Good morning and welcome to Gauzy Limited First Quarter 2025 Earnings Conference Call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Dan Scott, Investor Relations. Thank you. You may begin.

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 Chief Financial Officer, 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 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 the comments made during this conference call or in our latest report 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, May 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 first 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 first quarter 2025 results. For today's call, I'd like you to focus on three key takeaways. First, our solid first quarter performance in the face of global uncertainty for our customers, which underscores the strength of our business model and the growing demand for our technologies. Second, the significant business milestones we've achieved during the quarter and subsequent to its end that will drive our growth in 2025 and beyond. Third, we have signed the first $10 million out of a previously announced $20 million planned debt financing under significantly more favorable terms as compared to our borrowings as a private company. And finally, our reaffirmed 2025 guidance supported by a strong backlog of purchase orders and enhanced balance sheets. We delivered a solid start to the year despite a two to three-week period in March 2025 of market uncertainty as customers attempted to assess tariff impacts and risks. Revenue growth in the automotive and Safety Tech divisions was offset by some timing shifts in deliveries in the Aero and Architecture divisions, which we expect to revert to a more normal cadence across the balance of the year. This view is supported by the record spike in the backlog of purchase orders to be shipped in the next few months. We're excited to execute against the backlog after a quarter in which we demonstrated our ability to deliver significant gross margin expansion as we accelerate revenues into the back half of 2025. Now let me highlight some of the key business milestones we achieved during the first quarter and subsequent period. On our last call, we told you about our new black SPD Smart Lap technology introduced at CES, our partnership…

Thank you, Eyal. I'd like to begin by providing a detailed overview of our first quarter 2025 financial results, which highlights the strength of our customer relationships and the fast improvement in operational efficiency as we progress towards our long-term financial objectives. For the first quarter, we generated revenues of $22.4 million, compared to $24.7 million in the prior year period. We saw growth in both Automotive and Safety Tech as compared to prior year period. This was offset by Aero and Architecture, where we experienced a momentary pause towards the end of the quarter as customers sought to determine any potential tariff impacts. Importantly, we saw no cancellations, and in certain cases by the end of the quarter and subsequent to its end, customers placed orders above their contractual minimums. Even with the revenue dynamic, our gross margin increased to 25.6%, compared to 25.1% in the prior year period. This 50 basis points expansion was primarily the result of improved operational efficiencies, which continues our progress towards profitability. Total operating expenses for the first quarter were $14.4 million, down 9% compared to $15.8 million in the prior year quarter. This decrease was mainly due to lower R&D, G&A, and sales and marketing expenses, partially offset by higher D&A. Adjusted EBITDA in the quarter was negative $5.5 million, compared to negative $4.8 million in the prior year quarter. This decrease was primarily driven by the factors already discussed for gross profit and operating expenses. Now, turning to our segmented results, starting with Safety Tech. Revenue in the segment was $10.8 million in the first quarter, up 1.5% compared to $10.7 million in the prior year quarter. The growth was driven by continued demand across the segment for our clients. Gross margin improved dramatically to 19.7%, compared to 12.8% in the…

Thank you, Meir. As we look across the balance of 2025, we remain incredibly excited about the opportunities in front of us. Even with the uncertainty in the markets, the momentum in our business continues to build. Direct impact from tariffs on Gauzy has been minimal and customer purchase orders remain strong. We're excited for what this year holds for us. The resilience of our long-term backlog, growing pipeline of innovation and enhanced liquidity position with our new debt facility reinforce our confidence in our growth trajectory. We'll continue investing in innovation, expanding our leadership in light and vision control technologies. Our future product roadmap includes promising developments across all four business divisions that we expect to accelerate adoption and expand our markets. Operationally, we're focused on scaling efficiently, balancing growth with margin expansion and progress toward profitability. We remain well positioned to deliver our reiterated 2025 guidance, accelerating growth and deliver outstanding value. In closing, I want to express my gratitude to our employees, customers, partners, and shareholders for their continued support and confidence in Gauzy. Thank you for your time today. Now we'll open up the line for questions.

Thank you, ladies and gentlemen. We will now begin the question-and-answer session. [Operator Instructions] And we now have our first question. This comes from Dan Levy from Barclays. Your line is now open. Please go ahead.

Hi, good morning. Thank you for taking the questions. Wanted to first just start with a question on the cadence, and I appreciate the commentary that there were some delays in Architecture, Aerospace, and that the second half is going to be stronger than the first half. But what's the line of sight on second quarter? And what's the line of sight on converting that backlog order book that you have into firm revenue? Should we expect a sharp step up in the second quarter on revenue for the quarter?

Hi, Dan. This is Eyal. Thanks for joining and thanks for the question. To start with the end, basically, yes. I think that if you look at what we have reported shipping in Q1 and then add that to our POs in the backlog to be shipped soon, so, yeah, you should expect Q2 to always, as always, but also to be as strong as expected. And we reiterated, reaffirmed the guidance for the full year right now mid-Q2 because even though last two weeks, last three weeks of March, there was some hesitance among customers by -- in matters of shipment, were there going to be any tariffs. Let's just wait and see. And if you remember, 2 of April was Liberation Day where there was determination about tariffs, but there's a lot of questions and some hesitation in March. But nothing affected the business. It's important for me to say this again and again, nothing affected the real business. It's all there. We had no cancellations. It's a little bit of push. In the last two weeks of March, there was a lot of uncertainty, especially with things that were just ready for shipment. And okay, just wait a second. Maybe we'll ship it from here, ship it from there to U.S. customers. But all the business is there. And more than anything, I'd like to say that the cadence right now within Q2 and the POs that we have now to ship is exactly, if not better than what we saw in late December or beginning of 2025. So that's why we're very confident that we're going to deliver on our guidance for the full year.

Okay. Thank you. Second, if we could just go into the free cash flow. So you did EBITDA of roughly negative $5 million, negative $6 million, but the free cash flow was substantially better. So could you just talk about what the offsets were? Is it, one-time benefits on working capital, some reversals there and how sustainable that is?

So as you can see, good morning first, it's Meir is here. As you can see the cash flow, the main I would say impact on the cash flow is the working capital. Okay. Part of it is timely. Okay. But it comes from a strong and continuous working on the cash management, including, for instance, our payment terms with suppliers, financing invoices, which gives us cash much more fast and then be able to improve our cash flow, although growing in general, the working capital.

I'd like to maybe add to that, that a big part of this, and we should expect that throughout the year towards being cash flow positive in '26 is, every 30 days that we can get from our suppliers, net 30 to net 60 or cash in advance in that 30 or net 60 to net 90, gives us a, while we're factoring about 80% of our invoice today, gives us a much more healthy inflow outflow of cash. And that's a big, big focus for this year for while we are still factoring. So that also has a big effect on the improvement in operational cash flow for this quarter.

Okay. Thanks. If I could just squeeze in one more, what's the line of sight on that additional $10 million financing that you that you talk to?

So it's basically we're signed off. It's all signed between signing and closing there are a few, a few deliverables that we need to -- we need to provide like, you know, liens, but I see no, there's no risk here. It's going to close hopefully even this week, maybe next week, but it's really, it's done. It's a done deal. If that's the question Dan, it's not -- there's no, no, maybe here. You told me, the second $10 million. I'm sorry. Yeah. My bad. Sorry about that. The second $10 million, again, I don't want to give, I don't want to give a commitment to that. It's going to look like guidance, but it should be -- we're trying our best to do, to sign that off. Even if not before end Q2 somewhere in early Q3. We don't have that signed off, but, but that's my expectation.

Okay. Thank you.

Thank you. And the next question comes from Josh Nichols from B. Riley securities. Your line is now open. Please go ahead and ask your question.

Hi, this is Matthew on for Josh Nichols. Thanks for taking my questions. I guess to start off touching on the macro uncertainty that caused the hiccup in Q1. You did say it's just mainly off of peak uncertainty on liberation day. And from there, things just looked more smoothly in terms of orders and timing, or what should we look out for in terms of possible additional hiccups in the future?

Hi, Josh, this is Eyal. Thanks for the question. So I want to say this just again, loud and clear. There is no effect to the real business in Gauzy by the tariff. But if you put yourself as a production company importing into or that while its products are imported into the U.S. in March, there was simply a lot of hesitation and a lot of question marks. Where do I take this product from? Even a Boeing, where their cockpit shade is manufactured that's the only Aero product we're actually manufacturing for U.S. customer outside the U.S., had no issues. If you have enough inventory, you can just -- just wait a minute. Maybe I won't be taking this from France. Maybe we'll just wait to see what's going to be the actual tariff. And that was only on the 2 of April. So I'm saying hesitation caused some delays. But if you just add up what we have reported shipped and then recognize -- for us recognition, remember, is approval of the customer at his site many times of our products. So that had to be shipped, even though it was ready. If you just look at what we had as finished goods at 31 of March, if you add that to our reported revenues and RPOs in the system, which we're reporting a spike of about more than a half a million -- more than $5 million. You're looking at together with the POs end of March, about 60 -- about a little bit, a little shy $60 million that has been shipped or is going to be shipped very soon. So I like to say, again, this is with some hesitation, but we had reported mid-April, that week after operation day, that it had minimal effects to our business to no effects. And today we can say much with much more confidence that it's mostly -- mostly we get exempt because of different reasons. So we're in a much better place. So it's just that there was a little bit of hesitation and that's what caused some shifting shifts in timing of delivery, but nothing at all has changed from our overall business that we have reported. We're going to do this year. Actually, in some cases we had increases and we had customers ordering more than expected that had nothing to do with the U.S. specifically in other places around the world. So I'm very confident that you're going to see our guidance mix throughout the year. This is why we're not also giving quarterly guidance. It's hard for us to be accurate. These kinds of events are extreme, but it comes together, but within a full year, even these events are kind of washed away. And so we're reiterating here, reaffirming our guidance for the full year.

Got it. Very helpful. And regarding the large spike in purchase orders, which segment would you say is getting most of those orders or what is the split there?

Yeah, on the backlog, I think we have a very good -- it's a very good mix of $15.5 million is Aero. Just to show that -- yeah, it was -- if you look with Q2Q on last year, you're going to see a difference of $2.5 million dollars, but it's all in the DOs. It's all there. It's all going to be shipped in Q2 and in Q3, Q4, it's all in the book. So there's no issue that. There was another $17 million, I think, or $18 million of Safety Tech, which we're experiencing, the significant growth we expected, but even more in some cases. So these are the main two. I think we had about quite extraordinary about $6 million of POs. Some of it really was already manufactured, just not recognized Q1. So it's still a PO in the backlog, but it's really done. So we have a $6 million in Automotive, which is quite unique. We have a very good visibility to the smart glass portion of our business in Automotive. We also announced that we -- for the first time by name, GM, the Cadillac Celestiq starting to ramp up its production this year, reported to start shipping cars very, very soon to their customers. So I mean, we're -- so I think that's the takeaway from the backlog. And the rest is Architecture about $2.2 million of POs for Architecture to be shipped, well, April or May, if you look at end of March.

Got it. Thank you. And I guess last one for me, it's somewhat of a related question, I guess, to get to your guide of full year EBITDA, profitability or to get it positive on that side, what would you say is, in terms of segments or maybe even products that you're most excited about? What do you see getting you there?

So what would contribute to the EBITDA positive, just to see if I answered the question, if I'm looking now for the full year, what would be the contributor of the EBITDA positive that we have guided for the full year '25? So I think that -- just very easy to, I'd say just bridge Q4. I'd say just people -- bridge Q4, you see that if you double for Q4, you're at $125 million for the year. We're guiding on a midpoint $10 million more, and we're now reaffirming it. And you see if we hit numbers like Q4, let's say on average for the full year, we're in a gross margin of 50% in Aero, we're on a very healthy 20% plus in Safety Tech. We're bigger portions of the business. If you see what we're doing in Auto, I know it's small numbers, and it's insignificant, but it's even harder to jump 16 points per quarter, every quarter, when you're only doing -- shipping a 1.5 million or 2 million, 3 million, kind of cadence of quarters, but we're doing it because we're working very closely with the OEM to improve yield. So I mean, we're -- I'd say that it's going to come, every business division has its own contribution. But as long as we meet top line, and we're now reaffirming that for Aero, it's going to have a huge impact on our gross margin, because every dollar up on top line is improving our gross margin significantly. Same with Safety Tech, if you see the comparison between Q1 and Q1, 12% to 19% in gross margin shows you how well we have improved our cost of sales, our bill of materials, because the big contributor this quarter for Safety Tech is Smart Vision 2, it's our ADAS product, which traditionally had lower gross margins, but we've improved that significantly. So, I'd say that just if you bridge Q4, you look at the gross margins there, that's where our EBITDA is going to be coming from. We're very, very disciplined in our OpEx. If you see our OpEx in Q1, as we targeted, as we budgeted, and we're going to be very, very careful with our expenses to make sure that we're -- that our guidance is going to be met, and anyway, EBITDA positive for the full year is the guidance.

Got it. Thanks. That was really helpful. That was it for me.

Thank you. [Operator Instructions] And the next question comes from Itay Michaeli from TD Cowen. Your line is now open. Please go ahead.

Great. Thank you. Good morning, everybody. I just had two follow-ups. First, maybe to pick up off the last question, maybe you could just talk a little bit about what you expect for OpEx directionally the rest of the year? I think they come down in Q1. Just curious how you're thinking about that for the rest of 2025.

Hi, Itay. Good morning. Thanks for the question. But it was a little bit breaking off in the beginning of the question. Can you just repeat? I'm sorry.

Yeah, no, sorry about that. Yeah, just hope you can hear me now. Just maybe you could comment a bit more on what you expect for OpEx the rest of the year as they did come down in Q1. Just curious how you're thinking about that for the rest of the year.

Okay, got it. So I think you should see a very steady OpEx. And as I said, just to follow up on my last answer is that we're going to be very, very disciplined in our OpEx. I mean, we have a big portion of that kind of set for the year. There are things we need to do to be able to ship if it's 135 on midpoint of the guidance or more. But we're going to be very, very careful with that. I think it shows for in Q1 on any expense to make sure that we keep that guidance of EBITDA positive for the full year intact. We have set up the SG&A expense structure beginning of the year to support much, much bigger quarters throughout the year. What you see on OpEx in Q1 is that of what we'll support also. And as always, our strongest quarter in Q4 and a much stronger quarter in Q2. So that's already set. So you should consider the OpEx in Q1 as a base for the full year guidance.

May I add a bit? As Eyal said, it more or less will be the same as Q1, a bit more, mainly in sales and marketing to support the growth. But you should expect about the same OpEx, a bit higher than in Q1.

Yeah. Well, sales and marketing sometimes goes up because you have to pay -- it shows for in the numbers, paying commissions and things like that. But yeah, we're trying. Yeah, a little bit higher. Mainly for sales and marketing and it's just higher numbers there.

Terrific. Very helpful. Thank you. And as a follow up, as your revenue kind of grows in the next three quarters towards your guidance, how should we think about working capital? You were able to actually release a fair amount this quarter in Q1. But as revenue grows, is there more opportunity in working capital or could actually become a use as you support growth?

So as I said before, of course, when the business is growing, the working capital grows as well and the need of cash is also growing. But in order to phase this, we're doing continuous work in order to better our payment terms with suppliers. And that's part of what you can see in Q1 results. In addition, we're financing, and again working to increases to other locations. We're financing part of our invoices in order to make the cycle of this working capital much faster. So of course, when growing, the working capital will grow as well. But we're trying to reduce this growth by what I just mentioned.

And Itay, I'd like to add to that just for the sake of everyone very quickly. But a very simple math equation. If Gauzy has, let's say, just $24 million, $25 million of sales a quarter or $30 million of sales like Q4, that means cash in as factoring 80% or financing invoices 80%, 85%. So that is like 8 to 7 to 10. That's a $7 to $10 million cash in every 30 days. And just think of if we -- and that's a big target, if we push, if we get the help of our suppliers to get us another 30 days on their net, if it's net 30, make it net 60. If it's net 60, make it net 90. If we just average better on supplier terms, net 30, that's working capital of $8 million, $9 million, $10 million of cash for our working capital every month. So, that's how you should think about improving cash flow, operational cash flow. It seems easy. It's not easy. But that very simple shift, 30 days, that's how much influence it has on our working capital. And that's what we're -- that's our main target. This is a big target of ours.

I want to add that we don't expect 2025 to be a positive free cash flow. Okay? We only expect it in 2026. So it's important to understand that we're, we'll have a negative free cash flow in 2025.

Absolutely. That's all very helpful. Thank you.

Thank you. And no further questions that came through at this time. I will now turn the call over to Eyal Peso for closing remarks. Please go ahead, sir.

Thank you very much for joining us today. We look forward to future discussions and announcements to update you on our progress. Have a great rest of your day. Thank you, everyone.

Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.