Image Source: Saver.One

SaverOne (SVRE) is an Israeli company offering safe driver products for cars and fleets that have a huge Total Addressable Market (TAM). Like so many smallcaps that are not yet cash flow positive, its shares have suffered badly:

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This has led to a market cap that is less than $3M which stands in no relation to the opportunity the company is facing. As the company is generating considerable traction already, we see multiple reasons to be optimistic:

• The products are generating rapid traction
• The products have advantages the competition generally lacks
• The TAM is enormous, especially after opening up international markets with the second-generation DDPS product
• The company is likely to benefit from regulatory tailwinds
• The company has started generates recurring revenue
• The market cap stands in no relation to the opportunity

The company offers two products:

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We will concentrate mostly on the first one, the in-cabin driver distraction prevention solution or DDPS, as their second product, the VRU (vulnerable road users and pedestrians) product is still in development. 

SaverOne DDPS

SaverOne’s DDPS works according to NHTSA’s (National Highway Traffic Safety Administration) guidelines for a complete solution for distracted driving. Contrary to competing solutions, SaverOne’s DDPS:

The DDPS works by detecting, analyzing and locating cellular phone RF signals, from the 20-F:

Our solution utilizes sensors that we place in the vehicle in a concealed manner to detect the positioning of any mobile device in the vehicle. Our Phone Location Unit (a unit that is concealed under the vehicle’s dashboard) runs statistical algorithms that can evaluate the location of a mobile devices in the vehicle, based on various algorithms (e.g. relative strength of the signals received from the mobile device).

The technology doesn’t rely on any kind of signal jamming. The algorithms are the core of their competitive advantage enabling their solution to distinguish between phones in the driver’s area and those in the rest of the vehicle so passenger phones are not affected by the DDPS system, whether they have the app installed or not.

Most competing solutions can be deactivated by the driver and/or don’t distinguish between phones in the driver area and the rest of the vehicle, so the company has a competitive advantage. 

Users need to install the SaverOne app on their phones to prevent triggering an alarm, which works by identifying phones in the driver area without the app installed. This alarm stops when the phone is removed from the driver's area.

The app blocks every non-whitelisted application on the phone, with allowed applications restricted to navigation, music, and phone calls by default. This whitelist is amenable to change by fleet operators. 

As long as the vehicle is in motion, phones in the driver's area will not receive messages (the system provides an automatic courtesy response to the sender). When stopped, full functionality returns, enabling emergency calls and the like.

The company has been phasing out its first Gen DDPS from Q1/23 onwards and has already introduced its second generation DDPS system, which supports 5G cellular technology, in Q4/22:

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From the 20-F

The SaverOne system currently has achieved safety and radiation certifications from Hermon Laboratories, an internationally approved testing and certification lab. SaverOne’s solution is certified for operating in Israel, the United States, Europe and Japan.

It also has various certifications such as FCC, ISO 7637-2, ETSI EN and ROHS. SaverOne has GDPR (EU) and CCPA (Cal/US) compliance.

The Market

Driver distraction is a leading cause of traffic accidents, making it an urgent problem. This provides huge opportunities for successful solutions. Below one sees some metrics on what is surely a huge TAM:

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It really is a global problem, but if we focus on the US for a moment one gets some interesting data points:

• Mobile phone distracted driving is a leading cause of traffic accidents in the United States, causing approximately 1.6M traffic accidents per year, killing 4600 people and injuring 391K people.
• 71% of commercially driven large-truck crashes occurred because of driver distraction.
• The total societal and economic costs of distracted driving are $871B according to the NHTSA, $11B for commercial vehicles. 

So we would argue that there are strong incentives to adopt solutions, like SaverOne’s DDPS technology. The market opportunity is huge. The figures in the slide below are from the IR presentation dated October 2022:

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The company is targeting both the aftermarket as well as the OEM market, with respect to the latter there was already good news in the 20-F where management argued that they are working with one of the leading global OEM in order to have their DDPS product integrated into vehicles during the manufacturing process.

Even last year the company had already amassed an impressive list of customers and partners:

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What we know is that by the time of the 20-F:

As of March 31, 2023, about 3,200 systems have been ordered (which includes about 800 systems ordered as part of our ongoing Generation 1.0 pilot program and over 2,400 systems purchased in commercial orders by our Generation 1.0 customers) and over 1,700 of these systems have been installed.

Installations have grown to 4,300 systems ordered (as of August 29, 2023), of which approximately 3,000 have been installed.

Rapid customer wins

The number of wins since the start of the year is already very impressive, even most of the agreements are for pilots, these are the usual way of entry:

• SaverOne Expands Presence across Private and School Bus Fleets with Six New Customer Wins. Oct. 05
• SaverOne Expand its Cooperation with Cemex: Launches First European Pilot with Cemex in Spain. Sep. 06
• SaverOne Launches Three New International Pilot Projects. Aug. 28
• SaverOne Announces New Contract Win with Diplomat- a Leading Importer and Distributor of Consumer Goods throughout Israel. Aug. 09
• SaverOne Achieves Record Installations in July 2023. PR NewswireTue, Aug. 01
• SaverOne to Install its Technology Across 300 Passenger Cars & Trucks of Cemex Israel. Jul. 18
• SaverOne System to be Installed on 20 Garbage Trucks in Israel. Jul. 06
• SaverOne and IVECO Plan to Advance Collaboration Later This Year. Jun. 28
• SaverOne Expands its Footprint Among Private Bus Fleets with Over 160 New Installations. Jun. 07
• SaverOne Expands Relationship with Isuzu Importer to Israel: Additional 40 Installations of Driver Distraction Prevention Solution Ordered for Isuzu Trucks. Jun. 06
• SaverOne Concludes Successful Pilot Demonstration with Abu Dhabi Integrated Transport Center. May 04
• SaverOne Signs a Contract with Lev Hasharon Regional Council to use the SaverOne System in its School Buses. Apr. 27
• SaverOne Announces new Agreement with Shaltal to Install the SverOne System on its Full Fleet of Trucks. Apr. 24
• EzFill Holdings & SaverOne Launch Pilot in Florida to Prevent Driver Distraction in Fuel Delivery Trucks. Mar. 29
• Israel's Leading Shipping & Logistics Company Expands Program with SaverOne to Cover Full Fleet of 150 Trucks. Mar. 23
• SaverOne's Largest Ever Order: Electra Afikim to Install the SaverOne System Across its Entire Bus Fleet of ∼1,200 Vehicles. Mar. 08
• SaverOne Wins Key New Order from Leading Israeli Construction Shapir Engineering Group. Feb. 28
• Kfar Giladi Quarries Installs SaverOne System on its Full Fleet of Trucks. Feb. 14
• Emek Yizrael Regional Council Installs SaverOne System on all of its School Buses. PR NewswireMon, Jan. 30
• SaverOne System Installed on the Large Food Delivery Trucks of Shufersal - Israel's Leading Supermarket. Jan. 19
• New Collaboration with Colmobil - Israel Importer for Mercedez-Benz, Mitsubishi & Hyundai - to Equip Vehicles with SaverOne Protection System. Jan. 17
• SaverOne System Installed on the Delivery Trucks of Tempo Beverages- Israel's Leading Beverage Company. Jan. 11

This long list strongly suggests that installations are going to ramp fast in the near future as clients invariably start with small pilots (10-20 cars) and ramp from there (100 to 1200 as with Electra Afikim).

International expansion is in the very early innings. The first generation DDPS system was exclusively for the domestic market, but the recently introduced second generation product can be sold abroad, opening up a huge market with the company already winning international customers in the last couple of months like Cemex (Spain) and Iveco.

Just the other day the company signed a distribution agreement with GVZ Company, based in Milan, for the EU. 

We might also highlight the work with OEM Iveco, which will integrate the DDPS into its trucks and they have been afforded a six month exclusivity period. This is a big deal and Iveco has also shown an interested in SaverOne’s other solution, the VRUP (Vulnerable Road User Protection), which is still under development.

Regulation could provide another boost, with an upcoming EU regulation. The new EU regulation for Advanced Driver Distraction Warning (ADDW) is to be approved at Nov-23 and mandates a device to identify and warn on driver distraction. Phase-II of this regulation will include distraction avoidance by technical means and is expected by July 2027.

Business model

• The DDPS system is selling on a one-time sales fee: $600 with two year service contract) followed by a monthly subscription fee ($10-$15/M). There are upsell opportunities creating additional monthly recurring subscription fees for services like driver safety analysis. These hold for the aftermarket as well as the OEM market.
• The VRU product will be sold on a similar business model with a one-time sale plus monthly subscription with the possibility of additional monthly fees for additional services.
• They are also considering a revenue sharing model for partners like Eye-Net Mobile.
• Manufacturing is outsourced to Flextronics (its Israel branch) with an agreed upon pricing arrangement. 

The company already has important IP (from the 20-F):

11 patent applications pending in: the United States, the European Patent Office, Israel, China, and the World Intellectual Property Office (WIPO). In Addition, we have five patents already registered in the United States and in China

And this year they were awarded another patent in the US although in Israel, three of its patent applications have been opposed by a third-party, opening up a lengthy arbitrage procedure.

VRU System

The company’s second product is still in development but is pretty interesting nevertheless. It’s a system to enhance ADAS sensor capabilities (lidars, radars, camera’s) to detect VRUs (vulnerable road users) like pedestrians, cyclists and the like, even in non-line-of-sight and adverse weather conditions, situations where the current sensors (lidars, radars, cameras) fail to perform accurately, from the 20-F:

It does this by detecting the exact location and direction of movement of the VRU via their RF footprint from their cellphone signals, under all visibility conditions. 

It’s a serious problem offering a considerable market opportunity as in 2020 there were 10,626 traffic fatalities in the US at roadway intersections, resulting in 1,674 pedestrian and 355 bicyclist fatalities representing 27% of the total of 38,824 road traffic deaths recorded in 2020.

The company already had a successful proof-of-concept trial in 2022 with a leading global European-based bus and truck manufacturer to detect VRUs and prevent collisions. It is targeting the OEM market. 

Financials

With 3K installations at the end of H1 revenues are still tiny ($400K) but they are growing fast, they were up 4x from H1/22. And given the long list of recent trial and customer wins, revenues will continue to grow fast.

The company does produce a gross profit ($126K in H1), but operating cost are substantially larger:

• R&D: $3.3M
• S&M: $392K
• G&A: $1.2M

Operating and net loss were $4.8M and the company had $3.7M in cash left from its small IPO in 2022 and a subsequent private placement. The company has NIS7.1M (roughly $1.7M) in debt 

Valuation

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This picture could underscore the share count as there are also warrants outstanding but that looks more dramatic than it looks as these are on the ordinary shares (trading on the Israeli stock exchange).

Most of these warrants convert into ordinary shares which trade on the Israeli stock exchange and are equivalent to 5 ordinary shares, so the warrant count isn’t as dramatic as it looks at first sight.

The IPO warrants do change into the ADS however. The IPO produced (20-F):

2,941,918 units, each consisting of one ADS and one warrant to purchase one ADS, and 208,282 pre-funded units, each consisting of one pre-funded warrant to purchase one ADS and one warrant to purchase one ADS, at a price to the public of $4.13 per unit ($4.129 per pre-funded unit), for gross proceeds of approximately $13 million, before deducting underwriting discounts and offering expenses.

There are also 157K representative warrants but these have a conversion price of $5.16 and expire June 2, 2027.

There are 3.27M warrants outstanding but they have a conversion price of $5 so they could very well expire worthless on June 7, 2027. And if they don’t, only a fraction are pre-funded so almost all of them would produce $5 per warrant in cash, nearly $15M. 

So for the moment we can safely ignore the warrants in our calculation of the market cap as they are far out of the money. There were also 980K options outstanding as part of performance pay and these have a lower conversion price ($2.30), but still far from the current price so we don’t count them either.

Which results in a market cap (at $0.4 per ADS) of just $2.26M, below cash, but that cash is running out fairly soon (depending on how fast all these new customers are ramping installations). 

Given the tightening funding environment in the US, shareholders seem to brace for a huge dilution, but that’s not necessarily the case. The company has about a year’s worth of cash, we were told, and has a $50M mixed shelf and earlier this year concluded an up to $10M Equity Purchase Agreement at a 5% discount.

The company is likely to need additional finance next year, but with the present market cap, we are inclined to say that a good deal of dilution is already priced in. 

While the situation in Israel is difficult at the moment, the company’s operations are not affected.

At 50% gross margin the company will need to produce $20M in revenue per year (the figures above were for H1), although they’re likely to be cash flow positive below that level.

Conclusion

There are multiple things to like here:

• Clearly, the company has introduced technology that is rapidly gaining traction, and there is no reason to assume this is going to slow anytime soon. 
• The DDPS system has a huge TAM, especially with the second generation product that has opened up world markets and has already started to gain traction, with upcoming EU regulation offering additional tailwinds.
• It sells under an attractive business model generating a one-off device sale and recurring subscription revenue.
• Given the number of clients the company has managed to amass already, most of which are still in the trial phase, revenues are set to increase steeply even without any new customer wins as these trials convert into fleet installations.
• While the company will need additional cash next year, given the tiny market cap, we feel this is already priced in to a considerable degree. 
• While the shares are not without risk, anything that doesn’t generate cash these days is under a microscope, surely at $2M most of it is priced in and the company has set the train in motion to rapidly increase recurring revenue and, ultimately, generate cash.

The upshot is that there are few, if any, companies on the Nasdaq that have a market cap barely above $2M producing rapidly rising revenue, have a patent technology and a huge TAM. Any dilution should largely be priced in at these levels.

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