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Gauzy Is Growing But Producing High Operating Losses

Gauzy Ltd. (GAUZ) has filed to raise $75 million in an IPO of its ordinary shares, according to an SEC F-1 registration statement.

Gauzy provides light and vision control technologies for various end-user industries and environments.

While top-line revenue growth has been impressive, the company continues to generate high operating losses.

Also, it has significant operations located in Israel, which may be subject to unpredictable disruption due to political, economic, or military activities in the country and region.

What Does Gauzy Do?

Tel Aviv, Israel-based Gauzy Ltd. was founded to develop proprietary technologies in the areas of suspended particle devices and liquid crystal films for aerospace, automotive, and architectural operating environments.

Management is headed by co-founder, Chairman, and CEO Mr. Eyal Peso, who has been with the firm since its inception in 2009 and was previously a business manager at Alvarion Technologies Ltd.

The company’s primary offerings include the following:

Smart glass
Smart films
Driving video imaging and alerting technologies

As of December 31, 2023, Gauzy has booked a fair market value investment of $106 million from investors, including Ibex Partners, Olive Tree, Infinity Holding Ventures, Avery Dennison Israel, South Lake One, and Blue-Red Capital.

The firm seeks customers from among original equipment manufacturers or subcontractors in the aerospace, automotive, and architectural industries.

Gauzy is a Tier 1 supplier of systems for commercial airliners, business jets, and helicopters. It is a Tier 2 supplier of light control technologies in automotive and architectural markets.

Sales and Marketing expenses as a percentage of total revenue have fallen as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Year Ended Dec. 31, 2023	19.6%
Year Ended Dec. 31, 2022	21.8%

(Source – SEC)

The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing expense, was 1.9x in the most recent reporting period. (Source – SEC)

What Is Gauzy’s Market?

According to a 2022 market research report by Verified Market Research, the global market for industrial vision systems was an estimated $11.2 billion in 2021 and is forecasted to reach $22 billion by 2030.

This represents a forecast CAGR of 8.53% from 2022 to 2030.

The primary reasons for this expected growth are an increasing need for automated quality assurance and guided robotic systems requiring greater vision acquisition and processing capabilities.

Also, the company operates in a number of adjacent and related markets.

Major competitive or other industry participants include the following:

View Inc.
Sage (Saint-Gobain Glass)
Merck
Gentex
Orlaco
Mekra
Others

Gauzy Ltd. Recent Financial Results

The company’s recent financial results can be summarized as follows:

Growing top-line revenue
Increasing gross profit and gross margin
High operating losses
Increasing cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Year Ended Dec. 31, 2023	$77,980,000	59.0%
Year Ended Dec. 31, 2022	$49,033,000

Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Year Ended Dec. 31, 2023	$19,941,000	105.9%
Year Ended Dec. 31, 2022	$9,687,000

Gross Margin
Period	Gross Margin	% Variance vs. Prior
Year Ended Dec. 31, 2023	25.57%	29.4%
Year Ended Dec. 31, 2022	19.76%

Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Year Ended Dec. 31, 2023	$(31,994,000)	-41.0%
Year Ended Dec. 31, 2022	$(32,383,000)	-66.0%

Comprehensive Income (Loss)
Period	Comprehensive Income (Loss)	Net Margin
Year Ended Dec. 31, 2023	$(78,040,000)	-100.1%
Year Ended Dec. 31, 2022	$(39,645,000)	-80.9%

Cash Flow From Operations
Period	Cash Flow From Operations
Year Ended Dec. 31, 2023	$(31,115,000)
Year Ended Dec. 31, 2022	$(29,755,000)

(Glossary Of Terms)

(Source – SEC)

As of December 31, 2023, Gauzy had $4.6 million in cash and $194 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2023, was negative ($37 million).

Gauzy Ltd.’s IPO Details

Gauzy intends to raise $75 million in gross proceeds from an IPO of its ordinary shares, although the final amount may vary.

As of the firm’s most recent filing, no shareholders have agreed to or indicated an interest in acquiring additional IPO shares.

The firm will be a ‘foreign private issuer’ and an ’emerging growth company’. That means management would be able to disclose substantially less information to shareholders.

Lately, many such company stocks have performed poorly post-IPO.

Assuming a successful IPO, the company’s market capitalization at IPO would likely approximate $210 million ($78 million TTM revenue x 2.7 multiple).

The leadership said it will use the net proceeds from the IPO as follows:

We intend to use substantially all of the net proceeds from this offering for general corporate purposes, including the purchase of equipment and materials for the expansion of our production lines, research and development, advertising and marketing, technology development, working capital, operating expenses and other general corporate purposes.

We also intend to use a portion of the net proceeds to pay to the credit funds under a facility agreement we entered into on January 19, 2022 with certain credit funds for a loan facility, or the Facility Agreement, amounts due to them under their “phantom warrant,” which entitles them to a cash payment in the event that we conduct an IPO of our shares, among other events, which payment obligation would be triggered by this offering unless such credit funds elect to receive such payment obligation under the “phantom warrant” in our shares in lieu of cash…

We also intend to use a portion of the net proceeds to pay off the remaining balances of First Earn Out Payment and the Second Earn Out Payment under the Earnout Agreement, as amended, pursuant to the Vision Lite SPA.

(Source – SEC)

Leadership’s presentation of the company roadshow is not currently available for online viewing.

Regarding outstanding legal proceedings, the firm is subject to legal action for possible patent infringement related to certain licensed technologies. The plaintiff has been sanctioned for filing a frivolous lawsuit, and Gauzy is awaiting a ruling on its motion to receive attorney’s fees.

The listed book runners of the IPO are Barclays, TD Cowen, and Stifel.

Gauzy Is Growing Quickly But Generating Heavy Operating Losses

GAUZ is seeking U.S. public capital market funding to pay down debt, pay earnout agreement amounts due and for general purposes.

The company’s financials have shown increasing top-line revenue, growing gross profit and gross margin, but very high operating losses and growing cash used in operations.

Free cash flow for the twelve months ended December 31, 2023, was negative ($37 million).

Sales and Marketing expenses as a percentage of total revenue have fallen as revenue has increased; its Sales and Marketing efficiency multiple was 1.6x in the most recent calendar year.

The firm currently plans to pay no dividends and to keep any future earnings for reinvesting into the company’s growth plans and working capital requirements. Gauzy is limited by the Companies Law in Israel as to its ability to declare and pay dividends.

GAUZ’s recent capital spending history indicates it has continued to spend materially on capital expenditures despite negative operating cash flow.

The market opportunity for providing light and vision control systems like Gauzy Ltd. is large and likely to grow at a significant rate of growth in the coming years as transportation system providers and public space demand improved technologies.

Risks to the company’s outlook as a public company include its lack of operating profit history and the likelihood it will need to raise additional capital in as little as 12 months after the IPO, potentially diluting equity shareholders or increasing its debt load.

Also, the firm faces the prospect of high repair and replacement costs for its products if its customers issue a recall, which is out of the company’s control.

Gauzy also has significant operations located in the country of Israel, which may engender risks of disruption due to changes in political, economic, and military conditions in and around Israel.

When we learn more IPO details from management, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.