Neonode Inc.

everyone thank you for standing by and welcome to Neonose fourth quarter and full year 2021 earnings conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session with the company's covering analyst to ask a question please press the star then the number one on your telephone keypad if you would like to withdraw your question please press the pound key thank you at this time For opening remarks and introductions, I would like to turn the call over to David Brunson, Neonodes Head of Investor Relations. David, please go ahead and start the conference.

Welcome and thank you for joining us. On today's call, we will review our fourth quarter and full year 2021 financial results and provide a corporate update. Our update will include details of our business strategies, customer activities, and other items of interest. On today's call is our CEO, Urban Forsell, our CFO, Frederick Nyland, and our Director of Marketing, Alana Gordon. Frederick will present the financial results of the company for the fourth quarter and full year 2021. Urban will comment on overall strategies, customer activities, and other market opportunities. Alana will give insights into the work we do to strengthen our brand, create demand for our products and solutions to grow our sales. Before we continue this presentation, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee future performance that may involve or be subject to risks, uncertainty, and other factors that may affect Neonode's business, financial position, and other operating results. Such risks, which include but are not limited to the risk factors and other qualifications contained in Neonode's annual report on 10-K, quarterly reports on 10-Q, and other reports filed by Neonode with the SEC, to which your attention is directed. Therefore, actual outcome and results may differ materially from what is expected or implied by these forward-looking statements, even though it expressly disclaims any intent or objection or obligation to update these forward-looking statements. I will now give the presentation over to Urban, who will describe the highlights of today's presentations. Urban, please go ahead.

Thank you, Dave, and welcome to this call also from my side. Highlights of today's presentation. Like many companies, we experienced continuing headwinds during the fourth quarter due to the COVID-19 pandemic. Lockdowns and travel restrictions slowed our sales and hindered our business development work. Several of our customers also had to navigate supply chain challenges due to lack of semiconductor components, which also affected our sales negatively. Some of these issues started to diminish at the end of the year and our life and revenues rebounded nicely. We also grew our sales pipeline with several new interesting opportunities in all three regions we are active in, APAC, UMEA and Americas. We continue to navigate the challenges the pandemic brings with a focus on growing our business and work relentlessly with continued improvements in all areas of the business to strengthen our competitiveness. We feel we are very very well positioned to grow our product business and also to revitalize and grow our MRE and licensing business during 2022 and the years to come. Elena and I will return to these topics later in the presentation. And now without further ado, I'll give the word to Fredrik who will present the financial results for the fourth quarter and the full year 2021. Fredrik, please go ahead.

Thank you, Urban. You can find our fourth quarter and fourth year 2021 earnings release and 10K with the details of our financial performance during the year 2021 available for download from the investor section on our website, neil.com. In the interest of time, I will only summarize the key points here. Our total revenue for 2021 reached 5.8 million. That is a decrease of 3% compared to 2020. Product revenues for 2021 was 1 million, an increase of 1% compared to 2020. During the second half of 2020 and continuing into the first half of 2021, we saw a positive trend for revenues. In the second half of 2021, we experienced a slowdown in sales, primarily due to global supply chain constraints. and more specifically, semiconductor component shortages affecting our customers within the printer and automotive markets. The slowdown in sales was also an effect of the strict lockdowns imposed by the government in several countries where they were active. For instance, Japan, Korea, and China. On a positive note, our license revenues rebounded in the fourth quarter of 2020, leading to an increase in license revenue of 4% to the year 2021 compared to 2020. Our gross margin for college was 4% for 2021, which is a decrease from last year of 13 percentage points. The gross margin was heavily impacted by one-time effects in the fourth quarter of 2021. The one-time effects consists of write-downs of our remaining inventory and lost revenues and extra costs due to a quality issue related to our TSM. The quality issue is now resolved and the relationship to the affected customers have been restored, which is proven by new purchase orders that we have received from these customers. If we look at the gross profit and gross margins only for TSM and not just for the one-time effect you can see a positive trend for the gross margin, with 52% in the fourth quarter of 2021. Long term, as volumes continue to increase, we will probably see a pressure on the margin, but short and medium term, we are confident that our margins in the product business will be at the levels we saw in our adjusted gross margin during 2021. That is around 40%. Operating expenses for full-year 2021 increased with 8% compared to 2020. The operating expenses in 2020 was lower because we, during 2020, got governmental support at the same time as we introduced cost measures due to the pandemic. During 2021, we have invested in marketing and product development and also hired several new competent team members. This increased our operating expenses. but these investments are strategic and will strengthen our medium and long-term. These investments are fully in line with what we communicate with the foreign and how we intend to use the net proceeds of the registered direct offering we did in October 2021. Summaries in the outcome during the fourth quarter and full year were read at the following P&L. We had revenues of 5.8 million and operating loss of 7.1 million, and we ended up with net loss of 6.5 million for the year 2021 compared to 5.6 million in 2020. Net cash used in operating activities during 2021 was 7.7 million. Compared to 2020, net cash from operating activities has increased to 36%. The majority of the increase comes from purchase of components to secure future production of our T-Sense and increase capacity and personnel to continue delivering on the strategy and continue to create greater awareness and drive the moment where competition has touched. I will now turn the call over to Urban to give a strategy and business update.

Thank you, Fredrik. In the following slides, I will review some topics regarding strategy and also our business development work. And this is to tie back into communication we have done in earlier earnings calls and also to give insights into what we are working on day to day to improve our top line and also the net results at the end. Our vision is to transform the way humans interact with machines. When Neono developed the Neono N1 smartphone 20 years ago, we did that by removing the buttons from the mobile phones and instead introducing user interface with a touch display. We also later helped printer manufacturers and other companies to remove buttons from their products and replace them by touch display interfaces. And now we are doing this for kiosks and elevators by simply taking out touch from touch. So that's why we are talking about contactless touch, a new way of interacting with machines. So I believe this is very true to our vision and explain a little bit of a backdrop to what will follow now in the next slides. Everything we do at Neonode is focused around smart, intuitive, multimodal human-machine interaction solutions. such as touch, concept-less touch, and gesture sensing. We are also dealing with object detection. So with touch, obviously, the finger is the object that we detect, but with our technology, we can also detect other types of objects, dead objects, not fingers and hands from humans. And in some years, we're also working on camera-based scene analysis. So this sort of the technology universe that we are working on. And our two technology platforms, C-Force and MultiSensing, undertakes everything we do at Neon. And this picture, this heat map, tries to illustrate then how our strategy is focused around contactless touch for elevators and interactive kiosks, which we have communicated the last 18 months or so. We also work more and more with digital signage and similar. And this is like a neighboring segment to interactive geops, and many of our customers are actually active in both. So that's why it's very natural for us to also extend the focus a little bit to digital signage. And ultimately, this is a market segment that we have been addressing for at least 10 years, and we continue to see great interest there for our technology from different customers. So this is like a heat map showing the scope and the focus of our work, and especially in our marketing and sales work. This focus is very, very clear, as you will see from my later slides and also Elena's presentation. eFORCE is Neonode's advanced optical touch technology. This is a technology platform that consists of IT solutions and know-how around optics, electronics, special chips, and software and algorithms. So it's a true multidimensional technology platform. We have been working with this since the foundation of the company 20 years ago, and we are still refining and improving on this. We have sold over 85 million licenses of C4s to customers and automotive tier 1 customers and other customers. And some of these customers are still our top three customers, like HP, Epson, and LG. But we also have other large corporations on our customer list and further small companies that are licensing this license. B4 also underpins our touch sensor modules that we use today to grow our product business. And the touch sensor modules are ideal for elevator and kiosk applications. They work well and are very suitable for both retrofits and new installs. And we will show more examples of how the touch sensor modules can be used and the value they bring to customers. We talk a lot about contactless touch and why we think that is important. First of all, it's a new way of interacting with machines, and it follows the general trend of more contactless or touchless machine interaction. Voice control, face recognition that you have on your mobile phones, for instance, are other examples. Contactless touch is in the same category of solutions, and it has a growing focus in the industry and also among consumers. It offers a way to interact with machines without touching, and of course, that limits the transmission of pathogens, and it's also more hygienic in general, and it could be really convenient. With our particular flavor of contactless touch, we also preserve the familiar interface you have with touch displays and also, say, buttons in an elevator. where you simply are used to extending your finger and pressing the button for the right floor you want to go to. That behavior and that interface is preserved with our technology, but it's even more convenient because you don't have to press the button or touch the screen. You can also work with situations where you have gloves on your hands or you can want to point or click with other objects like a stylus pen or anything, and as mentioned, Our touch sensor modules are commercial, off-the-shelf, available, standard products, easy to use, easy to integrate, and offers great flexibility for integrators and OEM customers alike. Obviously, I like this quote. It's from Otis, the world's largest elevator OEM with headquarters in the U.S. This is from their website where they seem to say that today more than ever, elevator passengers prefer avoid touching elevator fixtures and buttons as much as possible to reduce the spread of germs and viruses. This is exactly the story they're covering and shows that also in the U.S. and among large corporations in the U.S. like Office, they are fully aware and they see the demand and the sort of pull from the end customers for new ways of interacting with elevators in this case. We have more codes like this and other testaments that we are on the right track, and it's really encouraged us to continue to push contactless touch in our TSM business. With our TSM, the touch sensor modules, you can basically go two ways to realize the contactless touch interface. We place our sensor module in front or above a display or a keypad or keyboard to create what we call a parallel cleaning solution. Our touch sensor module then projects an invisible light screen in the infrared frequency range, so it's invisible to the human eye. It's indicated here by light stripes. And if you extend your finger and interact with that two-dimensional light field, the sensor detects and positions that object very accurately and very fast. Another way to use our TSM is with holographic displays. In those applications, the trick, which is not a trick, it's obvious, you should direct and align the touch sensor module so that the interaction area overlaps the projected image that's close in mid-air. And by using our top-central models, then you can make those projected images interactive. And for instance, if you are storing a web page, you can click on the links on that web page, but only by extending your finger into mid-air. And it's a very good experience. It's actually quite cool. And I will show some examples shortly. Contactless Touch has many application areas. We are focusing on elevators and interactive kiosks. What are those applications? And here we show you just a sample. Interactive kiosks, anything from coffee machines, vending machines, ATMs, to information kiosks, to check-in kiosks at airports, self-checkout in supermarkets, and so on. And, of course, also elevators, where we focus on the elevator control panels. And we see more and more of these applications. And with our touch sensor models, I repeat, you can do both smart, easy, retrofit solutions, and you can work with OEMs and create new equipment solutions. I will next review three recent examples of how different companies are using our touch sensor modules to create compact touch interfaces for their kiosks and products. First example is from Japan, where 7-Eleven now are rolling out self-checkout kiosks with holographic displays that allows the customers to scan the product they want to buy and also pay for them through the contactless. So here's a picture trying to illustrate the holographic image that's projected from the projector below and up and floating in the air. The same window projecting up also contains the scanner to scan the barcodes on the product. And with this particular kiosk solution, you can then pay with a contactless, with your mobile phone or credit card without touching anything. And it's very compact. And 7-Eleven is now rolling this out on a wider scale throughout Japan. And obviously, we hope that the rollout will continue to other countries and eventually worldwide. Super nice application. I recommend if you Google 7-Eleven Japan and holographic, you will see a number of interesting and nice articles about this project and the rollout that's ongoing in Japan right now. And just one example of practical application on holographic displays. Next example is from Korea. Here, a company called Marchicom have developed different holographic products for elevator applications. This is the particular, if you think, floor selector in a high-rise building using the holographic display. And I believe this is like a podium that will fit in the lobby of a hotel, for instance. And before you enter into the elevator, you select the floor you want to go through with this particular product. And next, I will show a short 11-second video. So you see it in action. It's an amateur video taken by one of our salespersons, but I think you get the picture and it's quite nice to see this in action. So here you see the user. He's actually turning the knob, but the knob is just holographic in it. And if you are not standing still, you can see on the video here, you can see that it's more visible. It works really well. So those two examples of holographic displays. And I need to go back. Doesn't show. It doesn't show here. I'm sorry for that. I see it showing for you. The third example I want to review with you is from a Japanese sushi chain. We worked with a Japanese company who developed a retrofit solution for their self ordering kiosks. These kiosks have multiple purposes. You can reserve a table or a seat at the restaurant. You can order food and beverages, and you can also pay. Our sensor module in this case is inside the little holder you see just above the display on these kiosks, and they have been rolled out during the fall in over 400 or 500 restaurants across Japan. This is already out there and people are experiencing contactless touch in Japan since three, four months at least. And we hope that we see more and more of these types of applications. Retrofit and obviously holographics. We have presented in earlier earnings calls about our partner network. And we work with a hybrid go-to-market strategy where we combine sales through partners. And here's a snapshot of our current most important partners. And at the same time, in parallel, we are approaching customers and driving sales with our own salespeople around the world. We are super happy with that hybrid approach. And some of the examples I just showed are developed and happened with help from our local partners in Japan and Korea. But I also said in the third example, this is a direct customer engagement we had with a Japanese company. So it shows that we are doing both. Hence why we call it hybrid go-to-market strategy. Especially in Japan and Korea, this has been very, very good and strong and helps us actually reach new customers and tap into those markets in a way that we never could have done as a Western company. But especially the last couple of years, with all the lockdowns and restrictions for traveling and so on in these countries. We would never be where we are today without our partners. We have also recently added Sabre. I want to highlight Sabre from Singapore. Super good value-added retailer in Singapore with a great network both in Singapore and neighboring countries and Taiwan. And EIL is from Hong Kong. Similarly, in Hong Kong and China, they are very, very strong and with a good network, and also representing other manufacturers in China. So they help us penetrate the Chinese market. In Europe, I want to mention Enzeb Technology in France, a very active company helping us to grow our business in Europe and especially in France, with different types of kiosk applications underway here, and they're looking very, very promising. The valuable resellers and distributors and other partners, they not only help us drive sales, but they also do a lot of promotion, both online and in physical shows, as Elena will come back to. And it's really a win-win. They are doing this to promote their business and grow their business. And at the same time, we follow along. And obviously, if they win more businesses in their local markets, we are happy, too. So we see a lot of traffic to our website through the work that our partners are doing and vice versa. So it's really a win-win. And they help us increase awareness for our solutions and drive demand, which is very critical for us when it comes to complex tasks. This is a new type of solution, and they need to push and show how it can be done and different examples like the ones I showed before help, of course. And a lot of these type of demonstrators and product launches are being developed and launched by our partners in different local countries. Clicking to multi-sensing. Remember, this is our second technology platform next to vForce. This is a software-only platform. where we have developed advanced AI algorithms to detect and track people in video streams from cameras. So we do camera-based scene analysis, and the focus is automotive applications for driver monitoring and in-cabin monitoring or occupancy monitoring. We also look at applications in retail for analytics functions, where we see a growing interest to do smart advertisements in real time inside stores, depending on people flow, people mood, and the customer profiles that we can scan. So this is super interesting as well. And with this platform, we have another way of growing our NRE and licensing business. And it's looking quite interesting going forward also. to combine this, I must say, with our touch and gesture sensing technology key force. For instance, in smart application and smart digital science application. Our business model rests on three pillars, licensing, product sales, and MRE, MRE, non-recurring engineering. We have good chances of growing. all three in 2022 and the coming years. And we are hard at work in making this happen. And it's also looking quite promising. And we feel encouraged by the progress we are making every quarter. NRE supports our licensing business because typically licensing, for instance, look at automotive applications. Once we have secured a business, it starts with a typical application development project during two, three years, where we support our customers to develop their features and their applications. It could be both hardware and software design and testing that we help them with. And for this, we can earn actually quite substantial MRE revenues. MRE sometimes also is... possible to do with our TSM or touch sensor module business to help them create software solutions and other applications or adapt whatever products that the touch sensor module should be fitted into. But the bigger potential we see still in growing the product revenues Now, because of COVID and other issues during the second half of last year, we saw, like, a little stride away from the product sales. But we still believe that we have a great chance to, starting this year, to significantly grow that business. And with a higher average sales price for our sub-centre modules compared to a typical royalty we get from the licensing technology, We think that the biggest growth potential this year and the coming three, four years is with the product business. And we are aiming very, very high at the diagram on the right. We are also happy and working hard to see that our licensing business is about to get some new life. Our existing customers rebounded nicely and actually sold more products in the fourth quarter. Now, of course, with the crisis in Ukraine and other things happening in the world, we have to see if we are having new issues because of that. But we saw a nice rebound. And more importantly for us working in here at Neon, we said we have a huge interest today in our technology offerings from new customers, both automotive and from other industries. And that involves both Object detection, gesture sensing, and driver monitoring, for instance. So that's what we are working on. And regarding increase in the royalty revenues, it's probably some years out. But in the meantime, you can earn MRE revenues. So it's a good combination there. We are typically bound by very, very strict secrecy agreements or NDAs. So we can't disclose any details about our customers and their projects and the launches. But anyway, to give you some insights and comfort in the work we're doing to develop and grow our business, I'm sharing here snapshots of our current sales pipeline. And as you can see from the summary in the left column, we have actually quite a lot of opportunities ongoing and in elevators, for instance, we work with several integration and solutions providers worldwide. They are shipping them and creating retrofit solutions and offering them both to real estate companies and service companies and sometimes to OEM, elevator OEMs. We also work with several control panel OEMs, for instance, MAD Elevator in Canada, and Dewhurst in the UK, and our partner TimeTech in Korea is also in that business. These are three of the top 10 control panel OEMs in the world, and they have already heavily invested in and developed several products that use our touch sensor modules. And also today, we are engaged with several of the top 10 elevator OEMs. And of course, working here too, develop solutions with them and launch them in the market. And it's underway. With kiosks, we have an even broader portfolio of customers and opportunities we are working on. And that's also due to the fact that the kiosk industry is much more fragmented than elevators. But I'm glad to say that we are now with kiosks more close to several of the large kiosk OEMs in Japan, in Korea, and also in Europe and the U.S. And this is a springboard for us to significantly grow our space volumes in the years to come. And some of these ODMs are targeting to launch both retrofit solutions for their own kiosks and also do new equipment solutions. So that's a double-cut opportunity with some of these. And ODMs, I will mention this, for instance, in North America and also in Southeast Asia, We have direct engagement or indirect via partners with some major ODMs that are developing solutions, integrating our touch sensor modules into different types of products. Regarding NRE and licensing, if you look to the right, automotive stands out as still one of the most important segments that we should work in for NEO. We currently have multiple engagements with OEMs and tier ones, And for instance, related to head-up display obstruction detection, which is a very, very interesting new area that we have started to work on since mid last year. Driver monitoring, we've talked about before and we still are working and we hope to be able to announce some news there shortly. And also we see quite big interest in our gesture sensing solutions, which is now being sought after by more and more customers. And we also have other licensing and MRE opportunities with Printer OEMs, Baby Honest OEMs, and even some retail companies that want to license the technology. So overall, when we say that our sales pipeline is strengthening quarter by quarter, we really feel that and we have numbers to prove it. And we see growing sales as a result of this from this year. and into the following years and to grow further of course we are not resting here we are continuing to invest into marketing and sales again elena will share some insights into that we continue to expand our partner network and for instance in germany and the duck countries we are looking for some additional partners we are fine-tuning how we work with our partners we are trying to scale of business in the key markets in Japan, Korea. And we are increasing the focus now since mid last year on MRE and licensing opportunities, for instance, in automotive and military. And also in parallel to growing the current sales with the current products, we are developing new variants and new software and in January, February, we, for instance, released a totally new software platform. We call the Task Manager module Firmware 2.0. And some of you have seen the announcements, and there's a nice video that you can check, and you'll find it on our website and in social media. So please have a look. And with that, after my final slide today, I will turn the call over to Elena to share some insights into our marketing.

Thank you so much, Urban. It's a pleasure to be here today. So Urban has invited me here today just to give a bit of insight into the work that we've been doing here in the marketing team at Neonode. In particular, the work we're doing to position Neonode and also to develop the brand, but more specifically and talk about the work that we're doing to help build the early stage sales pipeline. So behind the scenes, we've now set up a more strategic communication framework that we're working with. So this has been based on the recent successes that we've had and also where we see future growth opportunities. It is in line with our corporate strategy, of course, so we will continue to focus on our defined application areas, which is, of course, elevators and kiosks. But now we will have more direct connection with our targeted segments. So you can see these in the top line on the slide, namely aviation, retail, hospitality, and also automotive. So this framework has allowed us to start building a much stronger brand reputation within these sectors. And it's also allowed us to have a much more concentrated communication towards our target audiences. With this framework, we also are able to be more calculated when it comes to where and to whom we distribute our content. So this allows us to get the best possible engagement from our prospective customers. So today I'll just give you a brief insight into the two sectors that are highlighted in green, aviation and automotive, just to shed some light on where we see some success with this approach. So our lead times can be quite long. So this journey that you see on the slide here started back in August last year. Basically, what we started to do was position Neonode as the go-to partner for airport solutions. So we started to create quite a lot of contact pieces and advertising showcasing our knowledge and expertise within this area. We clearly focus on kiosks, of course, but we also expanded into other opportunity areas within the aviation sector. So, for example, smart trolleys and security improvements. By focusing on the entire sector, we were also able to expand even further again and talk about the entire airport experience within itself. So, for example, talking about how we can improve the retail and restaurant experience within the terminals using contactless touch. So, as mentioned, this website has been going on since August last year, and at the beginning of this year, we shifted our focus a little bit further down the customer journey and worked more actively with lead generation. So as you can see on this slide, we started to change our focus when we came to content production, and we started publishing evidential examples of our success. So this just recently has now resulted in us receiving inbound leads from aviation customers, which is a really fantastic result. This quarter, we're trying the same journey for automotive. As Urban pointed out, this is a very important sector for NeoNode. So we have started to promote our credibility within this sector. We have 10 years of history, so we have been promoting and talking about our smart steering wheel solutions and also touchscreen solutions for entertainment screens. Soon, we'll start focusing more on the lead generation, and we will start publishing and pushing content and advertising for new opportunities that we see within this sector. So, for example, with the new in-cabin monitoring legislation, we see a great opportunity for helping the industry to comply with these new safety regulations using our technology. And also, as I mentioned with object protection, we also see an excellent opportunity for head-up displays. So, with this publication and the monitoring tools that we now have in place, we already see a notable increase in visits to our website from automotive customers. So early indications show that we're heading in the right direction with this particular approach. And my last slide is just to talk about that it's not just digital marketing that we're investing in. We're also investing in brand awareness in the real world. So we're very happy that the restrictions have started lifting around the world. So this slide is just like a few snapshots. of our team out there in the real world, raising our brand awareness and building relationships with our prospective customers and also our partners. So in the photos, you can see some pictures from the Self-Servant Innovation Summit in America and also the National Public Transportation event in France. So with that said, I will hand it back over to you, Evan. Thank you.

Thank you. And this brings us close to the end of our presentation today, and I will just round off by sharing some concluding remarks. Our TSM sales was slow during the fourth quarter, but our licensed revenues rebounded and grew slightly during the full year 2021 compared to 2020. As a result, the total full year revenues 2021 similar to the full year revenues 2020. And obviously, we are not satisfied with that. We are working here to grow the business. The pandemic continues to bring on challenges for sales and business development work. But during the fourth quarter, we nevertheless strengthened our sales pipeline and found several new interesting opportunities. Both touch on some mobile opportunities with Elevator and Kiosk customers. and interesting MRE and licensing opportunities in new customers in both automotive but also some other segments. During 2021 and the first month of 2022, we have strengthened our team with several new competent persons and improved on our product platforms. We've also invested in marketing and strengthened our ecosystems of value and resellers and other partners. Through these investments, We are well-proficient and prepared to capitalize on the growing interest for our touch sensor modules and our key technology platforms, key cores and multi-sensing. And we are eager to take on the rest of 2022 and the following years. So with that, over to you, Dave, and Q&A.

Thanks, Ervin. I'll now open the call for Q&A from our analysts. If you have any questions, please, I think you hit star 1 or something to ask the question. Thank you.

At this time, if you would like to ask a question, please press the star and 1 on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. And we will take our first question from Jasper Von Coach with a red eye. Your line is open.

Hi, guys. So, in Q3, you talked about component shortages being, dampening your licensing sales, and now you say that the supply-demand situation is more balanced. So, would you say that the current revenues from printers and automotive is at more normalized levels?

Yes, if you ask me, certainly if you asked me three weeks ago, I would answer like this. We saw actually a strong rebound and it shows immediately that the underlying market has like a stable nature and the demand for printers and automotive is like on the stable level, where it was a little bit held back in the third quarter due to lack of semiconductor components and other issues for our customers. It then rebounded nicely in the fourth quarter and actually the full year. licensing revenues were a little bit up compared to the year before. So, yes, it's stable. Now, with the Ukraine crisis and the general economic downturn that we can expect from this, we have to see. But underlying demand is stable. That's my feeling, at least.

All right. Thanks. And so you continue to be optimistic about your driver and cabin monitoring solutions, but have so far not announced any design ones there. So can you talk a little bit about the things that you see that make you optimistic?

Yeah, we continue to work on this. We are a small team, but we have some good relationships. mainly with companies here in Europe that we are exploiting. And we think that on our scale, that we can actually significantly grow this business that will help us actually grow both our top line and our bottom line in the coming years. So we continue to work on this. We are fully aware that we have competition. And for many of the big companies programs they are already nominated and won by competition but we still see several opportunities actually and this is certainly not a mature market and some OEMs have and also tier ones are telling us that they are looking for solutions that have more the properties that we can offer limited footprint very fast deployment and very controlled development cycles and we use extensively simulated data and also our algorithms are tuned and packaged in a very, very practical and smart format that supports efficient and controlled development of new features. We are also promoting this, as I mentioned in the presentation, to retail customers and exploring different use cases here that are quite interesting, where you see a lot of dynamic advertisements and smart signage applications where our technology fits very, very well also.

Okay, thanks. In your slide with the sales pipeline of licensing opportunities, you didn't show any military opportunities. So I was wondering, should this be interpreted as the previously announced large military customer already being a customer or that this opportunity has more been lost?

So I will not comment on this. Most of the customers that we are targeting here in this space, we call it military and avionics. And I will say that most of the companies are within avionics and they do both military and civilian applications. That could be cockpit displays and other types of systems that sit in the cockpit that the pilots operate. But it could also be for airlines, you know, civilian aircraft for the crew in the cabin, and also, in some cases, for the passengers. So, indeed, military aeronics is still within scope, and we still have several opportunities there. But here, if you think it's a long lead time in automotive, I can tell you that the lead times in this space with military and aeronics customers is much, much longer. So we are optimistic that in the medium-long term, we can grow this, and we still have this customer you're referring to that we did some projects with before and still one of our customers, and we continue to have a close relationship with them.

All right, good. So, and as you mentioned in the presentation, you just the other day announced the partnership with 7-Eleven Japan. So, could you talk about the current status on that project and the potential and also the timeframe that you see for this customer?

Yeah. So, I must say that... We have here supported through, actually through Nexi, our distributor and partner in Japan, together with six other companies who have developed these kiosks and are launching them on behalf of 7-Eleven Japan. Started out small. Right now they are installing these kiosks in maybe 300 kiosks. in different cities in Japan. But what we feel is that the customers, they like it. And also 7-Eleven has commented also publicly very positively about this pilot and the next step. And the potential here, for instance, with 7-Eleven in Japan is something like 20,000 convenience stores throughout Japan. And they may have multiple self-checkout kiosks. So it's a sizable opportunity just with 7-Eleven Japan. And of course, 7-Eleven is a global chain and we hope to expand. And I can say that some of the other opportunities you have with self-checkout terminals in Japan are with competitors of 7-Eleven having similar numbers of stores with each multiple self-checkout terminals. So self-checkout terminals with holographic or with other parallel plane approach is a major opportunity for NEON worldwide and we hope that this project with 7.11 and the publicity it generates will then stimulate others both in Japan and the rest of Asia and actually the rest of the world and there's a nice pickup of our press release and also other announcements and articles being written about this launch and this is a way for us to grow awareness and push things with Elaine and her team and also with our partners and their work in this area.

Good. And you mentioned some, but are there any other customers whose progress you would like to highlight, especially much for the coming quarters and so on?

Yeah, but we have built up a good momentum and I will say that I can't disclose any customer names at this point, but for instance, in Japan, we are actually engaged with four or five of the largest QOPS companies and also several elevator manufacturers. And the same in Korea and other markets, but we have started now seriously to penetrate the OEM customer base. Some of them are, as I mentioned during the presentation, they are developing in parallel, both retrofit solutions for their kiosks and elevators, but also new solutions for new equipment. And that's a major breakthrough. We are now into that phase when the big players, they see a demand and they see an opportunity for them to launch new features, new products on the market. And that will certainly help us grow the sales volumes going forward. I'm also super happy about our relationship with MC in France, and they have some very interesting projects underway, and we hope to be able to announce some of this in France and Europe very soon. And also in the US, there are some major opportunities with contract manufacturers, and we also have a special relationship with a company called Holo Industries in California. design and sell holographic displays for different types of applications, could be point-of-sales, could be hospitality applications. Some of their opportunities that they are pushing is also very, very interesting. So there's actually quite a lot of things brewing here, and we hope that we can share more news about this shortly, actually.

Okay, thanks. And about the elevator OEMs and your work, towards penetrating that space. Do they have any projections about what they're seeing in terms of penetration rates of contactless touch elevators going forward? Do they say anything?

Yeah, everyone I talk to is, of course, having their own opinion. But We are working here to raise awareness for NeoNode and our particular solutions and also to create demand for contactless touch solutions in general. And that's now happening. That's the quote I shared from Otis Cruz. You can go into almost any of the major OEMs' websites. They're now actively promoting this and talking about this in a similar way as Otis is doing. And it's like a snowball effect. It starts out very, very small and slow, but we are feeling that the ball is getting bigger and bigger and picking up speed. And we are trying to push this every way we can. But elevator manufacturers, they belong to the category of big industry companies. they are not the fastest movers and of course when they develop and launch something it must be also well tested and proven and it's a lot of things to it so some of the engagements we are actually almost more than a year in development projects and still it's like ongoing the bigger the companies get the longer the sales and development cycles also get so That's why I talk about the snowball effect and we hope and we actually think we will see them going faster and faster and picking up speed during this year and into the following years.

Okay, good. And last, perhaps a question for Fredrik. about OPEX, which was about 10% higher in Q4 than in Q3. So what is the reason behind this, and do you see this level as more sustainable?

Yeah, I think we have some long-term effects in Q4 related to our production seasons and people there, and we will be more stable in the future.

Okay, so both COGS and OPEX was affected by the quality issue.

Yeah.

Okay, good. Great. Thank you very much. That's all for me.

And we will take our next question from Walter Lingenham with Pietro Securities.

Thank you, and thanks for an interesting presentation. I was wondering if you were able to provide any update on the agreement that you announced during the fall with a major elevator OEM. I think it was stated in the press release that you expected the rollout to start this year. Has it started yet, or when do you expect that to kick off?

Yeah, that's a... It's an ongoing relationship and the rollout has started. Also in that case, I would say, I will use the metaphor of a snowball effect. Everything was developed, tested and approved like last year. And they then decided to go ahead with a launch. And they're proceeding as far as we know. We have asked them, can we please share some information with other customers and investors, and they said no. They are very keen on controlling how this is now presented to the market and launched. But those who know, they have been able to see their solutions in actually international elevator shows and in some limited marketing so far. But we expect that it will grow more. And recently we heard with the same customer that they are quite satisfied with the technical solutions and the designs and they are broadening this now to also offer this as a retrofit option. So their new OEM solution, they will also start offering a retrofit for their existing customers. So actually that looks quite promising and that can grow. And when this is more openly marketed and announced, I think, will increase the pressure on others to follow. So I think it's natural that we see then a pickup of interest from other customers when this is more publicly announced.

Yeah, got it. And then a more general question on public sales. As you mentioned, you were negatively impacted by lockdowns during the second half of last year. And now this year, I mean, the pandemic situation has improved. And what effects have you seen so far in 2022 on product sales, I mean, removal of lockdowns and so on?

We are actually quite happy now to see that after two years of very strict lockdowns and not being able to visit and meet with customers face-to-face, We have now in Europe and in the U.S. several meetings already this year, and we are planning more meetings and also some trade shows we will go to in Europe and in North America. Japan is starting to open up just a little bit. We were planning to go there AP, but then with the Ukraine crisis, all the airspace is locked down, and it's virtually impossible to travel from Europe to Asia or the East Asia. But overall, things are going back more to normal. And even the Ukraine crisis, I think people will find a way that they can, for instance, fly from Sweden to Japan eventually. And it's really helping us. And that's why, partly, we are very optimistic to grow and find new MRE and licensing customers from this year. So this is certainly helping now that the restrictions are being lifted.

Yeah, thank you. And then a final question in terms of geographical sales. I mean, in the product sales segment, you have had most sales in Asia so far in terms of touch sensor modules. Do you expect this to continue? I mean, if you look a few years ahead or... Will you see, I mean, maybe three years ahead, what kind of split do you expect in terms of geographical scale?

We think that East Asia with Japan, Korea, greater China, and also countries like Singapore, Malaysia, there's a lot of people living there, and they're quite rich countries, and they have a lot of IT systems and kiosks and similar. So probably they will continue to lead the way for the rest of the world. But actually, we think that we have sizable market opportunities also in Western Europe and North America. So I don't know, 40-30-30, something like this, the long-term relationship. And one way to look at it is just to see where are the biggest IT markets overall. And then usually US, Western Europe, China, Japan, Korea. India maybe these are the top markets so that's why we also have the presence there and we are developing partnerships in those regions but so far and also this year next year we think that Japan and Korea will lead the way for other countries and right now if I'm taking a bet I would also bet with France actually We have some interesting opportunities coming up in France and some good customers there. So stay tuned there for news regarding businesses in France. Okay. Sounds good. Thank you. That was all for me.

And we will take our next question from Christian Schwab with Craig Hallam. Your line is open.

Hi, guys. This is Tyler. On behalf of Christian, thanks for letting us ask a couple questions. First question, Irvin, a follow-up, and I'm sorry if I missed it. On the 7-11 opportunity in Japan, you know, as far as a timeline for RAMP, how should we be thinking about that, you know, going from this kind of pilot level to more units? Is that a, you know, next couple quarters kind of thing? Is this a multi-year kind of RAMP? How should we be thinking about the timeline of that?

Well, let me see here. I don't know, you have to ask 7-Eleven. But my impression is that they really want to ramp this up during this year. And they're so far very happy with the initial tests they've done. And they are pushing our partners in Japan. Nenshin is actually a consortium of six, seven companies working together here. So they are getting pushed from 7-Eleven to launch this now. I would say that 12 months should be the time frame that we should look at for that nationwide rollout with 7-Eleven design.

That's perfect. I appreciate that, Colette. And then, you know, could you maybe kind of, you know, comparatively size some of these opportunities? It sounds like the 7-Eleven opportunity, 20,000 stores, you know, is probably maybe a more similar opportunity to the sushi restaurant. You know, could you kind of you know, maybe rank, order, comparably size, the different opportunities across kiosks as well as your elevator win?

I will not give you any detailed numbers or something, but obviously we believe very, very strongly in several of the different sub-segments in the interactive kiosk space. retail and point-of-sale self-checkout. Super interesting, and as you have already realized, there are actually quite a lot of these supermarkets and mini-marts and convenience stores. And if you then multiply it by a certain number of self-checkout terminals per store, that's going to be a good opportunity. And for instance, in Japan, we already have solutions developed for and some competitors of 7-Eleven, and we hope that 7-Eleven's launch will push them to start a launch as well. So that's the snowball effect and the water lily effect that we are hoping for. Transportation kiosks or aviation, as Elena called it in her slides, there are, besides airports, there are, you know, subway stations, train stations, bus stations and similar. where we can do ticketing, check-in, baggage drop, information, kiosks, and so on. That's another excitable opportunity, I would say, where we have a large market. We have both installed base in and around airports and bus stations and so on, and the growth rate for self-service kiosks in those airports and train stations is just exploding, if you look on a global scale. And then restaurants, anything from fast food restaurants to coffee shops. And in hospitality, we also include hotels and check-in, check-out terminals in hotels, which is more common that you have to do yourself. We want to remove all the employees in the lobby and let you do all the work. So elevators, retail, kiosks. Transportation fields and restaurant fields. Probably the top four segments, if you're looking at within elevations, and these are active fields.

That's great. I appreciate the comment. All right. That's all for us. Thanks, everyone.

There are no further questions on the line at this time. I will turn the program back over to our presenters for any additional or closing remarks.

We want to thank you all for joining us for our call today. And I also want to let you know that if you're in Stockholm on March 22nd and interested in any kind of follow-up to this call, you're invited to come to the Neonode offices and meet with Urban, Frederick, and Alana and other members of the Neonode team. Details will be posted on our website at neonode.com and on social media during the next few days. So if you're in town... then, you know, swing on by and you can take a look at what's happening at the headquarters and all kinds of stuff. So that ends the call today. Have a very good day. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.