David Brunton - Head, IR Thomas Eriksson - CEO Lars Lindqvist - CFO.

Rob Stone - Cowen & Company Mike Malouf - Craig-Hallum Capital.

Hello, everyone. Thank you for standing by. And welcome to Neonode's Third Quarter Ended September 30, 2015 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 three and nine months September 30, 2015 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 CFO. 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, 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 Form 10-K, Quarterly Reports on Form 10-Q, and other reports filed by Neonode with the SEC to which your attention is directed.

Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. Neonode expressly disclaims any intent or obligation to update these forward-looking statements. At this time, it is my pleasure to turn the call over to Thomas Eriksson, Chief Executive Officer of Neonode.

Thomas, please go ahead..

Thank you, David. Good morning, everyone. I'm happy to have this call, I'm very excited to see all the great products that are on the market with our technology inside.

Just this last weekend, I visited few media consumer electronics stores in Stockholm seeking out the latest gadgets and printers, and what I saw was HP printer on the shelf has our technology. The other amazing thing that all of the other printers found in the stores are from other OEMs who are currently converting to use our technology.

Our vision is now a reality. Let's start with some reporting from our business and what we're doing here. I would start with our automotive business first. In this segment we have exceeded all our expectations. And we believe this market will be our largest revenue source in the coming years.

Previously we estimated that our customers would shift 200,000 cars this year using our technology. And are happy to report that we already exceeded our initial estimate. I'm really excited to see what our customer porting is going to be for the fourth quarter.

I'm thrilled to report that according China auto WEB September issue, we are in the number one selling car, the Buick Excelle GT and the number one two bestselling SUVs in China; the Haval H6 and the Baojun 560.

As a result of the success of these vehicles and award winning Volvo XC90, we are in discussion for development with basically all the major players in automotive industry. As we previously communicated, we continue to deliver more than $1.3 million cars incorporating our technology will be shipped in 2016.

In addition, to the great rollout of cars would see for us into payment systems, our development of new sensors like our steering wheel and door handles sensors is going really well. We continue to expand our cooperation without -- other leading suppliers and expect this investment to start generating increasing revenues in 2017.

And now I would move over to an update on our printer business. In printers, we see HP continue to ramp and our second printer OEM is set to launch its first printer in the fourth quarter in 2015. We expect Samsung outside [ph] print to custom to launch the largest first printer in the first half of 2016.

Our fourth and fifth printer OEMs are expected to launch printers by mid-2016. We continue to complete development projects for new printers for all of our customers and we target to become a major supplier for this market segment. Let's move over to our developments in our PC business.

Our PC business has been challenging and has gone slower than expected but are most advanced program with Dell which is an all-in-one PC is expected to move into full scale production soon. Our target is to have license fee revenues from PC devices in 2016. I'm also happy to report that we're planning to be very active at CES in January 2016.

We will release more information and update our website about a preference at this event in the coming weeks. And now I'd like to move over to Lars, our CFO for a financial update..

Thanks, Thomas. You can find our Form 10-Q and the third quarter earnings release available for download from the Investor Section of our website at neonode.com. On October 13, we concluded a public offerings and raised $6.1 million and sold 3.2 million shares.

Our customers are large globally aware and we wanted to strengthen our balance sheet to prolong term business relationship. After reviewing our different options, we determined it was in the best interest of the company to use a part of our shelf registration to achieve this goal. Let me start by summarizing our cash position and profitability.

Where we are and where we target to be in the near-term future. We know our cash expenses are currently running at the approximately $4 million per quarter and are targeted to remain at this levels.

We have improved our visibility in our automotive business and we expect revenues to continue to increase over the course of 2016 as our customers release new product to the market and continue to grow market share of existing products.

On the printer side, although HP has been challenging to predict, we expect them and for additional printer customers to generate licensing revenues throughout 2016. The revenues from our integrated customers are expected to be stable but do have seasonality, meaning higher numbers in the first half of 2016.

In addition, we continue to see a steady flow on new project and repayments for product development for devices coming up in the 2016 [ph]. Our internal target is to be profitable in 2016 and cash flow breakeven in the first quarter 2016. I am very pleased to report that our revenues continue to show a sequential growth in the last five quarters.

Our gross margin for the third quarter was 71%, up from 63% for the same quarter last year. Our expenses are on plans and out net loss continues to decrease, down from $1.8 million in the second quarter to $1.4 million in the third quarter.

Our third quarter revenues were approximately $3.1 million, a 176% increase compared to approximately $1.1 million for the third quarter last year. Our revenues for the quarter includes $2 million of license fees and $1.1 million of NRE fees compared to $600,000 of license fees and $500,000 of NRE fees for the same quarter last year.

The license fee revenue distribution per market for the third quarter 2015 is 32% for printers, 16% for automotive, and 52% for E-Readers compared to 46% E-Readers, and 54% printers in the same quarter 2014. HP has recently announced a decrease in overall printer sales and this has affected our third quarter revenues and cash position.

This has been partly offset by an increase in license fees from our automotive customers that has exceeded our expectations. Our internal a target for NREs in 2015 is still approximately $3 million to $5 million, and I'm confident we will achieve these numbers.

What this means is that we have successfully completed it several customer programs, targeting market launch in 2016 and 2017. The majority of the NREs is related to product development for our automotive PC and printer customers.

Revenues for the nine months target were approximately $8.2 million, a 171% increase compared to approximately $3 million for the same period in 2014. Our revenues for 2015 include $5.4 million on license fees and $2.8 million or NRE fees compared to $1.9 million of the license fees and $1.1 million of NRE fees for the same period in 2014.

Our gross margins for the nine months was 76%, up from 65% for the same period last year. Our net loss for the nine months was $5.2 million or $0.13 per share, a 53% decrease as compared to a net loss of $11.1 million or $0.28 a share in the same period last year.

For the third quarter our net cash used by operations was $2.1 million compared to $3 million for the same quarter 2014. Equivalent figures for the nine months period are $4.9 million for 2015 and $9.1 million for 2014. Now I would like to turn the call back over to Thomas for some closing comments..

Thanks, Lars. I just want to add that this will conclude our prepared remarks. And I will now open the call for questions. Thank you very much..

[Operator Instructions] Our first question comes from Rob Stone with Cowen & Company..

I wanted to ask about the automotive market first. Thomas, you mentioned that you see this as potentially becoming your largest revenue segment and for the moment it's the third stack display but you're working on doors and the steering wheel.

When might we start to see cars in production with those additional applications?.

Well you know it depends on our customer plans but what we can see is that it's actually going quite fast and we already have cars that are running with our technology.

We also see that there is other application for the steering wheel that might grow faster which is spokes, which is practically replacing the keys that you have on your steering, that we put our sensors there instead, you can go -- steering volume per comfort [ph].

So we thought everything has gone a little bit faster than expected and I thought they cost again on the ramp from our estimate was a little bit -- we're silent about that.

But we think that the steering wheel applications will not be out until 2018, so we think this new development we see with lower hand, that was on spokes is something that we might see already in 2017.

So that's one of the -- first, you're going to see the more simple things and as we go -- then more advanced -- we'll put a steering wheel, it's something you're going to see in 2018. What we -- in fact, you would say some of this stuff on CS with different campaigns, steering wheel lower hand is involved [ph]..

Great. With respect to the PC market, I know it's been slower than expected, the first product meant to go into production this quarter.

Can you just comment on what other activity you're seeing? Is there still interest in a low cost solution for notebook for instance?.

Absolutely. We have launched, we expect revenue from this in 2016 and I think all of our customer products are on target. I think more importantly also, we developed technologies that basically address the whole PC market. That's C4 hedge that we have for -- among the stars this also available in the car.

We have to see first air, which is kind of thing inside Samsung. This is a notebook but also keyboard accessory. So if you look at the markets we've sort of addressed all kind of PC products but also the accessory business. And our most advanced project we have is Dell, it's going soon into mass production.

And I would also say that we continue to work with the major OEMs in this business, and we are in various stages of development, however it's gone under bit lower as expected, as we said but what we can do and will do is this the market updated on our progress with -- practically, as we also look work quite a lot, right now just starting to marketing our technology if you can see what you can do with it, that we're going to use on our website and just another ways of marketing our technology..

Great. A final question for Lars, I believe you said you continue to expect to get a cash flow breakeven in the first quarter. And of course Q1 should reflect royalty reports from the seasonally strong fourth quarter for your customers. Given the seasonality with them the second quarter reflecting for the seasonally slower part in March.

Is it possible that you might dip back into using cash in the second quarter and then go from there or do you see enough new things starting to ship that you would continue to be cash flow positive..

Whether all, I think that key of this even though you're correct, there are seasonality effect, especially for the E-Readers entitled business but when it comes to the growing revenues from the past five quarters which we really see strongly about, also to continue.

And what I did diversifying into more segments that don't make us depend on the starting customer or market segments. That together gives a very straight cost control implemented. And if you compare burn rates, the month averaged to nine months 2014 and it was average $1 million per month.

And now we are down to $500,000 level which for sure is an improvement. So I think that what we have and what we did is to broaden the platform of customers in our segments. And what do you see, is that national to gross margin will increase going forward.

And it's improved already quarter-over-quarter but eventually in long-term, it will 100% license fee almost. But naturally, and I really saw almost caught on the business model. So customer breakeven first quarter, that's our target..

On that note you expected a strong level of NRE continuing in next year as well?.

Well, we do expect that to be because that's an almost part of order and then going to Asia, that we sharp [ph] and I re-see but it's not what makes a difference, it's basically upto finance expenses whether or not they consulted the company..

Thanks for taking my questions guys..

Thank you..

Our next question comes from the line of Mike Malouf with Craig-Hallum Capital..

Hey guys, thanks for taking my questions. Can we just explore a little bit more on the printer side, it looks like printers were down sequentially. And it's been sort of hovering around the same level for a while which equates, I guess if I did the math, it's probably around $1 million, maybe a little bit more than that on a quarterly basis.

Are we still okay with looking at 20 million printers for next year. And just trying to get a little bit of color Terry on, is Hewlett-Packard expected to have more lines come on in the next – for this holiday season and into 2016. Just trying to get an update on that thanks..

Yes, I think I can start with that. We have continuous flow of products from, in development with HP and I think as Lars said before, we cannot depend at the one thing of customer, whatever result they do that affect us.

And what's the difference now -- we're going to see in 2016 is that lot of other printers that's going to come out with our technology. I think I mentioned that Samsung is one of them. We're basically working with the rest of the major players in various stages. So for example, we've already have first line of Samsung products in production this year.

And we have another -- this printer we have but we can't disclosure, that's going to rather print on mark over this year. So overall, we think that this is a growing business and as we target to the quite significant player in here, and the numbers -- we'll just have to see how these companies actually are doing.

We're sort of are affected by their results you can think..

So the 20 million units that you mentioned in the last quarter is that -- are you sort of pulling back on that now?.

No, internal targets still remains. I think if you look at the markets, basically we're looking at maybe a 40 million printers in total that's using some sort of a touch input.

Then I think we have been talking about what we should do with the printers, but -- it seems we're back to display and we're sort of trying to address that with our very, very low module solution we're working on with our customers.

So we don't know exactly if we're going to be a successful in that or not but our mission is to take launch out of that market, that's our target. Then what is on top, we just have to see for next year..

Okay. And then with regards to just kind of expanding what Rob was talking about. With regards to the PC side, particularly on the notebook side, I know that you've said that it's taken a little bit longer than you expected but you also said things are on-track.

So I'm just trying to get a sense of what you -- what exactly you're talking about because it sounds like we've been waiting for a while on the notebook side to see some sort of announcement with regards to launch next year but we haven't seen that yet. So I'm just wondering if we can get an update specifically on that..

Yes, Lars talked a little bit into that and we try to see how we can scale our business. You can see that next year the revenues will go up and potentially the delta in some sort and there is might be lower than the reach that means also that when we scale, we will be into business model which is close to 100%.

But if you look at what we're doing here, so the notebook business it's really sensitive type of business, we're doing perhaps done with Windows Tab [ph].

While we have technology which is interesting, that sort of address both, the non-touch notebook, the ones that are in the market which is roughly 5000 million devices that we need some kind of a touch solution, and we have a solution for to build inside from the beginning.

I've said on the positive side, we also have a new market opportunity that we are exploring right now that is kind of interesting. And our technology we have which you see also support other type of input, it can remove and replace attract as an example, plus it can be basically operated on different surfaces.

So I will say yes, it's still on plan, the product we're working on but on top of that, we also have a nice solution here we're sort of budding to address an accessory market you can say. It's of course I would say, someone like -- might require most of it..

And do you think on the accessory market we actually might see product out in the market next year?.

We're working on that, we're working with some other major players in this business. So, and we have technology that sort of rest their needs. So I was -- how much I believe so, it's something we're working on for sure..

And if did, I guess we'd probably see something like that CES, correct?.

I would say, yes..

Okay, great. Thanks a lot for the help, I appreciate it..

Thank you..

[Operator Instructions] Our next question comes from Lind Dogallow [ph] with CFS..

Thank you for taking my call. I have a couple questions for you. One I'd like to ask about the impact of away goods on revenue going forward in the market potential, if any? And also what actions have we taken to finding out to protect their patents, for example, with Apple, with the slide to unlock, there is other companies using other pads as well.

Thank you..

Okay.

I can start but a the last question, I know I can sound over to last from the first one but in terms of the patent, we have started a company around this that we are exploring opportunities, we are actively marketing our user interface presence that we sort of have collected this and we've separated from the patent that our customers licensing today.

And that's the stance process that's going on and exactly as a result of that we will disclosure when we have that. But I would say, as you said, this is quite interesting IHC portfolio that is quite relevant today.

I would say also that VNO [ph] was the first company that developed a S2 mobile phone that I think a lot of companies are looking into today. But the first question, I actually want Lars to answer that..

Anyway, could you have to repeat the first question, so I can get it correct..

Yes, sure.

The first question was I'd like to find out the impact of white goods on revenue going forward in the market potential if there is any in that segment?.

Well, I think we have been quite clear in describing the key market segments that we address. And as we said earlier, we don't E-Readers to make any difference long term, printers were sure is a key, it took already -- made your deposit at the market.

These being addressed so almost talked about and automotive for sure has to very much traction in all different areas. So I think that is the key area and maybe for you to must want item, flavor to that..

I just want to add that I think I discussed earlier, how we're going to attack this or -- not attack but how we're going to approach this market is that, we -- our technology, the next stage is for our technology of course is to reach course on features but we are working on the assumption of that the next level for after scale properly to be less involved in development projects when our customer to sell more units.

So we are very interested of course in high volume projects which require quite limited development. But we have a module technology now, so our customer can basically use a pre-standard module as a starting point of their design such as making a washing machine for example. Historically we have been involved in developmental of that washing machine.

Right now we can have season throwing from installation instructions and then they can slow our module from our partners directly.

That means it's much easier for us to going to low volume products with our technology, that historic has been quite limited to going into low volume projects like the wide touch market which is very fragmented and a lot of different products, each of them in quite low volume..

Okay, just to -- on the patents area, when will we expect to hear something on that? I mean, I know that's been going on for a while when and you had -- you were looking into possibly spinning it off and doing different things.

When would we hear something concrete in terms of what Neonode actions are going to be going forward to protect the patent?.

Yes, I mean we're currently are protecting our patents that relies on with our customers today. Of course, and the important thing is that we can see they are pretty strong and our customers has been -- no one has claimed that their products are using some other technology except ours. I would say the portfolio is pretty intact.

The new synthesized [ph] portfolio that we have is quite separated from that business and it's something that we have been exploring what to do with exactly. So we actually look again to different alternatives right now, which means we either sell it or lies nothing -- that's our primary strategy for that.

We are in the process of doing that, talking to different customers. A lot of these customers are interested in this IP, already are a licensee of Neonode, and that's quite important. So I guess again, we will held the markets that what's going on there, what happens but that's the process we are in right now.

So it will take a little bit time until we have that in place and know the results of it..

Okay, thank you..

Thanks..

And, ladies and gentlemen with no further question, we want to thank you all for joining us for our call. Have a good day..