Neonode Reports Second Quarter Ended June 30, 2019 Financial Results

“We are growing our global sales presence and partner network and have successfully promoted our selected use cases to customers and at numerous trade shows. In addition, we have released updated versions of our product offerings improving our competitive position. These activities have resulted in an increased number of on-going customer discussions and evaluations. I am confident that we have created a foundation that will allow us to achieve future revenue growth and profitability,” said Håkan Persson, CEO of Neonode Inc.

FINANCIAL SUMMARY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

• Net sales totaled $1.7 million and $3.7 million for the three and six months ended June 30, 2019 compared to $1.9 million and $4.3 million, respectively, for the same periods last year.
• Net loss totaled $1.3 million and $1.8 million for the three and six months ended June 30, 2019 compared to a net loss of $1.0 million and $1.7 million, respectively, for the same periods last year.
• Loss per share totaled $0.14 and $0.21 for the three and six months ended June 30, 2019 compared to a loss per share of $0.16 and $0.28, respectively, for the same periods last year.
• Net cash used in operating activities totaled $1.5 million for the six months ended June 30, 2019 compared to $1.4 million for the same period last year.

BUSINESS HIGHLIGHTS DURING THE QUARTER

• Signed collaboration agreement with Finetek Co., Ltd who will serve as a system integrator and future electronic manufacturing partner for Neonode zForce technology. For more information, see our press release https://www.neonode.com/neonode-and-finetek-sign-collaboration-agreement/
• Assigned a portfolio of patents not used in our current business to Aequitas Technologies LLC as part of an agreement to share potential proceeds generated from a licensing and monetization program.
• Received purchase order for sensor modules of approximately $0.6 million from industry leading medical device OEM who will use our sensor module in a touch display system for an X-Ray machine. Initial delivery began in June 2019.

BUSINESS HIGHLIGHTS SINCE THE END OF THE QUARTER

• Signed agreement with Serial Microelectronics (HK) Limited to promote and sell Neonode's sensor products in China, Taiwan and Hong Kong. For more information, see our press release https://www.neonode.com/neonode-signs-serial-microelectronics-hk-as-distributor-to-chinese-market/

THE CEO’S COMMENTS

During the first six months of the year we have completed a number of actions required to successfully re-align the company according to our strategic use case focus and business plan.

Improved product performance

• Launched a performance-optimized zForce Touch Solution (CORE) for basic touch use cases
• Released an updated version of zForce sensor modules enabling extended range and 90-degree angle mount of the sensor to obtain the same active detection area with new levels of design freedom

Increased market activities

• Announced use cases for basic touch, high-image quality display touch, ruggedized display touch and entry systems for automotive systems
• Exhibited at several relevant industry trade shows to communicate and promote Neonode's use case strategy
• Strenghtend relationships with existing customers, supply chain partners and external sales representatives

Our strong use case focus is providing clarity of the best application fit for our technology and has been received positively by both customers and employees.

Our marketing and sales activities are directed towards our key target markets; the U.S., Japan and China and selected countries in Europe. Participation at SID in San Jose, Computex in Taiwan and Sensor Expo in San Jose have generated a substantial number of concrete leads and interest from potential customers, partners and system suppliers. We continue to see strong market interest for our product offerings, however customer project cycles are long in the embedded market and, why continuous marketing and sales coverage is key.

We are making progress in our discussions with both consumer customers and automotive Tier 1s for IVI solutions (“In Vehicle Infotainment”). A new printer customer in China has entered into a license agreement and pre-paid initial license fees. We have had ongoing discussions with other new potential printer customers in Asia with decisions expected later in the year. For automotive IVI, we are in a number of evaluation projects with Tier 1s and a specific program is identified for one OEM. Our liftgate solution for automotive entry systems is progressing well and we see a strong after market potential, paving the way for an OEM standard product offering. After the quarter ended, we entered into discussions with a major existing customer for a potential monitor solution.

Our collaboration with Finetek is progressing well with several business opportunities unfolding for monitors, liftgate systems and steering wheel touch pads. Our objective is to have Finetek support both our sensor module and licensing business and become a key partner from a design and manufacturing perspective.

In order to increase our sales efforts and to improve our local presence, we have strengthened our sales capability in China and the U.S. Our sales partner network in the U.S., Canada and Mexico is developing well and has become operational with a growing number of opportunities in evaluation phase. In July, we signed an agreement with Serial Microelectronics to promote and sell our sensor modules in mainland China, Taiwan and Hong Kong. In addition, we are in discussions with sales distributors in Japan and expect an agreement to be signed in the near-term. We have identified and are in negotiations with sales distributors to support our markets in the United Kingdom and Central Europe and are evaluating other companies to provide coverage for the remainder of Europe.

We have been active with Digi-Key for 17 months and have shipped more than 840 evaluation kits globally, primarily to industrial accounts in the U.S. and Asia. The leads generated through this channel are continuously being qualified through our local representatives and sales partners. We anticipate that our new version of the zForce sensor module will be introduced for sales in the fourth quarter 2019.

In summary, we continue to execute on our plan and see positive customer response with increasing on-going customer discussions and evaluations. I’m confident we are moving in the right direction and that our current investments in our sales coverage together with strong cost control and cash flow focus will generate future revenue growth and profitability.

FINANCIAL OVERVIEW FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019

Revenues for the three and six months ended June 30, 2019 decreased by 8.8% and 12.4% year over year, respectively. The decrease in the second quarter is mainly due to a $0.3 million decrease in license fees from one e-reader customer plus a $0.3 million and $0.5 million decrease in license fees from one printer customer compared to the same periods in 2018, respectively. This decrease is partly offset by an increase in license fees from other printer and automotive customers together with an increase in revenues from module sales. Operating expenses for the three months ended June 30, 2019 are in line with the same period previous year but lower by 10.1% for the six months ended June 30, 2019 compared to the same period in 2018. Net loss for the three and six months ended June 30, 2019 increased by 31.1% and 10.9% compared to the same periods in 2018. Cash used by operations during the six months ended June 30, 2019 increased by 3.1% year over year. Cash and accounts receivables totaling $6.4 million per June 30, 2019 is sufficient to continue to execute according to our plan. Our second quarter Form 10-Q is available for download from the Investor Section of our website at www.neonode.com

Financial Overview

Financial Overview

Amounts in USD thousand unless otherwise stated		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
Net sales			$   1,710				$   1,876				$   3,722				$   4,251
Net sales decline %			(8.8	)%							(12.4	)%
Gross margin %			95.8	%			95.3	%			95.4	%			96.8	%
Operating loss			$    (1,314	)			$    (1,161	)			$   (1,982	)			$ (2,040	)
Operating margin %			(76.8	)%			(61.9	)%			(53.3	)%			(48.0	)%
Net cash used in operating activities											$   (1,475	)			$ (1,431	)

Revenue Distribution by Business Model

		2019				2018				2017				2018				2017
Revenue Distribution By Business Model		Q2				Q2				Q2				Full year				Full year
License fees			$  1,467				$  1,761				$  1,965				$  7,954				$  8,684
Sensor modules			223				85				213				227				814
Non-recurring engineering			20				30				151				357				743

License Fee Revenue Distribution per Market

		2019				2018				2017				2018				2017
License Fee Revenue Distribution Per Market		Q2				Q2				Q2				Full year				Full year
Printers			$  1,073				$ 1,101				$  1,054				$  5,490				$  5,330
E-Readers and Tablets			(46	)			275				250				837				1,206
Automotive			440				385				661				1,627				2,148

   

PATENTS

On May 6, 2019, Neonode assigned a portfolio of patents to Aequitas Technologies LLC. The portfolio contains two patent families comprising nine US patents, five non-U.S. patents and three pending U.S. patent applications that are all outside of Neonode’s currentbusiness. The assignment provides Neonode the right to share potential proceeds generated from a licensing and monetization program.

ORGANIZATION AND STAFF

Neonode Inc., a Delaware Incorporated Company, with its executive head office in Stockholm, Sweden are organized in four wholly owned subsidiaries located in Sweden, Japan, Korea and Taiwan and with a majority owned subsidiary in Kungsbacka, Sweden. At the end of the second quarter, the company had a workforce of 56 people, including eleven consultants compared to a workforce of 54 people at December 31, 2018. The workforce primarily is located in Sweden.

FUTURE REPORTING DATES

Q3 Interim Report 2019 November 6, 2019 (planned)

FOR MORE INFORMATION, PLEASE CONTACT: 

Investor Relations
David Brunton
E-mail: david.brunton@neonode.com

Chief Financial Officer
Maria Ek
E-mail: maria.ek@neonode.com