Urban Forssell
Analyst · Craig-Hallum
Thank you, Fredrik. Now, for the next part of this call. I want to review with you a little bit more in depth on our strategies and our business development. First of all, I'd like to share what is our vision in the bigger space like this: to transform the way humans interact with machines. As you know, this has been at the core of the company since its foundation. 20 years ago, we were founded with a focus to develop new innovative smartphones. Since then, we have developed touch solutions for e-readers, printers, and other innovations, always with a focus on transforming and improving interaction between human and machines. We continue to work towards this vision in everything we do, every day, every week, every month. We have a broad technology portfolio. And we work with touch, gesture control, object detection, scene analysis using cameras, and since last year with a increased focus in what we call contactless touch, and I will explain in a minute what we mean by contactless touch. Our technology and our offerings extend across multiple segments. Our main focus is the elevators and interactive kiosks. But we also continue to work with automotive applications, medical applications, military avionics, consumer electronics and to some extent also digital signage, which we can see -- we see as an extension of the Interactive Kiosks segment. Our main focus, however, since last year, and continues to be this year, and going forward, lies in the center, contactless touch for elevators and kiosks. And this is where I want to go a little further into detail now in the presentation. What is contactless touch? For us, we mean contactless touch-like interaction with a display or with a keypad or keyboard or a button. You hover your finger in front of the display and you click, you swipe, you scroll, but you do this with finger gestures in mid-air. This is what we mean by contactless touch. Touch interface is very simple and intuitive and many of us are very used to interacting with machines through touch. This is a special variation of this where the interaction takes place in mid-air in front of the display or above the keyboard, no touching. And here are Touch Sensor Modules originally which we developed for touch applications, but also intended for gesture sensor is a perfect fit. They offer a simple, intuitive way of creating good user-friendly contactless touch interfaces. And applications can be found in a variety of different types of kiosks and elevators, and also other applications. And why is this interesting? We have talked about this on previous earnings calls. And today I just wanted to share these two quotes from two market reports. I think most of you have heard stories and read reports about what can be found on touch screens and other devices in public spaces. And it's not perhaps the most interesting thing to think about. But there's a lot of bacteria, viruses, and other things sitting on these screens and keypads. And of course, COVID-19 pandemic has increased the focus on this. But we say that contactless touch is very, very good in general for health and safety. And this is, of course, true for viruses like COVID virus. But in general, there are many other viruses as well and have been for the last 100 or years, poking around every year in the world and also bacteria, and you have all other particles and material depositing on these displays. And here is where our contactless touch really can add customers’ attraction and add a good user experience and also add to the brand name and to the customer using it. And why do we think that we have a right to win here, why Neonode and why our Touch Sensor Modules? They are simple, intuitive, easy-to-use, they're also very cost-effective compared to many other solutions. And if you look at cost of ownership and into retrofit, we have very, very strong offering here. There are, of course, other ways to realize the contactless touch user interface. And it's very clear to me and I want to be the first to admit that in some applications, for instance, the use of personal devices like your mobile phone, will be a good alternative but we still think that our type of contactless touch interfaces for displays, for keypads, for buttons and elevators, they are very natural, simple, easy-to-use, relatively cheap and easy to install. So we have actually a great opportunity with elevator customers and with kiosk customers. And we can offer a lot of added end user value. Speaking of elevators, one of our two key areas. We continue to progress our business development with partners such as MAD Elevators here from Canada. They have developed products that they call PHANTOM. And it's a new product for them, realizing a contactless touch interface for the elevator control panel. They have developed, tested and started to roll out this product and they are gaining more and more positive feedback from these rollouts, and the new installs that they are making. There’s one example from health care center in Toronto, Canada, where they have a very positive feedback as they are very satisfied both by end customers and end customers’ end users. We have similar stories from our other partners, Dewhurst in the UK and FineTek in Korea, and we are also starting to approach elevator OEMs and other players in elevator markets both in Asia, Europe and North America. So elevators is and will be one of our main focuses going forward. And we have few days actually moved forward our position quite considerably compared to last year and even compared to the first quarter this year. So personally, I feel that we have a very, very good and strong play in elevators going forward. Kiosks is perhaps even more interesting for two reasons. One, there is around 20 million elevators in the world but if you would count the number of interactive kiosks of all types, it's almost 40 million and that number is rapidly growing every year. So the trigger for interactive kiosks and the adoption of this type of solution is very fast and it's fast both in Asia, Europe and North America. So we are super positive about our opportunity in kiosks. We have worked for instance with Japan Aerospace targeting airports and airlines. And recently we started a new trial at Narita Airport with SkyTeam and that involves for instance KLM, Air France, Korean Air. Super happy customers. The first reactions and the first trials from Narita -- and remember, Narita is international airport outside Tokyo for all the Olympic participants travel through Narita and that's why they wanted to have these kiosks there and show them. We have previously announced and we have already started to roll out on the more massive scale with one major Asian airline. And we are also doing other installations and trials in South Korea, in Middle East and we are approaching airports also in Europe and North America. So the transportation sector perhaps led by airports, airlines, but don't forget we also have similar at train stations, bus stations, public stations and so on. You have similar check-in, baggage drop kiosks and ticketing kiosks where our contactless touch technology fits very, very well. So self-service kiosks at airports and other transportation hubs is another area where we continue to work and where we have already seen some great results. Another segment is quick-service restaurants and hospitality in general, self-ordering kiosks at hamburger restaurants in all over the world. We are working with 50 restaurants in Japan that are examples of companies using our Touch Sensor Modules to do contactless touch interfaces for hotels check-ins, and other hospitality applications as well. If you consider a hamburger restaurant, for instance, I think -- and keeping this in mind about the transmission of viruses and bacteria from touch surface on the kiosks, then you sit down and eat your hamburger and your fries with your bare hands. It's a little bit disgusting. And personally, I have displays for this now. So I would really appreciate if the hamburgers I frequent, if they would also convert their kiosk to contactless interfaces, it brings a lot of value I think. And we will continue to push here, the different partners and different customers to grow our businesses in quick-service restaurants and other hospitality applications. Retail and the checkout terminals is another big play for us. And I'm happy to announce that NEC, the Japanese IT company awarded us with a letter of appreciation last month for good co-operation in a couple of projects that we have been working with them on for retail applications and in particular self-checkout terminals for supermarkets and similar. So also retail and self-service kiosks there is a great play for us and NEC is just one of the large OEM customers that we are engaged with, and we are happy to work with NEC and to grow our business with them in Japan and also internationally. As a final example of this exposit of customer activities, I wanted to review with you this case with MiTAC. We have in the beginning of the summer released a press release that MiTAC chose our Touch Sensor Modules for smart AI kiosks. And this is significant for two reasons for us. One is that the MiTAC’s kiosks had a 32 inch screen and MiTAC used 4 sensor modules per kiosk to realize the contactless interface, and to reach the performance they were looking for. Second is that this is a smart AI kiosk and we think this is pointing the way to the future for obviously, for MiTAC, and they believe strongly in this themselves, but also for other kiosk manufacturers. And we’re at Neonode using our camera based technology to monitor human activity in the cars or in other spaces. We will certainly continue to look into this and work on smart kiosk applications combining our contactless touch technology with camera technology. So look out for more news on the smart kiosks and technology solutions from Neonode in this area in the future. Just a few examples. And this is what we mean that we're continuing to execute on our strategies. And remember, our main focus areas is elevators and kiosks, and kiosks consist of many sub segments, everything from transportation to restaurants, and to retail and further segments as well. It's a great opportunity and we can work both retrofit and new equipment. Also, I'm very eager to share with you that Neonode, we are a value-driven company. Our core values are shown on this slide: One Team, With Purpose, Customer Focus, Make Tomorrow Better. And building on Make Tomorrow Better, we continue relentlessly to execute on the settings we have and also try to improve the way we work and everything we do. So during the last month -- during the second quarter and throughout the summer, we have had a special focus on our sales and marketing and engineering activities. And we work to improve how these teams work together and how they work individually. One result is that we decided during the second quarter to reorganize our sales team into regional responsibilities. And as you know from the previous earnings call that we described it in some detail. We are now working with one team focusing on sales in the APAC region and another team in sales on the EMEA region and the third team will focus on the Americas. We are already starting to see some really good results from this in terms of increased focus and a bigger funnel in all three regions and also bigger sales as we have reported in this call earlier. And we will continue to work on this and build on this. We are encouraged by the results we have received from the reorganization and the recruitments that we have done on new talent and experience to the Neonode team. And this is what motivates me to come to the office every day to see the progress we're making and how much we can achieve together in the different teams. Another thing I wanted to comment on here is our go-to-market strategy. We continue to get questions from shareholders, from other partners, customers and, yes, interested people. Especially one question is repeated by many is, why have you focused so much on your partner network in the last year? And I wanted to reuse this picture and talk a little bit more about this and in general about our go-to-market strategy. First of all, we think that this type of pyramid illustration is very suitable to describe both elevator and the kiosk markets. At the top here are these two markets, there are like 10 or so really big multinational companies, representing a large fraction of the total market share. For elevators, it's in fact, 4 companies that make up more than 60% of the market of new elevators. With Kiosks, it's again, 5 companies that have dominating market share if we look globally. But on the other hand, below them, there's a number of -- quite sizable. And here they're represented by the middle segment here, mid side OEMs that have also very, very big business. And at the bottom, there are many, many small players that work more locally. The more we work on elevators and kiosks, the more we think that this illustration is suitable to describe these two markets. And how do we approach these customers? You have to do it with a combination of direct sales with our own sales resources. Because we are a small team relatively, we direct the focus here on the larger accounts, and the more strategic accounts, to help us increase the speed of the market penetration, open up the doors that are closed to us, for instance, in Asia, because the way the business is typically done in some countries like Japan and South Korea, and also you have to increase coverage and add resources both in marketing and sales and engineering and technicians to go out and install these solutions in the field. That's why we work with partners. And also we try to direct as many customers as possible to our distributors like Digi-Key and Serial and we have to manage the sales through them in an automatic way as to save time and money for us and resell products. We are finding that this hybrid go-to-market strategy combining direct sales and indirect sales partners is a very effective and suitable for our type of products and our type of business and the customers and the markets we are addressing. We will continue to build this. There will be regional and national variations and there will also be some variations between the different sub segments. But overall, this is the model we’ll continue. We are quite happy with the results we have achieved so far and we are happy with the partnerships we have signed up so far. This is not -- maybe not a lifelong commitment and maybe we will move on. And why I say this is because I also wanted to share this with you. The sales cycle typically for us starts with retrofits. And here is one area, where we have good use of partners. They can be integrators, tech companies, with their own products, where they can integrate and use our sensor modules, and in some cases, can be OEMs also working in the aftermarket themselves. Some of these integrators and tech companies, we have signed up as value added resellers. Of course, when they approach their customers, they present themselves as a product company or systems integrators and so on. The good thing is that when they do so, they include our contactless touch technology in their offering and help us then reach new customers. Even long-term, retrofit is where you see the largest potential. It's also quite short sales cycle relatively speaking. But we have to be clear that for every elevator, for every kiosk, there has to be at least one person visiting the site and physically installing a device in the elevator, on the kiosk. And in all countries in the world, it will be very, very challenging for Neonode to do this all by ourselves. So this is another obvious reason why it's good for us to work with partners to help us penetrate the market and get these solutions out. What we're starting to see with elevators, in some cases with kiosks, is that OEMs, they get aware about the solution, they see there positive improvement of end user value and satisfaction our solution brings, and then they want to integrate this in the new equipment from the beginning. And this is sort of the second phase where we can address new installs. And then the customers that we need to focus on shifts a little bit away from the small tech companies and some local players into more of the OEMs. On the other hand, sales cycles tend to be longer. And in some cases, it’s also impossible us to go directly to the OEMs. But as mentioned, these elevators and some types of kiosks we are at OEM level now in our sales cycles. And yes, the name is up again, NEC. Obviously NEC is a major OEM company in kiosks. And they are interested and they are installing this upfront. And they are also doing retrofits on their own kiosks in the field. With OEMs, we can also take this further, and together with them, develop and realize new innovative functionality. And that's the sort of the third phase of this sales cycle. This is typically even longer sales cycle. But then on other hand, if you have built up momentum in the two previous phases, and we have established good relationships with these OEMs, it's a sort of a play-by-itself when we get there. So taking together with other slides that I reviewed with you guys before this and this one, this shows the good benefits and the value of having partners but also shows that we in parallel work with direct sales targeting especially main OEMS and larger accounts. So we will continue with this hybrid go-to-market strategy. Partners play an important role, but it's not the only channel we're using to reach customers and to drive sales. You have to understand that it's in different phases in the sales cycle and it will also be different depending on what customers we are targeting. And at Neonode we are well positioned to work with OEMs and larger system integrators. And also we are very aware of and happy with owning and controlling the technology and IP. So, we are building on this. And we are confident that long-term, we will come out as the winners in this and on the way there also partners that we work with can have a good run and a good business. We already see in some examples where partners have significantly increased their business. Thanks to being able to offer our Touch Sensor Modules and contactless touch solutions through their customers. So it’s a win-win but we are happy with our position and we continue to defend it, we continue to develop it and simply we are having a good time. And this is the generic sales cycle that we are working on every day here, every week. So thank you for your patience and your time. I just wanted to review this and make a few comments on these things that we continue to get questions on from different parties as I mentioned upfront here. With is this overview, we have come close to the end of the presentation. I just wanted to give you some summarizing remarks from my side. The first is that we see a high and increasing demand for our contactless touch solutions and our Touch Sensor Modules. Of course, we can always hope and ask for more, we ask ourselves what we can do more? But we are very happy with the progress we have made during the second quarter despite headwinds caused by the COVID-19 pandemic and other challenges. We have said since last year that this is a new business for us and it will not be like something that we can implement and achieve overnight. It's more like a medium or long distance run that we are into. We think that the progress is good and that we have all the confirmations we need to continue to execute our strategies. Our main focus continues to be elevators and interactive kiosks, as I've described in the previous slides. Elevators is pretty straightforward. There first and obvious application is to convert the control panels in the elevators. This is the control panel with typical buttons or with a touch display that is common in some more modern elevators today. We can convert those to contactless touch operation. We can also convert the so-called hall call buttons or displays if you have outside on each floor, both. For a typical elevator installation, we have actually an opportunity to sell multiple Touch Sensor Modules to the customer for the elevator itself and the hall call button. This is pretty straightforward. In the next -- and in the future offerings from Neonode targeting elevator customers, we will also include more innovations and smart features that makes the user experience more pleasant, more convenient and fast. So elevators continues to be one of the focus areas. The other one is interactive kiosks. And interactive kiosks, as mentioned, comes in many shapes and forms, represent terminals, self-service kiosks at airports and restaurants, and so on, always we group in interactive kiosks. It's a very exciting market, good growth numbers. There are around 40 million kiosks if you count all types in the world installed today and the growth rate is high single-digit numbers in percent and growing. And we see it -- here in Sweden, we see it in so many places, in restaurants, and other hospitality and retail applications that we will have to get used to more and more of these self-service kiosks. And at Neonode, we are here to make them contactless for better user experience for safe and healthy interactions between man and machine. Overall, we are convinced that we are well positioned to accelerate growth and capitalize on current and future opportunities. And encouraged by this, we continue to invest in our human resources but also in our product development, marketing and sales. So we are accelerating and we are also accelerating our business and growth. And this is the current status after second quarter in 2021. And in the second year of the pandemic, I am quite happy to be able to share this update on our progress at Neonode at this point. This brings me to an end of the presentation. I thank you for your attention. And I give the word back to you, Dave.
