Q3 2022 Neonode Inc Earnings Call
Cash.
Used in operating activities was <unk> 5 million that is a decrease of six 9% compared to the same quarter last year.
This is due to an effect.
From currencies on inventory and also a.
Reduced net loss.
The first half of 2022, we purchased components to secure to the production of T. S amps.
And that affected our cash flow heavily for the third quarter, we have not purchased.
Components to the same extent.
Cash and accounts receivable.
Decreased with $1 2 million for Q3 2022.
As compared with $2 seven for Q2 and Q2 two four for Q1.
And with that I will leave the word back to you again.
Thank you Fredrik.
Moving on.
Next point and the agenda is our strategy and business update.
And for those of you that haven't followed us in the last year or so just wanted to underline and explain our overall business strategy to combine technology licensing and product sales.
If you start with technology licensing, we illustrate that in the left part of this slide.
Yeah.
Address the printer and automotive markets, mainly today with our offerings.
We license two technology platforms, one we call <unk>, which is based on infra red the technology and suitable for different types of applications as I've explained shortly and multi sensing which is a camera based athene.
As seen analysis technology.
The business model, we apply here is to combine sales of engineering services, and Ari nonrecurring engineering services and technology licensing or software licensing.
And the other part of our business that we internally refer to as our products business.
We sell.
Products that we call touch sensor modules or TSMC for short.
They are a particular realization of our <unk> technology platform.
And these are ideal for use for touch contactless touch gesture sensing applications on similar here, we mainly today target elevate their customers and the customers within the interactive kiosks segment.
And the main.
Revenue opportunity for us is to sell these products.
Standard products.
So some opportunity to sell adaptation services or NRI in this case, which we have used in the last couple of years and we hope that we can expand on going forward.
Regarding C force to understand what this platform is and what it can be used for we have just concluded one simple slide today.
This is a very.
Proven and Battle hardened technology platform featured in the close to 90 million products from leading printer manufacturers automotive suppliers and all the other customers.
Can be used for touch on both display and other surfaces.
You're sensing midair.
Contactless touch or object detection.
Today, we are trying to revive this business and we mainly target the high volume automotive markets with this technology platform and the two.
Application areas, where we focus the most today is head up display object detection.
Illustrated on this background picture here.
Uh huh.
Head up displays are becoming more and more common in especially in premium vehicles, and we will see more of them also in.
Normal vehicles going forward and then it's imperative that you can detect foreign objects sitting on top of that display and hindering the projected image.
The other area, where we focus is interior controls both on displays but also on other surfaces.
Glass or other <unk>.
Theory of panels.
Multi something.
Software framework for.
<unk> seen analysis using camera inputs.
Here in the automotive context.
The focus is driving an in cabin monitoring.
Multi sensing is a flexible and scalable platform, it's hardware agnostic as minimal hardware footprint and works with are also low cost cameras, which gives us an edge over most competitors today also since it's scalable and prepared.
To support lifetime updates in the vehicles using over the air updates or by other means.
We have got quite some interest from a vehicle Oems and tier ones for this platform that we are trying to capitalize on and grow this business.
The touch sensor modules or the T. S. EMS they are standardized commercial off the shelf products.
And that's why I mentioned its features are.
The <unk> technology in particular, the reflective variant of this technology.
These are.
Standard electronic module set the offer and different lengths, we produce them in our own factoring in the west of Sweden.
And we ship to distributors to value added resellers and customers worldwide.
Today.
Going back on the.
Expanding a little bit on our business strategy.
And we have in previous earnings calls explained our growth strategy and we are refining this continuously and today I saw some to share an update of this growth strategy.
In three simple steps.
What we have been doing and we are still doing in some cases is to try to establish beachheads in.
Certain key markets and segments.
We are also working actively with POC or proof of concept projects or other demo projects to show the value of our technology. This applies both for our licensing business and our products business.
Today, we are at the state, where I can say and I have a show examples that we have established beachheads in the elevator and interactive kiosks segments for our TSM products and in particular when it comes to contact let's touch applications.
In other cases, we are still working really to secure a stable beachheads.
So the status today for our licensing business is more of that we are still working here to establish a solid beachhead, whereas in the products business, we are actually already.
Also some time working to scale this business.
So in the products business.
You can look at in the center pillar here on the bullet number to that.
Today and going forward, we are trying to scale this business aggressively but doing this in.
Selected key markets and also narrowing down and.
Focusing also efforts on key sub segments in the interactive kiosk industry and also elevators.
For our licensing business the <unk>.
<unk> step is to simply add more customer projects.
Two the first one is that we're working on today.
Yeah.
So you know you that have followed us the last couple of years.
We follow a strategy, where we combine direct sales with indirect sales through distributors and value added resellers and also other partners.
To scale up and accelerate our growth we still believe it's a good method to combine direct sales with indirect sales through these partners.
As a fairly small company with a global market opportunity. This is.
In practice, the only way we can scale this fast and.
Also as explained before in earlier earnings calls and in other presentations.
As a western company based in Sweden and U S.
And working in many.
ACM markets like Japan, Korea, China, and so on it's actually almost necessary to open up doors using local partners in many of these markets.
We also have a clear.
Site, where we want to go once we are up to speed and so on and this is simply to expand to more segments and more geographical markets.
But today, what we're doing is really focusing on the step one and two and trying to be very very focused and this all size are cost conscious approach.
While at the same time, we believe very much in the potential we are conscious about the cost on our cash flow and we are trying to balance. This today and the key focus and we have been focused and we will be even more focused.
The place our bets where the.
The chances are highest that we can accelerate in the coming quarters.
To illustrate some of this.
<unk> strategy and the points that claim that we have.
Made I want to show some examples.
From elevator I want today to focus on Mad elevator, our customer and partner in Canada.
There are well known.
Supplier of elevator control panels, they address both the OEM market and aftermarket.
Today, two of the leading top town elevate their Oems use mad elevators control panels in their standard offerings.
Both for aftermarket and new equipment.
In addition, mad elevator.
It is also offering their solutions on the North American aftermarket.
And have.
What I see.
They are building momentum in this aftermarket business.
And besides Matt elevator, we're working with similar companies one in the UK called you Hurst.
And in South Korea, our partner Fintech is playing a similar.
Game, there with both our OEM relationships and aftermarket sales.
So this is one example, and.
The approach that's Mad elevators, taking is this one that we have called in neo node. The parallel plane approach you use our TSM to project an invisible.
Texture on the field in front of the normal elevator buttons.
And the menu reached out with your finger touch a button you activate that.
Half an inch or so before the finger reaches the button.
It's very intuitive, it's very quick and everyone can use it and like shown here in this picture still for blind people you preserve the braille text, which is legal requirement in many markets.
And you can retrofit this and you can also install it in new elevators. The same type of solutions matter have developed some different offerings and the same we see with other customers and partners. So both retrofit and new equipment sales and <unk>.
It's a very very nice solution.
Further with elevators, we have several companies, especially in the Asian countries, Japan, Korea and China.
That's have developed different whole call and elevate the control panel solutions based on holographic displays.
Show Here. One example, a Chinese company GSR and this example shows a typical whole call module.
Where are you at the entrance floor, maybe or any floor you would call on the elevator and you in this case U S.
Enter the floor number that you want to go to and then use simpler step into the elevator.
Similar solutions of course are applied inside the elevated to cars and we have many examples of other companies doing this as mentioned.
Both in Japan, Korea, and China, and we have some companies in Canada and also in Europe offering similar solutions based on holographic or other technologies.
And this is both for new equipment, new elevators, and new installations, but also retrofit.
And many elevators live 50, if not.
More years.
And they are on a regular basis upgraded and refurbished refitted and every time, an elevator or a building, it's refurbished and and so on there is an opportunity for us and our partners to step in where the retrofits.
And the good thing with elevators is that retrofit module that you typically install.
The same module you can use in the new elevators. So it's very standardized this way.
So we think we have a solid beachhead in elevators actually globally today.
Today, we have.
Four of the top 10 elevator Oems.
Working with our technology and offering this to.
New epic new equipment customers on aftermarket customers. We also have some midsized OEM <unk>.
Customers and we have several.
A control panel and button companies offering modules without technology integrated.
Regarding interactive kiosk.
Retail and self checkout stations like this one project with the 711, Japan that I reported about in the earlier earnings call that project is progressing.
Feedback continues to be very very positive both from 711, and Japan, the shop owners and the users.
Very positive it's looking very good we are placing a lot of hopes to this not least because the 711 Brown is strongest global and just recently, we have established context two companies here in Europe .
Also working with 711, but the tech companies.
And this is now spreading in like giving a side effect. This little project that we have ongoing in Japan and.
The solution here is a holographic display combined then with a barcode reader and payment terminals. So that the interaction is very intuitive very quick simple I tried it myself when I was in Japan in June works, yes, perfectly and it's.
It's much quicker than using the normal self checkout, then certainly much quicker than using the menu checkout with the cashier. So for every reason this is what we believe is one.
Cool new feature in convenience stores and other stores for self checkout, then and.
And also other applications.
Another sub segment these point of sales terminals.
And yes to illustrate.
Took this from all of our industries webpage and they have recently released the press release that they are developing together with Africa, which also is a partner that they are developing.
<unk> holographic point of sales payment system for Mastercard, using <unk> products and.
And the same idea here is that you would predict up the image you interact with that image using our TSM.
And you have contactless payment with a car to everything is very convenient.
We think that you will see many more of these solutions.
Two years ago, we presented in another earnings call.
A similar solution developed by a Japanese company called <unk> and we also have further companies working on this type of.
Solutions.
For retail and other uses.
Regarding general kiosk application.
I wanted to show today, there's very nice product from our German partner High line, which is a virtual keyless keyboard.
Thailand has most of their customers and the industry segment.
But this little nice.
The product shows the flexibility of our TSM technology.
And obviously you can use this also.
For kiosk application indeed, when we have presented previously about.
Contactless touch four kiosks using the parallel planning approach is this approach.
You can have.
Display enormous display behind this or like they have done here.
Like a plate or any surface and project or print symbols that represent icons. So you don't need any physical keys or a display you can do it much cheaper than you can configure. It this with software only so it's very flexible and this is the way highlight is now marketing this to their customers and.
Obviously, we are glad to help them to promote this also worldwide to ship this to customers outside Europe .
A very interesting product see more on high lines website, if you're interested.
So speaking a lot about holographic displays and this parallel plane approach for contact let's touch I still want to return to our origin and that we are still.
Taking new orders from customers using our Tsm's for touch applications. This is Juan I'm.
Certain information and payment kiosks pharma company called ink aviation. They are very very proud because they have developed a range of kiosks that are very slim and take minimal space still can offer a lot of value for our customers at the airports and shopping malls and similar.
Here they use our GSM basically too.
As a retrofit to there.
Display solution offer now interaction using touch on that display.
So a very flexible you see very neat integration and <unk>.
Super Nice this product.
Similarly.
We announced recently an extension with our Swiss partner Helix.
Who is supplying.
Displays for.
MRI systems and X Ray systems, it's a range of products used by a leading.
Med Tech OEM.
Ah in five different products I believe it's two or three X ray systems, and the two or three MRI systems that use the same type of display arrangement in different sizes.
The point here was that.
Doctors or nurses need and it's even required by law in some markets. When you examine X Ray pictures or MRI picture. So you need to have a certain image quality in contrast on that picture to be able to make the correct diagnosis.
And then this med tech OEM wanted to offer a.
The interaction on the same screen.
And our solution is basically the only way to do that without interfering with the contrast brightness and resolution on the screen.
So together.
Together with helix, we have developed a retrofit solution to their original display.
That was previously passive knowledge interactive.
So very very nice example.
And this is touch and we are proud of this even though in many cases, we promote contactless touch and the boats. This shows that both are very much viable in the medical area and this is the future growth potential although we haven't really focused on at a 100% so far.
But I'm just saying that this is an area, where we think we have unused potential and we will also.
Increase our focus on this going forward.
We are still affected.
Affected by effects of Covid, but thankfully more and more countries are more or less back to normal you can travel you can visit customers and we are trying to do that more and more now it's a little bit unusual because the previous two years being basically impossible to try to meet people face to face, but we are doing more and more events.
We're also continuing in parallel to do.
Online advertising and marketing campaigns, using digital means and different channels.
That's the overview of certain events, we have visited recently and some that we will join shortly.
Uh huh.
In closing I would like to highlight this one as an upcoming event called Japan build Expo in Tokyo in the beginning of December .
This is a picture of the booths, we will we will have at that show.
This is a.
A joint project with our three Japanese value added reseller Smith of techno next electronics in global electronics.
We also have invited and got strong support from our Tech partners ask a three D and the parity innovation. These two companies.
They develop.
And produce and sell plates for holographic displays they are actually competitors, but we are working with both and they are joining us both together on this show also joining us in our booth and separately is eight different Japanese and international companies.
Including large corporations like Maxell, Papa J D I and a medium sized companies.
Next to them in total we are showing here with our customers and partners in Japan 15 different products.
Most of them are holographic display products, but we also have some other showing how to use our tsm's for contactless touch interaction.
For instance building entry systems.
As I mentioned before Pos system self checkout system inflammation kiosks.
And elevator control panels.
Some different variations to the technology on the application, but it shows.
A very strong statement that this technology is reliable we have strong backing by major players like Maxell hosted then J D I.
Candour koegel.
And we are very happy to be on this show together with them and of course around this in Japan and internationally, both we and these customers and our partners are trying to spin this and use this as a showcase going forward, we will do more events like this in Japan, Korea, and China, but also some in Europe and U S.
So this is a little bit a snapshot into our marketing and business development work and I hope.
You can appreciate this follow us on social media and on through our web site for regular updates on shows and other campaigns and.
Advertisements, we do because I think you will enjoy it.
It contains a lot of information.
With that we are basically.
Nearing the end of the presentation.
S wanted to round off.
With some concluding remarks and after this yes, we will come back up I mean have a short Q&A session.
So.
Today, we have reported the Q3 2022 financial results.
<unk> net sales revenues and net results are much improved.
Compared to the same quarter last year.
It's due to increased sales, but also our cost control cash flow.
Also much improved.
And the credit gave the main reasons for that.
Actually we have purchased during the first and second quarter a lot of components.
Stocked up and that's by necessity because some of these components suppliers require us to place big orders. So the minimum order quantity. We can order is actually quite large but now we are well stocked on.
All these components for the for the third quarter, we didn't have to buy anything but also we see effects of our cost control and currency.
That really improved cash flow this quarter.
Yeah.
Although we see light in the tunnel, we see that we have a clear break in the sort of boring trend that we saw from third quarter last year until the second quarter. This year.
So the third quarter, we have seen much higher activity level.
Even in China, where we have some significant headwinds due to lockdowns, but.
During the third quarter, we got spontaneous calls from previous and new customers and partners in China. So things are starting to move there again.
But.
I must mention this COVID-19 related Lockdowns in China. It is a problem and just yesterday I read in the in the news that in the South part of China around the Gwangju area. They have now record high Covid rates.
And they are planning to have a super strict continued lockdown so yes.
Shows that this pandemic unfortunately.
Is a serious issue in China at least in Semicon.
Semiconductor shortage and other supply chain issues.
Those are affecting some of our automotive and printer customers.
Volvo.
<unk> is one of our end customers.
And do they have reported problems and they will stop production of course that type of issues hurt our sales because if they produce less vehicles our customers.
Who are supplying these infotainment systems available they can sell less of their products.
Yeah.
Also we are little bit surprised but we are now learning how to adapt to this but both in the licensing business, where we knew that we will have long sales cycles and long development in the loan centers, but we see actually the same in the products business in some cases.
One of these leading elevator Oems that have now launched products that they have developed in house.
They are launching this now and scaling up that business.
They actually presented a fully working and nice looking prototype and spring or mid 2020.
Now two years later, they are like ready to start to launch and build up. This is a this is a fact and it's nothing we can do to change that because there's a multi it's like a fortune 200 company.
They of course have their processes for quality assurance and the launch opera.
Operations planning and so on.
But that clearly is affecting us and.
Holding us back a little bit.
As I've said before we are now focusing on scaling the business, we feel that in the products business. We have created strong beachheads in elevators and kiosks now we need to scale that up and in the licensing business.
It's more like securing the solid beachheads, and then scale up and we have promising first customers that are very positive to our technology offerings and that'd be worked very very closely to finalize evaluation projects and other development projects.
That in some time will start to generate new royalty revenues. So overall I am quite optimistic even though I can understand that some of your investors feel as its frustrating that our development has been slower than expected.
I'll admit I'm also at times, a little bit frustrated, but I'm also still.
It's still very very motivated and think that we are on the right track.
And that we are starting to see now a shift in the trend here in the third quarter.
We will present also good results in the fourth quarter and then of course, we want to continue that trend into the next year.
Thank you very much and.
Then I invite jesper back on stage for Q&A.
[music].
Perfect. Thank you very much for that presentation.
So I mean, let's start with your I mean kind of optimistic and ending words, but it seems like it's been very slow for us for quite a quite a while but now things are starting to happen.
Yeah.
Is this mostly in terms of new customers that are starting to become a interested or is it existing customers that are starting to kind of placing orders on the <unk>.
Of course it is mixed.
A mixture of both but in many cases actually we have had the.
The relationships we have had some.
Some orders from these customers, but maybe yes for evaluation or maybe a small ramp up orders.
And then some actually dropped during the preceding 12 months and then they came back now so it's a mix but.
We have to realize that when you work with for instance.
One of the top 10 elevator companies, we talk about companies with hundreds of thousands if not more employees.
Billions of U S dollars and turnover they are huge companies and they have global operations in different regions. They don't really talk to each other so there's also that issue.
And there of course cautious and watching trends in the in the market.
But what we can say now during the third quarter, we have confirmation that also.
I'd say the water Lily effect.
So one of these top actually top five elevator Oems came back now they have evaluated acknowledging they have also offered it before but little bit passively.
Now they they said that they want to actively start to promote this and scale up.
And I believe that this is also because they are seeing what other competitors are doing.
And this is a slowly but steadily effect that we have been.
Of course prepared for and working for but.
I agree it is taking a little bit longer than I expected, but I strongly think we are on the right track here and that this is now the basis to scale now seriously in the coming couple of years.
Yes.
As you as you mentioned there previously you have in the first half of 2022, you built up quite an inventory of $4 3 million U S dollars.
So I mean, how far along in Canada can you stock that Ah I mean of course, you can stuck at for a long time, but when do you expect it to be reduced by producing to sales.
Yeah.
Probably.
The next year or say 24 months, we have enough stock. So some of these minimum order quantities I referred to before they are like $10 million or 50 million obvious single component now are tsm's use up to 53 per TSM.
So there is also a ratio of how quickly the consume this.
But yes, we have been forced to buy a certain not all but certain components in very very high numbers and on the other hand now we have them.
They can be stocked and we can also and I mentioned that in the future. We are looking to have a second source production partner.
We can of course share some of our components with that production partner.
As part of the commercial agreement so.
It's on our balance sheet I don't see that as a big liability. It's like we have it at cost cash flow in the first and second quarter. This year, but now we have it and we will consume it in the coming say 18 24 months.
Good and then also I mean, you you went into some of the the elevator Oems as.
As customers and their progress.
Could you mention anything about any other of your largest customer contracts that you see in a tendency towards moving into larger volumes.
Yeah. The so elevator I would say we are.
Solidly in a beachhead situations, we are scaling and this is looking quite good both in Japan, Korea, China, and Europe , and so there's a lot of things going on there interactive kiosk you must understand that that segment is much more fragmentized from this from the beginning.
So many of the players.
They are regional or national and their products are also sort of fragmented. So they have a number of different kiosks and they can look even if it is a big one of the big companies Global companies. They will have one product in Japan, another one in France, and the third one in Canada, and it's still branded in the same way.
So that's why.
We are seeing like its more diverse.
But we have explained before that we always see this market is a pyramid. We're at the bottom we have many small customers. They can be big corporations, but one program can be fairly small, but we need to add more of these.
It's slowly but steadily going upwards.
If I can highlight a couple of example.
One I can mention is with our partner <unk> technology and in France.
We're working with a company called Iron group, they are a leading provider of kiosks for passport controls identity controls and similar.
There is one area, where we have quite good hopes.
Retail.
Self checkout point of sale.
Similar to this 711 project in Japan, several such projects, both in Asia, and Europe and some in U S.
Also this Mastercard project could pan out and then it's like a pass again.
So there is some.
Our retail self checkout Pos maybe transportation, we have been talking about this type of self check in and self service kiosks. There you have them.
The main drivers I think okay.
Period.
Sorry, if I could just understand it correctly it seems like.
You can grasp the.
Where you can sense like the at the upcoming volumes in in elevators, whereas you see the traction in other segments, but it's harder to quantify price, yeah, and I think what we have.
The case is that it will not be yes, one silver bullet like one.
One customer steps up and at one time orders 2 million TSMC is going to be slowly, but steadily even from these large corporations.
Today, everyone works just in time, they don't stock up on anything so they order.
They deliver or as they produce.
So more and more of this and hopefully then more orders and more frequent.
But it is definitely potential here to scale definitely.
Okay. Good and then we have one.
One other question from one of the other analysts.
So it's.
Okay.
Okay and that's the that's about the the Opex.
And I mean that was reduced from $2 8 million in the in the quarter and down to $2 1 million. So how much of that was currency effect and how much is more of you being a cost conscious.
Well cost conscience is a piece of it but also we have had a development in currencies that is favorable for us. So of course in all of it is currency effect, but it is also that we are cost conscious and we save costs and do things with purpose.
Okay.
Good and then.
It doesn't seem like we have any other questions from from the other analysts.
So with that said I. Thank you very much for this conference call and wish you. Good luck. Thank you. Thank you.
Okay.
Okay.
Yeah.