Okay. Welcome everybody to Huddly's Q1 2023 results presentation. I'm Graham Williams. I'm the CEO of Huddly, and I'm joined by our CFO, Abhijit Banik. Let's just go to the next slide. These are the key highlights of our Q1 this year. We shipped our very first Huddly Crew product, which is our AI-directed multi-camera system, which I'll talk about quite a bit later on in the presentation. The team at Huddly is very, very proud of that product. It builds on our long history in AI, and it's won quite a few awards already, which is just very good. Unfortunately, we were also impacted by downstream supply chain issues.
As you can see, on the graph there to the right, sharp decline in sales through one of our main strategic partners, set us back as they, you know, were missing other parts to their solution. This did, however, result in a higher portion of our sales being through our channel business, which we continue to build out and invest in. That resulted in, you know, higher gross margin, as you can see, and really getting back up to where we need that gross margin to be. That's moving in the right direction. We spent a lot of work and a lot of time this quarter on our reshaping our strategy, and we continue to invest in that strategy, particularly in research and development.
We're also very, very aware of our, of our near-term challenges, we're managing those very tightly. Let's go to the next slide. As I said, in my first update, there's really four priorities at Huddly we're working on, everybody at Huddly is working incredibly hard every day. The first one is to continue to lead with technology innovation. Huddly is a technology company. That's what we're about. Really, Huddly Crew is a fantastic example of that. We'll continue to lead this growth through continued R&D investments. We'll strengthen our strategic partnerships, which we're doing. We've put a lot of effort into that, with some great results. We're also investing in our channel sales.
We're also working to broaden our revenue base out as well. You can see there that we're getting our product mix more of the percentage that we really want it to be. We would like it to be done differently, but this is an indication of where we'd like the business to be in the medium to long term. Our third objective, obviously, is to increase margins, which we're working on. Supply chain's starting to normalize for us now, which is helping with that. And also higher channel sales, and monetizing our software solutions, and the Huddly Crew is an excellent example of that.
Also our Huddly L1 product, we're monetizing that software through Speaker Framing, as you'll see us doing in other products as we push forward. Also a Gallery View on our Huddly IQ product as well. Lots of software going in there. Obviously managing costs is something we're focused on, and you'll see as we roll through the presentation, we've stabilized those costs, and we'll start bringing them down. We've made a very important decision, management along with the board, to do this without jeopardizing our long-term growth opportunities. That's incredibly important to us at Huddly. Next slide, I think, over to you, Abhijit.
Thank you very much, Graham. I have the pleasure of going through a bit about how we think about our market opportunity. I will do this by me first giving a bit of details on how we see the market and its development going forward. Then Graham will talk a bit more about how we see ourselves positioning in that market.
Yep.
Let's start off with the fundamental question of why we exist as a company. Really the fundamental question of our purpose. The purpose of Huddly is that we empower human collaboration, and that has been a fundamental important element for human beings for ages. We at Huddly, we are all about empowering that. The question is: How do you do that? The question is, what kind of actions and behaviors do you have in order to address the why? We believe in challenging the status quo to make hybrid teamwork productive and inclusive. Hybrid teamwork is one very important topic, which we will also talk a bit more in this section. Bringing down to the physical and the what of the company. That's our products, which we're really proud of.
We craft intelligent cameras that combine AI, hardware, software, and machine learning. That's the link between the why, the how we do that, and the what, which is our products. Talking a bit more about the mega trend, which we are riding this wave on, and we see that currently that the workplace is converging towards hybrid mode. We have some statistical evidence of the markets, the workplace going forward towards a convergence of about two to three times a week working from home or the office. And in this scenario, we see that there's a lot of challenges in collaborating. When people stay at different places, they participate in video conferencing, and that exposes them to new challenges in terms of meeting fatigue, in terms of being included and feeling productive in those meetings.
This case is, in general, valid for most industries, but it's mostly, prevalent in white-collar industries such as IT, finance and insurance, and professional and business services. The question is: What does that matter? How does that matter for Huddly? We believe in using technology to solve hybrid collaboration pain points. Pain points such as meeting fatigue, not feeling included and productive in meetings is at the core of what the problems that we are solving. We use technology such as AI, machine learning to provide video experiences that are engaging and also reduces meeting fatigue. Huddly Crew, which we'll talk about a bit more later, is a clear testament to how we do that. Looking a bit more into the market itself, the first thing to note here is that it's a big market.
It's approximately $3 billion-$4 billion U.S. dollar markets, and it's set to grow quite strongly towards 2027. There are different researches on the market expectations, but we see that in general there's a general consensus of the market having a strong growth towards the next few years. This growth is mainly driven by increased penetration rates in addition to higher prices, such as intelligent features. The first point being that we see increased penetration. We see that development from approximately 10% of meeting rooms being enabled by video, and it's set to increase to about 20% in the next five years. This is a very attractive market for us, and it's not only the volume, it's also the prices.
With increased intelligent features demanded by the end customers, it's also the case that we can command higher prices. Those two in combination makes this a very attractive market. We have the products that can cater to all different scenarios, whether it's small meeting rooms, mid-large or large meeting rooms or any other scenarios. We have all the products in our portfolio to solve the pain points and the demands for these different rooms. That's the market backdrop. Graham, maybe you can take a bit more further on how we can position ourselves in this market.
Sure. It's one of my favorite subjects. That should be pretty easy. What Huddly is about at the moment is shaping a new category for AI multi-camera systems, which is really what a lot of the enterprises and government organizations are very focused on at the moment is how do we, as Abhijit just said, how do we get people more included and more engaged in these hybrid workplaces? If you look over to the left, and I think it's important, there's a lot of talk about AI at the moment. I don't think you can really open any kind of media without reading something about AI. That's certainly what I'm seeing anyway.
It's important to remember that Huddly started back in 2013, which is a long time ago now, working with AI. We've got a lot of, we've got 67 very talented people now working in our R&D engineering part of Huddly. AI is at the core of everything we do, and certainly when I first got involved with this company. We started off with our IQ, which was a camera, and a small camera there to the left. That camera, even today, we continue to roll out new AI features, which is pretty incredible really.
I can't think of any hardware that comes to mind where that many years later, I think 2018 we started rolling that out, and we're still rolling out new AI features on that. We rolled out the new Gallery View, which is the quad, the four split on that, which really amazed a lot of people in the industry and I was just reading some write-ups today about that. Just pretty incredible. Then we increased that with the L1, which is our medium large room camera, which has been very well received. And we brought the same AI technology onto that camera with more processing and so on. Then really, the dotted line in the middle really is quite a changing point for Huddly.
This is why the shipment of this Crew product is just so incredibly important. We've been investing in this for a long time now. In the previous quarterly update, Stein Ove gave us a bit of an insight into some of the thinking behind it, but it's been very well received. This is defining a new category in AI camera systems. Yes, we expect our competitors to copy us as usual. We're confident, we're investing and we're continuing to develop and own this category. All based on AI and machine learning, which dates back to 2013, which is a very long time ago. We've been around in this AI space for a very long time.
Let's just move on to the next slide. These three cameras hanging out together here is super interesting, and this is what gets me very energized about this company. And quite frankly one of the key reasons I decided to come, you know, to come on as CEO is. These three cameras are basically behaving like a director. The incredible thing is they're all talking to each other now. There's three cameras here talking to each other. They're looking at people. They're making decisions about shots. As we're in the middle of our early adopter program at the moment, which is going well.
As we're developing this AI software that runs these cameras, the thing that's surprising me, and I'm generally surprised quite often at Huddly about what we can do with our technology even though I've been doing it for a very long time now, is the curve. The learning curve of these AI devices and what they can do. Basically you've got three cameras working together, making decisions, talking to each other as a normal movie director or television director would do, and that just really makes people feel included. I mean, I work hybrid a lot from our Oslo office.
I do a lot of video conferencing, and I've got to the point now where the poor team in Oslo know that if Graham's on a call it better be Huddly Crew because the experience is just so much better and just helps me engage. Let's just move on from that. This is some of the market attention we've got, which has quite honestly been pretty overwhelming. We expect that over time this will translate into revenue. For some of the awards we've won, the Red Dot Design Award 2023 for a design award. This isn't just any old Red Dot Design Award that you see a lot of companies talking about.
This is the best of the best, which is just incredible, for a company of our size. It's punching incredibly above its weight, and a real credit to everybody at Huddly who's been involved in this. Then in the middle, the Frost & Sullivan Best Practices Award for video conferencing peripheral in North America, which is just another amazing award when you consider the depth and the talent, and quite frankly the resources of the companies that we're competing against. To achieve this is mind-blowing really. Our, you know, and our team who brought this award together really need to be credited again. Then another award is the iF Award, and this is a gold award, which is another...
These are the very, very top level of these awards, so it talks to the Scandinavian design. It talks to what we've achieved. So we're very, very proud. We understand we need to translate these awards into revenue, but we're working really, really hard on that, led by our our channels team. We've done hundreds of demos which are well received, and we've got a registered interest of lots and lots of companies, over a couple of trade shows, significant trade shows we've done there. We'll continue to roll this out at InfoComm, which is the massive trade show in Orlando, in June, next month.
We're very proud, but we're also very realistic that there's a lot of hard work to be done and we need to turn these awards into revenue, and the revenue into gross margin, and the gross margin into profitability. We certainly get all that, and the team's fully focused on making that happen. These are great forward indicators of what can be achieved. Moving on. To you, Abhijit.
Thank you very much, Graham. Let's turn to the financial side of this presentation. Before I start off with going through the slides, I would first like to make a remark that we have transitioned from simplified IFRS to full IFRS. In the annual report, which was published yesterday, we have now published everything in IFRS full standard, and that has also been converted with historical figures, and that's also the case for this presentation. All the numbers that you'll see from here are full IFRS numbers. Let's start off with the P&L and start off with the revenue development side.
As already mentioned by Graham, we had a tough quarter where we landed at NOK 51 million compared to NOK 113 million the previous quarter. That was a 55% decrease compared to Q1 2022. The main driver behind that decline was a decrease in strategic partner sales. However, we see that channel sales remains stable. Really the reason behind this sharp decline is that it reflects the downstream supply chain issues that we see. A strategic partner who is lacking all the parts in the solution has postponed orders, which again has impacted the amount for Huddly's products.
Looking at the gross margin picture, we see that the overall development has upticked from 39% to 46% in Q1 2023, and the explanation behind that is that the customer mix has changed with lower sales through strategic partners while channel has remained stable. Although we of course are aiming for higher sales, and although low sales in the quarter was the case, the sales mix between channel and strategics is more in the line that what we will expect and are working towards in the long term. This development really shows the potential in the company in terms of gross margin generation. Summarizing with this condensed P&L statement, as already mentioned, revenue down to NOK 51 million. As a result, gross profit down to NOK 23 million. Gross margin at 46%.
As already mentioned also by Graham, we have a active approach of managing our cost base. We see that this year we are significantly below budget compared to what we had initially. We also see that the second half year of this year, costs will be lower than the first half year, and that is mainly because of active measures we have been doing on different cost items, as well as having a restrictive rehiring policy. Looking at the R&D investments, we are doing all this to enable us to succeed in the future. We are investing for long-term value. Huddly Crew is one clear example that's a result of years of investment and recruiting and attracting the talent that can actually make these products happen.
Capitalized R&D cost was at NOK 20 million for Q1, which is more or less in the same line as historical figures. This stable R&D level is at a around level that we expect to defend our Huddly's, our leading position in the market. We have this organization with talented engineers with deep extensive experience within AI, machine learning, and software development, and this is the organization that is building the moats around us as a company to defend our position and unique products. Of course, we need to translate these investments into monetization, and it is of our most priority to increase gross margins by commanding higher prices by enabling the cameras with more software that can again be delivered to the customers to solve their customer pain points.
You go forward with the cash flow, cash at end of last year ended at NOK 184 million, cash at end of Q1 ended at NOK 114 million. The decline was mainly driven by cash flow negative decline from operations, as explained by the decline in sales. Cash flow from investments was a total of NOK 27 million, NOK 20 million, as already mentioned in the previous slide, was related to capitalized R&D. We also had NOK 5 million in the cash flow from financing activities. The company is in the final process of securing a committed loan facility of an aggregated amount of up to NOK 100 million, which we believe will secure the financing and the liquidity position of the company.
Of this, about NOK 55 million is committed from shareholders and companies associated with Huddly. That concludes the financial part of the presentation, and I will give the word over to you, Graham.
Thank you. All right. Let's go to the next slide. As we've said through the presentation, indirect supply chain issues affected our shipment volumes significantly in the first quarter, and this is expected to remain the case in the second and the third quarters of this year. We expect to see indications of sales growth returning in the third quarter, with potential effects from the fourth quarter. The overall long-term outlook for the industry we're in, and for Huddly in particular, remains strong. As we keep saying through this presentation, we'll continue to invest and lead with technology. I think Huddly Crew is a excellent example of that. Next slide. I'll just finish up with four priorities I set when I began this journey as CEO.
Firstly, and number one, continue to lead with technology innovation. This is critical. This is a technology company. This is what we do. This is why we're here. This is what we're investing in. I can't make it any clearer than that. Something we think about every single day at Huddly. Number two, strengthen our strategic partnerships and our channel sales. We're working very hard on that, and we're getting some great success, which will show through as the year progresses. Increase gross margin. This will be done a couple of ways. Firstly, by increasing our channel sales and more importantly, through monetizing on our software. Pretty fantastic artificial intelligence software.
Fourthly, and something I think everybody at Huddly wakes up and thinks about every day, is how do we manage our costs to address our near-term challenges? I think, we're seeing some success of that. Right. Let's flip to the next, which is Q&A. So far, there aren't any questions there.
I have three questions here from.
Oh, good.
... in the... maybe I can, I can.
Sure. Go for it.
Yeah. The first question is, can you say something about what type of components in the partner solution that are affected by supply chain issues?
I can take that if you like, given I work with the strategic partners pretty much every day. I mean, we can't be disclosing parts of our our partners' supply chain. They are well on top of it, and they're really working through it, and they're making great progress. We do expect the situation to resolve itself.
Good. Thank you. Next question. Huddly is a leading player as regards technology advanced approaches to video conferencing with Huddly Crew in forefront in this regard. I assume that this also means that Huddly's products are relatively expensive. Do you see a keen interest among customers to invest in these features? Have you had the dialogue with relevant customers as a basis before developing these products?
That's a great question, isn't it? So yes, they are. Huddly Crew has got an MSRP of around $12,000. The team at Huddly put a lot of really deep thinking into that price point. More importantly, where does it sit, what value does it offer, and what will the market pay? We did a lot of this research, which, Abhijit, I know you were deeply involved with. We've landed in a, we think the right place. We're not getting any pushback on price in the market, which is great.
In fact, if you look at the Frost & Sullivan report, those people who have read that, and there's some comments I think Abhijit included in our written report, the great value that it offers. Abhijit, I know this is a deep subject for you around pricing and Crew. Do you wanna add some stuff? You probably do, I'm guessing.
Yeah, sure. I think the main approach we have towards pricing is that we have a value-based approach of pricing. It's all about again, being customer oriented and see what kind of value we can capture from solving customer real issues. Huddly Crew is something unique in the market. There are none other competing products able to do the same AI Director technology as us. At the same time, we are providing a price which is still lower than other competing products, which are much more mechanical based and much more complex.
I think we see a lot of interest because of that balance hitting between something of a product which is approachable by most companies and at the same time being a good experience solving real issues. To the second part of the question, whether we had a dialogue with relevant customers, and that is really the heart of everything we do at Huddly. We have a clear way of thinking about design. We do a lot of customer observations. We are customer obsessed. We interview people in other parts of industries to get their insights and knowledge. For example, how the Crew was based on interviews with movie producers.
We do a lot of work before we do any development of any codes, and that is very important to emphasize. That is how we are on top of, and investing in the future is by, is by having that first step before we do any software development and hardware development.
Absolutely, Abhijit. The next question is, has Huddly lost market share in 2022 and Q1 2023? There's not a lot of data you can really go to. I mean, I know people you know, report their results, but I've been looking at market share and data in the conferencing industry for over 30 years now. I don't believe we've lost market share. The revenue downturn, as we said in Q1 is to do with a significant partner needing some components to finish their solutions, which they will. I don't think that's a loss of market share. In our channels business, my gut feel is that we're actually gaining market share. That's what I think is happening there.
More importantly, with the Huddly Crew, we're actually creating a new category. If you look at the AI multi-camera solutions, there's a couple of people talking about having products in that space. We're shipping it, and we're developing it, and we're leading. We're not We do a lot of talking at Huddly, as Abhijit would know, about red ocean and blue ocean, something, you know, which market are we gonna be and where are we compete, where can we win? I think we're gaining market share. More importantly, we're creating new categories, which is for a company like Huddly critically important. I might as well take the second, next one as well. These are great questions. We certainly appreciate them.
The next one is, you don't seem to get a grip on the channel sales. Please provide your assessment on what are the main challenges and how you intend to resolve the situation, and how long time will you go on the channel sales without achieving satisfactory results. Our Chief Commercial Officer, Daniel, there has been working incredibly hard with his team. They only today launched our partner program, which has been, at least six months in the making, with a lot of aspects. If you go to the Huddly, huddly.com webpage, you'll see Become a Partner now, and behind that is a very deep channel program. Daniel's got a lot of experience in this industry, from Tandberg and from Cisco.
He's opened a lot of markets, he's fixed a lot of problems for a lot of companies, and he's doing a great job for us. Channel sales is the core of what we do. That's one of our two go-to-market strategies. We do expect to achieve satisfactory results. We have in the past, and that was proven in past results, which some of you may remember. We expect to do that again. It's a really, really good question. This is it. I'm liking these questions.
Have you experienced interest from possible strategic partners or taken or considered taking initiatives? We get pretty much continual requests from strategic partners. We're very selective on who we deal with.
The partners we've got, we really respect, and we invest heavily into those relationships. Yes, there will be future strategic partners, good and new. We are working, you know, working on that constantly. It's part of what we do at Huddly. It's a big investment to align with a strategic partner, and it's a big initial investment, it's a big ongoing investment, it's an engineering investment. Yeah, we certainly will have new strategic partners. That's something that I'm very focused on achieving.
Okay. Next one. Mr. Williams stated the main challenge, translating the many awards into revenue. Have you considered structural moves, i.e. sale of the company? Has there been any interest in this regard? I don't think it's...
If I said it's a challenge, I probably said the wrong thing. I don't think it's a challenge, I think it's an opportunity, and it's a job to be done. We don't just think having a bunch of shiny trophies on the shelf and a great awards hanging on the wall is the end game. It's certainly an opportunity, and it's certainly something we take a lot of pride in. It's certainly a great forward indicator of success when third parties are validating our work at such a high level. I think it's a massive opportunity. Have you considered structural moves, sale of the company? Well, that's really something for the board. Has there been any interest? I can't disclose that, unfortunately.
The last question I've got here: Can you talk about the selective channel partner program? What has driven this, and when do you expect to see results? I can take that question as well. It's something that we've given a lot of thought to, and in particular, Daniel, our Chief Commercial Officer, has really brought this with us. Huddly is a high-end product. I've been selling high-end technology my whole life, and it takes an investment effort from the partner. Their partner has to invest in demonstration equipment, and they have to invest in training their people. They have to invest in building a sales pipeline and in translating that value to the end users. It's quite a big job. We've...
Daniel and his team have built a selective channel program to make sure that those partners can get a return on their efforts, 'cause they wanna make money. Any of you who read... I mean, Daniel did a great write-up, which only got launched today, about the background of the partner program. I commend anyone to read that. What he talks about in that is that in this industry, through the pandemic and even before the pandemic, and afterwards, there's been this drive to the bottom. Cheaper, cheaper, simpler, and I think we've got now, you know, last count we did internally was 40-45 video sound bars looking pretty much the same.
That makes it very difficult for the partner to make a living and very hard to add value. We're gonna be very selective about selecting high-end partners who understand artificial intelligence, understand creating value for end customers and end users, creating the right user experience. The partner program is very much around helping those people achieve a return on their investment. They continue to invest in us and on. As you've seen with the Huddly Crew, I mean, it's the 3-camera system at the moment, but that'll only get better and build out from there. That's the. We're very committed to both of our go-to-market efforts and the R&D that backs it.
I think that's the last question, isn't it, Abhijit?
It looks like it's.
All right. We really thank everybody who's made the effort to join us on this call. We appreciate your time. We appreciate your interest and support of Huddly. Abhijit and I will now get back to work, and see you for next quarter. Thank you very much. Abhijit, do you wanna say goodbye as well?
Thank you very much. Shalom, everybody.
Thank you.
Bye.
Bye. The recording has stopped.