Elliptic Laboratories ASA
OSE:ELABS
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Elliptic Laboratories ASA
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Hi, and welcome to Elliptic Labs' Second Quarter and Half Year 2023 Presentation. My name is Laila Danielsen. I'm the CEO of Elliptic Labs. And with me today is our CFO, Lars Holmoy.For today's presentation, there are 3 main takeaways. Firstly, in our second quarter, we started to see customer activities reflected in our revenue figures. Revenue more than tripled compared to the same period last year. Of course, this we are pleased with, especially considering the challenging market. With that said, we will continue to capitalize on the market momentum, as we see a strong market pull.The market and our customers are starting to identify new user experience for our underlying AI technology platform. This is exciting. We continue to focus on well-crafted long-term agreements, meaning we are not sacrificing our long-term position for short-term gain, as we are in such unique position -- market position.The second takeaway, in Q2, we have broadened our customer base to now include 4 of the top 6 PC makers, and let me remind you who they are. Lenovo is #1, then HP, Dell, Apple, ASUS and ACER. Additionally, we signed expansion contracts with Xiaomi and Lenovo. Note that we already launched on 18 Lenovo laptop models to-date. And that this latest recent expansion contract is for a larger number of models than the 18 we already shipped. As a reminder of our business model, and we will also dive deeper into this throughout the presentation. Normally, we will charge a minimum commit and thereafter, a license fee per laptop unit shipped in the market, thus, as more laptop units are shipped, we generate more revenue.Thirdly, we continue to invest in the development of our AI Virtual Smart Sensor Platform, ensuring that our 100% software-only AI platform remains at the forefront of technologically -- technological advancements. By prioritizing innovation and staying ahead of the curve, we will be rewarded when the market rebounds. We are firmly committed to deliver cutting-edge AI-based software for broad deployment across multiple verticals. We are fostering strong and enduring relationship with global OEMs, operating systems and systems on a chip partners, ramping future sales that would drive the value of our company.Our recent acquisition of top talent from Intel will accelerate these processes. We are dedicated to maintaining a light and lean organization and contain costs. Prudent financial management allows us to navigate these volatile times effectively. We're carefully allocating our resources. We ensure that our operations remain highly cost efficient. Our goal is to strike a balance between conserving capital and driving growth to position us for long-term success.We are capturing a large market opportunity, and we will emerge stronger when the market recovers. We are dedicated to drive innovation, strengthen strategic partnerships and to position ourselves for long-term success. We have confidence in establishing ourselves, as the industry standard with our AI Virtual Smart Sensor Platform.Our technology has now been deployed on more than 500 million smartphones and laptops. We have contracts with 4 of the top 6 global OEMs and a POC with one more PC manufacturer. By securing long-term agreements with globally recognized brands, we solidify our technological leadership and expand our market opportunities. These agreements validate the trust our OEM customer placed in our AI platform, and its potential to shape the future. Our favorable timing and market traction provide us with a solid advantage, and we are poised to drive long-term growth and value for our stakeholders.So let's jump in a little bit further to our presentation. Elliptic Labs works with global leading partners and customers to redefine user experience with our AI Virtual Smart Sensor Platform. As the market becomes more familiar with our technology, they discover completely new ways for consumers to engage with and utilize their products. Both the market and our customers turn to us for innovation, leading to creating of exciting new applications.So let's share a little bit more information about our platform. Our platform is entirely software-based and leverages AI, ultrasound and sensor-fusion to deliver exceptional user experience to companies across various industries. As our technology becomes more widely known, both in market and our customers uncover novel ways to engage customers and optimize their products. They rely on us for innovation, leading to development of exciting new applications.If you look at the upper right-hand corner on the slide, you will find our AI Virtual Custom Sensor, which is the direct result of the market and our customers gaining a deeper understanding of our underlying technology. As we collaborate with large global companies with revenues exceeding $60 billion, they gain greater visibility into the projects and the user experience they aim to create. Consequently, as the awareness of our capability expands, they request customized solutions for additional use cases. Over time, naturally, this new Virtual Custom Sensor will be integrated into our core product portfolio, making them available to all of our customers.All right. So as you have seen, we keep expanding and launching in both verticals. We are now -- have launched 83 smartphone models, and we recently here signed yet another top PC OEMs, as our customers. So great traction in both verticals. So this is really positive.So a little bit about the competition, what we're seeing in the market. So, I want to reiterate, we are 100% software that are competing with high-cost single-purpose hardware sensors. So the point is also it's a single-purpose, and it is hardware. Their price in the smartphone market, it's between [ $0.10 or $0.1 to $0.3 ]. And in the PC market, which we expect to be our highest future growth market is between [ $2.5 to $4 ].So what we are focused on is starting with replacing this single-purpose sensor with the same functionality, and then, as we are working closer with the customer, we're adding on more and more capabilities. So a very straightforward and strong value proposition to the market. So this is overall very positive.So let's look a little bit closer on how we are turning world-leading AI software into revenue. So, we will try to explain as much as possible about our revenue model, but note, we are in ongoing negotiation for more contracts, and we already have signed contracts that are highly confidential. The advantage of being a 100% software company is that we don't have to worry about supply chain issues and high inventory costs, also, it allows us to have a flexible business and revenue model.So let's take a look at the process of how we turn our world-leading software into future revenue. First, we start out by evaluating our product with the customer and when successful, we move into negotiations. From there, we craft long-term agreements with world-leading manufacturers to secure future revenue.Upon agreement, we sign a contract, which we will then announce to the market. This is typically a contract for a number of models with a minimum commitment volume. When the respective model is launched by our customer, we will then send out a press release to let you know that this model has been launched. Note that this doesn't mean that the product is physically shipped yet.The dynamic nature of our revenue numbers quarter-to-quarter is influenced by various factors that we proactively address. While occasional inventory backlogs and a temporary cool down in the end user demand may present challenges, they also offer opportunities for our customers to adjust their volume forecast upwards. We have taken proactive measures to adapt to these market conditions, including structure our deals with lower upfront commitments.This approach enables us to offer competitive pricing per unit, which position us for substantial growth, as we continue to ship more and more products into the market. It is important to emphasize that we are well funded and possess the necessary resources to achieve our growth targets. Understanding these dynamics is critical to grasp the full picture of our revenue trajectory. We remain confident in our ability to navigate through short-term lumpiness and to drive sustained growth in the long run.So as mentioned, we continue to see solid market pull and interest for our AI Virtual Smart Sensor Platform. Customers and the market identify our underlying technology, as an enabler or as the enabler for existing new user experience. This is very positive. We clearly see that our strategy, our go-to-market strategy and our product strategy is working. We are in a much stronger position technically and commercially. We continue to expand in both verticals. We continue to add more customers in both verticals. We continue to sign more expansion contracts with customers across both verticals. We also see that in the PC market, customers are more interested in a larger portion of our product offerings. So we have excellent market traction.So now, I'm going to have our CFO, Lars Holmoy, to talk a little bit more in details about our finance. Thank you.
Thank you, Laila. Elliptic Labs is positioned for long-term growth. In second quarter of 2023, our company demonstrated significant financial growth, evidenced by an increase in revenue to NOK33.5 million, a 248% increase from Q2 last year.Laptop revenue emerged, as our key contributor to this growth, thanks to the recognition of both incremental licensing revenue and license revenue based on shipped units. Even though our growth, we managed to keep our increase in expenses on a reasonable level, employee benefit expenses rose by 23% year-on-year to NOK19.3 million, reflecting the scaling up of operational activities, strategic initiatives and our core markets, such as Asia and the U.S.Quarterly revenue from contracts with customers maintaining a light and lean organization. We allocate our resources efficient and [ use a ] strategic growth for our organization has allowed us to maximize our sales opportunities and push forward with our product development, while keeping costs under control. We have focused on maintaining a lean organization, and we are reflecting this in our operating expenses, as well, which is up by 21% from Q2, 2022 to NOK6 million this year.We also have, in this quarter, appointment a new Senior Vice President of Client Artificial Intelligence Architecture and a VP of Product Management. Our strategic moves aimed at driving our growth trajectory even further.We have a continued strong cash position to support our growth. We have cash and cash equivalents amount of NOK134 million, reflecting our strong cash position. This quarter's operating cash flow was minus NOK12 million, reflecting increase in account receivables and operational activities. This is in line with our expectation. We also have repaid, as always, NOK1 million in our short-term borrowings to Innovasjon Norge, along with the NOK0.7 million in other short-term debt.Lastly, our balance sheet remains robust as of Q2 '23. Our assets include NOK134 million in cash and also NOK52 million in intangible asset -- intangible assets, NOK80 million in other non-current assets and a NOK76 million in our current assets.On the liability side, equity is at NOK322 million. Long-term liabilities at NOK5 million and short-term liabilities at NOK15 million. These figures underscores that we are well funded for continued growth and ready to seize new opportunities in our journey.I will leave the floor to Laila. Thank you.
Thank you, Lars. So in summary, we have a lot to look forward to. We tripled revenue this quarter, and we are capitalized on the market momentum that we are experiencing. And in spite of markets ongoing lumpiness, our long-term prospects with global customers remain solid. We're capturing a significant market opportunity and anticipate becoming more robust, as the market bounces back.We are dedicated to drive innovation, strengthen strategic partnerships and to position ourselves for long-term success. We have confidence in our technological leadership with the AI Virtual Smart Sensor Platform. Leveraging our successful position in the smartphone and PC markets provide us with a solid advantage, and we are poised to drive long-term growth and value for our stakeholders.So now, we will take a quick minute break to just review some questions, and then we'll be right back. Thank you.
Welcome back and thank you for the investors that have sent some questions in beforehand. So why don't we jump into the questions?
Yes. So we have gotten question from Oliver in Carnegie. Are there any bigger milestone payments from PC OEMs in the Q2 revenue numbers?So there is -- payments and revenue different parts, but payments we've, of course, received from previous quarters. But in terms of milestone revenue, there is no other than the PC milestone, as mentioned in both the presentation and the report. Yes.
Okay. And then I have another one for you.
Yes.
Are we planning to communicate revenue divided by business area quarterly?
Not quarterly. Last year, we did at the annual report we did, and we also will do that then next year -- this year.
Okay. Very good.
Yes.
So there's a few questions, well, still about revenue, but can you provide more color on what's driving the triple-digit revenue growth.
More [ client ].
More contract sign and product ship.
Yes, basically.
Yes.
And of course, yes, we can add to that, yes. Contract sign, product ship, but -- and again, also the milestone revenue, as we have spoken about.
Yes. So here is under customer expansion, you have now customer base to include 4 of the top 6 PC makers. How have you been able to achieve this? And are you expecting to add more laptop customers?So I'll start with the end first.
Yes.
Yes. We are planning to start -- planning to add more laptop customers, and, of course, expand with all these laptop customers. And how we've been able to achieve this? I mean, we have -- we're offering unique products that outshine our competitors clearly. Also, we have a very [Technical Difficulty] in China, Taiwan, South Korea, Japan, U.S. and here in Europe, we have our development team. So we have -- we can support our customer on-site globally. So we [ already established] that.
And the relationships have been over time.
Exactly. So far....
Yes.
I have been CEO here for a decade now believe it or not. And then, of course, we have a very strong clear value proposition, replacing single purpose hardware sensor with software-only for that feature, and then, we add more capabilities. So we have also competitive pricing. So all of these factors enables us to achieve this wonderful relationship that we have.And on top of that, we recently also hired somebody from Intel, Nilesh Shah from Intel, as our VP of AI Architecture platform. And of course, he has two decades of strong relationship with the whole PC market. And of course, coming [ from ] Intel is a strong partner for us. And of course, he also know AMD, MediaTek, all the other partners, as well as the customers. So we're in good shape, strong relationship.Okay. Another one is -- and let me know, if you want to...
Yes. I'll just do this first.
Okay.
Yes.
The PoC agreement signed with a leading PC manufacturer, is this for existing Elliptic product platform or new products? That is not yet communicated. This is for new product. This is part of what we talked about in the presentation about our AI Virtual Custom Sensor, where customers in the market start to really understand our underlying technology, and then, of course, they know these are like $60 billion-plus company. So they understand more of their needs.And now when they understand our technology, they will learn more about our technology company wide, they come back with ideas and to create unique features, unique capabilities, and of course, these are on a strict NDA. And as soon as these are launched, we can put it back to our core product portfolio and sell that broadly.And also, I just want to highlight -- this particular PoC that we announced is with the [ fifth ], so a brand-new PC OEM.
Top OEM.
Top OEM. Yes.
[indiscernible] [ going to ] get one question in [indiscernible] from [ Jonathan ].
Yes.
Can you comment on whether of -- any of your PC laptop customers have adopted more than one product and it comes back to what you just spoke about?
Yes. As a POC, obviously, we have not announced any. We will specifically announce when they come up with -- when they're launching in the market with a new capability, but we see a clear interest.So back to sort of some of the things that we have or some of the items we have communicated before, value proposition, creating true interoperability between all the devices. So really, these companies that we're working with, they don't only have PC, they have accessory, they have conference system, a lot of other products. And to have these work nicely together, this is another capability, and these are some of the products that we have communicated out, connection sensor, precision sensor, et cetera.So yes, so for sure, we have a strong interest in more of our products. So the key is we lead. When we go and sell our technology, we lead with like, okay, let's replace, do you plan to use [indiscernible] sensor or time-of-flight sensor for a human presence detection or you can use software-only from us. We start by it just -- it's a very nice way to get into the organization, and then, we have more.So we talk about the -- our total sort of product vision, and then we say, okay, well, let's start by quickly just get going with the human presence sensor, and then let's talk about the broad -- broader picture of what you want to do in the long term. So we expect over time here, we will have more and more products out in the market per model.
Yes. I have a question related -- a cash-related question in terms of, if you see any risk of cash injections necessary. We can just say no. At least on current business level, we do not expect that. So we are sufficient in a way now. And that also gives us -- gives us [ as a back ] to the working capital question coming in here. We do expect that to improve by -- during the second half. But -- so yes.
Yes. And then this -- I mean, I feel like [indiscernible] answers, but I can just sort of over-communicate this, what is the status on settling commercial negotiation with new laptop OEMs? Is this progress as hoped? Absolutely, yes. We're getting really good traction with these OEMs. Clearly, we see expansion, and it's going to be interesting to see when the market starts recovering, how this going to [ infall ] for us. So we are very optimistic about the future.But I also want to just reiterate that, of course, when we are -- since we're talking about these commercial contracts, we have a strong focus in negotiating long-term solid contracts that we can -- because we got to work with these companies for the years ahead of us, and the best is yet to come. So it's important that we don't panic, and this was a little bit we talked about last quarter, that we should not sacrifice long-term opportunity for near-term gain. This time, we have good numbers. So -- but we have to be smart on -- but we will continue to be smart, but because we are in such a unique opportunity here, so we have to capitalize on the market momentum. We have the cash to build our business. So one step at a time, and we see excellent traction. So this is very exciting time for Elliptic Labs.
And then our third vertical that we haven't spoken too much about, and it's a general question of barriers to entry into the market and just give a little bit flavor?
Yes. Sure. So, I was talking about the IoT market.
Yes. Sorry, the IoT market, yes, our third vertical.
Yeah. Yeah. Well, IoT market is not just a market. There are multiple markets within IoT. So IoT market, sort of in general, it's a very fragmented market. And we have different strategies on how we're approaching that market. And because it's fragmented, it's a more complex market. Even though, it's overall very big, as a big lump. But each vertical, each sort of -- each vertical within the IoT market is -- it's many companies with small numbers. So we take a multipronged approach here.So in the PC market because they also have lots of IoT products, this is one of the avenues that we are working on, where we will look at their product because at this point, we are already in with the contracts. We're already in with the relationship. They already understand our technology, then they start bringing in accessory team and conference systems, display, et cetera. So this is also another avenue for us to get into this market.In the IoT market, we have sales sort of reps, partners that goes out in the market and look at these various companies, so we will that too. But we expect and what we are seeing is that the PC market, and we have to be focused is going to be our greatest growth and combined with the smartphone. So we cannot panic here. It's very important that we have a strong focus. It's very easy to start moving in the other direction. But we have a very strong focus in the PC market, in the smartphone market, and we are growing, and we're also looking at the broader product portfolio for the PC market. So yes...
I think that's very good.
I think and have to -- I think, I have to [indiscernible] anymore.
Yes. That's good.
Okay.
[ We're ] good here.
Any other questions?
No.
No. Okay.
Okay. That's fine.
All right. Thank you very much and have a good summer. Thanks.
Thank you.