Neonode Inc (NEON) 2021 Q3 法說會逐字稿

Hello, everyone. Thank you for standing by, and welcome to the Neonode's Third Quarter 2021 Earnings Conference Call. (Operator Instructions)

At this time, for opening remarks and introductions, I would like to turn the call over to David Brunton, Neonode's Head of Corporate Investor Relations. David, please go ahead and start the conference.

Welcome, and thank you for joining us. On today's call, we will review our third quarter 2021 financial results and provide a corporate update. Our update will include details of our business strategies, customer activities and other items of interest.

On today's call is our CEO, Urban Forssell; and our CFO, Fredrik Nihlen. Fredrik will present the financial results of the company for the third quarter and comment on the equity financing we completed in October. Urban will comment on overall strategies, customer activities and other market opportunities.

Before we continue with this presentation -- let's move the slide up here. Before we continue with this presentation, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call, other than historical facts, are forward-looking statements. The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets and projects and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee future performance that may involve or be subject to risks, uncertainties and other factors that may affect Neonode's business, financial position and other operating results. Such risks, which include, but are not limited to, the risk factors and other qualifications contained in Neonode's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by Neonode with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent or obligation to update these forward-looking statements.

Before I hand the call over to Fredrik, I'd like to summarize some highlights of today's presentation. Neonode, like many companies, faced a few setbacks in our third quarter due to the COVID-19 pandemic when our first key mover, Asian markets, went into lockdown to contain the spread of the Delta variant. The combination of the lockdowns and global supply chain constraints that impacted our customers' businesses had a negative impact on our third quarter sales compared to the prior 6 months. The company is navigating the headwinds by continuing its marketing and sales work and increasing our partner network, which has resulted in an increase in diverse sales pipeline, of which Urban will discuss.

We are well positioned to become the leader in the growing contactless touch market. To provide a strong base of support for growth, we strengthened our cash position through a successful capital raise directed to long-term investors in Sweden and Europe.

And at this time, it's my pleasure to turn the call over to Fredrik, who will give a third quarter financial update. Fredrik, please go ahead.

Thank you, David, and welcome, everyone, to our third quarter earnings call also from my side. You can find our third quarter earnings release, and thank you with the details of our financial performance during the third quarter and year-to-date 2021, available to download from the Investors section on the website, neonode.com. In interest of time, I will only summarize the key points here.

Our total revenues year-to-date reached $4.3 million. That is an increase of 23% compared to the same period last year. Revenues from sensor modules increased with 88% for the same period. Looking isolated at the third quarter 2021 compared to the third quarter last year, we can see a slowdown in sales. Our revenues decreased primarily due to the overall global supply chain constraints and more specifically, semiconductor component shortages, affecting our customers within the printer and Automotive markets. This, combined with renewed pandemic-driven lockdowns in our key markets, impacted our revenues negatively in the third quarter.

Operating expenses for the third quarter decreased to 12% compared to the same period last year due to onetime costs in Q3 last year. They decreased by 19% compared to the second quarter is mainly due to a lower activity level during summer vacation period. The cost level we saw in Q2 this year is more in line with the expected cost level going forward.

Our total gross margin year-to-date 2021 was 86% compared to 90% for the same period 2020. The decrease is related to a higher share of product sales, which drive cost of sales, whereas licensing has 100% gross margin. Gross margin for products was 31% year-to-date, which is the same level as last year. We expect to see an increase in margins coming quarters as we have updated the price list for TSMs.

Net cash used in operating activities during the third quarter 2021 was $1.6 million. Compared to the same quarter last year, net cash from operating activities has decreased with 12%. The decrease is mostly related to the timing of paying supply invoices.

And some update on the registered direct offering. In October, we sold 1,808,000 shares of our common stock at a price of $7.75 to certain Swedish and European investors. The registered direct offering closed on October 26, and we received net proceeds of approximately $13.1 million from the offering after deducting placement agent fees and offering expenses. The offering was oversubscribed, and we are happy to welcome new and old strategic Swedish and European investors. We intend to use the net proceeds of the offering for continued investments in sales and marketing to create greater awareness and drive demand for contactless touch and Neonode's touch sensor modules. We will also use the net proceeds to support the expected growth of a touch sensor module production volumes, which will tie up capital in components and finished goods. And last, the net proceeds will also be used for general corporate and working capital purposes.

I will now turn the call over to Urban, who will give our business and strategy updates.

Thank you, Fredrik. Today, I will review some slides describing our vision, our technologies and our business strategies. I will also describe our key markets and how we work to increase our sales in these markets.

At the first slide here, I want to share with you our vision statement is to transform the way you must interact with machines and very happy about this vision statement as it ties back to also where we are coming from and Neonode's history. Remember that this company was founded as a smartphone company 20 years ago and was the first company to launch a gesture-based touch phone on the market, the Neonode N1, which was presented as early as 2002 at a CeBit fair in Germany. This was a phone without conventional key pads that all the mobile phones had at the time.

Late in Neonode, roughly 10 years later, we helped HP, Lexmark, Canon and all the other printer manufacturers to get rid of the buttons they have on their printers and replacing them by Clevertouch displays that allows scrolling and selecting different options in the printers using a touch interface. And right now, as this picture shown here indicates, we work a lot with contactless touch or some people call it touchless touch. So we are still involved in human machine interaction or HMI, and we want to transform the way humans interact with machines and to make it more convenient to enhance the customer experience and bring more value to all the users. We are a deep tech company, and all our work is concentrated around 2 versatile technology platforms. One, that is by now, I think, well known by followers on Neonode is zForce. It's an IR-based or infrared-based optical technology that supports touch and gesture sensing and a very advanced involving optics, electronics and software algorithms in this platform. We also have developed over the last years a software platform for scene analysis. We call that MultiSensing, and this platform supports applications such as eye tracking, browsing as distraction monitoring in vehicles and other situations and general occupancy and situational context monitoring.

Today, we have a certain focus on contactless touch. And as you heard from me and other people representing Neonode in previous conference calls, this is our main focus since last year and where we also see the biggest potential in the coming years to grow our top line but also to significantly improve our margin and our general cash flow situation.

What is contactees touch? Yes, as the name suggests, it's contactless, but touch-like interaction with displays, keypads, buttons and holographic images. By touch-like, you mean that you typically point with a finger or another object like a pen or maybe you have a key or something. Here, you can then interact with underlying machine without touching the display or the keys, but you hover your finger in front of it and with our technology that is -- that can be interpreted as a touch or a click as we have been accustomed to on the computers. This is very convenient, and it adds safety, security and in general, an improved customer experience when you interact with different types of kiosks and elevators and other type of applications.

Why is this interesting? Yes, I've already touched on it. It's a lot -- it's about safety and to avoid getting various types of infections from bacteria from viruses or in general to have an unpleasant experience. And I think the key point when we're looking at this slide is that think about 1 machine and many users. So we talk about kiosks and elevator in public spaces. It can be at an airport, in a shopping mall, at the hospital, in an office building where we have many different persons coming in and using the elevator or using a coffee machine or other kiosk.

And here is where we see the very, very big advantage of contactless operations. And if you add them to the improved user experience that you can get with this type of interface rather than a conventional touch interface or physical buttons, it's a very, very compelling and strong offer that we bring from Neonode.

Countless application areas. We have decided to go mainly towards the elevator and kiosk segments, and then especially advanced interactive kiosks that you can find self-service kiosk, point-of-sale terminals, different types of vending machines, I mentioned, elevators. We see applications in hospitals and clinics. It could be for, obviously, visitors, patients coming to that hospital. And for instance, in Sweden, it's very common that you sign in using a self-service terminal. And there's other use in the surgery room, where typically nurses and doctors want to interact with machine in a sterile environment and then touching a display, for instance, is not an option. So here also contactless has an important role to play.

We also see different types of information displays like you would have, for instance, when you exit airport security and they typically have a station where you can tell how happy you were about this experience passing through security, the same for your shops is another example.

So all these types of applications is what we are addressing with our contactless touch offers, and we think we have a very, very strong offering in our touch sensor modules, which are embedded sensor modules that we produce in our subsidiary Pronode in the West Coast of Sweden. And originally developed for touch applications, it's ideal for contactless touch because of its optical way of operating and high performance. So we can sell and we are selling and deliver this as a standard commercial off-the-shelf product today, and we can scale it up very quickly because our operations at promo uses state-of-the-art automatic production machines tuned for this specific product range.

Overall, we offer a cost-effective and easy to implement solution that's ideal to both retrofit solutions and new designs. The technology itself is very, very advanced and it's both fast, precise and for instance, it supports advanced multi-finger operation, which is interesting in some kiosk applications. How can it look in a retrofit solution in an elevator? This is an example from our friends at Dewhurst. Dewhurst is a U.K-based elevator control panel supplier. They work both OEM and in the aftermarket. And for contactless touch, they have developed a technology called HALO, and they are promoting this under their own brand HALO with Dewhurst powered by Neonode. They have an increasing business around this. And this is 1 picture showing how an installation can look like in a modern elevator, and this is from a commercial building in London, and they have a sign there next to the control panel, so this is a touchless elevator operation now.

And if you look closely, you see on the right of the button that the person is pointing at, there's a little holder for our TSM, and this is one creating that touchless or contactless feature in this elevator. It has been marketed for some time, and the Dewhurst is picking up speed. They are also approaching elevator OEMs with this solution. So they work both aftermarket and new equipment.

Another example is to show how you can also do it, this is still a retrofit solution developed by a company called Jardine Schindler. It's a joint venture to Schindler in China. They in turn work with some friends of ours called HKPC in Hong Kong, and they have developed and installed a number of these retrofits for elevators in and around Hong Kong. And what's interesting about this you see in the picture that you can position the unit in the corner or it actually build it into the wall. So the installation can be very, very unique if you have this type of arrangement.

So basically, it will be an invisible solution if you build it into the wall, and it works together with standard control panels, so very small allocations needed. But of course, if you look at new installations with new elevators, you can do even nicer installations that are totally invisible and works very well. The use case in elevators is, I think, very, very clear and compelling, and we have good response and market feedback from these type of solutions with different companies that we are engaged with in North America and Europe and Asia.

I've been talking about (inaudible) Airport in previous earnings calls, and still airport kiosk is sort of a subsegment in itself, which is very interesting and where we have considerable traction now. We can expand this maybe to, call it, transportation hubs, so including airports, train stations, subway stations, bus stations and similar. There is a strong interest from different companies, some could be the airport companies or the companies doing kiosks for airports or in other cases, it could be the operators or the airlines or the train companies operating these transportation hubs. So we see all different versions. We are still mainly doing retrofit projects here, but we have growing interest from kiosk OEMs as well.

And this is just one example. We have other types of self-service kiosks in shopping malls, in supermarkets, in restaurants and so on. And for instance, we recently came out with a press release about a new project where a certain Sushi chain in Japan are using our technology with great contactless touch self-service kiosks at their restaurants throughout Japan. And these are just some examples of the progress we've been making in the last 6 to 9 months, I would say. And we are happy to say that the interest is growing, and we are sort of building the momentum here. Although the third quarter, as Fredrik mentioned, was a little bit slower than we had hoped. We continue to believe that all these type of contactless touch kiosk and elevator applications will simply become more and more common and that our market share will grow.

I want to end this (inaudible) of examples by showing this picture. I like this very much because it's very, very clear. If you look closely, above the display here is a bar holding our touch sensor module or could be also 2 of them in some applications. And with that, the display can then be used as a contactless display or a touch display. To the right, they have here a temporary guide with step 1, step 2, step 3, instructing the user that this is how you use this contactless screen. And just below the screen, we see a sign saying contactless screen. So it's very easy to recognize that this is something special.

And the feedback we have from this particular hospital which is in Asia is very quick for new users, patients and staff in that hospital to sort of understand and use this. And it's a very, very positive reaction and they have placed like follow-up orders to equip further kiosks in their hospital with this solution. So this is what we are working on. And these are some examples of success stories and larger and smaller projects that we have been involved in, and our pipeline have multiple other examples similar to these. And we have had the biggest -- the best traction so far in Asia, but I'm happy to say that interest is increasing also in Europe and North America. And like Fredrik said, when we talked about registered direct offering and what will use the money we have raised through that offering, so it's not about marketing and sales continue to promote our solution and raise awareness and drive demand for this because we think we have a very, very strong right to win.

With our solution, here a small summary. Our solution in the first column have several strong features compared to other example, technologies or solutions. It gives a very intuitive user interface. It's easy to use. It's also easy to install, and it's very fast and precise. So the overall commercial value for both the buying customer and the end customer using is very, very high compared to others.

I will say that in some applications, mobile phone apps are -- will also be taking market share going forward. That's for sure. And it's a lot driven by the fact that different companies want to own the customers and the customers' data. So that's why they have different types of apps being developed and deployed so that you should have like frequent flyer programs or customer loyalty programs, and they want you to use that to do your business with the company. In some cases, I'm sure that this will be a very, very common and that will have a significant market share. But in many others, like in an elevator or in airport checking terminal and so on, where you have the same terminal for multiple airlines and so on. Our solution is very, very straightforward and it's quick and it brings a lot of value, both to the buying customer and end users. So we are very, very confident here, and we are very, very motivated to continue our work to market and promote our solutions.

We are also working in 2 very, very large markets, the elevator market and interactive kiosk market. There are around 19 million, 20 million elevators in the world. So a huge installed base. Europe used to be sort of the dominating market for elevators. But in the last 20 years, of course, Asia has overtaken Europe as the main region where elevators are installed, especially China, but also other countries in Asia. The growth rate is somewhere 1 million to 1.3 million new elevators a year. And again, Asia is leading the way in particular with China, it's representing 63% of annual growth. But remember, we have both play with retrofits and then we are targeting to grow our market share, retrofits on the installed base and then also target our -- to grow our market share in new installs, with new elevators.

And this is a gradual work. And as I will explain in just a minute, the first step in our approach and our strategy is to penetrate the market to retrofit installs and then gradually move into new equipment as well. But over time, we still continue to do retrofits because of this huge installed base and the long lifetime of elevators, which can easily be like 30, 40, 50 years or longer.

Also interactive kiosk is a super interesting market. We can easily account to 4 million to 7 million interactive kiosks installed base. Now I will say this that some of these 4 million to 7 million interactive kiosks are the simpler type and probably not our target market, but we are confident that at least half of this or say 23 million, 25 million kiosks is our target market. And some of these subsegments like self-service kiosks and self-checkout kiosks and so on, they show a very, very interesting growth numbers, double-digit figures, and these are global averages. So if you would look at certain markets, in particular in Asia and Europe, the growth of some of these types of self-service kiosks is like super fast. And again, we can do both retrofit and new installs as for elevators.

So interactive kiosk is another interesting market next to elevators.

And just to show a little bit an example calculation about the addressable market we have already explained that we have multiple application alternatives in elevators and kiosks. It's a fast-growing market, with Japan and Korea leading the way. But if you just look at the example that we are showing here, it's easily calculated that our target market is -- or our addressable market is worth more than USD 1.5 billion. And if we would include more subsegments and so on, that number will grow. So our addressable market is a very huge one compared to our current turnover.

And that's why we feel that we are on the right track. We have a huge potential, and we can grow. We can also make a lot of money looking at some example calculation again that if you think about the average gross margin, which we think is fully realistic, even in volume production of 35%, we see the types of possible gross profit that we can generate with our business.

Now we are very far from this today and we use this as a motivation for our work to grow the business. And we are also encouraged by the fact that there is a large market out there, and the potential is there. So we are working harder and harder every day as we learn more and we grow our team and we grow our partner network to penetrate these markets and to capture a bigger market share and to simply grow, first, our half top line and then also bottom line results.

We are building our business on 3 pillars: licensing, product sales and sales of engineering services or NRE, non-recurring engineering. We see growth potential in all 3. With licensing, currently, we have more than a dozen active license agreements, mainly with printer companies and Automotive Tier 1 suppliers. In the future and what we are working on is to, of course, continue to support our current customers and to have follow-up products with them, but also expanding to new areas. -- new types of Automotive applications into Military & Avionics and some industrial automation projects.

And by this, we think that at least in the mid- and long term, we can grow the licensing revenues. In short term, it will be flat or slightly decreasing because of the legacy character of this business. The product revenues is where we see the biggest potential to grow in the coming 2, 3 years, and this has 2 explanations. One, I've already addressed, this is the large addressable market for us in elevators and kiosks. So the volume potential is interesting. Also here, we have a higher average sales price than what we typically get in royalty per product from licensing. And that's a factor, I would say, 10 or even more. So the leverage from product sales on our top line results is very, very strong.

And we are building up the momentum now, and we are targeting to grow this business significantly in the coming 2, 3, 4 years.

And also NRE, as a consequence of our products business and our ambition to grow our licensing business, we are also exposed to opportunities to sell engineering services. And of course, for licensing or Neonode, that typically is a requirement that we, together with our Automotive Tier 1 supplier, for instance, we developed a solution. And during that development project, we charge NRE costs to the customer. And then when the underlying vehicle or whatever the product is, is launched in mass production, we get the royalty, typically per vehicle or per product sold.

Here, we see a vast number of opportunities to grow our business through increased sales of NRE and also some sales of prototypes and other types of concept and demonstrators. So overall, remember that our business model rests on the 3 pillars: licensing, product revenues and NRE, and we see potential to grow all 3 of them, especially in the mid- to long term. Short term, it's mainly NRE and product sales that has the potential to grow significantly, and this is what we are concentrating on this year and the coming couple of years, probably.

We get a lot of questions about our business and how we work. So I wanted to review 2 slides here, explain a little more in detail how we work and why. The sales cycle in the type of industries and businesses that we do typically looks like this. Initially, it starts with a retrofit opportunity, meaning that we or someone else could develop a solution that could be retrofitted onto an existing elevator or existing kiosk.

Typically, here, we have to rely on partner solutions. So another company developing custom retrofit solution for a particular type of kiosk or a particular type of elevator and also going out in the field with technicians and engineers and installing them in these elevators and onto these kiosks. That's why in that phase of the sales cycle, our target customers are integrators and tech companies in the occasional case also elevating kiosk OEMs who work in the aftermarket themselves. But typically, they are a little bit difficult to convince and harder to reach in this early phase, but we are still in many markets like in Europe and North America.

So the first phase is about retrofits, and typically, we have the reliant partners to develop and install these solutions.

As the end customers' interest and demand for contactless solutions grow, what we typically are seeing is that this will, for different reasons, stimulate the OEMs to step in, and they want a piece of that business. And then we go to the new installed space where we can attract elevator and kiosk OEMs to pick up our ideas and buy our touch sensor modules and installing them in new products. And from there, we hope that we can really develop new solutions together with the customers. And then it's more R&D and then it's more or less 100% an OEM type of business, similar to Neonode's business with the printer manufacturers and the Automotive Tier 1s that we have been used to in the last 10, 15 years.

And I reduced the variant of this slide before, but the previous slide should be read together with this one. So when we said before that the retrofit business is where it starts and typically reliant partner solutions. What we have done since last year is to expand our ecosystem of partners. Some we have signed up as our value-added resellers, other are just other product and technology companies that we cooperate with. Typically, they work in a particular market, say, the Japanese market, Korean market or the German market, I have to give you a few examples.

They typically also have an existing customer base and that we can tap into, and we use them and have been using them successfully to reach midsized and also, in some cases, larger OEM companies in these markets or in some cases, even in certain segments. With our own sales force, which is somewhere around a dozen people today in Sweden and in different countries around the world, we focus on large and midsized companies and also to support our partners, of course. And what we see we are about to hit now is sort of the second phase in sales cycle where we have more direct engagement with the OEMs, and then it will be more work for our own sales persons to manage those accounts and to drive that business.

Besides these, partner sales and direct sales, we also use online distributors like Digi-Key in the U.S., Serial in China and Nexty in Japan. And we try to direct smaller customers to those and focus our own resources on the larger accounts where we have the bigger potential. Besides the ongoing work to market and sell and to grow the business through these measures, we also have other initiatives to ensure that Neonode continues to grow. Right now, we are focusing on marketing and sales and expanding our partner network, and it's to grow the awareness of Neonode and our contactless touch solutions and the TSM offerings that we have.

It's starting to pay off, and we have more and more interesting pipeline. And as we have been telling in previous earnings calls, we are building our business pipeline step by step.

In the next phase, what we are looking to do really, say, from next year is to scale the business in our key markets: Japan, Korea, China, Western Europe and America. We are also currently developing and learning more about the different application areas that we are involved in, in elevators and different types of kiosks. And we are expanding our offerings and tuning our offerings, and we are also in some cases, vertically integrating more solutions that our partners have been doing into our own offerings. And this is a way, of course, for us to grow our top line and secure that Neonode comes out as a winner in the end.

We are also investigating to add a second source besides our subsidiary Pronode to produce TSMs. And typically, we are looking at some candidate partners for producing the TSMs in Asia, closer to our main markets in Japan and Korea and China. In the future, we have already several ideas for how to continue to expand our business into new geographical markets and additional market segments.

We are developing looking at new hardware products and also extending our software offerings, and there are also ideas for further accelerating our growth through strategic partnerships and acquisitions. So please stay tuned. We have a lot more to show in the next couple of years. And we are hard at work in realizing all this potential and developing our business step by step, and we fight relentlessly every day, every week to grow the business.

And by this, I'm basically at the end of my presentation, and I just wanted to end this call and then turn it back to Dave to lead us through the Q&A session here. But first, some concluding remarks. COVID-19 continues to bring on challenges for us as many other companies. Component shortages is slowing our customers down, and we see it clearly in the third quarter, both the Automotive Tier 1 suppliers that we are engaged with and printer manufacturer customers that we have, have reported problems in the production or sales due to component shortages. Of course, that's hurting us. We also see that the strict lockdowns that we have, for instance, in Taiwan, Korea and Japan during the third quarter, they really hurt us in other ways as well, where we and our partners couldn't (inaudible) visit companies in the same cities, and we couldn't go out -- or our partners couldn't go out and install the TSMs in new elevators and kiosks.

And in some cases, of course, overall economic uncertainty caused by the COVID pandemic and the new Delta variant and other variants coming has slowed down some decision processes. So it's very clear that we have been hurt by this in the third quarter, and we are still, to some extent, hurting by this in the fourth quarter, like many other companies.

So the second bullet is that the third quarter sales was slow, but year-to-date, revenues show anyway strong growth, and we are happy for this. We have a very, very interesting sales pipeline and especially in the last couple of months, it's been going fast in the right direction. So both new TSM opportunities and the new NRE projects that we are quoting or that we have been awarded. And we also have been identifying new licensing opportunities that we hope that we can capitalize on in the next first months to get new projects started and in the coming years, to grow also our licensing revenues.

With the contactless touch business, where we, of course, focus on elevators and interactive kiosks, we are extremely well positioned today to become a leader in this business with our TSM offerings and our general know-how and also now with our well expanded partner network and global reach. We are well positioned here. So we are confident that we can grow this business significantly in the coming years. And because of this and because of the economic uncertainty, we have strengthened our cash position through the registered direct offering and the limited use of our aftermarket facility.

We have secured the support from new interesting strategic investors in Sweden and Europe. And I'm happy to say that the registered direct offering was oversubscribed and it was a very, very quick and a nice process for us. And by now, we have the cash to finance the business growth in the coming years, actually. So we are very, very optimistic for the future.

And with this, I thank you, and I turn the word back to David for the Q&A.

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

(Operator Instructions) We will take our first question from Tyler Burmeister with Craig-Hallum.

Just ask a couple of questions here. Urban, first, on the headwinds you're seeing supply constraints and lockdowns, I was wondering if you could kind of break those out as one a bigger impact from the other. And then to the degree you can, what's the time line of those improving? Is it Q4? Or are those going to linger into next year? Any color there would be great.

Yes. So first of all, I want to underline that a lot of component shortages is hurting our customers, not Neonode directly or our production. We have secured components for our production, and we run that normally. So no issue for our own production nor our own business there. We have more of an indirect effect for these component shortages. So as I'm sure many of you are aware of, in Automotive, many Tier 1 suppliers and OEMs are reporting that they are slowing down production, and they have challenges to find the right components.

This is hurting our royalty revenues. The same situation is with several of our printer customers that are reporting slower sales due to component shortages. The product sales or the touch sensor module sales, there we have heard from a couple of Asian customers that because of component shortages, they are prioritizing other programs and typically, then existing production rather than launching new products.

So that has slowed down some decision and launch processes. And this is putting us in the third quarter and some of these effects are still visible here in the fourth quarter. I'm not an expert in this, but it seems that if I compare with last year, we had a very, very strong slowdown in the second quarter and a good rebound in the third and fourth quarter last year. I think that we will see a rebound in next year. But Q3 was slow. Q4 is a little bit slower than we were hoping for when we ended the second quarter. But let's see. We are anyway confident that with the newly raised cash and interesting sales pipeline we have that we can weather this out, and we can continue to grow slowly but steadily.

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

Yes. So with this customer, they have been very, very strict. So unfortunately, we are not allowed to anyhow or anywhere announce this business with mentioning their name or whatever product lines it's involved, but it's one of the major elevator OEMs. And the elevator industry is dominated by, say, 10 large OEMs or 20, then you have like 99.5% of the world market. So it's fairly easy to understand how this market is structured. We are happy of this business because it's an evidence that our strategy that I've outlined here just 5 minutes ago is working. This started with a retrofit business that we did, and this OEM took notice of what different solution providers and tech companies were doing and installing in their fine elevators.

And then they realized that, hey, we can do this as well. And actually, we can do it better because we can then, from the factory, make sure that the installation is nice and tidy and like super professional. So they saw an opportunity for them. And this is exactly what I tried to explain with the picture here with the sales cycle. So it's very significant in the elevator segment. And that's why we had the announcement in the press release about a week ago.

And this will, of course, impact our sales going forward in the coming years. And we can estimate more than 1 TSM per elevator in average because some elevators will have 2 TSMs to cover the whole control panel. And obviously, now we are working to convince other OEMs to follow suit and take after them. So in elevators, this proves that our strategy is working, and that our approach has been correct, and it also shows the long sales cycles because I think the first time this elevator OEM heard about us was sometime early last year. And only now, they are ready and they're preparing for launch next year. So this is not uncommon with large industry cooperations, and we see the same pattern also in kiosk -- for the large kiosk companies.

That's great. And then last one. I suspect you can't comment much on your ongoing patent litigation, but I think it's been a point of focus for investors recently. So I just wanted to give you an opportunity, any comment update thought on the patent litigation?

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

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

And we can move to our next question. The questioner is Jesper Von Koch with Redeye.

Since the current revenue is at kind of depressed levels, just before its first hockey-stick acceleration, could you provide any guidance at all for 2022? And perhaps also give some comment on your illustration on Slide 27 regarding like estimates.

Yes. We will not give any concrete guidance, but we are actually very motivated by the influx of new opportunities and the strength of our pipeline, which is looking very, very promising for next year. So I mean, personally, I'm really hoping and believing that we will see some kind of breakthrough in our business next year.

Apparently, we have some headwinds in the third quarter, especially, and to some extent, also in the fourth quarter, which is a little bit slowing down the growth rate that we were hoping to achieve this year. But the overall picture is anyway very, very bright. And we are and the team, they're extremely motivated to realize more of this potential in next year and the year to follow. So personally, I think that we are on the verge of breakthrough here and we can start to see some interesting effects of this work that we've been doing last year and this year clearly visible in next year.

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

Yes. So maybe I can answer this in the following way. So our solution is a very, very good choice for the controlled panels inside the elevators. And typically there, you would use 1 or 2 of our touch sensor modules per elevator. And the average being somewhere 1.5 or 1 point -- I don't know, 1.3, 1.3 TSMs per elevator.

But then as Jesper points out, and I think it could be worth or more of you listening into this call to note that there's also an opportunity for Neonode with all the buttons on each floor in the buildings where you have the elevators. And those buttons are referred to typically as hall call buttons, at least in American English. Typically, you would then use one of our shorter TSM and have a similar contactless touch operation of those buttons. So that's another additional opportunity. And then depending on how high your building is, how many floors you have, the more of these hall call buttons you will also have. Now it's not guaranteed for the elevator company or Neonode that you can supply the hall call buttons to the elevator. And it's -- what I'm learning more and more here is that it's very different.

In some cases, the elevator OEM supplies the whole solution. And then in some of these, we have an opportunity to participate with our contactless touch offering. But in other projects, the elevator companies just test with supplying the elevator itself and then the real estate owner works with another installation company or other tech company to do the rest of the installation and the fitting, including the hall call terminals.

So it's very difficult to estimate. But what I wanted to say as a final message on this is that we have an opportunity, which is larger than 1 TSM to our elevator in the elevator market. So you can have more than 1 TSMs inside the elevator and also on the hall call buttons on each floor. But it's very, very difficult. And I shouldn't even try to guess where it is. But this is an interesting twist to that elevator business that we are doing.

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

Yes, you should know the following that these 2 markets are fundamentally different. So the elevator market is totally dominated by the 10 or 11 largest OEMs. They make up for more than 95% of the world market. And if you add 10 more, then you have basically all of it. So very few companies sort of dominate the elevator -- the new elevator business.

In kiosks, it's so much more fragmented. If we talk about thousands of kiosk OEM companies, of course, there are these global giants, and some I can just name drop. And these are -- I'm not indicating that all of them or even some of them are our customers, but some of the big names in kiosks and global players are Diebold Nixdorf, NCR in U.S., Glory in Japan and companies like this, they are corresponding type and size of the large elevator OEMs. But then there are hundreds if not thousands of smaller and medium-sized kiosk companies.

Some work only in certain geographical markets like in China or in the U.S. or in France, some work only in certain verticals like in self-ordering kiosk for supermarkets. And here is an overlap to the point of sales terminals and cash registers that some companies are specializing in. So actually, you are suggesting that we have had the best traction in elevators, but I would say that we are at least in the same shape in kiosks with already secured engagements with several medium-sized and smaller kiosk OEMs and working to penetrate also the -- some of the larger kiosk OEMs.

But you should just understand that the dynamics and the structure of these markets are fundamentally different. And that's why maybe the visibility is not that great. And on the other hand, customer base is much broader and gives us better stability going forward.

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

Yes. So what we are very clear about is that Neonode is a deep tech company. We have both hardware technologies, in our case, even optical expertise and patents around optical designs, electronic designs. We have dedicated integrated circuits, ASICs that we have designed that we are selling to our customers. But already today and going forward, the software portion of our offering and our portfolio will only increase in importance and depth.

So we are thinking about using, for instance, our touch sensor modules in new types of applications, where the big differentiator will be the software that we deliver with the TSMs and not the TSM itself. It's just a platform to do and to realize different functions for the end users.

We are also developing more and more configuration tools to support our different customers to have a quick and straightforward integration and launch of contactless touch solutions. And with the MultiSensing software platform, obviously, it's 100% software that we are delivering. And it will be, by now, a traditional software business model, where you typically charge for adaptations through and reprojects, you license and you take a royalty per unit or you sell it as Software-as-a-Service. And this could be with Automotive customers or military or industrial automation customers. And overall, the portion of Neonode's customer offerings and portion of Neonode's revenues coming from software solutions will simply grow.

And here, we have a huge potential also to expand into new areas and maybe team up with other software companies and combine our offerings with them, it could be in kiosks or we could enter into neighboring segments. And we don't have any concrete acquisition targets or plans, but we are entertaining thoughts about partnering with other companies. It could be other tech companies or there could be companies in our ecosystem today, where we see an opportunity to do a vertical integration and bring them on board in the Neonode team rather than being partnering to us.

So right now, in the strategic development plan for the company, it's not top of our list. But as I showed in the previous slide, it's there in the future, and the future may be mean a couple of years from now. I think this company having stabilized and grown our own business organically by executing on the strategy that we put in place beginning of last year, we can also start to look at some new partnerships and even some acquisitions. And this is a further way to grow the business and increase shareholder value.

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

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