Seeing Machines contract with Freeport McMoRan could be a watershed moment

Seeing Machines (LON:SEE) is a computer vision company that develops and produces technology to see and track human faces and facial features. Seeing Machines takes that technology and creates the following vertical applications:

•    Automotive - Driver/operator safety products for transportation applications through their DSS product line;
•    Healthcare - The TrueField Analyzer® (TFA) product for vision testing devices;
•    Computer Gaming and Entertainment – faceAPI provides a suite of image-processing modules created specifically for tracking and understanding faces and facial features.
•    Research - faceLAB is the most flexible and versatile product, providing head and face tracking, eye, eyelid and gaze tracking for human subjects within a 3-dimensional volume using a completely non-contact, video-based sensor.

Computer vision is the science and technology of machines that “see”. As a scientific discipline, computer vision extracts information from images, and the organization of a computer vision system is highly application dependent.

Investment Thesis

Similar to the speech technology industry 10 years ago (see Nuance Communications (NASDAQ:NUAN), the computer vision industry, and Seeing Machines as a leader in the industry, is at the early stages of a potential break-out with mainstream, big market applications.  On February 12, 2010, Seeing Machines signed a potentially breakthrough agreement with Freeport McMoRan Copper and Gold for the supply of the DSS product suite to Freeport's group of operating companies. Freeport (NYSE: FCX) is a global mining company with copper, gold, and molybdenum operations across multiple continents. This first resource industry deal follows the successful completion of a DSS pilot at one of Freeport's copper mines in the USA. Seeing Machines’ DSS products will help management actively manage driver fatigue in Freeport’s operations, especially in their haul truck fleets. The intended deployment of DSS will be undertaken on a mine by mine basis and it is anticipated that the initial installations will be completed over the next year.

Seeing Machines is well run, tight with their cost controls, and has three products generating sales, DSS, faceAPI and faceLAB. Revenue increased in 2009 to A$5.2 million from A$4.4 million, and gross profit increased to A$3.1 million in 2009. A major development was the launch of the TrueField Analyzer (TFA), a device for ophthalmic vision testing initially focused on the glaucoma market. The new faceAPI product represents the third area of development. Due to the extensive range of applications for the Company’s head and eye tracking technology, Seeing Machines has developed this software development platform to enable third party developers to embed its technology in third party applications.

As the global economy continues to heal and rebound, corporate technology departments will again invest in proven technologies with ROI paybacks in the 12-18 month range. Seeing Machines, with its existing and developmental products, should capture a significant piece of this market.

Computer Vision Market Growth - John Morse, senior market analyst for the Automation and Control division of IMS Research, believes that many businesses will be motivated toward more automation, and vision inspection will be an option. Morse, author of a May 2008 report titled The World Market for Machine Vision Hardware forecast that the world computer vision market would grow to more than $2.1 billion by 2012. According to the report summary, prospects for the industry over the long term are expected to be good because the continuing high rate of technical development enables more control and inspection applications to be developed and involves greater use of computer vision.

Product Offerings

DSS – The DSS suite is a robust, automatic platform that uses cutting edge face tracking techniques to deliver information on operator fatigue and operator distraction. The DSS has been specifically designed for straightforward deployment into vehicles & environments where fatigue and inattention need to be monitored and managed.
It is expected that the DSS technology will contribute the majority of Seeing Machines revenues in the strategic mining and commercial transport sectors, with significant opportunities in the sales pipeline. The DSS Product integrates three layers of risk mitigation:

•    Instant in-cab feedback to the driver;
•    Real-time alerts to fleet dispatchers;
•    Management reporting, driver feedback, and training.

The DSS-IVS (in vehicle system) measures the eyelid opening of the driver, and, based on this data, derives the state of drowsiness. No sensors need to be worn by the driver; a remote sensor on the dashboard observes the face of the driver and measures eyelid closure. There is also no calibration procedure required for new drivers. This means any driver can get behind the wheel without any time consuming calibration, annoying sensor attachment process, or any special knowledge about the system.

The DSSi product is an integrated data management, analysis, and reporting system that gives fleet managers the information they need to manage their vehicles and drivers effectively. Coupled with an effective Fatigue Management Plan (FMP), the DSS suite allows organizations to take active steps to manage driver fatigue and distraction in their operations and mitigate risks at all levels in the process.

Considerable improvements in the DSS were made in 2009, helping Seeing Machines establish a solid installed base and to promote the product in over-the-road transport and resource industries. The Company is expecting a “very successful future”, according to a recent Company release, in view of the shift of the focus to driver monitoring, especially in the mining sector where the accidents are particularly costly. In 2009, Seeing Machines supported a field study conducted by a client working in the oil field services business that collected both DSS and driver performance data within their subfleet of 18 DSS equipped heavy rigid vehicles. During that time, not a single event in 11 months was attributed to distraction or fatigue.

Year 2009 was one of significant change in the automotive technology landscape, particularly for driver monitoring of modern fleet management systems used by large fleet operators. The DSS product suite is designed to link alerts with fleet telemetry systems to allow fleet wide management of driver drowsiness and distraction. The DSS has already caught momentum, having been deployed into dozens of operations across all continents last year, including early stage deployments that provided the Company with a “rich seam of prospective business for the Company in the period ahead.”

TrueField Analyzer® (TFA) - The TFA is an objective vision testing device for glaucoma and other vision disorders. The patient’s vision system reacts to a stimulus in many ways, with one reaction being small fast changes in their pupil size.  Eye disorders such as glaucoma alter the way the pupil reacts to the stimulus, and thus the TFA measures those changes and can then determine a complete visual field map for both eyes. The TFA vision test has many advantages, including:

•    Objectivity – eliminates subjectivity to give better results;
•    Speed – test duration is fixed at ~7 minutes total for both eyes;
•    Comfort – easy test for the patient, easy for the operator;
•    Efficiency – tests both eyes, quickly, and gets it right the first time.

The Company has completed the initial development work required to bring the TrueField Analyzer® (TFA) to market. The TFA has been exhibited at many relevant medical industry conferences to build awareness and accelerate the update of the product following its launch.

faceLAB – faceLAB 5 is the latest release of the flagship eye tracking system and features significant improvements aimed at making it easier for researchers to objectively measure human behavior in a wide range of operational conditions and research settings. faceLAB’s unique eye and facial tracking solution offers users rare flexibility, portability, and accuracy. faceLAB’s hallmark Automatic Initialization feature provides one-click subject calibration, generating data on:

•    Eye movement;
•    Head position and rotation;
•    Eyelid aperture;
•    Lip and eyebrow movement; and
•    Pupil size.

faceAPI – This product allows a corporate partner/developer to incorporate Seeing Machines face tracking technology into a third party product or application. These powerful tracking modules are combined into a complete API toolkit that delivers a rich stream of information that can be incorporated into other products or services. Seeing Machines faceAPI is the only comprehensive, integrated solution for developing products that leverage real-time face tracking.

Seeing Machines released the first commercial version of the faceAPI product in August 2008 and sales in excess of a quarter of a million dollars were achieved in the first year of release. Developer licenses have been sold to companies developing applications across a broad spectrum of fields including:

•    3D displays;
•    Video games;
•    Augmented reality;
•    Interactive advertising;
•    Teleconferencing;
•    Virtual worlds;
•    Robotics; and
•    Human computer interaction.

The strategy with faceAPI is to derive revenues through two streams:

•    Developer license sales; and
•    Production license sales.

Prospects for the Future

Seeing Machines technology team, management and strong performance to date has been recognized both in Australia and internationally with several awards and accolades. Machine vision systems are expected to grow significantly through the year 2012 and beyond, and Seeing Machines is well positioned to capture a significant slice of the market.