Welcome to Elliptic Labs Q1 presentation, May 12, 2021. Before we go into the presentation, just some practical information. If you go to the right hand of your screen, you can see there is a button there that you can submit questions along the way. Let's start. First, we will do an introduction and go through the Q1 highlights. Our CFO, Thor A. Talhaug, will talk through the financials, and at the end, we will have summary, and from there, we will address your questions you may have. First, Q1 highlights. In Q1, we continued to build our strategic foundation, so we are positioned well for future growth. We experienced strong support with our global partners as we were working with new and current customers. Furthermore, we were making solid progress in entering into new markets.
It's safe to say that we were, in Q1, building momentum along with enhanced operational performance. The performance compared to Q1 2020. Operating revenues were up from NOK 4 million - NOK 4.5 million. EBITDA improved from NOK -11.1 million - NOK -8.5 million. Cash flow from operation improved from NOK -6 million -NOK 0.2 million. It's clear that recent announcement and progress in first half will contribute to a stronger second half in 2021. Cash position is down from Q4, from NOK 99.7 -NOK 95.4. In Q1, we signed a software license agreement with one new large smartphone customer. We launched several smartphones with current and new customers, and we will share more details around this throughout our presentation. Furthermore, we also made solid progress on POCs with a PC manufacturer.
We also opened up an office in Taiwan to support our PC engagement further, clearly, a positive outcome will change the financial performance significantly in 2021 and onwards. What we will discuss a little bit further is the partnerships ecosystem and how we have continued strengthening all our partnership relationships. First, let's discuss, or let's share a little bit exactly what we're doing here at Elliptic Labs. Our mission, and this is essential, is that we develop smart software sensors, so 100% software, that use AI and ultrasound to detect you and your surroundings. This means that we do not require any particular hardware sensor, that we can just run on standard devices that has a microphone and a speaker, because we're using ultrasound. We leverage sound, so just a different frequency in comparison to normal audible sound, we leverage this to deliver a set of features.
This is very critical for our customer particularly also when we're entering into new markets, and we will share further detail. The key is 100% software. We don't require any dedicated hardware sensors. Our vision is that we will go, of course, beyond not just supporting and using the underlying technology of ultrasound. Our vision and what we already have started, and we're starting to get recognized above and beyond to being the leader in not just ultrasound, but also to deliver excellent software that can support any type of sensor that the customer may use. We see that large global companies are coming to us as they want to make every single device smarter and more environmentally friendly. Today, we are recognized in the market, in the consumer market, as the ultrasound leader. We have a global presence.
We are where all our customers and all our target customer vertical markets are located. In particular here, when we also open up the office here recently in Taiwan. We'll talk more about that when we come to the area of the PC market. It's also important to know that over a decade now, we have done significant investment to develop a solid platform that is very scalable. And because we have a software-only business model, we have an opportunity that is really scalable, that is backed by a strong patent portfolio. We are close to 100 patents granted and pending, and we are reconfirming the target of reaching NOK 500 million within the next three years. Here at Elliptic Labs, we are focusing on several markets. Our core focus thus far, where we have deployed over 150 million devices, is in the smartphone market.
Now we are taking the same underlying technology and we're leveraging this into new vertical markets. The next big market for us that we have been talking about is the PC market. We're also starting to touch upon some of these other vertical markets within IoT. We look at smart TVs, smart speakers, et cetera. The value proposition is very similar in all the markets. There's a few fundamentals. One, we replace hardware sensor with software only, and then from there we can enable a set of new features, whether it is full presence detection, where it's sub-millimeter, just proximity detection, or it's touch-free gestures, or we would detect a heartbeat or breathing. Our virtual smart sensor platform is fit to use in multiple markets. Why do we start in the smartphone and the PC laptop market?
The beauty in these markets is that, one, it is few customer that has high volume in both of the markets. Particular in the PC laptop market, the sensor that we are replacing has a quite significant cost. I'll just walk through one example. Let's say you are one of the biggest PC manufacturing, and you wish, and this is a feature that we see that all the laptop and PC manufacturer want to adopt broadly, which is presence detection. I'll just quickly explain what that means. This means if you sit in front of the laptop like you are doing now when you're watching this presentation, when you go away from the laptop, the laptop would automatically shut down by using, for example, ultrasound, where we can detect if you're sitting in front of it or not.
When you're entering to move towards the laptop again, the laptop would automatically detect that you're in front of it, and we use, for example, a fingerprint or a facial recognition to authenticate that it is indeed you, and then the laptop wakes up again. This is something we see that all the players in the market has. Of course, today, if they're going to do this, they have to use either time-of-flight sensor, a physical hardware sensor, or a radar sensor. If you have 50 million-100 million PC laptops, it costs our customer easily $100 million to a few hundred million dollars. By delivering software only to replace this, we have a very clear value proposition. One, because it requires no design-in impact. Two, pricing. Three, our customer do not have to have any supply chain issue.
Also, they don't have to worry about inventory. It's natural for us to go in for the smartphone. The next is very natural for us to use is the PC laptop, and then we are looking at other markets. Let's talk about a little bit of progress in the smartphone market. We launched multiple smartphones with one of our current customers, Xiaomi, that we have four models. Once again, the value proposition there is don't have to worry about supply chain for a proximity sensor. What we deliver there is, it's a very simple feature that is in every single smartphone market today, is when the phone ring, you make a phone call, the screen turns on, you put it up the phone to the ear, the screen turns off, and then when you move it away, the screen turns on again.
This is where we replace a physical proximity sensor with our software-only solution that leverage the simple speaker and the microphones that a device have. No extra hardware sensor, we just apply our software. Also, we launch with a new customer, Black Shark, and we also sign on a large new customer, and assuming that we have the permission from this new customer, we will announce it. Okay. I already talked a little bit about the PC market, but the PC market is the next large vertical here for us at Elliptic Labs. We have already been announcing several proof of concept contracts. We are working very closely with the whole partner ecosystem. I'll talk a little bit more about that later in the slides. As you can see here, there are only a set of few large player in the market.
You have the Lenovo, you have the HP, you have the Dell, Acer, and Asus. I just want to highlight the location of these companies. We are located where all of these customers are located. If we look at Lenovo has an office in North Carolina in the U.S. We're in the U.S. They have office in Japan. We are there. They have it in China. We're there. Taiwan, we're there. HP, Dell, Texas, and Taiwan, and some in China, we are there as well. Acer and Asus are Taiwanese companies. We have the presence where all of our customers also in the PC markets are located. We continue to work closely with all our partners. We'll dive a little bit deeper into that along the presentation.
The PC market opportunity, we signed one more proof of concept, and we continue all of the proof of concept that we have signed thus far. We continue to work on these proof of concept. We have also strengthened our partner relationship, where, and of course, this is essential, as you saw from the previous slide. You have Intel as the leader, then you have AMD, and then you have Qualcomm. We work both in short term, midterm, and long term with all of these three partners. You may have seen our recent press release here actually this quarter with Qualcomm. We have lots of other partners we're working with, and we have been announcing several ones, and we will keep also making more announcement. The key here also is that we open up this office here in Q1 in Taiwan.
The reason for that is that most PC ODMs are based in Taiwan, and all the major PC OEMs that I mentioned are also present here. PC ODM stands for original device manufacturer. That is designing the laptop and PCs on behalf of companies like Lenovo, Dell, HP, et cetera. Most of these ODMs are based, and these laptop PC are also being manufactured in Taiwan. This is why it is clear that we had to also be present there with the customer as we are extremely customer-focused. Talk a little bit more about the partners. We have spent a decade establishing this partnership. We keep adding new partners. We keep broadening our relationship. Very good support from the whole partner ecosystem, and we really make sure that we are closely in line with both the short and the midterm roadmaps.
There's a lot of things that are happening around the whole semiconductor space. We see that it's a clear interest from the market, from the customer point of view, and therefore, also from the partner ecosystem to work with Elliptic Labs to deliver a set of features that it's software-based only. We have also over for several years now worked with all of these partners, and as I said, we also established broader relationship. Before COVID, we did much more joint trade shows and joint go-to-market or more go into customer visits. It's been a little bit more challenging now during COVID, but we are starting to see as particular as the U.S. is opening up again, China started opening again, that we have more opportunities to even working closer with these partners again to go out and do customer visits.
These companies are more like a go-to-market partner. The one on the previous slide is more semiconductor, where we work closely in the chipset where we embed our software to deliver our solution to our customers. With that, I'll leave the word to Thor A. Talhaug, our CFO, to go over our financials.
Thank you, Laila. We will like for the last quarter start by walking you through the key non-financial KPIs as per Q1 2021. Elliptic Labs is a heavily IPR-focused company already from the inception. We started filing patents back in 2006, 2007, and as per end of first quarter 2021, we had in total 99 granted and filed patents. This IPR focus has also made us a recognized partner for the global companies in the ecosystem, and we have added one more partner agreement during Q1 2021. These partner agreements are essential for us to enter into POCs in the verticals that we are focusing on. We started in the smartphone space and entered into POCs back in 2016, 2017, and the last couple of years, we have focused mostly on entering into new POCs in the IoT and laptop PC space.
For the smartphone space, we are going more directly into contracts of models, and you see that the number of models launched has increased from 27 by the end of the year 2020 to 33 at the end of Q1 2021. Taking a look at the P&L as per Q1 2021, we see that we increased our revenues from Q1 2020. Looking deeper into it, we see that the sales revenues actually has risen more substantially up from approximately zero in Q1 2020 to NOK 1.7 million in Q1 2021. Even with this relatively low operating revenue, the low recognized revenues for the quarter, we ended the quarter with the EBITDA of NOK -8.5, improved from NOK -11.1 the same quarter last year.
We believe that the remaining of the year will be stronger than the first quarter, and we also announced this as per Q4, that we will see seasonal effects in 2021. We still reiterate our expectations for the year, that it will be significantly stronger as a whole than 2020, and also that we will conclude it with a positive EBITDA in 2021. Looking at our balance sheet, we have total assets of NOK 209 million at the end of the quarter, of which book value of equity amounts to NOK 180 million. We have a cash position of NOK 95 million at the end of the quarter and interest-bearing debt of NOK 17 million, of which NOK 13 is classified as long-term and NOK 4 is classified as short-term. I believe we can say that we have a solid balance sheet.
Also, when we take a look at the cash flow for the quarter, we had the positive cash flow from operations during the quarter. This stems from the relatively solid revenue we had in Q4 2020, where all sales revenues were paid in during the first quarter. Even with the reduction of interest-bearing debt of NOK 1 million during the quarter, we ended with a negative cash flow of only NOK -4 million during the quarter. To, again, go through the way forward, how we see it, we mean that we can show you now a clear path towards significant revenue uplift in Elliptic Labs. We announced during the quarter one new large smartphone customer. We believe that this will contribute to improving our revenue during the year and also significantly going forward.
The revenue from smartphone is a solid foundation to build upon when we are entering into new verticals, the IoT market and the laptop PC market. We also see an interest from the smartphone manufacturers, the large smartphone manufacturers, that is, to enter into fixed volume contracts that we have seen also last year, and this also will improve the quality of the revenue and the forecastability going forward. Nevertheless, laptops will be the largest revenue driver for Elliptic Labs in the near-term future. We have had good progress with the OEMs and chipset vendors, which push Elliptic Labs as a standard going forward. We see that there is a wish from both the ecosystem and the OEMs, the PC manufacturers we have entered into discussions with, to implement our solution on a broad basis.
That is not to say that we will take all the volume for certain manufacturers at once when we enter into contracts with them. It will happen gradually. They will most likely first launch us for some models or some series of models, and then over the next years, it will be implemented on a broader basis. It will be, for sure, a significant increase in revenues for Elliptic Labs if we succeed in this. I believe it is not difficult to see when we look at the POCs we have with the different PC manufacturers and the volumes each of these represent, that we can calculate and expect a revenue of NOK 500 million over the next three years, and with the EBITDA margin of 50% or more.
We also see that the price point, this also builds upon the fact that the price point of comparable solutions in the PC laptop market is 10 times or more than what we have experienced in the smartphone market, because the alternative hardware solutions is so much more expensive. We have also seen an increased interest in our stock since the last quarterly update. Even though the top 20 shareholders has not changed so much, we have seen increased demand and interest in our share from numerous new shareholders, and the shareholder base has risen from 886 to almost 1,600 shareholders now as per May 6. By that, I will leave the closing remarks summary to Laila. Thank you.
Thank you, Thor A. Talhaug. Elliptic Labs is well-positioned for growth. During Q1, we continued to build a solid foundation for growth, as we have already demonstrated that we can deploy software and our technology at large scale, in particular in the smartphone market. This is an excellent reference as we are moving into these new verticals. We keep growing our smartphone customer base, and we keep also strengthening all our partners and the partner collaboration for other markets like the PC and IoT. We are very closely in collaboration with all the leading semiconductor in these markets. We open up the office in Taiwan, and whole reason for this is to meet the demand that we're experiencing in PC market.
As I mentioned earlier in the presentation, the PC companies are not just based in Taiwan, but also in the U.S., China, and Japan, and we are present in all places. We are also, of course, present in South Korea. We are recognized as the leader in ultrasound, and using software only to replace hardware sensors. Obviously, there is a physical supply chain shortage of material in the market, and this has helped in increasing the interest for our technology. This, in combining with having established partnerships, lowers the barriers for us to enter in to new verticals. By this, we are reconfirming our target of NOK 500 million in revenue within three years. Thank you. We'll take a very short break just to review the questions and just give us two, three minutes and we'll be back online. Thank you.
Okay. We will go ahead and address all of the questions that we're receiving. I'll start the first question. Could you explain the seasonality of the business model? Maybe Thor A. Talhaug?
Okay. If we look at last financial year, 2020, we had the revenue of NOK 0 million in sales revenue of NOK 0 million in the first quarter. We ended the year at NOK 30 million in sales revenue. This year we have sales revenue of NOK 1.7 million in the first quarter. Where will we end at the end of the year? What we have said is that it will be significantly higher than last year. We build that upon the fact that we are entering into new verticals. We assume that we will have revenue both from IoT and from laptop during 2021. In addition, we have recently announced that a new large smartphone customer has got on board. This we also anticipate will build up to become a big contributor to our revenues during 2021. This is, I don't know if this explain the seasonality.
It is a little bit about the contract structure, the customer structure that we have. We recognize revenue when contracts are signed and software is delivered.
That could vary much during the year actually. What we have experienced is that it is higher in the second half than in the first half, and this certainly will apply to this year as well.
Yeah
As you can see from the first quarter now also.
Good. Thanks. We also have a question around pricing and the shortage of supply chain, if that impacts the pricing power on our product as well as a greater interest of our product. Absolutely, I would say for sure, in the beginning of the year, we announced that the time-of-flight sensor and other type of hardware sensor were increasing the prices. We received direct feedback from our customers on this as well. That's definitely showed a greater interest and it also gives us, of course, more negotiation power.
I just want to highlight it's not, of course, the straightforward value proposition when we go into customer is that we have a price point, and when we have software only, you can sort of, particularly in the PC market, you can have a price point that you can deliver to both high-end, high-cost PC as well as low-end, as well as mid-end. Basically the whole spectrum of the customer's product portfolio. In addition, why these customer is also coming to us, yeah, we are the leader and the only one in the market that has been delivering software powered by ultrasound at scale in new markets, that's important in the current market when you go into a new market. We see also the importance of innovation for the PC manufacturer.
Today, in general, they get most of the innovation by working with Intel or Qualcomm and AMD, which means everybody is receiving the same type of innovation. By also working with smaller company like us, they will have access to innovation earlier before we are going broadly. Furthermore, they're also coming to us, this is the initial solution we deliver for presence detection. That is just the first step. As I mentioned in our presentation, I talked a little bit about our vision, where we are working on, we have this platform that can support multiple sensors to deliver lots of new features to make devices smarter. This is also the way these large OEMs look at us, as a long-term partner. Yes, the shortage of supply and the increase of the material cost has been positive for us.
This is for short term for sure, but also for longer term, we have a really strong value proposition to our customers. Just, okay. What do you expect the revenue split, or how do you expect the revenue to look like in regards to segment for 2023?
Oh, that's a big question. Of course, we have our anticipations about this. What I think is fair to say is that, based on what we see now, laptop PC will be the biggest contributor to this. We believe also we will grow in the smartphone space. That is not alone enough to reach us to this goal. On top of this, we are also entering into the IoT space, which also will contribute. I will not make any percentage distribution of the revenue in 2023 because we don't even know ourselves for sure.
It is about predicting into the future. We believe that laptop will be the biggest contributor.
Mm-hmm. Yeah. Thank you. Another question, what is the status of the cooperation with Intel, their platform? How's that going? That is going exceptionally well. I'm very pleased with the progress that we're doing with Intel, but not just Intel, but also with AMD and Qualcomm. Once again, because the market is looking at leveraging our technology in a set of models, and then from there deploy broader. One of our true focus is to become the standard factor for presence detection in the market. The way, not just Intel, but also Qualcomm and AMD is working with us, that they're aligning their roadmap short-term, mid-term, and long-term. We go all the way from looking at the best way to optimize, to integrate, but also in the future, looking for different business models. We made some announcements this quarter with Qualcomm.
You will see more announcement coming with the other vendors in the ecosystem around PC as well as IoT. Far we are very pleased with the support that we're getting from Intel. Of course, we have to also thank the customer we are working with because we are working on these joint projects together with the Intel, the AMD, and the Qualcomm together with our customer. Of course, most of the customer, they select multiple platforms to run our technology on. We work with all of them. This is good. Okay. Next question. When can we expect an announcement on the first outcome of the POC with a PC OEM? If you want to?
Yeah.
You can't really say when.
Yeah, I could generally say that if the POC is successful, it will end in a contract. When we get the contract, we will announce it. I think that we are reaching closer to this goal, but we can't say any exact timing of this. We will announce it immediately when it is achieved.
Then I have one more question here. I think this came in early, but did you open up the Taiwan office just to support the PC opportunities? Yes, for sure. The 100% motivator to open up the office in Taiwan was to support. As I mentioned during the presentation, you have over 90% of the Taiwanese, I'm sorry, ODMs, original device manufacturer, they are based in Taiwan. Every single customer that we are working with also have, they're not necessarily headquartered in Taiwan, but they have large presence in Taiwan just because these ODMs that they are working with for manufacturing and design is based there. It is critical for us that we also had presence there.
We have the philosophy that we want to be where our customers are, so we can work both short-term for support, for integration, et cetera, but also for long-term collaboration. Let me see. I think we have covered all the questions. Okay. Thank you very much.