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 background noise. After the speakers' remarks, there will be a question-and-answer session with the company's covering analyst. 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, and 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, intend, will, guide, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee future performance and 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 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 outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent 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 had to navigate supply chain challenges due to a 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 the Americas. We continue to navigate the challenges the pandemic brings with a focus on growing our business and working 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 were $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 a result of the strict lockdowns imposed by the government in several countries where they are active, such as Japan, Korea, and China. On a positive note, our license revenues rebounded in the fourth quarter of 2021, leading to a 4% increase in license revenue for the full year of 2021 compared to 2020. Our gross margin for products 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, which consisted of write-downs of our remaining inventory of AirBar and lost revenues and extra costs due to quality issues related to our TSM. The quality issue is now resolved and the relationships with 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 adjust for the one-time effects, we 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 pressure on the margin, but short- and medium-term, we are confident that our margins in the products 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 by 8% compared to 2020. The operating expenses in 2020 were lower because we got governmental support during that time, while at the same time we introduced customer shifts due to the pandemic. During 2021, we invested in marketing and product development and also added several new team members. This increased our operating expenses, but these investments are strategic and will strengthen us in the medium and long term. These investments are fully in line with what we communicated regarding how we intend to use the net proceeds of the registered direct offering we did in October 2021. Summarizing the outcome during the fourth quarter and full-year was as follows: We had revenues of $5.8 million, an operating loss of $7.1 million, and a net loss of $6.5 million for the full year 2021, compared to $5.6 million in 2020. Net cash used in operating activities during 2021 was $7.7 million compared to 2020, where net cash from operating activities increased to 36%. The majority of the increase comes from the purchase of components to secure future production of our TSMs and increase capacity and personnel to continue delivering on the strategy and continue to create greater awareness and demand for contactless touch. I will now turn the call over to Urban, who will give our strategy and business update.

Thank you, Fredrik. In the following slides, I will review some topics regarding strategy and also our business development work. This ties back into the communication we have done in earlier earnings calls and also gives insight into what we're learning on a day-to-day basis 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 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 with touch display interfaces. Now we are doing this for kiosks and elevators by simply taking out touch from touch. So we invest in what we call contactless touch, a new way of interacting with machines. This is true to our vision and explains a little bit the backdrop to what will follow in the next slide. Everything we do at Neonode is focused on smart intuitive multimodal human-machine interaction solutions such as touch, contactless touch, and gesture sensing. We are also dealing with object detection. With touch, obviously, the finger is the object that we detect. But with our technology, we can also detect other types of objects, non-human objects. We are also working on camera-based scene analysis. This spans the technology universe that we are working on. Our two technology platforms, zForce and MultiSensing, underpin everything we do at Neonode. This picture, this heat map, tries to illustrate how our strategies focus around contactless touch for elevators and interactive kiosks, which we have communicated over the last 18 months or so. We are also working more and more with digital signage, which is a neighboring segment to interactive kiosks and many of our customers are actually active in both. So it's very natural for us to also expand the focus a little bit to digital signage. The automotive industry is a market segment that Neonode has been addressing for at least 10 years and we continue to see great interest from different customers for our technology. This heat map shows the scope and focus of our work, especially in our marketing and sales force. This focus is very clear as you will see from my later slides and also Alana's presentation. ZForce is Neonode's advanced optical touch technology platform. This consists of IP solutions and know-how around optics, electronics, special chips, and software algorithms. 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 zForce to inter-customers and automotive Tier 1 customers and other customers. Some of these customers are still among our top three, like HP, Epson, and LG. But we also have other large corporations on our customer list and several small companies that are licensing this technology. ZForce also underpins our Touch Sensor Modules that we use today to grow our product business. These Touch Sensor Modules are ideal for elevator and kiosk applications. They work well and are suitable for both retrofits and new installations. We will show more examples of how the Touch Sensor Modules can be used and the value they bring to customers. We often talk about contactless touch and why we think that is important. First of all, it's a new way of interacting with machines and follows the general trend of more contactless or touchless machine interaction. Voice control and face recognition that you have on your mobile phones are other examples. Contactless touch is in the same category of solutions that have growing focus in the industry and also among consumers. It offers a way to interact with machines without touching, which limits the transmission of pathogens and is also more hygienic. With our particular flavor of contactless touch, we also preserve a familiar interface we have with touch displays and buttons in an elevator; you're simply extending your finger to press the button for the right floor. That behavior and interface is retained with our technology but made more convenient since you don't have to press the button or touch the screen. We can also work in situations where you have gloves on your hands, or if you want to point or click with other objects like a stylus or a pen. Our Touch Sensor Modules are commercially available standard products that deliver great flexibility for integrators and OEM customers alike. I would like to quote Otis, the world's largest elevator OEM with headquarters in the U.S. They state simply that today, more than ever, elevator passengers prefer to avoid touching elevator fixtures and buttons as much as possible to reduce the spread of germs and viruses. This is exactly the story we are testing and showing that also in the U.S. and among large corporations like Otis, they are fully aware and see the demand and pull from end customers for new ways of interacting with elevators. We have more quotes like this and other testaments that we are on the right track and this really encourages us to continue to push contactless touch in our TSM business. With our TSMs, the Touch Sensor Modules, you can realize the contactless touch interface in two ways. You can place our sensor module in front of or above a display, pad, or keyboard to create what we call a Parallel Plane Solution. Our Touch Sensor Module then projects an invisible light screen in the infrared frequency range. It’s invisible to the human eye, and if you extend your finger and interact with that two-dimensional light field, the sensor detects the position of that object very accurately and very quickly. Another way to use our TSM is with holographic displays. In those applications, we align the Touch Sensor Modules so that the interaction area overlaps the projected image that’s close in mid-air. By using our Touch Sensor Modules, these projected images can become interactive. For example, if showing a web page, you can click the links on that web page just by extending your finger into mid-air. Contactless touch has many application areas. We are focusing on elevators and interactive kiosks. Here we show you just a sample. Interactive kiosks can range from coffee machines and vending machines to ATMs, information kiosks, check-in kiosks at airports, self-checkout systems in supermarkets, and, of course, elevators where we focus on the control panels. We see more and more applications for our Touch Sensor Modules. I want to review three recent examples of how different companies are using our Touch Sensor Modules to create contactless interfaces for their kiosks and products. The first example is from Japan, where 7-Eleven is rolling out self-checkout kiosks with holographic displays that allow customers to scan the products they wish to buy and pay for them truly contactless. With this particular kiosk solution, you can pay with your mobile phone or credit card without touching anything. Supernight application is also recommended if you Google 7-Eleven Japan and Holographic, as you will find many interesting articles about this ongoing project. The next example is from Korea, where a company has developed different holographic products for elevator applications, specifically a floor selector in a high-rise building using a holographic display. This is a podium that will fit in hotel lobbies, allowing users to select the floor they want to go to before entering the elevator. I will show you a short 11-second video demonstrating this in action. Here, you see the user turning a knob, but the knob is merely a holographic image. If you are not standing in front of it, you won't see it. So it's really convenient to select the right floor, and it works extremely well. The third example I want to review with you is from a Japanese Sushi Chain. We collaborated with a Japanese company to develop a retrofit solution for their self-ordering kiosks. These kiosks serve multiple purposes: you can reserve a table, order food and beverages, and pay. Our sensor module in this case is inside the holder just above the displays on these kiosks, which have been rolled out in over 400 to 500 restaurants across Japan in the fall. People have been experiencing contactless touch in Japan for the last three to four months. We hope to see more applications like this, both with retrofitting and holographic displays. We have presented in earlier earnings calls about our partner network, and we are using a hybrid go-to-market strategy where we combine sales through partners. Here’s a snapshot of our current most important partners. In parallel, we are approaching customers and driving sales through our own salespeople around the world. We are very happy with this hybrid approach. Some of the examples I just showed were developed and happened with help from our local partners in Japan and Korea. We also recently added Sabre, a value-added reseller in Singapore with a great network in both Singapore and neighboring countries, as well as Taiwan. EIL from Hong Kong is also strong and has a good network representing other manufacturers in China, which helps us penetrate that market. MZ Technologies in France is very active, assisting us to grow our business in Europe, especially in France with different kiosk applications underway, looking very positive. The value-added resellers and distributors not only help drive sales but also do a lot of promotion both online and through physical shows, which Alana will discuss further. For our multi-sensing technology, this is our second technology platform next to zForce. This is a software-only platform where we have developed advanced AI algorithms to detect and analyze people in larger streams from cameras. We do camera-based scene analysis with a focus on automotive applications for driver monitoring and in-cabin monitoring or occupancy monitoring. We are also looking at retail applications for analytic functions, where there is growing interest in smart advertisements in real-time inside stores depending on the customer flow and profiles that we can scan. With this platform, we have another way of growing our NRE and licensing business and it's looking quite interesting going forward. This is also to combine this with our touch and gesture sensing technologies, like zForce for instance, in smart kiosk applications and smart digital signage applications. Our business model rests on three pillars: licensing, product sales, and non-recurring engineering (NRE). We have good chances of growing all three in 2022 and the coming years, and we are hard at work making this happen. It looks promising, and we feel encouraged by the progress we are making every quarter. NRE supports our licensing business because typically licensing in automotive applications starts with an application development project over two to three years, where we support our customers in developing features and applications, including hardware and software design and testing, which can yield substantial NRE revenues. NRE can also be applied to our TSM or Touch Sensor Module business to support customers in creating software solutions or adapting products that the Touch Sensor Modules will be fitted into. However, we see the biggest growth potential this year and in the next three to four years with our product business. This growth is something we aim to monitor closely throughout the year. We are happy to see that our licensing business is also gaining new traction. Our existing customers rebounded nicely and actually sold more products in the fourth quarter. Now, of course, with the crisis in Ukraine and other events happening in the world, we need to see if new issues arise because of that, but we noted a nice rebound. Equally encouraging for us at Neonode is that we are seeing substantial interest today in our technology offerings from new customers across industries, including automotive. This involves both object detection, gesture sensing, and driver monitoring. While an increase in royalty revenues may take some years to realize, we can earn NRE revenues during this time, creating a fruitful combination. We are typically bound by strict secrecy agreements, so we can’t disclose details about our customers and their projects. However, to give you some insight and reassurance about the work we are doing to develop and grow our business, I’m sharing a snapshot of our current sales pipeline. As you can see from the summary, we have quite a lot of ongoing opportunities. In elevators, for example, we are working with several integration and solution providers worldwide, creating retrofit solutions for real estate and service companies, sometimes also for OEM elevator manufacturers. We work with several control panel OEMs, such as MAD Elevator in Canada and Dewhurst in the U.K., and with our partner TNBTECH in Korea. These are some of the top 10 control panel OEMs globally, who have invested in and developed products using our Touch Sensor Modules. We are also engaged with several of the top 10 elevator OEMs, and we are focused on developing solutions with them to launch in the market. In the kiosk segment, we have an even broader portfolio of customers and opportunities due to the more fragmented nature of this market. I’m pleased to say that we are now closer to large kiosk OEMs in Japan and Korea, as well as in Europe and the U.S. Regarding NRE and licensing, if you look to the right, automotive stands out as still one of the most important segments for Neonode. We currently have multiple engagements with OEMs and Tier 1 suppliers, related to head-up display and gesture sensing solutions, which continue to generate interest. We also have opportunities with printer OEMs, avionics OEMs, and even some retail companies that are looking to license our technology. In summary, we believe our sales pipeline strengthens every quarter, and we genuinely anticipate growing sales as a result of this in the coming years. To expand further, we are not resting on our laurels; we are continuing to invest in marketing and sales. We are expanding our partner network. In Germany and the DACH region, we are seeking additional partners. We are fine-tuning how we work with our partners and increasing our focus on NRE and licensing opportunities in automotive and military sectors. Alongside growing current sales with existing products, we are developing new variants and new software solutions. In January and February, we released a completely new software platform, which we call the Touch Sensor Modules firmware 2.0. Many of you may have seen the announcement, and there is a nice video available on our website and social media. Please take a look. With that, after my final slide today, I will turn the call over to Alana, who will share some insights into our marketing efforts.

Thank you so much, Urban. It's a pleasure to be here today. Urban invited me here today to provide insight into the work we are doing in the marketing team at Neonode, particularly regarding positioning our brand and developing it, but more specifically, to discuss how we’re building the early-stage sales pipeline. Behind the scenes, we have set up a more strategic communication framework based on recent successes and where we see future growth opportunities. This aligns with our corporate strategy, of course. We will continue to focus on our defined application areas, which are elevators and kiosks, but now we will have a more direct connection with targeted segments including aviation, retail, hospitality, and automotive. This framework has enabled us to build a much stronger brand reputation within these sectors, allowing us to communicate more concentratedly towards our target audiences. With this framework, we can also calculate where to distribute our content for the best possible engagement with prospective customers. I will briefly provide insights into two highlighted sectors: aviation and automotive. Our lead times can be quite long; this journey began last August. We started creating content pieces and advertisements showcasing our knowledge and expertise within this area, focusing on kiosks and expanding into other opportunities in the aviation sector, such as smart trolleys and security improvements. By addressing the entire sector, we expanded our reach and began talking about how we can improve retail and restaurant experiences within terminals using contactless touch technology. This work has progressed, and since the beginning of this year, we have shifted focus down the customer journey toward lead generation. As you can see on this slide, we started to produce content showing evidence of our success, which has led to inbound leads from aviation customers—an excellent result. This quarter, we are undertaking a similar journey for automotive, as Urban mentioned it is a very important sector for Neonode, starting to promote our credibility. We have a decade of history, promoting and discussing our smart steering wheel solutions and touchscreen solutions for entertainment screens. We will soon shift focus to lead generation, pushing content and advertisements for new opportunities in this sector. With new in-cabin monitoring legislation, we see great opportunities to help the industry comply with new safety regulations using our technology. Early indications show a notable increase in visits to our website from automotive customers. It's not just digital marketing that we are investing in but also real-world brand awareness. We are pleased that restrictions have started to lift around the globe. These images show our team raising brand awareness and building relationships with prospective customers and partners at events.

Thank you. This brings us close to the end of our presentation today, and I will round off by sharing some concluding remarks. Our TSM sales were slow during the fourth quarter, but our license revenues rebounded and grew slightly during the full year 2021 compared to 2020. As a result, total full-year revenues 2021 were similar to the full-year revenues in 2020, and obviously, we are not satisfied with that. We are working to grow the business. The pandemic continues to bring challenges for our sales and business development work. Nevertheless, during the fourth quarter, we strengthened our sales pipeline and identified several new interesting opportunities, both with touch sensor module opportunities among elevator and kiosk customers and NRE and licensing opportunities with new customers in both automotive and other segments. During 2021 and the first months of 2022, we have strengthened our team with several new competitive members and improved 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 in our Touch Sensor Modules and our technology platforms, zForce and MultiSensing, and we are eager to tackle the rest of 2022 and the following years.

Thanks, Urban. I will now open the call for Q&A from our analysts. 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 shortages hampering your licensing sales, and now you say that the supply-demand situation is more balanced. Would you say that current revenues from printers and automotive are at more normalized levels?

Certainly. If you had asked me three weeks ago, I would say we saw a strong rebound, indicating that the underlying market is stable. The demand for printers and automotive has returned to a stable level, which was held back in the third quarter due to semiconductor component shortages and other issues affecting our customers. The rebound was evident in the fourth quarter, and the full-year licensing revenues increased slightly compared to the year before. So yes, the demand looks stable. However, with the Ukraine crisis and the expected general economic downturn, we must remain vigilant. The underlying demand feels stable, at least.

Thanks. You're optimistic about your driver and in-cabin monitoring solutions but haven't announced any design wins yet. Could you talk about what makes you optimistic?

We continue to work on this. We are a small team, but we have some good relationships mainly with companies in Europe that we are developing. We think we can significantly grow this business, which will help us improve both our top and bottom lines in the coming years. We are fully aware of the competition, as many big programs have already been awarded to competitors. However, we see various opportunities that are not saturated yet. Some OEMs and Tier 1 suppliers are looking for solutions featuring a limited footprint, very fast deployment, and controlled development cycles. Our algorithms are tuned and packaged in a practical and smart format supporting the efficient development of new features.

In your sales pipeline slide regarding licensing opportunities, you didn't show any military opportunities. Should we interpret this as if the previously announced large military customer is already counted as a customer, or has that opportunity been lost?

I cannot comment on that. The majority of customers in this space are in avionics and include both military and civilian applications. We still have several military avionics opportunities to explore, but as you can imagine, the lead times in this sector can be very long.

You mentioned a partnership with 7-Eleven, Japan. Could you discuss the current status and potential timeline for that project?

We have supported this initiative through our distributor and partner in Japan, collaborating with several companies to develop these kiosks for 7-Eleven. We’re already expanding this project to several hundred kiosks in Japan. Customers have responded positively to the pilot, and the potential for 7-Eleven in Japan is huge, equating to about 20,000 convenience stores and multiple kiosks at each. We anticipate ramping this up within the year.

Can you highlight other customers' progress, especially in the coming quarters?

We have momentum building; however, I cannot disclose specific customer names at this moment. For instance, in Japan, we are engaged with four or five significant kiosk companies. We have our elevator manufacturers also developing retrofit solutions and new solutions for their existing customers. I’m especially pleased with our relationship with MZ in France as they have some exciting projects underway.

Do elevator OEMs share any projections about penetration rates for contactless touch elevators going forward?

Each company has its opinion. We aim to create awareness and demand for contactless touch solutions among elevator manufacturers. Increased demand seems to be growing, which is supported by the quote I shared from Otis. We believe that the snowball effect is starting—although elevator manufacturers don’t move quickly, we think it will pick up speed.

Could Fredrik clarify the reason for the 10% higher OpEx in Q4 compared to Q3 and whether this level is sustainable?

Yes, we experienced some one-time effects in Q4 related to our TSM production. We anticipate more stability in the future.

Thanks for the interesting presentation. Can you provide an update on the agreement with the major elevator OEM? When do you expect rollout to start?

The ongoing relationship has led to a rollout that has already started. As I mentioned earlier, the relationship resembles a snowball effect. The project was developed, tested, and approved by mid-last year, and they decided to proceed with the launch, which is underway. They have expressed satisfaction with the technology and designs.

How is the lifting of lockdowns affecting product sales in 2022?

We’re pleased to see that after two years of stringent lockdowns, we are now able to meet customers face-to-face. We have several meetings lined up in Europe and North America. Restrictions are loosening, which is facilitating our efforts to connect with clients and customers. Therefore, we are optimistic about growing our NRE and licensing customer base this year.

In terms of geographical sales, will Asia continue to lead in product sales as you've seen so far?

Yes, East Asia—with Japan, Korea, and Greater China—will likely continue to lead due to their rich markets with significant IT systems and kiosks. However, we also expect substantial opportunities in Western Europe and North America. If I had to estimate, it might be 40% for Asia and 30% for both Europe and North America long-term. Japan and Korea will probably lead the way in the next couple of years, but we also expect interesting developments in France.

On the 7-Eleven project, what is the anticipated ramp-up period for the nationwide rollout?

While I can’t specify details, I'd estimate we should look for a nationwide rollout within about 12 months.

Can you size some of these opportunities comparatively?

Certainly, while I won’t provide specific numbers, we have strong expectations for opportunities across different kiosk segments, particularly in self-checkout, where supermarkets and convenience stores play a significant role. Further, the transportation kiosks and restaurant kiosks also represent sizable opportunities as trends for self-service grow.

We want to thank you all for joining us for our call today. If you're in Stockholm on March 22 and interested in any follow-up to this call, you are invited to visit the Neonode offices and meet with Urban, Fredrik, Alana, and other team members. Details will be posted on our website at neonode.com and on social media during the next few days. If you're in town, then swing by to see what's happening at headquarters. That ends the call today. Have a very good day. Thank you.

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