Hello everyone. Thank you for standing by and welcome to Neonode's Third Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session with the company's covering analysts. [Operator Instructions] Thank you. And at this time for opening remarks and introduction, I would like to turn the call over to David Brunton, Neonode's Head of Corporate 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 third quarter 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 Forssell; and our CFO, Fredrik Nihlén. Fredrik will present the financial results of the company for the third quarter and comment on the equity financing we completed in October. Urban will comment on overall strategies, customer activities and other market opportunities. Before we continue with this presentation -- let's move the slide up here. Before we continue with this presentation, I would like 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 the future performance that may involve or subject to risks, uncertainties, 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 Form 10-K, quarterly reports on Form 10-Q, and other reports filed by Neonode with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent or obligations to update these forward-looking statements. Before I hand the call over to Fredrik, I'd like to summarize some highlights of today's presentation. Neonode like many companies faced a few setbacks in our third quarter due to the COVID-19 pandemic when our first key mover Asian markets went into…

Thank you, Fredrik. Today, I will review some slides describing our vision, our technologies, and our business strategies. I will also describe our key markets and how we work to increase those sales in these markets. First slide here, I want to share with you our vision statement is to transform the way humans interact with machines and very happy about its mission statement as it ties back to also where we're coming from and Neonode's history. Remember that this company was founded as a smart phone company 20 years ago and was the first company to launch gesture-based touch phone on the market, the Neonode N1 which was presented as early as 2002 at the CeBit Fair in Germany. This was the phone without conventional keypads that all the mobile phones had at the time. Later Neonode, [indiscernible] later, we help HP, Lexmark, Canon, and all the other printer manufacturers to get rid of the buttons they have on their printers and replacing them by clever touch displays that allowed scrolling and selecting different options in the printers using a touch interface. And right now, as this picture shown here indicates we work a lot with contactless touch or some prefer call it touchless touch. So, we are still involved in Human Machine Interaction or HMI and we want to transform the way humans interact with machines to make it more convenient to enhance the customer experience and bring more value to all the users. We are a deep tech company and all our work is concentrated around two versatile technology platforms. One that is by now I think well known by follow us C-force. It's a IR based or infrared based optical technology that supports touch and gesture sensing and the very advanced involving optics, electronics, and software…

Thank you, Urban. We will now open the call for Q&A from our analyst. Go ahead and join the queue.

[Operator Instructions] We will take our first question from Tyler Burmeister with Craig-Hallum. Your line is now open.

Hey, guys. Thanks for let us ask a couple questions here. Urban, first, on the headwinds you're seeing supply constraints and lockdown, I was wondering if you could kind of break those out is one of a bigger impact than the other? And then to the degree you can -- what's the timeline of those improving? Is it Q4, are those going to linger into next year? Any color there would be great.

Yes. So first of all, I want to underline that a lot of component shortages is hurting our customers not directly our production. We have secured components for production and we are running that normally. So, no issue for our own production or our own business there. We are -- have more on indirect effects for these components shortages. So, as I'm sure many of you are aware of in automotive many Tier 1 suppliers and OEMs are reporting that they are slowing down production, and then they have challenges to find the performance. This is hurting our royalty revenues. The same situation is with several of our printer customers that are reporting slower sales due to component shortages. The product sales are the top sensor modules sales, there we have heard from a couple of Asian customers that because of component shortages they are prioritizing other programs, and typically then existing production rather than launching new products. So that has slowed down some decision and launch processes. And this is putting us in the third quarter. And some of these effects are still visible here in the fourth quarter. I'm not an expert in this. But it seems that if I compare with last year, we had a very, very strong slowdown in the second quarter and the good rebound in third and fourth quarter last year. I think that we will see a rebound in next year. But Q3 was slow. Q4 is a little bit slower than we were hoping for when we ended the second quarter. But let's see, we are anyway confident that with the newly raised cash and the interesting sales pipeline, we have that we can weather this out. And we can continue to grow slowly but steady.

That's great. Appreciate the color there. Then you recently announced a win with a major elevator customer that's going to deploy air touch solutions in all their new elevators, I was wondering if you could add any color there about, what's the size of that when and maybe what other customers have similar size? How many customers of similar size might you have in your pipeline?

So with this customer, they have been very, very strict. It’s unfortunate that we are not allowed to anyhow or anywhere. And now this business with mentioning their name or whatever product lines, it's involved. It's one of the major elevator OEMs. And the elevator industry is dominated by say 10 large OEMs or 20 then you have like 99.5% of the world market. So it's fairly easy to understand how this market is structured. We are happy of this business, because it's evidence that our strategy that I've outlined here five minutes ago is working. This started with a retrofit business that we did. And this OEM took notice of what different solution providers and tech companies were doing and installing in their fine elevators. And then they realized that, hey, we can do this as well. And actually, we can do it better, because we can then from the factory, make sure that the installation is nice and tidy and like super professional. So they saw an opportunity for them. And this is exactly what I tried to explain with the picture here with the sales cycle. So it's very significant in the Elevator segment. And that's why we have the announcement in the press release about a week. And this will, of course, impact our sales going forward in the coming years. And we can estimate more than one TSM per elevator in average, because some elevators will have two TSMs to cover the whole control panel. And obviously, now we are working to convince other OEMs to follow suit and take after them. So in elevators, which proves that our strategy is working, and that our approach has been correct. And it also shows the long sales cycles, because I think the first time this elevator OEM heard about us was sometime early last year, and only now they are ready and preparing for launch next year. So we're not uncommon with large industry corporations, and we see the same pattern also in kiosk or the large kiosk companies.

That's great. I appreciate that color. And then the last one, I suspect you can't comment much on your ongoing patent litigation. But I think it's been a point of focus for investors recently. So I just wanted to give you an opportunity. Any comment update thoughts on the patent litigation. Thanks.

And the only answer you will get is no comment. And I refer to our agreement with Aequitas Technologies LLC, which we announced in 8-K filing with SEC in 2019.

Perfect. Fair enough. Thanks.

I'm sorry, but we can't comment on this.

And we can move to our next question. The questioner is Jesper von Koch with Redeye. Your line is now open.

Hello team. Since the current revenue is at kind of depressed levels, just before its first hockey stick acceleration. Could you provide any guidance at all for 2022? And perhaps also give some comments on your illustration of slide 27 regarding estimates.

Yes. We will not give any concrete guidance, but we are actually very motivated by the influx of new opportunities and the strength of our pipeline, which is looking very, very promising for next year. So, I mean, personally, I'm really hoping and believing that we will see some kind of breakthrough in our business next year. Apparently, we have some headwinds in the third quarter especially and to some extent also in the fourth quarter, which is a little bit slowing down the growth rate that we were hoping to achieve this year. But the overall picture is anyway very, very bright. And we are emitting extremely motivated to realize more of this potential in next year and the year to follow. So personally, I think that we are on the verge of a breakthrough here. And we can start to see some interesting effects of this work that we've been doing last year and this year, clearly visible in next year.

All right. Thanks. And also not regarding the large elevator deal announced. But just the elevator market as a whole, what do you expect in terms of the take rates of the Holdco terminals. So how many TSMs do you expect per installed elevator?

Yes. So maybe I can answer this in the following way. So our solution is very, very good choice for the control panels inside elevators. And typically there you would use one or two of our touch sensor modules per elevator and the average being somewhere under 1.5 or 1 point -- I don't know, 1.3, 1.3 TSMs per elevator. But then as Jesper points out, and I think it could be worth or more of you listening into this call to note that, there's also an opportunity for Neonode with all the buttons on each floor in the buildings where you have the elevators. And those buttons are referred to typically as whole call buttons, at least in American English. Typically, you would then use one of our shorter TSM and have a similar contactless touch operation of those buses. So that's another additional opportunity. And then depending on how high your building is how many floors you have, the more of these whole coal buttons you will also have. Now, it's not guaranteed for the elevator company or Neonode that, you can supply the whole call buttons to the elevator and it's -- what I'm learning more and more here is that it's very different. In some cases, the elevator OEM supplies the whole solution. And then in some of these we have an opportunity to participate with our contactless touch offering. But in other projects the elevated companies just tested supplying the elevator itself and then the real estate owner works with another installation company or other tech company to do the rest of the installation and the fitting, including the whole call terminals. So it's very difficult to estimate. But what I wanted to say as a final message on this is that we have an opportunity, which is larger than one TSM or elevator in the elevator market. So you can have more than one TSM inside the elevator and also on the whole call buttons on each floor. But it's very, very difficult. And I shouldn't even try to guess where it is. But this is an interesting twist to that elevator business that we are doing.

All right. Thanks. And then it seems that you have received a really strong traction in the elevator segment, both towards like new installations and retrofits. And yesterday, you announced like a good contract with a quick service restaurant, like the Sushi in Japan. So how do you experience the demand in the self-service kiosk in general compared to that of others?

Yeah, you should know the following that these two markets are fundamentally different. So the elevator market is totally dominated by the 10 or 11 largest OEMs. They make up for more than 95% of the world market and if you have 10 more, then you have basically all of it. So, very few companies sort of dominate the elevator -- the new elevator of the business. In kiosks, it's so much more fragmented. If we talk about thousands of kiosk OEM companies, of course, there are these global giants, and some I can just name drop. And these are -- I'm not indicating that all of them or even some of them are our customers, but some of the big names in kiosks and global players are Diebold Nixdorf, NCR in the US, Glory in Japan, and companies like this. They are corresponding type and size of the large OEM elevator OEMs. But then there are hundreds, if not thousands of smaller and medium sized kiosk companies. Some work only in certain geographical markets like in China, or in the US or in France, some work only in certain verticals like self-ordering pass for supermarkets. And here is an overlap to the point of sales terminals and cash registers that some companies are specializing in. So actually, you are suggesting that we have had the best traction in elevators. But I would say that we are at least in the same shape in kiosks with already secured engagements with several medium sized and smaller kiosk OEMs and working to penetrate also the -- some of the larger kiosk OEMs. But you should just understand that the dynamics and the structure of these markets are fundamentally different. And that's why maybe the visibility is not that great and on the other hand, customer base is much broader and gives us better stability going forward.

All right. And then my last question about your last little gambit there in the end regarding your potential software offering of yours and a potential M&A, could you elaborate on your -- yes, on your thoughts going forward?

Yeah. So what we are very clear about is that Neonode is a deep tech company. We have both hardware technologies in our case, even optical expertise and patents around optical designs, electronic designs. We have at integrated circuits, ASICs that we have designed that we are selling to our customers. But already today and going forward, the software portion of our offering and our portfolio will only increase in importance and depth. So, we are thinking about using, for instance, our top sensor modules in new types of applications, where the big differentiator will be the software that we deliver with the TSMs and not the TSM itself. It's just a platform to do and to realize different functions for the end users. We are also developing a more configuration tools to support our different customers to have a quick and straightforward integration and launch of contactless touch solutions. And with the multi sensing software platform, obviously, it's 100% software that we are delivering and it will be by now a traditional software business model, where you typically you charge for adaptations through and reconnect you license and you take a royalty per unit or you sell it a Software-as-a-Service. And this could be with automotive customers or military or industrial automation customers and overall, the portion of Neonode's customer offerings and a portion of Neonode's revenues coming from software solutions will simply grow. And here, we have a huge potential also to expand into new areas and maybe team up with other software companies and combine our offerings with them it could be in kiosks, or we could enter into neighboring segments. And we don't have any concrete acquisition targets or plans, but we are entertaining thoughts about partnering with other companies. It could be other tech companies or there could be companies in our ecosystem today, where we see an opportunity to do a vertical integration and bring them on board in the Neonode team rather than being partnering to us. So right now in the strategic development plan for the company it's not top of our list. But as I showed in the previous slide, it's there in the future, and the future may be mean a couple of years from now. I think this company having stabilized and grown our own business organically by executing on the strategy that we put in place beginning of last year. We can also start to look at some new partnerships and even static decisions. And this is a further way to grow the business and increase shareholder value

All right. That's it for me. Thank you very much for your answers.

Thank you, everybody, for joining us. And with that, we wish everybody to have a good day and stay safe. Thank you. Bye, bye.

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