Hello, everyone. Thank you for standing by and welcome to Neonode's Fourth Quarter and Full-Year 2021 Earnings Conference Call. All lines have been placed on mute to prevent any back ground noise. After the speakers' remarks, there will be a question-and-answer session with the company's covering analyst. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to David Brunton, Neonode's 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 Forssell; our CFO, Fredrik Nihlen; and our Director of Marketing, Alana Gordon. Fredrik 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 with 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 risk 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. Neonode 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 continued 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 have 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 license revenues rebounded nicely. We also grew our sales pipeline with several new interesting opportunities in all three regions we are active in APAC, EMEA 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 well positioned to grow our product business and also to revitalize and grow our NRE and licensing business during 2022 and the years to come. Alana and I will return to these topics later in the presentation. And now without further ado, I 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 full-year 2021 earnings release and 10-K with the details of our financial performance during the year 2021, available for download from the Investor section on our website, neonode.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 are active. For instance, Japan, Korea and China. On a positive note, our license revenues rebounded in the fourth quarter of 2021, leading to an increase in license revenue up 4% for full-year 2021 compared to 2020. Our gross margin for products was 4% for 2021, which is a decrease from last year, up 13 percentage points. The gross margin was heavily impacted by onetime effects in the fourth quarter of 2021. The onetime effect consists of write-downs, our remaining inventory of AirBar and lost revenues and extra costs due to the quality issue 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…

Thank you, Fredrik. In the following slides, I will review some topics regarding strategy and also our business development work. And this is to -- tied back into communication we have done in earlier earnings calls and also to give insight into what we're learning 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 Neonode developed the Neonode 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 we invest 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 explains a little bit the backdrop to what will follow now in the next slide. Everything we do at Neonode is focused around smart intuitive multimodal human machine interaction solution such as touch, contactless touch and gesture sensing. We are also dealing with object detection. So with touch, obviously, the finger is 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, they are also working on camera-based theme analysis. So this spans sort of the technology universe that we are working on. And our two technology platforms zForce and MultiSensing underpins everything we do at Neonode. And this picture, this heat map tries to illustrate them how our strategies focus around contactless touch…

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, to 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 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. And 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 started back in August last year. Basically, what we…

Thank you. And this brings us close to the end of our presentation today and I will round off by some sharing some concluding remarks. Our TSM sales was slow during the fourth quarter, but our license revenues rebounded and grew slightly during the full-year 2021 compared to 2020. As a result, the total full-year revenues 2021 were 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 our sales and business development work. But during the fourth quarter, we nevertheless strengthened our sales pipeline and on several new interesting opportunities, both touch sensor module opportunities with elevator and kiosk customers and interesting NRE and licensing opportunities with 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 competitive persons and improved on our product platforms. We've also invested in marketing and strengthened our ecosystem of value-added resellers and other partners. Through these investments, we are well positioned and prepared to capitalize on the growing interest for our Touch Sensor Modules and our two technology platforms, zForce and MultiSensing 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, Urban. I'll now open the call for Q&A from our analysts. [Operator Instructions] And we will take our first question from Jesper Von Koch with Redeye. Your line is open.

Hi, guys. So in Q3, you talked about component shortage 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 ask me three weeks ago, we'd 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 the 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 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 in-cabin monitoring solutions, but have so far not announced any design wins there. So could 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 and 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 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 1s are telling us that they are looking for solutions that have more of 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 we see a lot of dynamic advertisements and smart kiosks, smart signage applications where our technology fits very, very well also.

Okay. Thanks. So in the -- in your slide with the sales pipeline -- with respect to the sales pipeline of licensing opportunities, you didn't show any military opportunities. So I was wondering should this be interpreted as if 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. Actually 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 application, that could be cockpit displays and other types of systems that fits in the cockpit that the pilots operates. But it could also be for airlines, civilian aircraft for the crew in the cabin and also in some cases for the passengers. So indeed, military avionics 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 the military and avionics customers, it's 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. Got it. 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 time frame that you see for this customer?

Yeah, so I must say that -- we have here supported through -- actually through Nexi, our distributor and a 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 a few hundred 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 second kiosks. So it's a sizable opportunity just with 7-Elevem in 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 we 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 plain approach is a major opportunity for Neonode worldwide. And we hope that this project with 711 and the publicity it generates will then stimulate others both in Japan and the rest of Asia, actually rest of the world. And there's a nice pickup of our press release and also other announcements and articles being [indiscernible] off this this launch and this is a way for us to grow awareness and push things with Alana and her team and also with our partners and their work in this area.

Good. So 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 must say that I can't disclose any customer name at this point. But for instance, in Japan, we are actually engaged with four or five of the largest kiosk companies and also several elevator manufacturers. And the same in Korea and other markets that we have started now seriously to penetrate the OEM customer base. And some of them are as I mentioned during the presentation, they are developing in parallel both retrofit solutions for their kiosk and elevators, but also new solutions for new equipment. And that's made a 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 MZ 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're also having a special relationship with a company called Holo Industries in California and we've also designed and sell holographic displays for different types of applications to be point of sales, to 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 growing here and we hope that we can share more news about this shortly actually.

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

Yes. Everyone we talk to is of course having their own opinion, but we are working here to create awareness for Neonode and our particular solutions and also to create demand for contactless touch solutions in general and that's now happening as this quote I shared from Otis proves. We can also go -- you can go into almost any of the major OEMs' websites and check Clean Mobility Solutions and so on. They are 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. But some of the engagements we are actually almost more than a year in development projects and it still is like ongoing. The bigger the companies get, the longer the sales and development cycle also get. So that's why I talk about the snowball effect. And we hope and we actually think we will see then this going faster and faster and picking up speed during this year and into the following years.

Okay. Good. And last perhaps question is 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?

Yes, I think we have some onetime effects in Q4 related to our production of TSM and people there and we will be more stable in future.

Okay. So both COGS and OpEx was affected by the quality issue?

Yes.

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

Thanks for interesting presentation. I was wondering if you're 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?

It's an ongoing relationship and their rollout has started and also in that case, I would say -- I would use the metaphor of a snowball effect. Everything was developed, tested and approved like mid last year and they then decided to go ahead with the launch and they are proceeding as far as we know and they have -- 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 and -- 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 will see then a pickup of interest from other customers when this is more publicly announced.

Yes, got it. And then a more general question on product 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 effect have you seen so far in 2022 on product sales on -- I mean removal of lockdowns and so on.

We are actually quite happy now to see that after 2 years of very strict lockdowns and not being able to visit and meet the 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 and we were planning to go there ASAP. But then with the Ukraine crisis, all the airspace is locked down and it's been virtually impossible to travel from Europe to Asia these days. But overall, things are going back more to normal and even the Ukraine crisis, I think people will find a way that we can for instance fly from Sweden to Japan eventually and t's really helping us. And that's why partly we are very optimistic to grow and find new NRE and licensing customers from this year. So this is certainly helping now that the restrictions are being lifted.

Yes. 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 a few years ahead, what kind of split do you expect in terms of geographical sales? A –Urban Forssell: We think that East Asia with Japan, Korea, Greater China and also countries like Singapore and 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. It’s 40, 30, 30, something like this long-term relationship. And one way to look at it is just to see where are the biggest IT markets overall and then usually U.S., Western Europe, China, Japan, Korea, India maybe; these are the top markets. So that’s why we also have presence there and we are developing partnerships in those regions. But so far and also this year, next year, we think that Japan, Korea will lead the way for other countries. And right now, if I’m taking a bet, I would also have a 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 new businesses in France.

And we will take our next question from Christian Schwab with Craig Hallum.

This is Tyler on behalf of Christian. First question, Urban, a follow-up and I'm sorry if I missed it. On the 7-Eleven opportunity in Japan as far as the timeline for ramp, how should we be thinking about that going from this kind of pilot level to more units? Is that a next couple of quarters kind of thing? Is this a multiyear kind of ramp up? How should we be thinking about the timeline of that?

Obviously 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 are so far very happy with the initial tests they've done and they are pushing our partners in Japan. I mentioned it's actually a consortium of 6, 7 companies working together here. So they are getting push from 7-Eleven to launch this now. And I would say that 12 months should be the time frame that we should look at for that nationwide rollout with 7-Eleven Japan.

And then could you maybe kind of comparatively size some of these opportunities? It sounds like the 7-Eleven opportunity, 20,000 stores is probably maybe a more significant opportunity than a sushi restaurant. Could you kind of maybe rank order or 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 subsegments 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 the supermarkets and minimarts and convenience stores. I mean if you then multiply it by a certain number of self-checkout terminals per store and you say okay, that's going to be a good opportunity. And for instance in Japan, we already have solutions developed for some competitors of 7-Eleven and we hope that 7-Eleven's launch will push them to start to 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 call it in her slides, besides airport there are 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 sizable opportunity I would say that -- where we have a large market. We have both installed base that are 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 the global space. 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. They want to remove all the employees in the lobby and let you do all the work. So elevators, retail kiosks, transportation kiosks and restaurant kiosks are probably the Top four segments that we're looking at within elevators and the major active kiosks.

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 22 and interested in any kind of follow-up to this call, you are invited to come to the Neonode offices and meet with Urban, Fredrik 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 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.