Yet Another Value Podcast - $SEE.L: Europe just made this duopoly mandatory. Why is it 11x free cash flow? | Hugo Navarro

Episode Date: August 30, 2026

Every new car sold in Europe now has to watch the driver's face. Two companies in the world can actually do it, Seeing Machines and Smart Eye, and they spent twenty years and hundreds of millions of dollars getting there. Hugo Navarro's argument is that the market has not repriced what happens next: a roughly 55 million dollar fixed cost base, automotive production going from 488,000 vehicles in Q4 2025 to 2.1 million in Q4 2026, and 20 to 40 million of free cash flow in fiscal 2027 against a 330 million market cap. If Japan and the US follow with their own mandates, close to every incremental dollar of revenue drops straight to free cash flow.I push back hard in a few places. There is a 55 million dollar convertible due in October that this company has let get within two months of expiry, and my view is that no healthy business does that. Receivables are up 120% against 45% revenue growth. The fleet business, Guardian 3, is running trials that keep not converting, and "we are in a trucking recession" is the kind of management excuse I have learned to distrust. We also get into whether a new entrant can just build this now that the market is 16 million vehicles, why no tier one ever bought them, and whether full autonomy eventually kills the whole thesis.Hugo's write-up on Seeing Machines: https://smallcaptreasures.substack.com/p/a-cheap-tech-duopoly-posts-333-growth?r=1od1d5This episode is sponsored by Fiscal.ai: https://fiscal.ai/yav. Fiscal.ai is the modern financial data provider for global equities, and I am a customer who pays with my own money for the API. Two things I use it for constantly: a huge database of fund letters wired into the API, so the first thing I do prepping for a podcast is pull every recent letter on the company, and audit-linked financials where every line in the model clicks through to the source. Use fiscal.ai/yav for 15% off their AI connector.Chapters:(0:00) The setup: a duopoly Europe just made mandatory(0:54) Sponsor: Fiscal.ai(2:49) Why Hugo kept pitching this one(3:56) What Seeing Machines does, and why DMS is harder than it looks(5:13) The math: fixed opex, Europe now, Japan and the US later(8:06) The seatbelt manufacturer analogy(10:25) My pushback: what stops a new entrant or an in-house build?(11:47) Naturalistic data, Mitsubishi Electric, and the accuracy gap(14:54) The elephant in the room: a $55m convertible due in October(17:46) Footnote 21 and the accelerated royalty payment(20:06) Can the regulation slip or get watered down?(22:00) Robotics: $20 of silicon versus $20,000 chips(24:39) Smart Eye versus Seeing Machines: software only or full system(27:38) Why no tier one ever bought them(29:16) Fleet: Guardian 3 and trials that keep not converting(35:04) The balance sheet: receivables up 120%(37:37) How much operating leverage is left in Europe alone(40:10) Does full autonomy kill the DMS story?(42:39) Chinese OEMs selling into Europe(44:14) Licensing the fleet software to telematics players(46:34) CEO incentives and the overpromising track record(48:30) My last pushback: at some point it is them, not you(50:14) Why the stock reacts slowly, and where the risk really sitsHugo Navarro / Undervalued and Undercovered: https://smallcaptreasures.substack.com/Links:Yet Another Value Blog - https://www.yetanothervalueblog.comSee our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

Two and five Canadians will hear the words, you have cancer. That's why every step and dollar raised matters. On September 19th, join thousands in Toronto for the Princess Margaret Cancer Foundation Walk. Challenge yourself, friends, and family to walk 21 kilometers in support of life-saving research. Together, we can carry the fire and help create a world free from the fear of cancer. Register today at pmcfwalk.ca. All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. Today we've got a really interesting one. We've got Hugo Navarro from undercovered and undervalued on this is a second time pitching. His first time the company he pitched got acquired. I don't know if it was two days, two weeks or two months later, but it was fast. This is a different one. It is seeing machines. The ticker is S.E.L.N. Trade in London. Full disclosure, not investing advice. Foreign stock. There's disclaimers all up and down, including at the end of this podcast you can see him. But Hugh is super passionate about this idea. He's written the up multiple times. You can find a link to the write-ups in the show notes. But he pinged me like

multiple times like, let's do an episode, let's do an episode, let's do an episode, let's do an episode. And finally, it was like, man, you are so passionate about this. I've got to have you on to discuss this. It is a complex story hitting a regulatory inflection, but I think it's really interesting. And Hugo thinks there's huge upside here. So I'm going to let him explain all of that to you in one second, but first, a word from our sponsors. Today's podcast is sponsored by fiscal.aI. Fiscal.AI is the modern financial data provider for global equities. Look, that's what they have me tell you, but let me tell you how I've been using Fiscal.

Dot AI. And I'll remind you, I'm a customer. I paid with my own money to connect to the Fiscal.A. API. There's two things that I've really found it useful for. Number one, this is something super unique. They've got a huge database of fund letters, and the fund letters are connected by the API. So whenever I'm researching a company, whether it's researching the company because I'm interested in them or looking up an event or prepping for a podcast, the first thing I

have my AI do is I say, hey, I'm prepping for a podcast on, what are we, I'm prepping for a podcast on HIMS. Go to, and the first thing he does is it says, hey, here's all the recent letters on fiscal. A.I of people talking about HIMS and here's their thesis, here's their bare thesis, all that sort of stuff. So that's the first thing. And that is really unique and that is really fun. And then the second thing I do is I use it for edited financials, right? I've got my model and I say, hey, I'm looking at Hymns. Go build me model. And it says, sure, I'll build you a model. And every line in that model has a link. So I can see, oh, they're pulling this eBDOT number. They're pulling this segment number. They're pulling this number from three years ago. I click on it takes me right to fiscal.

And it says, hey, here's these company-specific KPIs. Here's these ratios. And I can see exactly where they're getting in and exactly where they're kind of here from. So it is a super reliable data provider that can connect to your AI. I found it super helpful. I'm a big fan of the podcast. If you want to try it out, you can use my link at fiscal.a.i. slash yavie to get 15% off their AI connector. That's fiscal.a.i.com. And there'll be a link. in the show notes. All right, hello, and welcome to the yet another value podcast with yours, me, Andrew Walker. With me today, I'm happy to have on for, I believe it's the second time.

My friend is Hugo, from Undervalued and Undercovered. Hugo, how's it going? Pretty well, pretty well. I mean, I hope this one goes like the first time. Like we covered NCR-A-Lews. That was both like in two months. So I hope it happens the same. That is the dream.

You know, I think the last time I saw you, you were coming off a whirlwind. You had just been in Vegas and you flew. overnight to New York and well, it look good looking right now. We're going to dive into the company. We're going to talk about them one second. But first, disclaimer, remind everyone, nothing on this podcast is investing advice. That's always true, maybe particularly true today because we're going to be talking about an international security, which obviously, you know, increased risk, taxes, all that sort of stuff.

We're not financial advisors, not investment advice, all that sort of stuff. There is a full disclaimer at the end of this podcast and in the show notes. So, you go, the company we want to talk about today is seeing. machines. The ticker there is C, S-E-E. It trades in London. And I will just say before you dive into what they are, I mean, I think you're really passionate about this idea because I saw you back in April or May and you were like, I want to talk about seeing machines. I was like, and then you email to June, it was like, a PR announcement, like this is starting to work. It's getting an acceleration. I want to talk about it. And then in July, you're like, come on, man.

So I was just like, well, he is so excited about this. Like I've got to have them on to talk about it. So toss it over to you. What is seeing machines and why are you so excited about? them. Okay. First, a bit of context of how I got into sync machines. You know, I started looking at this company, you know, randomly just appearing. I don't think it was even one of my screeners. It appeared by my desk. And just started doing some research into it. And I just thought that the ESR ramp up, I will explain that later, was being completely mispriced by the market. That has worked well. It's been a 50% return since I entered into the company. I know I think we have a very good asymmetric return

for the second leg of the thesis. So, you know, quick picture on what's sync machines. Synch machines is the leader of a two-player duopoly in what's called DMS technology. Basically, DMS technology is a software that checks your face while you are driving or while you are doing all the type of activity to ensure that you are looking at the road in order to avoid any type of accidents.

Why is so interesting? Because, you know, despite this seeming easy to replicate technology, it's very hard to do. There's only two. You cut out for one second, your sound cut out, if you just want to say what you said, start rewind 10 seconds ago. Yeah, sure. So there's these two players, which are the only ones that have the best technology. they've been both have taken 20 years and hundreds of millions of dollars to develop this like these companies have been listed for decades and they've been losing money for decades they've spent i think sim machines has spent half a billion in research and development only over the last two decades so it's very expensive to develop this technology but what happens now in europe it's mandatory to have this technology this product on every car this means that this

companies and especially sync machines, we'll start to produce free cash flow. But, you know, my estimation is that full year 27, like their full year ends in June. So when I refer to full year is June 26 to June 27, just for context. I think they will make around 20 to 40 million in free cash flow. We'll explain why the variation later. Market cap is 330, so on mid-range it trades at around 11 times free cash flow. something that I can believe can grow high double digits. Why? First of all, there's a very high OPEX base, around 55 million US per year. That's largely fixed. Extra revenue doesn't mean extra cost.

This means that with Europe, with this regulation that's no mandated, they have all the programs in place. They should make free cash flow. But when the next leg comes, that's Japan and America, that's probably around 2030 or around that time, every extra dollar of revenue, will go straight to free cash flow. Instead of, you know, 70 extra on revenues from Europe, only 20 in free cash flow, 70 extra from Japan and America's is 70 extra in free capsule. That's massive.

And in between, we have optionality from the fleet segment. That's basically this technology applied to fleets, like track fleets. Amazon, also they have way more caterpillar, stuff like that. it also adds optionality because it's also very recurring. We'll dig into that data. Basically, this is a thesis where there's huge operational laborats. At Whopoli with what I believe is a very good competitive advantage

and a hard to replicate technology. And there are some risks. And there's some reasons why this is cheap, we could say. But we will dig into that this podcast. So high-level thesis, you've got this oligopoly, basically duopoly. trading net kind of, let's call it 10 times your estimate afford free cash flow. And not only that, but the free cash flow kind of explodes because it's all operating leverage. And you've got just Europe loans, got the regulatory requirements kicking in.

And, you know, Japan, I think it kicks in in Japan in 2020. Is that right? And maybe it happens to be a lot of 30. Okay, perfect. And I will say, so I read and I shouldn't let people know, I will include a link. Hugo has tons of write-ups on this company on his sub-sect. I will include a link to one of them, whichever one you go thinks we should direct you to. I'll include a link to it.

But you had one line that just, I loved. It was from, I might be slightly misquoting, but you had a line like, hey, it sounds crazy. You're buying something before kind of 16 million cars are mandated to get it. You might say, I'm crazy. Well, what if I told you to buy a seatbelt manufacturer in the 70s, right? You'd be like a seatbelt manufacturer. No cars have seatbelts in them or I don't know if it was 70s, 60s, whenever. And a year later, like, you know, 80% of the cars are rolling off the line with seatbelts.

just thought that was a awesome, awesome framing of it because you're right. I look at it and say, what? All cars will have this, but sometimes a regulatory requirement happens and boom, they've all got them. So I'll pause there. I do have some questions, but I'll pause there just because I thought that analogy was so great. And I want to let you talk about it if you want to. Sure. Yeah, that's why I think this is so interesting. First of all, this technology, outside of, you know, being a great thesis, in my opinion, it saves lots of lives. Like one of the main cost for, if we look by insurance companies, I think the insurance angle is very interesting in the long term.

This reduces like 90% the risk of a catastrophe when you are on the road, both for, especially for truck drivers, that reduces a lot, the insurance cost of cars. You know, for example, we had in the US, Tesla's self-driving cars, I think it was lemon, one of these fintech or, you know, insurance tech, companies offer a huge reduction in premium to those drivers that have a self-driving part. And I think this will happen over the future because it will become clear.

This has huge cost savings for insurers. And also it will save lots of lives. Because, you know, for example, in Japan, they are pushing this regulation into the 29 or 2030, I think, mainly because there's a huge increase in accidents for people looking at their phones or being distracted on the road, and that's increasing the amount of deaths we are seeing on the road. And there's lots of associations pushing for that. Perfect. So let me find my first kind of pushback everybody about, right? You say, hey, regulatory driven in Europe, and boom, all of them are coming online, like literally as we speak,

right? And I worry that you've got this company that's been in a duopoly with another company that's kind of winning it. You know, when this is a niche market, yeah, they dominate. But I worry when you expand it to 16 million vehicles and it's regulatory driven, all of a sudden, like, it's not like it required. These guys have spent cumulatively 200 million in CAPX over kind of the past 10 years. I mean, that's a lot of CAPX. But I would almost guarantee the CAPX you spent five to 10 years ago is kind of wasted. Like, could I come up with a competing product for 40 or 50 million using state-of-the-art technology that comes in here when all of a sudden, hey, 16 million vehicles needed? or do one of the big manufacturers look at this and say, hey, I, you know, I could outsource this when it was a niche thing on high-end vehicles or custom vehicles.

But now that it's required, I'm just going to build this in-house. Or, you know, you mentioned Amazon as a customer. That's not on the car-car side, right? That's more on the fleet side. But I look at that and say, you get all the data happening inside a car, lots of machine learning, AIs, lots of data. Like, I look at it and say, why would Amazon outsource this to someone instead of just like, kind of, kind of. of building the product in health. So I threw a lot of competitive responses to you.

I'd love to just hear how you think about that framing. That's a great question. And, you know, we need to frame it and understand this to know why the thesis is compelling. First of all, seeing machines and smarti are already in those 16 million vehicles. Like we are already post-JASR. And those contracts with these, you know, these vehicles last three to five years usually. So on this first leg, there's a load really. of replacement, but there's, you know, as you said, there's a real risk of once this solution

goes into all vehicles, some other players trying to take share. Over the long term, I am expecting to a third or four player to appeal, because this usually happens in the OEM sector, but some reasons why this is hard. First of all, there are many players that have already tried to get this solution right. For example, if you look at the top table of Sing machines, Mitsubisi Electric, it's a client of Sing machines. Why? Because they couldn't develop their own solution. They got great results and this is something that tends to happen. For context of it, I've researched it a lot

with inside this industry and lots of conversations with management regarding the technical side of the technology. So they got great results in, we could say, in lab test, but when they took the solution to a naturalistic environment, it worked really, really badly. Because, you know, they train all of these with synthetic data that it's called, basically you generate data and train it on it, but that doesn't work well in a real-life scenario. Synch machines initially developed this solution for the mining and tracking sector. It only later became relevant for the automotive as a whole, we could say. So they have billions of hours of footage of truck drivers and mining employees using this

technology. So that's extremely important. You have tons of footage of naturalistic data, and that's why they have the best solution. If you compare with smart eye, Sing machines has much better accuracy. That's key, in my opinion, because of the ideas. I certainly hear you, but if I was just thinking off the top of my head, you said they've got great data inside. Well, Uber, I don't, you know, every Uber I hop into has someone recording, has the recording on the inside. That's more for safety, but there's like five companies that are providing that that do have the data. And, you know, I would think about a Tesla and a lot of cars coming inside.

That example, that example, Tesla has their own DMS solution. There was a huge recent problem with Tesla because some people put out in the internet a video that he was fooling the Tesla self-driving system with like a plastic head. Like that's the current level of Tesla accuracy regarding DMS. Okay. Let me go to a slightly different risk. we can come back to the business but i think kind of the elephant in the room when i looked at this is they have a 55 million dollar convertible that is due in october you and i are talking august 25th 2006 right so they said i you can go read their earnings deck i can't remember

when their earnings deck was put out august 11th and they said hey we're in late stages to renegotiate this thing and if we don't like i believe the convertible loans with the customer and they're fully supportive so though and I hear all that but I've done markets a long time and for a company to let a 54 million dollar I mean this is a 300 million markup company for a company to let a 54 million dollar convertible loan get within two months of expiration is lunacy I'm going to say you know there's no company that would do that unless they were absolutely they absolutely could not rule that right and they're putting on a brave face and I think you could say hey there was this huge inflection that they're in the middle of that really juices these results for them,

right? So they can do it. But I look at that balance sheet. I say, oh, you know, I hear the explosive, I hear the explosive nature. I hear all this. Look at the balance sheet and say, this is the balance sheet of a company that's distressed or there's kind of something I'm missing. So I'd love to talk about the can. I hear you on that. I think a lot of investors are waiting for the convertible to get refinanced before investing into this. You know, First, a little bit of context. They started the refinancing period. They started around April or May because the timing was really bad for this convertible.

Basically, they needed to report KPIs in order to show market our lenders that, you know, say, you know, this ESA thing is really happening. Because even in the surprise was not reflected. Like, we are going to receive these royalties. ASP is going to hold up. And, you know, Q3 and Q4 has outperformed. And I've been talking with management since April on that note. We will say the signing has slipped multiple times, mainly because due diligence has taken longer than expected. But no, as they've said, they've said it publicly, and I published recently an interview.

They are in an exclusive period, meaning they are now with a final lender, and they are in the final due diligence process, meaning final documents and all that stuff. but they are also in contact with Magna in relation that, you know, if there's a bit of a delay or something like that, we can work it out and get an extension. So I think this will get solved before October. It's a risk, to be honest, but I don't think there's a high probability of this being resolved with delusion. No, I definitely hear you. It's just, I look at it as a man.

And it's such, it's strange timing, it's weird, but I look at that. And then I was just flipping through, you know, they put out their semi-annual statement for December 31st. And it says at the end of it, it says the debtor financing facility, right? And then there's another thing that says, hey, we entered an amendment with a major customer project that accelerated a royalty payment. But in exchange, we need to basically give the customer money back. And I look at all this and say, look, it's a great. So this is footnot. 21 of the

semi-annual report and I try not to like... The royalty acceleration, you mean that one? Like they receive 50 million? Yeah, 14.1 million. They are not giving money back to the cost. Let me explain that because context is really important there. Basically, they are minimum volume warranties under many of these contracts

with OEMs. This contract was, you know, we had one vehicle and suddenly the production program for that vehicle got under the threshold. That trigger the contract, meaning they needed, they had to be paid that minimum royalties right now, like because they breached the contract. This is not regarding to the loan. It's because one customer went below the volumes, basically canceled a program. They had a car and they stopped producing that car or they thought they were going to produce 100

and they produce 20. So that triggered this contract and they received the payments in an accelerated way. Okay. Look, I totally believe you. It's just the way the footnote reads and they don't do a lot of calls, right?

So normally I read the earnings calls. Yeah, yeah. I do an earnings call. The way the footnote reads, it says, hey, we get an accelerated payment. It improves near term liquidity but gives rise to future payment obligations to the customers.

It just, it seems like that's, it seems like that was, could he move, but that totally makes sense. Yeah, yeah, that's definitely like it was poorly explained. But, you know, I raised that with management. And the explanation was basically there was a break that was canceled. And they had that legal right to those minimum payments. So they got them accelerated.

Let me go to, so this is a regulatory German thesis, right? As we've talked about, yeah, vehicles are accelerating because Europe in July of 2006 said, hey, this is when the cars have to start having the system rolled out. And I do wonder about this, you know, hey, regulatory-driven thesis can be really interesting, but as this company knows, regulatory thesis can be delayed or they can be modified. And it feels like this is happening, right? I mean, it happened in the past. You're seeing the KPI's inflect.

But I guess I worry if the customers come, if the companies come out and say, hey, this is too onerous. We're having too much trouble with this. Could there be changes to the regulatory? where all of a sudden, hey, you know, you've got this company with this big converto that's counting on this acceleration and then all of a sudden the acceleration kind of stalls out or... I mean...

Oh, go ahead. In Europe, I don't think there's that risk. Well, you know, in OEMS, this is a multi-year period. Everyone had already the, you know, when you design a vehicle and you put it with some certain type of software or some certain type of camera until you stop producing that vehicle, it will be with that software. And therefore, that's three to five years where nothing is going to change. Post that period, and especially into Japan and the US, we could see OEMs pushing back into this regulation,

but this risk the second leg of the thesis, not the first one, we could say. But it's true what you say, especially because we're seeing some complaints from customers, but that's more, I see that more as bullies because it will, it will require, higher quality, higher accuracy systems. That's what Cyn machines offers, rather than just trying to take this away. It's very difficult to take this away now. You mentioned higher quality systems.

Let me ask a separate thing. So one of the growth areas for these guys, I mean, the core of the thesis, if I could put that way, is the regulatory-driven car growth, right? One of the growth areas that you mentioned is in robotics. They've got a robotics play that they're working on. They're in things.

And you said on robots, their edge is very high. Their edge is the same in robotics as they have in cars. Very high performance at very low cost, right? And I believe this is on the robotic side, not on the car side. You can tell me from wrong, but you say, hey, seeing machine solution, you run a, you run their solution on a $20 piece of silicon at the edge, you know, it's on the robot, instead of having to run it on $20,000 Nvidia chips that are kind of in a data center, right? That sounds awesome. Low latency, low power, way cheaper, all this sort of stuff. I guess my question is, why does scene machine, because we talked about why they happen in the car, right?

You said, hey, they've got the data from 10 or 15 years. Why does seeing machine have like a unique edge in robotics? Because robotics is a hot sector. There is all sorts of money pouring into it. And if you're like, hey, this one company that's kind of adjacent in the car field has the only way to do a $20 robotics chip, I'd say that seems a little suspicious to me. Robotics is still really early stage. Because I assign roughly zero value to it. It's just some optionality.

Let me frame a little bit how this optionality, this robotics segment appears. One, I think almost two years ago, Mitsubishi took a 20% stake in the company. Mitsubishi Electric, not the part that those cars, the part that those robots and staff for factories. So they bought into a stake and they started to develop a plan along with the company,

in the fleet segment and in adjacent markets. Some of these adjacent markets they wanted to work on was smart factory and robotics and human rights. They recently did a pilot. So, you know, it's basically them being paid to develop new solutions for Mitsubisi. And if that ends up working, they will get paid a royalty. Is yes, Mitsubishi found their technology very interesting

because they can do very, we could say, a decent performance on very low cost, but still not proven. It's not yet commercial, we could say. They've built some prototypes. Mitsubishi has liked them, but this really early stage as I signed practically zero value to it, although it's exciting over the long term, especially because Mitsubc spent 40 million pounds buying a stake into this company. I think the price was similar to what's today. Let me go to a different question. So you mentioned smart eye earlier. And look, I am, I do a half day of prep for these podcasts. So I could be completely wrong. But my, my prep, my loose

Googling, quick reviews and everything, I believe SmartEye sells like a really cheap system, right? They basically say, hey, car makers, here's the software. You go figure out your car, your infrared system, all the sort of stuff. You install that yourself. We do the software. I think C says, hey, guys, we're going to charge double to triple what SmartE charges. But we get around 70% more. 70% more, great. But we give you the whole package, right? It's not just the software. Here's our camera.

Here's our infrared. Like everything all together, all working together. Almost. You know, not exactly. Like a bit of explanation. The smart ideas are poor software approach. The market really likes that. Sing machines does systems approach.

Meaning they have a team that does software and a team that does optics. And a team that also does like. what's inside the camera. So why synch machines can charge can charge more is because they reduce the cost of the overall systems, meaning if smart, if a smart that offers you a software for four bucks, but your company is 25 and sing machines offers you a software for eight bucks, but the camera suddenly costs 20 because the software can work better if it's developed for the camera. You know, the overall cost is the same or slightly lower. So she machines develops a systems approach, they can take cost out of the hardware and take an extra margin out of that side.

And that's why also they perform better inaccuracy, because they build a camera for their software. We could say Android versus Apple, like Apple builds their hardware for their own system. Android just develops the software and everybody that builds a phone just plugs it in. But on a systems approach, it works better because it has been developed to work on it. Okay, no, that's perfect. And it is funny you mention Apple because anytime you talk about system and integration, like the first thing that pops to your mind is Apple. And I know you've spoken to people with automotive industry, have they confirmed like when you've talked to people outside of C's management team, because I think C's management team is the one that kind of relays that full story. Have people in the industry kind of vouched for, hey, we we prefer the C model or yes, you actually do save money even though you're paying more for the hardware. Have you kind of gotten that verification? I have not been able to confirm. from that because people that work in the automotive industry, they work either with Ballet or Magna

or Tier 1. Like most of them don't know if they are, you know, working with seeing machines. It just goes through a tier 1. They are like a tier 3, we could say. So they don't really know what's going in their car. They just know that, you know, Balletheo makes it work. They comply with regulation. It's okay. Gotcha. Let's go. Tier 1. This is an interesting component. I mean, one of the things that jumps out to me is Magna, I believe, is the one who has the shareholder loans to them. As you said, they do business with them. They put them through. Why didn't Magna buy them? Like, why doesn't this belong as part of a tier one? Yeah, that's hard to tell. Like, neither smart tie or shing machines are part of a tier one. I mean, probably is just because these things

have been burning money for so long. It just didn't make sense to have them in the group. Like what you are going to pay them right now in royalties compared to what you had to spend over the last two decades to develop this solution. Like it wouldn't have made sense to buy them back. Like, you know, it made some, it made sense to have some exclusivity agreement like Magna had or some mistake like Mitsubis doing or some partnership. Like Ballet or sold their research and development team basically to seeing machines. and they've made the partnership that way. So there are some related transactions, but nobody really ended up buying this,

maybe because there was huge uncertainty if this regulation was ever going to end up coming. Gotcha, gotcha. What else? I think I've hit a lot of the questions. What else should listeners be, I mean, again, you've published six articles on them in the past year.

I don't know, I know you've got the manager calls. What else kind of, I can only get up to speed so much Day, what else should I be thinking about or should listeners be thinking about when it comes to seeing machines? Something that's key for this full year is the fleet side of the company. Like automotive right now is low risk, we could say. The rampant is already here.

We'll see some more royalties coming in. We will probably see growth stabilizing around 2.5 million vehicles per quarter. Not all of that is coming from Europe. Like, because these cars are platforms. if you are developing them in Europe, but you are selling them in the US or Japan, they will come with the technology just because you develop in platforms.

So that's some unexpected volume that's flowing through. Let's start with the fleet side. The fleet side is basically the Wardian 3 solution, which is a camera that costs like 500 bucks plus a recurring monitoring fee per year that's like 100 and something that you put it in your,

track and it basically checks if you are asleep or if you are distracted and you know it has very good return for for the for the for the for the for the for the for the for the for the fleeting company because I'm sure the truck accounts on insurance their drivers are safer all that type of stuff right yeah and especially you know it protects from from tail and the scenarios like this is for heavy trucks especially if they carry very expensive stuff. If you have a big accident with one of these tracks, you can have a very big liability. So basically, they are doing many trials, but the problem is those trials are not combating. So basically, they had Wadian 2, which worked well, and they released Wadian 3 like a year and a half ago,

and that's a list of walking. Why? This is, you know, we are in a big recession in the tracking industry, practically worldwide. Higher insurance costs, higher diesel prices, higher everything, basically. So discretionary cost, we will say, something that you don't really need to run the business

and that's capex. You are going to delay as much as possible. Well, let me push back on that. Because the whole push for internal cameras, right, would be A, it's going to save you money on your insurance. B, they save all that type of self. Not always. But

if you're I guess you know if I'm going and I'm pitching a product and I'm saying hey you install it and it's got all of these benefits and one of the benefits is it's going to save your costs in some way shape or form and I mean I know some of these and we'll come to competition a second because my other question will be hey I don't know on the the consumer car side but I know on the trucking side a lot there are a lot of systems like this so why should this one even take purchase but I guess my push should be okay it's a recession but in a recession if you say hey I can save you money with this that's the first thing people are going to going to sign up for, right? Yeah, but it saves you on tail events, we could say, like the liability. For example, if you have one of these devices and your truck driver is asleep and the track crashes or something like that, you can show that it's not your fault as a company. So if something really bad happens. That is an interesting question. I haven't thought. So if you're a trucking company and you have a truck driver who falls asleep, the truck driver's liable, not you? I think it's it's that the case. That's interesting.

Because I mean, if you, if you can prove that the truck driver did something wrong. Yeah, was negligent. Like it happens in aviation. They have the same product

for aviation with callings. That's also going slow. You know, one of the main thing, apart from the tracking, the problem with the tracking industry, one of the problems is, as you said,

there are many solutions that offer kind of the same, like telematic solution for fleets. The thing is that, Those solutions have very bad DMS. And sync machines have very good DMS. So for those that really care about their drivers being distracted, they will buy seam machines.

But that's a small part. That's a problem they face it. I guess my perspective would be like, you said they're not converting customers, right? And I think in your report you mentioned Amazon and Caterpillar might be two customers that they're like on the one yard line with and having covered. Like Caterpillar is already a large customer.

But I think there's more pilots with them. Because I just like, you know, when I hear a company saying, oh, we're in a recession, nobody's wants to, a trucking recession, whatever type of recession, nobody's buying our product. Like I kind of look at it and I, more often than not, it's not been, hey, it's you, it's not them, right? It's like, oh, yeah, I mean, it's just one of the problems they are facing. like one of one of the reasons is the up from hardware fee doesn't seem to be working that well so they might try a more recurring solution basically they were the CEO and management team has been completely focused over the last couple years on the automotive side no they know they

know they say we have this we are going to try to solve this business because this was already working in the past it's just that you know we launched a new product that product got some delays. We launched it in a very bad moment for the industry, and we have some problems combating larger customers. Their main problem is with larger corporate customers, very big of this. So that's what's happening. So they are trying to do new things. They have some very large pipeline deals. If any of those end up combating, the outcome for this full year will be better different. No, that makes sense. It's just like, as I've gotten more jaded, like management excuses have fallen a little bit soft yeah gotten less and less interesting me let me go to just to go back

to the balance sheet uh and i don't believe they published a balance sheet for their june quarter i think they just said cash you know yeah it's just trading update say again it's just a trading update they have yeah yeah just the trading update but it looks like working capital really ballooned in yeah h1 right and that makes sense revenue they should they they They reported cash. So, yeah, working capital has been a problem in HAPTC. But that's... Well, let me finish it.

Then we... I mean, oh, yeah, and I see it in the... It's the fifth bullet of that day. But it makes sense that working capital's up because revenue was up 45% in the first half of the year, right? But at the same time, accounts receivable goes from $11 million to $25.3 million. So revenue up 45%? Accounts receivable up 120%.

You know, and I'd love to hear your thought, but again, it comes. comes back to the balance sheet issue I talked about, right? I see a company that's growing quickly, burning money, got this nearer build due and receivables are burning up. And I say, oh, you know, if I was like a forensic accountant with a Z score, I'd say, uh-oh, things are getting pretty crazy over here. So, okay, okay. First of all, like, working capital is increasing because, you know, let me explain a bit. Once the quarter rents, they get their reports of how many cars they have these royalties. You know, they made the deletions to confirm everything is okay. And they, then it

struck, I think it's 60 to 90 days from end of quarter to where they were paid. And they get paid from basically car manufacturers. So it's very low risk of default. And they set up, I think, recently, receivables financing solution, but they have not used it so far. I assume they saw no need for the moment, which also so speak positively to the progress they are seen in the refinancing with their new landers. So I think working capital as they grow, we will see that still, you know, high receivables, especially because they report end of quarter and they get paid like 60 to 90 days after the quarter, but the risk is low and they have that solution to just finance that if they have the need for immediate cash. But yeah, I understand that, you know, the balance it looks

ugly right now, especially in a company that's just in the brink of free cash flow duration and, you know, growth inflection. Let me go to last question. I mean, I think the big thesis for you here is the operating leverage, right? And I'd like to put robotics and the guardian systems to the side for a second because I think people could probably see I'm a little more skeptical and I think they're cherries on top. right? I think the real thing is the automotive production piece. And you can see this. I'm looking at the chart right now. You know, production goes from 488,000 in Q425 to 2.1 million in Q426. And again, you mentioned there it's a summer key for. But it is exploding up. But at the same time, you know,

revenue going up 45% in 2006, growing even faster, automotive revenue up 135%. adjusted EBITDA losses in 2020, 526, right? Not much, but it's basically adjusted EBITDA break even, but it's still a loss. I guess my question to you is, how much more can they do operating leverage wise on just the Europe? Like if I said, hey, I don't know if Japan's coming on in 2930. I don't know if US is ever coming. If I was just betting on the European piece, how much more does cars grow? And when does this kind of flip to your 40 million in cash flow number on just Europe?

up. True. Okay. So basically the difference from this full year to the next one is that next full year will probably 10 million cars compared to, you know, much lower around 5 to 6 on full year 26. So last quarter, it was 2.1 million vehicles and that was March June before the regulation kicked in. So, you know, many OEMs were already prepared, but some were not. So we should see a bit of a bump into the July quarter, July to September quarter. So probably around that 9 to 10 million range. If Fleet doesn't work, for me, Fleet is an important part of the business.

I don't think the story is just automotive. On automotive, I think it's probably 20 million in free cash flow. If Fleet doesn't perform well for full year 27, and, you know, a small increase as, you know, L2 autonomous vehicles also drive demand for this, and those type of cars are increasing in the U.S. mainly. So outside of the regulation, that will drive demand up. So on the fleets, one, okay. You mentioned L2 automation driving demand, which makes total sense, right?

I think about a Tesla and the classic, you mentioned the guy with the plastic dollhead. Yeah. They ping you if you're not paying attention. You're supposed to be. But as we go into a more autonomous. world, does that actually kill seeing machines, right? Because if I just thought about L5, where the car is completely self-driving, there's no need for me to pay attention. So seeing machines doesn't matter at all in that world. So is this something where, hey, it's really hot

right now. But if you were like, if you were really believing in the autonomous story, this is actually a huge negative for the company. I mean, on DMS, I think that's, you know, a good time for that because even if we get L5 in five years, regulation will be slow to keep up with that, especially in Europe, and we will probably see requirements for people in the driver's seat for a long time. So that should keep the MS demand. And what's, you know, Sigma since is already thinking about that management is thinking about that risk, because, you know, if we don't need anybody, if we completely trust autonomous vehicles, if there's nothing in the news regarding, you know, an autonomous vehicle that did something weird and sadly your grandma

is scared and doesn't want to be in a vehicle where there's not a driver on the wheel. So if that happens and there's no need for DMS, they are developing a new solution. That's basically 3D on the car. It's still early, but we are still early for the need for that. So what they are really good is in vision systems. So the solution, here will be instead of lots of expensive sensors that you have on the car, like for example, for your silver, there's a sensor that costs like, you know, a couple bucks. But in each of your silver, it's a couple bucks. If you can change that for some cameras in the car that can detect if your seatbelt is on or not,

rather than depending on a sector, that will be like the long-term optionality or long-term alternative if VMS gets killed. I don't know if I'd want to be seeing that world where I said, hey, you know, this dryer system that we built on data is gone, but we will install cameras that will detect if your seatbelt. That doesn't sound like a great world. What other thing? Obviously, the majority of this and you just were talking about how, hey, this is the European car driven story. You know, I'm a domestic. I know you're in, you're in Spain, right?

Am I remember that correctly? Yeah. Yeah. The thing I keep hearing about domestically, and I've thought about this with the risk for U.S. auto manufacturers and stuff, like Chinese cars can't be sold in the U.S. They're just banned tariff to whatever it is. In Europe, I keep hearing that Chinese electric vehicles are just taking it over by storm. That doesn't mean, you know, the ADS is happening.

So China has to follow local European laws, but I do, you know, who's doing the Chinese ADS when they're selling cars in Europe? Because if they've all got independent place a la Tesla, go ahead. You see where I'm going. So first of all, China is following IDS too. like DMS is also mandatory in China. But DMS in China, yeah, yeah, it's also mandatory. It's a huge market there. But is Cine Machine doing it or do they have internal plays?

No, CIG machines, they are local players in China. Like most they have their own, but there's been lots of complaints regarding bad performance of DMS in China and in Chinese cars in Europe. I've been told that Cig machines is looking to maybe use. the software on those Chinese cars that are going into Europe, but the problem is that Chinese OEMs don't pay a lot, so maybe they just will not pay up. So there's a risk that if Chinese cars completely takes care away out of European OEMs, the total addressable marking in Europe will be reduced a bit. Okay, cool. I think, I mean, I threw some hard questions at you because this is, you know, anytime you have an influx. One thing I would like to touch on. Like, on, on

On the Fleet side, I think this is really important and I think this has a lot of future. And for me, this thesis is, okay, the DMS ramp up in Europe, I think it's priced in. That's the base. I think that's margin of safety. If that doesn't derail, I should not lose big money. I think Fleet has huge optionality. Not only on their classic business model, we could say, of selling the hardware, but on licensing it. they are going to license their solution to hardware developers.

They are already working on a deal to start doing that, and that solves lots of their problems. Because basically, with competition, you stop competing with telematics players, and instead you integrate into them, meaning telematics player with really bad DMS solutions, have good EMS solutions that can work better with clients and improve safety,

and clients will demand that. And Sigma machines get around. royalty for that. The market it's smaller, but it's also higher margin. So I think that should be some optionality that we should see over the coming years. They are already close to a deal with

I think it's Taiwanese or Japanese player that's going to develop their home hardware solution, but their software didn't work as well, so they wanted to put on sync machines as wide label. We could see poor royalty like in the

automotive side. Have they landed one of those deals or they're just in talks with those deals right now? Not yet. They have not yet landed. They recently, because the first time I talked with them, I, you know, I raised the same problem you mentioned to me. Okay, you have this great solution, but first of all, you have a very small service. You are not a big player. You cannot compete on the other offerings that these telematics players are offering. So, you know, you have a great solution. Why not license it? Why not partner it? So, you know, they've understood that was a very interesting opportunity. They have started pursuing it. So far, they've gotten interest. From my understanding, this deal they are pursuing

it was out of inbound interest. It was not them pursuing other deals, but they are actually now pursuing other players to do this type of licensing deals in the fleet side. Last question. Your right at mentions that the CEO has a first tranche of performance units that vest, I think at the end of this month that requires the stock, like they're almost in the money. So ignore the first tranche because at this point those play out. But I think he's got more tranches. Can you just talk about? Yeah, he has more trenches and at very high prices.

Like the poor guy needs this to work and work really well to make money on those. Like I think he has some at 20 pence or something like that. Which you know about that four-year time frame. If they execute on fleet and they execute on automotive, they could achieve that, basically, 50 million in free cash flow, 20x multiple, you get to, you know, 3x higher price than this one, than the current one. So I think if they execute, they can achieve those targets. And I mean, if they execute on those, he deserves to be paid really well.

You know, I've spoken with him quite a lot. He's really hardworking. Like he takes calls on Saturdays on Sundays. They are always troubling, talking with investors. those licensing deals, everything. They are very, very hardworking people. But some stuff I want to mention around management is if you talk with people that have been invested in the stock for the last 10 years, they have a very bad opinion on it,

mainly because they usually over-promise on timing. And that's something I've got to understand better as I've talked with them. They tend to over-promise on timing because it's hard to know from when you got that deal that's practically close to when you receive the paperwork, it's very valuable with these OEMs. So my experience is they tend to be right on what they will achieve, but they tend to be a bit late or a while late on timing. Let me push back slightly. And two things.

First, just to the management incentives. I should have gone earlier because it is so rare to see stock price incentives in a European company. As soon as I saw that, I was like, oh, that is really. interesting because it's so rare. And when people do that, they tend to like, again, no one can ever control where the stock price goes, right? But they tend to have a vision of how they're going to get there. And the vision that they have when they granted these and the way the awards are so very much plays out with the vision you're doing. Right. So that's nice.

I guess my pushback on what you just said, and we can wrap it up after this. But, you know, a lot of what I've heard have been the places where I've made the greatest amounts of money and the biggest mistakes, right? Where it's, hey, if you talk to an investor who's been here for 10 years, They hate this management team, right? Yeah. And every time, you know, I invest in the company like, oh, you know, this company's been misunderstood and misfiled for 10 years, but now I'm going to invest in it in the market, it's suddenly going to change, you know?

This management team, they've been, people who have 10 years, they've got gray hairs, they're pulling their hairs out. But I'm going to come in and the management team seems nice to me. Like, you know, you kind of learn after 10 years and it's like, oh, yes, these guys are really good talkers, but they never deliver. And a lot of what you've said has some of that flavor to it, where it's like, hey, these guys can never quite land the contracts on time because it takes a while. It's like, well, yeah, but, you know, I'm thinking about one company that has been a,

just pain in my side for years. It's like, hey, at some point, it's not me. It is actually them, right? They keep saying, oh, this big refies on the come. Oh, this big performance on the comments. It's like, I'm sure you believe that, but now I've got 10 years that you're over promising. And, you know, worked for Elon Musk, but Elon Musk is, he is the true outlier. You know, it doesn't work for most of the people who that. So that would be like kind of last pushback I'd end with. I mean, I completely agree. And it's social in price action.

Like, there's not a lot of institutions in the stock. Like most of this is traded by retail. Like, it's like a sitcom on the London market. So the most interesting thing here is that it usually reacts really slow. So, you know, for those listening, probably when they get the refinancing done, it will move slowly. So you will have some time to look into it. Probably, in my opinion, this will start to move up quickly and fast when they get their fleet segment.

You know, they do a turnaround there and they start to deliver on that. So my view is that, okay, I have a decent margin of safety with the GSR ramp up on those royalties. If they execute on fleet and if any of the next regulation legs comes, it's a huge upside. but it's definitely one of the riskiest stocks in my portfolio. You know, it's funny you say that because it goes back forth like, hey, the business is more than covered by the, not the fleet, by the European ramp up, right? And that would tend to suggest like, hey, everything else is a chair and stop. This is the least risky.

But then it's like, oh, the fleet is on the come. It's just really interesting. This has been great. Look, I mean, I had tons of questions because this is super interesting company. I mean, you did a great job of answering all of these guys. I will include a link to whatever write-up you want me to put. I'll include a link to it in the show notes. So if you can go check it out there.

But this has been great second appearance and looking forward to having you on for a third time. Okay. Perfect. Thanks on you. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor.

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