Hello. Welcome to Elliptic Labs Quarterly Presentation Q2. My name is Leila Danielson, CEO of Elliptic Labs. Today, I have also with me our new CFO and Investor Relations, Lars Holme. And before we jump into some the presentation, just some practical information.
Down on the right hand of your screen, There's a button where you can submit questions along the way that we will address at the end of the presentation. So let's get started. As we discussed in our Q1 Presentation. We focused on building the foundation for growth. In Q2, we're starting to see some results of this as we're expanding into new verticals and geographical markets.
We will discuss and this is going to be our 4 Core Focus during the presentation. First, some numbers. We saw a finance enhanced financial performance compared to Q2 of 2020. Operating revenues was up from NOK 6.3 percent to NOK 7.6 percent. That's a 20% increase.
Our CFO will talk a little bit more details behind these numbers. The EBITDA improved from minus 5.9 to NOK minus NOK 3.7. And net cash flow from operation was minus NOK 12.8 compared to NOK 11,000,000 in Q2 of 2020. As we have shared in our previous Q1 report as well, progress in first half will contribute to a stronger second half of twenty twenty one. The cash position is NOK 78,500,000, down from of $95,400,000 in Q1.
This quarter, we had some exciting news and great progress in various vertical markets. First, we're going to talk and share some information about a license agreement that we signed with a global IoT customer, the Gro platform, which is a Bosch Company. Of course, as you have seen, we launched smartphones with 2 major companies, Xiaomi and Honor. And I think what many of you guys are waiting for is some of the information that we want to share around our excellent progress in the Top Market. The great work we did there for about the POCs that we're working with various OEMs, resulted in that in early of July 2021.
We signed an enterprise license agreement. Of course, we will talk some more about this during the presentation. Furthermore, we also added on another POC in yet a new vertical market. So let's talk a little bit what I would try to explain today is why the customer coming to us and tie that into our mission and vision statement. What we're doing here at Elliptic Labs, we develop smart software sensors that use AI and ultrasound to sense you and your surroundings.
So what does this mean? That means the way we are approaching the customer and the way the customer are coming to us is that They look, for example, I'll give a specific example here. In the PC market, in the PC market today, we see more and more of Launching, and want to launch with what we call presence detection to lock the screen when you are leaving a laptop. So for example, now all of you sit in front of a laptop. The screen is on.
When you get up and leave, We see that our customers and consumer would like that to lock immediately for security purpose and also to save power. How you can solve that today without Elliptic technology is to use a physical hardware sensor That will cost several dollars. So I'll give also a concrete example here on So let's say you are a laptop manufacturer and you have let's say you sell 100,000,000 of Laptops A Year. And to deliver this function, you have to pay at least $3 per unit. If you can replace that with a solution that is software only that may be cost half or maybe even onethree, that means that the customer Can save $200,000,000 That's why many of these customers are coming to us, and we will run through these examples as we're going through The slides the rest of the slides in this presentation.
Furthermore, on top of that, what is happening in the market, in addition to pre COVID that Physical Hardware is More Expensive. We see now also a shortage of material and a significant supply chain shortage of physical sensors. So this means that the price is increasing even more. And in many cases, They might not be available. So this is the mission statement that we develop these smart software sensors that can sense you and your surroundings.
That's a strong value proposition and a strong feature that customer wants. And the next is, how can we save them money? That's why they're coming to us. And if you go to the next point, our vision statement. So our vision is to build the leading software platform for all sensors, making device smarter and more environmentally friendly.
So what does this mean? So let's say back to, let's say, a PC. We come in and first we cut costs. But then they might want to do other set of feature. Maybe they want to do detect like a fall detection or heartbeat detection or they want may want to do some touchless gesture.
We can also deliver that. And this is why customers are coming to us for first cut cost, then add more features. And this is also why partners are coming to us because they are selling physical sensors, and they would like to add more functionality on top of their sensors. So the customer asked for more functionality, then the partner also come to us. So the mission and the vision statement, we see that really resonating with the market today.
But what we are known for is that we are the ultrasound leader for the consumer market. This, we will touch more upon as we're going through the presentation as well. We have spent Over a decade to build a solid scalable platform that is already deployed in over 1 150,000,000 devices today. So we are in the market. We are showing that it's working.
We're showing that we can scale. And based on what we're seeing in the market now and the recent win, we feel quite comfortable that we're going to reach our target of not €500,000,000 within the next 3 years. So a little bit more about our platform. As I mentioned, we started in the smartphone market. There, we proved that we can scale.
We used the same underlying platform technology and many of the same principle. And we start looking at other segments. So laptop, then we're looking at what What we're going to talk about next is a lot of home appliances devices or energy and building technology devices. We look at smart TV. We also touched upon that in the first slide.
So we see that our underlying technology, like The need for presence is across multiple vertical. It has a great interest. So this is really, really good as we are scaling and expanding our business. So let's talk I want to sort of drive back to the mission and vision statement. Here we have Bosch.
Bosch is a large company, a €77,000,000,000 company. And they have a what they call the Grow platform, which is a subsidiary of Bosch. They came to us. Why did they come to us? Well, they come to us first for the mission statement.
So they were looking they have this device that they have out in the market, of this device here. This device here has 3 physical sensors, 1, 2, 3. They need and they use this for presence detection. And why do you need 3 of those sensors? Well, because the field of view of this of Physical.
It's called PIR. It's very narrow. So We can replace this with ultrasound only, with software only. We can replace very high cost industrial rated of Hardware Sensors and deliver the same functionality. So as they're scaling, they need to also think Like all companies, they want to make sure that they have a cost efficient product where they're reducing the material to making the device.
So that's why they come to us. That was the first reason. The second reason is they also know that we are very good in all other type of sensor technology. So they're looking to add more features. And those features, we cannot share yet because that's confidential.
But very straightforward back to the mission and the vision statement. We reduce cost, we can do that at scale. And then the vision, we can deliver new features. So as we see company even with huge corporation like Bosch come to us because they have a need to reduce costs and deliver more features. And They also come to us because we have the market reputation to be excellent in using ultrasound, backed by, of course, a very strong patent portfolio.
Okay. We touched upon already that We have tight they're tight supply chain in the market, and this impacts the hardware sensors availability as well as pricing. And this will improve, and we see that as improving our competitive advantage that we really of Capitalize on Now. So we started 1st on the smartphone market. We're scaling up there.
We see in the PC laptop market where The price point, if you look at the competitive hardware sensor cost per unit, you see at smartphone, it's about $0.10 to 0.25 per device that we're installing it in. Time of flight or radar is more like $2.5 to $4 So significantly higher replacement, the cost of the sensor we're replacing in that market. So this is why We have been really focusing and winning business in the PC laptop market. Furthermore, we see it also pricing at the same thing in the smart TV market, it's Significant. In the IoT, it's a little bit spread out.
I fortunately, I cannot share exactly the price point of what we are replacing here. But I can say that it is significant higher Pricing on these sensors, they are industrial rated than what we see in the PC laptop market. So Very nice business for Elliptic Labs. So in the smartphone market, we continue to see progress. We added we launched with a new customer honor, which we are very, very excited about and keep working with them and continue growing with them.
And with our largest customer to date, Xiaomi, we also keep launching with them as well. And this is the same principle why they're coming to us. They come for the mission statement, replacing physical hardware sensor to reduce cost. And also, they don't have to worry about the whole supply chain and the shortage thereof because we are using 100% software. So the PC market, it's our next growth vertical.
We have shared These slides in regards to look at the market. 1st, I want to talk a little bit about the partners that we're working on. We have a very, very close partnership with Intel. That is the largest chipset vendor for the PC market we're going after. We embed our software into their chipset to deliver our functionality.
So close collaboration with Intel is important. We work with them in the U. S, we work with them in the Europe, and we also work with them in Taiwan. So very close relationship there, very important. The same with AMD.
It's AMD is doing quite well and see some good growth ahead of them as well. And of course, Qualcomm. We work with them all the way from the smartphone market, and we continue to do so in the laptop market. If we just a quick assessment and overview of the PC market. You have Lenovo as the largest player, then HP, Dell and Acer, Asus and Huawei.
And then you have the rest of the market. And we have announced that we are doing actively POC with all of the top 5 players in the market. So just go to the next and talk a little bit about our focus for Q2 has been really, really at the end of some of the POC to convert this into license agreement. And I have to say this particular agreement, this is an enterprise license agreement that we signed in July 2021. It's a very good solid agreement for us.
I'll explain a little bit what an enterprise license agreement is. That means that you have an agreement that covers the whole organization. So laptop, PC, all the other departments within that. But also should the company have like accessory, IoT, smartphone, etcetera, We can leverage this enterprise license agreement into all those departments. The customer was eager and was wanting to sign an enterprise license agreement because they're looking at us at, number 1, wanting to deploy it at all their PC environment.
This is not going to happen overnight. We signed a first agreement and tied it into of several models. We will keep adding on more and more models over time. And they have a strong objective in reaching Full deployment in of all their devices in 2023, but we take step by step and being pragmatic in how we're working with the customer. And then also other departments within the same customer is coming to us and want to work with us as well under the same agreement.
So By then, you signed these new addendums under this framework of agreement. So really solid agreement for us. They're very exciting. We also continue expanding with more POC within the same company. This is, as I mentioned, they are expanding.
What we also did, we signed a POC agreement with a Taiwanese ODM. And what that means is that we see that some of the ODMs would like to promote our features into some of their smaller laptop OEMs. And how we will announce that if we signed the license agreement with the ODM for them to sell it in to their customer, then we will announce that we signed with an ODM. However, if they just promote it and then we end up signing of agreement with the OEM, then we will announce that. In regards to naming the customer, so I've talked a lot about this before.
We have to be very careful how we work and use the customer names. We have strict agreements. We have strict of confidentiality agreements and we have strict guidelines in how you can use somebody else's brand name. So Just an example, as you guys may have noticed when we launched with Honor, we were did not have the permission. We were under Embargo, for 48 hours before we can make that announcement.
So when it comes to the laptop manufacturer, We do not have the permission to announce who we are working with. We are not we do not have the permission to announce the price point that we are selling our solution to. And we wouldn't like to do that because of competitive reason anyway, but we don't have that permission. So the contract is Confidential. So we have to respect that.
Okay. But great progress in the PC market. Okay. So Elliptic Labs, we've been working in this market for quite some time, and We've been really focusing on building the ecosystem, and we see more and more that all these different companies are coming to us as we are seeing more and more market demand. So for example, if I look at let's say, we look at Infineon and Texas Instruments, They have radar sensors.
They would like to promote that. We have made announcement that we have this partnership even if we technically compete with them By kicking them out of the laptop market, but they recognize that if they're going to win business, they have to add Additional Functionality. So that's back to our vision statement. Then we can add, for example, like fall detection, which we see something that The market is looking for right now. So basically, if you had this device here and it could detect fall, you could detect if Your mother fell over, and you can check up on her to make sure she's okay.
So we work on different ways with our partner. When it comes to partner like Intel, which is a really tough Partner, because they're so big. I mean, they have about 110,000 employees. We have strong relationship with them. This type of relationship also impacts the barrier for other competing companies to get into the market.
So right now, our core sort of competition is hardware sensors. If We don't really see small companies trying to do to ultrasound do the same thing as us. But if they were to do so, they still also have to work with these players to build System. So I would say years of dedication and networking enables us to enter into new markets, new verticals and really capitalize on the market momentum. So now I would leave The word and the slides over to our CFO, Lars Holme.
Thank you, Leila. It's great to finally be on board with the excellent Elliptic team. I'm going to start off with our non financial KPIs. IPR is important for Elliptic, and we have increased our patent portfolio of $100,000,000 this quarter and it's now totaling $102,000,000 Partner agreement is also growing this quarter, and we added 2 more partner agreements of the year. Cumulative number of POCs is also increasing this quarter With a strong focus on the laptop or PC market and the IoT market.
We have still not launched any PC of IoT Devices yet. But as Laila covered, we have signed those contracts. Cumulative numbers on models do still of Increase, and we have launched 3 smartphone devices this quarter. Q2 P and L, it sees revenue significantly up from Q2 2020, it's up by 20%. More interestingly, it's that the revenue mix from more than one vertical makes our sales revenue go up by 85%.
Our 2021 guidance is unchanged. We're going to have a significantly stronger top line, and we're also aiming for a positive EBITDA for the year. Olympic has a strong balance. Our cash position is excellent at 78,000,000 We also see an increase in account receivables due to the fact that we have signed new contracts. Cash flows from operation, as expected, We are a bit down with a 12.8% from operations.
We do still have a positive outlook for the second half of twenty twenty one. Of the company. All of this leads us to a clear path towards significant revenue uplift. We're going to increase our smartphone revenue due to new customers and from marketing new technology features to current customers. We also see a trend towards larger fixed volume contracts or UNIX devices, increases revenue clarity and also going to make easier for us to forecast our revenue.
Of PC market are the largest growth vertical for us in the near future. As we have covered, we signed our 1st enterprise license agreement of the increase in revenue. We are targeting and we're going to reconfirm a SEK 500,000,000 in revenue and an EBITDA margin of 50% within of the next 3 years. Shareholder structure is pretty much unchanged since last quarter. We do see Increase in the retail market, but the top 20 is almost the same.
Of EBITDA. I'm going to leave the summary and outlook for Leila to continue.
Thank you, Lars. So Elliptic Labs, we are well positioned for growth. We have a solid platform that we have spent over a decade building and is already deployed at large scale in the market. We see now stronger interest from multiple verticals in geographic markets. So for example, here with Bosch, is headquarters in Germany, so outside China.
We see several of the if you look at the top laptop manufacturer, they are based also in the U. S, some of them. And so not only Do we see a great demand from multiple verticals? We also see that from various geographical market, which is wonderful. We continue to strengthen our partner collaboration, particular with Leading PC and IoT Semiconductors.
This is also important as we are working to really scaling our business that we have the support from this multibillion dollar company in the various market segments. And furthermore, this partnership ecosystem Also helps us to lower the barrier to enter into this new market. It literally just helps us fueling in so we can really, of ReallyScale. So based on this, we feel confident that we will reach our target of NOK 500,000,000 in revenue within 3 years. Thank you.
And now we will review the questions. So if you just give us A quick minute, and we will be back to answer and address those questions. Thank you. Yes, so we have reviewed the questions we will start addressing. And also Before our call today, we did receive lots of questions from a gentleman that had gathered Questions from many of our shareholders and submitted, so really appreciate that.
So we'll just jump right into here. Not surprising, we have received many questions around our laptop agreement and the general our progress in general about the laptop Market. So we'll address the relevant ones. So First is what type of feedback in general are you receiving on your POC on the POC contract that you have in place with the various POC OEMs. And And so obviously, we have converted 1 of our POC into an enterprise license agreement, which is A very good feedback.
And we will continue, and we have many POCs with this particular customers. And we're working systematically and practical to have a very practical approach where we're approaching each POC and focusing on converting this into of Real Contracts. And we're also doing the same with the other PC OEMs that we're working with. As we have announced before, We're working with the top 5 OEMs, PC OEMs in the market. We are We won't be able to go at this point, to go broadly with all of them at once.
We are focusing on particularly this first enterprise license agreement that we signed with this particular customer to go fairly broad. And in regards to numbers, I would have I'll address that in a minute. The second is when can we expect that we will release information of which company we signed with. And as I've stated before, we are under strict of Agreements with the customer in regards to how and when to announce our collaboration with them. As you may recall, for example, from of Honor.
We they released 48 hours before we could release their name. And in some cases with the customer, sometimes we get to release the day off. Sometimes we have to wait. We have an embargo. And sometimes we Do not get to share the name at all.
And that's up to the customer, and we have to respect that and how they want to of Precision, our technology. That's up to the customer. But of course, we as soon as we Have the permission to do so. We will share this information. Okay.
So can you say something about the pricing in regards to of our software in comparison to hardware sensors. Once again, there's multiple reasons Why we're not sharing the pricing? It's one from a competitor point of view. It's also confidentiality to the customer. So we don't really go out.
What you can do is and Lars would also of Difertil Larsen, to talk a little bit further about how to reach our guidance. But if you look at 2.5 to $4 just in the laptop market for potential like a time of flight sensor, radar sensor. And we replaced that. We are lower, but it's we are significantly higher than the pricing that we have charged in, for example, in the smartphone market. And also, the functionality here is slightly different.
Can you also share some about revenue recognition in regards to this first laptop agreement? And So when we sell software and we have slightly different type of structure on the contract that we had with the smartphone of Market, where we charge more upfront. Okay, when we are in this laptop market, our objective is to be the standard, particularly for presence detection for the whole market. So the key is that we are building our business gradually over time, converting a POC into real business. And what we want to do or what we don't want to do, rather, is that we don't really want to rock the boat in regards to how they are purchasing, for example, hardware sensor today.
They have a set system. And when we replace the hardware sensor, we want to follow that same methodology. So how they buy hardware sensor today? So for example, let's say if you are a company and you are selling This particular customer is selling, let's say, 4,000,000 devices a year. And for each quarter, They will order 1,000,000 hardware sensor.
When we replace that, we will follow that same way of submitting the software and recognizing the revenues. We will follow sort of the hardware Method of charging the customer. And because here, we are thinking long term, we are thinking of Practical, how to capture this whole market. So let me see. We yes.
And in regards to we had another question about ODM. Okay. Can you please elaborate the reason why some POCs are signed with ODMs for laptops? Is set to reach smaller several brands through their ODM, because brand wants their newest technologies to be tested by the ODM in order to for the brand to stay below radar, etcetera below the radar of competitors, etcetera. So And when the POC are announced, are they then announced by the ODM or by the OEM?
And When we and I can say the reason for the ODMs are coming to us and also what we're working with directly with ODMs To sign POC is to reach this also the smaller type of laptops. And whether we will sign the license agreement with ODM or the OEM, that would depend on what the customer the end customer that is If the OEM would rather work directly with us, we will do so. However, if the ODM if that makes sense, we will sign the the license deal with ODMs. However, we expect and as we see with the largest laptop manufacturer today that they would they want to sign the contract directly with us. It's also back to our mission statement.
1, of course, they want to find a way to reduce Decast. But secondly, also, they're interested in delivering new innovation. And to do that, they would like to work directly with us. And talking about the Vision segment, I can also like transition into another question we got about partners. We got a question here.
When we are working with partners that, in some cases, are our competitive, Will they work with us to deliver solutions to the customers? So for example, Radar, of Texas Instrument, Infineon. We have already announced partnership with them. Yes, it is true that, for example, in laptop market, we replaced the radar sensor, but it's clear that they would have to bring some new capability to the table to win their business. And they come to us to leverage our platform.
So yes, so we sometimes we compete and sometimes we partner. So this is just part of the game. And then I think another questions. So in general, there are 2 folded questions on the revenue one. When we're doing the guidance of that we will reach €500,000,000 within the next 3 years.
Is that from 3 years from the first time we announced it? Or is this 3 years just keep rolling? So I'll have Lars address that. And then the second, the guidance just sort of in general, how we will reach the 500 and just specifically to this laptop enterprise license agreement that we signed. If we deliver 100% will we then with that particular customer loan reach the NOK 500,000,000.
So And I just mentioned just remember one more question here. They asked if is the customer that we sign with, is that the customer that would like to deploy broadly in by 2023. And for that, we can say yes. And then I'll hand over to Wirt to you.
For that, we can say yes. And to reach the SEK 500,000,000, we can confirm that it's from the first time we Said that, our midterm target is SEK 500,000,000 and that is October last year. So that is that. Of And okay, so how are we going to reach the SEK 500,000,000? It's pretty, pretty simple actually.
We do have the smartphone market. We expand in the smartphone market. The PSE market is our next growth vertical. And if you look at the top 3, top 5 of Manufacturers there, they have a range between €50,000,000 €87,000,000 And if you're going broad, as we talked about, With just 1 and our competitive pricing is $2.5 on the low end, We will reach that target with just 1. If we do not succeed going broad with 1, but we succeed going smaller with all of them, we will also of alone.
And then we also have the IoT market, which we just opened up as well. And we also do see the smart TV market and also the automotive market coming in. In regards to the EBITDA, the midterm target that we also have, we are a software only company. Our main cost driver is our people. We do not have to add any more additional costs.
We do have to add some more People to succeed, we're going to talk a little bit about that. We have a question about that as well. But all in all, that is how we're going to reach it. It's from the when we first said it In October last year, and we do also feel that we're moving along the time line and the plan that we laid out half year ago. So I think he's going to leave it at that.
Yes.
Okay. So I don't have another question here. What is of Sort of Natural, progressing. What is our biggest business challenge and obviously to obtain the 500. And we are in a fortunate position.
I mean, if you look at just sort of the market and The growth of digitization that is happening and also, of course, we're in the middle of these large players, large ecosystem of Companies. Their revenue is like north of $50,000,000,000 customers that also at that level. And Of course, to navigate this, we have been very systematic and strategic and tactical in how we have been approaching it. So For example, in the laptop market, we hired very quickly specialists that really understand even though we have great relationship in the laptop market, It's always good to obtain knowledge to navigate that even further. And Definitely, by taking that approach has been, I would say, a catalyst in enabling converting this POC into a large enterprise license agreement based on the strategy where we have picked.
We're doing the same thing in the IoT, where we hire I have hired sort of specialists within the various segments of IoT to quickly get into that market. We see that, that has also paid off by signing a license agreement with Bosch, which is really good. And so what are some of our challenges? I mean, I think that what we're seeing now is that what is very important, We are software owners, so we live by our people. We have to keep hiring and have really focused in building our business and converting POC, can't say that enough, into real business.
The company has the market has bought our mission and vision statement. So I see great growth for the next decade. But now it's about recruiting continuing to recruit the right talent, fostering leadership from within and also from externally and ensuring that we make Elliptic Labs a phenomenal workplace to attract, hint, hint, a little advertising to attract people, attract good people. And I think that's going to be our main challenge. And Just to take that a step further, what we're thinking is that we will keep building our core engineering out from our headquarters, Norway, and then we will continue building sales support in the various regions that we are.
We already started in last quarter, we talked about establishing presence in Taiwan and in Japan. We are in China. We are in the U. S. And just keep and then sort of build some sales support as we are expanding further down in Europe.
We have a good plan in place, and we see very good opportunity for great growth. And then I have another question here about the automotive industry. So what is the opportunity and how do we go into Automotive Industry. And do we have to do POC? Absolutely.
We have to if we go into the Automotive industry, we have to have POC as well. The way we are today, the way we are seeing in the market from now moving forward in the Automotive, We will not and I mentioned this in our Q1 report, we will not go direct into the automotive industry. We will go indirect. And for example, you could work or we could work with a company like Bosch that has 40% of their €77,000,000,000 in the automotive industry. That could be one avenue to go in.
However, just candidly speaking, for what we're seeing, so in general, the digitization around IoT and the exponential growth we see there. We will spend more of our effort around the PC and the general IoT market, smart TV. This type of technology that Bosch is moving forward with Comms on Energy and Building Technology and Smart TV And anything else that is connected to the Internet, that is being delivered in a great volume. So At least that's what we are seeing. And we I don't know if we should address.
We also get a lot of general questions about if we're going to go into Main Listing. We get questions about deep questions about our IP, and we get questions about acquisition as well. So we can't really specifically share. We can say that if you look at our annual report, we have some statement of potentially listing on the main list when the timing was right. When it comes to IP, we don't share any details further details or discuss our IP, except that We are keep investing in our patent portfolio.
Yes. R and D is important.
Yes. So I And then of course, we can't talk about M and A, of course, but you see our market players. So I think that might be it. We'll just see if there's some last minute and I think we addressed everything. So thank you very much.
Have a good day.