Neonode, Inc. Q3 FY2022 earnings call

• Business strategy combines technology licensing and product sales. Technology licensing targets printer and automotive markets with zForce (infrared technology for touch, gesture sensing, etc.) and MultiSensing (camera-based scene analysis for driver and in-cabin monitoring). Product business focuses on touch sensor modules (TSMs) for elevator and interactive kiosk customers, aiming to sell as standard products with potential for adaptation services.
• In elevators, MAD elevator in Canada, Dewhurst in the U.K., and Finetek in South Korea are partners. MAD uses TSMs for contactless touch in elevator control panels, with both retrofit and new equipment sales. Other elevator OEMs in Asia, Europe, etc., are using holographic display-based solutions with TSM integration.
• In interactive kiosks, projects like with 7-Eleven Japan for self-checkout are progressing positively. Other examples include holographic point-of-sales payment systems with partners ASKA and Holo Industries, and virtual keyless keyboards from German partner HY-LINE using TSMs.
• Upcoming event: Japan Build Expo in Tokyo in early December, where Neonode is showcasing 15 products with customers and partners, including holographic display products and TSM applications in various fields.

Revenues for the third quarter were $1.2 million, an increase of 26% compared to the same quarter last year. License revenues recovered mainly due to more volumes from license customers in the printer and automotive market. Products revenue was $155,000, a slight recovery with a 14% increase compared to the same quarter last year. Gross profit and gross margin for Q3 2022 was 48%, an increase of 20 percentage points compared to the same quarter last year but decreased from previous quarters due to product mix. Operating expenses for Q3 2022 were $2.1 million, a decrease of 22% compared to the same quarter last year. Net loss for Q3 2022 was $0.8 million, compared to $1.7 million in the same quarter last year, due to increased revenues and decreased costs. Cash used in operating activities was $0.5 million, a decrease of 69% compared to the same quarter last year.

• Expect gross margin for products in the fourth quarter to increase again due to favorable product mix from current customer orders. - Management is optimistic about the trend in the third quarter and expects good results in the fourth quarter, with the trend continuing into the next year.

• COVID-19 pandemic lockdowns, especially in China, affecting business. - Semiconductor shortage and other supply chain issues impacting automotive and printer customers. - Long sales cycles and product development/launch cycles for large customers like leading elevator OEMs, holding back progress.

Q: Is the progress mostly from new customers or existing customers placing orders?

A: It's a mixture of both. Some existing customers who had previous orders for evaluation or small ramp-up orders stopped during the preceding 12 months and have now come back. For example, one of the top 10 elevator companies has come back actively to start promoting and scaling up.

Q: How long can the inventory built up in the first half of 2020 be sustained?

A: It can be sustained for about 18-24 months. Some components were bought in very high numbers, but TSMs use a certain amount per unit, and there are plans for a second source production partner to share components.

Q: About OpEx reduction, how much is due to currency effect and cost consciousness?

A: Cost consciousness is part of it, but a lot is due to favorable currency effects. It's a combination of being cost conscious and the currency development being favorable.