Interim Report January - June 2021

April – June 2021
· Net sales totaled SEK 16.9 (13.9) million which corresponds to an increase of 22 %. The increase in sales is mainly due increased sales in business area Research Instruments.
· Operating loss totaled SEK -22.0 (-22.9) million.
· Profit/loss after financial items was SEK -22.0 (-23.0) million.
· Profit/loss after tax per share is negative.
· Cash and cash equivalents totaled SEK 389.2 million at the end of June.
· In May the company entered into an agreement to acquire Affectiva, a Boston based Emotion AI company, for a consideration of USD 73.5 million. In conjunction with the acquisition a directed share issue of SEK 275 million were completed.
· In July, four design wins were obtained from a global North American OEM. The order is for four new car models on an existing platform with an estimated order value of SEK 100 million.

January - June 2021
· Net sales amounted to SEK 35.1 (31.5) million, which corresponds to an increase of 11%.
· Operating profit amounted to SEK -40.5 (-44.9) million.
· Profit after financial items amounted to SEK -40.6 (-45.1) million
· Earnings after tax per share are negative.

Comments from the CEO

Automotive Solutions
The second quarter has come and gone, and it was a very eventful one. For a long time, we have seen the automotive market moving in the direction of measuring more than DMS. We call this Interior Sensing, which is driver monitoring together with in-cabin sensing, combined in a system that measures the state of the driver, the cabin and the occupants in it. We showed our concept for Interior Sensing at CES 2020, which resulted in concrete work with automotive customers. These pre-development projects have been ongoing since then – during the pandemic.

At CES we also met with the management team of Affectiva, a spin out of the MIT Media Lab in Boston. Affectiva pioneered the field of Emotion AI and in recent years, broadened its technology to Interior Sensing. At that meeting it became clear that not only are we competitors, but we also have complementary strengths. In addition, there is a cultural fit in how we look at the industry and future innovations. I left CES with the conviction that for the budding Interior Sensing market, Affectiva was going to be our main adversary as opposed to any of our traditional DMS competitors.

Then the pandemic hit and shortly thereafter I started to talk to the founder and CEO of Affectiva, Dr. Rana el Kaliouby. It turned out that we share the same vision about the possibilities of this technology and how to reach it. It became clear that by joining forces, combining our best-of-breed technologies and two highly skilled, and complementary teams, we can bring to market unparalleled automotive-grade Interior Sensing AI, better and faster than the competition. This solution will improve automotive safety and provide enhanced in-vehicle experiences. We started to work towards merging the two companies during the fall of last year. In May, we could finally announce the merger, and by end of June the deal was closed. Since then, we have started integration and have already received RFQs for Interior Sensing where our combined strengths are playing into our hand.

What should be expected is that DMS will be the dominant market factor for some time, whilst Interior Sensing is slowly gaining momentum starting with the premium segment, much the same way it happened for DMS in 2014-15.
After the end of Q2 we received four new design wins from an existing customer. While great news, this was very much expected as we see this pattern regularly. It’s because the inertia of the industry makes it much more likely for any OEM to continue to order a system from an existing supplier, compared to going through the trouble of renewed sourcing. The automotive industry is very sticky in this respect. We should expect much more add-on business like this.

At the same time, we have seen that the semiconductor shortage has affected some of our customers negatively, and it seems that some of our programs in production have not grown as expected. We believe this effect to be transient and that the large OEMs will have solved these issues before long. During 2020 the world’s car production decreased due to Corona and this year, the rebound is not as high as it could have been, had it not been for the scarcity of electronic components.

Research Instruments
A very pleasant result from Q2 is that we are back to solid growth for Research Instruments. We can now see 60% growth and the customer activity is at record levels. It seems that the customers are again ready to do research in labs using eye tracking equipment. We expect further tail wind for the rest of this year.

Applied AI Systems
Our aftermarket solution for the fleet market (AIS) has also been affected by the semiconductor crisis, but we have now secured key components for the remainder of this year. We are currently involved in testing together with customers with the goal of having deliveries of more substantial volumes in the fall.

Final Words
During the company’s 22 years, we have never experienced a period of such intense consolidation as right now. With the present atomized DMS market, we believe the consolidation of market players are inevitable. Smart Eye has taken a decisive and strategic step forward to grasp the future by joining forces with Affectiva. We are now in pole position.

Martin Krantz
CEO Smart Eye