Neonode, Inc. Q1 FY2022 earnings call

Business Vision and Model

• Vision: Transform human-machine interaction with touch, gesture sensing, and scene analysis solutions.
• Business Model: Two pillars - licensing (zForce and MultiSensing platforms) and product sales (TSMs for contactless touch).

Platforms

• zForce: IP platform with over 85 million licenses sold, underpinning TSMs.
• MultiSensing: AI platform for scene analysis, driver monitoring, and retail analytics.

Business Development

• Ongoing engagements with automotive OEMs, Tier 1s, avionics companies, and printer manufacturers.

Product Business

• Targets elevator and kiosk segments with TSMs for contactless touch applications.
• Expanded partner network in Asia, Europe, and North America, including distributors and value-added resellers.

Segment Progress

• Elevator segment: Secured businesses with companies like Finetek and is in discussions with multiple OEMs.
• Kiosk segment: Secured businesses with various manufacturers, with significant opportunities in APAC, EMEA, and North America.

Total revenues for the first quarter of 2022 were $1.3 million, a 21% decrease from the same period in 2021. License revenues were $1.1 million in Q1 2022, down from $1.3 million in Q1 2021, primarily due to component shortages in printer and automotive markets from COVID-19. Product revenues in Q1 2022 were $147,000, an increase of 20% compared to the previous quarter. The gross margin of products was 65% for Q1 2022, a 41 percentage point increase from the same period last year. Adjusted for TSMs, the gross margin was 62%. Operating expenses for Q1 2022 decreased by 12% compared to Q1 2021 due to lower professional fees and depreciation and amortization.

Indirect effects of COVID-19 lockdowns and semiconductor supply chain issues are slightly slowing growth. However, the trend is positive. Suppliers are managing semiconductor supply, and customers will receive needed ASICs. Expect positive feedback from automotive, elevator, and kiosk projects throughout the year.

• Indirect impacts from COVID-19 lockdowns affecting sales and development.
• Semiconductor supply chain strain impacting customers.
• Geopolitical uncertainties (e.g., Ukraine war) and general economic conditions causing indirect effects on customers.

Q: Elaborate on progress of key product projects (7-Eleven, elevator OEM, sushi chain).

A: The elevator OEM is rolling out solutions, 7-Eleven Japan is positive about their rollout, and a major sushi chain has installed self-service kiosks with the technology.

Q: View on potential revenue ramp-up in 2022.

A: Indirect effects slow growth slightly, but the trend is positive; suppliers are managing semiconductor supply to ensure customers get needed components.

Q: Customer activity and interest since Q4.

A: Positive pipeline with broad opportunities; expecting feedback from automotive, elevator, and kiosk projects during the year.

Q: Input costs and pricing ability.

A: Pronode has secured components and improved pricing strategy; indirect effects on customers due to raw material and component cost increases.

Q: Drivers of gross margin improvement.

A: Cost reviews, price list increases, and cleaning up onetime effects to achieve more stable gross margins.