Earnings Call: Q2 2019

Jul 19, 2019

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's TOBI Earnings Call Q2 twenty I must advise you that this I must advise you that this conference is being recorded today, Friday, July 19, 2019. And I would now like to turn the conference over to your speaker today, Henrik Schossman. Please go ahead. Thank you, Joanne, and thanks for joining this call, everyone. Joanne and I will run you through Tobii's progress in the Q2 this year. So next slide please. Tobii revenue for the entire group grew by 21% or 13% adjusted for currency compared to Q2 last Into the Dynavox, we saw a solid underlying sales, but the actual revenue growth was somewhat hampered by delays in our internal process for funding with insurances, 13% adjusted for currency compared to Q2 last year. In Tobii Dynavox, we saw a solid underlying sales, but the actual revenue growth was somewhat hampered by delays in our internal process for funding with insurances. Tobii Pro had a weaker quarter, in part because we increased the order backlog due to longer delivery times from service sales and sales of large solution orders. Tobitec, on the other hand, grew rapidly. External sales was 87% higher than in Q2 last year. And we also saw several important launches and announcements from major partners and customers in the ecosystem. And I'm very happy to welcome Anand Srivatsa as our new Division CEO of TobiTech. Let's go into some more detail on each of the business units starting with Tobi Dynavox. As you know, Tobi Dynavox is a global leader in assisted technology for communications. This is Tobi's largest business unit that makes up over 60% of the group's gross sales. Our solutions in Soviet dynamo are often profoundly life changing for our users. As one example, we had a fun day in the office last month when we had a visit by Sebastian, one of our long standing Swedish power users who started using a Tobii Dynavox P 10 eye control computer back in 2,008. Sebastian has cerebral palsy and cannot communicate without his eye control computer. But he's a really smart young man and despite a very severe disability, he has finished his high school degree and we got to celebrate his graduation together with him. Next slide please. Revenue in SovaDynamics grew by 24% or 3% when we adjust for both acquisition and currency effects. Underlying sales demand was solid, but the actual revenue growth was somewhat hampered by delays in our funding process in U. S. And what we call funding is the administrative process whereby a device is prescribed by a therapist and subsequently approved for payment by an insurance company. And recently, we've had internal delays internally in this process due to increased inflow of sales in combination with some staff turnover and time required to train new experts. And this has resulted in an increased backlog of customer cases currently in process. The value of these customer cases in process increased by more than 10% in the Q2, which corresponds to around SEK 15,000,000 in future order value. So if we adjust for this effect sales in Q2 as well as in the first half year was in line with Sobeidynamov's long term target of 10% growth per year. We have of course taken actions and expect the process flow to normalize in the second half of this year. Next slide please. We continue to invest to grow the market and the business for Dolby Dynavox. One major investment is the large scale trainings of professionals that we conduct in the industry. In the Q2 alone, we trained approximately 9,000 professionals on assistive technology for communication. We continue to develop our software Snap and has launched a new version, which among other things expands the language to 13 different languages. And we also continue to make other large investments in product development. And we have several major new products in the pipeline. In the quarter, we delivered over 7,000 new voices in the form of apps and or devices. Over to Johan and to the Lanhamo Financials. Hi, everyone. In Q2, we saw continued momentum with meaningful revenue growth, if you consider our growing admin funding pipeline. This quarter, we saw an organic 3% growth restated for FX and M and A and restated for the admin pipeline that Henrik explained, we saw an increase of 10% year over year. We are happy to report both growth in eye tracking as well as touch enabled technologies. Gross margin was down 1 point in the quarter compared to Q2 of 2018, but even more importantly up sequentially despite no integration synergies from the SmartBox acquisition. Our operating expenses were up in Q1, which is mainly due to the acquisition of SmartBox, but more in line with Q1 of 2019. And there were several one time costs that affected our EBIT in the quarter around SEK8 1,000,000 primarily M and A related. The Q2 EBIT margin was 2 points down versus last year, but sequentially it improved. EBIT adjusted for nonrecurring items was 12% in the quarter, which is acceptable in the non integration stage with SmartBox, but still not where we aspire to be as our long term target for EBIT margin is 15% to 20%. Year to date June, we saw we see a revenue growth of 7% adjusted for FX and M and A. And taking the funding pipeline delta out of this, we saw around 10%, which again is in line with how we see the business growing over time. Operating margin was 8% for the same period and restated for nonrecurring items this was 11%. A couple of words around the SmartBox acquisition, which is under antitrust review currently. On May 30, CMA announced its provisional conclusions from the 2nd phase of the investigation. In conclusion, CMA continues to believe that the acquisition of SmartBox can be expected to result in significant reduction in competition in the U. K. Tobii cooperates with CMA, but continues to believe that the acquisition is not anti competitive. To the contrary, we believe it can be beneficial for our users. We expect more information from CMA in late July. And in parallel, we prepare a number of different scenarios and plans. So back to Henrik. Thanks, Joao. Let's move over to Tobii Pro. Tobii Pro is the global leader eye tracking solutions for understanding human behavior. This business unit makes up roughly a quarter of the sales of the group and we also here hold a very strong market position. Tobipro has a global market share above 60% in its field. Next slide please. Tobipro has a normal seasonal pattern where both revenue and EBIT tend to be significantly weaker in Q2 and Q3 each year and correspondingly significantly stronger in the 4th and the Q1 of each year. In the Q2 this year, we repeated this pattern. But also with this in consideration, reported revenue in Tobipro was low and only increased by 1% with Yield down by 5% adjusted for currency compared to Q2 of last year. A major reason is that we've had a large increase in our quarter backlog during the quarter. In other words, income and orders that were not yet invoiced and thus not recognized as revenue in this specific period. This in turn was driven by a larger share of sales being services and sales of large solutions, both which have longer delivery times than normal product sales. In addition, we also had weaker underlying sales in some geographies. For instance, we saw a temporary decline in U. K. Academic sales due to Brexit related uncertainties. The previous several quarters have been really strong for Tobii Pro, and we remain positive on the continued outlook for growth and improving profitability also in this business unit. The underlying market demand continues to be strong. Normal customers across a very broad range of industries are adopting eye tracking as a method to gain insight into behavior of customers, employees and scientific research. Next slide. We also continue to make significant investments to enhance our product portfolio in Tobii Pro. In the Q2, we announced some important product improvements. One was for Tobii Pro Lab, our flagship analysis software, which received a major upgrade to enhance the ability to conduct efficient eye tracking studies of websites. And our Tobii VR analytic software, which enables eye tracking studies in complex virtual three d environments was upgraded to support the recently launched HTC VIVE Pro Eye VR headset. We have several major products under development also in Tobii Pro, which you should expect will result in important product launches over the coming year. Next slide. We're also continuing to strengthen our global sales organization for Tobipro to be able to cater to increasing customer demand. Sales of eye tracking solutions and services is a highly complex sale and we tend to be most successful in this through our own highly specialized sales and consultant organization. In Q2, we opened a sales office in Chile to more proactively grow our business in Latin America. And as we mentioned already in the previous earnings call, we also opened a new sales office in Singapore in the Q1 this year. As part of opening our sales office in Latin America, employees and customers from our former reseller in the region, Ion Media, were assumed by Tobey Pro. Johan, your turn and the Tobey Pro financials. All right. As Henrik mentioned, Q2 was a quarter below our expectations for Tobey Pro with a negative 5% FX adjusted growth, even if we saw an increased backlog due to increased share of solutions sales as well as services. Gross margin came in at 72%, down 1 point year over year and also lower sequentially. Product versus services mix in the quarter was behind some of the decreased margin and we also saw some negative scalable elements at these revenue levels. Operating expenses showed some growth versus last year due to the investments that we are doing in both sales coverage and product development. FX adjusted growth was around 8% and the quarter's operating expenses are in line with the last 2 sequential quarters. Going forward, we expect a more modest growth in Tobey gross expenses. EBIT margin was negative, which was lower than last year. As you know, we tend to have a strong seasonal pattern where Q4 and Q1 are the strongest from a profitability view. And this second quarter was worse than normal given the relative weaker revenue growth and gross margin. On a year to date basis, revenues grew 10% and the operating margin was 10%, up 1 point from last year's first half. Over to you Henrik. All right. Let's move to Tobitec. Tobitec is the world's leading supplier of eye tracking technology for integration into consumer electronics and other products. Our current main focus segments are PC, VR and niche applications. Next slide. The Q2 this year was a rather exciting quarter for external customers increased by almost 90% adjusted for currency compared to the Q2 of last year. Total sales, so including also internal sales to increased by 50%. Several major partners and customers of Tobii Tec made important announcements and launches during the quarter related to Tobey and iTracking. This includes announcements from Dell, HTC, Intel, Qualcomm and Inoval. Next slide. Toward the PC segment, ToveTech today has a range of sensor solutions. Tobii Aware is our entry level offering, which we offer as a software license to PC OEMs. This enables PC OEMs to make their devices smarter and better understand the user at a modest cost. Tobiiware fits nicely with some of the central ideas of Intel's project Athena, which I'll come back to shortly. Due to the low cost points, Tobii Aware is a good tool for Tobii to achieve higher volume and device adoption at an early stage of market evolution. But obviously with a much lower ASP for Tobii compared to full eye tracking systems, on the other hand with a very high gross margin since this is a pure software license. Tobii IS 5 is our high end eye tracking platform, which we sell to PC OEMs who are embedded into their devices. This provides advanced eye tracking to the PC and enables numerous additional use cases and benefits compared to Dolby Aware. Initially, the IS5 is mainly targeted to gaming PCs where in addition to making the PC more intuitive and user friendly in general, it also enables specific gaming benefits in game experiences, streaming, game training, etcetera. Tobii Eye Tracker 4C is our stand alone eye tracking sensor peripheral, which offers full fledged eye tracking capabilities, but works as an add on to any PC or desktop monitor. All of these are key parts of our strategy to make eye tracking a major technology for PCs. We are engaged in several important customer dialogues in the PC segment with Tobii Aware currently attracting the strongest interest in the near term. Next slide please. A very important announcement for TobiTech in the quarter was Dell's launch at Computex of their new Alienware M15 and M17 gaming laptops with built in Tobii IS 5 eye tracking. The M15 and M17 are Alienware's next generation of their thin lite gaming laptops. These are beautiful gaming machines, packing a lot of the latest technology, of course, including OVI tracking. And the fact that our IS5 platform is significantly smaller than our previous IS4 platform has been an absolute prerequisite to fit inside the thinner form factor of these new devices. Next slide. This also means that previously up until this year, Anywhere had integrated Tobii's eye tracking only in the Alienware 17 model. Now this year in January, Alienware launched eye tracking also in their Area 51M gaming laptop. And now in Q2 when they're introducing Eye Tracking into their M15 and M17 as well, they are now available with Tobey's eye tracking across their entire product line of next generation gaming laptops. And Alienware is by many perceived as the world's top PC gaming brand. They know gaming really, really well. And they've been working with eye tracking with Tobii since late 2016. So by now they also know eye tracking really well and they know Tobii really well. And the fact that they are taking this step going from one product model to have eye tracking across their entire product portfolio is a huge vote of confidence from Alienware in eye tracking and Tobia as a supplier. If we move to the next slide. Also at Computex, Intel announced their 1.0 specification of Project Athena. Project Athena is in position for the next generation of ultra portable laptops. This is a very large initiative that gathers almost the entire PC ecosystem and is likely to be the guiding star for how modern PCs will look and behave over the coming several years. The tagline for Project Athena is laptop innovation rooted in human understanding. A core concept of this is that our PCs will become better at understanding the user to provide a more intuitive, user friendly and supportive experience. And these are ideas which marry very well with Tobii's technology and with eye tracking. Both our TOBI Aware solution as well as our high performance IS5 eye tracking platform fit nicely with these concepts. TOBI is a partner in product Athena and inkling is presenting us in our technology together with other partners and technologies as part of Athena showcases. Overall, major trends are in favor of eye tracking and we're clearly taking important steps forward in this segment. The PC market is a very large long term opportunity, but this is not a sprint. It's a marathon where large scale penetration takes time. Next slide please. In the Q2, HTC also started shipping the new HTC Vipro Eye VR headset with built in eye tracking technology from Tobii. This is the first major VR headset in the market with built in eye tracking and is a powerful start for large scale adoption of eye tracking in VR. This picture on this slide is a snapshot of the front page of the HTC Vive website. Check it out for yourself if you had a few minutes. This website does a really good job of highlighting the very compelling value of eye tracking in Doctor. Next slide. In May, Qualcomm announced their Smart Viewer reference design for VR. This is based on their new Snapdragon XR1 chip, which is Qualcomm's 1st system on chip targeted solely at VR and AR devices. TokiEye tracking is fully integrated into Qualcomm Smart View reference design. This is the 2nd reference design we do with Qualcomm and we collaborate with them to make eye tracking a key feature in future mobile VR and AR headsets. In addition to the Vipro I and Qualcomm slate as reference design, we had good progress during the quarter on other important customer in VR and AR. Among these, we landed 1 new design win and made good progress in ongoing customer projects. Overall, we now see the very first high end headsets we built in eye tracking hit the market this year with fairly small expectations on sales volume. Next year, we expect numerous more headsets we built in eye tracking also in more of mainstream models. And by 2021, we expect the really significant volumes to kick in. Within 3 to 4 years, eye tracking will be mainstream and standard in VR and AR. Next slide. We had really good traction in our niche application segments as well in the quarter. We saw increasing sales to those integration customers that have already launched their products and we have several more on their way to the market. We landed several more design wins in this segment during the quarter in devices for cognitive assessments, reading diagnostics and vision therapy. Next slide. And we have searched long and hard to find the perfect candidate happy to welcome Anand Srivate as the new Division CEO of TobiTek. Anand was most recently Vice President and General Manager of Intel's entire Desktop Systems and Channels Group with profit and loss responsibility for a significant part of Intel's business. Anand brings excellent leadership skills and a wealth of knowledge and insight about our ecosystem, our customer base, relevant technologies, etcetera. Anand is American and has worked extensively both in the U. S. And Asia. He will move to Stockholm with his family to lead the Tobitek organization from our headquarters. As an untakes charge of Tobitec, I will be able myself to again better focus my attention on Tobitec as a whole. Johan, back to you and Tobitec Financials. All right. Thanks, Henrik. Tobitec revenues in the quarter were up 50% year over year adjusted for FX, but the external revenues were up 87% on the same basis, which is really strong. This quarter customers from all sub segments contributed to these revenues. Gross margin was down 3 points to 47%, primarily due to a different product mix driving obviously a different COGS mix than last year. As communicated earlier, our organization in Tovitec has reached the capacity needed to execute the business plan and hence the operating expenses were in line with the last few quarters. Year to date, revenues grew by 45% and the operating loss was at a similar level as of the first half of twenty eighteen. Next slide. Let's sum things up with the Tobey Group overview. Revenues show continued growth in the second quarter and increased by 13% adjusted for currency effects year over year despite the buildup of different backlogs in Tobii DynaLux and Pro. Gross margin for the quarter was 69%, down 1 point compared to last year, but up sequentially. Obviously, the delayed integration for SmartBox impacted this quarter's gross margin. Tobey's EBIT for Q2 was a negative $51,000,000 which was an improvement from Q2 of 2018 despite having $8,000,000 of non recurring costs included. 1st half group's revenue grew by 27 percent to $765,000,000 and the operating loss was $88,000,000 which is an improvement versus last year. Excluding the nonrecurring items in first half, the loss would have been $71,000,000 Next slide please. Final slide of this financial section. Cash flow was a negative $81,000,000 in Q2. The change versus last year was primarily driven by an increase in our net working capital besides the operating loss, primarily an increase in inventory and receivables, which are partly affected by the revaluation effect from a weaker Swedish krona. At the end of June, we had a cash position of €314,000,000 This concludes the number part Henrik. So back to you. Yes. So quick summary for the quarter. In Sobeid Dinavox, we saw solid underlying sales, but revenue growth hampered somewhat by delays in our internal funding process. Tobipro had a weaker quarter in part because we increased the order backlog. Tobitec grew rapidly, external sales almost 90% higher than Q2 last year. And Anand is joining Tobi as our new Division CEO for Tobeytech. We continue to execute on ambitious plans for all of our 3 business units and with a strong focus on profitability to reach our goal of Tobi Group profitable already next year. With that, we're handing over back over to you Joanne and any questions we may have from the teleconference. Thank Your first question comes from the line of Sebastian Olson from SEB. Please go ahead. Your line is now open. Yes. Hello, Henrik and Johan, Sebastian, SEB Xtveit. So my first question is on Tobii Pro. And I wonder in what regions did you see the lower order intake except of the U. K? And what has been the reason to this? And secondly, on DynaVox, if you could please elaborate bit more on the demand of touch versus eye tracking products during the year? And what should we expect on a segment growth levels in H2? And just a final one on ToveTech, if you could just give us any indication of how large share of the total Doctor OEMs do they collaborate with? Thank you. Thank you, Sebastian, for those questions. The first question was on Solvipro and which regions we had somewhat weaker sales in the quarter. One was as we mentioned in the U. K, specifically on the academic side due to uncertainties around scientific research funding given Brexit related uncertainties etcetera. We do believe that this is a temporary effect. Another region which specifically in Q2 had slightly lower sales was in China, which was lower this year compared to Q2 last year. On the other hand, the Q1 this year was actually really, really strong in China. So when we kind of dissect the different regions in Tobii Pro on a quarterly basis, they tend to ebb and flow a little bit. Big picture, we are over an extended period of time, we're growing quite nicely in the China market. Your second question was relating to the growth in Sobe Dynamox whether it's touch and eye tracking. And generally in the second quarter and in the first half this year, it's been fairly evenly in terms of growth rate in touch and eye tracking, a bit higher growth rate on the touch side compared to eye tracking. And going forward, we do expect to see growth roughly the same magnitude in both of those areas. And your third question was relating to Togatec. And if I understood it correctly, the sort of share of VR headset manufacturers that we are collaborating with. And I would say sort of as a rough indication, we are actively collaborating with VR headset manufacturers that sort of when you count their entire product ranges make up approximately half of the existing VR market. So a very significant part of the VR ecosystem. I hope that answers your question. Yes. Thank you very much for that. Thank you. Your next question comes from the line of Daniel Thorson from ABG. Please go ahead. Your line is now open. Yes. Thank you very much. A question on DynaWags. You expect the backlog and admin situation to normalize in the second half of twenty nineteen. Does that mean a quick bounce back to higher organic growth already in Q3 or more of a gradual improvement? Well, I can start out. So the reasons behind this backlog is primarily due to that we have seen an increase in staff turnover. So we have a need to replace people working in that part of our teams and also train them to be really effective. So it will be a gradual sort of comeback with that sort of pipeline buildup, I would say. I don't know if you want to add something here Henrik? No. Generally, the selling processes are pretty long and extensive in time. So it doesn't bounce back immediately. It just takes some calendar time. Okay. And then a short one on Dynavox. Do you expect any nonrecurring costs in Q3 or Q4 related to the SmartBox acquisition that you already are aware of? Not that we are aware of. I mean, the we expect to hear from the CMA at the end of July, as I mentioned. Mentioned. And then once we hear their decision, there will obviously some cost involved I would expect. But to what level, I don't know right now. Okay. That's fine. And then two questions on Pro, if I may. Demand for larger products and more services in the quarter, is that the change in the market demand in general or more of an accident that it happened just this quarter? And then the second one on Pro, addressing Latin America more bit? So on the first question, we do see a general trend both towards higher and higher proportion of service sales in particular with help to interpret eye tracking data and draw meaningful conclusions from that. So we see a lot of opportunities to continue expanding this research consulting business. It's a very large opportunity there long term and that's a general trend. Also I think seeing larger and larger solution sales is also a long term trend. I do think though that it was also a bit of a spike effect specifically in the Q2. So it's a little bit of both, both a trend and spike effect. On your second question relating to Latin America, no, you should not interpret this as flattening out in sort of larger regions and markets for us. Latin America is not a new market for TorbiPro. We've been active in the Latin American market for many years already through resellers. So I would rather see it as a sign that the Latin American market has reached a size and potential where it actually makes sense for us to more that market. Another factor behind this is that many of our largest customers are global in nature and they want us as a supplier to be able to serve them on a global basis. And that becomes in itself a very strong competitive advantage for us to have such capabilities. Okay. That's very helpful. Have you paid anything for taking over Ion Media employees in Chile? Yes, we have. It's a small asset purchase deal. It's actually disclosed in the report. So it's sort of less than SEK 1,000,000, so it's very tiny. Okay, okay. Thank you very much. Sorry for that. A final one on Tech. Can you say something about the split in Tovatek external sales in Q2 if you simplify the split between PCVR and niche markets? Specifically in the second quarter, the split of revenue between those segments was roughly even. Okay. So similar pattern as we saw in Q1? Yes. Okay. That was it for me now. Thanks, Neil. Your next question comes from the line of Thomas Grass from Handelsbanken. Please go ahead. Your line is now open. Hi, everyone. Thank you for taking the call. I just wonder a bit more about the ToveTech and the sale increase the external sale increase. Thank you for the split. That was helpful. But we've seen many new announcements during the quarter. Have any of these been have you been able to capitalize on this in this quarter? Or are they still waiting? Could you give some flavor on that would be really helpful? Thanks. Thanks. No, that's a good question. On a general level, the sales increase that we've seen in Tobitek over the past 2, 3 quarters has largely been driven by deals that were announced earlier in time. So I think that sort of announcement and product launches in this quarter they will help drive revenue growth going forward in coming quarters partially. Okay. Okay. Yes. Thank you. That's it for me. Thank you. Our last question comes from the line of Johannes Reiss from HBOS Capital. Please go ahead. Your line is now open. Yes, hello. Maybe also a short follow-up on Tobii Pro. The 2 new products you showed here, even in the press release, you talked about new products that are in the pipeline. Could that be a driver maybe for growth in the coming quarters? Johannes, I'm not sure I heard the question properly. Can you please repeat the question? No, no. The 2 new products you have in your presentation shown in pro and also I think in the press release you mentioned further products which are in the pipe in the labs which are coming in the next foreseeable future. Could that be drivers maybe for growth for increasing growth rates or coming back to growth in Tobey Pro? Yes. Thank you for that question. So as a first comment, we generally feel a strong underlying demand in the market. So I'm not overly concerned with the lower revenue growth specifically in the Q2 where we've had several quarters of very strong growth in Tobipro And we see positively on the future sales trends, just generally speaking, just based on sort of market demand and market development. But also, of course, we do know that improving products and launches of new products are tend to be a strong contribution to driving additional revenue growth in Tobii Pro. Obviously, the product improvements that we have presented this quarter are important product improvements. So we definitely expect those to help drive sales. But we do have significant products additional products under development that we expect to bring to market during the course of the coming year. And definitely we expect some of these products to be significant revenue drivers as well. And with more growth, given that you have now made a lot of investments in R and D and building the channels, the margin could go to the target margin in the foreseeable future. I think the target margin was 15% if I have it right in my head, 15%? Yes. No, I think that's we have as you mentioned, we have our financial goal in Solvipro of 15% to 20% EBIT margin. We have said that that's our goal for 2020. We do continue to believe that that is very much the appropriate goal and target for Tobey Pro. And if you look over several past quarters, we've seen a very positive improvement trend in the profit margin for Tobii Pro. The Tobii Pro business has a very high gross margin, which also means that revenue growth very nicely translates into increasing EBIT on the bottom line. Okay. Bottom line is more affected by OpEx, which were investment for the future? Yes. We are however also in Tobipro, we are keeping the OpEx at a roughly flat level from where we are right now, which means that continued revenue growth does translate into increasing EBIT. Super. On Tobeytech, on the IS5 platform, maybe you can repeat a little bit the advantage compared to IS4. And you mentioned because of its smaller size, lower price, more power, it attracts more customers. Maybe you can add a little bit more to this because it's I think it's very important strategic going forward. Absolutely. We're doing a good job at describing the differences and benefits. So let me know Johannes if you need a sales job. We can always have a look at that. But Sorry. No, but you're right. One of the some of the design goals with the IS5 platform was specifically to make it significantly smaller. Thin and light gaming laptops. So the integration of eye tracking into Alienware's new M15 and M17 would have been completely impossible based on the previous IS-four platform, but are now fully made possible with IS-five. And of course, this is actually much bigger factor than many people realize because when you design a PC, the industrial design of that device is very, very important. So putting in an eye tracking sensor that's going to look make your device look less nice and big and bulky and things like that, that's a no go. So having a smaller form factor is very critical and it's also very difficult to accomplish. Another important improvement with the IS5 is that the illumination system for the that creates the reflection points that are is needed for eye tracking has been moved to an invisible wavelength for the version of IS5 that goes into laptop PCs, which means that in previous integrations as a user you've actually been able to notice a faint red light coming from the eye tracking system, which quite a lot of users have actually reacted to and again something that impacts the industrial design of the device. With the new IS5, this is completely visible. So as a user, you can't notice, you don't see it. And of course, when you have both the invisibility of the illumination and the smaller form factor, all of a sudden there is no sort of there's no you don't pay anything on the design of your device to put in eye tracking. So that's really important. Super. Maybe going forward, what will in the next 1 or 2 years stronger growth drivers as a PC laptop business or as a V8 VR business. Both you are successful, but what's maybe the near term opportunity? Because you mentioned with reality 3, 4 years it will be standard, but how is the way on Virtus' system? So for what we maybe in your eyes short term is the stronger driver? So I think going forward in the near term, I think that we will see revenue growth in Tobitec driven mostly by PC and niche applications. We do see significant revenue growth in niche applications, so PC and niche applications. But then in the medium term as VR starts kicking into volume then we definitely expect that to be a significant contributor as well. Yes. And in the PC space, it's very impressive for me to see this Intel topics, Intel Athena and but also the that you are in VR with Qualcomm that are really big players that could help you really to be in the standard solutions going forward? Yes. The tranche of Yes. Agreed. Okay. Latest point on the cash side, you have burned another €81,000,000 even if you achieve next year to come profitable. Do you think the cash is enough? Because you nearly burned a quarter of your cash you had at the beginning of the quarter. Yes. Hi, Johannes. So yes, we had a negative cash flow in the quarter. A lot had to do with some temporary buildup of working capital. And obviously, that we will gain from in second half as well. So but as we've said before, the business plan we have is fully funded in itself by the equity issue that we did a couple of years back. And then in addition, we brought in some funds via a bond earlier this year for acquisition purposes. Thank you. We have one further question from the line of Mark O'Loughie from Carnegie. Please go ahead. Your line is now open. Hi. Yes, I have a few questions. First of all, the nonrecurring costs that you had in the Dynavox segment, what was that related to? It is specifically related to this EMA process. Consultancy fees and things like that or? Yes. Okay. Mainly in the legal space. All right. And when it comes to Dine you had increased personnel turnover. Can you explain why? You mean related to the funding teams, right? Yes. I don't think we don't feel that we have per se systematically any increased staff turnover. Generally, we have very low staff turnover and continue to have so. But we had a little bit of a fluke spike for a variety of reasons, including health reasons that led to us having a staff shortage and some higher than normal turnover specifically in those departments in the quarter. And it's just it's very specialized expertise to know how to do these to process these type of paperworks and applications. So it actually takes quite some time to train new experts in the field. Okay. How many employees are working with these processes in the U. S? In total, roughly 40 people. 40? 40. Okay. Thanks. Yes. And I was wondering about the order intake for Tobey Pro. If you can maybe be more specific there about the order intake and the order book during the quarter? You mean in terms of the buildup of the backlog? Yes please. Yes. So you can think of around SEK 10,000,000 that equates to roughly 10% growth on an FX adjusted basis. But the order backlog increased by €10,000,000 Around €10,000,000 Around €10,000,000 Okay. Great. Yes, and my yes, I think final one was regarding the ToveTech outlook. If you can help us with the drivers sales drivers in the second half twenty nineteen and twenty twenty. You mentioned a bit here about PC notebooks and niche applications. But if you can elaborate on that a bit more in detail. I expect or I guess that you expect a sequential increase from here, quite a substantial increase, I hope. But can you maybe help us out with the outlook and revenue trend ahead? Yes. It's obviously somewhat tricky since we do not provide specific forecasts in that sense in short term. So I think we resort to saying that, yes, we do expect continued revenue growth in Covitec. And near term, I think we should expect that to come primarily from PC and niche applications, a little bit from VR as well. But as we mentioned before, the real sort of kick in BR is later in 2020 and in 2021 in terms of really significant volumes. Okay. So given that the new notebooks were launched quite late in the quarter, I guess, I assume that you didn't have that much effect from it, but there could, of course, be inventory buildup ahead of the launch in Q2? Yes. So both of your statements there I would say are quite accurate. On the one hand, we did not see full effects in the Q2. But on the other hand, there was some inventory buildup happening in the Q2. Okay. And the final one. Can you talk about the notebook developers that you talked to and discussed IS5 with them? And in a similar way maybe as you have your opportunities, how many discussions are ongoing and things like that? Thanks. Yes. It's a little bit trickier to do this in a concise way in the PC ecosystem. It's so much more fragmented. Generally speaking, we do have intense dialogues with several PC manufacturers for a number of different products and product lines and product models. In the near term, we see in particular strong interest for to be aware, but we also see interest for the IS5 platform. But I don't quantify further than that. Okay. Thank you. Thank you. We will now take some questions that have been submitted via the web. After which, we can come back to those waiting with questions on the phone lines. Hi. Yes, we have some questions from the web. And Kent, Roger and Hans are thinking about our financial targets and concerned about how we're going to reach them. And if we don't reach, what about cost? How do we manage cost? And I will consider cost tough. All right. I'll start out on that. Obviously, we do planning on a continuous basis for the next few quarters. And we have some solid plans in place in terms of securing our profitability for 2020. And obviously, that means also that we will have as we've said in the in our earnings report and probably these calls as well, we'll have an increased focus on our resource priorities. And you will see lower growth in operating expenses. Specifically, I've called out a number of times that we have reached the size that we need to execute the Tobey Tech sort of business plan etcetera. So that's what you should expect. We don't plan cost cuts. We have this in our own management. I don't know if you want to add anything here, Henrik. No. That's good. Okay. So another question is the loan we raised in earlier in March that was to fund acquisitions. So what has happened with the acquisitions? Obviously, Filson's about acquisitions? So obviously one very clearly stated reason for the bond loan was to ensure financing of acquisitions done, so including of course SmartBox etcetera. But we also have a pipeline of potential acquisition opportunities going forward. As always, we are very picky and choosy in terms of doing acquisitions. Our main growth strategy for Tolbertek is organic growth. But we do see interesting and exciting opportunities that we evaluate on a continuous basis. So we'll see what happens there going forward. And one question for Mattias. I think it's for you, Henrik. Can you mention any more examples of the niche market By far the largest cluster of customers and applications within the niche applications segment is in the medical field. There is actually a fairly large number of different very strong benefits and use cases for eye tracking in the medical field. Everything from different forms of assessments or diagnostics and everything from cognitive assessments to reading diagnostics to vision assessments to concussion or Parkinson's or Alzheimer's or glaucoma. There's a lot of different conditions that you can assess effectively with eye tracking simply because eye tracking is saying a lot about what is actually happening in a person's brain. Related to that is also under development from numerous partners different therapy methods, so everything from vision therapy to cognitive therapy, reading therapy and so forth. There is also several customers in the medical space that are using eye tracking for interaction in medical environments, everything from more efficient or particular interactions in surgery rooms to assistive technology including competitors also to TogoDynamox that we supply eye tracking technology to and other forms of interactions in the medical space. So those are a couple of examples. Okay. We have from Quang from Spain. So the orders that you have commented on today, so assuming that's Tubitek, what kind of visibility do we have in terms of sales and profit and cash? So I mean generally in Tovitec, we make money when our customers make money and sell their products. So our typical revenue stream is either that we sell an eye tracking sensor system like the IS5 and then for every unit that Dell ships of an anywhere M15 laptop, they ship an eye tracking sensor from Tobii and we sell them a sensor for every unit. Or it can also be based on licenses per unit. So we obviously have forecasts from our OEM customers. They provide us with rolling forecasts typically with a fairly high degree of accuracy 3 months into the future, but also, rougher projections roughly 6 months into the future. And that gives us a good estimate, although not certain of what our revenue is likely to be going forward. We do not share these estimates externally though. Okay. So one question from Matthias. I think we handled the first part in terms of sales fit within Tokitec or PCVR and ISH. But when it comes to growth, which one has contributed most to the growth? And how do we see that moving forward? I think we've touched on it in part. But specifically in the Q2, even though the sales split was roughly even between the three segments, it was actually niche applications and VR that showed the largest growth relative to the Q2 of the year before. But again going forward near term, we expect PC and niche applications to grow the fastest whereas medium to long term we definitely expect the yard to pick up significant steam as well. Okay. I think that's it for the webcast. We have one more do we have any more questions from the line, operator? Joanne? We have one question on the phone line from the line of Daniel Thorson from ABG. Please go ahead. Your line is now open. Yes. Just a final one on Tobit Tech. You mentioned in one of the bullets here that you have a design win in the VR segment in the quarter. Does that relate to the Qualcomm or the HTC launches? Or is that something totally new that you just can't disclose as of now? It relates to neither HTC or Qualcomm. It's to a different customer. So it's a third one that you haven't disclosed yet? Right. Okay. Do you have any expected timing on when you will disclose who that is? I do, but I won't disclose that right now. Okay. That was it for me. Okay. So I believe that's it for us. Yes. Thanks everyone for attending our earnings call today and thanks for good and relevant questions. So bye for now everyone. That does conclude our conference for today. Thank you for participating and you will now disconnect.