Elliptic Laboratories ASA (ELABS) Earnings Call Transcript & Summary

Hi. I'm Laila Danielsen, the CEO of Elliptic Labs. Thank you for joining today's presentation. I will be covering 3 main areas. First, an introduction to Elliptic Labs. Second, we will share -- I will share more information about our recent announcement with Lenovo. And third, we will share where Elliptic is headed. Sensor touch every aspect of life and drive the digital transformation. Our vision here at Elliptic Labs is to build the leading software platform for all sensors, making every device in the market, smarter, more human and environmentally friendly. So let's explain how and what exactly we are doing. In today's market, we reuse any hardware sensor and components that are in today's devices. Then we apply our software platform to create new set of features like proximity, presence, connection sensors, et cetera. So let me illustrate this further with an example. As you know, all smartphones, all laptops, already have a microphone and speaker. This is what we start as a main point of leveraging. When you are in front of me here today, you can hear, of course, that I'm speaking. And we call that -- that's called audible sound. But at the same time, as you -- we are sending out audible sound, ultrasound is also being played out. It's simply just in a higher frequency. This is what we're leveraging. So for example, when we deliver our latest functionality to Lenovo to their ThinkPad T14 product, what we are doing there is that we are using down there microphones and speakers that is on the device to detect presence. And the purpose of that is as follows. I'm standing in front of the laptop. The speaker sends out an ultrasound signal. It detects that I'm in front of it, the sound -- the ultrasound bounce back, the microphones listen to it and then our platform determines if they should -- what should we do next? Should we dim the screen? Should we lock the screen? Or should we keep it open? So in this case, it will keep it open. However, if I leave, the speaker wound send out an ultra signal. It would detect that I'm not there. There will be no signal going back, and the screen will then start dimming and locking. So the purpose for this is to increase the privacy, but also to save power. But we do more. We lead with ultrasound, but we do more than that. We have a set of other sensors here in devices. We can aggregate the output of many of these devices. We do call something that we call sensor fusion to even do a broader set of features. For example, we can then deliver heartbeat or breathing detection. So the beauty here is that we work with the customer, we assess what they want to do, and then we determine what is the best set and the most cost-efficient way to deliver the features that they're trying to accomplish. And really, really beauty here is that billions of devices use hardware sensor components today, so then -- that can leverage our software. So the market opportunity here is enormous. It's a $5.5 billion market. We started out in the smartphone market. The next big vertical we're going after and that we, of course, already have penetrated is the PC laptop market. We will also be talking about the IoT market, which is another big market. And we have PoCs, and we also start in the smart TV market. And we're starting also exploring the automotive market. So a large market that already consists of components that we need today to deliver more features. So this market is dominated by intelligent hardware, non-intelligent hardware sensor. So it has single purpose. As I mentioned, most devices in the market today has a microphone and speaker already that we leverage. But what we also do in the various market is that we are replacing some of the hardware sensors. So for example, let's start the infrared proximity sensor that has dominated in the smartphone market. The first -- since the first iPhone in 2007 started using infrared proximity, and it was a standard in all the devices, all the smartphone devices for many, many years. It was truly incumbent technology in most smartphones. And the purpose was that it enables a lock of the screen worry in the phone calls. We started in this market, and of course, it was a big challenge to really replace such a strong, low-cost incumbent technology, but we did it. We started out in that market and we truly were able to replace this proximity answer. Furthermore, there's other sensors in other markets that we are now competing against. For example, the time-of-flight. This is what we see the most. We see radar, but not really that much. But in time-of-flight in the high end -- high-end, low-volume laptops because this is a costly sensor, we have started to see that's being used. And this is now what the laptop and PC manufacturers is looking to replace. But they're also looking to increase this feature across higher volume, lower cost laptops. And this is where we come in. And this is exactly what we also did with Lenovo. The beauty here is that the cost of these sensors are higher. So sensor outside the smartphone market, hardware sensor are, in general, a higher cost that we can go in and replace. So why are these customers coming to us? Well, the value proposition is strong and very straightforward. We replace hardware sensor. We reduced -- therefore, we reduce costs. You don't have to worry about the supply chain and the sourcing risk that is, in particular in these markets today. You don't have to worry about that because we are 100% software that can leverage components that they already have, microphone and speakers. And also we reduce the environmental footprint, which is incredibly important for these PC, laptop manufacturers that has a strong mission of being -- reducing their carbon footprint within the next 5 years to 10 years. We do all of this. While on top of it, we add even more capabilities. So let's jump into the first vertical market that we went after, the smartphone market. We spent about a decade of developing a solid platform. And we started initially entering into the smartphone market in 2016 with Xiaomi. At that point, we spent, everybody at Elliptic Labs, all our engineers to support one customer and one model. Over time, our technology has increased tremendously in maturity. Also, the quality, like we are really able to deliver precise capability. And of course, this has taken almost a decade to truly develop and so we are so scalable. So today, we're close to -- we're on almost 50 models on the market spread over several hundred million devices, which truly demonstrated this scalability. And of course, in this time frame, we have also established a really strong ecosystem of partners. And just to sum it up, I mean, only in Q4, we launched in several models with 3 customers. So a platform for sure, scalable. The majority, thus far, of our revenue are based on smartphones. We've had a good year-over-year growth just from Q3 '20 to '21. We have had a little bit more than 70% growth. The beauty of our technology, particularly when you do software only, is that we have a very flexible type of pricing model. We have started. In general, we do a license fee per unit per device. And that's because it's very easy for the customer to justify this, because we just look at the price on the hardware sensor that could potentially do the same and then replace it with our technology. But of course, we have lots of flexibility to really work with the customer to have broad deployment. Over time, thus far, we also see some seasonality in the market. And historically, sales in Q4 has been our greatest quarter, and we expect to see this in 2021 as well. All right. So our next growth vertical is the PC, laptop and tablet market. And we at Elliptic, we are uniquely positioned to expand in the PC market. Through aligned roadmaps with the biggest processor and semiconductor in the world today, Intel, AMD and Qualcomm, we work extremely close with them because their largest customers are requesting that Intel to also work with us. That is one. The second is that Intel, AMD and Qualcomm also need to make sure that they are able to deliver a new set of features to their customer base. Therefore, we have a strong symbiotic relationship with these players. Intel is leading with over 80%. And obviously -- not obviously, but last year, end of last year, we announced the partnership with them. And of course, we also work closely with AMD and Qualcomm. Those 3 companies alone represent almost 100% of the total CPU market in our market. What does this mean? This means that we are able to support all PC and laptop models in the market. So this has been an incredible important journey for us to establish these relationships. So the PC market is concentrated by high volume companies with Lenovo that we signed with, leading this market. And the fact that, as I mentioned, our partnership with these key CPU manufacturers, this enable us to truly keep expanding in this market. And we have a very nice price point to replace the time-of-flight sensor, what we see is about $2.05 to $4 per unit. And also due to supply chain constraint in particular now too, we see that these are price points that we expect to continue through '22 and '23. Okay. So very exciting to -- for our announcement that we had this past Monday, together with Lenovo. It's the first time they have put presence detection. Of course, first time they also put a software-only or virtual presence sensor onto any of their devices in the market. And once again, no extra hardware. We are simply -- we're using their existing microphone and speakers, delivering -- enabling in the ultrasound frequency. Not have to worry about designing. They don't have to worry about supply chain and the reducing cost. So really, really excited about this opportunity. And also what is very important with this relationship is that this is the deal that we signed last summer when we could not -- we were not -- we didn't have the permission to announce who we signed with. But this was Lenovo. And we signed an enterprise license agreement with them. And what does that mean? That means that we can cover the whole organization. And so we are clearly targeting to expand into more models with Lenovo, for sure. Two other sort of follow-ups from our announcement is that we have gotten greater interest from the rest of the partner ecosystem. And also, we see an accelerated interest from other PC makers. So in this market, we are set to grow along multiple dimensions. As you see from this slide, in the middle, we have our core platform that can deliver a set of products and even more products that we have lend them presence detection that we can do in this market. We started out with Lenovo. We expect and targeting over time to work with more customers. And for each of these customers, we expect to deploy into more model. So this market, targeting more customers, expanding into more models with more products. So a really good opportunity for Elliptic Labs. So to summarize, the value that our platform enables in this market, the value is both for manufacturers and end users. We've talked a lot about what we are delivering for the manufacturers, reducing in costs and risks and of course, the environmental footprint. But another aspect that is very, very important for the end users when they experienced privacy is the fact that when you use ultrasound and we use sound in a higher frequency that you cannot hear, that means that when you have this capability on, the technology cannot see you, cannot see you, and they cannot hear you. So this is -- using this feature, it also gives the user the comfort that we are respecting the privacy and this is what is -- what's so beautiful with our technology. So we reduce costs, which is a greatest new feature, which is great for the manufacturers. We're respecting privacy, which is -- and we increase security on the laptop, which is great for the end users. And we're doing all of this while we respect and we are environmentally friendly. So good for the manufacturer, good for you, the end users and great for the planet. And we, in this market, have signed several PoC agreements also with other companies. So very excited opportunities ahead of us in this market. All right. But there's more. We have additional growth opportunity. And we are now in the process of building a position in the IoT market. And we started entering into this market, signing a license agreement with no other than Bosch. Bosch, that is an $80 billion company and basically has distribution in every single country almost in the world. And we started out in a new segment, which Bosch calls their building and technology department. It's currently for them a department that they are generating about $5 billion in revenue. So it's a big department. And we start with one of their products. And what is so nicer is that we can use our underlying technology and deploy it yet to another vertical markets. So if I just try to simplify it, in proximity, we deliver detection of a few centimeters. In the laptop, we're going to deliver detection up to a meter. For this device here, the [ box battery ] device, we're going to deliver -- we are delivering detection up to 5 meters. And in this market, we are replacing a even higher cost, more complex physical sensor that has to have -- that needs to be industrial graded. So with our underlying technology, we can go into different vertical markets. And of course, once again, here, we are also planning to -- and working with Bosch, looking into even other opportunities and departments. Furthermore, we have done a few other proof-of-concept agreements in the IoT vertical. But I want to be clear, IoT, we see great opportunities, but we're just starting to navigate it, as the IoT market is quite fragmented compared to the laptop and the smartphone market. So we have today deployed our technology, our software, our Virtual Smart Sensor in hundreds of millions of devices, and we are growing. We are -- we have presence, and we are extremely, extremely customer focused, and we have presence where all our customers are. So we have folks in Europe, in the US, in Asia. We are in Japan, South Korea, China and Taiwan. And this is, of course, very good to be close to the customer. The technology that we spent over a decade is very scalable and it's -- we expect that what we are seeing now, this can scale to billions of devices. And we are targeting to reach NOK 500 million in revenue by 2023. So let's talk a little bit about how we foresee how we're going to accomplish this significant growth in revenue. So the plan is and what we're working on is that we will continue to expand in the smartphone market that we already have started scaling. Then, as we have mentioned here, our next growth vertical is laptop, and we expect to have significant growth in this market. And at the end, we are building a position in the IoT market. So we expect to have some revenue in this market as well. So a little bit more in the smartphone, great growth in the laptop, PC market and a little bit of growth here within the next 2 years also in the other key markets. So combined, we expect to reach NOK 500 million. And it's worth noting that we see an increase in price points for our virtual sensor outside the smartphone market. Thank you. So now we're going to take a short break, so we can review the questions and I will leave you with these investment highlights. Thank you. [Break]

Hello. Hello, again. Also Lars Holmoy, our CFO, has joined for reviewing some of the questions that's been taken in during the presentation. So we'll just jump straight into it.

Yes.

Start with, is any of the agreements with -- either with customers or partners exclusive? And what about the agreement with Lenovo that you recently launched? The answer to that is, I mean, short and sweet, no.

No.

None of these agreements are exclusive, particularly not for presence detection. It's not. Do we get requests in conversation with customers and partners about exclusivity? Absolutely. But our goal is to do this broad deployment. So we do not offer any exclusivity. With that said, potentially for some new features for the right price, we might offer like a short exclusivity in a particular market, maybe for 3 months or 6 months. But in general, particular for presence detection, we do not offer any exclusivity. And I'll jump into, I mean, next question, which goes to you. Why did you decide to go on the main list?

The main reason for going into the main listing is, of course, we have received quite international attention and some of the compliance measures for these funds needs us to be on the main list. We also see that we will have a broader offering of our stock to the main market. And we also have -- for the retail market, it's also beneficial if we can use the [ OSE ] account. And yes, it's the main reason. But we will also have more international offering, more international funds. We will be able to buy stocks in Elliptic.

Yes. I think they are taking lots of more questions here.

Yes.

But I'll ask. Well, you maybe review some of these and I'll ask the next one.

Yes.

What is the main reason for why the laptop manufacturers want presence detection? I think this question came in early. So -- but I'll repeat it again. The main reason is, well, actually, there are many reasons. So one, they would like to offer, particularly for a commercial customer, but we see it also broadly. Presence detection for privacy, that is the first reason. Then the second reason, which we see is more and more important is that all the laptop, PC manufacturers is on a mission to really be carbon neutral or carbon negative and have a lot of efforts and initiatives around their devices to reduce the power consumption. And these are the main reasons for that they are going after and focusing and delivering presence detection on to these devices. And what they particularly like, of course, about using -- leveraging ultrasound, because the next question here, why do we go with our technology versus a physical sensor? And what they like about it is, of course, 100% software, which you have a chance to, even if you have already launched the laptop, you can do an over-the-air update and reapply this functionality at a later stage. It's more cost efficient. You don't have to worry about supply chain. You also don't have to worry about designing. And also ultrasound is -- the beauty with ultrasound, I believe I repeated a few times in the presentation is the fact that ultrasound is operating in different frequencies, non-audible sound. So you cannot -- we cannot hear, ultrasound cannot hear your conversation, and they cannot -- ultrasound, we can't see you either. We can just detect that somebody is in front of the device or not. I believe you have a few...

Yes. I have received a question about raising any more capital in 2022. There is, at this point, no plans for raising any more capital this year or foreseeable future. So there's -- no. And so there's a question about the market look for competitors. So how do we see that, both physical and others?

Yes. So clearly, there are big players. Today, we only see hardware sensors, different type of companies around ourselves. Hardware sensor is our direct competition for -- particularly for the PC, laptop market or even the -- in the IoT key markets. So we -- in some -- in most of the cases, we lead by replacing many of these components. But just remember, we also partner with companies that are selling time-of-flight sensors and radar sensors, and they come to us for additional enhancement of the physical sensor. So the -- what I expect or what we're seeing in the future, I don't expect the price point in this year or potentially even next year to go down from the hardware sensor. We see -- we also still expect -- we hear from our customers as well as our partners, there's still a struggle around sourcing and supply chain. So of course, you have billions of devices that are using hardware sensor. It will continue to do so. But what we expect is to see more and more advanced capabilities. So our platform would just be more and more attractive from the customer, but also from the partners.

Question about the war in Ukraine, geopolitical and it's escalating fast. At this point, we don't have any clients in Russia. So it's -- we can't see that at this point. But of course, it's escalating. We don't know. I don't think anyone knows. But I don't think it will affect us not in the near future.

Yes. And just to add one point. I mean, obviously, we conduct business in China and Europe, in US, in Taiwan, in South Korea and Japan. So if you just look -- just this past year, we have mitigated a lot of risks by going into multi-geographical areas. So we are a much stronger company and much more better positioned to get impacted. Of course, this terrible situation with Russia and Ukraine, but we're not so singular as we were, if you look 2 years ago, where we were solely, for example, in China.

It's also a question about the revenue target here in multiple ways. It's unchanged at this point. So...

Yes, I don't -- I think I've repeated a lot about that.

And then, of course, there is some questions about the quarterly results, and you have to wait until next week when we will present that one. And also I got a reason. We are moving into main list on Friday. And why we postponed it from autumn to this? It was timing. Timing is everything. And I think it's also we are a fairly small company, and there's a lot of work to do, and the priority was to do it at this side of the year. There is no bigger explanation for that. Then it's -- yes, the timing was more correct for us now than it was this autumn.

No. And I have got a question. What is the sort of main challenges to reach our number -- target number and....

Yes. No, as we're scaling as fast as we can, people, getting the rightly skilled people is, at least in our view, our main challenge at this point. On risk, we are -- we need highly competent engineers. I will also say it's super fun to work with us in that terms. We're working with the biggest companies in the world in terms of that. So if you're looking at and want to join us, please, we have an open positions at our websites.

Yes. And we always -- we are always recruiting, did so last quarter, and we ended up hiring somebody that listened to the presentation.

Yes.

So I say it again. You are an engineer?

Join us.

Join us.

Yes.

Anything more?

Yes. Accuracy of -- I don't know if I go into this technical part, but the accuracy of soundwaves, ultrasound versus doing time-of-flight or radar sensors. I think you've touched upon it when working with the competitors, but...

Yes. No, I can -- so once again, when we go in and talk just a little bit about the process that we are taking when we are going into the customers. So I'll just start with a company like in Lenovo. So of course, for their high-end laptops that delivered low volume, they started out with time-of-flight sensor, which it's between $2.05. How much they paid? I cannot share, but the general pricing in the market is between $2.05 to $4 per unit. So -- and the performance of the time-of-flight sensor for that particular feature is good. They have great performance. However, if you can replace and have similar performance with software only, the customer will go with software solution. That is given because of the benefits that I mentioned. Costs, no worry about the supply chain, not to worry about designing and the fact that you can do an over-the-air update into the device that's already out in the market. Furthermore, since there's -- the goals for these laptop manufacturer is to deploy it across all their platforms. They want to have a uniform set of features that is consistent, whether you buy a high-end laptop or a low laptop. Then you also need to meet a price point that can accommodate the various price points that the customer is selling the laptops for. Furthermore, we also work with customers that are coming in and say, you know what, I would like to have a feature like heartbeat or breathing detection or fall detection. So what we do then? We look at -- we have an understanding of a lot of broad set of sensors. And as I mentioned, we're working with different partners. So at that point, we might do time-of-flight sensors, maybe we do a radar sensor and maybe we do a combination of sensor. So sometimes, we compete and sometimes we partner.

Yes, we cooperate.

Yes, basically cooperate with these companies. So going into like very specific details with each of the technology, I think that's a longer discussion that I have to do offline.

Yes. I think we can have time for one last question. And it's in parts of the future with Lenovo. What would you expect the contract signing was done? Previous year, we are now official with the T14. So can you say a little bit on what you expect of these and the timeline on what you expect?

So the -- I wish I could share that. Unfortunately, I cannot share. So it's a -- when we signed the agreement, we had strict requirements around the agreement to not be able to share anything what we're doing, who we were doing and with the timing, et cetera. When we launched, you saw that we had a quote from Lenovo "full support" and so far from one of the VPs that we work closely with. Obviously, we signed an enterprise license agreement that is....

That was the main point, right?

Yes, which -- and the purpose of that is to continue deploying into more models. Unfortunately, when and which of these models, I cannot share. You just simply have to wait for the announcement.

Yes. I think we will leave it with that. So thank you all for watching.

Thank you so much. Appreciate it. Have a great day. Bye.

Bye.