Hello. Welcome to Elliptic Labs quarterly presentation Q2. My name is Laila Danielsen, CEO of Elliptic Labs. Today, I have also with me our new CFO and Investor Relations, Lars Holmøy. Before we jump into 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. 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 result of this as we're expanding into new verticals and geographical markets. We will discuss, this is going to be our core focus during the presentation. First, some numbers. We saw an enhanced financial performance compared to Q2 of 2020. Operating revenues was up from NOK 6.3- NOK 7.6. That's a 20% increase.
Our CFO would talk a little bit more details behind these numbers. The EBITDA improved from NOK -5.9- NOK -3.7, and net cash flow from operation was NOK -12.8 compared to NOK 11 million in Q2 2020. As we have shared in our previous Q1 report as well, progress in first half will contribute to a stronger second half of 2021. The cash position is NOK 78.5 million, down from NOK 95.4 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 Grow Platform, which is a Bosch company. Of course, as you have seen, we launched smartphones with two major companies, Xiaomi and Honor.
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 laptop market. The great work we did there about the POCs that we've been working with various OEMs resulted in that in early 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. Let's talk a little bit. What I want to 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. 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 laptops launching and want to launch with what we call presence detection to lock the screen when you are leaving a laptop. 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 consumers would like that to lock immediately, for security purposes 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 USD. I'll give also a concrete example here in some volume.
Let's say you are a laptop manufacturer, and let's say you sell 100 million 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 maybe cost half or maybe even one-third, that means that the customer can save $200 million. That's why many of these customers are coming to us, and we will run through these examples as we're going through 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. This means that the price is increasing even more, and in many cases, they might not be available.
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. If you go to the next point, our vision statement. Our vision is to build the leading software platform for all sensors, making device smarter and more environmentally friendly. What does this mean? 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 a fall detection or heartbeat detection, or they may want to do some touchless gesture. We can also deliver that.
This is why customers are coming to us for first cut cost, then add more features. This is also why partners are coming to us because they're selling physical sensors, and they would like to add more functionality on top of their sensors. The customer ask for more functionality, then the partner also come to us. The mission and the vision statement, we see that really resonating with the market today. What we are known for is that we are the ultrasound leader for the consumer market. This we would 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 150 million devices today. We are in the market, we are showing that it's working, we're showing that we can scale.
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 NOK 500 million within the next three years. A little bit more about our platform. As I mentioned, we started in the smartphone market. There we proved that we can scale. We use the same underlying platform technology and many of the same principle, and we start looking at other segments. Laptop, then we're looking at what we're going to talk about next. This is a lot of home appliances devices or energy and building technology devices. We look at smart TV, we also touch upon that in the first slide. We see that our underlying technology, like the need for presence, is across multiple vertical, it has a great interest.
This is really, really good as we are scaling and expanding our business. 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 EUR 77 billion company, and they have 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. They were looking, they have this device that they have out in the market. This device here. This device here has three physical sensors. One, two, three. They use this for presence detection. Why do you need three of those sensors? Well, because the field of view of this physical, it is called a PIR, is very narrow. We can replace this with ultrasound only, with software only.
We can replace very high cost industrial-rated hardware sensor and deliver the same functionality. 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. 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. 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, the vision, we can deliver new features. As we see, company even with huge corporation like Bosch, come to us because they have a need to reduce cost and deliver more features.
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 supply chain in the market, and this impacts the hardware sensors availability as well as pricing. This will improve, and we see that as improving our competitive advantage that we really are capitalize on now. We started first 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 the smartphone, it's about $0.10- $0.25 per device that we are installing it in. Time-of-flight or radar is more like $2.5- $4. Significantly higher replacement, the cost of the sensor we're replacing in that market.
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. Unfortunately, I cannot share exactly the price point of what we are replacing here, but I can say that it is significantly higher pricing on these sensors, they are industrial-rated, than what we see in the PC laptop market. A very nice business for Elliptic Labs. In the smartphone market, we continue to see progress. We launched with a new customer, Honor, which we are very excited about, and keep working with them and continue growing with them. With our largest customer to date, Xiaomi, we also keep launching with them as well. This is the same principle why they're coming to us.
They come for the mission statement, replacing physical hardware sensor to reduce cost, also they don't have to worry about the whole supply chain, and the shortage thereof, because we are using 100% software. The PC market, it's our next growth vertical. We have shared these slides in regards to look at the market. First, I want to talk a little bit about the partners that we're working on. We have a 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 all functionality, close collaboration with Intel is important. We work with them in the U.S., we work with them in the Europe, we also work with them in Taiwan. Very close relationship there, very important. The same with AMD.
AMD is doing quite well and see some good growth ahead of them, as well. Of course, Qualcomm, we work with them, all the way from the smartphone market, and we continue to do so in the laptop market. Just a quick assessment, an 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. We have announced that we are doing actively POC with all of the top five players in the market. Just go to the next and talk a little bit about our focus for Q2 has been really at the end of some of the POC to convert this into license agreements. 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 their whole organization. Laptop, PC, all the other departments within that, but also should the company have accessory, IoT, smartphone, et cetera, 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 as, 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 several models. We will keep adding on more and more models over time. They have a strong objective in reaching full deployment of all their devices in 2023.
We take step by step and being pragmatic in how we're working with the customer. Also other departments within the same customer is coming to us and want to work with us as well under the same agreement. By then you sign these new addendums under this framework of agreement. 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. 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.
How we will announce that, if we sign the license agreement with the ODM for them to sell it to their customer, then we will announce that we sign with an ODM. However, if they just promote it and then we end up signing the agreement with the OEM, then we will announce that. In regards to naming the customer, 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 confidentiality agreements, and we have strict guidelines in how you can use somebody else's brand name. Just an example, as you guys may have noticed, when we launched with Honor, we did not have the permission. We were under embargo for 48 hours before we can make that announcement. When it comes to the laptop manufacturer.
We do not have the permission to announce who we are working with. 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 reasons anyway, but we don't have that permission. The contract is confidential, so we have to respect that. Okay. Great progress in the PC market. Okay. 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. For example, 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 when we technically compete with them by kicking them out of the laptop market. They recognize that if they're going to win business, they have to add additional functionality. That's back to our vision statement. We can add, for example, fall detection, which we see something that the market is looking for right now. 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. 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. 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. Right now, our core competition is hardware sensors. We don't really see small companies trying to do 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 the ecosystem. I would say years of dedication and networking enables us to enter into new markets, new verticals, and really capitalize on the market momentum. Now I would leave the word and the slides over to our CFO, Lars Holmøy.
Thank you, Laila Danielsen. 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 to above 100 this quarter, and it is now totaling at 102. Partner agreements is also growing this quarter, and we added two more partner agreements and are totaling at 18. 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 or IoT devices yet, but as Laila Danielsen covered, we have signed those contracts. Cumulative numbers on models do still increase, and we have launched three smartphone devices this quarter. Q2 P&L, we see revenue significantly up from Q2 2020, is up by 20%.
More interestingly is 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. Elliptic has a strong balance. Our cash position is excellent at NOK 78 million. 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 NOK 12.8 million from operations. We do still have a positive outlook for the second half of 2021. 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 units devices, increases revenue clarity, and also going to make easier for us to forecast our revenue. PC market are the largest growth vertical for us in the near future. As we have covered, we signed our first enterprise license agreement with a leading PC laptop OEM. All of this leading us to a significantly increase in revenue. We are targeting, and we're going to reconfirm a NOK 500 million in revenue and EBITDA margin of 50% within the next three years. Shareholder structure is pretty much unchanged since last quarter. We do see increase in the retail market, but the top 20, it's almost the same. I'm going to leave the summary and outlook for Laila to continue.
Thank you, Lars Holmøy. 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. For example, here with Bosch, is headquarters in Germany, outside China. If you look at the top laptop manufacturer, they are based also in the U.S., some of them. 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 these multibillion-dollar company in the various market segments.
Furthermore, this partnership ecosystem also helps us to lower the barrier to enter into these new markets. Literally just help us fueling in so we can really scale. Based on this, we feel confident that we will reach our target of NOK 500 million in revenue within three years. Thank you. Now we will review the questions. If you just give us a quick minute, and we will be back to answer and address those questions. Thank you. Yes. We have reviewed the questions, we will start addressing. 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. We'll just jump right into it here.
Not surprising, we have received many questions around our laptop agreement and our progress in general about the laptop market. We'll address the relevant ones. 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. Obviously we have converted one of our POC into an enterprise license agreement, which is a very good feedback. We will continue, and we have many POCs with this particular customers, and we're working systematically and having a very practical approach where we're approaching each POC and focusing on converting this into real contracts. 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 five PC OEMs in the market.
We won't be able, at this point, to go broadly with all of them at once. We are focusing on particular this first enterprise license agreement that we signed with this particular customer to go fairly broad. In regards to numbers, I would have Lars address that in a minute. The second is, when can we expect that we will release information of which company we sign with? As I've stated before, we are under strict agreements with the customer in regards to how and when to announce our collaboration with them. As you may recall, for example, from Honor, they released 48 hours before we could release their name. In some cases with the customer, sometimes we get the release the day of, sometimes we have to wait, we have an embargo, and sometimes we do not get to share the name at all.
That's up to the customer, and we have to respect that, and how they want to position our technology. That's up to the customer. Of course, as soon as we have the permission to do so, we will share this information. Okay. Can you say something about the pricing, in regards to our software in comparison to hardware sensors? Once again, there's multiple reasons why we are not sharing the pricing. It's one from competitor point of view. It's also confidentiality to the customer. We don't really go out. What you can do is, and I'll defer to Lars Holmøy, to talk a little bit further about how to reach our guidance.
If you look at NOK 2.5-NOK 4 just in the laptop market for potential, like a time-of-flight sensor, radar sensor, and replace that, we are lower, but we are significantly higher than the pricing that we have charged in, for example, in the smartphone market. Also the functionality here is slightly different. Can you also share some about the revenue recognition in regards to this first laptop agreement? When we sell software and we have slightly different type of structure on the contract that we had with the smartphone 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. The key is that we are building our business gradually over time, converting a POC into real business.
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. How they buy hardware sensor today. For example, let's say if you are a company and this particular customer is selling, let's say, 4 million devices a year, and for each quarter, they will order 1 million hardware sensor. When we replace that, we will follow that same way of submitting the software and recognizing the revenue. We will follow the hardware method of charging the customer. Because here we're thinking long term, we're thinking practical, how to capture this whole market. Let me see. In regards to, we had another questions about ODM.
Can you please elaborate the reason why some POCs are signed with ODMs for laptops? Is that to reach smaller several brands through their ODM? Brand wants their newest technologies to be tested by the ODM in order for the brand to stay below the radar of competitors, et cetera. When the POC are announced, are they then announced by the ODM, or by the OEM? Like I said, the reason for the ODMs are coming to us, and also what we're working with directly with the ODMs, to sign POC is to reach this, also the smaller type of laptops. Whether we will sign the license agreement with the ODM or the OEM, that would depend on what 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 license deal with ODMs. However, we expect, and as we see with the largest laptop manufacturer today, that they want to sign the contract directly with us. It's also back to our mission statement. One, of course, they want to find way to reduce the cost. Secondly, also they're interested in delivering new innovation. To do that, they would like to work directly with us. Talking about the vision statement, I can also 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 customer? For example, radar, Texas Instruments, Infineon, we have already announced partnership with them.
Yes, it is true that, for example, in laptop market, we replace the radar sensor. 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. Yeah. Sometimes we compete and sometimes we partner. This is just part of the game. I think another question. In general, there are twofold questions around the revenue. One, when we're doing the guidance that we will reach NOK 500 million within the next three years, is that from three years from the first time we announced it, or is this three years just keep rolling? You will have Lars Holmøy address that.
The second, the guidance just sort of in general, how will we 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 alone, reach the 500 million NOK? I just remember one more question here. They asked if the customer that we signed with, is that the customer that would like to deploy broadly by 2023? For that, we can say yes. I'll hand over the word to you.
For that, we can say yes.
Yes.
To reach the NOK 500 million, we can confirm that it's from the first time we said that. Our midterm target is NOK 500 million, and that is October last year.
That is that. How are we going to reach the NOK 500 million? It's pretty simple, actually. We do have the smartphone market. We expand in the smartphone market. The PC market is our next growth vertical. If you look at the top three, top five manufacturers there, they have a range between NOK 50 million and NOK 87 million. If you're going broad, as we talked about, with just one, and our competitive pricing is $2.5 on the low end, we will reach that target with just one. If we do not succeed going broad with one, but we succeed going smaller with all of them, we will also reach that target alone. We also have the IoT market, which we just opened up as well.
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 cost. 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. All in all, that is how we're going to reach it. It's from when we first said it in October last year, and we do also feel that we're moving along the timeline and the plan that we laid out half year ago. I think it was going to leve it at that.
Yep.
Okay, I don't have another question here, what is sort of natural.
Yeah
progressing. What is our biggest business challenge and obviously to obtain the 500. We are in a fortunate position. If you look at just sort of market and the growth of digitization that is happening, and also, of course, we're in the middle of these large players, large ecosystem companies, their revenues north of $50 billion, customers that also at that level. Of course, to navigate this, we have been very systematic and strategic and tactical in how we've been approaching it. 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.
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 are picked. We're doing the same thing in the IoT, where we 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. What are some of our challenges? I think what we're seeing now is that what is very important, we're 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 market has bought our mission and vision statement, and so I see great growth for the next decade.
Now it's about recruiting, continuing recruiting the right talent, fostering leadership from within and also from externally and ensuring that we make Elliptic Labs a phenomenal workplace to attract, hint, little advertising to attract people.
Yeah
attract good people. I think that's going to be our main challenge. 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-
Yeah
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. 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 a very good opportunity for great growth. I have another question here about the automotive industry. What is the opportunity and how do we go into the automotive industry, and do we have to do POC? Absolutely. If we go into the automotive industry, we have to have POC as well.
Today, the way we're seeing the market from now moving forward in the automotive, we will not, and I mentioned this on our Q1 report too, we will not go direct into the automotive industry. We will go indirect. For example, you could work, or we could work with a company like Bosch that has 40% of their EUR 77 billion in the automotive industry. That could be one avenue to go in. However, just candidly speaking from what we're seeing, sort of general digitalization 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 that comes 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.
At least that's what we are seeing. I don't know if we should address, we also get a lot of general questions about if we're going to go into the main listing. We get deep questions about our IP, and we get questions about acquisition as well. We can't really specifically share. We can say that if you look in our annual report, we have some statement of potentially listing on the main list when the timing was right. Y eah. When it comes to IP, we don't share any further details or discuss our IP except that we keep investing in our patent portfolio. Yep. R&D is important. Yeah. Of course, we can't talk about M&A, of course, but you see our market players. I think that might be it. Yep.
We'll just see if there's some last-minute. I think we've addressed everything. Yep, thank you very much. Thank you. Have a good day.