Neonode Inc (NEON) 2020 Q3 法說會逐字稿

Hello, everyone. Thank you for standing by, and welcome to Neonode's Third Quarter 2020 Earnings Conference Call. (Operator Instructions) Thank you.

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 2020 financial results and provide a corporate update. Our update will include details of customer activities, technology developments and other items of interest. Before turning the call over to our CEO, Dr. Urban Forssell; and CFO, Maria Ek, I'd like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, tend, will, guides, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements.

These forward-looking statements do not guarantee the future performance that may involve or subject to risks, uncertainties and other factors that may affect Neonode's business, financial position and other operating results, which include, but are not limited to, the risk factors and other qualifications contained in Neonode's Annual Report on 10-K, Quarterly Reports on 10-Q and other reports filed by Neonode with the SEC to which your attention is directed. Therefore, actual 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.

At this time, it's my pleasure to turn the call over to Urban. Urban, please go ahead.

Thank you, Dave, and welcome to this call. I will review with you today some strategy and business updates. And after this, I will head -- turn over to Maria for some financial details about this third quarter. To start off the strategy presentation. I want to reiterate that since the beginning of this year, have organized our business into 3 separate business areas, and we call them HMI products, HMI solutions, and remote sensing solutions. And in this call, I will talk a little bit about each one of them. I'll give you some insights to both the strategy and the current business activities that we have.

HMI stands for human machine interface. And those of you that have followed Neonode for the last 10 or 12 years or so know that this has been a key focus for our business leading up to 2020. And it still continues to be very, very important. And that's why HMI products and HMI solutions, both are focusing on these areas. In HMI products, we sell our standardized sensor modules. For contactless touch and gesture sensing. The focus there is on customers in the elevator and interactive kiosk segments. HMI solutions is a separate business where we focus on customized engineering solutions made for touch and gesture sensing at this point. And the focus is on customers in the military and avionics and the industrial segments.

Remote sensing solutions is a software business for us, where we focus on driver and in-cabin monitoring. And in terms of customers, we are targeting OEM and tier-1 system suppliers in the automotive space in Europe, in North America and Asia, respectively. And with this as an introduction, I will also reiterate that Neonode works with 2 main technology platforms, one that we call zForce that underpins our touch and gesture sensing technologies, and contactless touch that you will hear us talk about in this call is a very hot and sought after technology solution that we can provide now to customers that want to avoid touching keypads and displays in public spaces, which is very much in focus due to the COVID-19 pandemic.

Our software platform, MultiSensing, underpins our offerings in driver and in-cabin monitoring. And for driver monitoring, often, the objective is to monitor and detect drowsiness and distraction with the drivers and in-cabin monitoring is more focused on occupancy and situational context monitoring inside the vehicle, including passengers. It could be pets, it could be objects in the passenger compartment. In this review, I will start to talk a little bit more about the business area, HMI solutions, where we, as mentioned, offer customized touch and gesture control solutions for demanding customers in the military avionics and in the industrial segments. This is a solutions business, and we focus on 100% bespoke solutions that we adapt to each customer's specific needs and each application. We offer scalable solutions, and the business here is based on a consultative, long-term relationship approach. And as mentioned also, we target customers in the military and avionics segment and the industrial segment.

We are leveraging here the advantages with our advanced zForce technology. That would be that it offers, for instance, a cost-effective touch and gesture control, it has both good EMI and EMP, and that would be electromagnetic interference and also electromagnetic -- yes, properties, sorry for this. We have very good functional performance, good quality, low latency, freedom, and sign and so on. And we also can operate for military applications with night vision systems that are frequently used in helicopters and aircraft and also on ground vehicles, where we are looking today.

So this slide is just to illustrate the types of applications we say that we deal with, and it's touch on displays, also touch on other surfaces. It's often in very demanding environments and rugged applications where operators would like to have a touch operation of a system or a display function, where they can use gloved hands or stylus pens or any other object to control the underlying system. We can also, with our IR based technology offer touch on any surface, not only linked to a display, but actually, we could do on glass windows on walls on tables and so on. And a very strong offering that we have, which is, for instance, very important in medical applications is that we do not deteriorate the image quality, neither the resolution or the contrast or the lightening of the underlying display, which is sometimes very important. For instance, for examining x-ray images in a system that we indicate in the picture here, second from the right.

We have 2 main variants of our zForce technology. One is a blocking technology, and we show an illustration on the left. The working principle is that we have on 2 sides, you have light emitting diodes. And on 2 opposing side, you have photodiodes receiving these infrared light beams. If you place a finger or an object, you will break one or more of these light beams, which can be detected. And hence, we can detect a touch. So this is the simple operating principle behind our zForce blocking technology. Of course, there is much more to it, but this is the simplest way I can explain it.

We also work with a second variation of this technology that we call reflected technology, where we have a one-sided sensor element that both emits infrared light and detects reflections from objects in that light field and by clever arrangement of the light emitting diodes and the photodiodes receiving reflections and use of advanced optical lenses, we can position accurately objects in that 2-dimensional light field, and that light field to be hovering above a display or any other surface or it can be directed into mid-air, allowing us to develop up in-air touch or gesture sensing applications, or if you would say, contactless touch solutions.

The focus is on military and avionics and industrial, 2 very interesting markets that are very large. And also importantly, they grow at a steady CAGR every year. We think that we have a lot to do in these 2 segments, and they have not been in focus for Neo until this year. So it's only this year, and actually, just a few months back since we really focused on trying to enter and penetrate these segments. They are -- we can continue to see about the segmentation and sub-segmentation, actually military avionics, if you would say that defense is roughly 1/3 of the total volume and civilian aircraft and similar 2/3 of that volume. The 150,000 units that we estimate may not sound much, but typically, in the military and avionics, the budgets for development and the average sales price for a display unit with touch is quite high. So actually, it's a very, very interesting segment for us to operate in. The industrial segment is larger in terms of volume and also turnover. But on the other hand, it's also fragmented. But still, this is also a very interesting segment for us to operate in.

And then you may ask, what happened to printers and automotive applications and so on? Yes, we do not say that they are of our main focus. But of course, we will continue to work in this, the sort of Neonode legacy segments, printing automotive medical, white goods, and so on. But we will deal with this in a more opportunistic way as opposed to military and avionics and industrial that we will go after more strategically and with a stronger focus going forward.

Interesting market size and interesting growth. We think that we can have a good growth in these 2 segments and combined, because they have a technical overlap, which is substantial. So we estimate that we can we use the same type of solutions for both the military avionics and the industrial segments. Typically, the customer is really large companies. And if you look at the largest companies in these 2 segments, actually, 85% of the largest companies are based in the U.S. So it's a very strong focus on the U.S. market and large companies. But of course, we have customers that are both geographically located outside the U.S; in Europe, there are many strong industry countries and as well as in Asia. But just looking at the large companies, 85% of them can be found in the U.S. and that's why we are increasing our presence in the U.S. and our focus on the U.S. market going forward.

Turning over to HMI products. This is still working with HMI. And again, HMI stands for human machine interaction. And for Neonode, that means infrared technology, and it means contactless touch, gesture sensing. But here, our offering is based on our standardized sensor module that we produce in our subsidiary Pronode in the west of Sweden, and that we deliver directly or indirectly via distributors like DDK and serial to our customers. So similar technology but a different product offering to customers and a different way of distributing products. So this is a more classical product business where we sell products. Average sales price is typically higher compared to our HMI solutions business, which would be more a licensing business.

These sensor modules that we offer here, they are easy to integrate and very well suited for both retrofit applications and new OEM designs, and they are quite easy to use, offer great design freedom, and still have a high accuracy and good performance. And we are selling them direct, as mentioned, also through value-add partners and distributors. And we are expanding basically every month, our network of partners, and I will come back to that point later on.

With COVID came an important change for Neonode, and we realized that we were actually sitting on a technology that was very well suited to solve for the problems caused by the COVID pandemic, namely that people do not want to touch displays, keypads, in public spaces like in the airport, in the shopping mall or in a hotel or office building. So we have the technology, we have the products, and we are building up our order book actually, week by week. More companies are joining in and getting interested in starting to purchase these products. Shown in the pictures here are some different examples where we have, together with value-added partners, creating new solutions that solve for this contactless touch challenge.

This picture, bottom left is from the Changi Airport. We have a press release on this that we released, I think, in September. And then there is a similar application with check in terminals and in point of sales, that on the left. And then 2 elevator applications to the right, one with the holographic display and one with a more basic direct approach installation, a retrofit installation from the partner in Hong Kong. So shown here is then examples of our 2 target segments, interactive kiosks and elevators. And I will skip this in sake of time.

So when it comes to contactless touch, we have 2 ways to go. We have our sensor modules. You can use them to project the light field on top of a surface or in mid-air. And if you arrange the sensor model cleverly and program the software cleverly, you can create what we call a parallel plan configuration. So a few centimeters or even millimeters in front of your display or in front of your key pad or similar, you can have the invisible infrared light field that we can then use to detect one or more fingers pointing at or through this light field. And then you as a user can interact with underlying system without having any physical contact to anything. Actually, everything is done mid-air and straightforward. And one example is the retrofit installation for the elevators that we saw in the previous picture.

The other main alternative would be today to use a holographic display. And we are working with 4 or 5 companies in the world now actually developing and selling holographic displays. Before they met with us, they had like a passive component that could display images into mid- air. But by using our sensor modules, you can actually touch activate those hovering images that are projected into mid-air. And all of them work according to the principle to have a semi-opaque piece of glass that reflects part of the light shown on this into free air. And depending on how you angle this holographic plate, you will have the holographic image in a vertical arrangement or slightly tilted. And of course, you have to be a little bit clever, but you can arrange our sensor modules to go with that holographic picture.

So where we see the biggest opportunities for our solution is with interactive kiosk and elevators, 2 very interesting markets, segments, massive volumes. If you take all interacting costs together, we have an installed base of some 39 million units and strong growth. And elevators is today close to 20 million, just shy of 20 million, and a strong growth with 1.3 million or 1.5 million elevators a year. And we have both a retrofit play and the new equipment play in both. So it's a very interesting market opportunity for us with our contactless touch solution.

Interactive kiosks. It could be then sub-segmented according to this. We talk about vending machines, point of sales in fast food restaurants, coffee machines, ATMs, and different types of self-service kiosks. For instance, self check-in, self-checkout at an airport ticket machines at train stations and similar. Elevators, I think you all know what we mean by elevators. What we want to highlight here is that there are 3 main categories of companies that we are today engaged with one group is the elevator OEMs and they are well-known brands like Otis, Kone, Susan Crop, Schindler, Hitachi and so on.

The second group that we are in contact with today is companies focusing on control panels or push buttons for elevators. They can sell them to the OEM manufacturers or in the aftermarket. And the third category would be maintenance repair companies. And the elevator market in the world is slightly different ranged in the U.S., North America, then Europe and Asia. So in some markets, the OEMs themselves, they would do maintenance and repairs. But in other markets, these are third party companies, independent, tech companies, independent service companies. And we at our own sales force, but mainly with our partners, we try now to reach as many of these as possible and support them locally because this is how we win visually.

This is very much focused on contactless touch. We still have a lot of other opportunities that we are exploring, and that's the beauty of having the standardized products and ecosystem of partners up there. So we would serve also customers looking for a touch solution or gesture sensing. And that could be in medical office equipment, white goods, transportation, other. And we have several examples of other promising use cases for our products in these segments as well, but our own focus will be going forward, interactive kiosks and elevators. Looking more closely at the kiosk market, we can see that vending machines, coffee machines, and say, fast food restaurant terminals at McDonald's or similar where you order your food and your beverage. They make up the largest portion.

ATMs actually is a smaller portion and self check-in checkout, if you would single out, those are pretty small. There is an interesting growth in all of these except ATMs, which is basically flat. ATMs is on the decline in Western Europe and North America. But on the other hand, is increasing in developing countries in, for instance, Africa, South America and so on. So that's why in the combination means that there's a flat market size for ATMs. Some of the OEMs we are talking to in the space, they, of course, cover multiple of these subsegments. So we are not focusing on just single of them, but we are monitoring this. We see that some OEMs are stronger in some subsegments or in some geographic regions. But overall, the volumes are very high. There is a good growth rate, and we think it's a very, very interesting segment to work on.

Elevators is a little bit different. The world market is totally dominated by some 10 or 12 big OEM companies. And we see this pie chart, Otis, Mitsubishi, Schindler, Kone, Susan Crop, Hitachi and so on, and some Chinese. The biggest growth in installed volumes we can see in China and other parts of Southeast Asia. But because there is a huge installed base also in North America and Europe, and they will be serviced and refurbished and upgraded on a regular basis. It's very much an active market also in these developed countries. And as we say, we have a play both with the big OEMs and the control panel companies and the maintenance and service companies, and we can do both retrofit and new equipment, so elevators is also super interesting for us and promising.

I mentioned before that we work both with direct sales and with different types of partners. We have this year now in a very strategic way and very systematic way working to expand our partner network. From before, from 2019, Neonode's been working with DDK and serial, and they are examples of fulfillment distributors. We could add 1 or 2 more in this category later this year or beginning next year, where we see that we have a very important channel to the market is through our value-added resellers or partners. They could be, and shown here, the companies that we work with so far, they are a mixture of tech companies and engineering firms or both. And they are typically regional or national. So for instance, High Line, they have headquarters in Munich in Germany, and they work mainly in the German-speaking countries in Europe. Global electronics, coal and Japan Aerospace are based in Japan. Fintech, MBTech are in South Korea, and they typically have a strong focus in their respective markets. And we have also other partners, and they range from technology companies like Hollo Industry and Essar that work on holographic displays and convergence, which is a network of sales reps that we work with in the U.S.

So we think this network, although it doesn't automatically mean that we have increased our sales, they are a very important tool for us to penetrate different markets and segments that we are targeting and to speed up that penetration and growth. So that's where we are very happy to have these partners, and I would especially like to emphasize the value-added resellers, which we think will be important for us going forward.

And to see what they have been doing so far, let's look here, 2 success stories with elevators. Fine Tech from South Korea have developed a very neat retrofit solution actually in 2 or 3 different variants that they are now promoting to customers in South Korea, both OEMs and for new equipment and for retrofit to OEMs and local landlords and service companies. And very similar company called Hong Kong Productivity Council, have done a similar solution, which they are promoting in Hong Kong and China. And they have seen actually a good growth of their business, thanks to the cooperation with us, and that's a win-win, both with Fine Tech and HK PC. And that motivates them to promote our solution because it helps them to win. And at the same time, it helps us to win, so it's really a win-win. And we think it's 2 very good success stories.

In the airport kiosk space, we have, together with a company called Happy Hover in Singapore, a good story to tell about Changi Airport. And now they're in the second or third phase of installing more contactless touch interfaces in the airport terminals at Changi, they are also expanding to other airports and to other customers besides airports and aerospace companies. Quite similarly, Japan Airlines have picked up a proposal from Japan Aerospace to do contactless, touch, check in and checkout terminals, and there's a pilot ongoing at the Haneda Airport in Tokyo. Both JAL and the other, Nippon Air, in Japan are very interested to install it across all their airports in Japan and all their terminals. So Japan Aerospace and Happy Hover, they are actually pushing this quite hard because they feel that they can expand significantly, using our technology. And at the same time, it helps us to grow and penetrate these respective markets. So these are 4 examples of what we are doing with our value-added partners and the other value-added parts we have and tech partners we have, they are working in similar projects with their respective customers in their respective markets. So all in all, we think that this combined direct sales approach and the partner approach is very, very important for our future growth and success.

So why do we have these 2 business areas when they are sort of similar, and they both work with human machine interface technology? Yes, they are separate, but mutually supporting. So we have different force for the 2 business areas: HMI products, sale of standardized products, HMI solutions. Here, we offer customized solutions, and it's a technology licensing business. In HMI products, we will have many, many customers, mainly indirect sales through distributors and partners. And typically, the customers will buy and use our product as is. And then you see the contrast to what we do in HMI solutions. Very few customers, mainly direct sales, and per program could be quite large development efforts.

This is a solutions business. But we think the strategy is right, and there are many synergies that we can use between them about business opportunities, product ideas, partners, technology, et cetera. So we feel encouraged in the progress we have made so far this year, and we will definitely continue to work on these 2 separate but mutually supporting business areas, and we think it's the right way for us going forward. We want to optimize and improve in each one of them, and we want to grow in each one of them, but the combination is a very strong point, I think, in the Neonode of 2020 and going forward.

Finally, some words about our newest business area, remote sensing solutions that we officially launched this year. And it's a new business for us. It's a software business, where we aim at becoming a tier-2 software supplier to tier-1 system suppliers and OEMs in the automotive industry. The focus is, so far, 100% on driver and in-cabin monitoring. Long term that may change, and we may also look at other types of applications for this type of AI software that we are developing. But right now, in the next years, we will be full focused on driver and in-cabin monitoring. So our technology here is a scalable AI software platform that supports different types of driver and cabin monitoring and features. It's a scalable platform, it's hard but agnostic. It has also a very limited footprint. It can run on virtually any processor out there, and we can achieve high-performance even with a lower resolution camera, which is the main sensor input that we are using.

And by having this low system requirements means that we can solve for the demand, for instance, stipulated in the European GSR and the EUR NCAP Guidelines for Driver Monitoring Features and New Vehicles from 2024 and on. We can solve for that with very low system cost. And this is a strong point in our offering compared to our competitors, both other tier-2. Software suppliers and tier-1 system suppliers that sometimes have resorted to more brute force approaches and quite expensive hardware components.

So again, one of -- if you get a chance to ride with a customer in an elevator, what we will always pitch is that our solution is scalable, it's hardware agnostic, low competition of footprint, and we are there to help them increase safety and fulfill the legislation going forward.

The main drivers in this market is safety concerns. And in the European markets, for instance, the European Commission have looked very closely at driver distraction driver drowsiness and how this causes a lot of accidents in the traffic. And in view of this vision to try to avoid any kind of accidents, the commission in November last year published GSR requiring an advanced driver monitoring feature in every vehicle that will be sold in the European Union for 2024 and on. So it's a safety concern about the driver's state, if you're distracted, if you're falling asleep. And then linked to autonomous driving also, is the driver actually holding his hands on the steering wheel or not? Another type of safety concern is what's known as side left behind. And especially in the U.S., there is a big debate, and there is an upcoming NIPSA regulation for this type of features, so that you cannot accidentally forget your child or your pet in a locked car on a hot sunny day. And this is another type of safety concern. Also, people are realizing that you could monitor the seatbelt use and actually how you apply the seatbelt that is positioned right. And this type of technology that we're working on here can actually support this. So these are all examples of safety features.

And at the same time, all the OEMs in this automotive business, they are looking at comfort features. And then it's everything from autonomous driving, which is a safety and a comfort feature down to very personal preferences and how you prefer your climate control or audio control in the car. And the software we are developing and in-cabin monitoring features we can offer, they would support this type of feature in modern cars. And if you, as an OEM, would invest in a camera in the cabin of the car and hardware to run software on, what we are seeing is that all of them will have a quite long list of features that they want to realize using that hardware. And we have anticipated this from the beginning with our development of the multi-sensing software platform, and we can actually support a wide range of these types of safety and comfort features and still at a low cost. And this is really our right to win in this space.

In lieu of time, I will skip forward here and say that how do we differentiate from competition? Those of you that have followed us this year, you may also be aware about some of our competitors and may also follow them, or you are just interested in automotive market, so you may have understood that there's a development for driving monitoring features going on. What we rely on very much is some unique proprietary software algorithms. They are AI algorithms using machine learning cold. It's very tailored. So in the end, our approach works well with a very, very lean models that then take very little to execute on even a small processor.

We are also relying very, very much on synthetic data, and that supports short development cycles, excellent change management and we can upfront and will precision calculate or estimate future development efforts. So in sum, compared to other companies working with rule-based driver monitoring software algorithms or AI-based, we are more efficient. We are faster, we are more transparent and plannable. So we bring different values to our customers in this business area. And with this overview of our strategy and business, I will turn the word to Maria Ek, our CFO. Maria?

Thanks, Evan. You can find our Third Quarter Earnings Release and 10-Q available for download on the Investors section of our website at neonode.com. So I'd like to start with a summary of the quarter. Revenues are up by $0.2 million compared to the same quarter 2019. This is driven by sales of sales sensor modules, while license fees were almost flat between the years. Our operating expenses are higher-than-planned for the quarter, $3.0 million compared to $2.4 million in the same quarter 2019. However, on a pro forma basis, removing one-time costs and operating expenses for the third quarter 2020 would equal cost 2019. Due to the above, our operating loss was up by $0.6 million compared to the same quarter 2019.

We have net revenues of $1.5 million for the third quarter of 2020, which is an increase of 14.1% from the comparable quarter last year and almost double compared to the second quarter this year. Revenues from our solutions business consists almost exclusively of license fees, and were $1.2 million during the third quarter 2020 as well as 2019. However, revenues related to automotive has increased from $0.4 million to $0.5 million, while revenues from consumer electronics decreased from $0.8 million to $0.7 million. We see general lower license revenues due to slower sales in the global markets related to the COVID-19 pandemic, so the increase in automotive is a positive development. It relates to a customer project that was completed a couple of years ago that went into production in 2020 and is expected to be in production for at least 5 years.

In the third quarter of 2020, our customers to license our technology shipped 1.7 million devices with an average license fee of $0.69. And in total, to date, more than 77 million devices with Neonode technology have been sold. Moving our HMI products business area, we have seen an increase in the number of chip products in the third quarter with revenues of $0.3 million compared to $0.1 million the same period last year. Most of the product sales has been through our partners in the U.S. and China. And as of end of September, we had a backlog of $0.5 million with a planned shipment within the next 3 quarters. We continue also to receive purchase orders for new sensor margin shipments have increased our manufacturing activities to meet the increased demand.

Our gross margin was 87% for the third quarter 2020 compared to 95% the same period in 2019. The decrease is due to a mix of higher product sales with gross margins ranging between 30% to 50% in 2020 compared to 100% gross margin license fees in 2019. We expect this trend to continue as our sensor module sales increased as a percentage of our total revenues. Operating expenses increased by 25% to $3.0 million for the third quarter 2020 compared to 2019, which is due to onetime costs, partly offset by lower payroll costs and less traveling. Excluding the onetime costs, our operating expenses would have decreased by 2%.

Our net loss for the third quarter 2020 was $1.7 million or $0.16 per share compared to a net loss of $1.1 million or $0.12 per share for the third quarter 2019. Excluding the one-time costs, our net loss for the third quarter would have been $1.1 million or $0.11 per share. Net cash used in operating activities during the third quarter 2020 increased by $0.4 million compared to the same period last year. The main reason is the increase in net loss. We had cash and accounts receivables of $13.3 million at the end of September, which we believe is sufficient capital to position the company to capture the growing customer demand across all our business units. And with that, I would like to hand back over to Urban for closing remarks.

Thank you, Maria. And in closing this presentation, I would like to highlight a few points here. First of all, that our zForce technology, which Neonode has been developing from mid-200,. And that is very well patent-protected by us, even enabling technology ideally positioned to solve for a lifestyle shift to contactless touch solutions brought on by COVID-19. In comparison to other companies that now try to exploit the search in the demand for contactless solutions, actually, we have an existing improvement and ready technology, and we are ramping up our production to fulfill the increase in demand that we are seeing.

We see that -- and we still believe that there's an enormous market opportunity for this, both in new and retrofitted equipment. We are focusing on the 2 very large segments, interactive kiosks and elevators. We have a global reach, and we are talking to customers, both North America, Europe and Asia, and we'll continue to do so in the coming quarters and years. So this is a very exciting time for us, and we continue to build orders for these products. At the same time, we are also pleased to see that we have a significant interest for our zForce and multi-sensing technologies from customers in the avionics and industrial control system industries and automotive system -- automotive industry, respectively.

So in sum, we think that we have a good play and a good future in all 3 business areas. We also have by the private placements, we completed in August, adequate cash resources to grow and accelerate. And the focus for us now in the coming 12, 18 months or so is clearly on execution, on growing sales and growing the top line. And by this, we are expecting also to be able to present to you in coming calls and improve the bottom line, so improved earnings. By this, we have come to the end for our presentation, and we will now open up for questions from our analysts.

And I will ask you, Dave Brunton, to moderate us.

Thank you. Okay. So Christy, you want to open it up for questions?

(Operator Instructions) You have a question from Viktor Westman of Redeye.

You've been doing quite a rebuild of the organization, Urban, and I just wanted to ask how long a time you think it would take before we see some effects from this transformation and the changes, and what are the first effects we will see?

Yes. We are actually rebuilding Neonode from outside in and inside out, so we are doing a quite massive overhaul. But we -- of course, we do it -- try to do it in a sensible way and step by step. So during the second quarter, 2 strong additions to our team were presented, Mr. Johan Schwartz and [Mr. Yuasa]. And they head up our business units, HMI products and HMI solutions, respectively. They have really made -- started to make an impact on our business and our strategy and what I present here. And also, they are working to expand our own sales force and the partner network that I mentioned.

So here, we see examples of results already. Just the other week, Mr. Atsushi Ishii, joined as a new VP of Engineering. It's too early for him to make a strong impact on what you present here, obviously. But I expect that he, together with Johan and Jonas, and as the rest of our team here, we will have a stronger, stronger and more clear and more clear impact on our business and our strategy. So we are quite excited about these new additions. Recently, we also, I can mention, we hired 2 senior salespersons, one in the U.S. that will focus on the military and avionics market, and one in Europe that will focus more on the industrial and elevator segments. Both of them have more than 20 years in sales and sales management positions in very, very relevant industries and actually working for competitors of ours. So this is the way we -- step-by-step and gradually are rebuilding the team and strengthening the team.

So I think we will continue. On my personal agenda, I have some more things I want to do before I say that we are done. On the other hand, in companies like this, you are never done. So it will be more of a continuous development as we go forward. And we always try to be agile, and we are prepared to change our plans and adjust. And what we discussed with the team here last week was one example is that in January, February, actually, I could not see that the COVID-19 pandemic would hit us so hard, and that we will see this increase in demand for contactless touch. But I think we have responded well and adjusted in a very good agile way. And this is the approach that we will take regarding our organization and recruitment and how we use our resources going forward.

Yes. Good. And you mentioned military markets there. I think military -- the military market is moving really, really fast compared to automotive. So can you say some -- I mean, in other words, really slow. Can you say something about if there is possible to speed up the processes and them arrive quicker at substantial sales in this segment?

It's right that we have -- we still work with automotive customers. We work now also try to target military customers. And we also have other customers that work in industries where typically, the sales cycles are quite long and the development cycles are also long. And we have been quite open and clear about this, we think, from actually beginning this year that the transformation that we are trying to achieve in Neonode will take some time, maybe a couple of years. But of course, we try to shorten this time and also use, say, our scalable platforms and reuse a lot of the designs and developments. And this is to help our customers to have a shorter time to market. And this is, I think, a value in our offering to these customers that we can actually speed up things compared to their normal development. And this is thanks to our good technology platforms and also our know-how from 15 years working on touch gesture sensing applications for printers, e-readers, automotive, and medical, for instance.

Yes. And I think the military and avionics is quite clear, but you -- what you mean. But what do you refer to in the industrial segment? Is that the dirty, very rugged industry, or can you give some examples on the sweet spot here?

Yes. We think there are actually 2 sweet spots. But indeed, rugged industrial applications, and that could be in sort of -- if you have actually a factory environment, it could be a production hall or something where you have -- you can have both moisture in terms of water oil in the air. You can have the dust, you can have also outdoor applications that should work in the wintertime, in hot and cold and similar. So rugged is what we have in mind in the first place. But speaking about synergies between our HMI products business area and HMI solutions. I think also in kiosks and elevators, what we will see is that especially large OEM customers in those segments, they will, I think, to a larger and larger degree, ask us for more bespoke solutions that are specifically tuned and adapted to their products. And here we are, we are still Neonode, and we will definitely try to capitalize on such opportunities as well in HMI solutions. So there are these 2 sweet spots, if you would say, Viktor.

Okay. Good. And can you give us a short update on the pilots for the 6 retailers with the big self-service kiosk manufacturer? They had a quite aggressive rollout plan, if I recall. Can you say something about that?

Yes and no. Our customer, in this case, it is a leading player in the, say, interactive kiosk market. They have a worldwide reach and a very large organization. They are quite committed still. They are pushing ahead with their own quite aggressive plans. We know that they have -- right now, it seems very positive resonance from a big retail chain operating in South America. They are still working with a few chains in North America and in different parts of Asia Pacific. But I don't have any more substantial news that I can share at this point. But it's still looking promising and solutions are -- have passed some different internal approval stages at our customers. So we are quite optimistic about this, how it will play out.

But I can say, personally, I think that the growth anyway, will be like step-by-step for -- this is a very big company that we are dealing with, and they have many customers. But of course, each customer will make their own decision at -- and they will come one by one, I expect. So I don't expect like 1st of December, for instance, that it will become an explosion of 15 new programs with this customer. It will come one by one over the next quarters. But we are still optimistic, and it's looking good, and we have encouraging feedback from our customer that they also think that this will fly in a very good way going forward.

Okay. Last question, if I may, then, on the competition for -- on the competing technologies for elevators and kiosks, what are the typical alternative technologies to be used here? Do you see a lot of radar or time-of-flight sensors in the market or something else?

I would say personally, for kiosks and ATMs, I personally regard mobile phone apps as one serious competitor in terms of an alternative technology or alternative way of solving this problem. But it will be -- it's a fragmented market. So some will use capacitive sensors and boost up the power in those so that they will react actually a few millimeters out. But compared to capacity solutions, we think actually, our solution is much more straightforward and better. But there are also some companies doing like with cameras, and then it will be more 3D gesture sensing. And I'm sure there are also applications where radars are being used, plus voice controls. Actually, if you look at this whole market, there's everything from mobile phone apps to camera based gesture sensing, voice control. And then we work in a portion where infrared is more directly competing with say, PCAP solutions. Overall, I think we have a very strong and compelling offer. It's simple, intuitive, and it doesn't interfere with if there's an underlying display or keypad. So it works perfectly for retrofits and very easy to use, and can also be integrated with very nicely new product.

In elevators, I know some elevator OEMs are promoting their own mobile phone apps. But if you think of it, how intuitive is it, if I go into an office building or apartment building that I have to pull up my mobile phone. And in this building, they happen to have like Otis elevator, I have to download the Otis app. That's annoying. We have a much more straightforward solution, and it works perfectly with the traditional type of control panels and touch buttons that you have in elevators. And for instance, the very nice solution developed by Fine Tech and some other companies that we work with in North America, they look magnificent. They look actually very stylish and they work excellent. So there, in elevators, I would say, mobile phone apps and other advanced solutions, they are not so intuitive and easy to use as our -- so we have a very strong offering there.

Thank you, Viktor. Thank you. And thank you, everyone, for joining. We will publish the slide deck from this presentation on our website later today on neonode.com. And I will also mention here in closing that in the slide deck, we have an appendix with some reference to market data that we have used to build up the diagrams and the pie charts that we showed during this presentation. So if you're interested, look at neonode.com later today, and you can see the slide deck from this presentation. Thank you very much, and join us again for our fourth quarter call beginning next year. Thank you.