Neonode Inc. (NEON) CEO Urban Forssell on Q4 2021 Results - Earnings Call Transcript

Mar. 10, 2022 4:37 PM ETNeonode Inc. (NEON)
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Neonode Inc. (NASDAQ:NEON) Q4 2021 Results Conference Call March 10, 2022 10:00 AM ET

Company Participants

David Brunton - Head, IR

Urban Forssell - CEO

Fredrik Nihlen - CFO

Alana Gordon - Director, Marketing

Conference Call Participants

Jesper Von Koch - Redeye

Christian Schwab - Craig Hallum

Operator

Hello, everyone. Thank you for standing by and welcome to Neonode's Fourth Quarter and Full-Year 2021 Earnings Conference Call. All lines have been placed on mute to prevent any back ground noise. After the speakers' remarks, there will be a question-and-answer session with the company's covering analyst. [Operator Instructions]

At this time, for opening remarks and introductions, I would like to turn the call over to David Brunton, Neonode's Head of Investor Relations. David, please go ahead and start the conference.

David Brunton

Welcome and thank you for joining us. On today's call, we will review our fourth quarter and full-year 2021 financial results and provide a corporate update. Our update will include details of our business strategies, customer activities and other items of interest.

On today's call is our CEO, Urban Forssell; our CFO, Fredrik Nihlen; and our Director of Marketing, Alana Gordon. Fredrik will present the financial results of the company for the fourth quarter and full-year 2021. Urban will comment on overall strategies, customer activities and other market opportunities. Alana will give insights into the work we do to strengthen our brand, create demand for our products and solutions to grow our sales.

Before we continue with this presentation, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets, projects and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee future performance that may involve or be subject to risks, uncertainty and other factors that may affect Neonode's business, financial position and other operating results.

Such risk which include but are not limited to the risk factors and other qualifications contained in Neonode's annual report on 10-K, quarterly reports on 10-Q and other reports filed by Neonode with the SEC to which your attention is directed. Therefore, actual outcome and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent or objection or obligation to update these forward-looking statements.

I will now give the presentation over to Urban, who will describe the highlights of today's presentations. Urban, please go ahead.

Urban Forssell

Thank you, Dave and welcome to this call also from my side. Highlights of today's presentation, like many companies, we experienced continued headwinds during the fourth quarter due to the COVID-19 pandemic. Lockdowns and travel restrictions slowed our sales and hindered our business development work. Several of our customers also have to navigate supply chain challenges due to lack of semiconductor components, which also affected our sales negatively.

Some of these issues started to diminish at the end of the year and our license revenues rebounded nicely. We also grew our sales pipeline with several new interesting opportunities in all three regions we are active in APAC, EMEA and Americas. We continue to navigate the challenges the pandemic brings with a focus on growing our business and work relentlessly with continued improvements in all areas of the business to strengthen our competitiveness. We feel we are very well positioned to grow our product business and also to revitalize and grow our NRE and licensing business during 2022 and the years to come. Alana and I will return to these topics later in the presentation.

And now without further ado, I give the word to Fredrik, who will present the financial results for the fourth quarter and the full-year 2021. Fredrik, please go ahead.

Fredrik Nihlen

Thank you, Urban. You can find our fourth quarter and full-year 2021 earnings release and 10-K with the details of our financial performance during the year 2021, available for download from the Investor section on our website, neonode.com. In the interest of time, I will only summarize the key points here. Our total revenue for 2021 reached $5.8 million. That is a decrease of 3% compared to 2020. Product revenues for 2021 was [$1] million, an increase of 1% compared to 2020.

During the second half of 2020 and continuing into the first half of 2021, we saw a positive trend for revenues. In the second half of 2021, we experienced a slowdown in sales, primarily due to global supply chain constraints and more specifically, semiconductor component shortages affecting our customers within the printer and automotive markets. The slowdown in sales was also an effect of the strict lockdowns imposed by the government in several countries where they are active.

For instance, Japan, Korea and China. On a positive note, our license revenues rebounded in the fourth quarter of 2021, leading to an increase in license revenue up 4% for full-year 2021 compared to 2020. Our gross margin for products was 4% for 2021, which is a decrease from last year, up 13 percentage points. The gross margin was heavily impacted by onetime effects in the fourth quarter of 2021. The onetime effect consists of write-downs, our remaining inventory of AirBar and lost revenues and extra costs due to the quality issue to a quality issue related to our TSM.

The quality issue is now resolved and the relationship to the affected customers have been restored, which is proven by new purchase orders that we have received from these customers. If we look at the gross profit and gross margins only for TSM and adjust for the onetime effects, we can see a positive trend for the gross margin with 52% in the fourth quarter of 2021. Long-term, as volumes continue to increase, we will probably see a pressure on the margin, but short and medium-term, we are confident that our margins in the products business will be at the levels we saw in our adjusted gross margin during 2021, that is around 40%.

Operating expenses for full-year 2021 increased with 8% compared to 2020. The operating expenses in 2020 was lower because we during 2020 got governmental support, at the same time as we introduced customer shifts due to the pandemic. During 2021, we have invested in marketing and product development and also had several new competence team members. This increased our operating expenses, but these investments are strategic and will strengthen our medium and long-term.

These investments are fully in line with what we communicated regarding how we intend to use the net proceeds of the registered direct offering we did in October 2021. Summarizing the outcome during the fourth quarter and full-year were as the following P&L. We had revenues of $5.8 million and operating loss of $7.1 million and we end up with net loss of $6.5 million for full year 2021, compared to $5.6 million in 2020.

Net cash used in operating activities during 2021 was $7.7 million compared to 2020 net cash from operating activities has increased to 36%. The majority of the increase comes from purchase of components to secure future production of our TSMs and increase capacity and personnel to continue delivering on the strategy and continue to create greater awareness and right demand for contactless touch.

I will now turn the call over to Urban, who will give our strategy and business update.

Urban Forssell

Thank you, Fredrik. In the following slides, I will review some topics regarding strategy and also our business development work. And this is to -- tied back into communication we have done in earlier earnings calls and also to give insight into what we're learning on day-to-day to improve our top line and also the net results at the end.

Our vision is to transform the way humans interact with machines. When Neonode developed the Neonode N1 smartphone 20 years ago, we did that by removing the buttons from the mobile phones and instead introducing user interface with a touch display. We also later helped printer manufacturers and other companies to remove buttons from their products and replace them by touch display interfaces. And now we are doing this for kiosks and elevators by simply taking out touch from touch. So we invest why we are talking about contactless touch a new way of interacting with machines.

So I believe this is very true to our vision and explains a little bit the backdrop to what will follow now in the next slide. Everything we do at Neonode is focused around smart intuitive multimodal human machine interaction solution such as touch, contactless touch and gesture sensing. We are also dealing with object detection. So with touch, obviously, the finger is object that we detect. But with our technology, we can also detect other types of objects, dead objects, not fingers and hands from humans. And in some years, they are also working on camera-based theme analysis.

So this spans sort of the technology universe that we are working on. And our two technology platforms zForce and MultiSensing underpins everything we do at Neonode. And this picture, this heat map tries to illustrate them how our strategies focus around contactless touch for elevators and interactive kiosks, which we have communicated the last 18 months or so. We also worked more and more with digital signage and similar and this is like neighboring segment to interactive kiosks and many of our customers are actually active in both. So that's why it's very natural for us to also expand the focus a little bit to digital signage.

And automotive is a market segment that Neonode been addressing for at least 10 years and we continue to see great interest there for our technology from different customers. So this is like heat map showing the scope and the focus of our work and especially in our marketing and sales force. This focus is very, very clear as you will see from my later slides and also Alana's presentation.

ZForce is Neonode's advanced optical touch technology. This is a technology platform that consist of IP solutions and know-how around optics, electronics, special chips and software and algorithms. So it's a true multidimensional technology platform. We have been working with this since the foundation of the company 20 years ago and we are still refining and improving on this. We have sold over 85 million licenses of zForce to inter customers and automotive Tier 1 customers and other customers.

And some of these customers are still our top three customers like HP, Epson and LG. But we also have other large corporations on our customer list and further small companies that are licensing this technology. zForce also underpins our Touch Sensor Modules that we use today to grow our product business. And the Touch Sensor Modules are ideal for elevator and kiosk applications. They work well and is very suitable for both retrofits and new installs.

And we will show more examples of the how the Touch Sensor Modules can be used and the value they bring to customers. We talk a lot about contactless touch and why we think that is important. First of all, it's a new way of interacting with machines. And it follows the general trend of more contactless or touchless machine interaction. Voice control, face recognition that you have on your mobile phones for instance are other examples. And contactless touch is in the same category of solutions where they have the growing focus in the industry and also among consumers.

It offers a way to interact with the machines that are touching and of course that limits the transmission of pathogens and it's also more hygienic in general and to be really convenient. With our particular flavor of contactless touch we also preserve a familiar interface we have with touch displays and also say buttons in an elevator, they simply are used to extending your finger and pressing the button for the right floor you want to go to. That behavior and that interface is preserved with our technology, but it is more convenient because you don't have to press the button or touch the screen.

We can also work with situations where you have gloves on your hands or you can want to point or click with other objects like a stylish pen or anything. And as mentioned, our Touch Sensor Modules are commercial of the shelf available standard products introduce if there is great and offers great flexibility for integrators and OEM customers alike.

Obviously, I like to quote is from Otis, the world's largest elevator OEM with headquarters in the US. And it is from their website, where they simply say that today more than ever, elevator passengers prefer avoid touching elevator fixtures and buttons as much as possible to reduce the spread of germs and viruses. This is exactly the story we are testing and shows that also in the US and among large corporations in the US like Otis, they are fully aware and they see the demand and the sort of pull from the end customers for new ways on interacting with elevators in this case.

We have more quotes and like this and other testaments that we are on the right track and it's really encouraged us to continue to push contactless touch in our TSM business. With our TSMs, the touch sensor modules, you can basically go two ways to realize that contactless touch interface. You place our sensor module in front or above a display or ePad or a keyboard to create what we call a Parallel Plane Solution.

Our Touch Sensor Module then projects an invisible light screen in the infrared frequency range. So it's invisible to the human eye, it's indicated here by light strikes. And if you extend your finger and interact with that two-dimensional light field, the sensor detects and the positions that object very accurately and very fast. Another way to use our TSM is with holographic displays. In those applications, the trick, which is not a track is obvious, you should direct and align the Touch Sensor Modules, so that the interaction area overlaps the projected image that's close in mid-air. And by using our Touch Sensor Modules and you can make those projected images interactive.

And for instance, if you are showing a web page, you can click on the links on that web page, but only by extending your finger into mid-air and it's very good experience is actually quite cool and I will show some examples shortly.

Contactless touch has many application areas. We are focusing on elevators and interactive kiosks, what are those applications? And here we show you just a sample. So interactive kiosks that anything from coffee machines, vending machines, ATMs to information kiosks to check-in kiosk at airports, self-check out in supermarkets and so on, and of course also elevators where we focus on the elevated control panels. And we see more and more of these applications and with our Touch Sensor Modules, I repeat, you can do both smart easy retrofit solutions and you can work with OEMs and create new equipment solutions.

I will next review three recent examples how different companies are using our Touch Sensor Modules to create contactless interfaces for their kiosks and products. First example is from Japan, where 7-Eleven now are rolling out self-check out kiosks with holographic displays that allows the customers to scan the products they want to buy and also pay for them truly contactless. So here's a picture, trying to illustrate the holographic image that's projected from the projector below and up and floating in mid-air. The same window projecting up or contains the scanner to scan the bar codes on the product. And with this particular kiosk solution, you can then pay with a contactless with your mobile phone or credit card without touching anything. And it's very compact and 7-Eleven is now rolling this out on a wider scale throughout Japan.

And obviously, we hope that the rollout will continue to other countries and eventually worldwide. Supernight application I recommend if you Google, 7-Eleven Japan and Holographic, you will see a number of interesting and nice articles about this project and the rollout that's ongoing in Japan right now. And just one example of practical application on Holographic displays.

Next example is from Korea. Here, a company called [indiscernible] have developed different holographic products for elevator applications. This is particular if you think a floor selector in a high-rise building, using a holographic display. And I believe this is like a podium that will fit in the lobby of a hotel for instance and before you enter into the elevator, you select the floor you want to go through with this particular product. And the next I will show a short 11-second video where you see it in action. It's an amateur video, taking one of our sales persons, but I think you get the picture and it's quite nice to see this in action. So here, you see the user. He is actually turning the knob, but the knob is just the holographic image. And if you are not standing in front of it, you don't see. So it's really convenient here to select the right floor and it works really well.

So those two examples of holographic displays and maybe go back that's shown -- that we show here, I'm sorry for that, I see it, showing for you. The third example I want to review with you is from a Japanese Sushi Chain. We work with a Japanese company. We developed a retrofit solution for their self-ordering kiosks. These kiosks have multiple purposes. You can reserve a table or a seat at a restaurant, you can order food and beverages and you can also pay.

Our sensor module in this case is inside the little holder, you see just above the displays on these kiosks and they have been rolled out during the fall in over 400, 500 restaurants across Japan. So this is already out there and people are experiencing contactless touch in Japan since three, four months at least. And we hope that we see more and more of these type of applications, retrofit and obviously, holographic.

We have presented in earlier earnings calls about our partner network and we work with a hybrid go-to-market strategy where we combine sales through partners. And here's a snapshot of our current most important partners. And at the same time, in parallel, we are approaching customers and driving sales with our own salespeople around the world.

We are super happy with that hybrid approach and some of the examples I just showed are developed and happened with help from our local partners in Japan and Korea. But I also said in the third example, it is a direct customer engagement we had with a Japanese company. So it shows that we are doing both hence but why we call it hybrid go-to-market strategy. Especially in Japan and Korea this has been very, very good and strong and helped us actually reach new customers and tap into those markets in a way that we never could have done as a Western company, but especially the last couple of years with all the lockdowns and restrictions for traveling and so on in these countries. We would never be where we are today without our partners.

We have also recently added Sabre, I want to highlight Sabre from Singapore, super good value-added reseller in Singapore with a great network, both in Singapore and neighboring countries and Taiwan. And EIL is from Hong Kong. Similarly, in Hong Kong and China, they are very strong and with a good network and also representing other manufacturers in China. So they help us penetrate the Chinese market.

In Europe, I want to mention MZ Technologies in France, very active company, helping us to grow our business in Europe and especially in France with different type of kiosk applications underway here and looking very, very positive. The value-added resellers and distributors and other partners they not only help us drive sales, but they also do a lot of promotion both online and then physical shows as Alana will come back to. And it's really a win-win.

They are doing this to promote their business and grow their business and at the same time, we follow along. And obviously, if they win more businesses in their local markets, we are happy and win-win too. So we see a lot of traffic to our website through the work that our partners are doing vice versa. So it's really a win-win. And they help us increase awareness for our solutions and drive demand which is very critical for us when it comes to contactless touch, which is a new type of solution and they need to push and show how it can be done different examples like the ones I showed before, help, of course.

And a lot of these type of demonstrators and product launches are being developed and launched by our partners in different local countries. Listening to multi-sensing, remember, this is our second technology platform next to zForce. This is software-only platform where we have developed advanced AI algorithms to detect and attract people in bigger streams from cameras. So we do camera base theme analysis and the focus is automotive applications for driver monitoring and in-cabin monitoring or occupancy monitoring.

We also look at applications in retail for analytic functions, where we see a growing interest to do smart advertisements in real-time inside stores depending on people flow, people move and the customer profiles that we can scan. So this is super interesting as well. And with this platform, we have another way of growing our NRE and licensing business and it's looking quite interesting going forward, also to combine this I must say with our touch and gesture sensing technologies zForce for instance, in smart kiosk application and smart digital science application.

Our business model rests on three pillars licensing, product sales and NRE, NRE nonrecurring engineering. We have good chances of growing all three in 2022 and the coming years and we are hard at work in making this happen. And it's also looking quite promising. And we feel encouraged by the progress we are making every quarter. NRE supports our licensing business because typically licensing for instance look at automotive applications.

Once we have secured a business, it starts with a typical application development project during two, three years where we support our customers to develop their features and their applications, could be both hardware and software design and testing that they help them and for this we can earn actually quite substantial NRE revenues.

NRE sometimes also is possible to do with our TSM or top sensor module business to help them create software solutions and other applications or adapt whatever products that the Touch Sensor Modules will be fitted into. But the bigger potential we see still in growing the products revenues -- now because of COVID and other issues during in the second half of last year, we saw like new sideways from the product sales. But we still believe that we have a great chance to starting this year to significantly grow that business and with a higher average sales price for our Touch Sensor Modules compared to a typical royalty we get from the license technology, we think that the biggest growth potential this year and the coming three, four years is with the product business still.

And we are ending very, very high as the diagram on the right indicate. We are also happy and working hard to see that our licensing business is about to get some new life. Our existing customers rebounded nicely and actually sold more products in the fourth quarter. Now, of course, with the crisis in Ukraine and other things happening in the world, we have to see if we are having new issues because of that, but we saw a nice rebound.

And more importantly for us working with Neonode is that we have a huge interest today in our technology offerings from new customers both automotive and from other industries. And that involves both object detection, gesture sensing and driver monitoring for instance. So that's what we are working on. And regarding increase in the royalty revenues, it's probably some years out. But in the meantime, we can earn NRE revenues. So it's a good combination there.

We are typically down by very, very strict secrecy agreements or [MDA]. So we can't disclose any details about our customers and their projects and the launches. But anyway to give you some insight and comfort in the work we are doing to develop and grow our business, I'm sharing here a snapshot of our current sales pipeline. And as you can see from the summary in the left column, we have actually quite a lot of opportunities ongoing.

And in elevators, for instance, we work with several integration and solution providers worldwide. They are typical and then creating retrofit solutions and offering them both to real estate companies and service companies and sometimes to OEM elevator OEMs. We also work with several control panel OEMs, for instance MAD elevator in Canada and Dewhurst in the UK and our partner TNBTECH in Korea is also in that business. These are three of the top 10 control panel OEMs in the world and they have already heavily invested in and developed several products that use our Touch Sensor Modules.

And also today we are engaged with several of the top 10 elevator OEMs and of course working here to develop solutions with them and launch them in the market and it's underway. With kiosks, we have an even broader portfolio of customers and opportunity we are working on. And that's also due to the fact that the opportunity is much more fragmented than elevators. But I'm glad to say that we are now with kiosks more close to several of the large kiosk OEMs in Japan, in Korea and also in Europe and the US. And this is a springboard for us to significantly grow our sales volumes in the years to come.

And some of these OEMs are targeting to launch both retrofit solutions for their own kiosks and also do new equipment solutions. So that's a double tap opportunity with some of these. And ODMs, I did mention this in, for instance, in North America and also in Southeast Asia, we have direct engagement or indirect via partners with some major ODMs that are developing solutions, integrating our touch sensor modules into different types of kiosk products.

Regarding NRE and licensing, if you look to the right, automotive stands out as still one of the most important segments that we should work in for Neonode. And we currently have multiple engagements with OEMs and Tier 1s. And for instance related to head-up display or structure detection, which is a very, very interesting new area that we have started to work on since mid-last year.

Driver monitoring, we talked about before and we still are working and we hope to be able to announce some news there shortly. And also we see quite big interest in our gesture sensing solutions, which is now being sought after by more and more customers. And we also have other licensing and re-opportunities with printer OEMs, avionics OEMs and even some retail companies that want to license this technology.

So overall when we say that our sales pipeline is strengthening quarter-by-quarter, we really feel that and we have numbers to prove it and we will see growing sales as a result of this from this year and into the following years. And to grow further, of course, we are not resting here, we are continuing to invest into marketing and sales. Again, Alana will share some insights into that.

We continue to expand our partner network and for instance in Germany and the DAC countries we are looking for some additional partners. We are fine-tuning how we work with our partners. We are trying to scale our business in the key markets in Japan, Korea and we are increasing the focus now since mid-last year on NRE and licensing opportunities, for instance in automotive and military.

And also in parallel to yes growing the current sales with the current products, we are developing new variants and new soft skill and in January, February time frame, we, for instance released a totally new software platform, we call the Touch Sensor Modules firm 2.0. And some of that -- some of you have seen the announcement and there is a nice video that you can check and you find it on our website and in social media. So please have a look.

And with that after my final slide today, I will turn the call over to Alana, who will share some insights into our marketing.

Alana Gordon

Thank you so much, Urban. It's a pleasure to be here today. So Urban has invited me here today just to give a bit of insight into the work that we've been doing here in the marketing team at Neonode in particular the work we're doing to position Neonode and also to develop the brand, but more specifically, to talk about the work that we're doing to help build the early-stage sales pipeline.

So behind the scenes, we've now set up a more strategic communication framework that we're working with. So this has been based on the recent successes that we've had and also where we see future growth opportunities. It is in line with our corporate strategy, of course. So we will continue to focus on our defined application areas, which is, of course, elevators and kiosks. But now we will have more direct connection with our targeted segments.

So you can see these in the top line on the slide, namely aviation, retail, hospitality and also automotive. So this framework has allowed us to start building a much stronger brand reputation within these sectors. And it's allowed us to have a much more concentrated communication towards our target audiences.

With this framework, we also are able to be more calculated when it comes to where and to whom we distribute our content. So this allows us to get the best possible engagement from our prospective customers. So today, I'll just give you a brief insight into the two sectors that are highlighted in green, aviation and automotive. And just to shed some light on where we see some success with this approach.

So our lead times can be quite long. So this journey that you see on the slide started back in August last year. Basically, what we started to do was position Neonode as a go-to partner for airport solutions. So we started to create quite a lot of content pieces and advertising, showcasing our knowledge and expertise within this area. We clearly focused on kiosks, of course, but we also expanded into other opportunity areas within the aviation sector, so for example, smart trolley's and security improvement.

By focusing on the entire sector, we were also able to expand even further again and then talk about the entire airport experience within itself. So for example, talking about how we can improve the retail and restaurant experience within the terminals using contactless touch. So as mentioned this work has been going on since August last year and at the beginning of this year, we shifted our focus a little bit further down the customer journey and worked more actively with lead generation.

So as you can see on this slide, we started to change our focus when we came to content production and we started publishing evidential example of our success. But this just recently has now resulted in us receiving inbound leads from aviation customers, which is a really fantastic result. This quarter we're trying the same journey for automotive, as Urban pointed out, this is a very important sector for Neonode. So we have started to promote our credibility within this sector. We have 10 years of history, so we have been promoting and talking about our smart steering wheel solutions and also touchscreen solution for entertainment screens.

Soon we'll start focusing more on the lead generation and we will start publishing and pushing content and advertising for new opportunities that we see within this sector. So for example with the new in-cabin monitoring legislation, we see a great opportunity for helping the industry to comply with these new safety regulations using our technology. And also as Urban mentioned with object protection, we also see an excellent opportunity for head-up display.

So with this publication and the monitoring tools that we now have in place, we already see a notable increase in visits to our website from automotive customers. So early indications show that we're heading in the right direction with this particular approach. And my last slide is just to talk about that, it's not just digital marketing that we're investing in, we're also investing in brand awareness in the real world.

So we're very happy that the restrictions have started lifting around the world. So this slide is just that there are few snapshots of our team out there in the new world, with raising our brand awareness and building relationships with our prospective customers and also our partners. So in the photos, you can see some pictures from the self-service innovation in America and also the national public transportation event in France.

So with that said, I will hand it back over to you Urban. Thank you.

Urban Forssell

Thank you. And this brings us close to the end of our presentation today and I will round off by some sharing some concluding remarks. Our TSM sales was slow during the fourth quarter, but our license revenues rebounded and grew slightly during the full-year 2021 compared to 2020. As a result, the total full-year revenues 2021 were similar to the full-year revenues 2020. And obviously, we are not satisfied with that, we are working here to grow the business.

The pandemic continues to bring on challenges for our sales and business development work. But during the fourth quarter, we nevertheless strengthened our sales pipeline and on several new interesting opportunities, both touch sensor module opportunities with elevator and kiosk customers and interesting NRE and licensing opportunities with new customers in both automotive but also some other segments.

During 2021 and the first month of 2022, we have strengthened our team with several new competitive persons and improved on our product platforms. We've also invested in marketing and strengthened our ecosystem of value-added resellers and other partners. Through these investments, we are well positioned and prepared to capitalize on the growing interest for our Touch Sensor Modules and our two technology platforms, zForce and MultiSensing and we are eager to take on the rest of 2022 and the following years.

So with that, over to you, Dave and Q&A.

Question-and-Answer Session

David Brunton

Thanks, Urban. I'll now open the call for Q&A from our analysts. [Operator Instructions] And we will take our first question from Jesper Von Koch with Redeye. Your line is open.

Jesper Von Koch

Hi, guys. So in Q3, you talked about component shortage being dampening your licensing sales and now you say that the supply-demand situation is more balanced. So would you say that the current revenues from printers and automotive is at more normalized levels?

Urban Forssell

Yes. If you ask me, certainly if you ask me three weeks ago, we'd answer like this. We saw actually a strong rebound and it shows immediately that the underlying market has like a stable nature and the demand for printers and automotive is like on the stable level, where it was a little bit held back in the third quarter due to the lack of semiconductor components and other issues for our customers. It then rebounded nicely in the fourth quarter and actually the full-year licensing revenues were a little up compared to the year before.

So yes, it's stable. Now with the Ukraine crisis and the general economic downturn that we can expect from this, we have to see. But underlying demand is stable, that's my feeling at least.

Jesper Von Koch

All right. Thanks. And so you continue to be optimistic about your driver and in-cabin monitoring solutions, but have so far not announced any design wins there. So could you talk a little bit about the things that you see that make you optimistic?

Urban Forssell

Yeah, we continue to work on this. We are a small team, but we have some good relationships mainly with companies here in Europe that we are exploiting. And we think that on our scale that we can actually significantly grow this business and that will help us actually grow both our top line and our bottom line in the coming years. So we continue to work on this. We are fully aware that we have competition and for many of the big programs, they are already nominated and won by competition, but we still see several opportunities actually. And this is certainly not a mature market and some OEMs have and also Tier 1s are telling us that they are looking for solutions that have more of the properties that we can offer limited footprint, very fast deployment and very controlled development cycles.

And we use extensively simulated data and also our algorithms are tuned and packaged in a very, very practical and smart format that supports efficient and controlled development of new features. We are also promoting this as I mentioned in the presentation to retail customers and exploring different use cases here that are quite interesting, where we see a lot of dynamic advertisements and smart kiosks, smart signage applications where our technology fits very, very well also.

Jesper Von Koch

Okay. Thanks. So in the -- in your slide with the sales pipeline -- with respect to the sales pipeline of licensing opportunities, you didn't show any military opportunities. So I was wondering should this be interpreted as if the previously announced large military customer already being a customer or that this opportunity has more been lost?

Urban Forssell

So I will not comment on this. Actually most of the customers that we are targeting here in this space, we call it military and avionics. And I will say that most of the companies are within avionics and they do both military and civilian application, that could be cockpit displays and other types of systems that fits in the cockpit that the pilots operates. But it could also be for airlines, civilian aircraft for the crew in the cabin and also in some cases for the passengers.

So indeed, military avionics is still within scope and we still have several opportunities there. But here, if you think it's a long lead time in automotive. I can tell you that the lead times in this space the military and avionics customers, it's much, much longer. So we are optimistic that in the medium long-term, we can grow this and we still have this customer you're referring to that we did some projects with before and still one of our customers and we continue to have a close relationship with them.

Jesper Von Koch

All right. Got it. So and as you mentioned in the presentation you just the other day announced the partnership with 7-Eleven, Japan. So could you talk about the current status on that project and the potential and also the time frame that you see for this customer?

Urban Forssell

Yeah, so I must say that -- we have here supported through -- actually through Nexi, our distributor and a partner in Japan, together with six other companies who have developed these kiosks and are launching them on behalf of 7-Eleven, Japan. Started out small, right now, they are installing these kiosks in maybe a few hundred kiosks in different cities in Japan. But what we feel is that the customers they like it and also 7-Eleven has commented also publicly, very positively about this pilot and the next step.

And the potential here for instance with 7-Eleven in Japan is something like 20,000 convenience stores throughout Japan and they may have multiple second kiosks. So it's a sizable opportunity just with 7-Elevem in Japan. And of course, 7-Eleven is a global chain and we hope to expand. And I can say that some of the other opportunities we have with self-checkout terminals in Japan are with competitors of 7-Eleven having similar numbers of stores, with each multiple self-checkout terminals.

So self-checkout terminals with holographic or with other parallel plain approach is a major opportunity for Neonode worldwide. And we hope that this project with 711 and the publicity it generates will then stimulate others both in Japan and the rest of Asia, actually rest of the world. And there's a nice pickup of our press release and also other announcements and articles being [indiscernible] off this this launch and this is a way for us to grow awareness and push things with Alana and her team and also with our partners and their work in this area.

Jesper Von Koch

Good. So and you mentioned some, but are there any other customers whose progress you would like to highlight especially much for the coming quarters and so on?

Urban Forssell

Yeah, but we have built up a good momentum and I must say that I can't disclose any customer name at this point. But for instance, in Japan, we are actually engaged with four or five of the largest kiosk companies and also several elevator manufacturers. And the same in Korea and other markets that we have started now seriously to penetrate the OEM customer base. And some of them are as I mentioned during the presentation, they are developing in parallel both retrofit solutions for their kiosk and elevators, but also new solutions for new equipment.

And that's made a breakthrough. We are now into that phase when the big players, they see a demand and they see an opportunity for them to launch new features, new products on the market and that will certainly help us grow the sales volumes going forward. I'm also super happy about our relationship with MZ in France. And they have some very interesting projects underway and we hope to be able to announce some of this in France and Europe very soon.

And also in the US, there are some major opportunities with contract manufacturers and we're also having a special relationship with a company called Holo Industries in California and we've also designed and sell holographic displays for different types of applications to be point of sales, to be hospitality applications. Some of their opportunities that they are pushing is also very, very interesting. So there's actually quite a lot of things growing here and we hope that we can share more news about this shortly actually.

Jesper Von Koch

Okay. And about the elevator OEMs and your work towards penetrating that space, what -- do they have any projections about like what they're seeing in terms of like penetration rates of contactless touch elevators going forward? Do they say anything?

Urban Forssell

Yes. Everyone we talk to is of course having their own opinion, but we are working here to create awareness for Neonode and our particular solutions and also to create demand for contactless touch solutions in general and that's now happening as this quote I shared from Otis proves. We can also go -- you can go into almost any of the major OEMs' websites and check Clean Mobility Solutions and so on. They are now actively promoting this and talking about this in a similar way as Otis is doing and it's like a snowball effect. It starts out very, very small and slow, but we are feeling that the ball is getting bigger and bigger and picking up speed and we are trying to push this every way we can.

But elevator manufacturers, they belong to the category of big industry companies. They are not the fastest movers. And of course when they develop and launch something, it must be also well tested and proven and it's a lot of things to it. But some of the engagements we are actually almost more than a year in development projects and it still is like ongoing. The bigger the companies get, the longer the sales and development cycle also get. So that's why I talk about the snowball effect. And we hope and we actually think we will see then this going faster and faster and picking up speed during this year and into the following years.

Jesper Von Koch

Okay. Good. And last perhaps question is for Fredrik about OpEx, which was about 10% higher in Q4 than in Q3. So what is the reason behind this and do you see this level as more sustainable?

Fredrik Nihlen

Yes, I think we have some onetime effects in Q4 related to our production of TSM and people there and we will be more stable in future.

Jesper Von Koch

Okay. So both COGS and OpEx was affected by the quality issue?

Fredrik Nihlen

Yes.

Operator

And we will take our next question from [Walter Lingenham with Pietro Securities]

Unidentified Analyst

Thanks for interesting presentation. I was wondering if you're able to provide any update on the agreement that you announced during the fall with a major elevator OEM. I think it was stated in the press release that you expected the rollout to start this year. Has it started yet or when do you expect that to kick off?

Urban Forssell

It's an ongoing relationship and their rollout has started and also in that case, I would say -- I would use the metaphor of a snowball effect. Everything was developed, tested and approved like mid last year and they then decided to go ahead with the launch and they are proceeding as far as we know and they have -- we have asked them can we please share some information with other customers and investors and they said no. They are very keen on controlling how this is now presented to the market and launched and -- but those who know, they have been able to see their solutions in actually international elevator shows and in some limited marketing so far. But we expect that it will grow more.

And recently we heard with the same customer that they are quite satisfied with the technical solutions and the designs and they are broadening this now to also offer this as a retrofit option. So their new OEM solution, they will also start offering a retrofit for their existing customers. So actually that looks quite promising and that can grow. And when this is more openly marketed and announced, I think will increase the pressure on others to follow. So I think it's natural that we will see then a pickup of interest from other customers when this is more publicly announced.

Unidentified Analyst

Yes, got it. And then a more general question on product sales. As you mentioned, you were negatively impacted by lockdowns during the second half of last year and now this year, I mean the pandemic situation has improved. And what effect have you seen so far in 2022 on product sales on -- I mean removal of lockdowns and so on.

Urban Forssell

We are actually quite happy now to see that after 2 years of very strict lockdowns and not being able to visit and meet the customers face-to-face, we have now in Europe and in the U.S. several meetings already this year and we are planning more meetings and also some trade shows we will go to in Europe and in North America. Japan is starting to open up just a little bit and we were planning to go there ASAP. But then with the Ukraine crisis, all the airspace is locked down and it's been virtually impossible to travel from Europe to Asia these days. But overall, things are going back more to normal and even the Ukraine crisis, I think people will find a way that we can for instance fly from Sweden to Japan eventually and t's really helping us. And that's why partly we are very optimistic to grow and find new NRE and licensing customers from this year. So this is certainly helping now that the restrictions are being lifted.

Unidentified Analyst

Yes. And then a final question in terms of geographical sales. I mean in the product sales segment, you have had most sales in Asia so far in terms of touch sensor modules. Do you expect this to continue I mean if you look a few years ahead or will you see – I mean maybe a few years ahead, what kind of split do you expect in terms of geographical sales?

A –Urban Forssell

We think that East Asia with Japan, Korea, Greater China and also countries like Singapore and Malaysia; there’s a lot of people living there and they’re quite rich countries and they have a lot of IT systems and kiosks and similar. So probably they will continue to lead the way for the rest of the world. But actually we think that we have sizable market opportunities also in Western Europe and North America. So I don’t know. It’s 40, 30, 30, something like this long-term relationship. And one way to look at it is just to see where are the biggest IT markets overall and then usually U.S., Western Europe, China, Japan, Korea, India maybe; these are the top markets. So that’s why we also have presence there and we are developing partnerships in those regions. But so far and also this year, next year, we think that Japan, Korea will lead the way for other countries. And right now, if I’m taking a bet, I would also have a bet with France actually. We have some interesting opportunities coming up in France and some good customers there. So stay tuned there for news regarding new businesses in France.

Operator

And we will take our next question from Christian Schwab with Craig Hallum.

Christian Schwab

This is Tyler on behalf of Christian. First question, Urban, a follow-up and I'm sorry if I missed it. On the 7-Eleven opportunity in Japan as far as the timeline for ramp, how should we be thinking about that going from this kind of pilot level to more units? Is that a next couple of quarters kind of thing? Is this a multiyear kind of ramp up? How should we be thinking about the timeline of that?

Urban Forssell

Obviously I don't know, you have to ask 7-Eleven. But my impression is that they really want to ramp this up during this year and they are so far very happy with the initial tests they've done and they are pushing our partners in Japan. I mentioned it's actually a consortium of 6, 7 companies working together here. So they are getting push from 7-Eleven to launch this now. And I would say that 12 months should be the time frame that we should look at for that nationwide rollout with 7-Eleven Japan.

Christian Schwab

And then could you maybe kind of comparatively size some of these opportunities? It sounds like the 7-Eleven opportunity, 20,000 stores is probably maybe a more significant opportunity than a sushi restaurant. Could you kind of maybe rank order or comparably size the different opportunities across kiosks as well as your elevator win?

Urban Forssell

I will not give you any detailed numbers or something. But obviously we believe very, very strongly in several of the different subsegments in the interactive kiosk space. Retail and point-of-sale self-checkout, super interesting and as you have already realized, there are actually quite a lot of the supermarkets and minimarts and convenience stores. I mean if you then multiply it by a certain number of self-checkout terminals per store and you say okay, that's going to be a good opportunity. And for instance in Japan, we already have solutions developed for some competitors of 7-Eleven and we hope that 7-Eleven's launch will push them to start to launch as well. So that's the snowball effect and the water lily effect that we are hoping for. Transportation kiosks or aviation as Elena call it in her slides, besides airport there are subway stations, train stations, bus stations and similar where we can do ticketing, check-in, baggage drop, information kiosks and so on.

That's another sizable opportunity I would say that -- where we have a large market. We have both installed base that are in and around airports and bus stations and so on and the growth rate for self-service kiosks in those airports and train stations is just exploding if you look on the global space. And then restaurants, anything from fast food restaurants to coffee shops. And in hospitality, we also include hotels and check-in, check-out terminals in hotels, which is more common that you have to do yourself. They want to remove all the employees in the lobby and let you do all the work. So elevators, retail kiosks, transportation kiosks and restaurant kiosks are probably the Top four segments that we're looking at within elevators and the major active kiosks.

Operator

There are no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

David Brunton

We want to thank you all for joining us for our call today. And I also want to let you know that if you're in Stockholm on March 22 and interested in any kind of follow-up to this call, you are invited to come to the Neonode offices and meet with Urban, Fredrik and Alana and other members of the Neonode team. Details will be posted on our website at neonode.com and on social media during the next few days. So if you're in town, then swing on by and you can take a look at what's happening at the headquarters and all kinds of stuff.

So that ends the call today. Have a very good day. Thank you.

Operator

This does conclude today's program. Thank you for your participation. You may disconnect at any time.

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