Hi, and welcome to Neonode’s Q4 2022 Earnings Call hosted by Redeye. We will today start with a company presentation and also a presentation of the Q4 results followed by a Q&A session by me and the companies of their analysts. So with that said, I leave the word over to the CEO, Urban Forssell for the company presentation.

Thank you very much. Also, from my side, welcome to our Q4 and full year 2022 earnings call. With me today is our CFO, Fredrik Nihlén and he will present the financial results. And before we go into the main presentation, I would like to take a minute to read the legal disclaimer, and you find it here on the screen as well. This presentation contains and related oral and written statements of Neonode Inc. and its management may contain forward-looking statements. Forward-looking statements include information about the current expectations, strategy, plan, potential financial performance or future events. They also may include statements about market opportunity, sales growth, financial results, use of cash, product development and introduction, regulatory matters and sales efforts. Forward-looking statements are based on assumptions, expectations and information available to the company and its management, and involve a number of known and unknown risks, uncertainties and other factors that may cause the company's actual results, levels of activity, performance or achievements to be materially different from any expressed or implied by these forward-looking statements. Prospective investors are advised to carefully consider these various risks, uncertainties and other factors. Any forward-looking statements included in this presentation are made today's date. The company and its management undertake no duty to update or revise forward-looking statements. This presentation has been prepared by the company based on its own information, as well as information from public sources. Certain of the information contained herein may be derived from information provided by other industry sources. The company believes such information is accurate and that the sources from which it has been obtained are reliable. However, the company has not independently verified such information and cannot guarantee the accuracy of such information. Thank you very much. With this, let's have a quick look at today's agenda. I will first give a brief strategy and business update that will also connect to our previous earnings call in November. After this, I will invite Fredrik Nihlén to come up on stage and present the Q4 and full year 2022 financial results, followed by some comments regarding financing. When I return for point four, I will discuss current status and our plans going forward. I will also today give some comments about the patent litigations versus Apple and Samsung. And we finish off with some concluding remarks. With this as an outline for today's presentation, let's just go right into it. For new followers and listeners to this presentation, I want to just give a brief update on our business strategy. And this is a combination of technology licensing and product sales. So we work today in two business areas. One, where the focus is technology licensing. Looking at our current customers, they include printer manufacturers and automotive Tier 1 suppliers and also some other customers. We work here with two technology platforms we call them zForce and MultiSensing. I will give examples of applications in the next slide. Whereas on the right side, we illustrate our products business where we target customers in the elevator and interactive kiosk segments, with our Touch Sensor Module products. Key application areas and what we're working on in our day-to-day operations. In the licensing business, there's a lot of focus today on head-up display obstruction detection, and also interior controls. This is something we base on our zForce platform. And we use our MultiSensing platform to work on driver and in-cabin monitoring solutions and features. In our products business, we mainly work on contactless touch, either touchless touch on displays and other surfaces and keypads, keyboards and buttons, or holographic touch. So with our Touch Sensor Modules, you can make holographic display images interactive, which is quite futuristic and cool, we think. We also work on rugged touch and gesture sensing with the TSM products. Recently, we updated our website quite fundamentally. And now what you will see there are different illustrations and descriptions that underlie and reflect our strategy. So please visit neonode.com and check out the nice content that our marketing team has added to the website recently. What you will see is that we do a lot of sector-based marketing. And this is to support our growth strategy. And especially if you look here to the left, in the first step, we have a very, very strong focus today in several of our businesses to establish beachheads in important segments and markets. And everything we do in marketing and sales and also product development is aimed at supporting this strategy. We also work with proof-of-concepts and different types of demo projects to also further show and demonstrate the value of our technology. This is very, very important and we follow this beachhead strategy to break through in key segments so that we later can focus on scaling up. In some of the segments we are active in, we feel that we already have achieved the breakthrough and we have established beachheads, one example is elevators, and also certain sub-segments of the interactive kiosk market. But in others, we admittedly still are working really to establish the beachheads. So this is the clear strategy that we have been following for some time; we have refined it and we believe that this is really now the right way forward for us. And more regarding marketing. During the second half of last year, especially during the fourth quarter, we are glad that we could again start to travel and join physical live events. And that you will see here some examples from automotive events in Detroit, in Munich and also a virtual event in China that we joined during November. They all focus on head-up display, obstruction detection, interior controls and driver and in-cabin monitoring. We also attended Japan Build, which is focused on proptech and this is different aspects of interactive kiosk applications that we showed here together with partners. It was a very interesting and successful event for us with huge attention to our different offerings and our partners' products. In line with this, we were as late as last week part of Retail Tech in Tokyo, Japan, also with great attendance and a lot of appreciation from people visiting our booth and taking part in our different solutions and our partners' different products on display. So, this is where we are today and a little bit of a short summary and overview of our business strategies and what we do in terms of marketing and sales. I will come back in a short while, but now I want to give the word to Fredrik Nihlén, our CFO.

Thank you, Urban. You can find our 10-K and earnings release if you visit our Investor section on our webpage neonode.com. I will in this presentation just summarize the key highlights. I will also say a few words on financing. Total revenues for 2022 were $5.7 million, which is a decrease of 3% compared to 2021. We saw a slight decrease in license revenues in 2022 compared to 2021 because of component shortages within the automotive and printer industries, which affected our customers and hence affected our license revenues. However, we saw a recovery in the second half of 2022 in license revenues. For products revenues, we reached $995,000 in 2022, an increase of 4% compared to 2021. Here, too, we saw a recovery in Q4 product revenues. However, in 2022, we are still affected by lockdowns in Asia and we are also affected by long development and launch cycles at our customers. Gross margin for 2022 was 22%, which includes a one-time effect of write-down for obsolete stock in Q4. Adjusting for that, we would have a gross margin of 51%, which we think is a good level. Operating expenses were $10.2 million for 2022, which is a decrease of 15% compared to 2021. The main reason is that we have cost control, but we are also helped by the weak Swedish currency. As I stated in the last earnings call, the majority of our costs are in Swedish Krone. Summarizing 2022 in our P&L, we had a net loss of $4.9 million compared to $6.5 million in 2021. That is, as I discussed in previous slides, less operating expenses, while keeping the revenue at approximately the same level as 2021. Net cash burn in operating activities for 2022 was $6.8 million, a decrease of 11% compared to last year. We had a cash balance and accounts receivable balance of $16.3 million as of the 31st of December 2022, which is a decrease of $2.4 million for the year. I will now just say a few words on financing. From October 2022 to January 2023, we selectively used our ATM facility and raised net proceeds of $12.6 million at an average price per share of $7.24. The $4.7 million we raised in Q4 are part of the balance that I've talked about in previous slides, but we also increased the balance by adding an additional $7.9 million of net proceeds in January 2023. We think that the improved cash position will give financial stability to execute on our strategy. And to give some more color to this, I will give the word back to Urban.

In the rest of the presentation, I want to spend some time here to discuss current status and the plan going forward. To tie in what Fredrik said, our sales revenues were more or less on par with those of 2021. I must say that it's not bad, but we are not satisfied, and we’re working hard to improve that and grow the business. Indeed, we are very optimistic about our ability to really turn this around and create significant growth. We have, during the last year, created strong interest in several of our solutions that we offer, and we have several very promising opportunities in our sales funnel currently that we are working to capitalize on. Our plan going forward is that we believe we have a good strategy and also strong finances that together put us in a good position to significantly grow our business this year and in the coming years. We are adding resources to our global sales team to support growth in key sectors and markets. We are also expanding our network of distributors, value-added resellers and other partners for broader reach and quicker market penetration. Regarding marketing, we continue to build on our brand and marketing platform to drive sales. We will increase the focus on physical demos, POC projects and also physical events quite significantly. Of course, this draws some resource, but given our strong cash position, we want to use this now to leverage the technology that we have developed and the IP that we have in the company. We will also continue to work a lot with digital marketing campaigns. The key point as shown previously in this presentation is to show the value of our technology. We believe we have a very, very good technology base and an IP base in the company. A key issue for us is to show the value and demonstrate the capabilities of the technology and of our team, how we can support customers and add value. Moving over to engineering, we continue to invest in product development to improve the added customer value we can bring with our products and solutions, and also to broaden our offering. We will share more details on this in later earnings calls this spring and after the summer. To support these efforts, we are not only investing internally with our own staff but we are also engaging with some external engineering firms and other partners to shorten our time to market and increase our general development and manufacturing bandwidth. All aiming upwards and forwards. I want to repeat and illustrate what we are working on in practice, the MultiSensing Licensing Solution. The main focus and basically the only focus is to work on driver and in-cabin monitoring for different automotive OEM and Tier 1 customers, where we are encouraged and indeed we are involved in some detailed discussions with a couple of such customers that we hope to capitalize on in the near future. Very promising and interesting. Another area which draws a lot of attention in our company and also from several different customers is head-up display obstruction detection. We have a very cost-effective and robust solution to detect foreign objects on head-up display projectors that may obstruct the image and cause safety hazards. This is not acceptable, neither by legislators nor by vehicle manufacturers. Therefore, we need these type of systems in modern vehicles and also technical means of detecting these disturbances. We have here a very good, ready solution that is drawing a lot of attention from several customers. I mentioned also in the previous slide that we work on interior controls. One example is we work with a French company called EPICNPOC, which is developing and selling rapid prototyping design studio solutions. Together with them, we are developing and launching different features based on our Touch Sensor Modules, as well as our other offerings. Just as an example, this cooperation is playing out. We co-exhibited with EPICNPOC at CES in Las Vegas in January this year, with significant attention to their solution and also our contribution there. We are very, very proud of this cooperation and think that this is one way for us to reach new customers, mainly in Europe but also in other regions. We continue to work in our products business with elevator customers, both elevator OEMs and companies developing and selling elevator control panels. In the elevator industry, it's common that the companies work both OEM, meaning selling new equipment, and also in the aftermarket selling retrofits and providing service maintenance for the elevators. Interactive kiosks come in many different shapes and forms. This illustration is a particular kiosk developed by a company, which they launched at Maxell Aqua Park in Tokyo. It's a very nice example of a holographic interactive information kiosk where visitors to this Aqua Park can browse and see small video clips and other information charts about different types of fish and animals in the sea. Of course, there are many other types of kiosks that we also support with our Touch Sensor Module products. A related business is with medtech, where we have actually a long cooperation with a Swiss company called Elix Systems that has developed solutions for medical imaging systems. Here, in particular, is a program with a leading medtech OEM that equipped an ultrasound system with our touch feature that adds functionality and value to their otherwise very high-performance system. Nurses and doctors doing examinations using the ultrasound device typically have gels on their fingers and use gloves for these studies. They can then zoom and point and click to the screen, which makes for quick handling and ease of use. We add a lot of value both for the manufacturer of these systems that could add touch to their existing system and then to the end users, the nurses and doctors that have a robust, fast and accurate touch feature. We are so encouraged by this success with this program that we will be increasing our focus on medtech as one of the sectors that we will focus on going forward. Other examples are retail and proptech. Retail could include point of sale terminals, self-checkout terminals and similar. Proptech includes everything from elevators, entry systems, alarm systems and other control panels for buildings. These are three examples of sectors that we will focus on going forward. In medtech, we see several use cases where we have outstanding offerings that bring value to both the buying customers and the end users in hospitals, as well as to patients and visitors. So, there's a strong overlap with interactive kiosks here, but we also see that there are some particular requirements that we can meet and now work to present to our customers. We will also come back in later earnings calls to share more updates. Drawing closer to the end of this presentation, I promised to give some comments about the ongoing patent litigations versus Apple and Samsung. We have one slide here. I will basically comment on the facts regarding our agreement with Aequitas. As many of you know, we have an embedded call option associated with our patent agreement with Aequitas Technologies LLC. Aequitas is an American-based technology licensing company. In 2019, Neonode signed two patent families related to older smartphone technology to Aequitas for monetization. Agreements state we will get 50% of net proceeds if Aequitas succeeds in monetizing the patents. Net proceeds should be understood as gross proceeds, less out-of-pocket expenses and legal fees. The agreement with Aequitas is available on the SEC's website and you can find it through our website. If you look at our 8-K filing from May 2019, you will find the agreement in full and can read all the terms and conditions. In June 2020, Neonode Smartphone LLC, a subsidiary of Aequitas without direct ties to us, filed two patent infringement lawsuits, one against Apple and another against Samsung. These litigations are still ongoing. The Apple case has been moved to the District of Northern California, while the Samsung case is still in the Western District of Texas. I want to underline our role in this. Our role is to be the owner of the regular patterns that we transferred in 2019 to Aequitas. We have no insight or influence over Aequitas's operations, particularly, we are not involved in the lawsuits against Apple and Samsung. The good thing about the whole arrangement is that we will not bear any costs associated with the ongoing litigations and we are not exposed to any risks because of them. This is the essence of this arrangement, which Neonode's Board entered into with Aequitas in 2019. We appreciate that many find it interesting to study and discuss; however, we remain focused on these facts and descriptions of the actual events that took place from 2019 to today. That concludes what we can or will communicate regarding these patent litigations. Thank you very much. This brings me to our final concluding remarks slide. As Fredrik has presented, our sales revenues for 2022 were $5.7 million, similar results as in 2021. Our net loss decreased to $4.9 million, mainly due to tight cost control and favorable exchange rates. Our net cash used in operational activities was $6.8 million, down from $7.7 million in 2021. We continue to see strong interest in our TSM products and our zForce and MultiSensing technology platforms. We will use our strong cash position to drive growth through investments into sales, marketing, and new product development. We are optimistic about the remainder of this year and the coming years, believing we can grow our business significantly. Thank you very much. Now I invite Jesper up for Q&A.

Thank you very much for that. All right. So let's start with strong product sales of the quarter, which were many times as high as previous quarter's. Could you just explain the reasons behind this?

Of course, it's as in many cases, the combination of different effects that work in our favor. But if you look at what we can control, we had some serious efforts. And we did a strong push in both Q3 and Q4 to really drive sales. So that's good work by our team to influence many customers to place orders, and we are happy for that. We also got help as the situation in China and other Asian countries started to normalize during the second half of last year, which I think helped. In Europe, we had some good customers and partners and were able to gain new business with them, which contributed to a very positive end to the year for the product business. I would also say that the second half and Q4 was positive in our licensing business, with some new projects that brought in NRE revenues for non-recurring engineering services. We could invoice several customers during the third and fourth quarters, which also contributed.

Good. And if we stop at the product sales, was it more from the retrofit business or was it from new sales?

I would say that some of the bigger orders that customers placed with us were for new equipment, but we also had a healthy portion of retrofit business, although they tend to be smaller orders. So we have a balance; I don't have the exact balance between retrofit applications and new equipment from the top of my head, but I believe that the majority of the bigger orders were indeed from new equipment.

Okay. So from the new equipment, were there one or two large orders that made specific impacts, or should we anticipate that it was a few contributing orders?

No, those were several different customers placing orders. They weren't huge orders because then we would have presented even stronger numbers, but still decent volumes came in from several customers. So we were glad for that.

Good. And regarding the license side, especially the NRE revenue, could you specify which segments those are from? Is it fair to assume that it's automotive?

A very clear focus from our side in our licensing business has been for a couple of years to focus on customers in the automotive sector. We work today with OEM customers, meaning vehicle manufacturers directly, and with some Tier 1 suppliers. We have customers in all three main regions: Asia, Europe, and North America. So we have contributions there, mainly for driver and in-cabin monitoring on one hand, and head-up display obstruction detection on the other hand. We see most activity and interest today in these two.

There has been a lot of activity on the RFQ side regarding driver monitoring. Can you share anything about how close you are to presenting results there?

We think we are very, very close. Of course, it's under NDA and sensitive, but we believe that we have very good chances of winning some new business here in the near future. We know and appreciate that there are many strong competitors in this field, but we are encouraged by the feedback we get when we talk to different, not least OEM customers, who may have already selected another supplier for their first wave but for various reasons are now looking for a better alternative. We've found some interesting prospects that we are now engaging with.

Okay, good. And is this for any specific region, would you say?

That would be to disclose too much.

All right. And regarding head-up display, what is the status there compared to the timing of RFQs for driver monitoring systems?

It's driven by a few premium vehicle manufacturers who are heavily investing in head-up displays for the future. They're looking to change the cockpit inside the vehicle, possibly reducing traditional instrument clusters and large displays while projecting all the information onto the windshield in different arrangements. Some will project more in the field of view, while others might place this information at the bottom of the windshield. If they remove traditional instrument clusters, they free space in the passenger compartment, addressing design issues and cost-saving measures. They absolutely need these features for safety reasons to comply with various safety regulations, like those in the EU, China, and the U.S.

Can you provide any insights into the prospective average selling price per vehicle for such a solution?

In our case, we talk about technology licensing. We have significant revenues from automotive customers today with our zForce platform. Indeed, this will be another application of zForce. We talk about some dollars per vehicle, which is very interesting since, in automotive, the programs run at very high volumes. We hope that this will significantly contribute to our future licensing revenues, but be aware that there is a lengthy sales development and launch cycle we must work through. We're looking at approximately 2.5 to 3.5 years before we see additional licensing revenues from these types of projects.

So we might see possible revenues around late 2025, 2026, is that accurate?

In our products business, we are confident that we can outperform last year's results, which mirrored the year before. We are optimistic and feel we can start making progress. We've also decided to develop new product variants to broaden our portfolio, as we believe we've established good sales channels in various markets we can leverage to sell additional products. We're taking steps every week to drive sales of existing products and new ones, and we recognize we need to improve. We've set ambitious targets for the company, and my team, together with the Board of Neonode, is working diligently to make an impact and exceed the single-digit million-dollar turnover we've seen in the past years. I believe this company deserves to achieve much more based on the technology we possess.

For license sales, it is typical to receive NRE revenue before onboarding into a new licensing program. So is it fair to assume we will see NRE revenue before a significant ramp-up happens?

Yes, as we've explained, if we're successful with certain RFQs this year, we can expect NRE revenues to ramp up for this and potentially the next two years. Mass production for the underlying product, meaning the new vehicle or vehicle platform, is when we start receiving royalties from licensing. The NRE component can be significant as it is a time-consuming process that requires a lot of effort from both vehicle manufacturers and suppliers to develop, test, validate and launch a new vehicle platform. Of course, we are there to assist. Our ambition is to at least break even during the development phase for the efforts we invest to support both the Tier 1 supplier and vehicle manufacturers.

Now regarding licensing sales, you've mainly focused on the automotive segment, though previously you mentioned a potential large customer in the military. Can you share the status there?

Indeed, during the last year, we have focused more on high-potential sectors in automotive due to the higher volumes. Nevertheless, we still have strong interest from military and avionics companies, as well as in medtech. We are attempting to explore these interests from different directions. However, we are a small team and company, which is why we focus solely on automotive in our communications. I want to emphasize that in our products business, we will focus on several sectors. Again, we will concentrate on retail, proptech, and medtech as three very interesting segments, possibly along with hospitality, which encompasses travel, hotels, and restaurants. Thus, our approach will be sector-based marketing and sales, adapting our technical offerings to each sector's specific needs. We believe this will be the way forward for Neonode, both in our licensing and product business.

In Q4 and January, you mentioned using the ATM for around 900,000 new shares in January, as well as 800,000 in Q4. Can you provide an overview of your financial situation, Fredrik?

We're in a strong position now. As I stated at the end of my presentation, we have the ability to execute our strategy, and we will do so, as Urban mentioned later on in the presentation.

Regarding that, is it fair to say that means with the cash position you have now, you expect to reach breakeven with that amount?

That could be one scenario, yes. Another possibility is that if we achieve significant traction in the business, we may choose to invest more. In one scenario, we can operate similarly to how we are today, potentially reaching breakeven. Currently, we are not concerned about running out of cash. Rather, we want to be more aggressive and increase spending compared to last year. Fredrik and I, along with the Board, are continually monitoring how things are progressing. We make quick adjustments as needed, either tightening or accelerating our approach. This is how we are currently operating. We feel that we are in a very good position, which allows us to focus on driving growth and developing the business. This is our daily priority.

I can imagine. As a follow-up, if product sales of TSMs significantly accelerate, would you be required to invest more in that area? Conversely, if product sales do not increase but licensing sales do, would that mean you would not have to invest as much?

Yes and no. For the licensing business, especially for automotive but also military and medtech customers, we generally have long development and launch cycles that are engineering-intensive. Therefore, we would need engineering resources to manage growth there. However, it scales nicely, given traditional royalty models. If we focus on high-volume programs, that can provide good leverage post-mass production. In the products business, the situation is more complicated. We will have capital expenses, investments in components, and traditional operating expenses that will require additional capital. The question remains on how we will drive sales; if through our channels or partners, the external partners will bear more of the investment in sales and marketing. The balance affects our cash burn. Typically, if we work with external partners, it's more their expense; if we invest more internally, we can witness more immediate and better results for Neonode. Going forward, we plan to leverage our cash position to strengthen our presence in various arenas where we promote our products, both independently and in conjunction with partners. We will definitely be more visible in these key markets and segments. We will join more physical events, ramp up marketing, travel more, wave the Neonode flag, and engage more directly with customers. Thus, we will be hiring additional staff for our sales team—three in Stockholm last week alone, as well as more internationally.

Let's see if we have any additional questions from other analysts. No. All right, then that's all for us, and I'll leave some final remarks over to you, Urban.

Thank you for your attention, and we invite you to continue following us. Please log into our website neonode.com and read all the available information. I think you'll find a lot of interesting content there. Thank you very much. Have a nice day.