Q1 came in slightly below our topline estimates, both for Automotive and Behavioural Research. For Automotive, AIS revenues fell sequentially while NRE revenues were unchanged, meaning that the important license revenues showed solid development. For Behavioral Research, Q1 is seasonally very weak, which explains the sequential decline. The outlook for Q2 was, however, very optimistic. On a much positive note, strict cost control surprised us. Excluding one-off costs of SEK12m related to streamlining, the EBITDA loss was a mere SEK11m and EBITDA-CAPEX SEK-35m. The strict cost control bodes well for what will happen to cash flow when revenue growth accelerates.

Japan and North America started contributing to Automotive growth in Q1, an important step in the acceleration plan. Further, Smart Eye stated that it expects first and foremost Europe, but also China, to very soon start contributing to the acceleration in Automotive. Also, the pipeline for new tenders is strong, primarily in the US and China, due to the market’s expectations of future regulation. As such, new design wins could come in imminently. During Q1, DMS was included in China NCAP - an important step towards global DMS adoption.

We have lowered our automotive estimates for 2024 by 7%, expecting a 95% growth, accelerating into 115% during 2025. We lower our OPEX estimates for 2024-2025, moving our EBITDA breakeven from Q4 2024 to Q3 2024, while cash-flow breakeven (EBITDA-CAPEX) is moved from Q2 to Q1 2025. On the back of this, we raise our fair value range from SEK45-200 to SEK50-210, with Base Case raised from SEK148 to SEK155.