Hi, and welcome to the Q3 2022 Neonode Earnings Call. And we’ll start today with a company presentation and a walk through of the financial results, by the company’s CEO and CFO. Then we have a few minutes for Q&A hosted by me and the company’s covering analyst who will ask questions. So with that said, I welcome Urban Forssell on stage.

Thank you, Jesper. To all listeners online, welcome. And thank you for joining us. On today’s call, we will present third quarter 2022 financial results and provide the corporate update. The update will include comments about our business strategies, ongoing customer activities, and other items of interest. Joining me today on our call is our CFO Fredrik Nihlen, who will present the details of the financial results. After Fredrik has done that, I will come back and talk about overall strategies, customer activities, and other operational topics. Before we proceed with the main part of the presentation, I would like to draw your attention to this legal disclaimer. This presentation contains and the related oral and written comments from us may contain forward-looking statements. Forward-looking statements include information about current expectations, strategy, plans, potential financial performance, or future events. They also may include statements about market opportunity, sales growth, financial results, use of cash, product development and launch, 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. We undertake no duty to update or revise forward-looking statements. This presentation has been prepared by us the company based on its own information, and also information from public sources. Certain of the information contained in the presentation may be derived from information provided by other industry sources. The company believes that such information is accurate and reliable, however, we have not independently verified such information and cannot guarantee the accuracy of such information. Thank you for your patience. And with this, we swiftly move on to the next point in the agenda, the presentation of the financial results. Fredrik?

Thank you, Urban. You can find our earnings release and 10-Q on our website neon.com under our IR section. I will in this presentation summarize the key points. Revenues for the third quarter were $1.2 million, that is an increase of 26% compared to the same quarter last year. We saw a recovery in license revenues for the third quarter, mainly due to our license customers within the printer and automotive market, having more volumes. We also saw in products, a slight recovery to $155,000, an increase of 14%, compared to the same quarter last year. We are still affected by the COVID pandemic lockdowns and also the long cycle for our customers to launch and develop products. Our gross profit and gross margin for Q3 2020 was 48%. That is an increase of 20 percentage points compared to the same quarter last year. It is a decrease compared to previous quarters, and it is due to the product mix. For the fourth quarter, we think that the gross margin for products will increase again, thanks to a favorable product mix from current customer orders. Operating expenses for the third quarter 2022 were $2.1 million, a decrease of 22% compared to the same quarter last year. We are very cost-conscious, and it is one-off effects that it goes down, but we are also helped by the weak Swedish currency. As we stated in the last earnings call, our main part of our costs are in Swedish krona. So our net loss for Q3 2022 was $0.8 million, compared to $1.7 million for last year. This is due to increased revenues and decreased costs, as explained in previous slides. Cash used in operating activities was $0.5 million. That is a decrease of 69%, compared to the same quarter last year. This is due to an effect from currencies on inventory and also a reduced net loss. In the first half of 2022, we purchased components to secure the production of TSMs, and that affected our cash flow heavily. For the third quarter, we have not purchased components to the same extent. Cash and accounts receivable decreased by $1.2 million for Q3 2022, compared with $2.7 million for Q2 and $2.4 million for Q1. And with that, I will leave the word back to Urban.

Thank you, Fredrik. Moving on, the next point in the agenda is a strategy and business update. And for those of you that haven't followed us in the last year or so, I want to underline and explain our overall business strategy to combine technology licensing and product sales. If you start with technology licensing, we illustrate that in the left part of this slide. We address the printer and automotive markets mainly today with our offerings. We licensed two technology platforms, one we call zForce, which is based on infrared technology and suitable for different types of applications, as I explain shortly; and multi-sensing, which is camera-based scene analysis technology. The business model we apply here is to combine sales of engineering services, non-recurring engineering services and technology or software licensing. In the other part of our business, which we internally refer to as our products business, we sell products that we call touch sensor modules, or TSMs for short. They are a particular realization of our zForce technology platform. And these are ideal for use in contactless touch gesture sensing applications and similar. Here, we primarily target elevator customers and customers within the interactive kiosk segment. The main revenue opportunity for us is to sell these products as standard products. There's also some opportunity to sell adaptation services or non-recurring engineering in this case, which we have used in the last couple of years, and we hope to expand on going forward. Regarding zForce, to understand what this platform is and what it can be used for, we have included one simple slide today. This is a very proven and battle-hardened technology platform featured in close to 90 million products from leading printer manufacturers, automotive suppliers, and also other customers. It can be used for touch on both displays and other surfaces, gesture sensing, mid-air contactless touch, or object detection. Today, we are trying to revive this business, and we mainly target the high-volume automotive market with this technology platform. The two application areas we focus on the most today are head-up display object detection, illustrated in the background picture here. Head-up displays are becoming more common in especially premium vehicles, and we will see more of them also in regular vehicles going forward. And then it's imperative to detect foreign objects sitting on top of that display and hindering the projected image. The other area we focus on is interior controls on displays and other surfaces, plastic, glass, or interior panels. MultiSensing is a software framework for scene analysis using camera inputs. Here, in the automotive context, the focus is on driver and in-cabin monitoring. MultiSensing is a flexible and scalable platform; it’s hardware agnostic, has a minimal hardware footprint, and works with also low-cost cameras, which gives us an edge over most competitors today, also since it's scalable and prepared to support lifetime updates in vehicles using over-the-air updates or by other means. We have received quite a bit of interest from vehicle OEMs and Tier 1s for this platform that we are trying to capitalize on and grow this business on. The touch sensor modules or TSMs are standardized commercial off-the-shelf products. They feature the zForce technology’s reflective variant. These are standard electronic modules that we offer in different lengths. We produce them in our own factory in the West of Sweden, and we ship to distributors, value-added resellers, and customers worldwide today. Going back and expanding on our business strategy, we have explained our growth strategy in previous earnings calls, and we are refining this continuously. Today, I will share an update of this growth strategy in three simple steps. What we have been doing, and we are still doing, in some cases, is trying to establish beachheads in certain key markets and segments. We are also actively working with proof of concept projects or other demo projects to show the value of our technology. This applies to our licensing business and our products business. Today, we are in a state where I can say, and I will show examples that we have established beachheads in the elevator and interactive kiosk segments for our TSM products, particularly in contactless touch applications. In other cases, we are still working hard to secure a stable beachhead. The status today for our licensing business is that we are still working here to establish a solid beachhead, whereas in the products business, we are actually already since some time working to scale this business. Looking at the products business, you can look at the center pillar here under bullet number two that today and going forward, we are trying to scale this business aggressively, but doing this in selected key markets while narrowing down and focusing efforts on key subsegments in the interactive kiosk industry and also elevators. For our licensing business, the second step is simply to add more customer projects to the first ones that we are working on today. As you know, those of you who have followed us the last couple of years, we follow a strategy where we combine direct sales with indirect sales through distributors, value-added resellers, and other partners. To scale up and accelerate our growth, we still believe it's a good method to combine direct sales with indirect sales through these partners. As a fairly small company with a global market opportunity, this is practically the only way we can scale this quickly. As a Western company based in Sweden and the U.S. and working in many Asian markets like Japan, Korea, China, etc., it's almost necessary to open up doors using local partners in many of these markets. We also have a clear view of where we want to go once we are up to speed. This is simply to expand to more segments and more geographical markets. However, today, what we are doing is really focusing on steps one and two and trying to be very focused. This is also part of our cost-conscious approach. While at the same time, we believe very much in the potential, we are conscious about costs and cash flow, and we are trying to balance this today—the key is focus. We have been focused, and we will be even more focused and place our bets where the chances are highest that we can accelerate in the coming quarters. To illustrate some of this strategy and the points that I claim we have made, I want to show some examples. From elevator, I want to focus on MAD elevator, our customer partner in Canada. They are a well-known supplier of elevator control panels addressing both the OEM market and aftermarket. Today, two of the leading top 10 elevator OEMs use MAD elevators control panels in their standard offerings, both for aftermarket and new equipment. In addition, MAD elevator is offering their solutions on the North American aftermarket and have, from what I see, built momentum in this aftermarket business. Besides MAD elevator, we are working with similar companies, one in the U.K. called Dewhurst and in South Korea, our partner Finetek is playing a similar game there with both OEM relationships and aftermarket sales. This is one example. The approach that MAD elevator is taking is what we have called in Neonode the parallel plan approach. You use our TSM to project an invisible detection field in front of the normal elevator buttons. When you reach out with your finger to touch a button, you activate that half an inch or so before your finger reaches the button. So it's very intuitive. It's very quick, and everyone can use it. As shown here in this picture, still for blind people, you preserve the rail text, which is a legal requirement in many markets. You can retrofit this and also install it in new elevators using the same type of solutions. MAD has developed some different offerings, and the same we see with other customers and partners. So both retrofit and new equipment sales—it's a very, very nice solution. Furthermore, we have several companies, especially in Asia, Japan, Korea, and China, that have developed different hall call and elevator control panel solutions based on holographic displays. We show here one example from a Chinese company, GSR. This example shows a typical hall call module where, at the entrance floor or any floor, you will call for the elevator and, in this case, you enter the floor number that you want to go to, and then you simply step into the elevator. Similar solutions are applied inside the elevator cars, and we have many examples of other companies doing this, both in Japan, Korea, and China. We have some companies in Canada and Europe offering similar solutions based on holographic or other technologies. This applies to both new equipment and retrofits, as many elevators live 50 years or more and they are upgraded and refurbished on a regular basis. Every time an elevator or building is refurbished, there's an opportunity for us and our partners to step in with a retrofit. The good thing with elevators is that the retrofit module that you typically install is the same module you can use in new elevators. So it's very standardized this way. We think we have a solid beachhead in elevators, actually globally. Today, we have four of the top 10 elevator OEMs working with our technology and offering this to new equipment customers and aftermarket customers. We also have some mid-sized OEM customers, and we have several control panel and button companies offering modules with our technology integrated. Regarding interactive kiosks, retail, and self-checkout stations like this project with 7-Eleven Japan that I reported about in an earlier earnings call, that project is progressing. Feedback continues to be very positive, both from 7-Eleven in Japan, the shop owners, and the users. It looks very good. We are placing a lot of hope in this, not least because the 7-Eleven brand is strong globally. Just recently, we have established contacts to companies here in Europe also working with 7-Eleven, but tech companies. This is now spreading and has side effects, this little project ongoing in Japan. The solution here is a holographic display combined with a barcode reader and payment terminals, so that the interaction is very intuitive, very quick, and simple. I tried it myself when I was in Japan in June; it works just perfectly. It's much quicker than using the normal self-checkout and certainly much quicker than using the menu checkout with a cashier. For every reason, this is one cool new feature in convenience stores and other stores for self-checkout and also other applications. Another subsegment is point-of-sale terminals. Just to illustrate, we took this from Holo Industries' webpage; they have recently released a press release developing together with ASKA, which is also a partner of Neonode, that they are producing a holographic point-of-sale payment system for Mastercard using our TSM products. The same idea here is that you project up the image, you interact with that image using our TSM, and you have a contactless payment with a card. Everything is very convenient; we think that you will see many more of these solutions. Already two years ago, we presented in another earnings call a similar solution developed by a Japanese company called Nidec Sankyo, and we have more companies working on this type of POS solutions. Regarding general kiosk application, I wanted to show today this very nice product from our German partner, HY-LINE, which is a virtual keyless keyboard. HY-LINE has most of their customers in the industry segment. This product illustrates the flexibility of our TSM technology. And when we have presented previously about contactless touch for kiosks using the parallel plane approach, we can illustrate this with the display, a normal display behind this or like they have done here like a plate or any surface and project or print symbols that represent icons. So you don't need any physical keys or a display; you can configure this with software only. So it's very flexible. This is the way HY-LINE is now marketing this to their customers. We are glad to help them promote this worldwide to ship this to customers outside Europe. It's a very interesting product; see more on HY-LINE's website if you're interested. We have talked a lot about holographic displays and this parallel plane approach for contactless touch. I still want to return to our origin, and we are still taking new orders from customers using our TSMs for touch applications. This is certain information and payment kiosks from a company called Ink Aviation. We are very proud because they have developed a range of kiosks that are very slim and take minimal space, still offering a lot of value for our customers at airports and shopping malls. Here, they utilize our TSM, basically to— as a retrofit to their display solution offer now interaction on that display, so very flexible. You see very neat integration, which looks super nice in this product. Similarly, we announced recently an extension with our Swiss partner, Elix, who is supplying displays for MRI systems and X-ray systems. It's a range of products used by a leading med tech OEM and in five different products. I believe it's two or three X-ray systems and two or three MRI systems that use the same type of display arrangement in different sizes. The point here is that doctors and nurses need to ensure a certain image quality and contrast on that picture to make the correct diagnosis. This med tech OEM wanted to offer touch interaction on the same screen. Our solution is basically the only way to do that without interfering with contrast, brightness, and resolution on the screen. Together with Elix, we have developed a retrofit solution to their original display that was previously passive; now it's interactive. This is a fantastic example, and we are proud of this, even though we promote contactless touch. Both demonstrate that they are viable in the medical area, and this is a future growth potential, although we haven't focused on it 100% so far. However, I'm just saying that we think we have unused potential, and we will increase our focus on this going forward. We are still affected by the effects of COVID, but thankfully, more and more countries are more or less back to normal. You can travel; you can visit customers, and we are trying to do that more and more now. It's a little bit unusual because the previous two years have been basically impossible to meet people face-to-face. But we are doing more and more events. We are also continuing in parallel to do online advertising and marketing campaigns using digital means in different channels. Here's just an overview of certain events we have visited recently and some that we will join shortly. In closing, I would like to highlight this upcoming event called Japan Build Expo in Tokyo at the beginning of December. This is a picture of the booths we will have at that show. This is a joint project with our three Japanese value-added resellers, Metatechno, NEXTY Electronics, and Global Electronics. We also got strong support from our tech partners, ASKA 3D and another innovation company. These two companies, which they develop and produce sell plates for holographic displays, are actually competitors, but we are working with both. They are joining us at this show. Also joining us in our booth and separately are eight different Japanese and international companies, including large corporations like Maxell, Toppan, JDI, as well as medium-sized companies next to them. In total, we are showing here with our customers and partners in Japan 15 different products; most of them are holographic display products, but we also have some others showcasing how to use our TSMs for contactless touch interaction on, for instance, building entry systems. As mentioned previously, these POS systems, self-checkout systems, information kiosks, and elevator control panels reflect different variations of the technology and the application. They demonstrate a strong assertion that this technology is reliable. We have strong backing from major players like Maxell, Hosiden, and JDI, and we are very happy to be at this show together with them. We look forward to doing more events like this in Japan, Korea, China, and also some in Europe and the U.S. This gives you a snapshot of our marketing and business development efforts. I hope you appreciate this. Follow us on social media and through our website for regular updates on shows and other campaigns and advertisements we do, because I think you will find them informative. With that, we are nearing the end of the presentation. I just wanted to round off with some concluding remarks. After this, Jesper will come back up, and we will have a short Q&A session. Today, we have reported the Q3 2022 financial results. The summary is that sales revenues and net results are improved compared to the same quarter last year; this is due to increased sales, as well as cost control. Cash flow has also much improved, and Fredrik gave the main reasons for that. Actually, we purchased a lot of components during the first and second quarter, having stock up by necessity because some of our component suppliers require us to place big orders and thus minimum order quantities can be large. However, we are well stocked on all these components. So, for the third quarter, we didn't have to buy anything. Additionally, we see the effects of our cost control and currency; it greatly improved cash flow this quarter. Although we see a light at the end of the tunnel, we acknowledge the clear break in the sort of boring trend from the third quarter last year until the second quarter this year. The third quarter saw a much higher activity level, even in China, despite some significant headwinds due to lockdowns. During the third quarter, we received spontaneous calls from previous and new customers and partners in China. So things are starting to move there again. However, I must mention that COVID-19-related lockdowns in China remain a problem. Just yesterday, I read in the news that in the southern part of China, around the Guangzhou area, they have now record-high COVID rates and they are planning to impose strict lockdown measures. This shows that this pandemic unfortunately remains a serious issue in China, at least. Semiconductor shortages and other supply chain issues are affecting some of our automotive and printer customers. Volvo Cars is one of our end customers that reported problems and halting production. Such issues hurt our sales. If Volvo produces fewer vehicles, our customers supplying these infotainment systems for Volvo can sell fewer of their products. We are a little surprised, but we are learning to adapt to this, both in the licensing business where we knew we would have long sales cycles and long development launch cycles. We are seeing the same in the products business in some cases. One leading elevator OEM, which has launched products they developed in-house, presented a fully working good-looking prototype in mid-2020. Now two years later, they are prepared to launch and build up. This is just how it is, and there's nothing we can change because this is a Fortune 200 company. They have their processes in quality assurance, launch planning, and operational rollout. This is affecting us, holding us back a bit. As I said before, we are focusing on scaling the business. We feel we have strong beachheads in elevators and kiosks. Now we need to scale that up. In the licensing business, it's more about securing solid beachheads and then scaling up. We have promising first customers that are very positive about our technological offerings, and we are working closely to finalize evaluation projects and other development projects that will eventually generate new royalty revenues. Overall, I am quite optimistic, even though I can understand that some of you investors feel frustrated that our development has been slower than expected. I will admit that I am also at times a bit frustrated, but I am still very, very motivated and think we are on the right track. We are starting to see a trend shift here in the third quarter, and we expect to see good results in the fourth quarter. Of course, we want to continue this trend into the next year. Thank you very much. And then I invite Jesper back on stage for Q&A.

Perfect. Thank you very much for that presentation. So let’s start with your, I mean, kind of optimistic ending words that it seems like, okay, it's been very slow for quite a while, but now things are starting to happen. Is this mostly in terms of new customers that are starting to come in interested? Or is it existing customers that are starting to place orders on these TSMs?

Of course, it's a mixture of both. But in many cases, we have had relationships. We have had some orders from these customers, but maybe just for evaluation or small ramp-up orders, and some actually stopped during the preceding 12 months and then came back. So it's a mix. We must realize that when working with one of the top 10 elevator companies, we are dealing with companies with hundreds of thousands, if not more employees and billions of U.S. dollars in turnover. They are huge companies with global operations. In different regions, they don't communicate with each other. So there's also that issue. They are understandably cautious and watch trends in the market. However, during the third quarter, we have confirmation of a snowball effect; one of these top five elevator OEMs returned now. They have been evaluating technology; they have offered it before but more passively. Now they want to actively start to promote this and scale up. I believe this is because they are noticing what competitors are doing. This is a slowly but steadily effect we have been prepared for and working towards. I agree it has taken a little longer than expected, but I strongly believe we are on the right track and that base is set for serious scaling in the coming couple of years.

Yes, because, as you mentioned previously, you built up quite an inventory of $4.3 million in the first half of 2022. How long can you keep that stock? Of course, you can stock it for a long time, but when do you expect it to be reduced by producing the sales?

Yes, probably next year or say 24 months, we have enough stock. Some of these minimum order quantities I referred to are like $10 million or $50 million for a single component. Our TSMs use up to $53 per TSM. There is also a ratio of how quickly we consume this. We have been forced to buy certain— not all, but certain components in very high numbers. On the other hand, now we have them and can stock. When I mentioned that in the future, we are looking to have a second source production partner, we can share our components with that partner as part of a commercial agreement. It's on our balance sheet, and I don't see it as a significant liability. We're consuming it; it cost cash flow in the first and second quarter this year, but now we have it, and we will consume it in the coming 18 to 24 months.

Good. And also, you went into some of the elevator OEMs as customers and their progress. Could you mention anything about any other of your largest customer contracts that you see tendencies towards moving into larger volumes?

Yes. Regarding elevators, we are solidly in a beachhead situation; we are scaling, and this is looking quite good, both in Japan, Korea, China, and Europe. There is a lot of activity there. Regarding interactive kiosks, you must understand that this segment is much more fragmented from the beginning. Many of the players are regional or national, and their products are also diverse. Even if it's a big global corporation, they will have one product in Japan, another in France, and a third in Canada, all branded the same. So that's why we see a more diverse landscape. We view this market as a pyramid, where at the bottom, we have many small customers which can be big corporations but smaller programs. We need more of these. It’s slowly but surely trending upwards. One example I can mention is with our partner, MZ Technology in France. They are working with a company called ION Group, a leading provider of kiosks for passport control and identity checks and similar. This area shows good potential in retail self-checkout and point of sales. Similar to the 7-Eleven project in Japan, there are several such projects in Asia, Europe, and some in the U.S. Also, this Mastercard project could work out. These are the main drivers for the coming period.

So if I understand it correctly, it seems like you grasp the elevator market, whereas you see traction in other segments, but it’s harder to quantify price?

Yes. I believe the case is not just one silver bullet; there won’t be one customer stepping up with an order of 2 million TSMs at once. It will be slow but steady, even from these large corporations because today, everyone works just in time. They have been ordering as they deliver or produce more and more of this. Hopefully, we will see more and more frequent orders, but there is definitely potential here to scale.

Good. We have one other question from one of the other analysts.

Cost-consciousness is a piece of it, but we have also experienced favorable currency developments. A lot of it is a currency effect, but it is still that we are cost-conscious, saving costs, and doing things with a purpose.

Okay. Good. It doesn’t seem like we have any other questions from the other analysts. So with that said, I thank you very much for this conference call and wish you good luck.

Thank you.

Thank you.