- Coolidge™ development completed and manufacturing phase launched (tape-out).
First customer deliveries scheduled by 2019 year-end for evaluation;
- Integration of first Kalray boards in next-generation high-performance storage servers manufactured by Asian market leader Wistron;
- Multiple partnerships and joint programs with top-tier players, including distribution partnership with Intron Technology for the Chinese market;
- Cash and cash equivalents of €23.3 million thanks to tight budget control during H1;
- Focus on sales and continued investment in Coolidge™ to reach €100 million revenue target by 2022.
Grenoble, France, October 23, 2019 – Kalray (Euronext Growth Paris: ALKAL), a pioneer in processors for new intelligent systems, has published its first half 2019 earnings. The consolidated financial statements were approved by the Executive Board and reviewed by the Supervisory Board on October 23, 2019. The first half financial report, including the first half financial statements and notes, can be viewed under “Financial documents” on the company’s website: www.kalray-bourse.com
Eric Baissus, President of Kalray’s Executive Board, commented as follows:
“The first half saw the completion of development phase on Coolidge™, our 3rd generation of intelligent processors. Tape-out was launched this summer and the first samples will be sent to the first customers by the end of the year. Coolidge™ has been specially designed for our two priority markets, i.e. acceleration boards for data centers and next-generation vehicles. Expectations are noticeably high on these markets and we have already received multiple pre-orders for evaluation.
The major milestones reached over the last few months and the many negotiations currently underway have strengthened our faith in this strategy and encouraged us to focus our sales initiatives on rolling out this new-generation processor. We shall continue to ramp up capital expenditure in a reasonable manner in order to meet our €100 million revenue target by 2022.”
PROMISING SALES OUTLOOK FOR DATA CENTERS
The intelligent systems (edge computing) market has been earmarked as one of the fastest-growing markets over the coming years. According to Gartner1, the market is expected to grow by 35% per year over the years to come. This view is confirmed by Cisco2, which estimates that by 2021 the volume of data generated by humans, machines and connected devices will be 40 times greater than the volume of data processed in data centers. The deployment of intelligent systems to analyze this data as close as possible to where there are generated is therefore becoming a pressing need.
For the data center market, which remains Kalray’s No. 1 target market in the short term, the company has continued to build its offering aiming at initial commercial deployment with Bostan™, its current generation processor, by year-end, followed by the rapid deployment of Coolidge™ on the same market. In connection with these plans, at the international FMS (Flash Memory Summit) this summer the company announced that it would be supporting the NVMe-TCP protocol. NVMe-TCP is an evolution of the NVMe-oF standard destined to become the default protocol for upcoming generations of SSD flash storage servers. Completed by the industry in late 2018, this evolution has been eagerly awaited as it should make it much easier to adopt this technology in data centers, given that most of them use TCP.
Kalray is currently supporting the development of high-performance storage servers (JBOF) based on this solution amongst integrators, including Wistron, one of the largest manufacturers of data center servers in the world. Wistron has already announced the successful integration of Kalray Bostan™ boards in its next product, which will support NVMe-TCP.
Meanwhile, advanced negotiations continue with a number of manufacturers, including major storage and data center industry players, with a view to integrating Coolidge™ in their next-generation servers. Coolidge™ supports the latest high-speed interfaces required for future developments in data centers.
MAJOR PROGRESS IN THE INTELLIGENT VEHICLES MARKET
In view of the many expressions of interest the company continues to receive from the automotive industry, Kalray is also strongly positioned in its second market, intelligent vehicles. Besides autonomous vehicles, this market more broadly covers Advanced Driver Assistance Systems (ADAS) designed to enhance safety and driving comfort, increase automation and facilitate parking.
The company recently signed a distribution and support partnership agreement with Intron Technology, a company based in China, the world’s biggest car market with 28 million vehicles manufactured in 2018. Listed on the Hong Kong stock exchange, this fast-growing group is now one of the leading distributors of automotive electronics to Chinese manufacturers and integrators. The agreement with Intron Technology is a prime opportunity that will boost Kalray’s commercial presence on the world’s No. 1 market.
Earlier this year, Kalray struck a strategic alliance with NXP Semiconductors, a leading supplier of technology for new-generation vehicles, aimed at jointly developing a safe and reliable solution for autonomous vehicles. This partnership will combine the computing power and reliability of Kalray’s processors with the decision-making power of NXP processors within NXP’s Bluebox solution, which will equip level 3 (partial autonomy), 4 and eventually 5 (fully autonomous) vehicles. Kalray has also been selected by a leading car manufacturer for a major level 33 autonomous vehicle project for which production is scheduled to begin in 2023. It was also selected by Chinese manufacturer Baidu to contribute to its Apollo autonomous vehicle solution and by eSOL, one of the main developers of real-time embedded software for cars and other applications, which will integrate Kalray’s MPPA® processor.
Lastly, Kalray has announced that Aubass, a joint venture majority-owned by Japanese equipment manufacturer DENSO, will port its Adaptative Autosar™ platform to the Kalray MPPA® intelligent processor. This software platform based on the Autosar™ industry standard delivers the high level of performance required for autonomous vehicles (L2+ to L5) and centralized vehicle control. It has already been made available to a number of leading car manufacturers.
FIRST SAMPLES OF COOLIDGE™ DELIVERED BY 2019 YEAR-END
In terms of technology, in July Kalray announced the launch in production (tape-out) of Coolidge™, the 3rd generation of its MPPA® intelligent processor marking the completion of over two years of development.
Coolidge™ presents major progress in the operation of MPPA® technology: significant performance improvement, enhancement of artificial intelligence capacity, greater programming capabilities and high-performance interfaces specifically designed for next-generation data centers.
The first samples of Coolidge™ will be delivered to the first customers by the end of the year. The evaluation phase will begin shortly afterwards and will cover the entire Coolidge™ environment developed by Kalray, including the AccessCore® software suite and the simultaneously developed Coolidge™-based boards which will also be available by year-end.
Kalray has already received the first requests for development of Coolidge™-based products. Initial mass commercial deployment by the first Coolidge™ user customers is scheduled for H2 2020.
H1 2019 EARNINGS IN LINE WITH EXPECTATIONS
H1 2019 revenues from sales of boards, development platforms and licenses, as well as customer services for the evaluation and qualification phases, amounted to €455,000 (compared to €322,000 in H1 2018), meeting management expectations in this pre-volume phase. H1 2019 earnings were impacted by ongoing development programs, including completion of the Coolidge™ design and NVMe-TCP solution, and by tight control of expenditure.
Kalray posted an EBITDA loss of €2,652,000 in H1 2019 (compared to a €2,053,000 loss in H1 2018). The increase in capitalized production (up €777,000 versus H1 2018) partly offset the increase in operating expenses over the period. Personnel expenses (up €720,000 versus H1 2018) increased as a result of 9 new hires (including 7 experienced R&D engineers and 2 sales), bringing the headcount to 81 as of June 30, 2019. EBITDA also includes an increase in software development and hardware design subcontracting costs (up €453,000), design software license fees (up €286,000) and other expenses (up €160,000).
After depreciation, amortization and provisions (€2,800,000) and research tax credit (€1,147,000), the adjusted operating loss came to €4,305,000, a €1,527,000 increase on the H1 2018 loss. After deduction of net financial expense, Kalray posted a net loss of €4,357,000 for H1 2019 (versus €5,079,000 in H1 2018).
CASH AND CASH EQUIVALENTS OF €23.3 MILLION AS OF JUNE 30, 2019
At June 30, 2019, Kalray posted shareholders’ equity of €31.3 million versus cash and cash equivalents of €23.3 million (compared to €28.8 million at December 31, 2018), enabling Kalray to continue with its technological roadmap and commercial deployment plans. Cash is stated after deduction of capital expenditure on the continued development of Coolidge™ over the period.
Compared to the first half, business is expected to pick up in the second half of 2019, mainly driven by initial orders for Coolidge™ evaluation and licenses. Sales of Bostan™ boards will have a limited impact in view of the upcoming market launch of Coolidge™.
Full-year operating expenses are expected to increase by around 25% versus 2018 due to hiring carried out in H1, further hiring planned for H2 (7-9 employees) and the increase in other expenses, particularly subcontracting costs.
2019 free cash flow will be close to the 2018 figure. The expected increase in capital expenditure in the second half, mainly related to the manufacture of Coolidge™ masks for a “one-shot” amount of around €4 million, will be offset by improvements in working capital.
Mass sale of Coolidge-based acceleration boards remains Kalray’s main target for 2020. Given market enthusiasm for Coolidge™ and in line with this priority target, Kalray has taken the strategic decision to focus sales initiatives on this next-generation processor. The major sales ramp-up scheduled for 2020 is expected to kick in during the second half, mainly driven by sales of Coolidge™ boards.
Adjusted operating profit/(loss) including research tax credit will be impacted by the increase in depreciation and amortization charges related to the Coolidge™ program and will therefore not reach breakeven in 2020 as expected at the time of the IPO. On the other hand, the company expects to see a sharp improvement in EBITDA, which should approach breakeven during the last few months of 2020 against a backdrop of sales ramp-up and leveling of operating expenses compared to the end of 2019.
In view of this improvement in EBITDA coupled with a significant reduction in capital expenditure compared to 2019 (no expenditure on tape-out masks), 2020 free cash flow should be higher than in 2019. The present cash position will therefore allow the company to pursue the strategy after 2020.
In light of the multiple negotiations and commercial evaluations currently underway, Kalray is maintaining the 2022 revenue target of €100 million announced at the time of its IPO.
January 22, 2020: H2 2019 business report