Tobii AB

STO:TOBII

Earnings Call Transcript 2019-Q1

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to today's Tobii Earnings call Q1 2019 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, the 26th of April, 2019. And I would now like to hand the conference over to your speaker today, Henrik Eskilsson. Please go ahead.

[Henrik Eskilsson, Co]

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.So let's move to the 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, which -- 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 for currency.And we see all 3 business units continue 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. And in Tobii Tech, we had positive developments in all of our core focus segments: PC, VR and our niche application segment.Let's then dig a little bit deeper, and let's start with Tobii Dynavox. As you know, Tobii Dynavox is the global leader in assisted 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 and localizations of our solutions.On a global basis, we estimate the total penetration of communication solutions for people with speech impairment to be around 1% to 2%. So 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 the 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 assisted technology and on our solutions, worldwide.The numbers from Smartbox for the acquisition that we made last fall are consolidated into Tobii Dynavox financials. But 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 the [ pipeline ] integration.Over to you, Johan and some of the financials.

[Johan Wilsby, Chief Financial Officer]

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 4 points in the quarter compared to Q1 of '18 but in line sequentially. The variance was primarily driven by product mix changes arising from an extended product portfolio. These include the Smartbox acquisition and some nonrecurring 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 '18. And there were several onetime costs in Q1 that affected our efforts in the quarter, around SEK 8 million, primarily M&A related. Organic headcount growth was around 3% over last year. And in addition, we have increased R&D efforts and increased in costs 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 nonrecurring item was 11%, which is an improvement but still not where we aspire to be at our long-term target where EBIT margin is 15% to 20%. However, the investments we are making in training and R&D are strategic. It aligns with the long-term growth and both related to top line and our operating profit.So back to you, Henrik.

[Henrik Eskilsson, Co]

So moving over to Tobii Pro. Tobii Pro is the global leader in eye-tracking solutions for understanding human behavior.And let's move on to the next slide. Tobii Pro's business is growing and expanding as the market is maturing. In eye-tracking, it's 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 part of Tobii Pro's team to be focused towards 3 main segments: scientific research, professional performance and marketing research and user experience. And 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 that's continued 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, and this was despite a very strong and tough comparison quarter last year. Underlying demand in Tobii Pro's markets continue 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 have however been somewhat dampened in the quarter affected by the American government shut down 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 path solution for large scale eye-tracking tests.And our new fast growing segment, Professional Performance, has initially been really successful specifically in Japan. We're 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 for the call.

[Johan Wilsby, Chief Financial Officer]

All right. So Q1 was a good sales quarter for Tobii Pro with 7% FX adjusted growth even if Q1 of '18 was an exceptional quarter. This is the second quarter ever we record over SEK 100 million in revenues in the 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 2 points year-over-year and flat sequentially. Product versus services mix in the quarter was behind some of the increased margins, but we also saw some scalable cost elements.Operating expenses show continued growth versus last year due to the investments we're doing both in sales coverage and product development. The acquisition of Acuity earlier in 2018 also contributed to this great increases in expenses. Having said that, first quarter operating expenses are below Q4 of '18. And 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 4 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. But the Tobii Pro business unit started this and [ pushed ] sales scalability in the business model as we see healthy top line growth.Next slide, please.

[Henrik Eskilsson, Co]

Thanks, Johan. So 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 3.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 51-m 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 eSports 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 eSports 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 and digital well-being, enhanced device performance, increased efficiency are other examples. Most of these features are brand-new in this new generation of the software.Lenovo is our first -- 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. And thus, Tobii Aware allows us to over the 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 their 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 60% to almost 9 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 the 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 technology. For instance, Microsoft recently announced the HoloLens 2 AR headset with built-in eye-tracking. And this evolution of several headsets with eye-tracking coming to market drives a strong acceleration of market adoption. And we expect that within approximately 3 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 a software development kit -- for eye-tracking in VR and AR.Next slide, please. Sales in our niche applications 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, so 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 subsegment within Tobii Tech with strong growth opportunities.Johan, your turn.

[Johan Wilsby, Chief Financial Officer]

All right. Thanks, Henrik. And 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 2 points to 44% primarily due to a different product mix obviously driving a definite 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 2 to 3 quarters. We saw some year-over-year growth in Q1 since we have grown the organization since then to pursue multiple businesses [ and/or ] business opportunities, mainly contributed from an increased effort in R&D, sales, as well as -- as in the patent area.And next slide, please. The group revenue showed continued growth in the first quarter and increased by 20% adjusted for currency effects year-over-year, where Tobii Dynavox and 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 2 points compared to last year but in line sequentially. Obviously, the delayed integration for Smartbox impacts the quarter as do some nonrecurring costs. Tobii's EBIT for Q1 was a negative SEK 37 million, which is in line with Q1 of '18 despite having SEK 9 million of nonrecurring included. Operating expenses have flattened out sequentially despite the negative FX impact from international team. And the combined EBIT for our 2 mature businesses, Tobii Pro and Tobii Dynavox, grew nicely with over 40% growth despite material onetimers.Next slide. Let's wrap up 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 the increase in several items in our net working capital, among those, an increase in accounts receivable 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 for these variables are included. You can read more about this change in our report.So this concludes the walk-through of the finance section. So back to you, Henrik.

[Henrik Eskilsson, Co]

Thanks. So summarizing the first quarter, we had record sales for the Tobii group. We saw growth in all 3 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. And 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, and thus, we proceed with a strong focus on reaching our goal of profitability for the group already next year.So with that, we're done with our presentation. And we're handing over to you, Serena, and specifically to questions from the teleconference.

[Operator]

[Operator Instructions] Your first question comes from the line of Mikael Laséen.

[Mikael Laséen]

Yes. I have a few questions, and I'll 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?

[Johan Wilsby, Chief Financial Officer]

Mikael, I mean, 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 [ center. ] So they will actually, sort of, more or less go away in the coming quarter, but it's hard to predict anything. But there's nothing major going forward in terms of the net working capital.

[Mikael Laséen]

Okay. Good. And the Smartbox, can you say something about how that company performed in Q1? And the sales contribution approximately?

[Johan Wilsby, Chief Financial Officer]

As we are in the process with CMA and in phase 2 right now, we're unable to give specific data on the company and that performance. So I'm sorry, we can't say anything specifically.

[Mikael Laséen]

Okay. I understand. And the nonrecurring costs in Q1, why did you have SEK 9 million?

[Johan Wilsby, Chief Financial Officer]

So most of that is related to the CMA process, around SEK 7 million of the SEK 9 million. And the other SEK 2 million is of nonrecurring nature sitting in cost of goods sold.

[Mikael Laséen]

Okay. So that's in Dynavox?

[Johan Wilsby, Chief Financial Officer]

One is in Dynavox and another one is in Tech.

[Mikael Laséen]

Okay. Good. And when it comes to the business units starting with Pro, I'm curious to hear 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.

[Henrik Eskilsson, Co]

If we start with the U.S. government shut down, I mean 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, but 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. So 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 effects would not be there because long term, the U.K. government would sort of compensate for it by having U.K. research grants in the same amount of their funding through the EU, but while in this Brexit limbo, we might have a 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. So for the U.K. market overall, we don't necessarily see that as sort of the negative trend. On the contrary, we do believe in continued growth in the U.K. But strong growth in the commercial side, but a dampening maybe at least as long as there is Brexit uncertainty on the academic side. They're not super large -- I mean, 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 in the U.K. market.

[Mikael Laséen]

Okay. And it would be interesting also to hear if you can, just some examples in the professional application side, how they are using it and -- so one more sort of background on that. And maybe some comments on the order book for the Pro segment.

[Henrik Eskilsson, Co]

So 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 where there's 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, to 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? And we actually have numerous customers that are now -- that have used eye-tracking for quite some time and are seeing very strong proven results in fantastic explorational training processes. And 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. So within professional performance, we actually see a strong growth for 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. So 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 us.

[Mikael Laséen]

Great. Interesting. And my final question is about the tech side. And this quarter was driven by the external side: PC and niche applications. Can you say something more about this mix? And maybe help a bit with the outlook here and how these new contracts will develop in the coming quarters. Will it be very back end loaded? Or more of a gradual increase from here?

[Henrik Eskilsson, Co]

So a big picture level within Tobii tech today, we -- these 3 focus segments, PC, VR and the niche applications are roughly equally important from a sales perspective today. And 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.

[Johan Wilsby, Chief Financial Officer]

That's specifically in second half -- we can say so, right?

[Henrik Eskilsson, Co]

Yes.

[Operator]

Your next question comes from the line of Daniel Thorsson.

[Daniel Thorsson, Research Analyst]

I have a couple. I'll start off with Dynavox and Pro together. Is it mainly gross margin improvement or scalability on OpEx that will drive EBIT margin improvements to your target EBIT margins?

[Johan Wilsby, Chief Financial Officer]

So for those 2 combined, I mean, there are several aspects. You have scalable elements sitting in the gross margin, but we 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. So you will see elements of drivers for the profitability improvement both sitting in COGS as well as in operating expenses.

[Daniel Thorsson, Research Analyst]

Okay. I understand, I understand. And 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, VR, et cetera?

[Henrik Eskilsson, Co]

Yes. The split of the external sales is between the 3 segments: PC, VR and niche applications. It's roughly 1/3 each. PC is somewhat larger than the other 2.

[Daniel Thorsson, Research Analyst]

Okay. That's very helpful. And -- so continuing on Tobii Tech, R&D spending from here, are we seeing increases in the coming quarters? Or a flattening out sequentially?

[Johan Wilsby, Chief Financial Officer]

I mean in general, it's hard to -- I'm not going to guide on specific cost elements. But in general, as we've said before, and you saw some proof of that now in this quarter as well, costs -- the total cost base in Tobii Tech is leveling off, right? It's fairly similar if you look at Q4, Q3 and Q1, right? And in different quarters, you will see we might do some specific things in R&D projects which will drive some expense. But roughly in terms of team size, we're there where we need to be.

[Daniel Thorsson, Research Analyst]

Okay. That's great. So if we see other vendors within VR launching products in the near future with eye-tracking, and if it's in that case it's not the Tobii eye-tracking, what could it be then? Do they have proprietary solutions or other suppliers?

[Henrik Eskilsson, Co]

So within VR, there is definitely a healthy competitive landscape of eye-tracking vendors. So Tobii is competing with other independent eye-tracking vendors for design wins with headset manufacturers. And 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.

[Daniel Thorsson, Research Analyst]

And 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?

[Henrik Eskilsson, Co]

A large strong position across all VR devices.

[Daniel Thorsson, Research Analyst]

Okay. Excellent. And 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?

[Johan Wilsby, Chief Financial Officer]

It's not based on further acquisitions, our financial targets.

[Daniel Thorsson, Research Analyst]

Okay. That's helpful. And the final one just to understand the dynamics between the 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?

[Henrik Eskilsson, Co]

So 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 1 to 2 months prior to them shipping products to -- through their sales channels. So we see initial revenue of components to HTC starting now, early Q2. [Technical Difficulty]

[Ola Elmeland, Investor Relations Manager]

So why don't we switch back to the webcast questions then for now and see if Daniel comes back again?

[Henrik Eskilsson, Co]

Yes. Let's do that.

[Ola Elmeland, Investor Relations Manager]

Otherwise, Daniel, please call us up afterwards. Then we'll sort the last of it. So there are a couple of questions from the web. The first is from [ Hans Hall ]. And he notes that you actually, Henrik, you are doubling here as the CEO and the head of Tobii Tech. So how is the recruitment for Tobii Tech head -- new Tobii Tech head going?

[Henrik Eskilsson, Co]

Yes. I am doubling. And although that is a lot of fun and exciting, of course, we are also in the process of a search and recruitment of the permanent CEO -- division CEO for Tobii Tech. So that search is ongoing with full force. We are very, very focused in making sure it is the absolutely perfect right recruitment. And that's much more important than the process concludes quickly.

[Ola Elmeland, Investor Relations Manager]

Okay. Then we have a question from Sebastian Olsson from SEB. Will you please give us some flavor on the development of touch product versus eye-tracking product in the quarter? And what does the sales mix look like today?

[Henrik Eskilsson, Co]

So in the quarter, we saw good growth in both the touch product line and of course, the eye-tracking product lines. We grew specifically quite strongly on the touch products 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 2/3 of revenue with eye-tracking products and 1/3 with the touch-based products.

[Ola Elmeland, Investor Relations Manager]

Okay. And a second question from Sebastian, if you can mention anything about how the demands from VR OEMs look after the announcement with HTC. Do you see increased demands? Or is it pretty much the same?

[Henrik Eskilsson, Co]

So already before the HTC announcement, we saw a very strong solid interest in demand from VR headset manufacturers. But 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. And 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.

[Ola Elmeland, Investor Relations Manager]

Okay. And 1 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.

[Henrik Eskilsson, Co]

Yes. So specifically, with Lenovo, again, they are our first OEM customer for this new generation of Tobii Aware, and they are implementing our Tobii Aware software into their Yoga A940 products. So that's great. It's -- they're a very, very good first customer on the software. And 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.

[Johan Wilsby, Chief Financial Officer]

And I could also add that you can find more information about Aware on aware.tobii.com. And you should look at the press release that we issued this morning.

[Ola Elmeland, Investor Relations Manager]

So one more question from [ Ann Catherine Engberg ]. Is the long-term goal for Tobii Tech to achieve sales in the billion Swedish crowns region with good profitability realistic in your opinion, even if no significant penetration will be made in the smartphone market?

[Henrik Eskilsson, Co]

Yes. Absolutely. I think that at least, the -- for instance, the PC opportunity and the VR and AR opportunities, each one of those even on a standalone basis are SEK 1 billion revenue opportunities.

[Ola Elmeland, Investor Relations Manager]

Okay. Serena, do we have any more questions? I don't have any more questions on the web.

[Operator]

Yes. Your next question comes from the line of [ Tommy Helling ].

[Unknown Analyst]

Yes. I have 4 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? And how confident are you that Tech will make a profit in 2021 instead of being delayed to 2022 or '23?

[Henrik Eskilsson, Co]

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 for that, and we have a good plan to accomplish that. Sort of the next milestone there, as you point out, is profitability for Tobii Tech on a standalone basis by 2021. And obviously, that requires a very strong revenue growth in the Tobii Tech division, and we are -- in terms of customer pipelines and dialogues and integration processes ongoing, we are on track for that. But it's clearly an ambitious goal. So there is always a component of uncertainty, but we are trending and working clearly towards that goal for Tobii Tech as well.

[Unknown Analyst]

Okay. That's good. And also it says here that Tobii, here in the report, that patent licensing deals could potentially give Tobii a substantial increase in revenues in the future, except that Tobii today has started licensing deals with some smaller eye-tracking companies that makes eye-tracking innovations and are protected by Tobii patents. Could you please explain more about what this means and what it would amount to? I mean does it all come down to if these smaller companies gets bigger and therefore would generate more revenue to Tobii? And is it also possible to mention some companies that you [ haven't struck a deal with? ]

[Henrik Eskilsson, Co]

So 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 sort of a complementary business model, a patent licensing program. This is not something that we have fully structured and in force today, but we do see it as a potential future opportunity. We don't see it as a main part of our business or sort of one of our largest revenue streams. Rather, we -- 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. But we do have the ambition to also, over time, establish a patenting 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. I don't think that it's -- that would -- 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 grow wealth in a broader sense if we do that.

[Unknown Analyst]

Okay. And then I would like to get more insight into the development part of the eye-tracking VR games. I mean you released the Tobii XR SDK not too long ago. To me, that sounds like eye-tracking VR games maybe would be a couple years away -- it takes a long time to develop good VR experiences, specifically since there are no headsets available in the market with eye-tracking. Or is it -- I mean 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 video games? I mean when would the earliest state be for starting development for VR eye-tracking games?

[Henrik Eskilsson, Co]

It's a great question. First of all, maybe to elaborate a bit is the benefits of eye-tracking for VR are not limited specifically to games. Really any type of application in VR can benefit from eye-tracking also 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. So 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. And we have had early stage dev kits for VR with eye-tracking available for the past year approximately but in smaller quantities. So there's definitely been development of applications ongoing for some time already, and there are at least a dozen different titles spanning both in games and enterprise applications on their way into the market. But 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, much more available to developers at large-scale. This is, of course, also a very important part of collaboration [ phase ] to see. And they have very, very strong channels to their developer ecosystem with thousands and thousands of developers out there. So 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. So we see -- also, here, on the software side, we see a very good traction and interest in the VR market. This is a very innovative ecosystem that is embracing -- seems to be embracing eye-tracking at full force.

[Unknown Analyst]

Okay. So talking about this VIVE Pro Eye, it's targeted at the business side and not so much towards the consumers. So 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?

[Henrik Eskilsson, Co]

I think that we will see both games and more enterprise-oriented applications already now in 2019. But I do think you're correct in your observation that sort of the very first headsets incorporating eye-tracking are primarily focused towards the enterprise side, which is a good thing. Enterprise -- the enterprise side of VR is where actually a lot of the real stronghold is and growth is today already. But I do expect myself to see the games and entertainment side to kick in quite quickly as well.

[Ola Elmeland, Investor Relations Manager]

Okay. I think we need to move on. Are you okay with that, [ Tommy ]?Okay. Back to you, Serena.

[Operator]

There are no further questions at this time. Please continue.

[Ola Elmeland, Investor Relations Manager]

Okay. Thanks, everyone, for joining and for the questions. And if there are any questions outstanding, you can always reach out to me, Ola Elmeland, at Investor. Thank you. Bye.

[Henrik Eskilsson, Co]

Thanks, everyone, today for the call.

[Operator]

This does conclude our conference for today. Thank you for participating. You may all disconnect.