Neonode Inc.

Hi and welcome to Neonode's Q4 2023 earnings call. Today we'll start with a brief company presentation and a review of the Q4 results by the company's CEO Urban Forssell and CFO Fredrik Nylén. And then we'll move over to a Q&A session with me and the company's other analysts participating. So with that said, I leave the word over to CEO Urban Forssell. Welcome.

Thank you very much, Jesper. And also from my side, welcome to this Q4 and full year 2023 earnings call. Today's presenter will be me, myself, Urban Forssell, CEO, and with me here on stage in just a few minutes, Fredrik Nylén, our CFO. We have a pretty short agenda today. We have a brief, brief introduction, and then I will go through two slides summarizing strategic and operational developments in 2023. Next, I will give the word to Fredrik, who will summarize the financial results for 2023. And then I will come back and give you a strategy update, which also would include a current status update and some comments about the rest of this year. So with that said, as part of the introduction, I would like you to take a minute to read this legal disclaimer. And while you read, I will summarize this disclaimer in the following way. This presentation contains and related oral and written statements of Neodon Incorporated, 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 that said, I move directly into the next point, summary of 2023. So throughout 2023, we continue to operate in our two business areas that we have been operating in the last few years, namely one focusing on technology licensing and the other one focusing on product sales. We illustrate these with a green color on the left for the licensing business and a blue color on the right for the products business. As we show here, the main target sectors in our licensing business is and has been printers and different types of automotive customers. We offer solutions based on two technology platforms, C-force and multi-sensing. And the business we employ in our licensing business is to work with the customers to integrate and adapt our solutions to their platforms. Here we have an opportunity to get NRE revenues. And when the underlying product goes into mass production, we typically get a royalty per produced unit as a license fee. So this is about the licensing business, illustrated here on the left. In the products business, we have targeted customers mainly in the elevator and interactive kiosk sectors. We've also done some inroads into industry automation and medtech with our products there. We have been and are offering what we call Touch Sensor Modules, or TSMs for short. In fact, these products are a special realization of our C-Force technology that we also license in the licensing business. But these touch sensor modules we have packaged into a neat physical package and we produce these modules in our production unit in Kungsbacka in the west coast of Sweden. And we sell directly to end customers and indirectly via valued resellers and distributors. The main business model is simply here, product sales of these commercial off-the-shelf sensor module products. We have continued to operate on this strategy throughout 2023. There's been a lot of activity in the company with marketing, with sales. to reach new customers, to create demand, and to land new deals for our licensing offerings and our products. We also have strengthened the organization in different ways. In particular, we have, during the second half of the year, recruited some very senior persons that have strengthened our team, both in engineering and in marketing and sales. We have improved our operational efficiency. We have improved our cybersecurity and, in general, strengthened our IT environment in the company. Nevertheless, 2023 was a tough year for us and the outcome and the results that we managed to achieve in terms of sales were, I would say, below expectations. And actually, as we write in the 10K and in our earnings release, we are disappointed about the decrease in sales revenues. Taking this step by step in our licensing business, what we can say for our automotive licensing business, our license revenues from legacy customers was stable throughout 2023. In Q4, we announced also a breakthrough driver monitoring software award from a leading commercial vehicle manufacturer. This is the result of actually several years hard work with product development, marketing and sales. And as I will come back to in the second half of the presentation, this is a very, very important stepping stone for us and gives us momentum for 2024 and beyond. In general, we see with automotive that our different product offerings are generating a lot of interest from customers. So we have a strong sales pipeline and we are working to sign new deals and also fill up the pipeline even further in automotive. In our licensing business, we also have substantial license revenues from printer manufacturers. They were stable during the first half, but starting to weaken in the Q3 and especially Q4, these royalty revenues fell in some cases. This has obviously to do with underlying product sales of these customers of ours, and also in one or two cases about inventory that they wanted to reduce at the end of last year. Anyway, that impacted the sales of new printers and hence decreased our license revenues. In our products business, unfortunately, we were struggling to sell more TSM as we have projected and as we have targeted and planned for. Instead, we saw that the sales volumes decreased and we feel that the main reason for this is simply weak demand. Now, when the COVID-19 pandemic has sort of blown over and people move back to old habits of how they operate different types of kiosks and elevator controls and so on. This led us to a big decision internally that has been carefully considered for some time, but we announced it in December that we are facing out our products business. and will instead offer key customers in that business to license the technology and produce these touch sensor modules on their own. I will come back to this as well in the second part of the presentation. But let me end this first part by saying that we are and I am not happy with the sales revenues that we managed to achieve in 2023. We have taken the consequence for this and we make a big strategic change. and launching a new sharpen strategy which takes 100% focus on technology licensing and we believe this is a very important move for us and strengthen us as a company going forward more on that in the second part of the presentation now to summarize 23, from a financial point of view, I would like to invite Fredrik Nylén, our CFO, up on stage here to take us through the financial results for the previous year. Fredrik.

Thank you, Urban. As always, you can find our 10K and earnings release on neonor.com under investor section. I will, in this presentation, only summarize the key points. Total revenues for 2023 was 4.4 million. That is a decrease of 22% compared to 2022. License revenues decreased with 15% to 3.8 million in 2023. And this has to do with surplus in inventory and volumes at our customers, sales volumes at our customers, as Uban said before. Product revenues was 0.6 million, a decrease of 38% compared to 2022. This is due to low demand for our products, and as Urban said, we made an announcement in December to phase out the products business. Operating expenses increased with 5% to 10.7 million in 2023 compared to 2022. The major things here is that we increased marketing spend, as Urban said before, and also some increase in payroll and related costs. Summarizing the financial result in profit and loss, we had a net loss of 10.1 million in 2023 compared to 4.9 in 2022. What you can see here, what stands out is the cost of revenues. It is impacted by one-time costs due to the phase-out of the products business. I will come back to that in a later slide. Even though we had a net loss of 10.1, our net cash burn operating activities for 2023 was 6.3 millions, a decrease of 7% compared to 2022. And we had 17.1 million in cash and accounts receivable as of 31st of December 2023. It's 0.8 million more than the year before. And some more information on the face of the products business and what has happened in the cost of revenues. So inventory P&L effects, we had an impairment loss of 3.6 million in 2023, and we had also a loss in purchase commitment. We had components that we had to buy in the future that we cancelled and had to pay a fee for. Both of them impact the cost of revenues in 2023. The 3.6 million impairment loss has no cash flow effect. And there can be some efforts here to recover this loss by selling components to potential licensed customers. The plan for 2024 is to produce and sell T-SEMs during the first half And during the second half, we will wind down the production unit in Kungsbacka, and the rent agreement will end at the end of September. And with that, some more strategy update from UBAN.