I hear that this conference is being recorded today, Friday the 26th of April, 2019. I would now like to hand the conference over to your speaker today, Henrik Eskilsson. Please go ahead.
Thank you, Serena. Good afternoon, everyone, and welcome to our earnings call for the first quarter. As usual, it will be myself and Johan Wilsby , our CFO, who will present, and we look forward to some questions from some of you at the end. Let's move to next slide, please. We had a great start of the year, with a new sales record for the group in Q1. Sales even grew sequentially despite a very strong fourth quarter last year, where we typically see the fourth quarter being extra boosted by seasonal effects. Sales this quarter grew by 34% over Q1 last year or 20% adjusted to currency. We see all three business units continuing to grow nicely. Tobii Pro showed another quarter with very high profit margins now in Q1. Tobii Dynavox showed continued solid growth, both in touch and eye-tracking product lines.
In Tobii Tech, we had positive development in all of our core focus segments, PC, VR, and our niche application segments. Let's dig a little bit deeper and let's start with Tobii Dynavox. As you know, Tobii Dynavox is the global leader in assistive technology for communication. We have about 70,000 active users of our communication solutions, 70,000 users who would otherwise not be able to communicate and interact with the world in an effective way. Next slide. Revenue in Tobii Dynavox in the first quarter grew by 40% over Q1 last year. This very strong sales growth is driven in part by the acquisition of Smartbox, in part by favorable currencies, and also by strong organic sales growth. Adjusted for both the acquisition and currency effects, the revenue growth was a solid 10%, well in line with both previous quarters and our long-term targets for Tobii Dynavox.
Sales grew nicely in developed markets such as the U.S., Sweden, and Norway, and we saw rapid growth from low levels in several new markets, for instance, in countries across Eastern Europe. We also grew nicely in both touch and eye-tracking product lines. Sales of our new touch products were particularly strong in Europe, in part driven by our recent investments in localizations of our solutions. On a global basis, we estimate the total penetration of communication solutions for people with speech impairments to be around 1%-2%. There are still many, many people out there to reach and to help gain a voice with our solutions. In the first quarter alone, we added some 5,000 new voices or users of our communication solutions, which is 25% more new voices than in the first quarter of last year.
Spreading the word about our excellent tools is a top priority for us, and training and educating therapists, prescribers, and users is a key activity. One of our tools for this is something we call Power Academy, and just in this quarter, we've trained about 7,000 professionals on assistive technology and on our solutions worldwide. The numbers from Smartbox, for the acquisition that we made last fall, are consolidated into Tobii Dynavox financials. The acquisition of Smartbox is still under review by CMA, the U.K. Competition and Markets Authority. We are expecting a final outcome of this process at the end of July, and until then, we cannot integrate Smartbox into Tobii Dynavox and thus cannot leverage any of the benefits from a tighter integration. Over to you, Johan, and some of the financials.
All right. Hi, all. Tobii Dynavox continued its momentum of delivering good revenue growth, and this quarter we saw an organic 10% growth restated for FX and M&A. We're happy to report growth in both eye-tracking and touch-enabled technologies, as well as in all price offerings ranging from medical grade to sales of apps. Gross margin was down four points in the quarter compared to Q1 of 2018, but in line sequentially. The variance was primarily driven by product mix changes arising from an extended product portfolio. This includes the Smartbox acquisition and some non-recurring costs and reallocation of license costs from operating expenses to COGS. A restated gross margin would be 65%, and this is including the fact that we have not integrated the Smartbox entities due to the ongoing CMA review.
Our operating expenses were up in Q1, which is mainly due to the acquisition of Smartbox, but in line with Q4 of 2018, and there were several one-time costs in Q1 that affected our EBIT in the quarter. Around SEK 8 million, primarily M&A related. Organic headcount growth was around 3% over last year, and in addition, we had increased R&D efforts, an increase in cost for a large-scale training program that Henrik mentioned earlier. The Q1 EBIT margin was in line with last year and sequentially. EBIT adjusted for non-recurring item was 11%, which is an improvement, but still not where we aspire to be as our long-term target for EBIT margin is 15%-20%. The investments we are making in training and R&D are strategically right for the long-term growth and both related to top line and our operating profit. Back to you, Henrik.
Moving over to Tobii Pro. Tobii Pro is the global leader in eye-tracking solutions for understanding human behavior. Let's move on to the next slide. Tobii Pro's business is growing and expanding as the market is maturing, and eye-tracking is more deeply and broadly adopted across several different areas. As a consequence of this, we see significant opportunity in focusing our product development and sales efforts more clearly into segments. We have, in this quarter, reorganized parts of Tobii Pro's team to be focused towards three main segments, scientific research, professional performance, and marketing research and user experience. By doing this, we believe that we will be able to much more powerfully address customers and their needs in each of these segments, and thus continue to rapidly grow our business within each of them in the best possible way. The next slide.
Revenue in Tobii Pro grew by 18% in Q1 over Q1 last year or 7% adjusted for currency effects. This was despite a very strong and tough comparison quarter last year. Underlying demand in Tobii Pro's markets continued to be strong across the board. In Q1, we had particularly strong sales in China, which grew by almost 50% over last year. Our academic business within our scientific research segment has, however, been somewhat dampened in the quarter, affected by the U.S. government shutdown in Q1 and also Brexit-related uncertainty regarding EU-funded research grants in the U.K. We continue to invest a lot in broadening and refining our product portfolio for Tobii Pro. In the quarter, we announced a new version of our flagship analysis software, Pro Lab. We also recently opened a new sales office in Singapore to more forcefully address the Southeast Asia markets for Tobii Pro.
We received an important repeat order from a large global market research company of our solution Sticky, which is our SaaS solution for large-scale eye tracking tests. Our new fast-growing segment, professional performance, has initially been really successful, specifically in Japan. We are now increasing focus and consequently sales growth in this segment, also in other geographical markets, such as in the U.S. and in Europe. Over to you, Johan, and more financials, this time Tobii Pro.
Great. Q1 was a good sales quarter for Tobii Pro, with 7% FX-adjusted growth, even if Q1 of 2018 was an exceptional quarter. This is the second quarter ever we record over SEK 100 million in revenues in a quarter, despite the fact that we saw some dampening effects in a couple of countries' academic sales, as Henrik mentioned. Gross margin came in at 76%, up two points year-over-year and flat sequentially. Product versus services mix in the quarter was behind some of the increased margin. We also saw some scalable cost elements. Operating expenses show continued growth versus last year due to the investments we are doing both in sales coverage and product development. The acquisition of Acuity Intelligence earlier in 2018 also contributed to these great increases in expenses.
Having said that, first quarter operating expenses are below Q4 of 2018. We expect more modest growth in Tobii Pro's expenses going forward. EBIT margin came in at 20%, which compared to last year, it was up four points. As you know, we tend to have strong seasonal patterns in this business, where Q4 and Q1 are the strongest from a profitability view. The Tobii Pro business unit start to see some positive scalability in its business model as we see healthy top-line growth. Next slide, please.
Thanks, Johan. Let's move to Tobii Tech. Tobii Tech, as you know, is the world's leading supplier of core eye tracking technology for integration into devices of our OEM customers. Next slide. In the near term, our key focus segments in Tobii Tech are PC, virtual reality, and niche applications. We see very large market opportunities in each one of these three. Next slide. In Q1, we started shipping our new Tobii IS5 platform for integration of eye tracking in PC devices. With its invisible illumination and small form factor, this new platform opens up for integration of eye tracking in more form factors of devices and larger volumes of PCs. The Alienware Area-51m gaming laptop by Dell is the first device to integrate the IS5, and this product started shipping in Q1.
Sales in the PC segment grew rapidly in Q1 compared to last year, and you should expect to see IS5 in more devices and significantly higher volumes during this year. We continue to see traction for eye tracking in both streaming, esports, and in games. For instance, more than 800 unique streamers streamed their gameplay with eye tracking in almost 8,000 streams and had 10 million views in Q1 alone, which is actually double that of the previous quarter sequentially, so Q4 2018. Eye tracking is also being used in a rapidly growing range of major esport broadcast events. In Q1, for instance, we introduced eye tracking in an event called the WESG, World Electronic Sports Games, which is a very large esport event by Alibaba in China.
Seven new games with eye tracking were launched in Q1, including "The Division 2," probably one of the biggest launches in the games industry this year. Next slide, please. This morning, actually, we announced a major new generation of our so-called Tobii Aware solution. Tobii Aware is a sophisticated algorithm and user interface software that provides a number of key benefits to PC OEMs and their end users. Examples of benefits include improved privacy and security, for instance, by instantly blurring the screen when the user looks away. Digital wellbeing, enhanced device performance, increased efficiency are other examples. Most of these features are brand new in this new generation of the software. Lenovo is first out as a major PC OEM to integrate this new generation of Tobii Aware into their Lenovo Yoga A940 all-in-one desktop PC.
Tobii Aware is an entry-level solution from Tobii that enables some of the benefits of a high fidelity eye tracking system, but at a significantly lower cost point. Thus, Tobii Aware allows us to already near term, address a much larger portion of the overall PC market to drive higher volumes faster and establish a differentiated set of offerings towards the PC OEMs. Next slide. Moving a little bit into the VR segment. The research firm IDC recently updated their projections for the VR and AR device market and reiterated their estimates of rapid growth. Their recent forecast is that the number of device shipments will grow over 50% to almost nine million units this year, and with an over 60% CAGR to reach almost 70 million shipments by 2023.
As we mentioned already in our previous earnings call, HTC is first out to announce a major VR headset with built-in eye tracking. HTC has pioneered many of the core aspects of modern VR, and they are a perfect early go-to-market partner for Tobii in this space. Their new device, called the HTC VIVE Pro Eye, will start shipping tentatively end of Q2. Several other devices with built-in eye tracking are also coming to market this year, both with and without Tobii's technology. For instance, Microsoft recently announced the HoloLens 2 AR headset with built-in eye tracking. This evolution of several headsets with eye tracking coming to market drives a strong acceleration of market adoption, and we expect that within approximately three years, a majority of headsets will have eye tracking natively built in.
Our ambition is absolutely to be the market leader for eye tracking technology in this space, and Tobii is already collaborating closely with several major partners and customers to bring devices to market with our technology integrated. To accelerate market adoption, we're also working closely with software developers in VR, and as a part of this, we this quarter launched a new powerful SDK or software development kit for eye tracking in VR and AR. Next slide, please. Sales in our niche application segment grew very rapidly in Q1. We almost quadrupled sales to external customers in this specific segment compared to Q1 of last year. This is a segment with numerous opportunities across a broad range of applications in fields such as medical, industrial, and entertainment.
We signed a couple of more customers in the quarter and now have over a dozen design wins with very innovative customers in this segment. In many of these applications, the value of eye tracking is fundamental. Even if we typically see lower quantities of units here than in consumer electronics, we typically sell at much higher price points and at high margins. This is already today a profitable sub-segment within Tobii Tech with strong growth opportunities. Johan, your turn.
All right. Thanks, Henrik. Let's turn to the financials for Tobii Tech, where revenues in the quarter were up 21% year-over-year, adjusted for FX, and the external revenues were up 36% on the same basis, which is really strong. This quarter, the PC segment and customers within the niche markets contributed strongest to the growth. Gross margin was up two points to 44%, primarily due to a different product mix, obviously driving a different cost of goods sold than last year. As communicated earlier, our organization in Tobii Tech has reached the capacity needed to execute the business plan, and hence the operating expenses were in line with the last two to three quarters.
We saw some year-over-year growth in Q1, since we have grown the organization since then to pursue multiple businesses and our business opportunities, mainly contributed from an increased effort in R&D, sales, as well as in the patent area. Next slide, please. The group revenues showed continued growth in the first quarter, an increase by 20% adjusted for currency effect year-over-year, where Tobii Dynavox and Tobii Tech contributed mostly to this growth. The SEK 393 million is actually a record high for the group. Gross margin for the quarter was 68%, down two points compared to last year, but in line sequentially. Obviously, the delayed integration for Smartbox impacts the quarter, as do some non-recurring costs.
Tobii's EBIT for Q1 was a negative SEK 37 million, which is in line with Q1 of 2018, despite having SEK 9 million of non-recurring included. Operating expenses have flattened out sequentially despite the negative FX impact from international team. The combined EBIT for our two mature businesses, Tobii Pro and Tobii Dynavox, grew nicely with over 40% growth despite material one-timers. Next slide. Let's wrap up the financials with a look at our cash flow, which was a negative SEK 99 million in the quarter. The change versus last year was primarily driven by an increase in several items in our net working capital. Among those, an increase in accounts receivables following the sales growth. As earlier communicated, we issued a bond of SEK 300 million in February to refinance acquisitions made last year, and also to enable future M&A activities.
At the end of the quarter, we had a cash position of SEK 390 million. Lastly, I want to make you all aware of that the implementation of IFRS 16 around leasing impacts the balance sheet as well as the EBITDA, and hence key ratios where these variables are included. You can read more about this change in our report. This concludes the walkthrough of the finance section. Back to you, Henrik.
Thanks. Summarizing the first quarter, we had record sales for the Tobii group. We saw growth in all three business units. Tobii Tech grew external sales by 36%, FX adjusted. Tobii Dynavox grew revenues by 40%, or 10% adjusted for both FX and acquisition. Tobii Pro delivered a profit margin of 20%. We have now reached the size of organization we need in order to deliver on our plan, thus we proceed with a strong focus on reaching our goal of profitability for the group already next year. With that, we're done with our presentation, we're handing over to you, Serena, and specifically to questions from the teleconference.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue, as this will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. We would also like to remind you that it is possible to place your question via the webcast platform. While to ask a question over the phone, please press star one. Your first question comes from the line of Mikael Larsson. Please ask your question.
Hi there. Yeah, I have a few questions, and start with a couple of financial things. Can you say something about the net working capital, going forward, what we can expect in the coming quarters?
Yeah. Hi, Mikael. The effect that you saw in Q1, some of that was a temporary effect. Some of that came through the, as I said, with increased sales. We also had some receivables increasing temporarily as a result of our incorporation exercise that we did at the start of this year, which is in the VAT area, et cetera. They will actually more or less go away in the coming quarters, it's hard to predict anything. There's nothing major going forward in terms of the net working capital.
Mm-hmm. Okay. Good. Smartbox, can you say something about how that company performed in Q1 and the sales contribution, approximately?
I'm sorry, we are in the process with CMA and in phase 2 right now, we are unable to give specific data on the company and that performance. I'm sorry, we cannot say anything specifically.
Okay. Yeah. I understand. The non-recurring cost in Q1, why did you have SEK 9 million?
Most of that is related to the CMA process, around 7 of the 9, and the other 2 is of non-recurring nature sitting in cost of goods sold.
Okay. That is in Dynavox?
One is in Dynavox and another one is in Tech.
Okay. Good. When it comes to the business units, starting with Pro, I'm curious here about the impact from the U.S. government shutdown and the U.K. funding situation, approximate effect from that, and if the U.K. side is continuing or if that was a temporary thing in Q1.
If we start with the U.S. government shutdown, we see that as a temporary effect isolated to Q1. I think we would hope, at least. Although there is some randomness in that perhaps. I think that's a temporary effect, so over a longer period of time, we would expect that to maybe even catch up. In terms of the U.K., I think there is a risk that we will see a continued dampening of academic research grants in the U.K. markets until there is clarity on the Brexit situation. Basically, a fairly significant portion of academic research grants have actually been financed by the EU and are financed by the EU in EU countries. I think long-term, the effect would not be there because long-term, the U.K. government would sort of compensate for it by having U.K. research grants to the same amount as they funneled through the EU.
While we're in this Brexit limbo, we might have this situation. We do see, though, in the U.K. market, we see quite strong traction on the other hand, on the commercial side of the market. For the U.K. market overall, we don't necessarily see that as sort of a negative trend. On the contrary, we do believe in continued growth in the U.K., but strong growth on the commercial side, but a dampening, maybe at least as long as there's Brexit uncertainty on the academic side. They're not super large. This is not a super large effect in the big scheme of things for Tobii Pro, since it's very isolated to the academic side, specifically of the U.K. market.
Okay. I see. It would be interesting also to hear, if you can, customer examples in the professional application side, how they are using it, and so on, more sort of background on that. Maybe some comments on the order book for the Pro segment.
Generally within Professional Performance in that segment, which is, again, a relatively new segment within Tobii Pro. This is a market segment that has really sort of been born out of our Japanese market with a lot of really deep customer engagements in Japan. One of the absolute main use cases within Professional Performance is to use eye tracking as a tool for training and knowledge transfer. Be able to expedite the training process of a person in any kind of process, really, by getting a much deeper insight both into what is a person doing who is trying to learn something new, but also how does that compare to an expert in the field, and what can you do to improve and accelerate the training process?
We actually have numerous customers that have used eye tracking for quite some time and are seeing very strong proven results in fantastic explorational training processes. Of course, training and knowledge transfer is something that's very generic. It cuts across a lot of different industries, a lot of different types of customers, and so forth. Within Professional Performance, we actually see a strong growth of customers across all kinds of sectors. Everything from manufacturing companies to medical companies to hospitals training doctors to law enforcement to pilots or air traffic controllers or train drivers. There's actually a large number of different types of customers. We do work today in deep relationships with, for instance, large manufacturing companies in the automotive industry. We work with companies in process industries. Again, we work with law enforcement companies, even sports teams that are using this.
Thanks. Great. Interesting. My final question is about the tech side. This quarter was driven by the external side, PC and niche applications. Can you say something more about this mix? Maybe help a bit with the outlook here, and how these new contracts will develop in the coming quarters. Will it be very back-ended, or more of a gradual increase from here?
Big picture level within Tobii Tech today, these 3 focus segments, PC, VR, and niche applications, are roughly equally important from a sales perspective today. In terms of growth opportunities over the coming 1 to 2 years, we see approximately equal strong opportunities in each one of these 3 segments. We anticipate to see strong revenue growth in Tobii Tech over the coming year.
Specifically in second half, we could say as well, right?
Yeah.
Okay. Thank you.
Thank you. Your next question comes from the line of Daniel Thorson. Please ask your question.
Thanks for taking my questions. I have a couple. I start off with Dynavox and Pro together. Is it mainly gross margin improvements or scalability and OpEx that will drive EBIT margin improvements to your target EBIT margins?
For those two combined, there are several aspects. You have scalable elements sitting in the gross margin, but we've also made a number of investments in both of them actually over the past few years, which will, to some extent, level off in terms of investment pacing or growth, but we can actually scale on those platforms to a greater extent
One of them being, for example, the training exercise and the teams that we've built up in Tobii Dynavox is an example of that. You will see elements of drivers for the profitability improvements, both sitting in COGS as well as in operating expenses.
Okay, I understand. A follow-up from Mikael's question, I think it's quite similar. Out of the external sales in Tobii Tech in this quarter, can you say anything on the split between PC gaming and VR, et cetera?
Yeah. The split of the external sales between the three segments, PC, VR, and niche applications, is roughly a third each. PC is somewhat larger than the other two.
Okay, that's very helpful. Continuing on Tobii Tech, R&D spending from here, are we seeing increases in the coming quarters or flattening out sequentially?
I'm not going to guide on specific cost elements. In general, as we've said before, and you saw some proof of that now in this quarter as well, the total cost base in Tobii Tech is leveling off, right? It's fairly similar if you look at Q4, Q3, and Q1. In different quarters, you will see we might do some specific things in R&D projects, which will drive some expense. Roughly, in terms of team size, we're there where we need to be.
Okay, that's great. If we see other vendors within VR launching products in the near future with eye tracking, and if it, in that case, is not the Tobii eye tracker, what could it be then? Do they have proprietary solutions or other suppliers?
Within VR, there is definitely a healthy competitive landscape of eye-tracking vendors. Tobii is competing with other independent eye-tracking vendors for design wins with headset manufacturers. In addition to that, there are also internal development efforts of eye-tracking technology with some of the absolutely largest players. We are optimistic that we are very well-positioned within the VR space, and that Tobii Tech has good probability to take a strong market-leading position in supplying eye-tracking technology to VR.
Do you mean a strong market position in terms of the ones that are not in-house produced or a strong market position within all the VR devices?
A large, strong position across all VR devices.
Okay, excellent. To reach the profitability target in 2020, do you include any sorts of acquisitions to be done to reach that, or is it based on the current business mix, as you made the Smartbox acquisition after you launched this target, for example?
It's not based on further acquisitions, our financial targets.
Okay. That's helpful. The final one, just to understand the dynamics behind potential sales contribution from, for example, the HTC VIVE Pro Eye that will be launched in Q2. When do you deliver and book revenues for your products into that category? Has that already been made in Q1, or will it come as it comes when they deliver it to the market?
The absolute majority of our revenue from a deal like the one with HTC comes from when we ship components to them, which we typically would do one to two months prior to them shipping products through their sales channels. We see initial revenue of components to HTC starting now early Q2. Hello? Are you still there?
Hello?
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This is the operator.
Okay.
This is the operator. I can hear the main feed. I think that it's Mr. Thorson line which is not working.
Okay.
Okay.
Okay. Why don't we switch back to the webcast questions then for now and see if Daniel comes back again.
Yep, let's do that.
Otherwise, Daniel, please call us up afterwards and we'll sort the last of it. There are a couple of questions from the web. The first one is from Hans Ahlberg, and he notes that you actually, Henrik, you are doubling here as the CEO and the head of Tobii Tech. How is the recruitment for a new Tobii Tech head going?
Yep. I am doubling. Although that is a lot of fun and exciting, of course, we are also in the process of a search and recruitment of a permanent division CEO for Tobii Tech. That search is ongoing with full force. We are very focused on making sure it is the absolutely perfect right recruitment, and that is much more important than that the process concludes quickly.
Okay. We have a question from Sebastian Olsson from SEB. Will you please give us some flavor on the development of touch products versus eye-tracking products in the quarter, and what does the sales split look like today?
In the quarter, we saw good growth in both the touch product line and across the eye-tracking product lines. We grew specifically quite strongly on the touch product in Europe, whereas we had stronger growth on the eye-tracking side of the product portfolio on the North American side. Roughly, the sales split is about two-thirds of revenue with eye-tracking products and one-third with the touch-based products.
Okay. A second question from Sebastian. If you can mention anything about how the demand from VR OEMs look after the announced deal with HTC. Do you see increased demand, or is it pretty much the same?
Before the HTC announcement, we saw a very strong and solid interest and demand from VR headset manufacturers. Obviously, on the back end of HTC's announcement, that temperature has increased further. We definitely see that this clearly accelerates the interest in the market adoption for VR. I am more convinced and confident than ever that eye-tracking is going to become a must-have feature in VR headsets over the next coming years.
Okay. One final question from Sebastian. Could you explain a bit on the Lenovo deal that you mentioned in the report? Expand a bit on what's the scope there and what's happening now.
Yeah. Specifically, with Lenovo, again, they are our first OEM customer for this new generation of Tobii Aware, and they're implementing our Tobii Aware software into their Yoga A940 product. That's great. They're a very good first customer on this software. On a business level, this is a license agreement with Lenovo. We do see strong interest and a very healthy pipeline for the Tobii Aware solution for potential additional products with Lenovo and also with several additional potential PC OEM customers.
I could also add that you can find more information about Aware on aware.tobii.com, you can look at the press release we issued this morning. One more question from Ann-Katrin Engvall. Is the long-term goal for Tobii Tech to achieve sales in the billions of SEK region with good profitability realistic in your opinion, even if no significant penetration will be made in the smartphone market?
Yes, absolutely. I think that at least for instance, the PC opportunity and the VR and AR opportunities, each one of those, even on a standalone basis, are billion SEK revenue opportunities.
Okay. Serena, do we have any more questions? I don't have any more questions on the web.
Yes. Your next question comes from the line of Tommy Hellström. Please ask your question.
Yes, hello. I have four questions. The first one is, can you please give an insight into why you are so optimistic about reaching the long-term financial goals for Tech in particular? How confident are you that Tech will make a profit in 2021 instead of being delayed to 2022 or 2023?
I think that we are quite confident in our possibilities of reaching our target of profitability for Tobii Group next year in 2020. We have line of sight of that, and we have a good plan to accomplish that. Sort of a next milestone there, as you point out, is profitability for Tobii Tech on a standalone basis by 2021. Obviously, that requires a very strong revenue growth in the Tobii Tech division. In terms of customer pipelines and dialogues and integration processes ongoing, we are on track for that, but it's clearly an ambitious goal. There is always a component of uncertainty, but we are trending and working clearly towards that goal for Tobii Tech as well.
Okay, that's good. Also, it says in the Tobii yearly report that a patent licenses deal could potentially give Tobii a substantial increase in revenues in the future. It says that Tobii today has patent licenses deals with some smaller eye-tracking companies that makes eye-tracking innovations that are protected by Tobii patents. Could you please explain more about what this means and what it would amount to? Does it all come down to if these smaller companies gets bigger and therefore will generate more revenue to Tobii? Is it also possible to mention some companies that you have this type of deal with?
On a high level, we have a strong portfolio of patents in Tobii, coming close to 500 granted or pending patents in our portfolio, which is clearly one of the strongest patent portfolios in the eye-tracking space. We do see a medium to long-term opportunity to create and establish a complementary business model, a patent licensing program. This is not something that we have fully structured and enforced today, but we do see it as a potential future opportunity. We don't see it as a main part of our business or one of our largest revenue streams.
Rather, our main strategy is, of course, to supply world-leading technology, where actually the patents are still a very important component of that to both help us ensure that we actually have freedom to operate for ourselves as a tool for that, but also to help us maintain strong, healthy margins when we sell our technology. We do have the ambition to also, over time, establish a patent and licensing program. I would say it's a little bit too early still today to put specific estimates of how large that could be and so forth. The intent of that would, of course, not to just have that based on a few smaller players that might exist today, but rather to do something that we would aim to roll out in a broader sense if we do that.
Okay. I would like to get more insight into the development part of eye-tracking VR games. You released the Tobii XR SDK not too long ago. To me, that sounds like eye-tracking VR games may be a couple of years away, since it takes a long time to develop good VR experiences, especially since there are no headsets available on the market with eye tracking. How far back would it have been possible for a VR game company to get adequate developer tools from you to start using eye tracking in their VR games? When could the earliest date be for starting development for VR eye-tracking games?
It's a great question. First of all, maybe to elaborate a bit, is benefits of eye tracking for VR are not limited specifically to games. Really any type of application in VR can benefit from eye tracking, often in numerous ways. Everything from what's called foveated rendering, which makes it possible to deliver much more powerful graphics in a more efficient manner, to social interaction, to better navigation of the user interface, to doing very valuable analytics in different forms of software. We actually see at least equal interest in this early stage from enterprise applications in VR, as we do from games and other forms of entertainment or social experiences in VR. We have had early-stage dev kits for VR with eye tracking available for the past year, approximately, but in smaller quantities.
There's definitely been development of applications ongoing for some time already, and there are at least a dozen different titles spanning both games and enterprise applications on their way into market. Of course, the really big, larger scale developments can start now as the HTC VIVE Pro Eye comes into the marketplace, and this becomes much more available to developers at large scale. This is, of course, also a very important part of collaboration with HTC, and they have very strong channels to their developer ecosystem, with thousands of developers out there. 2019, to a large extent, is going to be a year of exploring and growing and developing and really realizing all of these different values and use cases of eye tracking across both games and enterprise.
We see also here on the software side, we see very good traction and interest in the VR market. This is a very innovative ecosystem that seemed to be embracing eye tracking with full force.
Talking about HTC VIVE Pro Eye, it's targeted at the business side and not so much towards the consumers. Should we expect the large number of eye-tracking games and experiences and such to be a couple of years away when most of the VR headsets have eye tracking in them?
I think that we will see both games and more enterprise-oriented applications already now in 2019. I do think you're correct in your observation that the very first headsets incorporating eye tracking are primarily focused towards the enterprise side, which is a good thing. The enterprise side of VR is where actually a lot of the real stronghold is and growth is today already. I do expect myself to see the games and entertainment side to kick in quite quickly as well.
Okay.
Okay.
I think we need to move on.
Okay.
Are we okay with that, Tommy? Okay, back to you, Serena.
There are no further questions at this time. Please continue.
Okay. Thanks everyone for joining and for the questions. If there are any questions outstanding, you can always reach out to me, Ola Elmeland at Investor Relations . Thank you. Bye.
Thanks everyone today for the call.
Please, that concludes our conference for today. Thank you for participating. You may disconnect.