? And what is the comfort that these dynamics won't occur in the future?

Dan, this is Eyal. So thanks for the question. What we have announced and my answer is that we had some shifts in timing of deliveries, and we repeat this every quarter, and it's still the case that we're -- we can have shifts between quarters, but we're very comfortable and confident still in our annual guidance. It's basically shifting from H1 to H2 of deliveries that we have in the book. And I'd like you to refer to the backlog that we reported of $42.9 million. The spike there it shows the numbers are there. So we had a few deliveries move into H2 from H1, sometimes hard to predict. And mostly it's because of Aero, where we always have also the best projection for the business by the nature of the business. So if you look at the per segment, what we've done in H1, then you'd see the big difference is in Aero. And that's also our biggest part of the backlog that has to be shipped in 2025. So I'd like to say the following. First of all, if you add H1 delivery plus the backlog 30th of June, you reached about $86 million that we've done or we have orders to ship and in '25, and that is in cadence within the expectations that we had. So there are a few million dollars that could have been in H1 that are going to be delivered in H2. These are POs in the system that well within the cadence of sales orders that we expected within -- and certainly within the expectations that we have for the full year. There were a few reasons for shipment delays, mainly in the Aeronautics segment and also some in -- due to our production stop we had 2 or 3 weeks in June. As you know, there was a conflict that was kind of surprising end of the quarter. We had to be shutting down the production in Tel Aviv for 2, 3 weeks. That, of course -- and that we said that a few times. We're very happy that did not affect at all the business itself. Our customers support us. And those things shifts a little bit into Q3 and into H2. I'd like to say that, again, it's timing. And not taking away anything from the confidence we have for the full year guidance.

Okay. So related to that, and I think you've been addressing this. The first half to second half ramp is aggressive, that would put 70% of your full year revenue in the second half. So maybe like what's the timing -- what's the confidence that there won't be timing issues in the second half? And then also given that would be a dramatic increase over anything you've ever delivered in half, the implied second half, what's the confidence that the execution will be there to meet that demand?

So that's a great question. I'd like to say that from when we budgeted 2025 approved in the Board, the quarters, we have prepared the company to deliver $45 million and $50 million quarters. That was always the case. That's how we -- that's the budget we approved the Board. So the company is set both HR, meaning we have 2 shifts across all the business divisions, when we need it. Approved to work also on weekends when we need. So the company has the capacity to ship $45 million and $50 million quarter. And if you align that with the fact that we have the sales order cadence to reach our targets, then yes, execution is possible. It's what we really planned from the get-go for Q4. It's then also going to be a bigger Q3, but we have designed the company this year to be delivering $45 million and $50 million quarter. So that is as we planned. So I'd like to say that as long as the sales orders are coming in the cadence they should, and again, you see the delivery in H1, plus what we needed 30th of June, the backlog, it's completely within the expectations of what we had expected in the beginning. We could have had $2 million, $3 million, $4 million already delivered and it will go down from the backlog. But it's still within that world of expectations. So that's where investors should get -- we have prepared ourselves for $45 million and $50 million deliveries per quarter.

Okay. If I could just squeeze one more in, and it's about the liquidity. So you ended the quarter with $1 million on the balance sheet. And I know there's a note here that you're supposed to get $5 million of debt financing in the third quarter in July. But can you just talk about the liquidity dynamics and just what's the comfort that there's sufficient liquidity going forward?

Sure. So we're doing our best, of course, liquidity of -- you are right, Dan, we're running cash. If you see we ended Q1 and Q2 with the same level of cash in the bank. But we have the $35 million credit line that we are -- we can tap on in any time finding me and Meir and withdraw money. However, as we always mentioned, we'd like -- if we can get better debt financing, simple debt, I mean, plain vanilla, no equity involved. So we do that to better perform our cash flow performance. We have received from our own main banks that has been accompanying us for 15 years since we initiated a company. Mizrahi was received a much better much better terms debt on $10 million that we got in Q2, and we have additional $5 million from them in Q3. And I'd like to say that we always said that we need more simple debt financing in order to get to cash flow positive. We are on good terms to receive the rest that we need. But again, as long as everyone understands that the $35 million are as good as cash. We can tap on them any time we want. And that provides us visibility with regards to liquidity all the way through to end of '26, where we have guided the market, and we still reaffirm that we're going to be cash flow positive. And as we go through H2, the business is balancing. And we reaffirm that we are going to be EBITDA positive for the full year. So also kind of balancing the business, the inflow and outflow should give a lot of comfort with regards to liquidity. So I'd like just to mention that, again, we always have these $35 million in place if we need. If we get better terms from, for instance, like Mizrahi, we would take it, but it's there for us to use if we need. So I'd like really to -- again, I mentioned again that $35 million is part of our liquidity or financing the cash flow positive.

The next question comes from Josh Nichols with B. Riley.

This is Matthew on for Josh Nichols. I guess just to start off, I mean you just reiterated your expectation for positive EBITDA this year. Can you walk us through the levers you expect to get there? Is it mainly just from ramping revenue in the second half? Or how should we expect you to get that?

Thanks, Matthew. I'd like I'd like to refer -- always refer back to our Q4 '24, where we walked the talk of getting to adjusted EBITDA positive. We've done that with $31.1 million of revenue. And I confirm -- I mean, I'd like to reiterate the message, the following message, as long as we have more than $31 million, $32 million revenues, we're adjusted EBITDA positive. So if you'd like to just average out as long as we are going to average the full year at $31 million, $32 million, the full year is going to be EBITDA positive. That's why I'd like investors to analyze it. That's the point of breakeven. And if you look at the guidance we have towards year-end, and the order book that we need to deliver. So you'd see that in H2, we're much stronger. We're going to -- we're reaffirming the guidance we gave. So it's leaving us in Q3, Q4, a top line that would improve our gross margin dramatically. And we showed that also in Q4 '24. Our fixed cost is a big, big lever on our gross margin. The more we have on top line, then the gross margins improve dramatically. So if you look at the Q4 '24, bridge that, you see how we -- why we are reaffirming EBITDA post for the full year on guidance of the top line that we gave, and why we feel so confident that that's achievable and balancing H2 would balance H1 as we expected from the beginning.

Got it. And in terms of the mix in the backlog, does it lean more towards a certain segment? And which segment should we see as a key contributor for hitting that full year guidance?

Yes. Thanks. So that goes to, again, adding some more comfort level to the guidance that we've provided. So the biggest contributor to the backlog, 30th of June is Aeronautics. Where that's also the business we always had the best projections of because these things tend to not change much. There are no -- during the year, there are not many changes within our customers' projections. You don't suddenly make more jets or less jets, it's usually things that within the year don't change. So if you look at the backlog on Page 7 of our deck, $21.3 million is associated to Aero. And that's also where we -- if you compare H1 '24, let's say, to H1, '25 where we had -- if you compare these two, we had the biggest miss. But the miss is only, again, with timing of shipments. And then you're going to see that bouncing back in H2. And we are 100% confident that for Aero -- for the Aero business, we're going to hit the target. And it's also the biggest part of our backlog. And this really adds into our confidence for the guidance we gave for the full year.

And I guess last one for me. You mentioned the company having the capacity to ship outsized quarters in the second half. So how should we expect working capital items to change in support of that?

Yes, that's a great question. I'd like to say that today, Meir, 80% or 85% of our business is factored, right?

80%.

80%, yes. So the good thing about our business, I mean, it's something we like 1 day to get rid of. But the fact that we're serving companies like Boeing and Airbus, the Tier 1, we're serving Tier 2 to Ferrari and McLaren, Automotive, Ford, IVECO, MAN, Airbus, helicopters. We're serving customers that are very easily and very cheaply factored. It means that we're financing the invoices. So the working capital structure that we need, of course, it has to be healthier to support orders of $40 million and $50 million. But the way we're doing it is the fact that we have this engine of working capital in Gauzy can support itself due to the fact that we're factoring today 80% of our business. It means that we're getting paid once we invoice that and get payment immediately. We don't need to wait for payment terms. So that we can always get cash once we invoice, and that can support the production of next week, with the next week and the next week. So when you factor 80% of your business, and you're getting your money day 1, it's so much easier to plan growth in relation to working capital. Good question. And I hope I answered it. It doesn't make sense. So I'm just saying that the growing -- the working capital is growing. And the way we're supporting it is by factoring more and more of our invoices to get money day 1 that can support the production of the following week and the following months and so on and so forth.

[Operator Instructions] The next question comes from Itay Michaeli with TD Cowen.

Just two follow-ups on the second half outlook. I was curious if you can comment on how we should think about the cadence between Q3 and Q4? Should we expect roughly a similar level of revenue in each quarter? Or will they be skewed from 1 quarter to another?

Itay, thanks for the question. Today, I mean, again, we don't want to say -- again, a quarterly projections are not as accurate and I'd like to be careful here. But I can say that roughly around Q4, if you look back 3, 4, 5 years, it's always our strongest quarter. So you should expect that to be the case this year, and maybe even a little bit more than years before. So you're going to see them stronger Q4 than Q3, especially with the vacation patterns in Europe, less so much within Gauzy, but with our customers, still 65% of our business is in Europe. In August, in many cases, our customers are actually shutting down. But Q3, I'd say I'd be careful and say about 40%, 60% is what you can expect. But I'd like to say that again, this is a very rough estimation, not something that needs to be taken very accurately.

Eyal, that was helpful. And then going back to the kind of bridging to positive EBITDA. If we take the second quarter starting point of $20 million revenue and roughly $9 million EBITDA loss, it does still imply a very, very strong incremental margin to get back to where you were in the fourth quarter of last year. So I'm curious whether that's mostly underutilization of fixed cost? Is there some OpEx to think about? Just to help us in terms of the implied incremental margin from first half to second half on your guidance.

So thanks, Itay. It's really, I'd like to refer, when you look at Gauzy, we need to see an annual kind of things straighten out on an annual -- at an annual level. So if we did -- if we say we claimed when we did that before, we did that in Q4 '24. If we claim that $31 million is where we're breaking even on EBITDA. The cost structure of the company hasn't changed much. It's, in some cases, actually improved. You should expect the same on average to get to EBITDA positive. Also that our top line improves a $40 million quarter, we'd also dramatically improve our gross margin. So that's where you can analyze your leftover EBITDA. But we already showed that on $31.1 million, we're EBITDA breakeven are a little bit positive. So that's where I'd like you to get comfort from in the reference. Also, it's very important to say that there is also quite a big effect of -- when you look at the EBITDA of Q2, there's quite a bit of effect on vacation. We are 700-and-something employees. We have -- a lot of the employees are located in Europe, where vacation patterns changed quite dramatically between Q2 and Q3. You can see that in former years. So you should expect also and it is significant enough to mention that there's going to be vacation liability dropping in the second half. But because of -- the fact that the year-end in Q2 for European employees on vacation. And it's quite a big of a liability. Meir, what is the liability? And total liability was $4.8 million. So $4.8 million of vacation liabilities only that we had you should expect to see a big change in that in Q3 and onwards for two reasons, and that's also something worth knowing about Gauzy that most of our employees, that's a cutoff date for accumulating vacation and it goes to 0 end of Q2. And also there's a big -- there's usually a big drop in August because that's when they take their annual vacation. And it is a big liability if you see out of our EBITDA. But just always remember that $31 million, that's where we breakeven. Anything above that with much improved gross margins because of the top line is going to contribute significantly to the EBITDA.

There are no further questions at this time. I would now like to turn the conference over to Eyal Peso, CEO. Please go ahead, sir.

So thanks, everyone, for joining today. excited about what's coming and looking forward to talking to you soon again.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.