MultiSensor AI Holdings, Inc.: Form 10-Q for the period ended Mar 31, 2025

Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or “our” refer to Legacy ICI prior to the consummation of the Business Combination and the business of MSAI after the consummation of the Business Combination.

The following discussion and analysis of our financial condition and results of operations provides information that our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. This discussion should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and in our unaudited condensed consolidated financial statements and notes thereto, included elsewhere in this Quarterly Report (collectively, the “consolidated financial statements”).

This Quarterly Report includes forward-looking statements based on the Company’s current assumptions, expectations and projections about future events that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Quarterly Report. For more information on these and other factors, see “Forward-Looking Statements” herein.

Overview

The Company and its wholly owned subsidiaries provide turn-key predictive maintenance and process control solutions, which combine cutting edge imaging and sensing technologies with AI-powered enterprise software. Our software leverages a continuous stream of data from thermal imaging, visible imaging, acoustic imaging, vibration sensing, and laser sensing devices to provide comprehensive, real-time condition monitoring for a customer’s critical assets, processes, and manufactured outputs. Our cloud and edge solutions are deployed by organizations to protect critical assets across a wide range of industries. In tandem with these solutions, we provide various services for our customers including training, calibration, and repair.

We are focused on growing our position as a Software as a Service (SaaS) leader in predictive maintenance. As of March 31, 2025, the Company has approximately 550 active sensors connected to our MSAI Connect platform as compared to approximately 460 as of December 31, 2024, and 90 as of March 31, 2024. This represents a 19% increase quarter over quarter and a greater than 500% increase year over year. We anticipate significant opportunities to drive increased recurring revenues with our solutions.

In the Distribution and Logistics market, we believe our solutions, through enhanced predictive maintenance, provide value by minimizing unplanned downtime and reducing process waste. Our largest customer in the Distribution and Logistics market has achieved a greater than four times return on investment as of March 31, 2025 and a payback period of less than one year. We believe these results were a catalyst driving their subscription renewals, approximating $2.1 million, which unless canceled, are expected to be recognized over the twelve-month subscription period commencing in June 2025. Payment for the subscription renewals is expected to be received upfront in the second quarter of 2025 for the one-year subscription term.

In the Manufacturing market, our go-to market strategy centers on our early fire detection solution. A leading automaker and pilot customer has renewed its subscriptions, and another leading automaker has issued orders to pilot our early fire detection solution for electric vehicle batteries. Our insights from our early fire detection pilot program for electric vehicle batteries have facilitated the launch of additional early fire detection pilots with other leading manufacturers in the metals and mining, food and beverage, pulp and paper, and waste and recycling industries.

Recent Developments

On March 28, 2025, the Company entered into an at market issuance sales agreement with B. Riley Securities, Inc., as sales agent or principal, pursuant to which the Company may offer and sell shares of the Company’s common stock, par value $0.0001 per share having an aggregate market value of up to $8.625 million from time to time through B. Riley Securities.

Merger

On December 19, 2023, SportsMap Tech Acquisition Corp. (“Legacy SMAP”), through its subsidiary (“Merger Sub”), and Infrared Cameras Holdings Inc (“Legacy ICI”) consummated the closing of the transactions contemplated by the Business Combination Agreement initially entered on December 5, 2022, by and among Legacy SMAP, Legacy ICI, and Merger Sub (the “Business Combination”). Pursuant to the terms of the Business Combination Agreement, a merger of Legacy SMAP and Legacy ICI was effected by the merger of Merger Sub with and into Legacy ICI, with Legacy ICI surviving the Business Combination as a wholly-owned subsidiary of Legacy SMAP. As a result of the consummation of the Business Combination, Legacy SMAP changed its name from “SportsMap Tech Acquisition Corp.” to “Infrared Cameras Holdings, Inc.” (“ICI”). In February 2024, ICI changed its name to “MultiSensor AI Holdings, Inc.” (“MSAI”).

The Business Combination was accounted for as a reverse acquisition. Under this method of accounting, Legacy SMAP is treated as the “acquired” company for accounting purposes. The net assets of Legacy SMAP were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination were those of Legacy ICI. Under this method of accounting, Legacy ICI has been determined to be the accounting acquirer, as it held the majority composition of the executive management and was greater in overall asset, revenue and employee size following the Business Combination.

Results of Operations

Three months ended March 31, 2025 compared to Three months ended March 31, 2024

The following table presents summary results of operations for the periods indicated in thousands:

Revenue: Revenue for the three months ended March 31, 2025 was $1.2 million, compared to $2.3 million for the three months ended March 31, 2024. The decrease in revenue was primarily attributable to a decrease in the quantity of sensor hardware sold. During the three months ended March 31, 2024, the Company sold approximately 450 thermal sensors to one of the Company’s launch customers. Software and Services revenue grew 26% and 213% to $0.2 million and $0.2 million, respectively as the Company continues to focus on growing our SaaS and related services businesses. Revenue streams from each of our products and services are summarized below for the three months ended March 31, 2025 and 2024.

Cost of Goods Sold: Cost of goods sold for the three months ended March 31, 2025 was $0.5 million, compared to $1.2 million for the three months ended March 31, 2024. The decrease in cost of goods sold was attributable to a decrease in the quantity of sensor hardware sold as well as a change in product mix.

Inventory Impairment: The decrease in inventory impairment was due to no impairment recognized during the three months ended March 31, 2025.

Selling, General and Administrative Expense: Selling, general and administrative expense for the three months ended March 31, 2025 was $4.1 million, compared to $3.2 million for the three months ended March 31, 2024. The increase in selling, general and administrative expenses was primarily related to increased payroll expenses of $0.7 million, increased professional fees of $0.6 million incurred primarily to facilitate the Company’s shelf registration statement in January 2025 and Sales Agreement in March 2025, which was offset by a reduction of $0.4 million in Other selling, general, and administrative expenses.

Share-Based Compensation Expense: Share-based compensation expense for the three months ended March 31, 2025 was $1.0 million, compared to no recorded share-based compensation expense for the three months ended March 31, 2024. The increase in share-based compensation was attributable to the granting of restricted stock units to our employees during the three months ended March 31, 2025.

Depreciation: The increase in depreciation expense was mostly flat in March 31, 2025 compared to March 31, 2024. The slight increase in depreciation expense was primarily due to additions to property, plant, and equipment (primarily software), offset by lower depreciation expense from machinery, equipment, and demo due to disposals and sales which occurred during fiscal year 2024.

Change in fair value of convertible notes: There was no recorded loss (gain) in fair value of convertible notes for the three months ended March 31, 2025. The decrease in loss (gain) in fair value of convertible notes was the result of these notes being converted in fiscal year 2024.

Loss on financing transaction: There was no recorded loss on financing transaction for the three months ended March 31, 2025. The decrease in Loss on financing transaction was the result of the Financing Notes being converted to equity in fiscal year 2024.

Other Income, net: There was no recorded Other income, net for the three months ended March 31, 2024 as compared to $0.2 million for the three months ended March 31, 2025. Other income, net increased due to the notification by B.Riley on January 8, 2025 that the ELOC make-whole obligation was resolved.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are supplemental non-GAAP financial measures used by management. We define EBITDA as net (loss) income before (i) interest expense (net interest income), (ii) depreciation and (iii) taxes. We define Adjusted EBITDA as EBITDA before share-based compensation expenses, inventory impairment, loss on financing transaction, other income, net and loss (gain) on disposal of assets.

We believe EBITDA and Adjusted EBITDA are useful performance measures because they facilitate comparison of our results of operations from period to period without regard to our financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation, non-cash charges such as share based compensation expenses or unusual items that are not considered an indicator of ongoing performance of our operations. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA and Adjusted EBITDA may not be comparable to EBITDA or Adjusted EBITDA of other companies. We present EBITDA and Adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business.

The following tables present a reconciliation of EBITDA and Adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited), in thousands:

EBITDA and Adjusted EBITDA

Liquidity and Capital Resources

We incurred losses for the three months ended March 31, 2025, due to negative net working capital excluding deferred transaction costs and other current assets that are not settled in cash, and investment in technology innovation and commercial capabilities. We have historically funded our operations with internally generated cash flows, equity financings, lines of credit with banks, convertible notes, and promissory notes with shareholders and related parties.

We will require additional capital in order to execute on our business plan and may require capital to fund our operations or to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances, and we may determine to raise capital through equity or debt financings or enter into credit facilities for other reasons, including the Sales Agreement and the Purchase Agreement. In order to stay on our anticipated growth trajectory and to further business relationships with current or potential customers or partners, or for other reasons, we may issue equity or equity-linked securities to such current or potential customers or partners. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all, as these plans are subject to market conditions and are not within the Company’s control. There is no assurance that the Company will be successful in implementing their plans. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities or if we issue equity or equity-linked securities to current or potential customers to further business relationships, our existing shareholders could experience significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited and our business could be materially and adversely affected.

As noted in the Company’s condensed consolidated financial statements, there is substantial doubt as to our ability to fund our planned operations for the next twelve months and to continue to operate as a going concern. We have assessed our ability to continue as a going concern, and, based on our need to raise additional capital to finance our future operations, recurring losses from operations incurred since inception, and expectation of continuing operating losses for the foreseeable future, we have concluded that there is substantial doubt about our ability to continue as a going concern for a period of one year from the date that these condensed consolidated financial statements are issued.

Equity Line of Credit

On April 16, 2024, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with B. Riley Principal Capital II, LLC (“B Riley”). Pursuant to the Purchase Agreement, we have the right, but not the obligation, to sell to B. Riley up to $25.0 million worth of Common Stock over the term of the Purchase Agreement, beginning only after certain conditions set forth in the Purchase Agreement have been satisfied, including that an amendment to the registration statement registering the Purchase Shares for resale shall have been declared effective under the Securities Act of 1933, as amended. During the three months March 31, 2025, the Company utilized the B. Riley Committed Equity Facility to sell 1,791,732 shares of Common Stock for cash proceeds totaling $4.7 million.

At the Market Sales Agreement

On March 28, 2025, we entered into the Sales Agreement with B. Riley Securities providing for the sale of up to $8.6 million as set forth in the Sales Agreement. B. Riley Securities will be entitled to compensation at a fixed commission rate of the gross sales price of the shares of Common Stock sold pursuant to the Sales Agreement. During the three months ended March 31, 2025, we sold no shares under the Sales Agreement.

Cash Flows

Three months ended March 31, 2025, Compared to Three months ended March 31, 2024

The following table summarizes our cash flows for the periods indicated, in thousands:

Operating Activities

Net cash used in operating activities was $3.2 million for the three months ended March 31, 2025, an increase of $3.7 million as compared to $0.5 million of net cash provided by operating activities for the three months ended March 31, 2024. The increase in net cash used in operating activities was primarily related to decreased customer receipts during the three months ended March 31, 2025.

Investment Activities

Net cash used in investing activities was $0.4 million for the three months ended March 31, 2025, a decrease of $0.2 million as compared to $0.6 million of net cash used in investing activities for the three months ended March 31, 2024. The decrease is primarily related to a decrease in cash paid for capital expenditures.

Financing Activities

Net cash provided by financing activities was $4.0 million for the three months ended March 31, 2025, an increase of $4.6 million as compared to $0.6 million of net cash used in financing activities for the three months ended March 31, 2024. The increase in net cash provided by financing activities is primarily attributable to $4.7 million in proceeds from stock sales during the three months ended March 31, 2025.

Contractual Obligations

Our principal commitments consist of lease obligations for our corporate office and production facility. The net present value of operating lease liabilities as of March 31, 2025 is $0.1 million. The net present value of operating lease liabilities for the year ended December 31, 2024 is $0.1 million.

Off-Balance Sheet Arrangements

As of March 31, 2025, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in our 2024 Annual Report. There have been no significant and material changes in our Critical Accounting Polices and Estimates since the 2024 Annual Report.

Recently Issued Accounting Standards

See Note 2 of the notes to our annual consolidated financial statements in the 2024 Annual Report for our assessment of recently issued and adopted accounting standards.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company under the JOBS Act. The JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until such a time as those standards apply to private companies.

Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation or (v) comply with any new or revised financial accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. However, we have elected to opt out of this extended exemption period discussed (v) and will therefore comply with new or revised accounting standards on the applicable dates on which the adoption of such standards are required for non-emerging growth companies. We may take advantage of these exemptions until December 31, 2026, or until we are no longer an emerging growth company, whichever is earlier. We will cease to be an emerging growth company prior to the end of such five-year period if certain earlier events occur, including if we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective as of March 31, 2025.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our 2024 Annual Report on Form 10-K, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. There have been no material changes in our risk factors since our 2024 Annual Report on Form 10-K.