Good morning, and welcome to Elliptic Labs' Q1 results call. My name is Ola Sandstad, the CEO, and together with Mathias Norderud, our CFO, I'll present the results for the first quarter. We'll walk through the developments during the quarter, which, for those who have followed us over time, have largely been shaped by the strategic review we conducted and presented earlier this year. We'll recap the changes we communicated at that time, the measures we've implemented, and how we have executed on our strategy. In the second part of the presentation, Mathias will take you through the financial results. Along the way, we will also discuss how the current transition phase is beginning to materialize operationally. As usual, we'll conclude the presentation with a Q&A session. Let's look at the key highlights from the quarter.
We've implemented targeted cost measures according to plan, including organizational changes resulting in a leaner cost structure. We also successfully completed a private placement, leaving us fully funded and financially well-positioned to deliver on our strategic priorities. We remain focused on operational execution in laptop and smartphone markets, building on the strong foundation we have established in these segments. Laptop shipment growth momentum stands out as a key highlight this quarter. Strategically, we are working to productize our platform to enable frictionless development and deployment of AI on embedded devices. During the quarter, we saw encouraging validation of this direction. Lastly, we have seen early but positive traction in strategic initiatives within adjacent verticals, including smart TVs, smart glasses, and other wearables. These opportunities build on our existing technology platform and partner footprint, allowing us to selectively expand into adjacent device categories.
Capturing the opportunities created by our renewed strategic direction requires the right organization, leadership, and operational focus. During the first quarter, we implemented important organizational changes to better align the company with our long-term growth ambitions. This included restructuring larger parts of the organization to increase focus, accountability, and execution in line with our strategy. As part of this, I've strengthened the leadership team through the appointment of Tobias Borén as Chief Technology Officer, Øystein Grimstad as Chief Product Officer, and Brian Daly as Chief Commercial Officer. These promotions reflect my strong focus on empowerment, clear accountability, and execution as we accelerate product development, operational excellence, and expansion into new growth areas. In February, we presented the outcome of the strategic review initiated in Q3, including targeted cost measures and a sharper commercial focus.
While continuing to build on our strong position in laptop and smartphones, we're also leveraging our platform and AI capabilities to expand into new verticals. Turning to the key financial highlights for the first quarter, total revenue came in at NOK 17 million. Revenue development during the quarter was impacted by milestone recognition and lower incremental volume revenue, as a larger share of shipment volumes remained within commitment agreements. In the laptop segments, we saw particularly strong momentum, with quarterly laptop shipments increasing by 41% year-over-year. This reflects continued adoption of our technology and broader product rollouts by our customers. We also saw a solid number of model launches featuring Elliptic Labs technology across both smartphone and laptops. As of the end of April, the combined number of launched models increased 23% year-over-year.
The continued model expansion across both premium and high-volume devices reflects the strength of our technology and platform capabilities. During the quarter, we also implemented cost measures, resulting in an approximately 15% reduction in the operating cost base. Elliptic Labs has been present in the market for more than a decade, during which we've built a strong foundation through our technology, broad customer adoption, and deep ecosystem integration. At the core of this foundation is our proprietary tech stack, strengthened by patents. During this quarter, four new patents were granted, further strengthening our IP position. Our close collaboration with ecosystem and hardware partners have been critical in scaling our technology across global device platform. This integration, when combined with strong relations across the value chain, positions well both within our existing market and as we expand into new adjacent verticals.
During the quarter, we continued to see strong operational momentum in our established laptop business, delivering 41% year-over-year growth in laptop shipments in Q1. This reflects continued customer rollouts and increasing adoption of our technology across existing programs. In smartphones, shipments were broadly in line with Q1 last year. The smartphone segment continues to be impacted by memory and cost constraints, which are affecting OEM model planning cycles. At the same time, our diversified smartphone customer portfolio helped maintain stable shipments activity across the segments. The continued expansion across both premium and high-volume devices reflects the strength of our technology and platform capabilities. Q1 marked an all-time high in quarterly model launches for Elliptic Labs, with 17 laptop models and 22 smartphone models introduced during the quarter.
Notably, four of the Lenovo IdeaPad models are among the first laptops in the market to ship on Intel's newly released Series 3 processors, highlighting Elliptic Labs' continued alignment with leading ecosystem players and next-generation platforms. We also saw adoption of more advanced feature configurations within laptops. In March alone, six out of nine laptop launches included dual sensor configurations combining AI Virtual Human Presence Sensor and AI Virtual Tap Sensor. This continued expansion across devices and feature sets creates a solid foundation for the future shipment momentum and revenue growth. As part of the outcome of our strategic review, we outlined the market opportunity emerging within edge AI. We see how edge AI development for embedded and edge devices remains highly fragmented and resource-intensive, creating long development cycles, difficult deployment process, and slow iteration across device platforms. We believe this creates a significant structural opportunity for Elliptic Labs.
Our software-based platform and embedded AI capabilities are designed to address key bottlenecks related to scalability, deployment efficiency, time to market, and cost. So far this year, validation is progressing with potential partners with ongoing demonstrations on partner hardware and active dialogue across prospective customers and chipset vendors. The ongoing validation keeps the first commercial contract to be within reach during the second half of this year. Our ongoing discussions with partners continue to reinforce our view that software-defined sensing and contextual intelligence will become increasingly important across connected devices, validating both the relevance of our platform and the long-term growth opportunity ahead. Across our strategic initiatives within adjacent verticals, particularly smart glasses, smart TVs, and smartwatches, we saw early but encouraging traction during this quarter. These opportunities build on our existing technology platform and partner footprint.
By leveraging hardware already present in these devices, we can enable new contextual and privacy-aware AI features without requiring additional hardware sensors. During the quarter, we took several steps that may lead to tangible commercial progress. Let me highlight a few examples. Within smart glasses, we are engaged in active pre-sales dialogues with Chinese smart glasses companies that are among the most advanced players in the consumer segments. Within smart TVs, we are moving from lab development into evaluation in customer environments, representing an important step toward commercial validation. In smartwatches, we are exploring AI-enabled features by leveraging existing ecosystem integration and collaboration within chipset vendors. Focusing more closely on smart glasses, market research projects the global smart glasses market to reach over 100 million annual shipments and $40 billion in market value by 2030. We see a large and fast-moving opportunity where Elliptic Labs is naturally well-positioned.
The market is evolving across multiple categories, from AI-enabled smart glasses to more advanced video-capable glasses, all requiring contextual intelligence, lower power consumption, and seamless user interaction. This aligns closely with the strength of Elliptic Labs platform. By leveraging or replacing, actually, existing hardware in the devices, we can enable additional functionality while reducing bill of material, improving user experience, and supporting privacy first on-device AI. Combined with our proven ability to scale technology across adjacent consumer device categories, we see strong potential to capture market share as adoption accelerates. With that, I will hand it over to Mathias for a closer look at the financials. Over to you, Mathias.
Thank you, Ola, and good morning, everyone. Let's dive into the Q1 financial results. Revenue in Q1 2026 came in below the recent quarterly run rate, primarily reflecting the timing of renewal of a larger smartphone agreement being pushed out and lower incremental volume revenue contribution compared to the corresponding quarter of last year. At the same time, laptop revenue increased year-over-year, primarily driven by a milestone revenue related to the new laptop agreement signed with an existing customer during this quarter. Laptop shipment activity remained solid during the quarter, with volumes increasing 41% year-over-year. Despite this, a larger share of shipment volumes remained within minimum commitment thresholds compared to the same period last year, limiting incremental volume revenue contribution even as shipments continued to grow.
Turning to the P&L, revenues from contracts with customers came in at NOK 16.9 million, down 37% year-over-year, reflecting the revenue dynamics discussed on the previous slide. Employee benefit expenses increased to NOK 23.6 million from NOK 22 million in Q1 last year, primarily reflecting approximately NOK 4.5 million in one-off restructuring and severance-related costs recognized during the quarter. As a result, EBITDA for the quarter was -NOK 12.5 million, compared to -NOK 1.6 million in the corresponding quarter last year. Net financial items were -NOK 3.5 million in the quarter, primarily driven by unrealized foreign exchange effects on trade receivables and other balance sheet items. Going forward, we expect to benefit from a leaner and more scalable operating cost base with a full cash effect from the implemented cost measures expected from the second half of 2026. Looking at cash.
Cash flow from operating activities was -NOK 17.6 million in Q1, impacted by current profitability levels as well as restructuring-related cash effects. Cash from investing activities was -NOK 4.8 million, primarily reflecting continued capitalized development investments related to the company's core AI Virtual Smart Sensor Platform, as well as ongoing R&D investments within new strategic initiatives and adjacent verticals. The cost reduction measures implemented in Q1 are expected to improve the company's cash flow profile over time, with the full cash effect of this initiative expected from the second half of 2026. During the quarter and financial flexibility going forward. Overall, we remain focused on improving operational efficiency, maintaining capital discipline, and operating within a leaner and more scalable cost base, following the restructuring measures.
Moving to trade receivables, where we ended the quarter at NOK 82 million compared to NOK 81 million at the year-end 2025, with no major structural changes during the quarter. Trade receivables continue to be primarily influenced by contract-specific payment terms and IFRS 15 revenue timing effects. As a result, quarterly fluctuations should be expected depending on the mix between milestone revenues, shipment-linked revenues, and underlying contract structures. Days sales outstanding came in at 326 days in Q1 compared to 304 days in Q4 2025. We have not seen any material changes in underlying customer payment behavior or customer quality, and we remain focused on receivables and cash collection as part of our working capital management efforts. Turning to the balance sheet, the most significant development during the quarter was the completed rights issue, which strengthened our cash position and overall equity base.
The healthy balance sheet supports our ongoing operations, customer commitments, and continued strategic execution. Current assets remain primarily driven by cash balances and trade receivables, while receivables continue to reflect timing effects related to IFRS 15 revenue recognition and contract structures. On the liability side, we have no financial debt exposure, and our equity ratio supports operational and commercial flexibility going forward. Let me turn to revenue dynamics and ambitions going forward. As we have seen, revenue growth in the quarter does not fully reflect the growth in shipments volumes. This is primarily a near-term dynamic that we expect to gradually improve through 2026 and into 2027. The reason relates to the milestone-heavy contract structures established in the previous years, which we have described earlier. Looking specifically at 2026, incremental volume-based revenue is expected to end below 2025 levels.
This is driven by a combination of the previously mentioned contract structures, together with shipment volumes on certain models launched during 2025, developing somewhat below initial expectations year -to -date, thereby delaying the timing of incremental revenue contributions. That said, we anticipate higher incremental volume revenue in the second half of 2026 compared to the first half. Looking further ahead into 2027, we expect revenue growth to be supported by continued growth in shipment volumes, while incremental volume-based revenues are expected to become a larger contributor over time as shipments increasingly exceed minimum commitment thresholds. In addition, we expect strategic initiatives within edge AI and adjacent verticals to begin contributing to revenue from 2027 onward. Overall, these developments support our expectation of improving revenue growth dynamics over time. With that, I will hand it back to Ola for the outlook and concluding remarks.
Thank you, Mathias. To summarize, Q1 was a quarter of solid operational progress across our strategic priorities. We continued to grow our footprint in both laptops and smartphones, saw encouraging validation within edge AI, and achieved positive early traction in adjacent verticals. At the same time, we implemented targeted cost measures and successfully completed the rights issue, resulting in a leaner organization and a strengthened balance sheet. Overall, we believe Elliptic Labs is well-positioned to execute on our business plan and capture the opportunities ahead. Turning to the outlook, 2026 remains a transition year for Elliptic Labs, with a strong focus on execution across both our established business and new strategic initiatives. We will continue to maintain cost discipline and reiterate our target of reducing the annualized operating cost base by approximately 15%, with the full cash effect expected from the second half of 2026.
Within smartphones and laptops, we expect continued momentum driven by new launches and increasing shipment volumes. While revenue development in the first half is impacted by contract phasing and conversion timing, we expect gradual improvement through the second half of the year. At the same time, we continue to make progress within edge AI and adjacent verticals, with validation activities and customer dialogues progressing according to plan. Our ambition is to reach initial commercial execution during the second half of 2026, with revenue contributions expected from 2027. With that, I would like to thank you for joining today's presentation. We will now take a short moment before moving into the Q&A session, and we look forward to taking your questions. We are ready for the Q&A session of this quarterly report. We received a bunch of questions.
We're looking through them a bit now, trying to organize and structure them a bit. One of the first questions is: Your headline today is that you're growing from a strengthened position, yet your revenue is down almost 40% year-over-year. To what extent are you actually growing?
What I'd like to touch upon that is basically looking at the shipment numbers as you saw in the earlier graphs, the underlying shipments are indeed growing. We've launched all-time high number of models during the quarter. Our shipment numbers are at an all-time high, and basically that's the underlying factor in our business model. Shipments drive our revenue. How do I then explain the almost 40%? Well, basically, the contract structures that we have, as we've also gone through several times before and also this presentation, is based on the milestone revenue, where we have a minimum commitment from the customer. This is something we do to make sure that we have visibility on our business going into the next couple of years.
What we need to do based on that is that we need to recognize that revenue at the point of contract signing because we deliver the value to the customer during that period. Then, Mathias, you can touch a bit on that later, how the accounting rules kicks in for us then to do the revenue recognition early. Even though we're shipping now, unless we've passed the threshold of the minimum commitment, you're not seeing the incremental volume revenue. However, the underlying shipment is there and just a matter of time then before we break through that threshold. I see we also have another follow-up question on that, which are kind of the same, which you can take current receivables in Q1 versus the revenue.
Yeah. We received a couple of questions on the revenue side and also on the trade receivables, and that's good questions. You touched upon some of the details already, I'm just going to elaborate on some of them. We have reformed the accounting rules of IFRS 15, as Ola mentioned, there's some milestone revenue that we initially recognize in our books, depending on contract signing and delivery of the initial software. We have revenue recognized when those thresholds in those contracts are reached, right? Typically for Q1 now, we see that there are some active contracts with a lot of volumes that do not bring in that much revenue this quarter, that's basically the dynamics that you can see in our P&L at this point.
As we said in this presentation today, we anticipate that this will become better going forward, especially from the second half of the year and into 2027 as well.
Good. Let's scroll down further. We have a question here: The private placement in March strengthened the balance sheets. How do you plan to use that capital, and how are you thinking about the cost base from here?
As we presented, Elliptic Labs is currently in the transition year, where there is mainly two tracks we're following. The capital that we raised to strengthen the balance sheet is indeed to support those and drive those. It is, of course, to continue to strengthen our existing business within smartphones and laptops. That means delivering the products that we already have and have successfully deployed in millions and millions into the market for several years. That's absolutely a key core component of our business going forward. What's happening there is that we are in the dialogue with the customers. We're sitting by the table specifically of Lenovo and having discussions about the innovative features that they want to focus on moving forward and where we bring value.
That's a key factor still in our operations, building with more features and taking our AI capabilities to the next step. It's also important to mention that our existing customers are also going into adjacent, let's say, verticals or feature set or ecosystem thinking, which broadens them from a one type of a device manufacturer to something wider. There's some interesting dynamics within our existing customer base as well. That's the main track together with the smartphone, where we're doing some of the same. We're seeing that it's primarily the laptop type of customer who's extending into smartphones more than smartphone vendors and extending into laptop of other devices, but there is a mix. The smartphone vendors, they're moving into smart glasses, for instance. That's an interesting development where we already have our strong footprints.
In addition to that's the one track. In addition to that, we are following up and trying now new initiatives where we've seen a great potential for our technology and our company, both with our current partners, our relationships, our deep integration into the ecosystem, where we're specifically going after smart glasses, smart TVs, and smart watches. All of them fit perfectly hand in glove with the Elliptic Labs technology and the things that we've been doing for the last 10 years, basically using our capability to take kind of any signal and make an assessment of it, what's happening around the device. Bringing that contextual intelligence, which for one device can be used for how you interact with it.
For another device, it can be used to understand more about what's happening in the room or around in the proximity of the device, and then acting based on that with some type of feature. We also do have a question on edge AI. Maybe you want to read that up. I think it was further down at the bottom here.
Can you please elaborate on what edge AI is?
Yeah. It's a fairly broad term. Focus of Elliptic Labs within that edge AI space is taking the underlying platform that we've developed over these years and bringing that into that space without necessarily pitching a specific feature. Meaning that it's not about us selling presence sensing or proximity sensing or tap detection, these type of things, into the edge AI environment. It's us bringing the platform that's been used to bring those features to the market already to other customers and partners so that they themselves can have a speedy AI development, going from lab to production in a very short amount of time. This is not about us, Elliptic Labs, cannibalizing our own business. This is basically extending, extracting the value of all that has been built in this company and into that market. What's that market?
It's any type of device that has a need to do on-device processing of some information quickly, locally. Not going to the cloud, to get AI processing of the signals or what's happening, but actually doing it on device, responding within milliseconds, not seconds. To do that, you need to have really efficient implementation of AI. The models need to be really snappy and actually, implementing that is not straightforward. That's what we're trying now to bring to the market. We're getting good reaction from the customers and the partners that we're talking with, that there's a need for this. It's actually a quote from one of our customers, there's a really need for this. Through that, we plan to go into a wider market than currently smartphones and laptops.
Whether that's health or defense or drones or whatever type of device, the future will show us. It's a really interesting opportunity within that space.
Yep. We also received some questions regarding the cost base going forward. Specifically, we had the one question which stated: Does your new cost structure mean that we can expect to see total quarterly OpEx of less than NOK 25 million?
I'll answer that myself. We don't guide specifically on each quarter in terms of OpEx, but what I can say, and what we have already put in our outlook as well, is that we initiated this cost cuts program in Q1, and the cost base is anticipated to be reduced by 15% on an annualized basis going forward, compared to the cost base or benchmark from Q3 last year, the 12 months. We anticipate those kind of levels on average, but we do not specifically guide on each quarter because there's fluctuations in between quarters. Yeah, the cost base is going down. That's the message.
Good. We do have some questions also, more specifically on laptop. Knowing the fact that currently we're in the market with Lenovo. I'd like to comment on that. We are in the market with Lenovo, and we're seeing a great increase in the shipment numbers. For those of you who follow our customers directly, you'll see that the market share of Lenovo is bigger than ever, and they have great success with their current laptop lineup and other PC lineup. If there was one laptop customer to deliver to and have as a customer, I would definitely choose Lenovo and luckily, that's the position that we have. On top of that, we are also working with other customers or pitching them and then looking at what they want to achieve, what type of strategy they have for the devices going forward.
Whether that's doing something beyond Human Presence Detection or tap, whether that's mixing some of our existing products into a new user interface. There's a lot of new form factors also in this space, and a lot of new types of using the devices, where suddenly, a feature that has not had focus maybe two months or two years ago suddenly becomes really interesting. There are discussions and there are activities related to that. We're not a Lenovo-only company on the laptop side. Of course, we don't announce or give information about these type of things until it's actually signed and sealed and ready to be delivered. The news will come through a potential stock exchange notice if something happens on that. Have you seen any other questions?
We received some questions regarding the cash position and the cash situation going forward. I can comment on that as well.
Yeah, please.
What we've done, as I already mentioned, we've done the cost cut program, and that's reducing the cash burn significantly going forward. We're also seeing good underlying volumes, as already stated, and we anticipate that those will grow, especially in the laptop segment, going forward as well. With those numbers together, we anticipate that the cash position is better going forward, but we're not guiding specifically on when we're going positive in terms of cash. We'll have to get back to that in the future.
I see we have a question here: Please quantify shipments of smartphone and mobile phones.
We're not in the position to reveal the numbers, the shipment numbers of our customers. Take the laptop example, if we were to reveal that, we're basically giving you the Lenovo numbers. We're not allowed to do that. We have provided in the presentations an indexed graph that shows the development, which is growing. Other than that, we can't give you more specific numbers. There's also a question on contract structures, whether they're different now compared to previously. Maybe you can say a bit about how the people with these questions, what they should expect from, let's say, our new initiatives, thinking about IFRS 15, et cetera. How will we do revenue recognition on potential new contracts within new adjacent verticals?
I would say we haven't signed any contracts yet, so it's too early to basically comment on how it will impact the revenue structure in the future. What we have said is that for 2026, we don't anticipate that new contracts from new customers in new adjacent verticals will impact the top line significantly. That's what I can say at this point. We'll have to get back to that question when we have specific contracts to discuss, I guess.
Yep. Good.
I think we covered most of the questions that we've received. Received a lot of questions this time.
Gone through them anyway.
Most of them at least. Yes.
Perfect. Good. We thank you for joining us this Thursday morning. I look forward to bringing you more information and updates, also between the quarterly presentations on the development of Elliptic Labs and our new market focus. Thank you.
Thank you so much.