Welcome to Huddly's Q4 2022 Results Presentation. I'm Graham Williams, the CEO of Huddly. I'm joined by our CFO, Ragnar, and our Co-Founder and CPO, Stein Ove. Let's just go to the first slide. Q4 2022 key highlights. We had revenue of 113 million NOK in Q4, which was 12% year-on-year, and gross margin of 39% versus 44% in the previous Q4. Importantly, that was a tick up in the right direction for us versus Q3. We did some great work in technology innovation. We delivered our Huddly Speaker Framing software, which runs on our L1 camera, which really helps in the hybrid workplace. We launched the Huddly Crew AI-based multi-camera system, which you'll hear a lot more about from Stein Ove in a couple of minutes. Organizational changes.
I was appointed as the new CEO. You probably remember me when I was chairman and executive chairman, so I've been with Huddly for seven years now, enjoying to continue that journey. We're evaluating the process for a new CFO. Next slide. As I said, record revenue, which we're super proud of. It came after a lot of incredibly hard work by a lot of people. 452 million NOK, which was a growth of 34% year-on-year. For all of us that, you know, experienced 2022 for what it was, that was a great result. Driven primarily due to increased sales to our strategic partners.
Gross margin, as we've said, through the year last year, was a battle and it declined, and I'll quickly go through the three reasons 'cause we do get lots of questions about this from people. Let's go through. The first one is customer mix, and as you probably can see, we had a greater, a greater sale to strategic partners versus channel partners. We changed our product mix, and as most people did in the industry, we had increased component prices. Let's go to the next slide. What are we gonna be focusing on, and how am I gonna be leading the team with the help of the management team that I've got? These are really the four key focus areas, which will...
The underlying philosophy is to support long-term growth, which is what we're about at Huddly. Number one is to continue to lead with technology innovation. That's incredibly important to us. As you'll hear later on in the presentation from Ragnar, that's where a fair bit of our money goes. And that's done very intentionally through continued R&D investments, 'cause basically, Huddly's a product company, and that's where we believe we create the shareholder value. Number two is about revenue, and that's strengthening our strategic partners, building up our channel sales, and getting, and broadening out that revenue base as we work through the year.
Increased growth margins, which is incredibly important for us, which will basically come out of higher channel revenue and the monetization of our software solutions that we've been talking about, things like Huddly Crew, things like Speaker Framing, as we bundle those in. Number four is obviously managing our costs, which we did pretty effectively through the second half. We'll continue to have a really strong focus on that this year, but importantly, without jeopardizing our long-term growth opportunities. Next slide. Now I'm gonna hand you over to Stein Ove, who's super excited to take you through Huddly Crew. I know he's been madly rehearsing in the background as he does.
If I interrupt, Stein Ove, which I'm known to do occasionally, we'll take through the presentation, and we'll try and make it as interesting for you as we can. Over to you, Stein Ove.
Thank you, Graham. My name is Stein Ove Eriksen, and I'm Chief Product Officer and Co-Founder at Huddly. Today, I'm gonna talk about Huddly Crew. Next, please. Huddly Crew is the world's first camera system with a built-in AI director. It combines Huddly's advanced AI technology with insights from TV and movie production to make video meetings as great as we believe they should be. Huddly Crew works seamlessly with any collaboration platform like Microsoft Teams, Google Meet, or Zoom. Next, please. This is what it looks like. Here you see three Huddly L1 cameras set up at the front of the meeting room. Thanks to the on-device AI technology and network capabilities, the cameras communicate with each other and work together like a camera crew. The participants are portrayed professionally, and everyone in the room is included. Did you have a question, Graham?
Yeah, that's interesting, Stein Ove, and I think what we know at Huddly is. What we did as a bit of a breakthrough just recently, is that those three cameras are all aware of each other.
Yeah
... which is pretty incredible, and they actually know that they're looking at the same person, so the work we're doing in AI is pretty amazing.
Yes. Yes, that's true. I'll get back to that a little later. Perfect. All right, next slide, please. In this picture you see the Huddly Crew in the larger scenario. Like Graham mentioned, the camera system and technology is modular with hardware and software that easily adapts to different room types and scenarios. Next. Into the technology. The input to the system is built around the camera and AI software platform that Huddly has developed for the L1 camera. You have an advanced image pipeline that feeds into the deep learning model running on each camera, and finds where people are located in the room, and if they're moving, where they are facing, and so on. We're also using audio signals from the built-in microphone array to detect where speech is coming from, so we can locate the active speaker in the room. Next.
All this information is then sent to the AI director, which you mentioned, Graham.
Yep.
Which evaluates all the available shot types for each person in the room. That AI neural network is then trained especially for collaboration scenarios, keeps track of where each person is from different camera angles. All available shots are then being evaluated by the AI director, and they will select the best possible shot at any given time. All right, next. Here you can see the different shot types that we use with Huddly Crew. We have worked with live TV producers to learn about their processes and techniques. We watched how they produced a video meeting and live events, we analyzed what worked and what didn't. Next.
This gives you the best view of everyone, making it easy to pick up on non-verbal cues and facial expressions. It makes it easier to have natural conversations and do great work together on Microsoft Teams, Google Meet, or Zoom. The emotional space of employees is more important than ever. Designing for empathy, inclusion, and understanding is key to good collaboration. Along with creating technology innovations, we have to take into account the emotional and social needs of our users. Next. You can go back to the previous one. Thank you. We believe that AI-directed video meetings will change the future of collaboration because the hybrid work environment is here to stay, and people are working from anywhere, from home and from the office.
In this environment, rather than expecting people to adapt to the technology, we believe it's important to create technology that adapts to people. That's it. Thank you.
That's great. Thank you. Thank you, Stein Ove. I'm hoping we'll get some questions at the end about that technology. 'Cause I can talk about it for hours, as you probably know. Okay, over to you, Ragnar.
Yeah. Thank you, Graham. Thank you, Stein Ove. I'll now take you through the financials. If you go to the next slide. Perfect. We are happy to wrap up the year with a strong revenue quarter, concluding a stable and strong 2022 performance. Huddly's Q4 revenue concluded at NOK 113 million, which is 12% up from Q4 last year. Our strategic partner sales in Q4 grew more than 50% year-on-year. Revenue for the full year 2022 concluded within the guiding at NOK 452 million. This is a solid 34% growth from 2021, driven by strong performance within our strategic partner sales, as Graham alluded to. We continue our focus on turning around the channel sales performance and monetizing on software. Next, please. We achieved a gross margin of 39% in Q4.
This is up five percentage points compared to the Q3 margin of 34%. We are pleased with this recovery, in particular as it evidences our ability to monetize on software. As an example, we started to ship our L1 camera with Speaker Framing during Q4 at a price markup of around 25%. The PPV consumption was reduced to a one percentage point impact on gross margin in Q4. This is down from three percentage points impact in Q3, and six percentage point impact in Q1. For the full year, the gross margin concluded within guiding at 37%, with three percentage points negative impact from PPVs for the year. The reduction from 2021 gross margin is explained by the increased share of sales going to strategic partners and increased component costs, partially offset by increased prices and software monetization. If you go to the next, please. Our profit concluded...
Our gross profit concluded at NOK 44.4 million for the quarter, and NOK 167.4 million for the year, which is roughly at the same level as last year. Our adjusted OPEX concluded at NOK 124.2 million in 2022, compared to NOK 68.1 million in 2021. The increase results from scaling of the business and investments in sales and administration. The company increased its full-time employee number from 103 at year-end 2021 to 132 at year-end 2022. However, the majority of this growth happened in the first quarter of the year, and the company remained cost-conscious throughout the year, concluding well below cost budgets, as Graeme mentioned. D&A increased from NOK 64 million in 2021 to just above NOK 87 million in 2022, reflecting our continued commitment to innovation and product development.
The 2022 adjustments relates to options costs around NOK 10 million for the year, compared to 2021 adjustments of NOK 367 million, also explained by option cost, but also settlement costs, as we have commented on in previous presentations. EBIT for the quarter concluded at NOK -21 million, and net profit concluded at NOK -16 million. For the year, the company realized an EBIT of NOK -54 million and a net profit of NOK -36 million. Next, please. Our R&D investments for 2022 surpassed NOK 100 million, compared to the 2021 level of NOK 76 million. Adding the investments in tools and production equipment on top, the company invested nearly NOK 130 million for the year. This is an increase of close to 40% compared to the 2021 level, and this increase evidences the company's commitment to innovation and product development.
It remains of key importance to the company to continue the monetization of its innovation, in particular on the software side, to drive the company margins up. Next, please. The 2022 cash flow concluded at n NOK -153 million. Worth noting is that a part of this outflow relates to one-off items such as share buybacks, around NOK 40 million, and synthetic option settlement payout of close to NOK 30 million, which are both results of decisions dating back in time. For the fourth quarter, the cash flow concluded at NOK -22 million. There were only minor one-off items in Q4. The 2022 cash flow from operations was NOK 15 million, compared to NOK 22 million in 2021. Next, please. The backlog concluded at NOK 81 million at the end of Q4. This is down from NOK 138 million in Q3.
The reduction is explained by lower duration and the appreciation of NOK versus USD in the quarter. Huddly is exposed to indirect supply chain issues that are expected to impact shipment volumes. Further, we see that inventory levels in the supply chain are coming down, driven by the increased cost of capital and reduced lead times. With that, I give the word back to you, Graeme.
Thank you, Ragnar. All right. I'll quickly cover the outlook and in order to recap the key priorities. Outlook. Next slide there, please. First, the company recognizes that a weaker investment sentiment with inflationary pressures and higher interest rates creates a more uncertain near-term market outlook. Indirect supply chain issues and the normalization of supply chains are expected to affect shipment volumes for Huddly's products in 2023. Given the recent changes in the management team, the board has decided not to provide revenue guidance for 2023 now, as the management team and the board will be working together to get a better overview. The long-term market outlook for collaborative video solutions remains very strong. Thank you. Key priorities. I'll just quickly recap again.
First of all, number one, and this is what the people in Huddly get to hear just about every day. Number one is to continue to lead with technology innovation. We're a product company. That's what we do. We're incredibly passionate about the end user experience, and that really drives and ultimately creates shareholder value for us, for all of us. Number two, revenue. I'm very focused on revenue. Strengthen our strategic partnerships and build up our channel sales. Daniel, who runs that team, is doing a fantastic job. They've got some quite good momentum and efforts going. Increased gross margin. I think Ragnar gave a really good summary of what impacted us last year.
As you can see, there was an uptick in Q4, and we're super focused on continuing that through getting our channel sales up. Obviously managing those PPVs in the supply chain, so we're not paying a lot of money for individual components. Product mix, monetizing our software. We're very focused on that every day, and we're also very focused on managing our costs. We're a cost-conscious organization, and have been for quite a while. They're the priorities. Now we'll move on to the next slide, which is Q&A. Hopefully we'll get some good questions.
Yes. I would like to open the floor for the first question that came in here. You're currently reinvesting 20%-25% of your quarterly sales revenue directly into product development.
Yes.
Will you remain at this level going forward?
It's, it's a great question because there's a, there's two sides of it, right? There's the amount we invest into products, and that'll stay. We've got a lot of people in our R&D and design and products team, so we've got quite a capability there. I think that will stay relatively stable now. You know, and then it becomes a function of revenue. We remain committed to products, so that investment will stay at that level.
Do you still see a gross margin of 50% as a reasonable level down the line?
Absolutely. That's what I'm targeting. That, and that can be achieved a few ways, most importantly it comes down to monetizing our software, producing things that will effectively You know, products, an end user experience that users will effectively pay for. That's what generates gross margin, is effectively the end user experience. Obviously we have to manage our supply chain. Obviously we need to make sure we grow our channels business. Absolutely, yeah, that's our goal, we see that in the longer term being attainable. That's what we're targeted on.
I also see there's a question here in the chat. Could you elaborate on the reasons for the changes in management and also describe the current management situation?
Yeah. Well, I'm the CEO. I've been with Huddly now for seven years, which was a lot longer than I thought it would be when I first met Stein Ove. That's seven years. I've committed to Huddly and the board, and everybody at Huddly really for an extended period. I'm highly motivated to do that. I did it with a lot of careful thought, a lot of support from family, and a lot of support from the people internally. I'm very energized about leading Huddly. I believe in the company and where we're going and the journey, and really the mission that we signed up for those seven years ago hasn't really changed.
The walk's a bit longer than I thought it was gonna be, but I'm fully committed and excited about that. Working with the board and everybody at Huddly is just a pleasure and an honor. That's great. What else to talk about? Stein Ove's here. He's been here forever. And Ragnar's made a decision, you know, which he might wanna talk about, but we're actively looking at how to fill that seat. We've actually got a pretty great management team at Huddly, and it was one of the things that I was lucky enough, you know, to inherit as I came into the role.
We've got some really solid managers, we've got some great people, and they're just a pleasure to work with. It's not just the people you see on this call and a few other C-level people and some VPs. We've got quite a depth of management at Huddly at all levels and a whole bunch of really good people. I'm, as you can tell, I'm pretty passionate about the Huddly people, I could talk about that for half an hour, but I better stop. Let's keep going. What's the next question?
Based on your backlog, am I wrong to assume that your revenue will be reduced in the area of 30% year-over-year in the first quarter of 2023?
Yeah, I'll give that one over to you, Ragnar. Sounds like a finance question to me.
Yeah. Yeah. I'll That's a good question, and I think I reiterate what I said on the backlog. The current backlog reflects six month of orders, and that compared to nine month in the previously reported backlog. This is due to limited end user demand visibility, and at the current stage, at the current stage, we think that these levels are the normal levels going forward, but that may change of course. I think again, that what I will say on the backlog, it's a reduced, duration and also appreciation or NOK which takes down the NOK value of the backlog.
Thanks. Thank you, Ragnar. Another question there, hopefully.
Okay, moving on to the final one here. Are you currently in a position to add new strategic partners?
Absolutely. Absolutely we are. I mean, ever since I've been involved with Huddly that's like an ongoing conversation. The company's absolutely in a position to do that, for sure.
Okay. That concludes the questions that we have for now. I would like to hand the word back to you, Graham.
Okay. That's great. Well, thank you very much for joining, everybody, and we look forward to catching up next time. Thank you very much.