Hi, and thank you for joining us for Elliptic Labs Q4 2023 investor presentation. I'm Laila Danielsen, the CEO of Elliptic Labs, and here with me is our CFO, Lars Holmøy. Let's delve into the key highlights for today's session, focusing on three main takeaways. First, the overall industry trends: AI, interoperability, and sustainability are fueling expanded interest in our AI software platform. Our progress in 2023 shows that we are setting the market standard for shaping the future of AI virtual smart sensors in both the PC, laptop, and smartphone industries. Customers and partners acknowledge our technological leadership position of our AI software platform across the ecosystem, and we are defining new industry standards with global customers and partners such as Lenovo, Xiaomi, Microsoft, Intel, and Qualcomm, to name a few.
These large enterprises recognize our innovative leadership in AI ultrasound and sensor fusion for AI Virtual Smart Sensors deployed at scale, and acknowledge our role in enabling advanced use cases. By integrating our AI software platform into PC and smartphone OEMs, we have been winning new customers and helping them drive new capability across their entire product portfolio. I'll reiterate here that we announced a contract for our new product, the AI Virtual Seamless Sensor, with a large PC OEM in Q4 2023. Second, in Q4, we had positive operational cash flow, and total revenue in 2023 increased by 34% compared to 2022, ending at NOK 69.6 million in total. It's important to underscore that even though we continue to expand in the PC market, only one of our four PC customers has started shipping.
The challenging marketing conditions in 2023 have impacted the timing of new contracts and revenue recognition for many of our customers. Converting our substantial contract base into revenue is a process that requires time. Nevertheless, it is evident that our journey of growth has shifted from a question of if to when. Third, we have continued to expand our foothold within the smartphone space. In 2023, we rolled out more models with existing customers and added three new OEMs, and signed a software license contract with a new smartphone customer in February of 2024. So now we are in a market in over 100 models deployed in over 500 million devices. Our smartphone business is healthy, with more diverse revenue, and is expected to continue to grow.
During 2023, we have also continued to build our position in the PC laptop market, having made inroads with four of the top six OEMs in this market. We are in close dialogue with these OEMs for rollout of more models in the quarters and the years to come. Once integrated, the OEMs clearly see the value in our technology, and our technology is sticky, meaning we are here to stay and expand. We enter 2024 with technological leadership position, a solid commercial fundamental, and a lean and scalable organization, and we are well-funded to continue our growth. Elliptic Labs works with global leading partners and customers to redefine user experiences with our AI virtual smart sensor platform. As the market is more familiar with our technology, they discover new ways for consumers to engage with and utilize their products.
On top of this, due to AI interoperability and sustainability, industry trends have further fueled the demand for our AI software platform. Our platform is entirely software-based and leverages AI ultrasound and sensor fusion to deliver exceptional user experience to companies across various industries. As our technology becomes more widely known, both the market and our customers uncover novel ways to engage customers and optimize their products. They rely on us for innovation, leading to the development of exciting new applications. Following the launch of our new and latest AI Virtual Seamless Sensor, we see a broad interest from both smartphone and laptop customers. It is important for our customers to enable interoperability between their own devices as well as seamless interoperability with Apple's broad device portfolio.
As we collaborate with large global companies with revenues exceeding $60 billion, they gain greater visibility into the project and the user experience they aim to create. Consequently, as their awareness of our capability expands, we expect for even additional use cases based on our AI software platform. So it's clear that our value proposition is resonating with the market, customers, and partners, demonstrated in our year-on-year growth. Our AI software-based solutions are an obvious choice when compared to expensive single-purpose hardware components and sensors. OK, so we can all agree that we are well-positioned in a very large market. We continue to launch with more and more models in the smartphone market, and we now, to date, have launched in over 100 models, and we continue to grow in this market as well.
In 2023, we launched more models in the PC market, and per today, we are targeted to launch with a large PC OEM for the new functionality, as well as launching with new PC customers and signing more expansion deals. All our customers are per today on target, and we have overlaid for their launches, and we have overlaid delivered our AI software platform successfully. OK, we have talked about revenue models many times. And as always, we are in ongoing negotiation for more contracts, and we have already signed contracts that are highly confidential. This is simply the nature of our business. The advantage of being a 100% software company is that it allows us to have a flexible business and revenue model.
The dynamic nature of our revenue numbers quarter-over-quarter is influenced by various factors that we are proactively addressing, and we are growing year-over-year. We have taken proactive measures to adapt to market conditions, including structuring our deals with upfront commitments. This approach enables us to offer competitive pricing per unit, which positions us for substantial growth as we continue to ship more products into the market. It is important to emphasize that we are well-funded and possess the necessary resources to achieve our growth targets. Understanding these dynamics is critical to grasp the full picture of our revenue trajectory. We are confident in our ability to drive sustained growth in the long run. Converting our substantial contract base into revenue is a process that requires time. Nevertheless, it is evident that our journey of growth has shifted from a question of if to when.
Due to the traction and the push from our PC customers, and of course, it doesn't exactly hurt that we are in over hundreds of millions of smartphones in the market, as well as many, many laptop models, the ecosystem of partners have an extraordinary interest in working with us. As I mentioned before, the industry trend of AI interoperability and sustainability, we have a seat at the table to define standards and architecture together with companies such as Microsoft, Intel, Qualcomm, and Cirrus, et cetera. Some of these meetings are organized through standard groups that we have joined, like the MIPI. At MIPI, we are a contributing member. This interest for our AI software platform to become a standard in the market is driven clearly by a significant pull from our PC customers and a push from our PC partners.
By defining the current and future standard, we strengthen our position in the market and simplify the adoption of our AI platform by OEMs, as well as our partners. OK, in this market that we have such a strong position, we will, of course, continue with research and development in our space, as well as filing more patents. To date, we are close to 200 granted and pending patents across our product portfolio. We will continue to innovate, as well as filing more IPs in the quarters and years to come. Everything we have talked up to this point demonstrates the great position we are in. We have multiple growth and value drivers as we move forward. We are scaling laptop revenues, and we will continue to scale. Thus far, we have only started shipping with one of our four PC customers. Definitely more to come.
We continue the smartphone expansion. We are driving more AI Virtual Smart Sensor products per customer. With these new Virtual Smart Sensor products, we also see demand into other segments of the IoT market, like the peripherals and accessories. In the PC market, we have a solid traction with multiple opportunities for expansion. We are signed with four of the top six PC OEMs. Only starting, and I keep underscoring this, but only started shipping with one of them. We have five products launched with signed license contracts for two of these products already. We have lots of models in the market using our technology. More models, more customers, more AI Virtual Smart Sensors across more verticals, which will underpin our future growth. Now I'm going to leave the word to our CFO, Lars Holmøy.
Thank you, Laila. Elliptic Labs has a solid trajectory in 2023.
Despite the challenging macro environment, Elliptic Labs has achieved a 31% year-over-year growth in revenue from customer contracts. As Laila pointed out earlier, it takes time to turn our significant contract base into revenue, but we are growing in both the smartphone vertical and PC vertical. The overall trajectory of Elliptic Labs is positive. We have a broader customer base across verticals we operate. Currently, only one out of our four PC customers has started shipping PCs with our software in it to the market. We are keeping and maintaining a lean growth for the year. In 2023, Elliptic Labs demonstrated a robust growth amidst market fluctuations, achieving a full-year revenue of NOK 69.6 million Norwegian kroner, making a 34% increase, despite facing a slight downturn in Q4 with revenues at NOK 9.2 million, a decrease of 6.4% from contracts with customers.
Our organization continued to grow to meet the increasing demand for our products. Employee benefit expenses are rising to NOK 28.18 million, reflecting a necessary investment in our talent pool, with it expanded by 13 full-time employees from the previous year. Additionally, our strategic adjustment in the share option program reduced the expenses to NOK 1.4 million for the quarter, contributing to a more efficient cost structure for the year at close to $10 million, $9.8 million, down from $12.5 million in 2022. This careful balancing of growth and efficiency underscores our commitment to long-term financial sustainability. We had a positive operational cash flow with our continued strong cash position in Q4 and 2023. In Q4, our operational cash flow reached NOK 2.6 million, primarily due to a $16.1 million reduction in accounts receivables.
Our investment in R&D, particularly in the AI Virtual Smart Sensor Platform, was carefully managed, showing a 10% decrease from Q4 2022 with a 4% increase from the previous quarter. Financing activities had $3 million generated from issuing shares and $1 million in short-term debt repayment. Overall, we are ensuring we continue to innovate while maintaining a financially healthy position. Elliptic is well-funded for continued growth. As we closed Q4 2023, our financial stability was highlighted by a strong cash position of NOK 116 million. These strengths come from a diligent management of our current assets, notably through our timely payments from our customers, which also led to reductions in current assets. Our forward-looking investment has led to an increase in our long-term liabilities, primarily due to an uptake in non-current lease liabilities.
Meanwhile, our short-term liability mainly consists of lease obligations, with an equity ratio standing strong at 88%. We are well-positioned for sustainable growth and seizing future opportunities. With that, I'm going to leave the stage for Laila again. Thank you.
Yep. Thank you, Lars. Our smartphone business is healthy with more diverse revenue, and it's expected to continue to grow. During 2023, we have also continued to build our position in the PC laptop market, having made inroads with four of the top six OEMs in this market. We only started shipping with one PC OEM, which is the largest one in the world, which is Lenovo. We are on track with our customer base for the rollout of more models in the quarters and years to come.
Once integrated, the OEMs clearly see the value that our technology is sticky, meaning we are here to stay and expand with them. Market conditions have been challenging for many of our customers throughout 2023. This has affected the timing of new contracts and recognition of revenues. We have nevertheless experienced significant market traction, and our growth journey has moved from if to when. We entered 2024 with a unique technological position, a solid commercial fundament, and a lean and scalable organization. We are well-funded to continue our growth. From our reinforced position, we maintain our goal to reach the revenue target of NOK 500 million by 2025. So now we will take a quick minute break to review the questions, and we'll be back shortly. Thank you.
Thank you, and welcome back.
First, I just want to say thank you to the retail investor that sent in some questions beforehand. And we will go through the questions. We have some taken in here as well. So I'll start just reading through the questions. When can we expect launches on PC laptops Q1, Q2, Q3, Q4 2024? Launches on smartphones happen frequently. Can we expect the same with PC in 2025? So first, we have reiterated that all of our contracts are quite sensitive. So we don't comment on the specific quarters. However, we do expect more PC launches in 2024 and in 2025. And we do also expect to launch with a new PC customer, so somebody else in addition to Lenovo, in 2024. So then a second question. With the mobile market opening up for more sales, do you expect Xiaomi to sign a new enterprise license agreement?
I assume they mean like an annual license agreement.
Yes.
So what we're seeing, at least per today, is that we anticipate that Xiaomi will continue to place orders throughout the year and not necessarily sign one annual enterprise license agreement. That's at least what we have lined out thus far for 2024 with Xiaomi. This may change, but this is what we have now. So question number three. A year ago, Elliptic Labs partnered up with Infineon on Listen2Future project for future smart home devices with the goal of participating in two future innovations. What is the status for IoT? And if possible, can you give some updates from the Listen2Future project? So just say that, I mean, this is like a few years out. The project is moving along well together with our partners. This is, of course, for future products.
These future products align with our roadmap. So as we are working with customers as well for new opportunities, we have some short-term and some longer-term with both customers and partners. This fits in nicely to the project we're doing here with Listen2Future that is going well. OK, so next question. There's a bunch of questions here. How would you say the recent AI hype has influenced Elliptic Labs' position among partners and OEMs? OK, so I'm just going to say we get a lot of interest from our partners, from the semiconductor partners, as well as our laptop smartphone OEMs. We also see a little bit of attention now into even automotive. So AI is important for our OEM customers and partners to deliver use cases based on AI out.
It is also worth underscoring that all our partners and customers have also a focus on being carbon neutral in the future. They have different; some have 2030, some have earlier, some have later. And they also view us to be an enabler for this. So we have some strategic partnership and sort of role also based on meeting some of these commitments. So they're starting here early on this. Then another question. Let me see. I see that some of these are overlapping. Yeah, they're overlapping, yeah. Yeah. A few years ago, you stated that the goal, 500 MNOK, could be achieved with one major PC OEM or several small ones. What are your thoughts on this in today's situation? For example, can the goal be achieved only with Lenovo, for example? So the answer to that is yes, it's still possible.
However, it is more likely it will be a combination of many OEMs that would add up to the total target. And obviously, that is also a better business model. It's better to grow your revenue, I mean, to be more diversified over several smartphone customers as well as several PC customers than relying on one customer. That is clearly more risky. So since we have signed with four laptop customers thus far, as well as we have many, many smartphone customers, we expect that the combination of these customers will be adding up to the NOK 500 million target.
Let's see. Another question. This is good. It's good questions. Very good questions. I appreciate that. Elliptic Labs has guided NOK 500 million revenue, 50% EBITDA for a long time, now guided in 2025. The guidance was communicated before the seamless product was released. In this guidance, is the seamless product included?
So the answer to that is yes, because when we're setting a goal, we're setting according to also our roadmap. We're looking at our whole AI Virtual Smart Sensor Platform or our whole platform. So just to sort of really explain, take it one step further. For the Seamless Sensor, this is actually a technology that or not technology. That's the derivative of an online platform. But this is a use case that we patented back in 2015, as a matter of fact. So it's clear that this is on our roadmap. And then as the market matured, we see new opportunities for multiple products. And then, of course, that is one way to do it. It's like products that we have thought about in the past. Now the timing is now.
And then, of course, we also look at, as we're assessing the market, seeing different trends, we also come up with new use cases. But for this one, it was included. And we look at our whole platform. We don't look at just like one product or one virtual sensor. And then OK, so I'll these four here for you. But I can read it to you if you want to.
OK, perfect. And I will address this as well.
OK, that's fine.
Yeah.
How much of your revenue is from laptop customers? Let me show that in the slide. But how many PC models are part of this revenue?
Yeah. So we give that once a year. So we gave it last Q4 in 2022. And we gave it this quarter as well. So I think that will answer the question.
Yeah.
Yeah.
Yeah. So do Elliptic Labs expect a positive cash flow for 2024?
Yeah. So we do not give guidance for 2024. And I also have getting a derivative of that question, which is the cash position and need for capital increase. And the answer to that is no. There is no plan for increasing or raising capital for our current growth plan. We are well-funded for all our strategic initiatives. And yeah.
OK. Well, I mean, it's the same. Positive result, positive cash flow, the management positive and confident, same level. Should we this one? I mean, I can read it. I can read it again. But the management of Elliptic Labs has, in previous interviews and presentations, been very positive and confident about the 2025 target. Is this positivity and confidence still on the same high level? I'll direct it to you. And then I can OK, yes.
OK. Yes, we are.
Do we have—are there more questions here?
Yeah. So it's a question about—it's the same as the large smartphone OEM that we have been discussing last year as well.
What was the question?
The recognition of the big smartphone contract that typically comes in Q4 appears to be missing. Is that lost, or has it slipped in time like last year?
It has not been lost. It has not been lost. They are—I can just say it. I mentioned Xiaomi further up here in regards to, well, they do one big annual contract versus spread it out throughout the years. So the answer is it was spread it out throughout the year. So it has not been lost.
No. And then a very IoT-related question again.
OK.
And how is development going on for TVs?
So we also have the new opportunities around TV. But basically, on TV, it has gone a little bit slower as expected. We did announce like a proof of concept a while back. But we expect that there will be some opportunities in the future for smart TV. But now, in regards to use cases for some of the POCs that we work with, we see a shift in some of these business models around TVs. And therefore, we can just state right out that this particular POC that we did is not converting into license revenue. But we have other opportunities that we are working on that can potentially turn into revenue. And I don't want to go into the specific use cases because that's confidential.
But sort of the standard use cases we saw initially, that is something that we the TV is no longer interested in, the TV OEMs.
Yeah.
Any more questions? Yeah. Well, I mean, we can't really answer that. But when do you expect revenues from Seamless Sensor? Do you still expect to launch with the new PC OEMs in 2024, as communicated last quarter? So that you can answer. Yeah. But I already answered that. But I'll answer it again. Yes, we do expect to launch with a new PC OEM, so a new brand this year, specifically when the Seamless Sensor is coming out. We can't share that specifically. But there was one question about -
I think we have covered them all.
I've covered them all. But I thought it was in regards to the Seamless Sensor.
Yeah, this is the Seamless Sensor, revenues from Seamless Sensor.
That's the only thing that's coming out?
Yeah.
OK.
Or, are there any in terms of OEMs with seamless? There have been PC OEMs with seamless sensor?
Yeah. Well, they've not really been seamless sensors. They've been with seamless use cases, which is different. So in the market, clearly, there's been announcements from Samsung has announced like seamless experience, ease of use, et cetera. Qualcomm has their seamless concept. And of course, Apple has, with their ultra-wideband sensor, has a strategy around seamless sensor. So those are different. Basically, when we are talking to partners and customers, the missing link is what we deliver. And that is this near proximity capability. So creating, giving this instant visual feedback that your device is near and can easier connect. And that's what we see is the missing link.
They come in, and they have this seamless user experience from an app point of view. But to really make it ease of use, they're looking at the set of capabilities that we are delivering. And that's some of that capability because some of that capability is what we are launching with our PC customer that signed the contract. So it's not the same. And I'll just want to sort of highlight I think it's important to reiterate the big what is happening also in the market. So around Apple, which has a wonderful ecosystem and a slew of beautiful products, they have also a much higher price point. So they can afford to put highly single-purpose, expensive sensors into older devices for tracking and distance measure and so forth. We can solve we can do the same thing with software only.
And so, for example, if you are an HP, Dell, Lenovo, et cetera, number one, you don't have a phone. You don't have the same ecosystem. You don't have a high-volume phone like Apple. Also, in the Android, they don't have ultra-wideband sensor, less than 5%. So it is important if you are HP or Lenovo pushing a product and you know that in the U.S., for example, the newest market, 80% under people for people under 21 years old has an iPhone. So it is important that they are able to not just create interoperability between their own internal set of accessories and so forth, but also can support be hardware agnostic, completely hardware agnostic, and also do interoperability between their PC and Apple, PC and all the Android phones. And I think we also got another question there about working with other devices, accessory.
And that's exactly also what we are seeing that they're looking for. So overall, the seamless sensor, once again, something we have looked at and patented a long time ago and waiting for the market to mature, to have that ready. And now we have signed and have a great interest for that product. So I think that's covered all.
That covers all. There's a very specific question that we cannot comment. So we will leave that to it.
All right. So thank you very much, and have a good day.
Thank you.