Tobii AB

STO:TOBII

Earnings Call Transcript 2018-Q4

[Operator]

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Q4 Interim Report 2018 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, on Wednesday, the 6th of February 2019.I'd now like to hand the conference over to your speaker today, Henrik Eskilsson. Please go ahead.

[Henrik Eskilsson, Co]

Thank you, Jenny. Hi, everyone, and welcome to our earnings call for the fourth quarter. As usual, it will be and Johan Wilsby, our CFO, who will do the presentation, and we will have some time for questions at the end.So if we'll flip to the next slide, on the high-level summary. It was a good fourth quarter for Tobii, with sales records for all of our 3 business units. All in all, the group sales grew by 18%, adjusted for currency effects. And one especially positive thing was the continued strong sales growth and the improved profitability in Tobii Pro. We also had great sales developments in Tobii Dynavox, partly related to the acquisition of Smartbox, but I'm also pleased to see a solid organic sales growth in the quarter.For Tobii Tech, the most significant event was the breakthrough order with HTC within VR and the launch of our new IS5 platform, which is key to drive increased volumes in PC. We also had Dell, who was first out to launch their new flagship gaming PC, integrating the new IS5 platform.I'm also very proud that Tobii has been designated the fourth best employer in Sweden, all categories, in Universum's annual survey. We have a fantastic team, and it's vital for us to be able to attract and retain top talent to stay in the lead.As usual, let's go through each of the 3 business units, starting with Tobii Dynavox. So next slide, please. Tobii Dynavox is the global leader is assistive technology for communication. We develop and sell communication devices and software used by people with disabilities to communicate and access computers.Next slide. Tobii Dynavox' market is fundamentally driven by the large and strong trend in society of increasing inclusion and accessibility. We see that individuals with disabilities are increasingly able to participate fully in society on similar terms as all of us. We see this concretely with TV and movies increasingly featuring individuals with special needs. We see large enterprises putting increasing emphasis on ensuring that their products and solutions are accessible and available to everyone. We see gradual improvements of reimbursement systems in numerous countries worldwide. And we see this trend not only in western countries, but increasingly so on a global basis.The market for assistive technology for communication is deeply underpenetrated. Globally, 1% to 2% of all people have such a severe speech impairment that they need assistive technology to communicate effectively. This corresponds to about 50 million people worldwide. We estimate that only roughly 1% or 2% of these have access to suitable solutions today. So that leaves 98% to 99% of people in need without the proper solution.In 2018, we saw continued growth in established markets, such as the U.S. and Germany, and large growth in emerging markets. And emerging markets in this area includes, for instance, France and eastern Europe.Next slide, please. In the fourth quarter we delivered an all-time sales high for Tobii Dynavox. Revenue was up 28% over the fourth quarter in the previous year, or 9% adjusted for both acquisition and currency effects. And the number of end users we address with our products, including everything from our low-cost apps to our high-end medical-grade devices, increased by 45% over Q4 in the previous year.As you may remember, during 2017 we launched a new, totally revamped portfolio of touch products, and during 2018 we completed the new touch portfolio with the launch of additional devices and localizations of our new software languages into now 8 major languages. These new solutions have been extremely positively received by the markets, which has been a key driver for large increase in sales of Tobii Dynavox touch solutions during 2018.Our new strategy with leading offerings at all the different price points in the market, from the low-cost apps all the way up to the high-end medical devices, also works really, really well and helps drive sales.Another key strategy to drive adoption and increased penetration in the market is to implement large-scale programs to train therapists, doctors, teachers and other professionals on assistive technology for communication and on Tobii Dynavox solutions. During 2018, we more than tripled the size of this program and trained well over 30,000 professionals.The acquisition of Smartbox was closed on October 1. So the Smartbox numbers are now also included in Q4 and contribute to the strong sales growth. Smartbox adds important products and sales presence in key geographic markets. We also see clear synergies with the acquisition, both in sales, R&D and operations. With our combined teams and expertise, we will have the capacity to increase innovation and develop even better solutions that will help even more people with disabilities to communicate effectively.However, we are still waiting for approval from the local competition authority in the U.K., CMA, before the actual integration work can start. CMA has recently announced its intent to continue its investigation in a so-called Phase 2. It is of course unfortunate, but we're convinced that this is an acquisition that will be prosperous and good both for us and for the markets and the customers.Johan, over to you and the financial overview on Tobii Dynavox.

[Johan Wilsby, Chief Financial Officer]

Thanks, Henrik, and hi, everyone. As Henrik stated, Tobii Dynavox delivered all-time high sales in the fourth quarter, with a sales growth of 28%. Adjusted for acquisition and currency effects, the growth was a solid 9%.Gross margin was down 2 points in the quarter and down sequentially, primarily driven by product mix, change arising from an extended product portfolio, some nonrecurring costs related to the current acquisition phase and the related effect from different revenue recognition under IFRS 15. The last one is affected from the material services component, which is part of our sales offer in the medical-grade segment.Our operating expenses were up in Q4, which is natural when you include an acquisition. But there were several one-time costs in Q4 that affected our EBIT in the quarter, around SEK 10 million, primarily M&A related and a large internal project where Tobii has incorporated each of the 3 business units as separate legal entities. The purpose is to increase transparency in each business unit, but this will not impact our existing financial reporting by segment.Organic growth was around 7% over last year, and in addition we had increased R&D efforts and increasing costs for the training exercise that Henrik mentioned earlier.The Q4 EBIT margin was down materially versus last year, mostly affected by the nonrecurring items just mentioned. EBIT adjusted for nonrecurring is above 10%, but still not where we aspire to be in a successful quarter. However, the investments we're making in training and R&D are strategically right for the long-term growth both the AAC market as well as for Tobii Dynavox.Next slide, please. In the full year 2018, we grew sales in Tobii Dynavox by 16%, or 9% adjusted for acquisitions and currency effects. Summarizing 2018 from a sales perspective would involve 2 material factors. Tobii Dynavox is back in real growth mode, with the new product and localization efforts starting to impact the wider market. Revenue growth adjusted for currencies and acquisition was 9%, and this is in line with our long-term financial targets of average yearly revenue growth of 10%. On top of this, we had the recent acquisition of Smartbox, which is contributing to sales from Q4 of '18.Gross margin were down 2 points versus '17, as we have seen in some of the earlier quarters, primarily driven by product mix and the related effect from different revenue recognition. Moreover, we saw some nonrecurring effects in Q4 of '18 due to extended product portfolios.Our operating expenses were up during 2018, obviously partly increased by the acquisition and also including several of the one-time costs that I just mentioned. Our EBIT margin was down versus 2017, but adjusted for nonrecurring items we would have had a 10% EBIT margin, in line with last year. And we now have the focus to make real efforts to get back on a path towards our long-term EBIT target of 15% profitability.Over to you, Henrik.

[Henrik Eskilsson, Co]

All right. Let's move to Tobii Pro. Tobii Pro provides comprehensive eye tracking solutions and services that enable thousands of companies and academic research institutions to gain deep insights into human behavior, consumer experiences and professional performance. Tobii Pro is the undisputed market leader in this space, with a global market share of 60%.Next slide. Tobii Pro's overall market is driven by a strong increase in demand for objective methods to understand human behavior. Both academic researchers and commercial enterprises are increasingly recognizing and demanding the type of insights and data that eye tracking delivers. Understanding behavior of consumers to optimize your product, your ecommerce or your marketing or to optimize performance of your employees are all critical in today's hypercompetitive markets.The total market for eye tracking solutions for research has grown at rapid pace over the past 15 years. And we've actually seen market growth accelerating in the past 2 years, as eye tracking is rapidly transitioning from almost science fiction to more, much more into the mainstream. And you can see this acceleration also in the graph in the market development on this slide.We also feel this change in the market. Customers today are much less asking, what is eye tracking or why should I use eye tracking, and instead asking, how can I apply eye tracking to my business? And this of course changes the dynamics of the sales process.We've also seen eye tracking making strong segues into new segments; for instance, into the segment we call professional performance, where eye tracking is used in industry, in simulators, sports, et cetera, for training and performance optimization.Next slide, please. Tobii Pro delivered a record-high revenue in the fourth quarter, with revenue up 15% over Q4 in the previous year, adjusted for currency effects. The order entry growth was even higher, but some large orders will not be recognized as revenue until later in 2019. For the full year, revenue grew by 26%, adjusted for currency.Tobii Pro is investing a lot in broadening and refining its product portfolio, and during 2018 we've launched a large number of new products, including Tobii Pro Sprint, Tobii Pro VR Analytics and Tobii Pro Lab VR. And now in the fourth quarter we added a new research eye tracking device, the Pro Nano.During the year Tobii Pro has also grown its global sales and service organization substantially. We have expanded our teams, both in the U.S., in Europe and in Asia. We also acquired Acuity to greatly increase our presence in the U.K. market.Next slide, and over to you, Johan.

[Johan Wilsby, Chief Financial Officer]

Thanks. As Henrik mentioned, Q4 was a great sales quarter for Tobii Pro from all perspectives, with a 15% FX-adjusted growth and great order intake. The effect of taking over a large portion of our former competitor, SMI, customer base is now behind us. So this is apples-to-apples growth in the quarter and in line with our long-term financial target.Gross margin came in at 76%, up 3 points year-over-year and flat sequentially. Product versus services mix in the quarter was behind some of the increased margin.Operating expenses showed continued growth due to investments in sales coverage and product development. The acquisition of Acuity earlier in the year also contributed to discreet increases in operating expenses.The EBIT margin of 20% was up 1 point compared to last year. As you know, we tend to have a strong seasonal pattern, where Q4 is the strongest from a profitability view.Next slide, please. We have seen some exceptional sales growth in Tobii Pro during 2018, partly boosted by the exit of our former competitor, SMI. This effect ended in June 2018. FX-adjusted revenue growth of 26% is well above our long-term financial targets of growing 15% to 20% per year.Gross margin came in at 75%, up 1 point compared to previous year.Operating expenses grew materially due to investments both in sales coverage, the Acuity acquisition and product development. The key driver behind the operating expense growth is to capture long-term growth opportunities we see for the business units. However, we expect the OpEx growth to be lower during 2019.EBIT margin compared to last year was up 3 points. This is evidence of scalable elements in the Tobii Pro business model, and we are in good profitability trend, from 6% in 2016 to 11% this year. And our goal is our long-term financial target of 15% EBIT by 2020.Back to you, Henrik.

[Henrik Eskilsson, Co]

Well, moving on to Tobii Tech. Tobii Tech is the world's leading supplier of core eye tracking technology and solutions for integration. Tobii Tech sells and licenses eye-tracking technology in the form of system designs, algorithms, platforms, ASIC chips, sensors in cameras, application software and IP.Next slide. Tobii Tech is impacted positively by several large trends. One such trend is the proliferation of ever more intelligent or smart sensors. In recent years we've seen adoption of, for instance, advanced face ID sensors in smartphones. We've seen rapid adoption of intelligent assistants in our homes, with Alexa's and Google Assistant's, et cetera. Recently, Intel and Microsoft have, for instance, launched their large new effort for next-generation ultrabook laptops that they call Project Athena, which embraces smart sensors as a key component for PCs over the coming several years.Another important trend related to Tobii Tech is the continued growth of PC gaming and, in particular, esports. There are over 1 billion people who play games on PCs worldwide; 400 million people watch esports, and half of them practice esports themselves. And these numbers are growing by 20% per year.VR, in itself, is a new market that is now showing solid growth. Viveport is one of the large app stores in VR, and Viveport tripled downloads and revenue in 2018 compared to the previous tear. Steam, which is the largest gaming app store in the world, doubled the share of its users with a VR headset connected in 2018. Enterprise VR applications have found many solid use cases and is growing rapidly.IDC estimates that VR and AR together will more than tenfold, from about 4 million units in 2018 to some 50 million units by 2022. And the VR industry views eye tracking as a key technology for next generations of headsets.Next slide, please. At CES, which is the world's largest consumer electronics show, one of the absolute leaders in the VR space, HTC, announced their new flagship product: the HTC Vibe Pro Eye. The main feature of this new product is, as the name indicates, integrated Tobii eye tracking. And with eye tracking, this headset is capable of much improved graphics performance, thanks to so-called foveated rendering; new, more intuitive interactions based on eye tracking; and powerful eye tracking analytics for enterprise applications. HTC won numerous awards at CES for this new product.This is the first major VR headset that incorporates eye tracking, and thus, this announcement is a major milestone in the evolution of eye tracking in VR. We have already seen significant positive effects of this announcement on our relationships with other players in the ecosystem. When a leading player like HTC integrates a technology, it validates eye tracking in the eyes of content developers, graphics processing partners, game engine partners and of course puts pressure on other headset manufacturers, as well.Tobii is working in close collaboration with numerous customers and partners in VR and in several product development projects that target products in market later in 2019 or 2020.During 2018, Tobii has also deepened our partnership and collaboration with Dell in gaming and esports. Also at CES, Dell launched their new flagship gaming laptop, the Alienware Area-51m, and this device won numerous awards of best gaming laptop ever and of course integrates Tobii eye tracking. This is the first product that integrates our new Tobii IS5 platform. The IS5 is much smaller, features fully invisible projection system and is more power efficient than previous platforms. We expect the IS5 to drive significantly increased volumes for eye tracking in our PC segment.In the past year we have collaborated with Dell around esports broadcasting, which has exposed millions of viewers to eye tracking as a concept. And now in January, Dell and Tobii together launched Alienware Academy, which is a first of its kind esports training and coaching system which leverages eye tracking to enable deeper forms of insights and training targeting a wide audience of esports players.Next slide, and your turn, Johan, on the financials.

[Johan Wilsby, Chief Financial Officer]

Right. Tobii Tech revenues in the quarter were up 29% year-over-year or, adjusted for FX, 20%. This quarter, sales of eye-tracking technology to niche market customers and project-related revenues in the VR segment contributed to the growth.Gross margin was up 3 points, to 46%, primarily due to product mix driving a higher gross margin than last year.The operating expenses were in line with Q2 and Q3 of '18, but we saw a material year-over-year growth in Q4 since we had grown the organization in Tobii Tech in the past few quarters in line with our business plan. The growth in OpEx was, in part, increased by negative one-time costs in both '17 and '18, which explains more than 50% of the delta in EBIT compared to last year. One of the projects that has led to these one-time costs is the redesign of the legal structure leading to an incorporation of our business units that I mentioned before.Next slide, please. For the full year 2018, Tobii Tech revenues were up 24% or, adjusted for FX, 21%. We have seen project revenues from customers in the VR segment and revenues from niche market customers contributing increasingly to this growth.Gross margin was up 4 points, to 47%, again primarily due to product mix with higher gross margin compared to 2017.The operating expenses in the segment were up some 12%, when you adjust for FX and one-timers, driven by the growth in the organization in Tobii Tech. Going forward, we anticipate the expansion rate to level off since we now have the size of the organization we need to execute on our strategy.EBIT for the full year was a negative SEK 305 million, which is almost in line with '17 if you adjust for nonrecurring items.Next slide. Let's move to the group. The group revenues showed strong growth in Q4 and increased by 18%, adjusted for currency effects. All business units set new sales records and contributed to the growth.Gross margin for the quarter was 69%, on par with last year, despite the drop in gross margin for Tobii Dynavox.Tobii's EBIT for Q4 was a negative SEK 35 million, which was slightly lower than last year, due to the increased organization as well as the material nonrecurring item mentioned. The last factor explains more than SEK 50 million of the delta between the quarter.Next slide. Full year Tobii group revenues grew by 17%, adjusted for currency effects. Again, all 3 business units contributed to the growth.Gross margin for the year was 70%, down 1 point compared to last year. Tobii Pro and Tobii Tech contributed positively to the gross margin.Tobii's EBIT was a negative SEK 190 million, which was on par with last year. Key drivers in the operating expense side were the increased resources in the business units as well as the nonrecurring items mentioned.Next slide. Let's wrap up this financial section with a look at our cash flow, where cash flow from continued investments improved in Q4 over Q4 '17, partly driven by a decrease in the net working capital. The acquisition of Smartbox was paid out of our cash position and obviously impacting the cash flow from investments.At year-end we had a cash position of SEK 192 million, after having paid the acquisition of Smartbox, and we had agreed bank facilities of SEK 250 million, which were not drawn at year-end.So this concludes the walk-through of the numbers.Next slide, please. As we have communicated repeatedly, acquisitions are an integral part of Tobii's strategic agenda and enables us to broaden our portfolio and reach new markets in an efficient way. In line with earlier communication, this will require separate financing, and we believe that the bond loan is a flexible and attractive way to create the readiness for future potential acquisitions. The purpose of this bond loan is twofold: it will refinance completed acquisitions and it will be used to finance potential future acquisitions. Hence, it will replace the current debt financing related to acquisitions.The bond process has been initiated, but the terms have not been finalized. We will already next week meet a number of bond investors, and we will of course communicate progress regarding the bond loan according to regulations.Over to you, Henrik.

[Henrik Eskilsson, Co]

Thanks, Johan. Overall, I'm very happy that all 3 business units delivered sales records in the fourth quarter. Looking at 2018 as a whole, 2018 was a good year for Tobii from many different aspects. We have strengthened our market-leading position by major contracts with customers and partners and by growing sales, both organically and through the acquisitions of Smartbox and Acuity. We have launched innovative products and broadened and strengthened our product offerings in both Tobii Dynavox, Tobii Pro, and Tobii Tech.All 3 business units are clear market leaders in their respective segments, and both Tobii Dynavox and Pro are growing profitably. We've had several years of rapid organizational growth, but at large we have now reached the size we need to be able to reap the benefits of the economy of scale and deliver on our business plan and on our financial targets.Looking ahead, I see an increased focus on profitability, not the least to ensure that we meet our financial target for the group of profitability in 2020.With that, we're handing over to you, Jenny, to questions from the teleconference.

[Operator]

[Operator Instructions] It comes from the line of Sebastian Olsson.

[Sebastian Olsson]

So my first question is regarding Dynavox margins. Will you just please give us an indication on how much of the Q4 margin decrease is due to the product mix, how much is due to Smartbox integration? My second one is about Tobii Tech. It shows 2 strong margins, 2 strong quarters of 20% organic growth. What do you expect will ramp up the sales growth to reach your profitability targets? And when can we expect the [indiscernible] projects revenues to enter actual product sales, going forward?

[Johan Wilsby, Chief Financial Officer]

Thanks, Sebastian. There were a lot of questions in there. Let me take a stab at a couple of the first ones, and then let's see if Henrik follows on. So you asked about the sort of nonrecurring items and the split between Smartbox and others. I'm not able to go into details due to the current sort of investigation. But the SEK 10 million of nonrecurring costs that we had called out in the report, that relates to the complete cost side; so from gross margin down to EBIT. And you were asking about gross margin, how big effect that is in there. And I would say of nonrecurring nature we're talking about 2 to 3 points of gross margin.

[Sebastian Olsson]

And the one on Tobii Tech?

[Henrik Eskilsson, Co]

I can try and take a stab at that one. So you asked a little bit about what will drive sales, going forward, in Tobii Tech and also specifically asked a little bit about when will we see VR design wins translating into revenue. And on the first part of that question, we definitely expect sales to grow at a very strong pace in Tobii Tech, going forward in 2019, 2020, 2021, in order to reach our financial targets. The growth specifically in 2019 will be driven largely by design wins and deals that we have made in the past 6 to 12 months with key customers. And we have several design wins across both PC, VR and niche markets that will all contribute and help drive sales growth in 2019. And then, obviously, we need to continue to be successful with landing numerous additional design wins in all of these segments to drive rapid growth in 2020 and 2021. In terms of VR, specifically, HTC has announced their intent to launch or start sales of the HTC Vibe Pro Eye in Q2 of this year. So that will be the starting point for starting to take on per-unit revenues on that device, specifically. But then we should expect to see VR revenues growing gradually in 2019 and kicking into bigger gears in 2020.

[Operator]

And the next question comes from the line of Mikael Laseen.

[Mikael Laseen]

A couple of questions. First of all, if you can provide us with the FX impact for Tobii Dynavox and how much the acquisition contributed with in terms of sales.

[Johan Wilsby, Chief Financial Officer]

So I'm not going to be able to speak specifically around the Smartbox numbers, in respect of the ongoing investigation by the CMA. The FX impact is fairly large in the quarter since you know that we are -- we have big sales in the U.S. and the dollar to Swedish currency had a fairly big deviation in this quarter. So that's roughly 8 to 9 points in terms of change when it comes to the U.S. dollar.

[Mikael Laseen]

Okay. I arrived at I think 7% FX contribution. Is that in the right ballpark?

[Johan Wilsby, Chief Financial Officer]

That's in the right ballpark when you blend with other currencies, right?

[Mikael Laseen]

Okay. And can you talk about the Tobii Dynavox development per product and country or market, how that developed in Q4?

[Henrik Eskilsson, Co]

Yes, I can take that one. We had a good development, overall. So we saw good growth both in North America and across our main European markets. And we saw growth both in our eye tracking segment as well as in our touch devices segment. Throughout 2018, we've seen really strong growth in the touch segment, which is where we have launched all of these new revamped products. It's actually the slightly smaller part of the portfolio; the eye tracking part of the portfolio makes up a larger portion of the revenue. And we are already now also looking at development of next generations of some of our eye tracking products that we expect to come to market later in hopefully this year.

[Mikael Laseen]

Okay. Would that be the high-end side, I assume?

[Henrik Eskilsson, Co]

Yes.

[Mikael Laseen]

Okay. And in the rest of the world, how are you developing there, [indiscernible] Dynavox?

[Henrik Eskilsson, Co]

So a very large portion of the revenue for Tobii Dynavox comes from either the U.S. or North America or Europe. A relatively small portion is outside of that. We do see rapid growth, but from low levels, in several of these more emerging markets for Tobii Dynavox. But emerging markets in Tobii Dynavox perspective is a little bit different than normal definition of emerging markets. So we're still seeing that type of rapid emerging growth in countries like France or eastern Europe. We also see positive trends outside of Europe, say, in Asia, but they're from really low levels so far.

[Mikael Laseen]

Okay. Great. And I was curious about Tobii Tech and how we should think about these new product launches and the customer wins, in particular for IS5. If you can help us with a profile maybe in 2019, how that sort of more sort of from a top-down perspective maybe could develop. If you can maybe mention the retail market also, it would be great and how many potential PC or notebook manufacturers there are that you could potentially address.

[Henrik Eskilsson, Co]

So obviously, the PC market is a very large market opportunity seen as a whole, with several hundred millions of devices being shipped every year. The IS5 eye tracking platform is still a high-cost component for a PC, and we're still at a stage of market development where we are predominantly addressing with the IS5 the PC gaming market and the premium PC gaming market. If you look specifically at premium gaming PCs, that is a market which is roughly 20 million devices per year, counting both laptops and desktop gaming PCs. So that is a more directly addressable market at this stage of market development for the IS5 platform. In that space there are 5, 6 major PC manufacturers, Dell being one of the absolute leaders, other players being Asus, Lenovo, HP, et cetera, who have specific premium gaming PCs in their portfolios. And obviously, our ambition is to penetrate into the product lines of several of these manufacturers. We have established relationships and products in the markets with Dell, of course, but also with Asus and MSI. And for instance, with Dell we have a very strong and deep partnership. We expect that with the IS5 and the smaller size, the invisibility dimension, the improved power efficiency to be able to drive significantly increased volumes in the PC market, although we are still at the point where we are addressing this early-adopter market segment. I hope that helps a little bit, Mikael.

[Mikael Laseen]

Yes, that was great. And can it be sales already in Q1? Or is it more towards the second half?

[Henrik Eskilsson, Co]

The new device at Alienware, that Alienware launched at CES is shipping already in Q1. But then we should expect very good growth of volumes throughout 2019, gradually throughout 2019 on the IS5 platform.

[Operator]

[Operator Instructions] It doesn't look as if there are any further questions on the phone. So I'll hand back to yourselves at this point for questions via the web.

[Ola Elmeland]

Okay. Thank you. My name is Ola Elmeland. And we've received some questions from the webcast. So I think, Henrik, we can start with the big picture here. So is the vision still that eye tracking could actually potentially be in 1 billion devices?

[Henrik Eskilsson, Co]

Yes, absolutely. I am obviously somewhat subjective, but I'm personally convinced that we will, as users of our different devices we will demand our devices to be intelligent and that they understand us as users in a way that is much closer to how humans actually understand each other. And eye tracking provides exactly that. So obviously, it's a function of cost and performance and time and applications and devices and operating systems adopting eye tracking, but I am very convinced that in the long term we will see eye tracking proliferate and across essentially all of our PCs and tablets and smartphones and VR and AR and cars and what might be.

[Ola Elmeland]

Okay. And what about cars, specifically, or automotive? Or what's your activity there?

[Henrik Eskilsson, Co]

So we definitely see strong years of benefits and significant market opportunities for eye tracking as a part of driver monitoring in automotive. It's a great use case for eye tracking, and there is a large market opportunity there, as well. Tobii has so far prioritized to not proactively invest in the automotive market, and it's mainly because of focus. We believe very much in carefully choosing and focusing on specific segments. And for us, we have seen better opportunities for us specifically in PC and VR and in niche markets. But definitely there is an exciting opportunity there.

[Ola Elmeland]

What other niche markets have you been looking at?

[Henrik Eskilsson, Co]

So in niche markets, this is a cluster of quite diverse types of applications and devices that we refer to as niche markets. What joins them together is that typically eye tracking is a very central key part of the use case in the device. So it's almost a necessity for these devices to function. And therefore, it makes it quite attractive for us to supply eye-tracking technology, and we're able to extract high margins and do quite profitable deals in these niche markets. And they span from medical diagnostics to surgery applications to industrial and security, entertainment applications. And we have today in total roughly a dozen design wins across several of these different niche markets. But again, they're sort of joined by relatively speaking lower volumes than what we see in consumer mass markets, but with high-profit margins.

[Ola Elmeland]

Okay. And here is the question from David Carlsson, who was thinking about implementing eye tracking in VR and computing. He assumes that implementing it in VR is a bit easier. If so, will competition be tackling that segment? And what about competition, in general?

[Henrik Eskilsson, Co]

So on a high level, Tobii is not, is certainly not the only company doing eye tracking. There is about 20 companies around that have technology and products in the market for eye tracking. But we are positioned very clearly as the global leader in the field of eye tracking, and we are many times larger than our closest competitor in this space. We still of course have very clear respect and pay close attention to competition. Specifically in VR, we have several competitors in the VR space; generally speaking, smaller, significantly smaller companies and players that are also at least trying to sell eye-tracking technology to VR headset manufacturers. Eye tracking is, it's almost a little bit deceptive because it's not that difficult to develop an eye tracker that works okay in the lab. But it is excruciatingly difficult to develop an eye tracking system that works on pretty much everyone all of the time and that is possible to manufacture at very low cost, with low power consumptions, more form factor, et cetera. And in particular, in consumer electronics implementations, such as VR, eye tracking, for it to really take off, it actually has to work all the time. So we typically -- and this is where Tobii shines. This is what we do best, is consistent, reliable eye tracking that actually works in consumer electronics. So as the industry matures and understands some of these challenges and that this is a necessity, it actually helps reinforce and strengthen Tobii's position, and we have a very strong position today in the VR space.

[Ola Elmeland]

So one very specific question on CES, as well, is a comment on Lenovo Yoga. Someone is, David is wondering about the progress there because we have been expecting an announcement but we haven't seen it. Any comments on Lenovo?

[Henrik Eskilsson, Co]

Yes. So Lenovo demoed at CES a new product, [indiscernible] PC in their Yoga product line. And in that demo they also showcased Tobii technology. We do not have an official design win with Lenovo at this particular point in time, but they have demonstrated a product. And obviously, as soon as we can hopefully communicate something more, we will of course do that as early as we can.

[Ola Elmeland]

Okay. Thank you. I think that's it for now. So over to you again, Jenny.

[Operator]

And there are no questions on the phone at the moment either.

[Ola Elmeland]

Okay, then. Okay. So thanks, everyone, for listening to our earnings call today and thank you for all of the questions. Good questions. Have a great day, everyone, and bye for now. Special thanks to [indiscernible] and David Carlsson. Thanks. Bye.

[Operator]

Thank you. Ladies and gentlemen, that does conclude the conference for today. You may now disconnect. Speakers, please stand by.