Zacks Small Cap Research – SVRE: OEM agreement with IVECO announced and the company introduces a new SaaS revenue model. Dilution risk remains a concern. – Technologist

By Brian Lantier, CFA

NASDAQ:SVRE

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SaverOne 2014 (NASDAQ:SVRE) announced the long-anticipated OEM agreement with IVECO that was first discussed in 2022 when the companies signed a memorandum of understanding. The agreement covers the integration of SaverOne’s “safety technology” within IVECO’s vehicles. As a reminder, while the company is not a household name for many investors, IVECO manufactures over 150,000 vehicles per year and is a major producer of commercial vehicles in Europe. Through 2024 the company indicated that SaverOne’s software will be integrated within IVECO’s hardware. Down the road, the company left open the possibility that the company’s mobile app could be integrated with the IVECO mobile app and/or SaverOne’s hardware and software could be added to IVECO vehicles on the assembly line.

On March 25, the company announced results for the full year 2023 which included eye-popping headline numbers like revenues up 128% year over year. However, below the surface, we think that business was more challenging than the company had previously indicated as we estimate that revenues actually fell a little over 10% sequentially in the second half of 2023 and the total number of installed systems only grew by roughly 200 units from August of 2023 to March 2024. Given the concentration of the company’s sales in Israel, this may have been a one-time anomaly.

Iveco Announcement

In 2021, IVECO began evaluating the SaverOne solution and after a successful demonstration in the fourth quarter of 2021, the companies entered a memorandum of understanding in 2022 for integrating the SaverOne technology into IVECO trucks.

On March 27, 2024, the companies announced the formal OEM agreement which will bring the SaverOne system to Iveco’s trucks. As we understand it, the solution will not be the complete SaverOne Distracted Driver Prevention System (DDPS) which includes software, hardware, and an installed app on a driver’s phone but rather a software solution offered to IVECO’s customers.

This also means that the pricing will likely be significantly different from our original assumption as the software will be sold as a subscription service rather than as a large upfront equipment purchase. We think this has the potential to offer margin upside in the future for the company but it may mean lower initial revenues than some investors may have been anticipating.

At this point, there are several unknowns about the pricing of this system and exactly how it will work without the full suite of sensors that come with a complete SaverOne system but we look forward to a product demonstration when the first IVECO trucks equipped with SaverOne ship in 2024.

Full Year 2023 Financial Results

SaverOne released its 2023 financial results early this week and we’ve backed into results for the six months ended 12/31/23. Revenues were up substantially year over year (up more than 60%) in the last six months of the year to roughly $350,000 but as previously noted we believe that was a sequential decline from the first half of the year when the company reported sales of close to $400,000. At this stage in the company’s development, we are not concerned with the slip in revenues as that could simply be a few installations sliding from one period to the next.

The company also indicated that the total number of orders received has increased to 4,600 units with about 3,200 installed units. As of August 2023, the company reported orders of 4,300 and about 3,000 installed units, so it is worth noting that over the past 7 months or so, the company only received orders for roughly 300 units and installed approximately 200 units. Again, at this stage, many of the company’s initial installations are pilot programs (roughly 950 of the 4,600 units ordered are for pilot programs) so the company is a proof of concept stage with many customers and we are not too concerned with the pace of orders.

Operating expenses were roughly in line with our expectations and first-half 2023 results, as slight declines in R&D and administrative costs were offset by higher selling costs. The company classifies “investor relationship” costs as a selling and marketing expense and after becoming a publicly traded company in 2022, the company’s cost of investor relations increased meaningfully in 2023.

The company has continued to fund operating losses by accessing the company’s standby equity purchase agreement with YA II. While this has enabled the company to continue its aggressive R&D spending as the company rolls out its pilot agreements, it has resulted in a sharply higher share count (and by default a higher number of ADSs outstanding). As a reminder the company’s common stock to ADS ratio is 5:1. On 12/31/22, the company had 27.8 mil shares outstanding or 5.56 million ADS outstanding, however by 12/31/23, that share count had increased to 69.6 million or 13.9 million ADS. The company also indicated that after the year end, it had issued another 2.15 million ADS under this purchase agreement bringing the total estimated ADS outstanding to approximately 16.1 million. The company also noted that they have increased the availability under this agreement from $10 million to $15 million so it is likely that investors should anticipate additional share issuance.

To date, the steady positive news flow from the company has been able to offset concerns regarding dilution. The ADSs are up over 40% in the six weeks since our initiation despite the substantial increase in the number of ADSs outstanding. We think investors should be prepared for the possibility of a pause in the shares given that the market capitalization has risen nearly threefold in the past 15 months. We readily admit that the news out of the company has been positive but we also must point out that the valuation of the company is rising rapidly in a period when the company only averaged about 1 unit installed per day over the past seven months.

Valuation

SaverOne remains at the very early stages of its growth cycle but the recent OEM agreements with Volvo Bus and IVECO give us increased confidence in the prospects for the company to partner with major OEMs to enhance vehicle and passenger safety. We are still forecasting that SaverOne will more than double revenues in 2024 and 2025 but we have become more conservative with our revenue forecast given the SaaS model that is being deployed with IVECO initially.

At the time of our initiation in February, we believed that it could be possible for the company to trade at $1.80/ADS or achieve an implied valuation of $22.5 million by the end of 2024. While ADSs have not reached our target given the fact that the company has continued to issue shares, the company’s implied market valuation with 16.1 million ADS outstanding is now approaching that target $22.0 million. We are maintaining our target of $1.80/ADS giving the company an implied valuation of $28.9 million by the end of 2024 (based on the higher share count) as the new agreements give us increased confidence that additional opportunities will become available to the company. If the company issues significantly more shares under the standby equity purchase agreement than we have anticipated to meet its capital needs we may have to adjust our price target down to reflect a higher ADS count.

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