poLight ASA (PLT) Earnings Call Transcript
February 14, 2020
Earnings Call Speaker Segments
Good morning, everybody. And welcome to poLight's fourth quarter presentation. So my name is Øyvind Isaksen, I'm the CEO in poLight. Together with me today is also Alf Henning Bekkevik, CFO; and Eivind Bergsmyr, Chairman of the Board. Today's agenda, as normal, highlights key events, a short introduction to poLight for those who are not fully informed, then some market review, financial review by Bekkevik, outlook statement. And then in the end, Q&A. Since this presentation is webcasted, when you ask question, please wait for microphone, state your name. And also for those who are asking question through webcast, please leave your name in case we do not have time to answer all questions online. Yes, this is an extremely exciting time, days for poLight after many, many, many years, many, many patient shareholders, many, many hardworking employees. We finally managed to get into a product, and not only a product, it's a consumer product. So we got our first commercial launch in January 7, and we also got the second commercial product launched in February. In those 2 watches, we are, in a way, in the main camera pointing towards the object and then enabling an advanced autofocus function. We have several other customer cases, which I will talk about, we also feel are progressing well. I think we can say that we have increased probability of additional design wins in 2020 during the quarter and, of course, record-high deliveries due to the release of these 2 smartwatch phones. poLight, short description, a very, very unique lens we have developed over many years, can be used in many sectors. We started in 2005, so it's been a long journey. And we have 13 worldwide patent families, 10 pending and 3 registered trademarks. When it comes to the patents, we are working very actively in protecting ourself from the IP perspective. The patent families we have are applied for in all the kind of important countries we see in the market. So not every country in the world, but all the most important countries in the world. We are a small team, but we work -- everybody works for [ 2 ], 22 employees plus consultants and partners headquartered in the beautiful Horten, also Oslo, and we also have offices in Finland, China, France and representation in Taiwan and Korea. What we are good at is that we have an incredible speed in our technology, instant focus, as we said in the right bottom here. We can realize extremely compact solutions. We are constant field of view. You will see no moving, pumping of the picture, and we have really, really outstanding low power consumption, which, by the way, is extremely important for wearable devices. We -- as mentioned, we are in different sectors. We are in consumer market. We are -- as you know, we are now into the first product, which is the smartwatch. We are also actively working in augmented reality and VR space, and of course, we are also exploring many smartphone opportunities. The industrial side of our business is mainly, today, focused in barcode, but we also see application in other areas like sensors, machine vision and also drones, which also have applications in industrial aspects. Those, I would say, are the, today, main focus. Then we are also exploring opportunities in medical area and automotive area. Okay. So this is the watch. First watch is the Xiaomi watch. This is the -- I was challenged to wear it today, but I only have the pink version so I didn't dare. Anyway, here is the watch. I will pass it around so you can touch and feel. It's a very interesting product made for China for kids. The parents, in a way, is controlling the watch in the sense that they approve who can call it and call out. The parents can call the kids. They can track the kids where it is. They can call the kids and they can themselves change which camera to use to see the kid or to see -- using the poLight camera to see where they are. The kids can take pictures, videos using the poLight camera and share with their friends they find in the contact list. There are several players in this segment in China. It is estimated that smartwatch will be maybe around actually 40 million, 2020. I think it was around 20 million in last year. So it's something which is predicted to be quite fast-growing market. This watch is, as you have probably seen, it's a Xiaomi watch. Xiaomi is a big player in China. You have Huawei, OPPO, Vivo, Xiaomi, and then you have the main market in China. Xiaomi has a broad portfolio, and this is the most advanced smartwatch they ever launched and is priced also in that context. So I will pass that around so you can have a feel. When I'm out jogging or fishing, I'm always leaving my phone home, and I'm using my watch. But then when I see something nice, I want to take a picture, I'm lacking the camera. So I think that not only kids' watch will start to use camera. I think all smartwatches, even for adults, will start to use camera. This is actually a picture. And there's a little bit bad quality in the projector. But these are pictures taken by the son of my technical man in China with that watch. And these are quite nice pictures. Obviously, high-end smartphones, where the biggest sensors have a better camera, but the best camera you have was that, is the camera you have with you. And this is the easiest way to have the camera with you is to use the smartwatch. So if not that was enough for the beginning of the year, we got another design win, and this was another watch. You can see the similarity, meaning this watch is, in a way, developed and produced by partner, Xiaomi. It's called XUN, and they have released now XUN Max Pro, and they are reusing -- part of the Xiaomi watch, but it's a separate design. And they are also using TLens in this one. Very, very similar device. First-ever watch at this level. Again, they are pricing it relatively high, so it's going to be interesting to see how the volume will pick up. As you know, we have shipped about 100,000 already for supplying to these -- initial supply of these watches, and hopefully, more to come. As I mentioned, there is no doubt that our technology is really made for this kind of applications, small, compact, no gravity impact, no vibration impact, lower power consumption, speed. So in a way, we are made -- we are fit for this application very much so. So here is a picture of a child making payments with reading a QR code with our camera. It's the picture of a kid on mountains taking pictures. This is also an example of use where there -- in those watches, typically, are artificial intelligence. So the kid can go close into a flower and what she will interpret and tell the kid what this is. So obviously then you understand why you need an autofocus when you do changing from that to take a picture like that. So leaving the consumer market for a while. Industrial market, we are very focused on the barcode side. Barcode, we mentioned before. But just to recap, barcode is moving from a 1D code to a 2D code. A 2D code, as an example, is QR code. Barcode is normally read by a laser. But if you start to move to 2D code, cannot be read by the laser, has to be read by the imaging system. You want to have 1 barcode being able to do many things, like this or like that, meaning that you have to have autofocus. This barcode is going to last for 5 to 10 years. So you need a very, very robust autofocus technology, no mechanical parts. You need the speed for efficiency, and you need to be able to do all-in-focus for robustness. [indiscernible] is killing our watch. So...
A drop test.
A drop test, yes. So the -- again, the key selling point we have is that we can support a huge number of cycling. And we can -- as a barcode typically will have to change focus more than 250 million over the lifetime. Speed, again, high accuracy, small size, gravity/vibration issues and low power consumption, all, again, key selling points for poLight. We just tried to illustrate the activity, and the activity is increasing, I have to say. We are still coping, but it is demanding. We are a small team trying to do a lot. Having said that, we are relatively focused on those, I would say, consumer and industrial and then the other models. But if you look at this table, you see the consumer side, which is kind of, today, products like smartwatch, obviously; AR/VR glasses; and mobile/tablets. That is kind of the 3 product areas within consumer. And you can see that where you can -- where we have 2 ongoing supplies for the watch. We have completed 5 PoCs. We have ongoing 7 PoCs, and there are 5 who is planning to do PoCs. PoCs is proof-of-concept, and that is kind of after they have accepted that this technology is a good technology and they can see the use of it. They start the proof-of-concept, which is kind of qualifying the products internally in different companies. Then after PoC, they will wait for specific projects. And when there are specific project, it will typically be here. I just want to mention smartwatch -- sorry, the smart glasses. Smart glasses is believed to be the next big thing. We will sit on flight to New York. Instead of having a computer and a screen, we will have a computer, but the screen will be the glass. We will have a 60-inch screen, wearing. There will be many, many industrial, medical application, which is assisting different industrial and medical operations. So -- and it will also, over time, become a big consumer product. This is what all believe. Is it -- it is kind of still some years ahead. But what we are focusing on is to get the position early. If we get the position early in this segment, we are in, you can say, in a reference design. What we have been exposed now to in the smartphone world was that we are fighting to displace an incumbent provider, which is super difficult. And you need to prove high performance, potentially better pricing. So that has been a tough battle. It's a battle we still are fighting. But what I'm trying to emphasize on that, AR, even today, small volumes, it's important to be in the beginning, of course, then you are in reference design phase. And we have several projects which is in that area here related to smart glasses. When it comes to the smartphone, you have -- remember that we are focused on the selfie camera. The selfie camera, there are still PoCs ongoing on the selfie camera side. Challenge we have had on the selfie camera is that the screen is also important. Everybody wants a big screen, no frame, no edges, meaning that the space for advanced camera has become less and less. Meaning that to get in there, you need to find a smart way, a very compact way to install the autofocus, and this is what we're working with several players. So smartphone, definitely still on the table. Okay. When it comes to the industrial market, you can see there are actually quite a number of PoCs ongoing. They are spreading quite relatively wide. But I will say the majority of these 7 and 2, for that matter, are barcode. So we are actually working with all the leading barcode providers. And just to recap, barcode, less volume, yes. Product will last for 5 to 10 years. A fantastic revenue -- recurring revenue contributor for the company. And then the consumer will be the cream of the cake. Alf Henning, will you support me on the financial?
Yes. Good morning to you. So revenue from delivery of TLenses, ASICs and evaluation kits gave NOK 2 million in the quarter compared with NOK 500,000 in revenue the same quarter in 2018. 109,000 units of TLenses were delivered into smartwatch design wins and to product testing in other market segments. The EBITDA loss was NOK 14 million compared with NOK 16 million in loss in quarter 4 in 2018, which is explained by a decrease in external R&D expenses. Our provision of NOK 1.5 million was recognized in the quarter related to severance packages for 6 full-time employees. On balance sheet, the cash position was NOK 74 million at the end of the year compared with 170 -- NOK 127 million at the end of 2019 (sic) [ 2018 ]. The current available cash will most likely fund the company into the first quarter of 2021. So the cash flow, we started the quarter with NOK 80 million in cash. We used NOK 6 million in operating activities. We used NOK 300,000 in investing activities and NOK 300,000 in financing activities, ending up with NOK 74 million in cash deposits at year-end. Okay. Thank you.
Thank you, Alf Henning. Last slide before Q&A. So the fact that we have now been able to get into 2 products, consumer products, I feel is definitely a proof of what we have been telling you for many quarters. This is a technology which will come into use. In addition to that, there are 2 different worlds, having selling to a customer and the customer asking who else is using your technology. To answer, nobody's still. There's a huge difference between that and saying that we have references in a very demanding consumer market. That's day and night. We can already see the effect of having references, having use cases, having proof that we can have a product which has passed all the tough test which is taken to make a product like that, but also that we can supply. So it's definitely a start of a new era for the company. Then I'm happy to say that we have talked a lot about the barcode over the years. At least the last 12 months, we have really good progress now on the barcode side. It's a market which is working with a different dynamic, extremely thorough. The products is -- are going to last for 10 years. Like your watch, typically, you use it for only 1 or 2 year, and then you buy a new watch. So it's an extreme, tough and different use case or use profile. So they are very thorough, and I would say that also working in a different pace. TLens is currently being planned, used in several products by leading players in this market, and the first estimated proven success can happen mid this year with a leading player. In addition, we are involved in, as you can see from the table, many, many different cases in different sectors, both industrial, consumer, medical and also early days in automotive. All of these, I'm sure, will develop positively throughout the year, forming the basis for an extremely interesting journey going forward. We are -- have increased comfort that things will happen -- more good things will happen this year. Thank you. Alf Henning, will you join me for the Q&A?
Sure.
Is there any question from the audience? As always, crystal clear. Good.
Okay. We have received a few questions on the web and on mail. So I will go through some of them. One question is that, will orders of new volumes from existing customers be published through stock exchange note? Depending on size, yes, they will. And as I said -- but it will -- depending on size of the order. And then there's a question whether we know anything about the volume so far from the watches. No, we do not. No, it was released just before and just now. So early days. The only statement we have is that so far, so good. And then there's another question. How realistic is that TLens will be used in smartphone? Smartphone market has been and is an important area for us. We are fighting every day to get in there. There are some integration aspect, which is taking a more advanced integration for it to happen. But our ongoing cases, and we will never give up that market. That market is going to be a poLight market also. Then there's a question about TLens being the first in patents and patents' application. And the question is, is that TLens the poLight TLens or is it something else? We have normally not -- let me see it -- let me rephrase. We have not seen the word TLens used in other context than poLight. Having said that, the TLens, we made that word many years ago. It stands for tunable lens. There are other tunable lens, liquid-based as an example. But as far as we know, most of the used -- when they use TLens, they think about a poLight TLens, but there are other opportunities. And then they are asking, has there been false or negative feedback from the delivery after new delivery of smartwatches? No. So far, so good. Will we have -- will we never have a problem? Yes, we will, but we will sort them out. So far, so good. If you compare TLens to the VCM, what is the limiting factor of the TLens? I would say there's one thing which is limiting us compared to VCM, and that is how big image sensor we can support. The smaller, the better. Watch cases, wearable cases are perfect for us because the image sensor is -- tend to be smaller than in a smartphone. But selfie camera is a good fit for us as an example. Secondary, third camera and back camera is also a good fit for us. But I would say aperture size is the answer. Yes. And then a second question about TLens Platinum. We have 2 products, Silver, Silver Premium. The difference is aperture size and optical range, then we have obviously the driver. And then we have gone far away with a product called Platinum, which has even bigger aperture size for bigger sensors. So far, we are progressing slow. And so far, we have put that project on hold for the reason of focusing on getting the existing MP-ready, mass production-ready product into the market. That has proven successful, and we will continue to that until we see a very, very concrete need for the Platinum project. We have had Platinum projects with OEMs, very big OEMs, and the feedback from the Platinum testing has been very positive. It's only a matter of making priority and focusing on industrializing, commercializing existing products. Then there's a question about a Sony sensor, which is 2x2 chip-on-lens technology, whether this is a competing technology. It is not. It's a PDAF sensor and not an autofocus actuator. And then there's another question, does poLight keep track of how many patents application is out there, naming TLens? No, we do not keep track of that. We are following, obviously, when we see it, but we don't have any systematic way of doing that. What we do is that we -- on -- with our patent lawyers have freedom to operate exercises on a frequent basis to make sure that we are okay to deploy our product. When we see patents talking about TLens, we are obviously smiling, and I think that's a good idea to do. Then this is the last question here, and that's about the capital requirements going forward. As my CFO said, we are funded into Q1 next year, which is good. The Board will, at all time, consider any way of strengthening the financial position, and that is also -- will happen going forward. So at any time, we will see a -- look at opportunities for strengthening the financial position of the company. This company is meant to stay, and we will be based on a very strong financial position. Is there anything from the webcast? This is from Henriette Trondsen, Arctic. He's one of the analysts following poLight. Question is, can you quantify your volume expectation for the 2 smartwatches? No. It's -- well, it's difficult because the -- obviously, it's not that we haven't asked the customer, but the customer is uncertain. He's uncertain because this is the first time he has released such a high-end smartwatch. So this is a new segment for both the customers in this case. Having said that, we do expect, obviously, a few 100,000. But to quantify it more than that is difficult. Let me take another example. One of the players in this market has already shipped 3 million, 4 million units of a similar type device. So the potential is definitely there. And as I said, last year, 20 million; this year, expected smartwatches, pushing 40 million. So it's definitely a growing market. And I assume, since our -- their customers has invested heavily in a smartwatch platform, this is their flagship products. They don't do this for only a few 100,000 over time. Obviously, they have greater beliefs and hopes but for us to quantify it more than being an optimistic -- taking an optimistic view. But I think it be a relatively slow start before it picks up. But this is my speculation, nothing facts. On the barcode customer in project or EVT phase, what -- when can we expect a conclusion here? And can you give some color on volume expectation for this? The most likely barcode case, which will -- which we work on now, and the earliest one will probably be -- see the light of the day, mid of the year. That is the current project plan for the customer, mid of the year. So around June, they will release a new product in the market. That is a product, which is addressing a niche market. So we expect the volumes to be relatively low. The most important thing with the first barcode case is the fact that we get the first case. After that, we will be involved in many, many other design wins and permits. Is there any more question from -- there was one [indiscernible] wasn't it? Is there any other questions, Alf Henning?
Yes. One on liquidity. So will more design wins and barcode project influence the need of -- for new liquidity in Q -- in the first quarter of 2021?
We have assumed a certain activity and design wins and supply, and those assumption is the basis for saying that we have cash into Q1 2021.
And there's a question on the tax case mentioned in Note 10. Back to 2018, there was a decision in tax. The Norwegian tax authorities, they made a decision to exclude us in the VAT register. And we had to pay back, repay or receive VAT for 5 years back in time. We strongly disagreed on their decision and appeal to the Tax Appeal Board. As you might know, there's a longer queue in -- for cases in the Tax Appeal Board. So I -- and now it's like 1 year since we started queuing. And the signals we got, but also very difficult to quantify, to get confirmed 100%, of course. And is that they would try to give us -- prioritize when it comes to reviewing the case? So there might be a decision this year. And if so and if it's positive, then that will be an upside when it comes to the cash flow, and the amount is NOK 80 million plus.
Good. We take one more question before we have to close. This is a question from [ Patrick Meum ] from Pareto. Your partner, STMicro, has a strong presence in automotive? Yes, they have. How supportive is that for current and future activity in the sector of TLens? I would say, general statement, STMicro is very supportive in all markets. We are together with them, joint meetings, joint seminars, joint show, trade shows. So STMicro is very, very -- obviously, it's a win-win. The more we sell, the more we have to buy from them. So -- but they are extremely supportive, and they're obviously having contacts in this kind of organization, which we do not have. They have many, many years of experience. So that's a general statement. We haven't, in particular, been working with ST on the automotive market, but that obviously when we see -- we have an application, that will be a natural thing to do. Very active on the -- [ Don Eklund ]. Hello, [ Don ]. How is the pricing in the barcode segment compared to consumer segment? Yes. So since this was done, I'll take that as a last question. This is a good question. No doubt that the barcode market is also a competitive market. But so far, what we have seen is that we can have better prices in this market and typically 2x, 3x what we can achieve in a consumer market. So I have to conclude the Q&A session there. Thank you all for participating, webcast, audience here, and I expect to see you next time, which is the Q1 results, which will be just before 17th of May, 15th of May, same place. Thanks a lot.
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