Good morning, everyone, and warm welcome to the presentation of Tobii's year-end results 2023. My name is Carolina Strömlid, and I'm Head of Investor Relations. With me today, I have our CEO, Anand Srivatsa, and our CFO, Magdalena Rodell Andersson. As always, they will take you through the highlights and the financial development. They will also provide some more context to the acquisition of AutoSense and comment on the new financial targets that were released this morning. After the presentation, we will open up for questions, so feel free to start posting them in the chat already. I will now hand over the word to you, Anand.
Thank you so much, Carolina, and thank you everyone for joining us, so that we can share our Q4 2023 results with you. As Carolina mentioned, we have several things to go over today, but let's first start with the Q4 2023 results itself. I am really pleased with our performance this quarter and that we actually achieved our Q4 profitability target. This result was supported very much by a bounce back in our revenue from our Q3 2023 levels. In fact, in Q4 2023, we had our highest ever quarterly revenue for our products and solutions business, and I think that's a really good result relative to where we were in Q3 2023.
Now, the profitability was also supported by a substantial reduction in cost that we have taken, which has resulted in more than 10% cost reduction in Q4, but the structural elements of that cost reduction will help us also at the same kind of level through the rest of 2024. I think it's really great that we were able to deliver both of these things and deliver on our profitability target in a quarter when we were also making a transformative acquisition of AutoSense. That acquisition, as you may have seen this morning, formally completed last night, and I'm really thrilled that we have taken the step to really strengthen our company, you know, in the mid to long term, and balancing our risk and growth profile by adding a substantial opportunity for us in the automotive interior sensing market.
But we'll talk about that a little bit more at the end of the presentation. We also reiterated this morning that we are going to be raising SEK 300 million of capital with a rights issue to finance the operational expenses for this AutoSense segment in 2024 and 2025. Now, let's take a little bit of a look at the numbers. For Q4 2023, we saw an organic decline in revenue of 4%, and this was really a mixed result between our two segments. On the products and solutions side, we saw a 5% increase, and as I mentioned before, our highest ever revenue quarter, with strength both in EMEA as well as the Americas. But we did see a little bit of tailing off in China at the end of the quarter.
On the integration side, we see that the revenue was down 20%, but we have to keep in mind that this is in reference to a phenomenally strong quarter we had in Q4 2022, where we had 59% organic growth. I'm actually quite proud that the integration business delivered its second highest ever revenue quarter, despite no contribution from the Sony PS VR2 contract. In this quarter, we continued to see sustained momentum in our engagement with VR customers. This is a trend that started after the Apple announcement in June of the Vision Pro, with increased interest from VR makers to put in eye tracking and high-quality eye tracking into their headset. I believe that that engagement is going to build momentum for this segment in 2024, where we hopefully see these early engagements turn into design wins as well.
Now, when we look at the profitability for the quarter, we ended at a 6% EBIT margin, or plus 16 million SEK of EBIT, and that, of course, excludes the one-time extraordinary cost that's related to the M&A that we have just completed. With that, I would like to hand it over to Magdalena to give you a little bit more detail on the financials. Magdalena?
Thank you, Anand. Yes, so then let's start by looking at the financial outcome for our segments. Products and Solutions delivered the highest revenue in our history in absolute numbers and had an organic revenue growth of 5% in this quarter. It was somewhat of a mixed development around the world, where we saw strong growth in the U.S. and but less so in China. The revenue development for the full year was flat, but also here with some variation between the continents, where the U.S. has developed positively, while Asia, Asia has not. Gross margin in the quarter was 68%, compared to 72% last year, where the product mix, for instance, the positive development of our direct-to-consumer eye tracker, put some pressure on the margin. For the full year, the gross margin was 69% and flat, compared to the year before.
G oing over to the integration segment. Although SEK 82 million in the quarter in absolute numbers is an okay figure, the growth is not, -20% versus last year. T hen again, keep in mind that in the quarter last year, we had an extremely strong growth of 59%. The revenue development for the full year was -17%, where we last year had a very positive impact from the Sony PSVR2, and this year we have not. If we were to remove the PSVR2 effect, the integration segment would have shown a solid double-digit growth. Gross margin was slightly lower than last year in this quarter, 87% versus 88%, but totally flat for the full year, 89%.
I f we go over to the total company, Tobii as a whole had an organic revenue development of -4% in the quarter and of -6% for the full year. As we concluded when looking at the former page, the negative development was due to the integration segment and the lack of revenue from PS VR2 this year. The gross margin in the quarter was 74%, compared to 78% last year, where the relatively higher share of products and solutions compared to last year, in combination with the product mix effect within the product and solution segment, affected the gross margin downwards. For the full year, gross margin was 75%, compared to 76% last year. And then going over to EBIT. And yes, we achieved the target to be EBIT profitable in Q4 2023.
We had an EBIT in the quarter of SEK 16 million, or 6% compared to 3% last year, and that is when adjusting for the one-time extraordinary cost related to the M&A of SEK 35 million. If, when including these one-time costs, the EBIT in the quarter was -SEK 14 million. During the quarter, we took several steps to reduce our cost base. The cost reduction was evident already in this report, and we expect to benefit from this lower cost base of around 10% also going forward. EBIT for the full year was -SEK 184 million, or -153 when adjusted for one time M&A costs, compared to -SEK 122 million last year.
This result is not in line with our goal to be profitable, and thus we are making actions, cost reduction being one tool, to secure a much better development for the year to come. Then finally, our balance sheet and cash flow. Cash flow after continuous investments was SEK -26 million, and last year, the same cash flow was SEK +147 million, because at that time, we had received a COVID-related tax relief of SEK 166 million. This tax relief was originally due here in February, but now we have been granted an amortization plan, where we will pay half of the amount in Q3 2025, and the remainder in Q1 2027.
Cash and cash equivalents were SEK 236 million, compared to SEK 402 million last year, and in addition, we have an unutilized revolving credit facility of SEK 50 million. With that, over to you, Anand.
Thank you so much, Magdalena. Now, let's shift gears and talk about the acquisition that we have just successfully closed. I want to first put the acquisition in the context of Tobii. As we mentioned before, when we announced this acquisition, our intention is to organize Tobii into three segments going forward, namely, products and solutions, integrations, and AutoSense. W e believe that Tobii, as a company, now has a much more balanced portfolio, where we can both deliver growth as well as predictability in that growth in a much more balanced way. If you consider products and solutions and integrations today, what you could consider Tobii's core business right now, they, of course, make up the majority of the revenue, even in 2024, and I would say that both of these segments are quite close to profitability already.
On the AutoSense side, we believe that with the acquisition, we now can deliver one of the strongest portfolios into interior sensing, and I will speak to that in more detail in the upcoming slides. So let's talk about AutoSense and the acquisition. As we have shared before, we are getting some significant assets with this acquisition. Specifically, we are getting numerous customer design wins that can serve as reference cases for us to continue to drive growth in the automotive interior sensing. We're getting a skilled team with deep confidence in machine learning and computer vision that are in sites in Europe, Romania, as well as in Ireland. We have technology capabilities and occupancy monitoring systems where we can claim the position of being both a pioneer and leader in this new space, with our solutions shipping on the road since 2021.
We also have seen that the innovations that have come in this team are quite well protected with a robust patent portfolio. But I'm happy to share today that beyond just the customer contracts and the technology and R&D capabilities we're getting, we're also getting a management team that is very well-versed in automotive. The leader for our new AutoSense segment is Adrian Capata, who is formerly Senior Vice President at Xperi. He has been leading the automotive focus on driver monitoring and occupancy, occupancy monitoring at Xperi since its inception in 2017, and has personally been a part of the deals that this team has closed.
So I feel like we are in very good hands when we look at this AutoSense segment with a leadership team that deeply understands the automotive ecosystem, has been engaged with numerous customers, and I think we are ready to combine the capabilities of Tobii and AutoSense to really deliver on our ambition here to become a leader in this space. But what is this space, exactly? What is automotive interior sensing? I know for many of you listening, this may be new, as we've of course, been in this space only for a couple of years. Automotive interior sensing is actually broken up into two major technology domains. First is driver monitoring systems, which are really focused on ensuring that the drivers pay attention to their primary task, which is to drive their vehicle and drive in a safe manner.
But there's a second set of technology domains in interior sensing, and that is called occupant monitoring systems. These technology systems focus on all of the passengers in the car, and they're typically trying to deliver personalization or comfort and convenience features for your experience in the car. In some cases, they also offer safety-related features, but they are really driven towards the passengers in the car versus the driver themselves. Let's talk a little bit more about driver monitoring, so we can understand what the opportunity is and where we stand as Tobii and AutoSense today. Now, the data on crashes is very consistent, that the primary driver for accidents and fatalities is actually human error, and this is, of course, driven the large increase in safety features that we all enjoy in our cars today.
Driver monitoring systems are part of those safety systems, and specifically, what driver monitoring systems do is to ensure that the driver is paying attention to their task of driving. Today, driver monitoring systems are able to determine if a driver is distracted, paying attention to things that are not related to driving. They can also determine if a driver is getting drowsy or tired and warn them to maybe take a break. In many cases, this technology can also detect if a driver is using a phone, something that is quite common today, which of course, can make it quite difficult for you to react to things that are happening around you. These kinds of capabilities have caught the notice of regulators around the world, who are increasingly mandating the use of driver monitoring systems in new cars.
The first place that this regulation is really taking hold is in Europe, with the EU mandating camera-based driver monitoring systems for all new cars in 2026. But other regions are also taking action here, and you are starting to see regulation either in an optional form coming out of China or being discussed to be mandatory in areas like the United States. The expectation is the positive impact that these technologies have on safety, combined with the regulatory push to ensure that all cars ship with this, will drive massive growth in this market. And the third-party estimates are that this market will grow at a 30% CAGR from 2023 to 2030, reaching more than 46 million units annually by the end of the decade. Now, what is it going to take for Tobii AutoSense to win in this space?
The first part, of course, is to have competitive technology, but that is a requirement, but not completely sufficient in order to win. What you have to do, in addition to having competitive technology, is to demonstrate that that technology meets the exacting requirements of the automotive industry, and that is best done by having design wins that you can point to, reference customers who've clearly vetted your solution and decided to put them in their vehicles. T oday, Tobii AutoSense can boast a significant set of design wins in DMS. We have four design wins with commercial vehicles. Some of them have actually been shipping on the road since 2019. We have two design wins in high-volume passenger cars. This is with a Korean automaker as well as a Japanese automaker.
This engagement is done very much in a Tier Two fashion, where we are delivering our solution to another automotive technology supplier, and they engage directly with the OEM. The expectation for these two design wins is that start of production will happen in 2025 and 2026. Finally, we also have a design win with a premium German automaker. What makes this design win special is that we are acting as a Tier One, which means that there is no intermediate between us and the OEM in terms of responsibility to deliver the technology into the OEM's hands and to engage in any way between us and them from an engineering deliverable perspective. This engagement, I think, is quite unique, and demonstrates the capability that we have to go and work directly with the OEMs and deliver to their exacting needs.
This design win should be in production in 2025. So again, the first aspect of building credibility is to be able to have reference customers. The second aspect of credibility is to show that from these design wins, you are able to successfully take this technology implementation and put it into production cars on the road. O nce again, post this acquisition, we are in a much stronger position than we've been before. We estimate that by the end of 2023, almost 300,000 cars are on the road with AutoSense technology in them. These two factors, I believe, put us in a great position when we are in upcoming RFQs to demonstrate that we have great technology, we have customers that have chosen us, and we have the experience to have delivered that technology all the way to production vehicles.
Now, let's talk a little bit about occupant monitoring systems and what is driving that market. Now, occupant monitoring systems, as I mentioned before, are very much focused on all of the passengers in the car and are really intended to go and improve the experience in that car, primarily through comfort and convenience features, but there are some safety elements as well. Some examples of features that occupant monitoring systems offer today, for example, are identification of the people in the car to offer a personalization of the experience. This could be simple things like adjusting, you know, where your seats are, to what kind of temperature you enjoy. Again, this is the kind of experience that OEMs use to differentiate their offerings to delight customers, to help them choose one brand versus the other....
There are some safety-related components to OMS as well, where there are thoughts of using camera-based technologies to make sure that seat belts are actually worn properly across the body rather than behind it. There are also some instances of this technology being used to determine if a child is accidentally left behind in a car. Now that you have a sense of a little bit of the features, let's talk about what is driving the growth of OMS. The first aspect that we've heard consistently in our conversations with OEMs is that these kinds of technologies, which are targeting convenience and comfort, can be monetized more effectively by an OEM because they both give them differentiation in the experience they deliver to the end user, but they're also easier to monetize than a safety feature that is mandated by regulation.
O ne, OEMs believe these kinds of features can deliver them better margin. The second driver for OMS adoption is that it turns out that OMS technology can reuse the DMS hardware that is likely present in the car because of that regulation. In fact, we believe that we have pioneering capabilities in this space by delivering potentially the first single-camera OMS and DMS solution into the market in 2025. The combination of OEM interest in higher monetization, as well as the fact that OMS can reuse DMS hardware, are two significant growth drivers that will broaden the market penetration of OMS. Third-party estimates for OMS actually show a growth rate for OMS that is faster than DMS, at about 45% from 2023 to 2030, but of course, at a lower base starting point.
By the end of the decade, it's estimated that OMS shipments will be about 18 million units annually for 2030 and beyond. So how is Tobii AutoSense doing in OMS? In this space, we clearly feel that we are the pioneer and the leader in occupancy monitoring systems, and we do that on the back of a design win that we have already had in production in cars since 2021. This is with a premium German automaker, and we have worked directly with them in this technology development. That means that we are sort of a Tier One in this engagement. There's no other company between us and them in terms of delivering that technology. We also have a second design win with a premium German automaker.
This is slated to be in production in 2025, and once again, we expect this to be the first deployment of a single-camera OMS and DMS solution. Again, this is quite notable because it demonstrates the ability to deliver these features that can be monetized more effectively at a much lower cost to the OEM. Finally, we have a third OMS design win as well, and this is with a Korean automaker, and we expect that that technology will be deployed in both single-camera systems as well as dual-camera systems. The dual-camera system refers to having two separate cameras, one for DMS and a separate one for OMS, and we expect that that program will be in production in 2026.
N ow let's put this all together and talk about what does this mean for Tobii when comparing ourselves to the largest players in this space? Now, if you consider DMS, what we can see is all of the three players listed on this chart have announced design wins. All of us have engagements where we've acted as a Tier One, and all of our technologies are already on the road. Smart Eye and Tobii are unique in the sense that we have both announced design wins where we are acting as a Tier One. O f course, this experience increases the level of capability we have because of the exacting demands that an OEM will put on your technology. I believe that this is a great experience for us because sourcing going forward will still be in both of these domains.
In some cases, the OEMs will want a, a separate Tier One, and technology providers like us need to act as a Tier Two. That is something we're absolutely comfortable with, something that we will continue to deliver on. But in some cases, we do see the trend where an OEM is going to go directly to the technology provider and expect to engage with them directly. T he fact that we can demonstrate that we have done so successfully is a big boost for us. Now, when we look at the total design wins, of course, we would say that we are behind, the two competitors here, both in terms of the number of OEMs as well as the number of models. But we hope that in 2024, with our combined effort, we can start to close this gap.
When we look at OMS, the picture is slightly different. Here, we absolutely consider ourselves both the pioneer and the leader in the space. We have technology that is shipping on the road. We have announced design wins, where we have both acted as a Tier Two and in some cases, acted as a Tier One. We believe that we are extremely well-positioned as the OMS market grows, and what we have seen as Tobii over the last year is that more and more RFQs are considering OMS in their requirement list as OEM source for their full line. That means that they're sourcing, in many cases, both for the value offerings in their portfolio, but when they look at technologies like OMS, they absolutely consider them important for their premium lines.
Having this complete offering and being able to demonstrate credibility in DMS as well as leadership in OMS, we think puts us in a great position looking in. I am really excited that we have closed this transaction. I think this absolutely puts Tobii in a really strong position, and I believe that we are going to do a great job to take advantage of the cost and technology synergies we have between Tobii and AutoSense, and build on the success that AutoSense has already had to become a leader in this space. With that, I'd like to hand it to Magdalena to talk about the financials of the deal, as well as our new financial targets for the company. Magdalena?
Yes. Thank you. So yes, regarding the transaction, we expect the revenue from this transaction to land between SEK 180 million and SEK 220 million during 2024. Most of this revenue is non-AutoSense related, and also of a one-time nature. T his non-AutoSense related revenue is thus expected to decline after 2024. The EBIT impact from this acquisition is expected to be positive for 2024. W hen we had signed this acquisition, we also presented last twelve months figures being SEK 177 million in revenue and -SEK 161 million in EBIT. And then we've gotten some questions: How can there be such a difference in EBIT between the years? T he simple answer is that the acquired company has not capitalized any of their R&D expenses.
Per the IFRS regulation that we apply here in Sweden, we need to capitalize R&D expenses when having a business case connected to the development work. Hence, that is what we are going to do going forward, and thus, there will be a difference in EBIT levels between the years. We expect the AutoSense segment to have revenue of between SEK 30 million-SEK 50 million during 2024 in this segment, and we expect the revenue to grow to around SEK 500 million in 2028. W e do expect the segment to be cash flow breakeven in 2026. The segment is primarily software related, which means that the gross profit is high, and it's over and about 90%. Now, more on the transaction and the financing of the same.
F irst, we have a certain minimum payment of $45 million. In addition, there is a possible earn-out that depends on deployment of the AutoSense solutions up until 2030. In our business case, our best estimate that is that this additional earn-out will land on approximately $19 million. This amount can, of course, be both lower and higher, but in the end, right now, this is what we estimate. None of these payments are to be paid up front. We have around $30 million that will be structured as a promissory note towards the seller, and that will be paid in parts during 2027-2029, including an interest of 8%. Then we have the additional $15 million that will be paid over four years between 2028 and 2031.
Finally, we have the unknown additional earn-out that right now is estimated to be around $19 million, that will be paid in total in 2031. We are now planning to do a rights issue of over SEK 300 million here in Q1 to finance this AutoSense segment's operational expenses during 2024 and 2025. We expect around two-thirds of this to be used during 2024 and around one-third to be used during 2025. As I commented on the former slide, we expect the segments to be cash flow breakeven in 2026. We have a timeline for the share issue, which starts today with the send out of the notice to the extraordinary annual meeting, and it's all expected to be closed in the beginning of April.
Then we continue to our new financial targets. So after closing this transaction, we also communicated new financial targets for Tobii. W e are now targeting, one, a positive cash flow of the continuous investments for the full year of 2026, and the second one is an operating margin of around 10% for the full year of 2026, and then the third target is to have an operating margin of around 20% for the full year in 2028. Maybe you want to conclude that?
Absolutely. Thank you so much, Magdalena. Okay. So, again, we've covered several things. I'd like to take the time now to summarize both the quarter as well as the outlook. Once again, I'm very pleased with our delivery in Q4, reaching our Q4 2023 profitability target, despite, of course, a significant amount of work that we've also been engaging in during that quarter. This Q4 2023 result is very much supported by a revenue bounce back in our products and solutions business, from a Q3 level that was quite weak. O f course, it's also been supported by significant cost reduction actions we've taken in Q4 that will also support us going forward for the full year, 2024. I'm really pleased that we have closed the acquisition of AutoSense.
I think this is a great acquisition for Tobii that strengthens the long-term ambition of this company, and I'm excited that we can start working now on the cost and technology synergies and build on the success that AutoSense has already demonstrated so far. As we have mentioned previously, we intend to raise SEK 300 million in a rights issue that we expect to complete in Q1, 2024, and this is very much intended to cover the operational expenses for the AutoSense segment before that segment becomes cash flow positive. We also shared new financial targets for the company with this acquisition and with our updated business plans.
These targets are very much in line to our ambition to be profitable, and we, of course, expect that in 2024, we are going to take significant steps towards EBIT, towards EBIT improvement in the year, and that in 2026, we will get to cash flow positive after continuous investments for the full year 2026. We expect to achieve 10% EBIT, in 2026 for the full year and around 20% EBIT margin for the full year 2028. Once again, I think that these targets are very much in line with our ambition to go and deliver to the profitability expectations of the market, and I think we are doing that in combination, with strengthening the company by having a much more balanced portfolio across these three segments.
I expect that starting in Q1 and beyond, you will see more transparency from each of these segments as we report them down to an EBIT level, and you can follow along the progress we're making towards these goals in a much cleaner fashion. With that, I would like to conclude the presentation part and open it up for Q&A.
Yes, thank you. I will start to open up for questions in the chat, and analysts participating, please raise your hand if you would like to ask a question verbally. T he first question is: Are the new goals your base case scenario or more on the defensive side?
Yeah, I would say that again, when we take these kinds of financial targets, it's incredibly important for us to feel that we have a good roadmap to deliver on them, and that's the case no matter what we have taken. W hat you should expect is that when we have taken these targets, it's with a view that we have margin to go and deliver, and therefore, we feel quite credible standing up here saying that these targets are possible to achieve.
What about revenue for 2026? Is your previous goal of SEK 1.5 billion in revenue in 2025 not relevant anymore?
As we've said, our new targets replace our previous financial targets. So yes, we're not talking about a specific growth target right now. What we have focused on is actually a response to both what we believe our investors and shareholders care about in today's market environment, which is: What is the path to profitability for Tobii, and where's the ambition from the company from a profitability perspective? With that in mind, our goals are very much profitability-oriented. But of course, we expect that that path to profitability is very much powered by growth, whether it's growth in our products and solutions business, our integrations business, or the AutoSense business. I think the targets themselves are quite clean to focus on what is the priority for the company to deliver back to our investors and shareholders.
Thank you. Can you talk about the threat of event-based XR eye tracking methods, and what you're doing to address this potential vulnerability?
I think that, you know, there are, of course, always innovations going on in these variety of different spaces. Our R&D teams have very deep capabilities. I don't think that we should speak about specific technology elements, but we are very much a leader in the space, innovating what is possible in the future of eye tracking. Y ou should expect that we are looking at what's happening across the market spaces. We think that today, the solutions we have are state of the world, and this is why we're able to go and engage with some of the leading companies in the space, and they really appreciate the kind of technology we can bring to bear.
I would say that today, we expect ourselves to be state-of-the-art, and we, of course, have research efforts to go and evaluate where eye tracking and attention computing will go in the future, and we'll certainly be on the lookout for new innovations that we can take advantage of.
When you look at the competitive dynamics of the DMS and OMS markets, respectively, how would you rate them in terms of their likelihood of allowing good profit margins in the long run? What comfort do you have in that these will not prove to be a race to the bottom in pricing? In, in XR, Tobii seem to be a leader, but in OMS and DMS, it seems like Tobii is more a peer with competitors.
Yeah, I think that it's absolutely fair to say that in XR, and actually most other parts of our business, we are clearly the market and technology and brand leader. W e've acknowledged that in the DMS space, and now in the automotive interior sensing space, o ur position is different. We are, of course, in the DMS space, behind the two market leaders, even today. When you look at the number of OEMs or the number of models, we believe that in the OMS side, we are a leader, but you're right, that even in that scenario, it's not as if there aren't other players who also have similar ambition.
What I would say, looking at the market going forward, of course, is the one very positive aspect of automotive interior sensing is that the market, as well as the use case that's driving adoption, are very stable. The market size is quite dependable for you to think through. The cases for what's going to drive penetration are also easy to understand. In the case of DMS, it's regulation-driven, which means it's a must-do to go and put into cars. In the case of OMS, the ability to reuse DMS hardware and give OEMs the opportunity to differentiate and monetize more effectively, those are going to be very easy drivers to go and take advantage of. Now, in terms of how the competitive dynamics play out, I agree that there are many players in the space.
I think this is why we believe it's quite important to be one of the top ones here, because it's quite hard if you're player number six, seven, or 10 to actually build a business that you can defend. On the other hand, in order to win in automotive, there are actually quite high requirements. There are quality requirements, there's capability requirements, there is technology requirements that are not the same that you see in consumer electronics, where the barrier to entry can be substantially lower.
W e do believe that while this will be a more competitive space, at the same time, I think there's a moat for defense here, and given the nature of the business, that is, that this is a software type of business with very high gross margins. I think between the growth and the gross margins and the defensibility, that it does take a lot of investment for people to play. I think if you are one of the leaders in the space, I believe that you can build a very good business that you can predict and count on, and that is our ambition.
How many different vehicle models do the Tobii AutoSense DMS, OMS design wins represent? Is it around 45?
We have said that the number of models is about 100+ across DMS and OMS.
Yes. What are the cost-saving measures you have taken?
Since, I would say most of our costs are related to personnel, so most of the cost reduction measures are related to personnel, unfortunately, because it affects people. W e have other costs as well. W e have taken the whole spectrum and done what we can, but most of them are related to personnel.
Back to DMS again. Should I interpret what you said about AutoSense, the AutoSense deal, that Tobii already had a sufficient competitive technology for DMS?
Yeah, I would say that, you know, from our perspective, we won our first DMS earlier this year. We felt that that was absolutely a marker to demonstrate that our technology was competitive enough to win. A gain, I think when we think about what does it take to actually build a leadership position, winning a small set of design wins, I think, is not sufficient to get to a top three level. H aving a larger roster of customers that you can point to, demonstrating that you can take the technology all the way to production on the road, which for us, with the announced design win, was gonna be 2025, those were things that were gonna take more time on the organic plan, which I think we have substantially accelerated now.
I f we look at where we stand today post the acquisition, we are already one of the key players and in a really good position to try to build ourselves into the leader in this space. I think from a Tobii-only perspective, that was going to be a much longer journey.
Thank you. Now over to some questions from analysts, but they seem to be chatting and not asking questions verbally. So the first number of questions comes from Daniel Djurberg at Handelsbanken. Can you give us some more details on the SEK 31 million of M&A related costs in Q4? Seems to be a very high number. How large should we expect it to be in Q1 and for the full year 2024?
You should expect most of it to have already been taken in Q4. So of course, it's related to many things, but a lot of consultancy helps and lawyers and things like that, but most of it is taken already.
Also, looking at the AutoSense DMS design wins, what would ballpark revenue potential, on average be? Looking at competitors, they have a 10 million SEK average, which sounds very low, if relevant also to AutoSense.
Yeah, as we go through this again, the way we typically communicate this is in OEMs and models. I know that there's a request for this to be in different sets of forms, and one of the things we're going to work on post the integration is to go and get a much deeper view so we can communicate in a more consistent way. Keep in mind that up until today, we have very much operated as two separate companies, and so some of the details that you require in order to go and get that level of fidelity to provide this kind of number will take a little bit of time. W e will, of course, start to communicate that out as we get into future quarters.
Finally, you pay up to $64 million for materially six design wins and a legacy revenue that slows dramatic post 2024. This should be compared to your own enterprise value of roughly $30 million. Isn't this signaling a too high price on your bid for AutoSense?
Should I take that?
Oh, yeah.
Yeah. You know, again, I think when we look at what we are buying here, as I said, we are absolutely strengthening the long-term capabilities of our company. We think that the technology that we're getting, both in OMS as well as DMS, across both the design wins themselves, but the credibility of having delivered that technology into cars, we believe that this is the underpinning of a large business. As you can see, we believe that this business will generate about SEK 500 million of revenue in 2028, and there is revenue coming as part of the deal.
We believe that with the structure of the deal, we're able to go and ensure that this deal is paid for largely from the proceeds of the business itself, which I think is a really good bet for us to go take in a market that is quite predictable, and something that we can count on. W hile you could say, "Hey, the total expectation for compensation for this deal is $64 million per our estimates," you have to keep in mind that we are getting revenue in as part of the deal already. That's gonna help us in 2024 and 2025. We're absolutely expecting that the current closed contracts will deliver revenue starting this year, all the way through 2030, and that that will continue to grow.
I expect that if you look at the aggregate value of what this business delivers, I believe the money that we are paying is actually a very good deal for our shareholders. We think the structure that we have here, of course, balances our risk with the seller, where they are, of course, having to wait for the kind of time to money equation that this market has. W e're getting a strong asset with money that's paid farther down the road and money that is going to be generated from this business as well. T hat is a, in my view, sort of the rationale for how this deal was structured.
How sure can an investor be that the SEK 300 million will be enough? Also, how large will the net from the share issue be of the cost related to the brokers and the guarantors?
O n the first question, we can be sure. That's part of the plan, that's part of the financial goals we put up. That's part of what we are dedicated to deliver. T hat's how we raise the cash now to be sufficient. In details, how the net, the total net remains to be seen, but of course, we have an idea, but I will not share details on that right now. But of course, we know some will be cut off from costs also here, and that's part of the plan.
Any chance you can give some kind of a bridge between the 2024 revenue for AutoSense and the 2028 target of SEK 500 million? How many new OMS and model wins is needed to get to this financial target?
Yeah, I think at this point, I don't think we will give more details, but you should expect, of course, as we start to talk about this business more as we go through integration, you will both see what we expect from the business more clearly in our results, as well as what we expect is going to be design wins that we're gonna get in 2024. What I think you can take into account is that we have new high volume designs that are starting to get into production in 2025 and 2026, and we think this will start to have very positive cash flow implications for the business at that point in time. W e, of course, hope that if we get design wins this year, typically the time frame is 2-3 years out.
Those are things that we will start to see implement and impact us in 2026 and 2027. That's the basis of how we will get to SEK 500 million.
We have a question from Erik Larsson at SEB. Can you share any rough estimate how much R&D costs you expect to capitalize in 2024?
We will come back to that when we come with the coming quarters, quarterly reports.
Then I have a question regarding Eye Tracking. Do you foresee a future with Eye Tracking embedded in multiple, more screen formats, computers, tablets, phones in the future, and perhaps when?
Yeah, I absolutely believe so. And again, I think, the Apple announcement is quite significant in the fact that they talk about interacting with a device, and it's not limited to a VR-type headset alone. They talk about natural user interaction that is driven by your eyes, your hands, your gesture. In fact, just recently, BMW also talked about interacting with your lane assistance with your eyes by looking at side cameras. I think, again, it's so important that we consider what is happening in 2023 for the industry as a whole. You're starting to see more and more eye tracking get into devices in people's hands, and that allows people to start to think about how this technology can be integrated into their particular context in their device.
We have seen Amazon look at driving an eye-tracking set of features for assistive and tablets. But again, I think the expectation that is being set with Apple, with the bar they're driving, is that eye tracking can be a fundamental part of the user interface between humans and machines. That is our belief as well. That is not limited to just one set of devices, but it will, of course, expand over time as people see the kind of magic that Apple is delivering. T hat, for us, I think, is one of the big drivers that we believe will drive growth for us in the integration business, in the automotive business, but even in the products and solutions business, where people start to see that these technologies are available, and that they can use these tools to understand customer and consumer behavior.
On that specific note, are there any implications of how you are now reallocating resources towards automotive business that will make it less likely that Tobii will be a leader in XR if, when XR finally has a breakthrough in mass adoption?
Yeah, I mean, I would say that our competitive position in XR is quite clear. We are the only third-party company that is integrated into any headsets at this point in time. We believe that the engagements we have with several of the leading companies in the world continue to give us confidence that our technology is at the state of the art, and is highly valued by our partners in the space. W e are gonna continue on those engagements. So again, this isn't a pivot away from XR. It's very much a pivot into automotive to strengthen that as a third leg for the company.
I still feel very well positioned to take advantage of growth in XR, which we hope will start to show up this year and next with the market reacting to what Apple is doing, with developers thinking about experiences they can deliver, and hopefully, new headsets starting to come into the market this year and next.
Yes, and it seems like we have wrapped up for the day in terms of questions. I will now hand it to Anand for some final remarks.
O nce again, thank you so much for participating in the call. I am very pleased with how we ended Q4, reaching our EBIT profitability target. I t's a very notable result, both supported by revenue bounce back as well as cost reduction efforts. Again, these cost reduction efforts will help us in 2024 as we take the steps towards getting better EBIT results for 2024 and on towards our longer term profitability targets for 2026 and 2028. I'm also, of course, really happy that we've completed the acquisition of AutoSense, strengthening the company long term, giving ourselves a balanced outlook that balances our risk and growth opportunity here.
I look forward to getting into the process of integrating the company, being able to take advantage of the cost and technology synergies, build on the success that we have here. I know that there's, of course, a demand and an interest to see how this business is going to go shape out. Starting in Q1, 2024, when we report these segments down to the EBIT level, I think all of you will be able to follow along on our path towards profitability and success in each of these different areas. Thank you very much.
That concludes today's session. We appreciate everyone for tuning in, and we look forward to welcoming you back on the sixteenth of May when we present our Q1 results. Thank you.
Thank you.
Thank you very much.