Neonode Inc. (NEON) Q1 2023 Earnings Call Transcript

Neonode Inc. (NASDAQ:NEON) Q1 2023 Earnings Conference Call May 11, 2023 10:00 AM ET

Company Participants

Urban Forssell – Chief Executive Officer

Fredrik Nihlen – Chief Financial Officer

Conference Call Participants

Jesper Von Koch – Redeye

Jesper Von Koch

Hi and welcome to the Neonode Q1 2023 Earnings Call. We will start today by an accompanying presentation by the company, followed by a presentation of the Q1 results. After that, we will continue with a Q&A session in the end. So with that said, I welcome on stage the company’s CEO, Urban Forssell. Welcome.

Urban Forssell

Thank you, Jesper. And also from my side welcome to our Q1 earnings call. Today’s call will be managed by me and our CFO, Fredrik Nihlen. And before we start the company presentation and the main content of this call, let me go through a legal disclaimer with you. So please read the text shown on the screen and I will summarize it here.

This presentation contains and related oral and written statements of Neonode Inc, the company and its management may contain forward-looking statements. Forward-looking statements include information about current expectations, strategy plans, potential financial performance or future events. They may also include statements about market opportunity and sales growth, financial results, use of cash, product development and introduction, regulatory matters and sales efforts. Forward-looking statements are based on assumptions, expectations and information available to the company and its management and involve a number of known and unknown risks, uncertainties and other factors that may cause the company’s actual results, levels of activity, performance or achievements to be materially different from any expressed or implied by these forward-looking statements.

Prospective investors are advised to carefully consider these various risks, uncertainties and other factors. Any forward-looking statements included in this presentation are made as of today’s date. The company and its management undertake no duty to update or revise forward-looking statements. This presentation has been prepared by the company based on its own information as well as information from public sources. Certain of the information contained herein may be derived from information provided by industry sources. The company believes such information is accurate and that the sources from which it has been obtained are reliable. However, the company has not independently verified such information and cannot guarantee the accuracy of such information.

Thank you for your patience. And with this, I would like to go through a fairly brief agenda today. I will next give a summary of the key points for the quarter. After which, I will give the word to Fredrik who will go through the Q1 financial results. After his presentation, I will come back and share some brief business updates. And after this, we go to the Q&A, which Jesper will lead from stage here.

So a summary of key points for Q1. Our licensing revenues were stable in the first quarter. And we conclude by this, that the worldwide semiconductor supply shortage situation has begun to improve. Several of our customers have been hampered by lack of semiconductors and other supply issues during the last 2 years, and this situation is now starting to improve. Also, our printer and automotive customer sales have stabilized. So in turn, our license volumes and our license revenues are on a good level and stable compared to previous quarters. Product sales in Q1, was below our targets. We regret it, but that’s just the fact. So we’ve had a slow start of the year. And we see in many markets that indeed, after the Christmas holidays and the Chinese New Year in many markets, the businesses were slow. And in our case also, Q1 product sales is held back by the fact that some of our key customers stocked up a lot of products in the end of last year. So they were sitting on high inventory levels after the fourth quarter of last year.

Third point, we continue to execute on our strategy. And the focus is to establish beachheads in the key segments that we have identified, and I will elaborate more on that later. So no major deviation or change in strategy. We continue to execute on our strategy and the plans we have laid for the year. We are recruiting currently to add talent and experience to our sales and engineering teams, and I’m glad to say that the market for recruiting new talent is quite good right now, both in Sweden and also internationally. So we have made some strong recruitments recently, that we are very glad to bring on board in the team. So these were the four key points I wanted to highlight here at the beginning of the presentation. And now without further ado, I give the word to Fredrik who will come up here and go through the Q1 financial results.

Fredrik Nihlen

Thank you, Urban. I will do a summary of the financial results in this presentation. You can find more details in our 10-Q and earnings release. Total revenues for Q1 2023 reached SEK1.3 million. That is a decrease of 5% compared to the same period last year. License revenue reached SEK1.1 million. That is an increase of 4% compared to last year. As Urban said, the issue with semiconductor shortages within – for our customers within automotive and printer has been improved and so has our revenues. Revenue from products was $0.1 million, a decrease of 31% year-on-year. Q1 is a slow quarter for us, but we are also – the customers we have, have also stocked up, as Urban said, in Q4 2022 when we delivered TSM student.

Gross margin, Q1 2023 for products was 54%. It’s a decrease of 11 percentage points compared to the same period last year. The gross margin for products varies with the product mix, but we think the level is quite good. Operating expenses was NOK2.8 million in Q1 2023. It’s an increase of 5% compared to the same period last year. It is mainly an increase in professional fees. Net cash burn for operating activities in Q1 2023 decreased with 25% and reached NOK1.7 million. It is a combination of that we have bought less components and is offset by higher accounts receivable due to customer – the timing of customer payments. So as of 31st of March 2023, we have quite a good cash and accounts receivable balance of NOK22.9 million. It’s an increase of $6.7 million from year-end 2022. And as we disclosed in the previous earnings call, we used the ATM in January.

And with that, I will leave the word back to you, Urban.

Urban Forssell

Thank you, Fredrik. And of course, as usual, you find our detailed earnings release on our website and also through the EDGAR system at the SEC. Excuse me. Next, a brief business update. And in passing, I will just mention that our vision is to transform the way humans and machines interact. We do this by licensing technology and selling sensor products. In our licensing business, we focus on printer customers and automotive customers in our products business. We focus on elevator and interactive kiosk customers. Our key application areas that we work in, they are mainly driven in cabin monitoring. We also work on object detection, in particular application for head-up displays, where we can prove that our solution to detect objects sitting on top of the head-up display is very, very efficient, also cost-efficient and in general, a good alternative for OEMs scaling up now and putting more emphasis on head-up displays.

We also continue to work on touch and gesture sensing. And right now, a lot of focus is on rugged touch applications where customers have special requirements for their touch features and, for instance, require that the users can operate these using gloves, even thick working gloves or similar. In our products business, we mainly talk about contactless touch today, and this comes in our case, in two flavors. – touchless touch on displays and in front of keypads, keyboards, etcetera, and the other one that we call holographic touch. So making holographic display images interactive. And for this, our sensor products are ideal. Also here, and I will show an example soon. We work on rugged touch and gesture sensing.

So what we can summarize regarding applications is that Neonode continues to work a lot in the human interaction area, HMI, but also in the last year, as we have mentioned in several earnings calls before, we also work heavily now in machine perception. Camera-based software solutions to detect and track humans in video streams. And this underpins, of course, the driver and monitoring offer, driving an in-cabin monitoring offering that we have. And speaking of this, we are increasing our focus on this. We have great feedback from several customers. We are currently working with a major OEM, and we hope that we can present important news there later this year. And we also have relations and ongoing work together with a couple of Tier 1 suppliers. And what we focus on and what we can offer that may stand out from competition is a very scalable and flexible software platform that really targets on the scalability of these features in the vehicles.

The first and also the current wave of RFQs coming out focus on driver monitoring. And indeed, we can solve that problem very efficiently as well. But right now, the strength in our offering is a lot that it scales well to other types of in-cabin monitoring applications and the requirements that follow from them. They can be safety features or other types of features that the OEM customers or the Tier 1 customers want to realize. And for this, our software platform is ideal. So a lot of focus here. And going forward, we will increase efforts in marketing sales and also engineering in this area, for sure.

I mentioned before about rugged touch here as an example of a recent product launch by Structube a Swedish company doing taxi meters, – we have been working with them before, but end of last year, they launched a new product line for taxi meters, sort of state-of-the-art works really, really well, and it incorporates our infrared touch technology for their – for their products here, well received and we have a good cooperation with Structube, and that we hope to scale this up also going forward. And just one example about contactless touch and that this is spreading slowly, but steadily. Here is an example of a recent implementation at Clarges, luxury hotel in London, super-nice hotels that you now can operate without touching anything. So, you can go to your desired floor, but with the wave of the hand or the finger. So, please go there and also check for our marketing communication around this is some very nice pictures and content around this as well.

And speaking of marketing, I want to illustrate by this little picture. This is a snapshot from our so-called Imagine Video, and you find it on our YouTube channel, you see the link at the bottom of the picture. But we continue to do a lot in digital marketing, different types of campaigns in social media and other channels, but also content production, both still media and live media in terms of videos and interviews and similar. So, a lot of focus is being put into this, and we continue to scale up and invest in our marketing activities.

Compared to, say, 2 years ago, we are also much more active in physical events. And of course, it has to do with travel restrictions and lockdowns being lifted, for instance, in China, but also in other parts of the world. So, in Q1, we visited a number of different events, both in Asia, Europe and North America. And of course, here is an example where we use our sector-based marketing approach. So, the events that we are targeting, of course, are closely related to our key segments that we want to penetrate, elevate our interactive kiosks for our products business and automotive events and maybe some other electronics events for licensing. In Q2, we have a number of events coming up in June. And for the second half of the year, we also have a number of events. And we have already started to prepare for the CES show and the NRF show in January over in the U.S. So, if you have a chance, please come and visit us at these events, and we will help you to introduce you to our technology and to our company.

And with this, we are quickly at the bottom of the presentation. And I thank you for your attention, and I invite Jesper up for a short Q&A session.

Question-and-Answer Session

Q – Jesper Von Koch

Perfect. Thank you so much for that presentation. And so we will move into the Q&A and first, regarding your – you say that you are now working with an OEM that you can’t really mention my name and so on in the automotive industry. But do you work directly with this OEM customer, or is it always through the Tier 1s?

Urban Forssell

That’s a very good question. And in this case, we actually work directly. And I think that’s a trend we – it’s been going on for several years, as you know. But nowadays, the trend of software-defined vehicles and also the vehicle manufacturers wanting to have control over the software features in the vehicle is very apparent. So, in this case, it seems that this group, it’s a group of companies. They have chosen to separate the hardware sourcing and they have a special idea for the hardware. And then now they are looking for software content and seems to be quite happy with our offering. So, in this case, yes, we are working directly. But of course, in other cases, it will go through the Tier 1 supplier. And indeed, we have also some interesting discussions on the Tier 1 side here. And for us, being a small company, it would be great to team up with one or two of the Tier 1s because obviously, they have better relations and they have also resources to support different customers in parallel.

Jesper Von Koch

And is it any specific market of the OEMs or so on that you target?

Urban Forssell

Yes, it is. I will not disclose it here, but we have a specific plan and a target that we continue to follow and work on this. I can share being headquartered here in Stockholm, Sweden. Of course, we look primarily in Europe in the first place and maybe second, North America and Asia third. So, that gives you some idea of where we are working.

Jesper Von Koch

Alright. And then if you could just give an update on some of your largest accounts in the products business, where they are at and what we should expect?

Urban Forssell

Yes. So, the products business is probably something completely different from the licensing business as we have tried to explain in previous earnings calls and so on. We are here working with just a large number of customers, and we sell a standard product. And – of course, we are working to win bigger and bigger orders. But at this point, even if the customer can be a very, very large customer, we get fairly small or medium-sized order volumes from them. So, that means that in several cases, Rolex is ongoing or hasn’t been ongoing for a while, but it’s sort of – they move slowly, slowly but steadily, you can say. So, what can be expected is that this trend continues, that slowly, but steadily, we increased this business quarter-by-quarter and year-by-year. But we cannot expect and you should not expect either that there will be this one or two that will totally change everything. Although you can hope for that, we see in practice more that it’s going to be more hard work and you put the bricks on top and eventually, you have built actually a quite nice house. So, we are still building this, and we think we are on the right track, but of course, we want to push this and accelerate. And that’s why we are making some different adjustments to the organization, to the strategy, and we continue to push in our marketing. And remember, we also work a lot with partners and a lot of the marketing that we do is through partners or with partners. But it can probably never be enough, so we continue to push, push, push.

Jesper Von Koch

Alright. I don’t have any more questions for today. So, that concludes today’s presentation.