Research from Water Tower Research, Water Tower Research

Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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Equity Bottom-Up

<h2>KEY POINTS</h2>
<ul>
<li>AEye reported revenue of $3 million in 2021 and guided for sales of $4 to $6 million in 2022. CEO Blair LaCorte said the year saw “significant advancements in productization, industrialization, and cost optimization, setting the foundation for movement to volume production across both the industrial and automotive markets.” Having gone public, AEye ended 2021 with $164.0 million in cash, cash equivalents, and marketable securities, and the company is debt-free.</li>
<li>On the call, the company had customers from South Korea (Seoul Robotics) and Germany (Continental) discuss how they used the higher quality data that AEye produces and how the business model positions AEye well for the automotive market. These are two of AEye’s investment themes for 2022—better data and a Tier 1 auto partner business model.</li>
<li>AEye’s third investment theme is software. The company’s adaptive, high-performance solution is its software-driven LiDAR platform (4Sight™ Intelligent Sensing Platform). Software gives it a significant multimarket revenue runway.</li>
<li>AEye’s secret sauce is its flexible and adaptive technology platform, 4Sight™. 4Sight™ is a complete bistatic system that allows software to control its focus in real time, much like sophisticated military systems. This capability allows AI driven dynamic asset applications to be built for multiple markets from the same hardware.</li>
<li>The biggest design win to date is with Tier 1 auto supplier Continental. Continental selected AEye to meet premium OEM requirements. It has jointly engaged six OEMs with AEye, and it plans to have the AEye/Continental automotive product line launch in 2024. Continental supplies advanced driver assistance systems (ADAS) to 25 auto OEMs, covering 50 brands and 300 models. It delivered 100 million ADAS units from 2017 to 2019. With over $50 billion in sales, and 241,000 employees in 59 counties, Continental is one of the leading Tier 1 suppliers in the world.</li>
</ul>
<h2>COMPANY OVERVIEW</h2>
<p>AEye is a provider of intelligent, next-generation, adaptive LiDAR for vehicle autonomy, ADAS, and robotic vision applications. AEye’s 4Sight Foundation leverages biomimicry and principles from automated targeting applications used by the military to scan the environment, intelligently focusing on what matters most, enabling faster, more accurate, and more reliable perception. 4Sight is the only software-configurable LiDAR platform with integrated deterministic artificial intelligence, delivering industry-leading performance in range, resolution, and speed. The company was founded in 2013 and is based in the San Francisco Bay Area.</p>
<p>The company’s two initial markets are automotive and industrial &amp; mobility. AEye expects its auto/industrial revenue split to eventually be 55/45. The automotive ADAS business should be ramping up over 2023-25. Industrial will likely generate more revenue over the near-term years. As volume ramps, cost per unit should drop significantly. Today AEye’s industrial systems can run $75,000-150,000 in price. AEye believes it can get the price of its industrial units down to $10,000, which should enable many more use cases, and grow the market.</p>
<p>Read our initiation and other reports on&nbsp;AEye&nbsp;on our website.</p>
<h2>VALUATION</h2>
<h2>LIDR has Traded Up Recently and is Above its 50-Day Moving Average</h2>
<p>A hallmark of our research at WTR is that we do not offer specific stock recommendations and/or stock price targets. Our purpose is to help educate our readers about a company and some of the factors that we believe can be relevant to their choices about when and if to invest in a particular issue. We do offer data and graphs about how the stock has been valued historically—typically using conventional metrics—and sometimes we present data and graphs that juxtapose historical valuations among issuers that are believed to be comparable.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/265/938/original/image_56357028721648600782371.png?1648600786" class="editor-image img-responsive" data-smartkarma-image-id="265938"></figure>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

AEye reported revenue of $3 million in 2021 and guided for sales of $4 to $6 million in 2022. CEO Blair LaCorte said the year saw “significant advancements in productization, industrialization, and cost optimization, setting the foundation for movement to volume production across both the industrial and automotive markets.” Having gone public, AEye ended 2021 with $164.0 million in cash, cash equivalents, and marketable securities, and the company is debt-free.
On the call, the company had customers from South Korea (Seoul Robotics) and Germany (Continental) discuss how they used the higher quality data that AEye produces and how the business model positions AEye well for the automotive market. These are two of AEye’s investment themes for 2022—better data and a Tier 1 auto partner business model.
AEye’s third investment theme is software. The company’s adaptive, high-performance solution is its software-driven LiDAR platform (4Sight™ Intelligent Sensing Platform). Software gives it a significant multimarket revenue runway.
AEye’s secret sauce is its flexible and adaptive technology platform, 4Sight™. 4Sight™ is a complete bistatic system that allows software to control its focus in real time, much like sophisticated military systems. This capability allows AI driven dynamic asset applications to be built for multiple markets from the same hardware.
The biggest design win to date is with Tier 1 auto supplier Continental. Continental selected AEye to meet premium OEM requirements. It has jointly engaged six OEMs with AEye, and it plans to have the AEye/Continental automotive product line launch in 2024. Continental supplies advanced driver assistance systems (ADAS) to 25 auto OEMs, covering 50 brands and 300 models. It delivered 100 million ADAS units from 2017 to 2019. With over $50 billion in sales, and 241,000 employees in 59 counties, Continental is one of the leading Tier 1 suppliers in the world.

COMPANY OVERVIEW
AEye is a provider of intelligent, next-generation, adaptive LiDAR for vehicle autonomy, ADAS, and robotic vision applications. AEye’s 4Sight Foundation leverages biomimicry and principles from automated targeting applications used by the military to scan the environment, intelligently focusing on what matters most, enabling faster, more accurate, and more reliable perception. 4Sight is the only software-configurable LiDAR platform with integrated deterministic artificial intelligence, delivering industry-leading performance in range, resolution, and speed. The company was founded in 2013 and is based in the San Francisco Bay Area.
The company’s two initial markets are automotive and industrial &amp; mobility. AEye expects its auto/industrial revenue split to eventually be 55/45. The automotive ADAS business should be ramping up over 2023-25. Industrial will likely generate more revenue over the near-term years. As volume ramps, cost per unit should drop significantly. Today AEye’s industrial systems can run $75,000-150,000 in price. AEye believes it can get the price of its industrial units down to $10,000, which should enable many more use cases, and grow the market.
Read our initiation and other reports on&nbsp;AEye&nbsp;on our website.
VALUATION
LIDR has Traded Up Recently and is Above its 50-Day Moving Average
A hallmark of our research at WTR is that we do not offer specific stock recommendations and/or stock price targets. Our purpose is to help educate our readers about a company and some of the factors that we believe can be relevant to their choices about when and if to invest in a particular issue. We do offer data and graphs about how the stock has been valued historically—typically using conventional metrics—and sometimes we present data and graphs that juxtapose historical valuations among issuers that are believed to be comparable.

DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

Closing Out 2021 and Setting the Stage for 4Sight™ Adoption, Manufacturing, and Cost Optimization in 2022