Q3 2021 Neonode Inc Earnings Call

Hello, everyone. Thank you for standing by and welcome to the New notes third quarter 2021 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session with the companies covering analysts to ask a question Press Star then the number one on your telephone keypad, if you'd like to have.

Draw your question press the pound key. Thank you at this time for opening remarks, and introductions I would like to turn the call over to David Brunton, You'll note as head of corporate Investor Relations. David. Please go ahead and start the conference.

Welcome and thank you for joining us on today's call. We will review our third quarter 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 for selling our CFO Fredrik Island, Frederic will present, the financial results of the company for the third quarter and comment on the equity financing we completed in October.

Urban will comment on overall strategies customer activities and other market opportunities.

Before we continue with this presentation.

Let's move to slide up here.

Before we continue with this presentation I would 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 Ken 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 uncertainties and other factors that may affect <unk> business financial position and other operating results such risks, which include but are not limited to the risk factors and other qualifications contained.

<unk> annual report on Form 10-K quarterly reports on Form 10-Q, and other reports filed by me a note with the SEC to which your attention is directed.

Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward looking statements.

<unk> expressly disclaims any intent or obligation to update these forward looking statements.

Before I hand, the call over to Frederic I'd like to summarize some highlights of today's presentation.

You'll note like many companies faced a few setbacks in our third quarter due to the COVID-19 pandemic when our first key mover Asian markets went into lockdown to contain the spread of the Delta variant.

The combination of the Lockdowns and global supply chain constraints that impacted our customers' businesses had a negative impact on our third quarter sales compared to the prior six months.

The company is navigating the headwinds by continuing its marketing and sales work and increasing our partner network, which has resulted in an increase increasing in diverse sales pipeline, which urban will discuss.

We are well positioned to become the leader in the growing contactless touch market.

To provide a strong base of support for growth, we strengthened our cash position through a successful capital raise directed to long term investors in Sweden in Europe.

And at this time, it's my pleasure to turn the call over to Fredrik, who will give a third quarter financial update Fredrik. Please go ahead.

Thank you, David and welcome everyone to our third quarter earnings call.

Also from my side, you can find our third quarter earnings release, and thank you with the details.

Actual performance and third quarter and year to date 2021 available for download from the investors section on our website.

Got.

In the interest of time I will only summarize the key points here.

Okay.

Our total revenues year to date reached $4 $3 million that is an increase of 23% compared to the same period last year.

Revenues from sensor modules increased with 88% for the same period.

Looking isolated at this third quarter 2021, compared to the third quarter last year, we can see a slowdown in sales.

Our revenues decreased primarily due to the overall global supply chain constraints and more specifically semi conductor component shortages.

I think now of customers within the printer and automotive markets.

This combined with renewed pandemic driven lockdowns in our key markets impacted revenues negatively in the third quarter.

Okay.

Yeah.

Operating expenses for the third quarter decreased to 12% compared to the same period last year due to one time costs in Q3 last year.

They decreased by 19% compared to the second quarter is mainly due to another activity level during summer vacation period.

The cost level, we saw in Q2. This year is more in line with the expected cost going forward.

Okay.

Our total gross margin year to date, 2021 was 86% compared to 90% for the same period 2020.

The decrease is related to the highest share of product sales, which drive cost of sales.

Licensing has 100% gross margin.

Gross margin for products was 31% year to date, which is the same level as last year, we expect to see an increase in margins coming quarters as we have updated the price system what to yourselves.

Yeah.

Yeah.

Net cash used in operating activities during the third quarter 2021.

One $6 million.

Compared to the same quarter last year net cash from operating activities has decreased 12%.

The decrease is mostly related to the tightening supply invoices.

And some update on our recent registered direct offering.

Okay.

In October we sold 1 million eight 8000 shares of our common stock at a price of $775 to certain Swedish European investors.

The registered direct offering closed on October 26, and we received net proceeds proceeds of approximately $13 $1 million.

From the offering after deducting placement fees placement agencies and offering expenses.

The offering was oversubscribed and we are happy to welcome new in our strategic Swedish and European investors.

We intend to use the net proceeds of the offering for continued investments in sales and marketing to create greater awareness and drive demand for complex. This concept that touch and even a touch sensor models.

We will also use the net proceeds to support the expected growth of the touch sensor module production volumes.

Which will tie up capital in components and finished goods.

And law Didnt have to proceed it can also be used for general corporate and working capital purposes.

I will now turn the call over to urban who would.

Our business strategy optics.

Thank you Cedric today I wonder if he was on slides, describing our vision, our technologies and our business strategies.

And also this guy in all key markets and how we work to increase our sales in these markets.

That's the first slide here I wanted to share with you. Our vision statement is to transform the way you're not interact with machines and I'm very happy about it's a mission statement that it ties back to also that we are coming from the nanos history.

Remember that this company was founded as a smart phone company 20 years ago.

And what was the first company to launch a gesture based touch polymer markets.

And one which was presented.

As early as 2002 with exceeded fair in Germany.

This oh awesome.

Phone without conventional key patents that all mobile phones, how does the time Nathan.

They sent me an old roughly 10 years later, we held H T Lexmark cat on them and all the other things that matter of factors to get rid of the buttons they have on their printers.

Bye.

Clever touch displays that allowed scrubbing and selecting different options and the printers are using a touch interface.

Right now as this picture shown here indicates we work a lot with contactless touch or some people call. It a touchless touch. So we are still involved in human machine interaction or hsni.

We want to transform the way humans interact with machines and to make it more convenient to enhance the customer experience and bring more value to all of the users.

We are a deep tech company and all of our work is concentrated around to versatile technology platforms.

One that is by now I think well known by followers.

And for Us.

It's a I R based infrared based optical technology that supports touch and gesture sensing.

And they're very advanced involving optics electronics and software algorithms.

In this platform.

So have a developed over the last years, a software platform foreseen analysis, we call that multi sensing and.

This platform supports applications such as eye tracking you Allison its destruction monitoring in the calls in other situations.

Gender occupancy on situational context monitoring.

Today, we have a second focus on conflict, let's touch.

And Uh huh.

Hard for me and other people representing the MLD in previous conference calls.

This is our main focus since last year and we also see the biggest potential in the coming years to grow our top line, but also to significantly improve our margin and our cash flow situation.

Well, it's contactless touch.

Yeah as the name suggests it's it's a contactless touch like interaction to displace key paths buttons on holographic images.

By like you mean that you.

Typically point with a finger or another object like a pen or maybe you have a T or something.

Here, you can interact with the underlying machine without touching the display or the keys that you have.

A finger in front of it on but.

With our technology that is that can be interpreted as a touch or a kick <expletive> they had become accustomed to on the computers.

This is very convenient and it adds safety and security are.

And in general and improve customer experience.

Interact with different types of kiosks, and elevators and other type of applications.

Yeah.

Why is this interesting yeah I've already touched on it it's a lot.

It's about <unk>.

Safety and ER to avoid getting various types all of them.

Infections from bacteria and viruses.

Oh, yes, we're going to have a unpleasant experience and I think the key point when we're looking at this slide is that think about one machine many users.

So we talk about kiosks and elevator and public spaces.

It can be as an airport in a shopping mall at the hospital.

In an office building that we have many different persons coming in and using the elevator, we're using a coffee machine or all their kiosk.

And here so I can see that very very big advantage like contactless operation and.

If you add then the improving user experience that you can get with this type of interface rather than the conventional touch interface or physical buttons.

It's a very very compelling and strong author that'd be a drain from Vietnam.

Countless application areas, we have decided to go mainly towards the elevator and kiosks segments, and then, especially advanced interactive kiosks that you can't find self service kiosk point of sales terminals different types of vending machines.

I mentioned elevators, we see applications in.

Hospitals and clinics could be four obviously this is the first patients are coming to that hospital and for instance, in Sweden that comment that you sign in using our self service terminal.

And there's other youth in the subject of the room are very typically nurses and doctors want to interact with machine in a sterile environment and then touching.

Nathan.

Nothing option. So here also contact lens.

Well, it's the play we also see a different types of information displays like you would have for instance.

When you exit a airport security and they typically have a station that way you can tell.

Tell us how happy you were about this experience passing through security. The same shops is another example, so all these types of applications is what we are addressing with our contactless touch offers and we think they have a very very strong offering in our touch sensor modules, which are.

Embedded sensor modules that they produce.

Did you put a note in the west coast of Sweden.

And Oh isn't that is developed for touch applications, Oh, it's ideal for contactless touch because of its optical.

Our way of operating and a high performance.

So we can sell and we are selling and deliver this a standup commercial off the shelf product today, and we can scale it up very quickly because our operations at the promo.

Use it.

State of the art of domestic production machines are tuned for this.

Specific product range.

Overall, we offer a cost effective and easy to implement a solution that's ideal for both retrofit solutions and new designs.

Itself is very very advanced.

Both have precise and places like it supports a balanced multi tender operation, which is interesting and some kiosk applications.

Yeah.

How can it look in a retrofit solution an elevator there. So this is an example from our friends at the Jew Hurst.

Do you honestly, it's a U K based.

Elevator controlled parallel supplier.

They work, both our OEM and aftermarket and for contactless touch they have developed a technology called Halo.

And are they are promoting this under their own brand Halo with power bi nano.

They have that increasing our business around this and ER.

This is one picture showing health and installation can look like in the modern elevator. This is from a commercial building in London.

They have assigned there next to the control of the time to say this is a tough tough less elevator operation now and if you look closely you can see on the right all the button that the person is picking up there is.

Mr.

Holder boy I'll Tee it some and this is one.

Great thing about touch less of a contact less feature of this elevator.

And it has been marketed for some time under duress is picking up speed also approaching elevator oem's with its solution. So they work both aftermarket equipment.

Another example, after show how you can also do with this is still a retrofit solution.

By a company called <unk> Chandra Johns answer to send out in China.

And trying to work with some friends of ours called H J P. C in Hong Kong and they have developed and installed a number of these retrofits for elevators in Hong Kong.

And what's interesting about this do you see in the picture that you can position the units in a corner Oh, it's actually built into the wall and saw that the installation can be very very neat. If you have this type of arrangement.

So basically it will be on and this is both solution. If you build it into the wall and it works together the standup control panels, so very small amount of patients meeting but.

But of course, if you look at new installations with the new elevators, who can do even even nicer installations that are totally in this about them that it works very well the use case and elevators. It's I think that is a clear and compelling and we have a good response and market feedback from this type of saline.

So the different companies that we're engaged with.

In North America, and Europe and Asia.

I've been talking about Shanghai Airport in previous earnings calls and airports kiosk and it's sort of a sub segment in itself, which is very interesting in that we have considerable traction now and we can expand this maybe to call it transportation.

Hubs, so including airports train stations subway stations bus stations and similar.

There's a strong interest from different.

Different companies some are it could be the airport companies or.

The company is doing that.

Kiosks for airports or in other cases, it could be the operators or the airlines or the.

Train company's operating these transportation hubs.

So we see all different versions are they are still mainly doing retrofit projects here, but we have growing interest from kiosk Oems as well.

And.

That's one example, we have other types of self service kiosks in shopping malls and supermarkets and restaurants since a long and for instance, we recently came out through that.

Press release about the new project.

There are certain sushi chain in Japan are using our technologies to create contactless touch self service kiosk at their restaurants throughout Japan and.

These are just some examples of that.

We have been making in the last Ah.

Six to nine months I would say and we.

We are happy to say that the interest is growing and we are sort of building the momentum here, although the third quarter as Frederic mentioned was a little bit slower than we had hoped.

We continue to believe that Oh, these types of contactless touch kiosk and elevates applications simply become more and more common end up our market share would go up.

I want to and this tour of all the examples that show this picture I liked it very much because it's very very clear if you look closely above the display here is that.

Bar holding our touch sensor module <unk>.

It could be also two of them in some applications.

And read that that display can then be used as a contact less display or touch display.

Right to have here temporarily guide we'd step one step two step three.

Construction, where you Sir.

This is how you used to contact a screen and just below the screen and we see a sign saying contact a screen. So it's a very easy to.

You recognize that this is something special and the feedback we have from.

Our hospital.

We kicked in Asia is that it's very quick for new users patients and stuff like that a hospital.

To sort of understand and use this.

It's a very very positive reaction and they.

They haven't placed a lot of follow up orders to a quick photo kiosks in the hospitality solution.

So this is what they're working on and these are some examples of success stories on larger and smaller projects that we have been involved in in our pipeline that have multiple other examples similar to this.

And we.

We have had the biggest and the best traction so far in Asia, but I'm happy to say that inter.

Interest is increasing also in Europe, and in North America and I'm.

Like I said et cetera, when we had talked about a registered direct offering and what do they use the money in races through that offering.

It's not about marketing the same continued to promote our solution and our rates of madness.

Drive demand for this.

Because we think we have a very very strong.

Right to win with our solution here.

Here, a small summary, all solution lines that first column has several strong features compared to other example technologies or solutions.

It gives a very intuitive user interface.

It's all things easy to install.

And it's very fast and precise so the overall commercial value for both the buying customer end to end customer using it is very very high compared to others I will say that in some applications mobile phone apps are.

Also be taking market share going forward that's for sure.

It's a lot driven by the fact that our different companies want to own.

Oh the customers on the customers' data. So that's why they have different types of apps apps being developed and deployed so that you should have like frequent flyer programs are our customer loyalty programs and they want you to use that to do your distance where the company.

And in some cases I'm sure that this will be a value that is come on man. That's been had the significant market share, but in many others like in an elevator or in.

Airport checking determined also on where you are at the same time allowed for multiple airlines and so on our solution is very nice to explore whether it's quake and I think a lot of value both to that.

Buying customer and the end users. So we are very very confident here and there.

Motivates us to continue our work to market and promote our solutions.

Yeah.

We are also working in two very very large markets. The elevator market an interactive kiosk market. There are around 19 20 million elevators in the world. So a huge installed base.

Europe used to be sort of the dominating market for elevators.

In the last 20 years of course Asia has.

Overtaken Europe as the main region their elevators are installed, especially China, but all of the other countries in Asia.

The growth rate is.

Somewhere 1 million to $1 3 million new elevator as of year end, our again, our Asia, leading the way in particular with China.

Representing 63% on volume growth.

But remember we have both play the retrofits and then we are targeting to grow our market share of retrofits on the installed base and then also targets are to grow our market share in new installs with you.

Elevators and that this.

This is a graduate work and.

As I will explain in just a minute the first step.

Approach and our strategy is to penetrate the market yeah, two retrofits installed and then gradually moving to really pick up as well, but over time, we can still continue to do retrofits because of this huge installed base and the long lifetime of elevators, which can easily be like.

30, 40, 50 years or longer.

Oh, sorry, interactive kiosks Super interesting market, we can easily count to four to 7 million an interactive kiosk with installed base now I will say this that some of these four to 7 million drop in kiosks are the simpler type can probably not our target market.

But we are confident that at least half of this so let's say 20 to 25 million kiosks is our target markets and.

Some of these sub segments like self service kiosks, and the self checkouts kiosks. So long they show a very very interesting growth numbers double digit CAGR.

And these are global averages sorry, if you would look at second markets in particular in Asia and Europe.

The growth of some of these types of self service kiosk is like a super fast and again, we can do both retrofit and new installs export elevators. So interactive kiosks is another.

Interesting market next to elevators.

Yeah.

And that you have to show a little bit next sample calculations about the addressable market. We have already explained that we have the multiple.

Yeah.

Application alternatives in an elevator and kiosks, it's a fast growing market with Japan, and Korea, leading the way, but if you just look at the example that we are showing here it's easily.

Calculated that.

That's our target market is addressable market is worth more than one 5 billion U S dollars and if he would include more sub segments in <unk> and so on it that number will grow so our addressable market is a very neutral compared to our current turnover and that's.

Why do we feel that we are on the right track, we have a huge potential that we can grow we can also make a lot of money looking.

Looking at some.

Best example, calculation again that if you think about the average gross margin, but you think its fully realistic even in in volume production of 35%.

See the types of possible.

Gross profits that we can generate with our business now we are very far from this today and.

We use this as a motivation for our work to grow the business and is we are also encouraged by the fact that there is a large market out there and the potential is there. So we are.

Working harder and harder every day as we.

Learn more and to grow our team.

And we grow our parking network to penetrate these markets and to capture a bigger market share than to simply go first our topline and bottom line results.

We are building our business on three pillars licensing product sales and the sales.

Sales of engineering services or Emily nonrecurring engineering.

We see growth potential in all three.

With licensing are currently we have more than a dozen active license agreements, mainly with fintech companies and automotive tier one suppliers.

In the future and what we are working on is to of course continue to support our current customers and are part of a project for them, but also expand into new areas.

Types of basketball automotive applications in demand Italian avionics sense on industrial automation projects.

By this we think that at least in the mid mid and long term, we can grow the licensing revenues and short term it will be flat or slightly decreasing because of.

The legacy character of this business.

The product revenues is very we see the biggest potential to grow in the coming two three years and this has two explanations one.

Already addressed this is the large addressable market for us and elevators and kiosks. So the volume.

Volume potential is interesting also here, we have an higher average stage price than what they typically get in royalty per product from licensing.

But that's the factor I'll say 10, or even more so the lever leverage from our product sales on our topline results.

So very very strong.

And we are building up our mobile.

And now we are targeting to grow this business significantly.

Coming two to four years.

And also Anne Marie.

As a consequence of all of our products business and our ambition to grow our licensing business. We are also exposed to opportunities to sell engineering services and of course, the licensing for knee and though that's typically as a requirement.

Together with the automotive tier one supplier things as they develop the solution and the gearing back development project to charge in a REIT.

Costs to the customer and then when the underlying.

He called or whatever the product is is.

Launched in mass production, we get a royalty typically per vehicle or pro products sold.

Here, we see a vast number of opportunities to grow our business.

Business through increased sales of Anne Marie and also some sales of prototypes and other types of.

Concept Oh, the demonstrators so overall.

Remember that our business model and the restaurant the three pillars licensing product revenues in a REIT and we see potential to grow all three of them, especially in the mid to long term.

Short term, it's mainly N E and product that has the potential to grow significantly and this is what we are concentrating on this year and the coming couple of years probably.

Yeah.

Yeah.

We get a lot of questions about.

Our business and how we work so I wanted to review two slides here explaining to look more in detail, how we work and why.

Yeah, the sales cycle in the type of industries and businesses that we do typically it looks like this initially starts with a retrofit opportunity.

Meaning that we or someone else to develop a solution that could be retrofitted on to an existing elevator our existing kiosk.

Typically here, we have to rely on partner solutions. So another company developing a custom retrofit solution for a particular type of kiosk or a particular type of elevator and also going out in the field technicians and engineers and installing them in these elevators and home too.

These kiosks.

That's why in that phase of the sales cycle.

Target customers are integrators and tech companies.

In the location of case also although they can't kiosks and Vms, we work in the after market themselves, but typically they are a little bit.

Difficult to convince and harder to reach in this early phase that we are in Seattle.

In the many many markets like in Europe, and North America. So the first phase is about retrofits and typically you have to rely on partners to develop and install these solutions.

S.

The end customers interest and demand for contactless solutions grow with it.

Typically are seeing is that this will have different fees and stimulate the Oems to step in and.

They want a piece of that business and then we go to the new install space, where they can attract.

Elevator and kiosk Oems to.

Pick up our ideas and by our touch sensor modules and installing them in new products and from there. We hope that we can really develop a new solutions together with our customers and then it's more R&D and then it's more or less 100% and OEM type of business similar to the Animas business with the printer.

And the automotive tier ones that can be used to in.

In the last 10 15 years.

Yeah.

Okay.

And we used a variant of this slide before but the previous slides should be read together with this one so when we said before that the retrofit business is very starts on typically rely on parking solutions.

We have done since last years to expand our ecosystem of partners some of them we have.

<unk> signed up as our value added resellers other all yes. It's.

Other product and technology companies actually cooperate with.

Typically they work.

In our particular markets say, the Japanese markets Korean market, a German markets and you have to give you a few examples.

They typically also have an existing customer base and that we can tap into and.

We use them and have been using them successfully too.

Bleach midsized and also in some cases larger OEM companies in these markets or in some cases, even in certain segments.

With our own sales force, which is.

Somewhere around a dozen people today.

In Sweden and in different countries around the world.

We focus on large and mid size companies.

And also to support our partners of course, and what we see.

We are about to hit now as sort of the second facing sales cycle. The way we have more direct engagement with the Oems and then it can be more work for our own sales persons to manage those accounts on to drive that business.

Besides these.

Partner saves in direct savings.

So use.

Online distributors like did you keep in the U S cereal in China, and Mexico, and Japan, and we tried to direct the smaller customers are to those and focus our own resources on the larger accounts that we have the bigger potential.

Okay.

Besides the ongoing work to market and sell them to grow the business.

Through these measures we also have other initiatives.

To ensure that me and continues to grow right now we are focusing on marketing and sales and expanding our partner network and it's to grow the awareness of <unk> and our contact let's touch solutions on the T. S. M offerings that we have.

It's starting to pay off and we have more and more interesting pipeline announced they had been.

Kelly in previous earnings calls, we are building our business pipeline step by step and the next phase, but we are looking to do.

We saved from next year.

Gabe the business in our key markets, Japan, Korea, China, Western Europe and America.

We are also currently developing and learning more about the different application areas that we're involved in and hepatitis and different types of geos.

And we are expanding our offerings and tuning our offerings and we are also in some cases vertically integrating more solutions that our partners have been doing into our own offerings and this is a way of course for us to grow our topline and ER.

Secure that's me I know, it's kind of a solid Pennsylvania, Indiana, they're all.

And that's the gate thing to add a second source. Besides our subsidiary thrown them to produce the TSMC and typically we are looking at some candidate partners for producing the TSMC in Asia closer to our main markets in Japan, and Korea and China.

At in the future.

Have already several ideas.

<unk> to expand our business into new geographical markets and additional market segments.

We are developing are looking at new hardware products and also extending our software offerings and.

There are also ideas for further accelerating our growth through strategic partnerships and acquisitions.

No.

Please stay tuned we have a lot.

More to show.

In the next couple of years and we are hard at work in realizing all of its potential and are developing our business step by step and.

Fights relentlessly every day every week and to grow the business and.

By this.

Basically at the end of my presentation on that.

Wanted to end this call and then turn it back to Dave to lead us through the Q&A session here, but.

But first some concluding remarks.

COVID-19 Kantar.

Continues to bring on challenges for us as many other companies.

Component shortages, it's slowing our customers down and we see it clearly in the third quarter, both the automotive tier one suppliers that we are engaged with and printer manufacturer customers that we have had reported problems in the production or sales due to component shortages of course, that's hurting us.

You also see epic.

Strict lockdowns that we have the for instance, in Taiwan Korea and Japan.

The third quarter.

They read it hurt us in other ways as well where are we in our pockets couldnt even visit.

Companies in the same cities and are we Couldnt go out or our partners couldn't go out and install the T S families in new elevators and kiosks.

And in some cases of course, the overall economic uncertainty caused by the Covid pandemic and the new Delta variants and other guidance coming has slowed down some decision processes. So it's very clear that for you.

Have there been hurt by this in the third quarter and we are still are to.

To some extent hurting by this in the fourth quarter like many other companies. So the second bullet is that the third quarter sales will slow but year to date revenues show animated strong girlfriend you'd have to put this.

We have a very very interested in the sales pipeline on the especially the last couple of months, it's been gardens.

Firstly, the right direction, so both new T S M opportunities and the new energy projects that we are quoting or that we have been awarded.

And then we also have been identifying new licensing opportunities that we hope that we can capitalize on in the next.

First months.

To get a new projects started and in the coming years to grow also our licensing revenues.

With the contactless touch business very of course focus on elevators and interactive kiosks.

We are extremely well positioned today to become a leader in this business with our PSM offerings in our younger Knowhow and also now with our.

Well expanded partner network and global reach.

We are well positioned here. So we are confident that we can grow this business significantly in the coming years.

And because of this and because of that.

Economic uncertainty, we have strengthened our cash position.

Through the registered direct offering in the limited use of our at the market facility.

We have.

Yeah.

Secured the support from new interesting strategic investors in Sweden, and in Europe, and I'm happy to say that the the registered direct offering was oversubscribed and it was a very very quick in a nice process for us.

And by now we have the cash to finance the business growth in the coming years actually so we are very very optimistic for the future and.

With this I, thank you and turned it back to David for the Q&A.

Thank you urban.

We will now open the call for Q&A from our analyst.

Go ahead and.

Join the queue.

Q.

As a reminder, it is star then one to ask a question you may withdraw your question by pressing the pound key.

We will take our first question from Tyler Burmeister with Craig Hallum. Your line is now open.

Hey, guys. Thanks, So let us ask a couple of questions here urban first you know on the on the headwinds you see you know supply constraints and locked out I was wondering if you could kind of break those out but you know it was one one a bigger impact from the other and then you know to the degree you can you know what's the timeline of those improving is it Q4 are those going to live.

And our next year any color there would be great.

Yeah. So first of all I want to underline that.

Part of the component shortages, it's hurting our customers not directly or our production.

We have secured components for our production runs that are normally so no issue for for our own production or our own business there.

I have more of an indirect effect for these component shortages. So as I'm sure. Many of you are aware in automotive many tier one suppliers and Oems are working what they are.

Slowing down production and.

They have challenges.

Challenge is to find the right performance.

This is hurting our voyage revenues.

The same situations as with several of our printer customers.

That's our reporting slower sales due to component shortages.

And the product sales are the tough sensor module sales there we have heard from a couple of Asian customers that because of component shortages. They are prioritizing other programs.

And typically that an existing production dropped by launching new products. So that has slowed down some decision and launch processes and this is hurting.

Hurting us in the third quarter and some of these effects are still visible here in the fourth quarter.

I'm not an expert in this but it seems that if I compare with last year.

A very very strong slowdown in the second quarter and a good rebound in the third and fourth quarter of last year I think that we will see a rebound in next year.

Q3 was slow in Q4 is a little bit slower than we were.

I'm, hoping for when we ended the second quarter.

Let's see we are confident that our with the newly raised cash and Uh huh.

Interesting sales pipeline, we have that we can weather this out and can.

We can continue to grow solely about studying.

Yeah.

That's great I appreciate the color there.

And then you recently announced a win with the major elevator customer that's going to play out your touch solutions in all their new elevator. So I was wondering if you could add any color there about what the size of that win and maybe what other customers of similar size you know how many customers are similar size might you have in your pipeline.

Yeah.

So.

With this customer and they have been very very strict. So unfortunately, we are not allowed to any anyhow or anywhere and knowledge in this.

This business.

Their name or whatever product lines.

But it's a one of the major elevate your Oems and the.

The elevator industry is dominated by say 10 large Oems are 20, then you're out with like 99, 5% on the world markets.

It's fairly easy to understand how this market is structured.

Structured.

We are happy of this business because.

It's.

Evidence that our strategy.

I've outlined here five minutes ago is working.

This started with a retrofit business that we did and this OEM took notice of what's different.

Solution providers and tech companies were doing and installing in there fine elevators and then they realize that hey, we can do this as well and actually we can do it better because we can then.

The factory make sure that the installation is a nice and tidy and like Super professionals. So they saw an opportunity for them and this is exactly.

But I tried to explain the picture here with the same sector. So it's very significant in the elevator segment and that's why we had that announcement in the press release about a week.

And this will of course.

Impact our sales going forward and then the coming years and.

We can Matt.

We can estimate more than one P. S amateur elevator, an average because some elevator as we'd have to T. S. M to cover the whole control panel.

And obviously now we are working to come in as other Oems to follow suit and take after them. So.

In elevators. This proves that our strategy is working and that our approach has been the correct and it also shows that the long sales cycle, because I think the first time this elevator away and heard about us sometime early last year and the owned and now they are ready and are preparing for a launch next year.

So this is not uncommon with large industry corporations and you'd see the same pattern also in a kiosk or the large kiosk companies.

That's great I appreciate that color and then last one you know I suspect you can't comment much on your ongoing patent litigation, but you know I think it's been a point of focus for investors really recently, so I just wanted to give you an opportunity any comment update thoughts on on the patent litigation.

And <unk>.

The only answer you would get this no comment.

And I referred to our agreement with <unk> technologies LLC.

And which we announced in an 8-K filing with the FCC in 2019.

Perfect Fair enough. Thanks, very much that's all for us.

I'm, sorry, but we can't comment on it.

Scott.

Yes.

And we can move to our next question.

Ah the questioner is Jesper von Koch with Redeye. Your line is now open.

Hello, gentlemen.

Since the current revenue and if I could.

And kind of depressed levels and just before I supposed hockey stick exploration.

Could you provide any guidance at all for 'twenty to 'twenty, two and perhaps also.

It gives them some comment on your illustration on slide 27 regarding like astronauts.

Yeah, we will not give them any concrete guidance, but.

Our actually.

Actually a very motivated by the influx of new opportunities and the strength of our pipeline which is.

Looking very very promising for next year.

So I mean personally I'm really hoping and believing that we will see some kind of breakthrough and no difference next year.

Apparently we had some headwinds in the third quarter, especially and.

To some extent also in the fourth quarter.

Would just little bit slowing down.

The growth rate that we were hoping to achieve this year.

But the overall picture.

Anyway, very very bright.

Right and V R and the team they are extremely motivated to realize more of its potential in next year end of the year to follow so.

Personally I think that we are on the verge of a breakthrough here and there we can start to see some interesting effects of this work that they've been doing last year and this year.

Clearly visible in next year.

Alright. Thanks.

And also are.

Regarding the see the large elevator deal announced but just.

The elevator market as a whole what what are you expecting in terms of the take rates of the holdco terminals. So how many TSMC expect correct installed elevator.

Yeah. So.

Maybe I can answer this in the following way so.

Our solution is a very very good choice for that.

Control panels inside elevators.

And typically there you would use one or two or a touch sensor modules per elevator.

The average being Sunday 1.5, or one point I don't know 1.3.

1.3, Tsn's per elevator, but then it's yesterday points up on I think it could be worse for more you listening into this call to know that there's also an opportunity for me I know the balder buttons on each floor in the building. So you have the elevators and those.

These are typically ask Hong Kong buttons at least in American English.

Typically you would use one of our shorter TSM and have a similar contactless touch operation all of those boxes. So that's another additional opportunity and then depending on how.

How high your billing is how many Florida you have the moral of leasehold call buttons. He would also no. It's.

It's not guaranteed for the elevator company or near mode that you can supply the whole call bathrooms within the elevator and it's well.

What I'm learning more and more here is that it's very different in some cases, the elevator OEM supplies. The whole solution and then in some of these we have an opportunity to participate with our contactless touch offering.

But in other projects.

Elevator companies, yes tested supplying the elevator itself and then the.

Real estate owner works with another installation company or I'm, a tech company to do the rest of the installation of the fifth thing.

Including the Hawk coal terminals, so it's very difficult to estimate, but what I wanted to say its a.

Find the message on this is that.

We have an opportunity which is larger than one P. S. M. Tor elevator in the elevator market. So you can have more than one <unk> times inside the elevator and all of his long and the whole call.

Buttons on each floor, but it's very very difficult on a I M.

Wouldn't even try to guess where it is but this is an interesting yeah.

Twist to that elevator business that we are doing.

Alright. Thanks.

And then it seems that you have received a really strong traction in the elevator segments and both towards that like new installations and retrofits.

And yesterday, you announced like a good contract with quick service restaurants.

Sure Shane.

Japan, so how.

How have you experienced the demand in the self service kiosks in general compared to desktop alligators.

Yeah, you should you should know the following these two markets are fundamentally different so that the the elevator market is totally dominated by that 10 or 11 largest Oems are they make up for more than 95% of the world markets on the job 10 more.

Then you have basically all of it.

And so very few companies sort of dominate to the elevator the new elevator business in kiosks. It's so much more fragmented and you talked about allison's old kiosks OEM companies.

Of course, their R&D global Giants and.

Some I can't guess named dropdown, but these are not.

Not indicating that all of them or even some of them are our customers.

And some of the big names in kiosks and global players are.

Diebold Nixdorf NCR in the U S glory in Japan in companies like this.

They are corresponding type and size of the large OEM elevator Oems, but then there are hundreds if not thousands of smaller and medium sized kiosk companies.

Some work Oh man in certain geographical markets like in China or in the U S or in France, and some work only in certain verticals like in.

Self ordering kiosks supermarkets, Ah and here's an overlap to the point of sales terminals and cash registers.

Some companies are specializing in.

So actually.

You are suggesting that we hadn't had the best traction in an elevator.

I would say that the B E R M.

At least in the same shape and kiosks that already secured engagements with several several medium sized and smaller kiosk Oems and working to penetrate also the some of the larger.

Kiosk Oems.

But you should just understand that the dynamics on the structure of these microbes are fundamentally different than that that's why maybe the visibility is not that great and oh on the other hand it.

Customer base, it's much broader and gives us about their stability going forward.

Yeah.

Alright, and then my my last question about your your last Bill Campbell there in the in that regard to me or a potential software offering of your of yours and the potential M&A.

Could you elaborate on your app on their phone.

Thoughts going forward.

Yeah. So.

Well, we are I'm very clear about is that a man on its deep Tech company, we have bolt on.

Hardware technologies in our case, even optical expertise and the patents are around optical designs and electronic designs, we have a dedicated integrated circuits.

Six that we have designed and we are selling to our customers.

But already today and going forward.

The software portion of our offering and our portfolio will only increase in importance and breadth and depth. So we are thinking about using <unk> for instance are tough sensor modules and new types of applications out there the big differentiator will be the software that's the delivery window. He has done so.

Not the T sand itself, it's just a platform to do and to realize different functions for the end users.

Also developing more and more configuration tools to support our different customers to have a quick and straightforward.

The duration and launch of a contactless touch solutions.

With the multi sensing software platform, obviously, it's 100% software that we are delivering and I took the other.

By now a traditional software business model.

Are you typically your charge for adaptations through and re projects you license and you take a royalty per unit or you sell at a software as a service.

And this could be the automotive customers are military or industrial automation customers.

And.

Overall, the portion of mammals customer offerings and a portion of the revenues coming from software solutions, we simply grow and he didn't have a huge potential also to expand into new areas and maybe team up with other software companies and.

Combine our offerings with them it could be in a in <unk>.

Kiosks or we could enter into neighboring segments.

No no.

We don't have any concrete acquisition targets. Our plans are but we are entertaining thoughts about.

Partnering with other companies it could be other tech companies or there could be a companies in our ecosystem today.

We see an opportunity to do a vertical integration and bring them onboard in immuno team rather than being a partner to us.

So right now are in the.

Strategic development plan for the company, it's not a top of our list, but as I showed you the previous slide.

It's there in the future and the future maybe lean in a couple of years from now I think this company, having stabilized and growing our own business organically.

By executing on the strategy that we put in place beginning last year. We can also start to look at some new partnerships and even some acquisitions and this is a further way to grow the business and increase shareholder value.

Alright, that's it for me. Thank you very much for your answers.

Yeah.

Thank you everybody for joining us and with that we wish everybody to have a good day and stay safe. Thank you bye bye.

Thank you for your participation. This does conclude today's program.

May disconnect at any time.

Okay.

[music].

Uh huh.

Hmm.

[music].