- Net Sales in this quarter was MSEK 28 (46) and Operating Profit amounted to MSEK 1 (-32).
- The decline in Net Sales is primarily attributable to Forms customers timing their pen orders to coincide with the availability of enterprise quantities of the new Anoto pen (AP-701). In addition, Anoto’s pricing policy change in the Forms business has also contributed to this deferral of revenue. The new model lowers upfront hardware costs and establishes recurring revenue streams associated with hardware, software, and Anoto’s proprietary microdot pattern.
- This pricing model transition required us to turn down numerous renewal requests based on the old pricing scheme with an unavoidable impact on revenue but the Group expects a substantial increase in revenue in coming quarters with lift provided by rapid adoption of the new pen and broad acceptance of the strategically sound new pricing policy.
- While year-over-year Net Sales for the period decreased by MSEK 18, the Group made an Operating Profit of MSEK 1 (-32) due to higher gross margins and lower operating costs.
- Gross margin in the period increased to 61% (35%) as a result of better margins in the Notetaking business and licensing revenue growing to 43% (7%) of the overall mix.
- Overhead costs in the period were MSEK 16, significantly down from the prior year (MSEK 48), due to the restructuring and cost-reduction efforts across all operations.
Q1 2018 results are significant in two aspects. One, it marks the fourth straight quarter of operational profit. Q4 2017 showed losses but it was due to the intangible asset amortization related to the Livescribe acquisition. Operationally, this quarter is the close of one full year of operational profit starting in Q2 of 2017. Second, our efforts to boost software and pattern licensing revenue paid off as our gross margin exceeded 61% for the quarter. The 61% gross margin delivered this period demonstrates that Anoto’s transition from a hardware company to a solutions company is now a market reality. The combination of increasing recurring revenue from hardware, software, and pattern licensing and dramatically reduced operating costs gives us the enduring strength to drive the kind of growth that aligns with our strategic vision.
A recently concluded agreement with Vodafone to provide Anoto’s best-of-breed Forms solution to Welsh Ambulance Services Trust (WAST) evidences that major customers see fair value in the new Anoto model. This transaction delivers in excess of £1 million non-hardware revenue and is representative of the numerous enterprise opportunities actively being managed in the Anoto pipeline.
The shift to direct engagement with some of the largest companies in the world is starting to produce the anticipated results. The sales cycles are long but each global supply agreement established is a gateway to multiple significant transactions around the world providing recurring revenue and valuable intracompany advocacy.
The biggest problem area for Q1 results is revenue. It remains sluggish due mainly to two factors: 1) the Forms business is only doing deals with customers who agree to new software and pattern license fees, 2) growth in the Notetaking business is slower than anticipated due to a lack of marketing resources. However, management is fully aware of our need for growth and is doing everything to address these issues. Anoto presently has 36 major projects in various stages of maturation ranging from early exploration to final piloting. These projects are spread across 10 industries giving us the benefits of diversity which include stability and multiple spaces in which to enjoy the steepest segment of the adoption curve. In addition, Anoto recently re-established and expanded its European distribution channels for Livescribe products and we can already see signs of strength in this important region.
OUTLOOk and future strategy
The company is continuing its transition to software/applications driven business. Anoto has a great underlying technology, but lacks killer applications that enable users to take advantage of such great technology. Historically, Anoto relied on its partners to do the development of such applications and acquired them when they had software that Anoto wanted. XMS Penvision was such a case. Anoto still uses Anoto Live Forms which was created by XMS. Anoto also has software called ALE which was created by another Anoto partner, Develop IQ, which was also subsequently acquired.
This strategy, in my mind, is ineffective and flawed. The decision to buy such software was proof of Anoto’s inability to create its own software and required a very detailed integration process which never happened. The software acquired was created by small system integrators for smaller customers. They fundamentally had a different customer profile than Anoto which deals with much bigger clients on a global scale.
Current management of Anoto found a cheaper and quicker way of building solutions. Anoto hired two key technical management team members; one in software and one in hardware. We have decided to fundamentally move technical development, both hardware and software, to Korea and bolster the team in Korea. These experts bring a wealth of knowledge and talent to Anoto in the areas of software development, firmware, and hardware innovation.
Hojae Hwang, a renowned software architect, joined Anoto as Chief Technology Officer. Mr. Hwang will be responsible for overseeing all of Anoto’s software development including mobile apps and SDKs. As Chief Technology Officer, Mr. Hwang is also responsible for extending the Anoto DNA technology and expanding Anoto’s IP relating to pattern technology.
Steve Kim is joining as Chief Engineering & Manufacturing Officer. Mr. Kim will be responsible for all hardware development, manufacturing, and supply chain management. He has an impressive background in hardware development and is an expert in hardware system design and manufacturing. Mr. Kim brings significant relevant experience to Anoto having designed and developed a satellite radio, an image processing chip, a DNA detection kit, PDAs, and multimedia signal processors.
Anoto’s Management Committee now consists of four members: CEO, Chief Strategy Officer, Chief Technology Officer, and Chief Engineering and Manufacturing Officer. The addition of software and hardware experts is in line with both Anoto’s strategy to further upgrade the technological superiority of Anoto and its new focus: killer applications using Anoto pattern technology.
In terms of sales growth, we are continuing to develop clients who are large recurring customers. Working directly with large multinational companies is a long and arduous process. We have to patiently go through many pilot projects before the company finally decides to commercially deploy our technology. However, we firmly believe that many of our existing 36 projects in 10 industries across 5 continents will be translated to future revenue and we will not relax our efforts to further expand our customer base and geographic scope.
CEO, Anoto Group AB (publ)
Annual General Meeting – 15 May, 2018
Q2 Report – 31 July, 2018
Please visit www.anoto.com/investors for the latest investor calendar information.
For more information
Joonhee Won, CEO
Anoto Group AB (publ.), Corp. Id. No. 556532-3929
116 74 Stockholm, Sweden
This information is information that Anoto Group AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08:45 CET on 30 April 2018.
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