Neonode Inc. (NEON) Q4 2014 Earnings Report, Transcript and Summary

Hello everyone. Thank you for standing by and welcome to Neonode’s Fourth Quarter and Year Ended December 31, 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [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 fourth quarter and year-ended 2014 financial results and provide a corporate update. Our update will include details of customer activities, technology developments, and other items of interest. The prepared remarks will be provided by Thomas Eriksson, our CEO and Lars Lindqvist, our Chief Financial Officer. Before turning the call over to Thomas and Lars, 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, guide, 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 be subject to risks, uncertainties and other factors that may affect Neonode’s business, financial positions 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 or 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 is my pleasure to turn the call over to Thomas Eriksson, our Chief Executive Officer. Thomas, please go ahead.

Thank you, David. Good morning, everyone and welcome to the call. First off I would like to proudly announce that Neonode’s zForce PLUS multitouch PC solution has been selected by a premier PC OEM. Our technology has gone through multiple transformations and once again has shown its versatility in obtaining Windows 8 certification and addressing OEM demands for small to large display and purposes. Our multi-touch solution zForce Plus was selected due to its high performance [Indiscernible] design possibilities, manufacturing simplicity and technology roadmap. We are completing the low cost capacitive sensors such as metal-mesh and other optical part solutions. So put things in perspective it’s worth mentioning that we are also fighting against [Technical Difficulty]. Hello, everyone and sorry for this technical difficulty. Thank you, David for that introduction. Good morning, everyone and welcome to the call. Neonode posted a full year 2014 revenues of US$4.7 million, which was in line with our expectations. Lars will go into financials in more details later on. 2014 was a transitional year for us with new technology offerings such as zForce EDGE and zForce Curved. These new technologies made it possible for us to get into new market segments such as monitors where it is important with modern industrial design and good image quality with no glare. The focus on this call would be to talk about the customer activities and updates on our progress in new technology development. My primary focus on the business is PC, automotive and printer application. I feel very strongly that success in this market segment would mean success for Neonode and its stakeholders. So let us dive into the PC space and what we are doing here. It has been a long process, but we have now signed with one of the largest PC OEMs. This is the start of a beautiful relationship with this leading OEM and others to follow. With this agreement in place, Neonode will supply touch and proximity modules for different PC applications in close co-operation with our manufacturing partners. Our partners build and test our module, designed by us and ship them directly to the OEM customer’s manufacturing facilities. The first applications that will ship this summer are all in one PC and monitor. Signing this agreement with one of the leading PC OEMs has been a long, but important process for us. We now have successfully implemented our royalty-based business model even in the industry that normally is unfamiliar to pure licensing, except perhaps say Microsoft for the Windows license. Normally the OEMs buy a complete customized PC from the ODMs and they source the components and modules from their vendors and assemble the complete unit. I want to paint a picture of mass adoption of touch that has not taken place yet, and how we are taking on the challenge to change that. Today the touch penetration for PCs like notebooks is about 15% to 20% of the total shipment. The PC OEMs would like the touch and display to be a standard offering like the camera or the mousepad, where they do not have to build different hardware for touch and no-touch version. Our customers tell us for mass adoption of touch in PCs to happen the costs need to come down a lot and the touch technology need to support a consistent, slim industrial design with no degradation of image quality and other problems in production like lower yield. Our competitors that supply capacitive touch solution is today far too expensive for an increase in touch penetration, and add layers in front of the display creating glare and poor outdoor visibility and lower battery time due to the less brightness and power hungry touch controllers. Today most of the OEMs in the PC industry have many different models and types of notebooks, all in ones and monitors. Most PC products suffer from low margins and cannot compare to a company like Apple that enjoys high margin from just a few different devices. Our solutions now suddenly make it possible for OEMs to introduce a consistent design language with minimal bezels and reduced number of models with the potential to reach higher margins and higher volumes. Today we have four different technologies that we promote to the PC segment. That is zForce Air, zForce EDGE, and zForce Curved and zForce Air. These technologies address anything from large monitors and TVs with flat or curved displays to notebooks, small mouse, trackpads, keyboards with trackpad function. All of our technologies support very low cost hardware, nice industrial designed look and low-power consumption for long battery life. These are the areas where we excel. I like to start with cost. The cost of our touch models for monitors and all in ones is more than 50% lower than competing technologies like the low cost capacity solution. Our latest solutions for notebooks zForce Air are down to US$0.25 per inch display. This means that our OEMs can add touch on a 14 inch notebook for as low as US$3.5 plus our royalty fee. Most low cost capacitive touch solutions struggle to get below $1 per inch and in-cell touch and on-cell touch are currently more than US$1.5 per inch. Our solutions enable 20 US dollar cost saving on a notebook, which can be more or less the whole margin that OEMs have today. But everyone knows industrial design is today very important. When using our technology our customers can achieve a consistent look and feel across all their product lines, like notebooks, all in ones and monitors. This means that the OEM can design only one device and it will look the same with or without touch thus reducing the number of different devices. Another important factor today is power consumption. By adding layers on top of the display like most of our competing solutions do, you will have dramatically reduced brightness, add glare and annoying reflection and poor outdoor visibility. On a notebook, the backlight is one of the largest power drains. When you add a capacitive touch to notebooks the battery drains faster and as a result the time you can operate on battery will be reduced. This is one of the reasons why non-touch notebook can run on battery longer than a capacitive touch enabled device. Since we do not need a sensor layer in front of display, products with our technology enjoys longer battery operating time with crisp clear display with great indoor and outdoor visibility. With zForce low power technology we can also expect almost the same battery life time as a non-touch notebook. And now let us move to talk about the success in our automotive space. I decided a few years ago that we should invest in this space. I know at the time that this would require long development cycles, but eventually would give us a large return on our investment. This investment is now starting to pay off and we can see the first cars installed with our technology hitting the market, and they work really well and are receiving great reviews. We have started to be recognized as a premier touch supply to the automotive industry, where they have moved from resistive to capacitive and now to optical touch for superior user experience and performance. The Volvo XC90 is a premium car that uses zForce touch along with an intuitive, elegant and simple to use interface, which supports other functions like Apple CarPlay. This car has received great reviews all over the world and Volvo now leads the trend towards reducing the number of buttons to achieve an easy to use infotainment system. We have expectations that this touch platform, including our touch, will be used as a base for many other Volvo cars during the years to come. Another exciting observation is that many of our automotive OEM customers are now in full production and we expect up to 10 cars to be in production this year. During the Geneva Motor Show, Koenigsegg launched a new hybrid megacar called the Regera. It is one of the most prestigious fastest sportscar in the world. The Regera is using zForce Core technology on a 9 inch display in the centre stack. We are aware that this vehicle is a low volume car, however, we think it is an important customer because this car is an extremely high-end and sophisticated product that really showcases the performance level of our technology. During the past years we have been developing a new type of sensor that can be integrated into the ring of the steering wheel. We call it zForce Drive. This technology is what the mouse is for the PC, a relative position intersystem that seamlessly connects the driver with the car and send out information to the embedded computers in the car, and tell the driver what he is doing and the position of the driver’s hand. The primary application for this technology is increased safety. But it also enables the driver to control all of the switches and functions in the car like changing the volume or answering the call. The driver can control the car without removing the hand from the steering wheel and keep the eyes on the road. The sensor steering wheel also supports a simple and elegant handover function between the driver control and the car and self driving mode. If you release your hand of the steering wheel the car will drive on its own and when you grip the steering wheel again you are back in control. After a long development cycle of zForce Drive, we are very excited to announce that we have signed a license and development agreement with Autoliv. Autoliv is a $10 billion public company and one of the largest safety and security system suppliers in the automotive industry. This is a huge recognition of our technology. With this agreement in place, we have a partner that already has most of the global steering wheel automotive OEMs as customers. Autoliv is also a great partner that not only promotes and sell, but more importantly manufacture the complete solution for mass production. The timing for this technology is perfect as most of the OEMs are designing self-driving/assisted driving vehicles for improved safety. The zForce Drive application we also believe that our license fee will be higher than average compared to our other technologies. Let us move over to the printer segment. We are happy to see there is a lot of reports and reviews on the Internet on the HP printer with our touch where users really liked the new responsive touchscreen. We have seen a steady increase of models hitting the market, now with over 20 models in the stores. Our printer customers are progressing nicely and we are seeing an increase of our license fees. We are currently engaged with the major printer OEMs, who are currently integrating and evaluating our technology. Our printer customers combined represent the majority of the volumes in the printer global market. We expect revenues from our printer customer to keep growing in the next 12 to 24 months and beyond. And now a short update on the e-reader segment. We continue to do well in the e-reader segment. Our zForce Core and zForce Air technology is used by the major OEMs in this space. In the fourth quarter 2014, Amazon successfully launched a new Kindle incorporating our technology. We will not recognize any revenue from Amazon for 2014, but we are very pleased with their product launch. And finally a little bit update on our new exciting technology. One of our latest technology that we have developed is a touch solution for small to large curved displays. This is an extension of zForce EDGE, now supporting Windows 10 for curved displays. This solution as our other solutions provide a glare-free display with excellent brightness, and a very low module cost, typically less than one dollar per inch display. Currently capacitive and other touch solutions need a glass in front of the LCD, which reduce image quality and create glare and annoying fingerprint, which are all unwanted optical effects and mostly unacceptable to professionals and gamers. This technology is now ready for market with products like the latest car monitors and the coming all in one PC. And now I would like to hand over to Lars, who will talk about the financials.

Okay. Thank you, Thomas. Earlier today, we filed our Form 10-K with the SEC and released our fourth quarter and year ended December 31, 2014 financial results in a press release. Both of these are available for download from the Investors section of our website at neonode.com. I will not walk you through all the details at this call, but instead focus on the highlights. But first of all, I will like to explain for all of you to be on the same page that most of our customers record license fee revenues one quarter after a customer has shipped product to the market. In other words, before revenue recognition. It is important for you to understand that when you analyze our reports. So let me start with the fourth quarter. Our revenues were approximately $1.7 million, compared to $1 million for the fourth quarter last year, which represents an increase of more than 70%. Our revenues for the quarter include approximately $1.2 million of license fees and $500,000 of NRE fees, compared to $900,000 of license fee and $140,000 of NRE fees for the same period last year. The increase in net revenues for the quarter as compared to the same period last year is mainly due to revenues for new product shipment of printers and successful completion of engineering design services, which fully affect a slight decrease in license fees earned from customer shipping e-reader and tablet product. We have been experiencing declining license fee revenues from Sony and Barnes & Noble and we continue to see a general weakness in the overall e-reader market. However in September, Amazon released its latest e-reader using our touch and we expect the revenues from this customer to come and offset this decline. Our total operating expenses for the fourth quarter just ended were $4.3 million compared to $3.6 million for the same quarter last year. The 17% increase in total operating expense is due to several factors including legal expenses related to patent filings, a non-recurring event; an increase in headcount, primarily in our sales and engineering departments due to increased activities in the automotive, printer and PC segments. Our net loss for the quarter was $3.1 million or $0.08 per share as compared to a net loss of $3 million or $0.08 per share in the same quarter last year. So let me talk about the full year 2014. Our revenues were approximately $4.7 million compared to $3.7 million for 2013, which represents an increase of 28%. The increase is related to shipments of printer products, which fully offset that 25% decrease in license fees earned from e-reader and tablet products. Our full year revenues include approximately $3.1 million of license fees and $1.6 million of NRE fees compared to $2.9 million of license fees and $800,000 of NRE fees in 2013. So total operating expenses were $17.4 million for the 12 months just ended compared to $15 million for the same period in 2013. The increase in total operating expense is basically due to the same factors that we previously discussed for the quarter. Our net loss for the full year was $14.2 million, or $0.36 per share, as compared to a net loss of $13.1 million, or $0.37 a share for last year. Our operations used approximately $11.9 million of cash during the 12 months ended December 31, 2014 compared to $8.8 million for the same period in 2013. As of December 31, 2014 we had cash of approximately $6.1 million, $1.1 million of accounts receivable and $3.1 million of working capital. Our shareholder equity is $3.3 million and have 14.5 million shares of common stock outstanding. So also this time I want to take a few minutes to talk about our liquidity going forward. We still expect our cash operating expenses to be approximately $16 million for 2015, which is in line with our 2014 level, and also in line with what we indicated at the third quarter earnings call. We have [indiscernible] to manage our new growth business segments, particularly in the PC, printer and also automotive markets. [So that leads to] [ph] one more step. This will average out to approximately $4 million per quarter, which is a cash flow breakeven projected for this year. And how do we get there, well, we have our cash on hand, and the cash receivables plus projected revenues from our existing and new e-reader and tablet customers, plus growing revenue for printers, automotive and new PC customers. We expect our license fee revenues for the first quarter 2015 to increase compared to the fourth quarter 2014, mainly driven by growing revenues from printers with HP and e-reader with Amazon who released product with a touch in Q4, 2014 which we will record as revenues in Q1, 2015. In addition, we expect to continue to receive substantial NRE payments and upfront prepaid license fees from PC, printers and automotive customers. On top of this, we can also bundle a license with a [Indiscernible] purchase which will accelerate license fee payment. Putting all this together, we are confident that we get to cash flow breakeven during 2015. So by that, I would like to turn the call back over to Thomas for some closing comments.

Thank you, Lars. To recap, we had a lot of progress especially in the automotive, printer and PC space. We signed agreement with a leading PC OEM and a major Tier 1 automotive supplier. In addition, we see a flood of amazing products with our technology being released to the market. We also have a roadmap in place that addresses the urgent needs from our customers, such as the new development of the Steering Wheel but also low cost touch solutions for notebooks and monitors. As stated before we expect to reach cash flow breakeven in 2015 due to the expansion of our PC, printer and automotive customers, of course combined with our additional revenues from other parts of our business such as the e-readers. This concludes our prepared remarks and we’ll open the call to questions. Thank you very much and sorry for the introduction.

[Operator Instructions] And your first question comes from the line of Michael Malouf of Craig-Hallum Capital.

Great. Thanks guys for taking my question. I wanted to clarify a couple of things. With regards to the announcement on the PC OEM, is that something that you are reiterating that happened because you announced something that a month or so or is this a new license fee transaction, can you just add a little bit of color on what you actually announced this morning? Thanks.

Yes, hello Mike. Yes, this is the first announcement we did was that we have received a business award. We had been working on this agreement for quite some time and have taken a bit longer than expected. But, as I said in my script, this means in fact we have an agreement in place with the customer and with our partners we’re going to deliver modules, hardware modules, through their manufacturing sites. So this is what we’ve been waiting for in terms of agreements.

So this is a new signing, this is a license deal with the PC OEM is that what it is?

Yes, exactly.

Exactly, okay. And that was – and that’s just announced today?

Yes, exactly.

Okay, great, thanks. And then, can you give us a sense of what that covers or what you expect to be on the shelf later this year, I know you talked about monitors as well as all in one so it includes you have an expectation of both all in ones and monitors later this year?

Yes, I mean we are working with all of the OEMs right now with different products, but this customer in particular we are looking at all in one and monitors coming out in the middle of the year, we don’t know the exact dates for that but that’s what we are planning for and what we are building for. We don’t expect notebooks to come out with this customer during this year, it will be monitors and all in one initially.

Right. And on the monitor side what do you think the plan is for the PC, is for the PC OEM, is it to introduce it in just one small line of monitors to see how the uptake is or can you give us a little bit of color on their plans?

Most of the OEMs today, they have a quite low touch penetration in monitors because the used case for using touch is quite low, but all of them basically want to have touch in their monitors. And the adoption rate I think today is few percent. We are working on to reverse that to get touch in all of these type of devices. And important thing here is of course the cost as I said but more important also is the optical effects you get and you want to have a consistent industrial design. So sort of the reasons we don't see touch in all monitors today is because of these three things. And I think with if you look at our technology we address all of the three things with zForce EDGE and also now that zForce Curved that make it possible to do curved type of display.

Right. And as this PC OEM looks out into 2016, do they tell you that they think penetration will be 50%, 100% or 10%, did they give you any sense of how fast this ramp is going to go for them?

No. They haven't told us that, but, but again it depends the reason you don’t see touch monitors is because capacitive touch that is put in front of the display not only is very expensive but it reduced the image quality and if you look at gamers and professionals using monitors they want to have certain approvals and low glare type of monitors. And that’s not something you can do today. So we believe that this technology we have would open a lot of new opportunities for these OEMs to integrate touch and not only looking at the cost of course, but that’s an extremely important factor.

Okay. Great, and then for Lars, can we go back to that liquidity comment that you made, I understand that license fees will be up sequentially so that’s good, got a good sense of the cost situation. On the NRE side or any kind of prepayment, can you give us a little bit more color on that? Was there any cash that came in from the Autoliv announcement or is there any cash that will or has come in from the PC announcement? Just to give a little bit of help on that? Thanks.

Well, I cannot go into as you know to details about individual contract and so forth. But as you well know we have been very successful historically in financing our business to substantial and relevant NRE payments and the revenue is naturally connected to that. So considering that we since – that since the beginning of the year have two new printer customers aboard, have a substantial very big automotive customer aboard and also entering into the PC markets you can assume that well 2015 there will be significant NRE fees to contribute for Neonode.

Okay. So, with the two new printers, the auto, with Autoliv and some of the other I guess 10 new cars coming out and of course this important PC announcement. Can you give us a sense of what you mean by significant, I mean, just some sort of idea of what that number is in your mind?

Let me answer that if I can, Mike. This is Dave. I think what we're looking at right now contractually somewhere between $3 million and $5 million on a combined basis among these products and customers.

Great. So, that's $3 to $5 million dollars in all of that bucket that would be achieved in 2015 on a calendar year. Is that correct?

Yes. And as Lars said, even I think everybody on the call probably realize we can't say specifically who is coming from. So it is a significantly impact than we never gotten in the past, significant verification of our technology that some of these companies are willing to pay significant amounts of upfront money to get this technology to market.

Fair. And do you think we'll see any of that in the first quarter or do you think it's more latter in the back half?

No. I think its going to spread throughout the year. There's going to be – I don't know if the cash is going to come in the first quarter, the agreements have been signed as Tom have said, so the cash will come in sometime its takes 30 days or whatever for the billings, but then others will come in throughout the year according to the contract.

Great. Thanks a lot for the help. I appreciate it.

You're welcome.

Your next question comes from the line of Cody Acree of Ascendiant Capital.

Thanks guys. And maybe I'm just a little slow at this morning, but can you just back to that initial question Mike asked. So, is this a new PC OEM not the one that was announced to be press release earlier, so we're talking about two separate PC OEMs, or is this – just simply an extrapolation of the earlier announcement?

Cody, this is Dave. It’s the same company. However it’s a complete different agreement. The first agreement that you're referring to was released in December.

Right.

And that was an initial letter agreement to get the process started while the contract was still being tossed around. So, this is an official signed agreement with this customer relating to products, define products moving forward and a whole process pricing et cetera, et cetera.

Perfect. So pricing is all set, everything is done here?

Yes. Yes.

Okay. Perfect. And Dave thanks for the clarification on the combination of the cash flows there. Any look at how much of that $3 million to $5 million is prepaids versus NREs?

At this point, we're not willing to talk about that. It's just – the important part is that its $3 million to $5 million and it’s under contract.

And I guess, if maybe you could just help us kind of walk with $6 million in cash today about $4 million burn for quarter, not shift if some of those moneys are going to come in Q1, maybe Q2, does that mean that we get down it maybe you got account receivable as well, but does that mean we get down into kind of a sub $4 million cash position in Q1 or I might not think about that correctly?

No. I don't think that's a case at all. But really a Lars question, I know he's done a very thorough analysis of the cash burn rate especially with our auditors and with the board, so he has a lot of – you want to take that Lars?

Can I just add if maybe, we feel to have these very much under control and very much related to that. And we have on kind of – PC OEM and new printer customers. I would say that we have this under full control and we wrap up the basic financing and a control over expense, in spite we have all staff at board, and so of course it’s very good.

And Lars, what do you – if you had to look at minimal cash balance for operations to run the company on a comfortable basis, what is that – what's that minimum threshold?

Well, I would say like -- that we wouldn't have the left cash go below a level of between around US$4 million to US$5 million and that's way we work when we also had the possibility, all the times and it go to prepaid fees and so upon everything stuff. That's our planning so to say level.

And in times, I guess, as you look at the second half of this year not knowing how broadly the monitors are going to be – it sounds like you don't yet have a full visibility maybe on making assumption where still we're making, but you don't have full visibility as how broadly your OEM is planning on taking this in their portfolio. I guess I'm trying to get a basically some kind of a view on what this ramp really looks like as these finally hitting the market, does it expand, you expected to expand quickly throughout a portfolio or is the growth more to other OEMs and throughout their product lines?

We expect it to grow of course, and if we look at HP for example print that we started with one model and now we have 20 models on the market. Of course it takes time but all of this PC OEMs that we are working with though I'm normally put highest running in terms of volume model with new technology. So you have to work yourself in and we're now starting with -- these all-in-one monitors which is -- if you look at the monitor it is very-very fast to market type of product, I would say almost less than six months. All-in-one, just a bit longer the time cycle, so it is more like nine months. But if you look at the market, and the outlook for all-in-one, this seems to be replaced by monitors that has sort of PC functionality. For example, HP has a box as you connect to your monitor and it becomes an all-in-one basically. The same with Intel have the stick that you put into the HDMI connector and the monitor and it becomes a PC. So the transition from all-in-one to monitor seems to happen and then of course all the monitors would need to have touch functionality to support this type of function. So we see that this is very critical for products whereas to going into all other products eventually. But of course also the other OEMs we are working actively with the same type of products.

And I guess one of your question is that I get a lot is really what is the consumer appetite for touch and given the price point of the power consumption as you said some of the quality impact that we have seen from historic technologies, it's hard to know what the consumer impact will be if those impediments are removed. Do you get the sense that your PC partner and/or partners down the road are kind of wanting to see what's the uptake curve is if you are not really changing the retail price point giving them equal features, giving them the touch as well that they are wanting to see what consumers really do and take off the shelves before they roll this out more broadly?

If you start with, let's say notebooks, people are using that occasionally and of course the use case laptops is much lower than the – for example of mobile phones but still people want it, they don't want to pay anything for it. It's quite difficult to shorts $100 to $300, you have to get touch functionality and the other thing is, see today notebooks is that, as I said in my script the power consumption with the touch version of a notebook the battery life is much shorter. Battery life is very important for notebook. And with our technology, it barely affects the battery life and we don’t create all the glare and other problems. So people get the same sort of look and feel as they used to without touch. If you look at the monitor application, the use case might be low, even lower but people are not willing to pay extra for putting a big capacity glass in front of their super clear displays and they also don’t want to pay something for actually reducing the image quality of the display. We started to think it's important for us to reach the high touch penetration in monitors, not affect the image quality and barely affect the below material when they build the product. If you look at all-in-one that type of application of course is the same thing. People use that as a PC, normal PC and occasionally touch the screen and if they can select, of course they want to touch it but they don't still, don’t want to pay so much extra for it. The other thing I said in the script which is also important is that a lot of these OEMs today they have so many different products and developments cost of making four or five different all-in-ones and the product line up is very expensive. So they want to take down the number of different monitors and different all in ones to have also consistent industrial design look and that’s something we actually can do with our technology. So if you look at the touch penetration it is important to look at all of these factors, not only the cost. And I think with our technology we address all of these things and that’s what we think it's going to go quite fast.

Thank you very much for that. That’s all I have. Good luck guys, thank you.

Your next question comes from the line of Rob Stone of Cowen & Company.

Hi guys. Thomas, I just wanted to ask one more factor, viz-a-vie touch penetration. I find myself switching back and forth between a tablet and a PC notebook frequently these days and recently I was attending an industry event and taking notes on my notebook and I kept trying to reflectively scroll the screen with my finger and a colleague sitting next to me was laughing because that’s the way I would do it on a tablet. So, I think there is a use case particularly with the notebook. It's not very easy to quickly position something on the screen. You can do it very fast with your finger and to that end, you mentioned that this first customer likely won't roll out notebooks this year; could you comment on what you're doing viz-a-vie the supply-chain that may help support the other OEMs launching a notebook solution?

Yes, we have really looked at our offerings what technology we can supply to this market and we have developed something we call zForce Air and this is basically a sensor that sits on one side of the display. And from that sensor it creates a touch field that can be applied to any flat surface including a notebook display. The sensor we have developed for some time now has reached a certain maturity and we have developed a way to integrate this in a much better way to reduce cost and make it extremely much more power efficient than the resolution required and so on. So basically for notebook, you could take a notebook that doesn't have touch and apply touch and it will look exactly the same with our technology. So people wouldn't even see if there is a touch in it or not. They say it will be exactly the same experience. And that's another thing that’s very important in the notebook. And the last thing of course, the cost we are looking at here. I think as I said the most capacitive solution sort of trying to reach the dollar per inch display which imply like $14 to $20 for a 14 inch notebook. We are looking at yet a few dollars, I think $3 or $4 for the sensor. And then of course we charge our royalty. That means they can integrate touch in notebooks and not charge anything extra for it and then it will look the same, and keep the low weight, and the good image quality and so on. And these are very-very important things for getting actually touch in the device.

Are there active notebook projects that you are working on now?

Yes, it is.

My second question related to printers, could you say Lars just roughly how much printers have contributed to total Q4 revenue?

Rob, did you ask about the full-year or the quarter?

Just quarter.

I would say that, for the full-year [indiscernible] HP printer have been ramping. If you are asking for the full-year, represented roughly some say 25% but we're talking about the fourth quarter it will be more coming closer up to some 45ish percent.

Great. That’s very helpful. And you got two more OEMs that you're working with. The same sort of question Thomas, it took a long time to get the first printer things going, would you say that the development cycle is likely to be the same with these new customers or have you learned some things that might accelerate that?

Yes, to start with we actually had three -- working with three major printer companies right now in development for product launch at the early 2016. So we have been in development for quite some time with these companies and it takes time to get into these products, especially the low end type and very, very high volume [runners] because it’s important when they get to the market that everything works and there is no return or warranty problems. I've also learned a lot and we have developed new technology. One problem historically of course is that when you have four, like with HP we have a few platforms and that platforms can make like 20 different printers. The same thing with all of the other companies we work with and it requires a lot of engineering work for us to customize for each printer. So, that’s why in this case we're also using zForce Air, which is a small module. It looks like a small black box with a connector and they can take that module and replicate the design into several different printers, even without us involved. So, the scale of the getting these printers quickly on the market will help a lot with these type of technology and the same thing we're doing with HP, if we talked about that earlier that, how do you get into these printers that don't even have touch screen today. This is really the solution for that and that's what we are developing now and then our module partners are going to build that and supply directly to our customers. In the same way actually today we supply our customized ASICs and optical components. So in this case will be more like a highly integrated module instead you can say. It is sort of getting printers quickly to market and lower costs and improved performance.

Finally, turning to automotive you mentioned that probably going to 10 cars I think this year. Are these applications principally center stack or there are other things coming into the car. So center stack displays?

No, they're all center stack applications. We have other things going on, but we don't expect to see that coming out this year. So we get like for example on the Volvo, there is a 9-inch display in the center stack, this application is the same with little bit different shapes of displays and different sizes.

Okay. And with respect to Autoliv and the contract developed the wheel, as I recall one of the next milestones was going to be more specific testing of that product. So what might we look forward to in terms of milestones as that project continues, I guess it's still several years away from being in production cars but what might we see in terms of developments in the meantime.

We're looking at getting this into cars now in different testing environments, impact testing and safety testing and things like that. The next step is to do customized versions so that OEMs customers we're working with and that is the process we do to together [indiscernible] and of course using all of their experience in this field is being one of the leading steering wheel manufactures in the world and the reason also we work with them is that they have access to -- and the possibility to make sure that the technology actually get into cars as quick as possible. So, we're looking at this year evaluation and testing and next year actually starting integrating into [real] cars.

Great. Finally kind of a two part cash-flow related question for Lars. It seems like your cash consumption is actually significantly lower than $4 million in a quarter, you’ve got some gross profit there, by my calculation it's more like $2.7 million, is that right?

Can you take it again, Rob exactly I can’t understand I don't talk to the wrong question?

The actual cash consumption is less than your quarterly expense run rate because of the contribution from gross profit. Someone earlier for $4 million of cash burn a quarter and it's more like 2.7, is that right?

Yes, you're right and that’s the way, I mean all we can say that very limited guidance I gave about first quarter that before that revenues will increase when it comes to revenue recognition part of it. So, you're correct. You see that it's going down.

Okay. So, to the second part of the question Lars, to the extent that NRE activity is going to be at a record level this year, I know that probably has some cost that are other than headcount, but is it possible that we could see some of the cost that has up now been categorized under R&D showing up within the cost of NRE. Is it the same people but the cost been booked above the gross profit line?

Yes. For sure you can say like this when they are moving to a concrete customer project, development project, so forth, that cost related to that project is naturally being put into the balance sheet and then we take it to revenue as a milestone that we have agreed with the customers with clear deliverable and so forth. So that's the way it's being done. Therefore we naturally have to separate what is few operating expenses and what is cash expenses as such.

So might that reduce the run-rate of R&D that appears on the P&L this year versus last year?

Yes, you can say that - it’s quite logical if we say that the NREs is going up created very much by this project we've been talking about that that means naturally that to get more funding for our development work because it's not the capital administration so forth. And that means that more of our own R&D as well as if we use external consultants or whatever, it is getting after to cost to sales, connected to those customer development project.

Great. Thanks very much.

Thanks.

Your next question comes from the line of Paul Williams of Millennium Partners.

How are you guys. You guys received a -- I have a few questions. You’ve received a white goods patent yesterday. Can you discuss that and we haven't heard anything about those white good customers that you mentioned a while ago. So, obviously this must have something to do with that.

We have been working and working with different companies in this area. The complexity here with these type of products is that the volume for each product -- let's say washing machine. Most companies might have 20 different washing machines and each of them has a quite low volume and the solution for us for that, you need to scale this up and get some sort of significant volume on it if you use -- have module. So basically instead of us customizing our technology for each of the machines they can actually use this module as a starting point of their design instead of us continuously trying to change the technology and then washing machine can be manufactured as anything from 10,000 to 100,000 in that range, but in combined they are millions of them of course. And that goes for all other white goods type of applications like refrigerators or coffee machines or other type applications. So we really had to find a solution so we can scale this up and this is really the solution we have ready now for it.

Okay great and what about the HP ramp exactly with the printers? Do you expect to be in the entire product line this year?

No, we are not in their entire product line. We still a few of their devices using capacity touch. We expect and working on and getting into some of their key printers so basically it doesn’t have a display and have -- there's a keyboard and that’s why we have developed also certain new technology where we're targeting extremely low below material cost and this is really the cost you’re looking at to replace the keypad. And the keypad you can imagine, it’s quite low cost. So this is important and interesting thing with this is that the volume is really high. You're looking at tens of millions every year and this is the next step for us. We’re not really interested in supply and really-really high printers that sell 10,000 per year, because it doesn’t match our business model and the effort in getting in there. So we are in the mid-range and high volume printers, that are ramping now and looking at getting into their other type of applications, which is the low aim side.

Okay. Great and what can you -- a few more questions. Amazon, what can you discuss with them, the obviously the Q1 revenues are coming, Is it -- is there an estimate. Is it much higher than you've expected with the Kindle cells and what's your outlook with Amazon moving forward after that?

Amazon is extremely quiet about volumes of particular devices. We knew this would be a high runner and that they have had a nice fourth quarter on all their Kindle devices and of course that's part of us, so it's been a nice one. And really that's about all we can say about Amazon. They are very secretive about volumes in particular.

Okay, great, and what about Harman International, it was in the 10Q, is there anything there that we haven't heard, we haven't seen any press releases since it was disclosed as?

Yes, I mean that's one of the tier one's we are working with the ultimate industry and we can't really talk about when exactly they're going to launch product because of the confidentiality, but all of the tier one's we are working with we actively are engaged with different products, which have different schedules but we can't say it's that and what we know is that approximately 10 different cars with technology from all of these different tier ones we are working with, it's going to be on the market this year. And this on Geneva Multi-show for example there were cars shown with our technology that hasn't been started even production yet. You can see that is quite nicely growing for us with all of these different tier ones.

And also I guess the white elephant in the room, what can you say about the short seller, that's whoever they are manipulating the shares for 15, 20 months, there have to be something stern on management’s end to end that, is there anything that you care to share about this, I mean your cash position, I think you’ve answered that question. You do not need to raise money, so what else can you share with everybody about this?

Well, what can we say about it, Paul, I mean short selling is part of the market strategy out there, and there are some people who take advantage of it manipulate it, free speech is a right in the U.S. and what we can do about is succeed through performance on our business model which we are doing and that generally will get the short-sellers quiet and let them move on to more fertile grounds. That's how it works. And that's where we are right now. That's what this is all about.

Okay, so there is no any type of legal action once you say that you considered?

It's very difficult. We talked to our attorneys, our board, we're fully aware of the situation, it's just extremely difficult, extremely expensive, and the best course of business is to succeed on what we are doing. As Thomas said we have a strategy, PC printers auto that we think is the right strategy to make the shareholders and stakeholders, the internal stakeholders succeed in this business and that's what we are doing.

Okay great, and what about any relationship with Apple? Is there anything that obviously you can't discuss, but one of your engineers left for Apple, is there anything, was there a reason for that or?

No, I mean, it's Silicon Valley. The engineers move around from company to company. I don’t know if you are from that area, but those guys are -- headhunters are calling every day, right? And the fact is we have hired more than we have lost, and it's just a fact of life in the high-tech industry.

What about your total headcount right now? You said you hired some other people, you were at 60 at the last conference call. Where do you sit right now?

It's about 60. We haven't really hired any in the last quarter, maybe one or two. And we have got a couple of people as you say move on, to take other opportunities, and so we are at just sort of the comfort level for us right now, given the projects that we see happening in all of the spaces. And I think, as Lars said in his prepared remarks we are staffed properly to get the job done at this point.

All right, so do you also think that moving forward anyway with 2015, what are the potential deals that you might see in a very near term that you haven't, let's just say announced yet?

Well, we haven't announced them yet for purpose. When they happen we will announce them. We are working in the PC, printer, auto, e-readers, some other spaces as Thomas said, white goods and some of those. So as those come to fruition and they are announceable we will announce them.

Right, you're also on the Web site, you have another product you haven't really talked about yet, it's another technology with I guess a battery perhaps. Is there anything that you haven't discussed that at all yet?

You're probably looking at the phone case, is that what it is?

Yes, apparently so, yes.

Yes, that is what we call zForce, which is the sensor to the system one side, it's a sensor that is -- normally you put it on one side of display but you can also put it in this case, it's a case for a mobile phone, and you can touch enable the surfaces outside of your device for playing games and things like that. So this technology is not unique. It's just one application to what you can do with it that you put on the Web site. You can put in a washing machine, you can put it on a notebook, you can put it on any flat surface and touch enabled that, and that's really what we do and we work very closely with our customers to get new ideas, what they can do in new technology.

Okay, great so 2015 this is going to be as far as for revenue ramp, would you expect this to continue for the remainder of the year? It sounds like everything is in place for that.

Yes.

Okay, thank you very much.

Your next question comes from the line of [indiscernible] with DFS.

I have a few questions for you. One, what percent volume increase per quarter are you expecting for 2015, for auto and for printer. And then in auto and printer, which product you would make more revenue per item that you sell? And then the third question I would have would be just clarifying the last caller. Will prepayments from companies be enough to avoid the capital raise, if you anticipate a capital raise in 2015?

So you threw three of matters there, and let's see if I remember on what percentage would we get from each market segment? I guess it's what you were seeing over the course of the year, and that's really forward guidance that we are not prepared to offer, Lars presented the only information in his prepared remarks that he said, I believe that the first quarter revenue will exceed the fourth quarter of last year and that's as far at this point is we are willing to discuss and the reason is really simple and we talk about this on prior calls. We do not issue purchase orders. The OEM is responsible for product release, the timing et cetera. They tell us what their plans are but whether they stick to those or miss it by a month or come early a month, we have no control over that. So it's just a pool there and to try and guess and announce on that. So let's see, what was the second question, again Lim?

Just auto or printer which probably can make more revenue per item?

Certainly the license fee on auto is significantly higher than printer. And the reason is because the complexity of the product offering is significantly higher for auto than it is for printer for various reasons, safety concerns, redundancy concerns, size, all of those things make it a more expensive project. So it's auto for sure. And the last question again if you could repeat that?

The last question was talk about burn rate and some other items in terms of…

Okay, what we are going to do with capital raise?

Yes, I mean capital raise, is a big thing.

Yes, I know. I think Lars over the last two conference calls has answered that pretty definitively and we have sufficient cash, we believe we have sufficient cash right now from all of those sources that he laid out to be cash flow positive, which means no, we’re not going to do capital raise at this point. We have no intention and within our view point right now we don't see a need to.

Okay. Have you had any – I am sure it’s probably tough to answer, but any companies come and approach you at all in terms of may be breaking a part of the company a little bit?

No, if we did we wouldn't say it anyway. But no, the answer is no.

Okay. Thanks for taking my call.

You're very much welcome.

And there are no other audio questions at this time.

Okay.

Do you have any closing comments?

Yes. Of course, sorry for the introduction and it's bad audio, but we want to thank you for joining us on this call and we believe it's a very exciting time for us going forward. We will keep you posted on our progress as it happens. So have a good day and thank you very much.

Thank you. That does conclude today's conference call. You may now disconnect.