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Polight ASA
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Polight ASA
OSE:PLT
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Good morning, everybody. Welcome to poLight's second quarter presentation. This presentation is only webcasted. It is possible to ask question during the presentation. Don't wait for the last minute since it's on delay. Also, please leave your contact details when you ask questions so that if no time to answer, we have the ability to come back to you. Together with me today is CFO, Alf Henning Bekkevik. Normally, our Chairman, Eivind Bergsmyr, will also be present. He is today following us on the webcast due to the COVID-19 situation. Today's agenda. Key events, introduction to poLight for those who are new to poLight, operation and market review, financial review, outlook and in the end, Q&A. Key events. I'm happy to say that we feel there is generally a good progress in many of the customer cases we are working on. Coming back to the details. Post-Q2, we received a purchase order from a Tier 1 barcode customer. End-user sales of smartwatches picked up slightly but are still lower than in a way expected in a normal situation. The share issue carried out in Q2 '20 raised NOK 50 million. A quick glance of poLight. Developed a very unique photographic lens. Can be used in mobile, barcode, augmented reality and other markets. Started back in 2005, have built, I would say, state-of-the-art competence in key areas. We have a strong patent family, 13 worldwide patents, also several pending. We are a small team, 21 employees and a small handful of consultants. We're headquartered in Horten outside Oslo, and we have offices in Finland, China, France and also represented in Taiwan and Korea. Key characteristic with our technology, extremely fast, instant focus, very compact, small real estate. We have constant field of view, no pumping, and we have very, very low power consumption. Those are key characteristic of poLight's technology and products. I mentioned already, we can -- our technology, our product can go into different market segments. Consumer. In the consumer side, we can mention wearables like smartwatches, like AR glasses and definitely a smartphone. So those are the consumer areas on -- in focus. Industrial segment, we are definitely exploring the barcode area. There can also be more machine vision cases, which will come along and other areas, which we're also starting to see. Medical can, in the future, be a very interesting market for poLight and so can automotive. So it's a balancing act in exploring all these interesting opportunities, keeping focus so that we are having the progress we need in these various priority markets. We feel that we are getting closer and closer to a commercial breakthrough in the barcode area. We have received an order of NOK 0.5 million in Q1 and NOK 0.7 million in post Q2. This is from the same player. It's a Tier 1 player, international player. The last order is to qualify mass production and also for commercial supply. The planned market release, we have been told, is still towards the end of the third quarter, which is coming close. Of course, still depend on that everything goes well in the last phase of qualification and other external factors. It is a relatively low volume products in the beginning. The -- we have been told that the initial market response has been very good. And already, people have -- or customer are starting to signal that they want to order this new device. In addition to that case, we are involved in several other barcode cases. Barcode area is an extremely important and interesting market for poLight going forward. Typically, products will long -- have a long lifetime even though volumes are less than consumer. The long lifetime, the recurring revenue you can generate is a very, very important basis for the company. Then we have had, I would say, significant progress in the augmented reality area. We are now being considered for next-generation glasses which will be launched already next year by several OEMs. AR market is sometimes at an early stage with low volumes. Sometimes they will go into consumer, but also sometimes more professional industrial use. It is believed by many of the opinion makers in the industry that the AR glasses, smart glasses will be, in a way, the next big thing after smartphone. Then what's interesting with TLens and when it comes to AR is that, among many things, there is a power consumption issue with the wearables, as we can understand. Speed, compactness and gravity sensitivity is very important for everything you wear on yourself. So we feel that the offering TLens have is very, very attractive for AR applications. Also interesting for us is that we are a part of the beginning of the AR world. If you compare it to other market segments we are working on, we are coming in and need to displace incumbent technology. In this case, we are there in the beginning, and that is a big advantage as we see it. As I mentioned in the beginning, it is how we see it today, within reach, that poLight can be included in AR products to be released in '21. It is, of course, depending on many factors. But the way we see the signals, the way we see the activity and the interaction we have with that market, it's a statement which we feel is absolutely correct today. This is actually potentially the most important consumer segment poLight can be in over time. I'm also glad to give an update on the smartphone side. The interaction continued at a good level during the quarter. We are -- TLens is considered to be used in a different configuration. Advanced add-in lens design is a topic, and you can see the drawing in the bottom right where the TLens has been kind of moved from being on top of the camera and moved into the lens stack. And what you see when you move that TLens into the lens stack is that the smallest lens in the lens stack is on the top of the camera and not to TLens. Meaning that the top of the camera is becoming very compact. And you can -- it realize a very small nose front-facing camera with AF with a minimum impact on the screen. This is, of course, a much more challenging design when it comes to tolerances and manufacturing. But it's a really, really a neat design which can realize and be very important for poLight when it comes to entering the smartphone market. We are working with key players in this market to realize such design. In addition to this, because this is using existing TLens as is -- as we have today, as we produce it today. In addition to that, we are being involved in a different dialogues, prototyping with players to develop new product based on the TLens technology platform. The aim there is to make the back camera on your smartphone a better camera. The aim is to make a TLens, with a bigger aperture, being compatible with bigger sensor formats and also actually for application which is not directly related to imaging. To be able to follow all these opportunities which we have seen increasing over time now, the last 6 months, we had to strengthen our business development team with senior business development people in Asia and other places. So here is the table we have been using the last quarters. You can see there are consumer segment on top, industrial segment and others. And you can see the status of the various phases, everything from planning PoC, meaning the customer is planning to start an evaluation. We are in dialogue. They are planning to ongoing PoCs, meaning that these are projects which are ongoing. Our potential customer are doing work. They are ordering thing typically. Then we have a list of completed PoC. Project means that then the customer has decided going from proof-of-concept to say, yes, I would like to design TLens into that product, and they start a project on that. And ongoing supply, of course, which is today those 2 smartwatches. The numbers in brackets is last quarter. If you go on the bottom side, you can see that ongoing PoC has increased from 26 from 20. Completed PoC has increased about 10 from 9. The ongoing supply and project is the same and the planning PoC has, in a way, decreased from 11 to 9, partly explained, of course, by the number of ongoing PoC. You can see on the consumer side there is an increase of 4 PoCs, and a few of those are related to smartphone. But there are also other application. So a very, I would say, healthy activity. We are busy, busy in supporting these PoCs. And it's a fight of making the priority rights in where we use our efforts. Alf Henning, would you help me with the financial review?
Sure, and good morning to you guys. So revenue from delivery of TLenses and ASICs and some customer services gave NOK 600,000 in revenue in the quarter compared with NOK 500,000 in revenue in the same quarter last year. EBITDA loss of NOK 10.4 million in the quarter compared with NOK 13.3 million the same quarter last year. The decrease is due mainly to reduced salary expenses of NOK 1.9 million due to reduced headcount. On the balance sheet. Cash position of NOK 89.9 million at the end of the quarter compared with NOK 91.4 million last year. So the current cash position could potentially fund the company into 2022. On the cash flow. We started the quarter with NOK 50.9 million in cash deposits. We used NOK 8.3 million in operating activities compared with the last quarter last year, the second quarter last year, we used NOK 40.4 million. So there is a decrease of -- due to lower spending and some working capital changes. We used -- well, financing activities gave NOK 47.5 million due to the net proceeds of the share issues of NOK 47.8 million. In the quarter, the net increase in cash was NOK 39.1 million, giving NOK 89.9 million at the end of the quarter. Yes.
Thank you, Alf Henning. So one more slide before Q&A. As we hopefully have broadcasted, there is definitely an increased customer activity in several different market segments. We do feel that we have had -- on all these cases, we have good progress. Very good progress, we feel, in the last 6 months. We have overcome many of the hurdles, which is inherent in bringing new innovative technology to the market. That being said, we haven't seen the last problem. I think what we had shown as an organization is that when problems arise, we have a capability and energy to handle the problems. So I'm not saying that there will be no more problems, I'm just saying that we have proven that we are good in overcoming problems coming our way. Focus for the next months and quarters, definitely securing a very important design win for barcode. This can happen already in the coming few months. Follow very closely the AR cases. This is an extremely strategic important market segment as we see it. It's not going to be big volumes in the beginning. But if the tech gurus are right, this is going to be a very important market, not only for consumer, but also for more professional use. So we need to be there. We need to be there and we have to be there in the beginning. Then, of course, we need to follow up our existing customer, make sure they are happy on their smartwatches, also use those cases to position ourself for new smartwatch cases which we are doing as we speak. And also, not at least, to bring existing TLens products and longer term, new products based on our technology platform into the smartphone market. So you may say that we have our hands full in things to do. But I feel that we have an organization which are very capable and have the energy and enthusiasm to make this happen. I expect good progress on all the above activities in the next 12 months. Thank you. Okay. Alf Henning, will you join me for Q&A?
There's a lot of questions, Øyvind.
Okay. Okay.
Okay?
That's good.
Are you ready?
Yes. We should try to keep COVID-19 distance.
Okay. I'll try my best.
Yes.
Okay. First one, if poLight has a design win in smartphone cameras and receives an order of 60 million lenses within 3 month, how do you deal with that? You said earlier that 1 million per month was no problem, but 20 million per month is much higher number. That means 2 lenses per phone.
Yes, 60 million lenses, that's a big deal. First of all, I would say that I think in the near future, even in the medium future, that is not a realistic scenario. The most realistic scenario when it comes to smartphone is that you will be trialed in a way, if you will, in a high-end special version phone which will sell in much less than that. Maybe a few hundred thousand or maybe 1 million or something like that, depending -- independent on who you're talking to. So they very seldom go -- take a different route than going in with new technology in a more quiet way. So I think that is -- but sooner or later, the problem and the question is highly relevant because ramping up is something which will be a challenge. 1 million a month, no problem. I think that's stretching that statement. We have kind of built through our partner that work a 1 [ million ] capacity when it comes to equipment and resources. But obviously, to get that out of the system, we need to have material in the loop. And material in the loop means cash, and that's where we are very carefully planning our cash burn and minimize our cash burn so we don't put more material than we need to keep the fabs going. And to be able to kind of ramp up quickly there needs to be a significant, I would say, investment on -- in many points, but definitely very doable. Typically, doubling, tripling their capacity will be -- depending on situation in market, but everything from, say, 9 to 12 months is that horizon. So it is important to have a very close dialogue with a customer so that you have time to plan for that. Volume is actually what our concept has been based on. The scalability of our technology and our manufacturing process is very high. So it's -- but it's always painful to have a steep ramp-up. But the beginning will not be 60 million, beginning will be a few hundred thousand.
Okay. Thank you. The next one, which markets has poLight's registered significant progression in -- since the launch of the smartwatches? Wearables, phone, wire lens, automotive, industry, medicine?
Yes. Definitely, smartphone. I feel after a few quiet quarters, we feel that we are back with many interesting cases both with existing and new technology -- and new products. I will say also wearables, and then I will say specifically in dialogues we have with smartwatch, plus also on augmented reality. And then, of course, industrial related to barcode. So all these 3 areas we see -- we do also see, I would say, an interesting development on the medical side without being too specific, but I'm not surprised if I will be here in a quarter or 2 talking more in details about that segment.
Thank you. Four, we are seeing an ever faster development towards smart glasses. Will the development be able to go so fast that poLight does not have time to adapt and develop TLens to join?
Yes. Good question. We feel today that we are, by many players, being seen as a potential important technology and product to use. But you never know. Things can change and there are obviously competition. But the way we see it today, we see to be fully compatible, and people should be fully aware of our benefits, and we seem to be plan used in that segment. But we have to be a top on auto.
Okay. Next, are there any challenges that you and with envisage that must be overcome before we can see a possible design win in smartphones?
Many, many challenges. I mean each case we go into is -- has many, many challenges which has to be solved. And so that is definitely the case. If you take an example, going add-in with the -- as I showed a picture where you move the TLens from top of the camera, meaning that it will be a relative big nose, and move it into the lens stack, meaning that the top lens will be a small lens and hence, take less space in the screen. That, in a way, you can see on the drawing and in PowerPoint engineering, it seems to be simple. But in real life, the tolerances which is needed to make that happen is difficult and challenging both from the manufacturing perspective, but also from, in a way, if you look at the TLens itself. The dimension, how stable the dimension from die to die, et cetera. So this is definitely an example of a challenge. Even though I think those -- many of those challenges we see today, we also see a solution to. But this is just an evolution we need to go through. If we think it's going to be easy, we're going to fail. So we think it's difficult, and we will be successful.
Good answer.
Yes.
Okay. Next, how do you follow-up on Microsoft's interest in TLens? Will this interest lead Microsoft to have control over which other OEMs can trade technology from poLight?
I'm not so sure what they are referring to. It could be patents. We are, of course, in dialogue with all the players. And when we see -- very often when we do project with our potential customer, they obviously would like to protect themself. So their kind of solution, they innovate, the way they use the TLens, they will try to kind of protect by different ways using patents. And so that's nature of the game. What we need to make sure is that we have sufficient freedom to operate and that we are trying every day to make sure. So I don't have any more specific comments about Microsoft. But it is, of course, encouraging to see that our interest, and you can see that from patents, et cetera.
Okay. Next, will the future bring improved TLens with a newly discovered piezoelectric materials? If so, can you tell us how?
There are piezo material -- just to say that piezo material is the muscle which is bending the glass membrane which is shaping the polymer in our product. And that piezo technology is being deposited in -- on the glass membrane in the process at STMicro. So we are not directly ourself involved in that development of piezo and new piezo. But of course, our manufacturing partner, STMicro, in this case, is highly aware and involved in such development. Maybe the most talked about improvement in piezo is to make the piezo lead-free, which today is piezo has some content of lead. Still, they are approved and under exemption list, so they are fully allowed to produce in that way. But the market is working towards a complete lead-free piezo. Today, it's not realistic in the short term to see that as an industrial alternative, but it will probably come sooner or later. Other improvements areas are obviously the strength of the piezo. That will be a very interesting for poLight, of course, to have a stronger piezo, which means that we can potentially get more muscles and we can hence bend the membrane more and hence, get more optical range. As I said, we are not directly involved. We are, in a way, relying on STMicro to implement piezo technology, which is the best. And they are one of the leaders in that area.
Okay. What will be your time estimate in releasing the bigger TLens that will fit bigger apertures? And in what way will poLight benefit from this solution?
The benefit will definitely be that we can support bigger image sensors. And that is a trend, have a bigger, bigger image sensors. And the ways of overcoming that problem for us. Obviously, we could design differently, we can go add-in. But also, having a big aperture will help a lot. So that will be the benefit. So more application, more use of TLens. Timing is -- that's too early to say. We are in a, I would say, a design phase. We are engaged with the end users. We are discussing projects. But I would say in the next quarter and 2 quarters, next 2 quarters, I think the -- we will have the first kind of prototype results. But how we will go for that prototype to a real project is dependent on the customers wanting that solution because we will not go all that way without seeing a clear customer commitment.
Okay. Does poLight have any new real competitors in speed and power consumption?
Those 2 parameters are definitely one of our strong points. And we -- as we see it, we are very, very competitive on those areas, and we haven't seen anything major news which -- with new technology which is removing us from that competitive position.
Good. poLight is a well-established company which is known to all the big OEMs all the way back to '05. What happened after around 2018? What accelerated the way to the market? Yes.
It's a very, very good question. And I think that there is one important answer to that, and that is, we have proven reliability. You may remember, for those who have followed us for many years, that these test we have to go through to be qualified is really tough tests. We are talking about dropping our TLens from 1.5 or whatever meters just into concrete ground. We are talking about taking the TLens in a tumble test, which is really tough. So many, many high temperature or high humidity tests. But specifically, the mechanical test is -- has been really tough. And we had to go back several rounds to find a way to strengthen our product so that it survived those extreme tests, and that's was happening. We did an internal qualification and an external documentation. After that happened and that was proven, a number of [ PUCs ] and OEMs wanting to start project with us increased drastically. So reliability.
It is said that TLens is a cheap way of implementing auto focus to our phone, smartwatch, glasses, et cetera. Can you give us some examples of comparisons of TLens price versus VCM?
Yes. So VCM has been around for several decades and are -- there are many, many players producing VCMs. So they are -- they have the volumes, they have the experience. There are a tough competition. So they are -- today, you can get VCMs down to -- cheap VCMs, down to less than $1, maybe close to $0.50. And we will, as we speak today, we will never compete with those prices. We have been all the time selling TLens on unique performance. And it's not worth trying to outcompete existing VCMs, which has been up for decades on price. That's not possible for poLight to do. We are selling on performance. We also see when we, of course, are ramped up, that we have a very competitive cost structure. So over time, I think it can be seen differently. What we are trying to do now is that we -- for consumer markets, we typically will be around a couple of dollars, depending on volumes, $1.5, $2 depending on case, whereas a high-end VCM you can -- say not a cheap VCM, but the high-end VCM will be a good dollar. So it's not a huge difference. And then what we are saying when you use a VCM compared to a TLens, we claim that the system cost in using VCM is higher. So if you compare the cost on a system level, the difference become very, very small and much smaller than comparing on the bond on the component level. So that's what we are saying. The way we can -- you can integrate your AF, as an example, in a system is potentially more efficient than a VCM.
Okay. TLens is sold by various resellers and module manufacturers, such as ELATEC, OFILM and LG, how are sales reported for these?
So the strategy we have is that we sell in Asia through distributor. Today, we are mostly involved with a company called EDOM, which has set up in Taiwan, Korea, China and Japan. So this is our main distributor today. So they buy TLens from us and driver, and they sell that component to often other camera model suppliers. So when it comes to other cases, there is also direct sales from poLight. But in China, normally, it goes through distributor.
There are more questions. How many of the new PoCs in the consumer markets are related to smartphone?
I think I mentioned it. So it's a couple.
Do you still believe in significant revenues in 2020? There were rumors that the Chinese children wearables are to be launched in additional markets.
Yes. So yes, we -- I think we do expect increase in revenue. And obviously, it is dependent -- very much dependent, I would say, on how smart watches will -- sales will pick up. Today, you can see that it has picked up slightly already, but still not at the expected level in a normal situation. So what is the normal situation? Well, when -- today due to COVID-19, you have, as the case in China, that children are having very little activity without the parents. So the need for this watch and security device is, in a way, less. Hopefully, that will change over time and over -- into next year, and that will increase the sales of these watches. Then of course, we also hope that we will start to see revenue in other segments next year. In addition to that, [ Don ] is saying is that what about smart watches in other markets? Yes, we have heard also rumors that some of our customers is planning launch those -- their products in other markets out of China. That will definitely also happen.
Okay. So there are some more. You mentioned you are being considered for a project to be released in 2021. Can you give further details on the potential volume in case of a design win? And what is required to win this design compared to competing solutions?
Yes. Volumes, it's always difficult to say. And you get some numbers when you start talking to a customer, then it turns out to be different. I -- as I mentioned, as a general statement, I expect that still AR glasses is a relatively low volume product. And what is relatively low volume product? Maybe you can talk about 1 million or 2 million over some years for those kind of glasses, which is a significant volume for us, but it's not a big consumer volume at the moment. I think that's big volume AR glasses is still some years ahead. And the other question was, what does it take to win? Was it?
Yes.
Yes. So what we feel is that our nonsensitivity, not being sensitive to gravity impact is important. Compactness is important. And also not at least speed and power consumption. So all these kind of good characteristic with TLens, which I mentioned in the -- one of the first slides, are important parameters for the AR world. And so that's -- we will win AR glass deals on unique performance.
In your barcode order expected in the next quarter, can you quantify the expected volume for this project?
No. Only what I would say is that we expect it to be a low-volume product. What is a low-volume product, it could be say some 10,000 on -- in the beginning, and maybe it will step up to 100,000, 200,000 over time. So that is a relatively small low-volume product. What is interesting is that those guys, they don't have one product. They have many products. So entering into the first commercial release is also the first step into other cases.
In the smartphone discussions on front-facing camera with auto focus, can you give some color on which customers or in which market you are in discussion?
No. We cannot give those comments so much on that. What I can say is that the ongoing smartphone cases is with well-known players in the ecosystem.
Okay. When do your main patents expire?
Yes. The oldest patent is -- still have some years left, so -- but is getting old. It's back from 2005 so -- but still some years to go. But what I've also said before is that we have, in a way, other patent. You can say, system patents, which in a way gives us efficiently protection for still a long time.
Okay. Will the new development projects be with additional financing? Or will it be handled within budget?
Yes, good question. We -- when it comes to new development, we are -- and specifically then related to the smartphone area, we are trying to get customer to be financing the kind of the incremental innovation development through so-called NRE. So that is one way. If we are doing that, we will handle that within our kind of forecasted budget. Of course, it may happen that we decide to take a route, a different route and to do more stand-alone before customer commitment. But it is a priority for us to -- when we go into a new product development is that we, relatively early, find a customer commitment so that we are optimizing the success of being released to market and not sit in isolation in poLight and develop new solution which we think the market would like to have.
And the last one, what's the status of the ongoing tax case with the government?
There we go, a question for you.
Oh my god, yes. Well, it's -- when it comes to the tax VAT case, it's still pending. And we are stressing, stressing the government or the tax authorities to proceed. And -- but it's very hard to say when that will be. But independent of that process, we are in dialogue of getting re-registered in the VAT.So hopefully, there will be a positive outcome of that because we have filed an application for that. So hopefully, there will be a positive solution on that application before it's a conclusion on the appeal case.
Good. Any more question, Alf Henning?
No. That was it.
Thank you all for great interest. We do definitely feel that things are moving in the right direction, and we appreciate much that you all attended to this webcast and also for entering question into the -- into this webcast. It makes it so much more lively and dynamic. So thanks for that. Next event, Q3 2020, 23rd of October. Have a fantastic Friday and a good weekend when it comes. Thanks.