Welcome to Elliptic Labs Q1 2022 presentations. My name is Laila Danielsen, and I'm the CEO of Elliptic Labs. Joining me today is our CFO, Lars Holmøy. In Q1, we have experienced a positive change in momentum, and we see that our business model and technology are truly scalable. The three takeaways in today's presentations are as follows. First, we launched this quarter with the world's largest PC manufacturer, Lenovo, and we continue to expand signing contracts to deploy our technology in more future laptop models, which means significant increase in future revenue. This is fantastic news. Secondly, we launched on 13 smartphone models with ASUS, confirming our scalable model. Last but not least, we see that we can scale our technology and still run with a fairly lean team.
It's worth noting that in Q1 we were cash flow positive. Let's jump into the presentation. Our vision with our technology is to build the leading software platform for all sensors, making every device smarter and more human-friendly. Our platform leverages hardware sensors that are already integrated in devices, these devices that are surrounding us every single day. If you look at the left-hand side of this slide, you see a list of different types of sensors and components, like microphone, speakers, time-of-flight sensors, radar sensors, et cetera. We leverage these existing single-purpose sensors, apply our Virtual Smart Sensor Platform, and enable new capabilities, such as Human Presence Detection. For this, we use standard microphones and speakers that are already on, for example, laptops today.
These standard speaker microphones that today are being used for audible and listening to music, et cetera, this is what we're leveraging, just operating in a higher frequency, using ultrasound to then deliver Human Presence Detection. Furthermore, we can also enable new and other features, like connecting seamlessly between devices, so you can take your laptop, walk into a conference room and easily connect to your conference systems. On top of that, we can also combine output of multiple hardware sensor, what we call sensor fusion, to even do more capabilities like over-the-air heartbeat, breathing, et cetera. These are the capabilities that we can deliver, and this platform is 100%. Our product is 100% software. The beauty is that we are standing on a very strong foundation.
Billions of devices already have these hardware sensors and that we can apply our software to. The market that we're going after is very large, it's approximately over $5.5 billion, and it's growing. Even though we started out in the smartphone market, and that's the highest market in regards to volume, it's not the largest market for us. This is the PC market that it will be the next largest market that we're going after. That's basically because some of the hardware sensors that we are today replacing, that we will talk a little bit more about, has a higher cost per unit in the PC market versus the smartphone market.
Our platform and how we're leading when we're engaging with customers is that we go in and we look to see where we can replace sensors, and some of the sensors that we are replacing today are infrared, time-of-flight and radar. We enable presence detection, so you don't have the need or proximity detection, so you don't have the need for these type of sensors. Note that we also are working with partners that are selling radar sensor, for example, companies like Infineon and Texas Instruments. They come to us to enable additional capability, like, breathing, as I mentioned, heartbeat detection, and they come, and they wanna leverage our platforms to deliver those capability because we are very good in software, and these hardware sensor providers are focusing on building good single purpose hardware sensors.
The key is that we start by eliminating, so reducing costs for the customer, and then we can add more functionality. The benefit is of course reducing costs, but also eliminating sourcing risk and decreasing component waste. A lot of the feature and capability that we're delivering is minimizing the power consumption because we are turning off devices or shutting down and locking screens, when you're not using the devices or when you are away from devices. This really helps with also reducing the emission, which is an important key initiative for many, many of our customers. The increase in revenue for Q1 was primarily still from the smartphone market. We expect that the first laptop license revenue will be recognized in the second half of 2022.
Our business is impacted on seasonality and first quarters are generally low. Due to strong sales in Q4 of last year, we were cash flow positive in Q1 this year. We have multiple opportunity for expansion. Let's focus on the laptop market, which we expect our greatest growth will come. Last year, we signed an enterprise license agreement, and an enterprise license agreement is a bit more complex to put in place, but this was what the customer wanted. Of course, I'm talking about Lenovo. An enterprise license agreement is covering the complete organization. What is common or what we did with Lenovo is that they start by signing up for a few model, then we launch, and then shortly thereafter, they sign up for 18 models that comes under the same master contract.
This is put under as an addendum. From there, as we're expanding with Lenovo, we would add more and more contracts or addendum under the master agreements. Of course, we will do that as we're adding more models. This approach, this is exactly what the customer expressed and communicated that they wanted to do with us when we started working with them. This is exactly what we planned for. Okay. Now let's talk a little bit about communication around contracts or on customers. I understand that, you know, this can be a little bit frustrating for the market, in the way we have to communicate. When we work with customers like Lenovo, and many of our other customers, we have to align our PR communication strategy with our customers.
In our contracts, we have strict guidelines in what we can and cannot say. In general, we will always need approval for what to communicate. This means, for example, in the case with Lenovo, we can't announce price, models that we plan to support, volume, or how many units the customer is actually selling when the models is launched. In general, we can't even announce the name of the customer we signed the contract with. Let's go back and just look at the process with Lenovo. Last summer, we signed an enterprise license agreement. We could not announce their name. In Q1 this year, when we indeed launched on their first laptop, the customer, we learned with the PR strategy, now they wanted to announce the feature that they put in, and we could also announce them by name.
When we expanded with additional 18 models with Lenovo, we were fortunate, and this is an exception. We were fortunate to use their name in the press release and actually communicated that to the market. I want to underscore, underline that this was an exception. As we are keep expanding with a customer, they do not want us to have all this, like, you know, for contract number two, three, four, five, etc., to keep naming out to the media that a new contract was signed and new expansion contract was signed with Lenovo.
Of course, we can put it together in this presentation to say, "Yeah, it is indeed Lenovo that we're expanding with," but we can't keep blasting the market and the media with this information because they would like to focus their attention away from the media for when they're launching the product in the market. We have to, of course, commit, and we have to follow the agreement because at the end of the day, we live from the customer and the sales that they are doing. Of course, we're charging a price per unit, so we want them to sell a lot and get as much attention as possible so they can sell a much larger volume. You know, we know we get a lot of questions. This is what we can say.
Things are going really well in the laptop market, and we are absolutely ecstatic about the future we have in front of us for this PC laptop market that we are going after or actually rather the market that is coming to us in these days. Okay. We continue to scale from a strong foundation. Our solid Virtual Smart Sensor Platform is supported by a strong ecosystem of partners. We keep adding more POCs, and we keep adding more models. We keep launching with more and more smartphones. Now, of course, we keep also announcing and launching more and more laptops as well. Continuing commercial scale from a really strong foundation. This is really exciting and it's really, really good.
Of course, I'll keep speaking about in the laptop market because we see such a huge opportunity for us. I mentioned already that we have contracted with Lenovo for more than 20 laptops, and we launched with this top-selling ThinkPad T14 product, which has a great volume. Also what is extremely important is the partnership and the relationship that we have with the whole ecosystem. This partnership we have with Intel, this with AMD, and with Qualcomm, enable us to target and go after this whole 100%, almost 100% of the PC laptop market. Very, very nicely positioned for taking this market. All right. We still experience good demand and growth in the smartphone market year to date. In Q1, we actually announced launching with 13 smartphones.
We just this year to date also had another announcement, so we have launched on 14 smartphones. This is very scalable. We very easily support this customer, and it requires minimal support. Okay. The market today is dominated by single-purpose hardware sensor. We see that in general that the price point for these hardware sensors are increasing. I mentioned, you know, we lead always with looking what the customer wants. In most of the cases, you know, we start by replacing this hardware sensor. It’s a good position for us that the hardware sensor prices are indeed increasing. Most of the devices in the market today have a microphone and speaker that we can leverage to deliver these functionalities that normally a single-purpose sensor would deliver.
This means that there are less need for these single-purpose, costly hardware sensor, and that we can replace it with our technology. Now I would leave the word to our CFO, Lars Holmøy, that would cover our financial section. Thank you.
Thank you, Laila. At Elliptic, we are funded for continued expansion across multiple verticals, and we see a strong growth trajectory. As Laila stated previously, last 12 months, year-over-year, our customer revenue grew at 83%. Looking at our total revenue and other operating income growth year-over-year is a mere 41%. It's worth noting that in both Q4 2021 and Q1 2022, we did not have any other operating income. Due to the fact that our technology is more mature and our significant market traction, we are allocating all our resources towards customer revenue and not towards specific research grants from Innovation Norway and such. Thus, other income is expected to be at a low level as we move forward.
Revenue consists primarily from the smartphone vertical, where we continue to see a strong traction and a demand for our AI Virtual Smart Sensor Platform. Looking isolated at the revenues from contracts with customers year-over-year, they increased from NOK 1.7 million in Q1 2021 to NOK 5.5 million in Q1 2022. Smartphone revenues are expected to be supported by revenue from our laptop segment in the second half of 2022. In the previous two years, we have seen a fairly strong seasonality, as you can see from the graph on the left-hand side here. Majority of these revenues are from customer contracts. It's from the smartphone vertical, whereas there is a strong seasonality due to the electronics market has a holiday season and so forth. As Laila explained, we have an enterprise contract with Lenovo.
We have now a contract for the T14 that had just been released to the market. We have signed up for 18 new more models, and we also expanded that contract even further. We expect to see revenues from this contract, from license to laptop, to be recognized in the second half of 2022. In general, revenue from these contracts will follow the production pattern of the customer, and we will charge a license fee per unit. Since we are a software-only company, we do have the flexibility around our business model if needed. As you can see, we are growing quite substantially on the revenue from contracts with customers. 221% is coming from small numbers, so I wouldn't put too much into that. The revenue, as I stated, mainly from the smartphone segment.
Employee benefit expenses or payroll cost is increasing NOK 3.6 million year-over-year. Of course, we have a lot more people. We have increased by 25%. The majority of our other operating expenses here, we have invested in supporting systems, or everything from reporting tools and so forth, and we also see sales, marketing, and professional services. We have a positive cash flow in the first quarter of 2022. As Laila stated, in Q4 was a great sales month for us, and that money is now coming in. Cash flow from investing activity mainly reflecting capitalized software development as we continue to develop our software. Cash flow from financing activities includes repayment of lease liabilities, repayment of short-term liabilities, and paid interest, and we are still cash positive. We are maintaining a robust balance sheet.
It comprise mainly of cash, which is great. Working capital is reduced by NOK 80 million this quarter, although our current ratio is somewhat up. Equity ratio is at 93%. Of course, the interest-bearing debt is from Innovation Norway, as you all know. Thank you, and I will leave the floor to Laila again.
Okay. Thank you, Lars. To summarize, before we start the Q&A, we continue to expand in the smartphone market, and we will continue launching more and more smartphone models in the market. What we are the most excited about is the laptop market, because this is our next really truly growth vertical. We see in particular after we indeed announced and launched into the market with Lenovo and announced to be on or sign up for 18+ future models, that the interest for the rest of the market is increasing. This is, of course very exciting.
On top of that, it's also been very helpful, the support and the close collaboration that we have with Intel and AMD, of course Qualcomm, but particularly with Intel and AMD, that is delivering processor for almost 100% of the laptop market. This close collaboration, this alignment of roadmaps, really helps us to scale into the laptop market. Of course, this is exciting that we launched with Lenovo in Q1, and then shortly thereafter, they're expanding to 18+ models. You know, we see, you know, really positive traction in the market, so very, very exciting. When it comes to IoT, we continue to building a position in IoT, but expect, you know, that growth to come a little bit further behind than the laptop market.
We are reconfirming our target for 2023 of NOK 500 million and EBITDA of north of 50%. Now we will take a short break and to review the questions that we have received during the presentation. Thank you. Be right back. Thank you for submitting all the questions, and also thank you to the gentleman that has gathered a lot of questions from many investors before our presentation, so appreciate that. Why don't you start, Lars, with some of the questions, and then, that have been ticking in.
We can jump straight into the Lenovo part. Is it possible that the signed Lenovo contracts can alone be enough for Elliptic Labs to reach our target for 2023?
As previously communicated, we can reach the NOK 500 million target, if assuming that, for example, Lenovo would 100% deploy our technology on all their PC and laptops in 2023, or if several of the OEMs has a, you know, a pretty decent deployment of our technology.
Mm.
I'll take a question from here.
Yep.
Is it possible? This is for you.
Yeah. Okay.
Is it possible to provide further target beyond NOK 500 million for October for Q4 in 2023 that you've been guiding with since your IPO? As a sort of sub-question, is it possible to communicate a more concrete guidance for the current year?
All right. Yeah, we are in a solid position to win a large portion of the PC market, so naturally we have a strong focus on long-term growth. The target that we put out for 2023, still we're standing firm on that. That's where our focus is. Even though we are expecting a solid growth in 2022, we have decided not to give any more details around 2022 target for this year. Further out, of course, we are having focus on where we are now. We are in a good position, so we're not gonna give anything beyond. This year we have previously stated that it is EBITDA positive.
Yeah. There's some more questions here.
Yeah.
For you. Are we willing to negotiate with time-limited exclusivity with our customers?
Okay.
Yeah.
Yeah. In general, no. We do not sign up exclusivity. I think everything is negotiable.
Yeah.
Possible. That comes with a trade-off, right? We need. We're looking for the broader market, I will say.
Yeah.
Yeah.
I mean.
Yeah.
Yes. Okay. I'll give you another one too.
Okay. Thank you.
This one is quick.
Yeah.
Is it a overview of the IoT POCs or generally the POCs?
Yep, POCs, page eight, I think.
In the presentation.
In the presentation.
There it is.
Yes.
Yeah. Okay. I'll read.
And we will.
This next one too?
Yeah, sure.
Yeah, okay. What is the reason not to name the different manufacturer with who we are getting agreements now suddenly with?
Mm.
Okay, hold on a little bit. Is it Elliptic Labs or the customer that decides what we are communicating?
Yep.
I think we went over this in the presentation too, but I'll reiterate it. In all our contracts with the customer, we are aligning the PR, the communication, the PR strategy, and the communication out to the market with the customer. In all agreements, we have this contractually binding. The reason for that is the customer we're working with, in general they're sensitive. They have a lot of sensitivity and confidentiality around their models. When is launching, what is launching with, and so forth.
Furthermore, in specific case when it comes to Lenovo. Lenovo is selling their laptops to a consumer or a user r ather, because it could be the commercial side as well. For them it is important to get maximum attention every time they launch the product and not confuse the market with every time, you know, we are signing a contract with them that now they're doing this big splash in the media. The reason is that we have an agreement, we have an alignment, and we fully respect that, and we think it also makes very much sense for this strategy. I know it must be I understand it can be frustrating for our investor community, because you have to sort of read between the lines as like is it a new laptop or is a manufacturer or is it indeed expansion with Lenovo?
I understand that can be frustrating, but it is also important that we support our customer to maximize their sales and maximize the attention and the buzz around their launches. You know, hopefully, like we did with T14, you know, that they're listing, you know, our feature in their press release, as well as in their specifications. That is the reason. We are not trying to, like, trick you or anything like that. It's completely part of the customer strategy. You know, we will try to be as clear in the communication as possible. I think it makes sense that they have that approach.
Yeah.
Okay. Well, I guess the next question is for you.
Yeah.
It's about the seasonality.
All right.
We're looking at all the quarterly reports. In general, we see that the largest part of the revenue comes in Q4 of each year.
Yeah.
Is this something that we can also expect for this year and the foreseeable future?
Yeah. For the foreseeable future, yes. As we stated, I think we addressed it pretty well in the presentation as well. The second half, we're also expecting license revenue from our laptop customer. The reason of course is the consumer electronics has this sort of pattern. We are somewhat doomed to follow that so for the foreseeable future. Again, over time, this will of course change when the revenue is higher and so forth.
Another question. Let me know if there's more question coming in there.
Yeah
As we're checking in, as we are talking. "What does it take for you to skip the POC to go straight to production in laptop segment that you have managed within the smartphone segment? How long would it take?" Wow. The good news.
Mm.
That's when we look at, for example, the rollout with Lenovo, we did a POC. We did actually two POCs for two different groups. Then from there we went straight to production and as you can see with the expansion, we are not doing any more.
Yeah
POCs for delivering, I have to say, our current product that they have already done the POC,
Yeah.
The Human Presence Detection, so they just keep rolling out. This is the reason for it. It took a little bit longer in the smartphone market, and the reason for that is back then, back in 2014 and 2016, our product in general and our platform in general was less mature. Now we are more mature, so we can quicker show and demonstrate that we indeed can deliver high performance capability.
Mm.
In addition, since we already have scaled in the smartphone market, the customer in the laptop segment trusts us that we have also the ability to scale in their market.
Mm.
This has to do with the maturity of our technology and also as our company in general. I do expect maybe even if when we spread even further with more beyond the POC that we have already done because we have successfully had some POC with other company as well. T hat we are working with, we may do a POC. Of course it's gonna be easier because they can simply just take a laptop straight from the market and test it out. Really positive development from sort of skipping the POC going straight to production. Oh, do you wanna answer that?
Uh.
You want me to answer that?
Yeah. Yeah.
Okay. Well, can you read the question?
I can read the question for you. What about unsuccessful or has there been any unsuccessful POCs in, over time or in this market segment?
No. Thus far, we have not had any unsuccessful POCs.
Yeah.
You know, obviously see here with Lenovo, we have converted two of these POC successfully into more and more deployment of models.
First and foremost, the enterprise agreement.
Yeah.
Yeah.
The enterprise agreement. Yeah.
That's the.
Of course.
Yeah.
You know, it's also important to note that when you do a POC, it means the conclusion. If you do a successful POC, it means that you have demonstrated that technology is working.
Yeah.
In general, just so you understand Elliptic Labs' philosophy, when we go and do a POC, we always focus on making sure that we have a commitment production product in target. We don't do the POC for the sake of doing the POC to just add another POC to our t o our slide 8.
Mm.
So far it's been success.
Yeah. We signed a while back for a new smartphone vendor, seven new models.
Mm-hmm.
How is that progressing?
Uh... Uh, that.
When will we know more about the smartphone vendor you signed up for?
Okay. We can't share before we are launching.
No.
Before we make an announcement on who it is, and we will share.
Yeah.
We will announce this customer.
Mm.
We cannot say anything beyond that. Everything is going well. This is planned to come out, so no worries there. I'll ask you a question.
Yeah.
When do you expect significant revenue from the laptop market? I think we said it three or four times.
Yeah.
You can repeat it.
Second half 2022 and beyond. This, of course, we're retargeting that.
Let me see. I think we've already covered that.
Yeah.
Okay. Unless you have another one.
Yeah.
Ticking in.
So HPD s eems to be the standard functionality in the future, maybe as a webcam on your laptop.
Yeah.
Are laptop OEMs, you're working with interesting additional functionalities from Elliptic?
Yes.
Yes.
There are.
Okay.
How we are working, I mean, you know, as we announced before, working with the ecosystem of partner Intel and AMD. We're aligning our roadmaps with Intel and AMD, and also Qualcomm. For this market, Intel is the dominating player, and then you have AMD. We're aligning the roadmap with Intel, for example, and together with our customer for new functionalities.
Mm.
We have different way of, sort of, you know, once we have integrated our platform, we can add more functionality.
Mm.
We have a close alignment with several of the companies that we're talking about for future features as well. For sure it's a very interesting space. If you look at the laptop market and the evolution of the laptop s pace, you know, the general sort of innovation. I mean, there's not a lot of innovation coming. Great laptops, but it's not. You don't see a lot of new things.
Mm.
That the reason for that is that, you know, when you look at sort of Lenovo, HP, ASUS, Dell, et cetera, they are pure sort of very much hardware companies. They get their innovation a lot of times delivered, you know, something from Intel, maybe something with Microsoft, but then everybody has it overnight.
Mm.
Certainly, particularly the one that we, you know, initially now are of course working with Lenovo and some of the other ones, they're interested in delivering new innovation to be, t o differentiate, basically. I think for sure we see opportunities here for more features. We see also an interest at Intel, both the Intel and the customer sort of like pushing for this as well.
Yeah. Just a follow-up question in that regard.
Mm-hmm.
Has, like, interest increased, part of the announced partnership with Intel in the PC market in terms of interest from Intel or is it interest from Intel, AMD, or from the laptop OEM?
Okay. I would say, I mean, the Intel relationship and partnership as well as the AMD, but you know, initially, you know, Intel, we started out with Intel, has been tremendously important for the momentum in the market because it, you know, the only customer you will talk to, they will ask if this is supported by Intel and AMD.
Yep.
For you know what we saw or basically when we started communicating and talking to the customer in the PC market, sorry, the OEMs in the PC market, they started applying a tremendous amount of pressure on Intel to make sure to work with us. We have, you know, weekly discussions with Intel and the customer as we are sort of been integrating deploying and lining up all these other customers as well as these models for further deployments. We have a very, very close relationship.
Mm.
It's been important. Since HPD seems to be becoming a standard in the market and, you know, at this point, even though not everybody has HPD yet. Which is good. There's no incumbent technology.
Mm.
I mean, this is what we is trying to head for.
Mm.
You know, the customer is the way they're looking at it and where they're purchasing is that, you know, we come to them and then we say, "Hey, you know, what type of capability you want?
Mm.
Okay. They want Human Presence Detection. They're saying like, "Should we do that with a software only from a Elliptic solution, or should we pay ou know, should we do a hardware sensor?
Yeah.
When they see the benefits that not only can we deliver that cost efficiently without, you know, any intrusion to the design, without using the supply chain, we, y ou know, we would like to go with that solution, and we can add more in the future. Add more feature in future. They've been applying so much pressure on Intel.
Yeah.
We see a pull from the market.
Yeah.
That's very good. Is it more?
Yeah. I think just one question, I just gonna address it quickly.
Yeah.
We have had a few geopolitical questions. I think it's out of scope, but in general we don't see from our production line at this point any foreseeable risk in that terms. What I already have stated in our quarterly report where we address a few of these things. Of course it's there.
Okay. I think is there anything else that is ticking here?
Yeah. Of course, recruitment, I think we should be the last questions that we will address. We use that lean team.
Yeah.
We have a lean team. We do active recruitment.
Of course.
We have had success with saying this before, and if you're watching and wanna join, please send an application.
Yeah.
We are looking for a variety of positio at this point.
Yeah.
Specifically, yeah, if you wanna recruit.
Yeah. No, of course, we keep hiring, but because when you build the type of technology that we're doing.
Yeah.
A lot of the research and development has happened over the. I mean, we spent a decade building this solid platform.
Yeah.
You get up to a certain point.
Mm-hmm.
You can scale significantly with your business without going crazy in hiring.
Yeah.
That's what we mean with the lean team. Absolutely we are hiring.
Yes.
We will continue to do so.
Mm-hmm. Yeah.
As we are expanding.
I think.
All right.
I think we'll leave it with that.
Yeah. Okay. Thank you very much.
Thank you.
Have a good day.