Tobii AB (publ)

Good morning and welcome to the presentation of Tobii's Q3 2024 results. My name is Karolina Strömlid and I'm Head of Investor Relations. Our CEO Anand Srivatsa and our CFO Magdalena Rodell Andersson will, as usual, take you through the development of the quarter. After the presentation, there will be a Q&A session, and you're welcome to start posting your questions in the chat at any time. And for those of you who have registered to ask questions live, please raise your hand to participate. And with that, I hand over the word to you, Anat.

Thank you very much, Carolina. And welcome everyone to Tobii's Q3 2024 earnings announcement. As we shared in our last update, Tobii is quite a different company after our significant and transformative acquisition of Photonation. With that in mind, we've had two key focus areas post this acquisition. Number one is to work on reducing costs as we think about how we can form the new company that we are building and to operate within our existing cash reserves. I'm really happy to note that we have made a solid start in Q3 2024 with the measures we've taken already starting to show up in our financial results. We believe that the actions we're taking now and the actions we will take in the future will allow us to exceed our previously communicated guidance of reducing more than 200 million sec of cash-related operational expenses compared to a Q2 2024 baseline. So that was job number one. Job number two, of course, is to ensure that we have a successful integration of the acquisition. And once again, in this quarter, we continue to take positive steps in that direction. We are continuing to increase Tobii's credibility in the automotive interior sensing market with over 550,000 vehicles on the road with Tobii technologies at the end of Q3. In addition, in this quarter, we continue to work with OEM programs as they progress towards start of production, which will lead to additional license revenue for us in the AutoSense business segment. Finally, we're also starting to realize some of the synergies from the acquisition, which are both going to deliver to us a better overall product portfolio, but also the opportunity to reduce our necessary investment to deliver our next generation platforms. We expect that these synergies will continue to show value and financial results over the next coming quarters. Now on the financial side, I'm happy that the combination of net sales improvement and the cost reductions that we've taken have allowed us to deliver a significant EBIT improvement year on year for Q3. But I will allow Magdalena to talk you through the financials in more detail. Now, before we go into the individual financial results, I wanted to set the context of who Tobii is as a company. We are organized into three business segments. Our products and solutions business segment sells vertical solutions to thousands of customers a year, from universities that are pushing the frontiers of science to enterprises that are looking to harness attention computing to get insight about their customers or their employees. We also, of course, sell to gamers who are trying to get more immersive experiences from their entertainment choices. In Q3, 2024, products and solutions represented 44% of the revenue for the company. And in the quarter, this segment posted a profitability number of minus 22 million sec. This is 4 million sec better than the quarter that we had before. And we believe that the steps we have taken in pruning our product portfolio and adjusting our cost base will move this segment towards profitability as we get into the next couple of quarters. On the integration side, this business takes Tobii technologies and has it incorporated into our customers' devices. The primary target customers here are VR and AR headset makers, medical device manufacturers, PC OEMs. This quarter, this segment delivered 51% of the company's overall revenue, and this revenue includes some revenue attributed to the acquisition we have made of Photonation. From a profitability perspective, this segment delivered 49 million sec of EBIT, the second straight quarter that we are profitable. And I expect that this business segment will be profitable for the foreseeable future. Finally, on the AutoSense segment, this is our new business area. The focus customers are around automotive OEMs and automotive tier ones who incorporate the technologies we have into vehicles and cars on the road. In Q3 2024, this segment represented 5% of our revenue with a profitability of minus 44 million SEC. The profitability is 16 million SEC better than Q2 of this year. And we expect that, of course, as the synergies that we extract from the acquisition continue to materialize, we will continue to make positive progress on the profitability for this segment as well. With that context, I'm going to hand it over to Magdalena to explain the financial development in more detail. Magdalena.

Thanks, Anand. And yes, as Anand just pointed out, we had a strong total growth in this quarter, 40% that is, while the organic growth was minus 6%. The EBIT was minus 70 million SEK, which is an improvement with 52 million SEK versus last year, and a good step in the direction towards profitability. So, the net sales growth in the quarter of 40% was supported by business related to the acquisition, and most of which belonging to the integration segment. This development is in line with our previously communicated estimates for the acquisition. And as we also have pointed out before, this is a business that will decline when going into 2025. The organic growth in the quarter was minus 6%. Year to date, the net sales grew with 14% and the organic growth was minus 11%. Gross margin in the quarter was 80% compared to 75% last year, where the increase was due to a shift in mix between the segments. The same applies for the year-to-date figures, 78% compared to last year, 75%. Visible in the quarter besides the strong growth in net sales was a positive impact from our cost reduction program. Cash-related operational expenses, that is excluding depreciation but including R&D capex, was 223 million SEK in this quarter compared to 276 million last quarter or in Q2. So we have estimated a reduction of expenses of over 200 million SEK during a 12-month period when comparing with our baseline Q2 2024. And then although this first quarter showed a reduction of over 50 million SEK already, you should not expect the same level in Q4, since we also have some positive effects from vacation effects in this quarter of around 15 to 20 million SEK. And in addition, we are continuing the cost reduction program also during this fall and expect to see some additional one-off costs in Q4 before going into Q1 next year on yet an even lower level with costs compared to the one now seen in Q3. Thanks to the strong growth in net sales in combination with the executed cost reductions, the EBIT in the quarter was minus 70 million SEK compared to minus 69 million SEK last year. And year to date, the EBIT was minus 157 million SEK compared to last year's minus 170 million SEK. And then going over to the segments. Prexen Solutions had an organic growth of 1%. After several quarters a week performance in Asia, this region turned to growth in this quarter. And in the other regions, we saw a mixed bag with growth in the US and some decline in Europe. Year to date, the organic growth was minus 12%. Gross margin in the quarter was 59% compared to last year's 68%. And this deviation was mainly due to a mixed effect between products. Year to date, the gross margin was 63% compared to 69% last year. The EBIT in the quarter was minus 22 million SEK. Still unsatisfactory in the sense that it was negative, but the positive development in this quarter was the slight improvement versus EBIT in Q1 and Q2, albeit with the lower top line and thus accomplished through a lower cost base, which is something that we will bring forward also into future quarters. Year to date, the EBIT was minus 71 million SEK. Integrations net sales grew with 104% in this quarter and the organic growth was minus 17%. Net sales from the acquisition thus contributed very positively to this segment, which is according to plan. As previously communicated, this net sales is expected to decline when going into 2025. Year to date, integrations grew with 69% in total and with minus 9% organically. The gross margin was 97% in the quarter compared to last year's 89% and 96% year-to-date versus 89% last year. These very high figures were also a consequence of the acquired net sales which came with a high margin. The gross margin level should thus be expected to go back to 2023 years levels again when we are entering 2025. EBIT in the quarter was 49 million SEK and year-to-date the EBIT was 56 million SEK. This is an EBIT level that I'm extra happy to present, of course, that is black figures. And even though one might comment that the EBIT was somewhat helped by the acquired net sales that will decline when going into 2025, we do expect this segment to continue to deliver a positive EBIT also going forward. And then the Autosense segment had a net sale of 11 million SEK in the quarter and 26 million SEK year-to-date, which is in line with our previously communicated range of reaching 30 to 50 million SEK of net sales for the full year 2024. The gross margin was 94%, both in the quarter and year-to-date, a level reflecting the high share of software. The EBIT was minus 44 million SEK in the quarter and minus 143 million SEK year to date. This segment is still in an investment phase and will continue to be so for some quarters still. And then our balance sheet and cash. The free cash flow of the continuous investments was minus 96 million SEK compared to minus 121 million SEK in Q2. After the acquisition, we have had large cash outflows since we added many new employees and not an equivalent amount of net sales. We are now going into what normally is our strongest net sales quarter, Q4. And in addition, with the cost reductions actions that we have already taken and to that, adding also the cost reductions that we are executing on now in Q4, we expect the cash output to go down considerably going forward. Cash and cash equivalents was 138 million SEK in the end of the quarter. And in addition, we have an unutilized revolving credit facility of 50 million SEK. And then finally to sum up regarding cost and operational efficiency. In Q2, in the report, we stated that we were to reduce cash-related operational expenses with approximately 200 million SEK over the four quarters and having Q2 as a baseline. With the actions now that we already have implemented and the actions that we are planning for Q4, we keep that statement, but with a slight moderation, now stating more than 200 million SEC instead of approximately 200 million SEC. Here in Q3, we have presented a reduction of around 50 milliseconds, but as already mentioned, 15 to 20 milliseconds of this reduction is due to vacation effect. So going into Q4, the cost base will increase again, both due to less vacation, but also due to possible one-off costs that will be added in conjunction with the additional actions that we are taking now in Q4. With that, we will be entering 2025 with an even lower cash-related operational expenses than what we had now in Q3. And the actions we are taking are sorted in three buckets. The first bucket is our product investments. We have a broad range of products and we continuously take steps to focus our product portfolio. For instance, where do we prioritize further development? What products should we only maintain? And what products should we possibly exit? And if so, of course, without losing any net sales or value. The second bucket is the organization outside of R&D, which sums up to the sales and marketing and administrative expenses in the P&L. Here we are doing reorganizations and new prioritizations while at the same time securing the efficiency effect from working more streamlined globally and with a higher degree of low touch sales. And then the third bucket where we have the realization of synergies from the acquisition. When we bought Fotonation we already had plans for how to proceed after closing the acquisition. Of course, that was only theory, but now we are actually converting theory into practice. And we are happy to say that we are following the plan while at the same time securing solid deliveries with ongoing customer relations. And with that, over to you, Anand.