Q2 2022 Neonode Inc Earnings Call
Two individually and together form a good basis for our for the company and will pay way and enable us to grow and return to profitability and positive cash flow flow in the.
The years to come.
In 'twenty to 'twenty to 'twenty, one we developed.
Overall strategy for the company that we are still executing on and that we are believing is the right strategy.
Yeah.
You can call it a three step approach for growth.
Focusing on marketing and sales, creating awareness and demand we have grown our partner network.
This year, we have really started to focus more on the key markets, including Japan, South Korea, China.
We have also been working to expand our customer offerings. Both for licensing and we are working currently to expand our customer offerings all slot in the products business with the.
More vertical integration that we can offer more software content for instance, and we are working also on new product.
Concepts at the moment.
We are also returning to the investigation of outsourcing that CSN production. Then we are actively looking for a second source to complement our own production in <unk> in the west coastal Sweden.
And in the third step.
We think that is.
From beginning next year, we will more actively and aggressively pursue further targets like expanding the business scope, new market segments, and maybe some new product offerings.
And we are also constantly evaluating potential partnerships and collaborations.
That can help strengthen our case and also contribute value to customers and investors alike.
Within our business model, we work with licensing we work with product sales and we also offer engineering services typically as.
Fixed price commitments.
And we see big potential to grow all three revenue streams and.
The biggest potential in the coming two years three years.
We believe is where the products business.
And the one strong reason for this is that we have.
Much higher average sales price when we sell products than when the license technology per unit. So there is a stronger lever.
Can achieve higher sales volumes in the products business that if you do the same with the licensing.
Still a licensing has potential to grow but then it's more in the medium and long term aspect because typically I mean, we work with customers for instance in automotive Theres, a long development cycle before we can earn more royalty revenues from the licensing.
And on the other hand during that development period, we can earn and our revenues are nonrecurring engineering revenues and we.
We are actively working since a couple of years on this and we have actually several projects ongoing that look promising and that bring <unk> revenues and the pay way for future licensing so overall.
Potential in all three revenue streams short medium term biggest potential for growth is to grow the products business.
And what all of these products.
We call them touch sensor modules or TSM.
They are standardized commercial off the shelf sensor products.
They feature our sea force reflective technology, and we carry them in 11 different lengths and the two main variance.
Customers can buy them from us or some of our distributors or from value added resellers.
Yeah.
Smart embedded sensor modules involving advanced optics electronics and software.
Very flexible can be used for many different applications. We have chosen in a new strategy to focus on contactless touch applications.
How do we think we have a unique offering and the <unk>.
Can bring a lot of value to different types of applications.
For contact let's touch with our touch sensor modules you have two main ways to realize the contactless touch functions. One is to place the sensor module in such a way that the optical detection field is positioned at the distance in front or above a display.
Or a key pad.
Pat you want to convert to a contactless interface.
One is to align the light feel from our sensor with a projected image that you can get from a holographic display.
It's becoming more and more popular and we see a quite strong traction in this segment and this technology a combination of a holographic display with our TSM.
And just to illustrate concretely. How this may look here is a typical kiosk application a retrofit solution developed and installed by our partner happy meet there in Singapore. This is from Hamada Airport tonnage.
Typical check in kiosk that they had converted the normal touch interface to a contact less touch so the user can input this data on the screen without touching it.
Very neat and works perfectly and.
For the airport company in this case it also limits the investment they need to make to metrics conversion. They don't need to replace all the kiosk. They can do a simple retrofits, which literalists done in minutes and if you go online on Youtube are linked in a Google a little bit with happen to meet there you will see server several films from them where they demonstrate.
In real time, how quick it is to install a solution like this on a kiosk.
I talked about holographic displays on here is an example, how it can look its quite futuristic it's quite nice it's our attention grabbing.
This is <unk>.
Solution developed and launched by our partner in the United States called Hollow industries, They use technology from us to Canada, and Japan and old Neil know the partner that we work also with other.
Applications in mine.
Here.
Our solution as a patient monitoring device and.
The patient data is projected into mid air and the nurse or the doctor can interact with that projected image through our.
Touch sensor modules that are installed in the base of this play to.
Very nice very good and we see a lot of interest in these as I mentioned.
Overall, our technology has many application areas different types of kiosks and elevator applications in different segments and this pace way for a very very interesting business case, and how are we trying to address this and penetrate these different market segments and markets. We have a very structured approach in our.
Marketing and.
Lead generation work.
And for contactless touch today, we focus on three main segments transportation retail hospitality and.
If we focus for a moment on transportation.
Of course, we want to communicate that our different ways to use contact let's touch to create safer.
Better user experience.
When for instance, entering an airport going into train station. So our job here and what we're working on is to inform educate persuade motivate inspire and we are doing this in different ways with digital marketing and also online events and other types of campaigns, we do it from nano and we do it through partners and we also.
Have a lot of help from our partners that do a lot of similar activities.
On their own.
So let me move on here and say that within transportation, we have had and are still having a strong focus on aviation meeting.
Airport applications and in particular people movement in airports and if you have followed us or if you want to visit our website or check us out on social media on Twitter you will see evidence of this what we have done in terms of.
Campaigns and advertising to generate interest to inform educate inspire and simply generate leads and drive sales.
We also have worked on info graphics like this on a personally I think this is quite interesting and useful to study a little bit more in detail because it shows for instance at an airport the relevance of near nodes touch sensor modules and our technology and the value we can bring to users.
Different points from the <unk>.
Parking lot when they drive up with their car and want to park their car.
When they enter into the terminal building to take a cart.
Smart cards are now becoming more and more common we are talking to companies doing smartcards with type of iPad controlled panels in front of them.
You can go into an elevator or escalator.
You cannot contactless interface in that.
Davidson signage.
Can interact with different types of kiosks Atms.
Vending machines and so on.
And even inside the aircraft, we see strong use case for neonates touch sensor modules in the.
Panels or afford the cockpit personnel or the passengers.
And this is something that we pushed.
Particular before this event the world's largest airport event you can say, it's called passenger terminal export it took place in Paris in June we were there with a booth and in our Booth, we had several of our partners and customers also coal exhibiting and.
And in other booths, we had other partners having their own boots. So we had a lot of coverage, we had a lot of products carrying our techs.
Technology on them, we had a team in place that promote to this from the outside and we have at least four or five other companies actively promoting this throughout this show and we generated quite some substantial interest and it was all prepared and pave the way through the digital marketing campaign and the other activities, we did before and even <unk>.
During and after the show.
Nice example, it ties together, what we are doing.
Following this event.
We want to go further with some of our partners and one example of this is with our value added reseller <unk> technology in France.
I have big plans to expand into the middle East and we have recently.
Signed a new agreement with them to expand their regions that they can operate then to also include the middle East I would say this is a direct consequence of that show and the attention we got from customers in that region and we have similar examples with other customers.
Customers and partners, we met at the show.
In automotive and then remember automotive for US has done a focus for our licensing business.
We are similar to trying to combine.
Digital marketing campaigns.
And simple.
Simple to drive interest and to inform to.
Inspire.
People to look at <unk> and our offerings and we are combining this with different online and live shows and a lot of direct contacts to automotive OEM customers and tier one customers.
And in particular now we have lately started to focus more and more on driving an in cabin monitoring and also object detection for head up displays and <unk>.
All of this work that we're doing is generating quite some interest that we are following up on and as I mentioned before we have already started to work on a couple of serious projects. Thanks to this work that we have been doing during the spring.
Yeah. So.
Coming them too quickly to our concluding remarks to summarize.
Our presentation of this call.
I want to repeat that.
Also from my side sales and the results for Q.
Q2, and this year.
They were below expectations.
And.
We work very hard to turn this around.
Yeah.
We are faced with.
Several issues that sort of hold us back or slows us down one is clearly COVID-19 related lockdowns in particular in China, and Korea, and Taiwan. They have had some serious and still have serious lockdowns.
Daily affecting their industry and their.
Domestic markets, but.
But we see that several of our customers and partners, especially now in mainland China and Korea. They have serious problems overall, just surviving and this is pushing out.
New product launches and other things that they plan to do into the future and it continues.
Most other markets have now in August started to open up and start to return to normal but this is serious issue for Eric mentioned semiconductors shortage.
Which is a problem for several of our customers both printer customers and automotive customers and in some cases also these companies we work with interactive kiosks and elevators.
I will underline that this is not a serious problem for nano actually for our own production.
We have secured components.
Are we now have in abundance and.
We are also working closely with Texas instruments, who supplies the key components that we use.
In all the licensing and all the components to be used for the touch sensor modules.
Sure.
Application specific integrated circuits Asics.
But we see in automotive several of our customers report and that they have issues elsewhere.
Holding back their production on new vehicles, and then generating lower sales volumes for us and lower.
Royalty revenues same with printers.
Hope and the IC sidestep during the third and fourth quarter.
This will be sort of Remy.
Remedies because there is.
Hot pressure on the semiconductor companies to increase capacity and we know that several of them have built new plants and they are operational now since the summer and thanks, everyone predicted will come back more to normal during the third and fourth quarter.
So we think so and I can also say that.
From Texas instruments, we have clear reports that demand for their integrations circuits that only <unk> licensed customers can buy is on a good level and a good stable level.
And this means that probably there is.
There is a clear demand out there and we hope that we have a sort of a rebound during the rest of the year and maybe into next year.
We are also a little bit surprised by long sales cycles are long development cycles.
In some cases it depends on these lockdowns and other effects now macro effects.
Certainties high interest rates and so on that affects also these customers, though they hesitate to launch new products or really to kick off new development, but we have several.
Large corporations in Asia for instance that have already developed products that we have worked on for two years now, but they in that then hesitate to launch them because they feel that the timing given the overall macro condition in the market is not right. So.
So there are different reasons why sales continues to be a little bit slow, but overall, we see a stable and increasing demand for our touch sensor modules.
And not least driven by the interest that we see for holographic display solutions.
And that is both in retail and hospitality and transportation a lot of people talk about it they like what they see they think they give us strong added value and the combination is unique and we have a very very good play there.
Only with our touch sensor modules you can make these hovering in mid air.
Images interactive.
And.
To create the holographic effect here you need unique.
Holographic plates as they're called so to create these solutions. These are the two key components that everyone will need and for holographic plates. There are three or four companies to choose between for the touch sensor modules, everyone will have to buy from Neal and we like that situation I'm encouraged all these companies to develop and sell more of these.
We also see a growing interest I've mentioned this already for <unk> sensing from automotive OEM and tier one customers and this is more medium long term, but we are very much encouraged by this too and I said in the previous earnings calls that we are working to revitalize and grow our licensed.
Business.
Stan now in August and say Im even more uncertain that we are on the right track regarding this and I hope that we can announce.
Some new wins.
In the near future.
Overall, we remain optimistic about our prospects to grow and improve cash flow.
Both during the rest of this year.
And the coming the coming year, obviously and.
From my side.
Growth targets are very ambitious and we work really hard in the company to realize this potential and converted into a strong growth in the years to come.
And this concludes our presentation today and <unk>.
Now we move on to the Q&A part of this event.
[music].
Sure.
Thanks for that and the Frederick So we'll start the Q&A sessions.
Q&A session with a few questions from my side.
And then.
Then we will take additional questions from other analysts.
So regarding your product segment it seems that.
I mean.
Covid Lockdowns are obviously.
Hindering your business there, but could you just on your main or largest projects could you just give us an update there.
Sure.
Again, I'll repeat that we work in elevators and interactive kiosks in elevators. We have had good success in the first years to secure customers and partner developing retrofit solutions.
But we are now working on and seeing that we have.
More than two let's say it like this elevator Oems developing like new equipment solutions, including our technology and they are quite different and interesting to see.
On the other hand. This is the case some of the major elevator companies they are slow.
Our big industry groups tend to be slow they are meticulous in the development and testing and before they release something to public it's all.
Double checked and triple checked so.
Slowly, but steadily I think we're getting there we're growing the market share for retrofits and we are starting to dig into the new equipment part of that market.
For kiosk. It has also been a race in the previous two years with retrofit solutions, but here, we have a more fragmented market segments down elevators extremely fragmented I would say.
We see both retrofit and OEM in Asia, we are actually happy to announce and also in Europe . We have a couple of examples where we have big OEM customers.
Customers doing now their own retrofits, but also.
In parallel developing for the next generation of the same products integrated solutions and some of these customers are fortune 500, if not fortune 200 companies. So it's really good to see and that encourage me for instance.
I went to see some of these customers in Japan before the summer and.
It was really impressive to see their development work and what they have brewing and we hope that we of course encourage them to speed up and launched it now because it.
If some of these big names come out with new products featuring TSM.
<unk>, we think it will have a positive effect also on other discussions we are having alright.
<unk> quite a broad range of customer stops you're waiting for it to turn into volumes.
Overall, and it's always the same story.
You have to.
Be focused and be persistent and work hard and then some are close to launches and some are further away and there is a whole spectrum also youll remember, we talked about both the elevator and kiosk market using a pyramid.
Picture and at the top in the elevator and in the kiosk space. There are a few but very large and of course, we want to enter with these but on the other hand they are more.
Cautious they don't move so fast they want to wait and see.
And they are evaluating and observing all the market trends.
So this is the suggestion that we are in.
And of course upfront, we are doing everything we can to push them to motivate inspire show other examples.
And we are here very much supported by our different partners and the existing customers because we are all.
Having the same objective with this.
You are working well together I would say.
Alright.
Let's move on to driver monitoring procurements I mean.
We know that there are a lot of procurements.
We're defined winds are.
Kind of starting to be awarded now.
Big wave wave of this.
How could you tell us anything about the traction that you're seeing.
Like design wins on the horizon.
So.
Yes, we have and we.
Our our late.
And Trump to this market compared to some other competitors.
So in some cases, it's already clear.
The other suppliers have already been nominated.
But what I think we are seeing and what we are riding on right now is sort of the second wave and this fits in with our strategy from the beginning so we have developed a software platform, which is a very very flexible easier to adapt to different requirements.
And combined for instance driver monitoring with in cabin monitoring different in cabin monitoring features with the same solution and adapt very quickly and the resulting code is superefficient.
So now even OEM customers in tier ones that have already sort of decided.
When we approached them and show a little bit what we can offer them.
We get often very very positive response, because they have tried other even well known and highly priced solutions from others.
And they are not happy for whatever reason and then in.
Some of these cases, we are then who latching on.
And.
Starting to have a growing relationship and.
Develop them concepts and solutions and so when when in time.
Are those procurements that you are participating in and do that and so that's it's different than I think we believe we have some this year and we will have also some challenges next year.
And the launches later on depends on their product launch plans, but it's a few years out unfortunately, but that's that's the way the automotive industry works.
So you have to work through all the development step test validate your solution.
In parallel to the whole vehicle platform being developed and then they launch it.
But.
We remain very positive about this and where we think we have a.
A very.
Say high customer value solution.
And it's also technically very nifty.
We are quite enthusiastic alright sounds promising.
One last question two to Frederic.
There's been a lot of macro uncertainties, both regarding like inflation and also a big FX movements.
Does this impact your business in any way or and if so how will the short term inflation.
Will not impact us we had secured.
Inventory to produce <unk> of course, we can perhaps see bigger push next year for employees, let's say that inflation is high and the.
Salary racer, so but.
Overall I don't think that is the main issue, but we can see a main impact is in the currency effect because our.
Our cost base is.
Basically in sick in Swedish krona.
The circus weakened and we consolidate it into dollars, where we get the lower cost base.
So that is the main alright, so basically that your your cash which is in the U S dollar start with last a bit longer.
Alright, and so that's all questions.
That I have and so now let's see if we have it.
Ma'am.
We don't seem to have any other questions from external analyst as of now.
No.
Okay.
That concludes this.
<unk> Q2 conference call.
Thank you all for watching.
Thank you. Thank you.
Okay.
Okay.
Yes.