Earnings Call: Q2 2021

Aug 11, 2021

Hello, everyone. Thank you for standing by, and welcome to Neonode's Second Quarter 2021 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 with the company's covering analysts. Thank you. And 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, Welcome and thank you for joining us. On today's call, we will review our 2nd Details of customer activities, technology developments and other items of interest. On today's call is our CEO, Urban Purcell and our new CFO, Frederic Neillen. Frederic joined the company last week and will provide a brief introduction of himself in just a few minutes. She will also present the financial results of the company for the Q2. Before turning the call over to Urban, I would like to make 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 to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is to update these forward looking statements. At this time, it is my pleasure to turn the call over to Urban. Urban, please go ahead. David, and also from my side, welcome to this call. Pleasure being here with all of you, and we are ready to present 2nd quarter earnings and also share some updates Presenters during this call will besides Dave, who you already met, And myself will be Frederic Milian, our new CFO. I will hand the word to Frederic And let him take a couple of minutes to introduce himself. Thank you, Frederic. Thank you, Erfan. I'm excited to join Neonode. I have worked within finance since I graduated in 2008. I started in auditing and accounting, moving over more and more to controlling, analyzing and reporting. My last three positions have been as the leader of the finance department in the companies I work for, latest as the Finance Director IFS develops and delivers enterprise software for customers around the world We manufacture and distribute goods, build and maintain assets and manage service focused operations. With a turnover of SEK1.7 billion, about US200 $1,000,000 the Nordic region stands for 24% of IFS Total Net Revenue. Before IFS, I was the group CFO of Simorber, listed on First North Nasdaq in Stockholm. De novo was a Swedish Fintech company with state of the art software. Lenovo developed software for the heart of the stock exchange, the trading system and also real time clearing system due to clearing helps. Real time clearing means real time trade relation, trade and position management and risk calculations. Nasdaq acquired Cinnober in 2019. I led the finance integration into Nasdaq, And Synodin was delisted during that time. In Bibb, my last position was as Head of Finance. Bibs was also a fintech company providing online payment solutions in the early days of e commerce. When I joined in 2013, Dibs was listed on NASDAQ First North in Stockholm. Dibs was acquired by NETs And it's listed and I like the finance integration. My goal is to transform the finance team in Neonode To be a true business partner and to be a natural part of ongoing business decisions, one prerequisite for this to happen is to have data, Structured and available, so it can be sliced in different ways, turned into information so that decisions can be made from knowledge. The world is always changing, and that means finance needs to adapt to the change. Therefore, We all always need to develop and strive to be more efficient. There is always a better way. As I said, I'm excited to join NeoNote. I think NeoNote has great technology and great potential. Thank you, Ruben. Thank you, Frederic, and again, welcome to Neonode and to the team. I look forward to working with you here. As an upfront summary and highlights of what we will present on this call, I want to review the following bullets with you. First one is that it should be clear and we repeat that we We will share some positive updates of our business today and in the company And in the management team, we are encouraged by the progress we are making. Of course, like many of you, we are eager to see the business of Neonode grow, and we are working hard every day to do. But We have some good results to share with you in this call, and you can find in more details in the report And in the 10 Q. Like many others, we are still affected by the COVID-nineteen pandemic, And it negatively impacts our business. That should be clear. We have direct impact in terms of lockdowns and problems in Traveling and meeting with customers, we have more indirect that also we are affected, especially for our license business with Automotive customers and, to some extent, printer customers of the shortage of semiconductors in the world. And in some We also see effects of a general economic downturn. We see some effects of this, but despite these headwinds, We are quite happy with the progress we have been making during the first, second quarter, and we fight on. And we have our targets clear to grow the business. To give you one KPI for the 2nd quarter is that we grew our Revenues by 127% compared to the corresponding quarter last year. We think it's a good result. Personally, of course, I would cite for more. But under circumstances, we think that the progress is really good, and it proves that our The demand for our contactless touch solutions, which is our main focus and our touch sensor modules, The products where we have embedded our C Force technology into standardized sensor modules That we produce in our own subsidiary in ProNode here in the West Coast of Sweden. The demand for those are also picking up. Asia is leading the way with customers in Japan, South Korea, Taiwan and China. But we also see interest and growing interest from customers in Europe and North America, which is very, very positive. Our license revenues have required well after the dip we saw during spring last year when the pandemic 1st hit us. Then it was a very, very slow period for both printers and automotive sales. But during the second half of last year and also the first half of this year, it has recovered very well for us. And we see some changes in the product mix, But overall, it's a good recovery, and we are at a good level and now in the Q2 of this year. These are some of the highlights of the call, and I will now turn the word back To Fredrik, who will take us through some further details on the financials. So over to you, Fredrik. Thanks, Urban. You can find our 2nd quarter earnings release and 10 Q available for download from the Investors For the Q2, our total revenues reached $1,700,000 That is an increase of 127 compared to the Q2 of previous year. Revenues from sensor modules increased from low levels up still with 4 39%. We can see that sensor modules revenues have a positive trend, especially in APAC, Visualize with the blue bar blue colored bars. As we expected, APAC is the 1st region to embrace our contactless touch Technologies. Operating expenses for the 2nd quarter increased to 28 compared to the same period last year and by 9% compared to previous quarter. During the Q2 of last year, costs are low Due to the pandemic, we got governmental support at the same time as we introduced cost measures, meaning we were very cost conscious. We are now investing expertise, that is we are hiring competent people who will help with our continuing journey. Our total gross margin for the 2nd quarter 2021 was 87% compared to 84% for the same quarter of 2020. The increase is related to higher product sales with higher margins, as you can see in the second chart. In the second chart, you can see a trend of improved margin on our products. The main explanations are: 1, Margin for Q2 2021 is not depressed by low margin airbag sales and 2, we have updated the price list for TCM. We expect to see an increase in margins coming quarters. Long term, as volumes continue to increase, We will probably see a pressure on the margin, but short and medium term, we are confident that our margins in the project business will be at least Net cash used in operating activities during the Q2 of 2021 was $1,400,000 Compared to the previous quarter, net cash from operating activities has decreased to 29%. The negative cash Flow has actually decreased compared to previous quarters, which were affected with one time items. We expect the cash to last 12% in the next year. Back to you, Usan. Thank you, Frederic. 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 and We have states like this, to transform the way humans interact with machines. At Neonode, this has been at the Core of the company since its foundation. 20 years ago, Neonode was founded with a focus to develop New innovative smartphones. Since then, we have developed tough solutions for e readers, printers and other innovations, always with a focus on transforming and improving the 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 increased focus in what we call contactless touch, and I will In a minute, what we mean by contactless touch. Our technology and our offerings Extend across multiple segments. Our main focus is with elevators and interactive kiosks, But we also continue to work with automotive applications, medical applications, meter avionics, Consumer electronics and some extent also digital signage, which can see be seen as an extension of the interactive kiosk segment. Our main focus, however, since last year and continues to be this year and going forward, lies And this is 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 but touch like interaction with a Display or with a keypad or keyboard or a button, essentially. You hover your finger in front of the display and you Click, you swipe, you scroll, but you do this with finger gestures in midair. 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 This is a special variation of this where the interaction takes place in midair in front of the display or And here are touch sensor modules, originally, obviously, developed for touch applications, But also intended for gesture sensing is a perfect fit. We 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 2 Market reports. I think most of you have heard stories and read reports about What can be found on touchscreens and other devices in public spaces? And it's not perhaps the most pleasant thing to think about. But there's a lot of bacteria, viruses and just Other things sitting on these screens and keypads. And of course, the COVID-nineteen 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 Virus is like the COVID virus. But in general, there are many other viruses as well and has been for the last 100 of years Sloping around every year in the world and also bacteria, and you have other particles and materials Depositing on these displays and here is where a contactless touch really can add customer satisfaction and add A good user experience and also add to the branding and to the customer using it. And why do we think that we have a right to win here? Why NeoNodes? And why our TAVSI 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 use of retrofit, we have very, very strong offering here. There are, of course, other ways to realize a contactless touch with 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, 4 displays, 4 keypads, 4 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. We give out elevators, one of our 2 key areas. We continue to progress our business development with partners such as Mad Elevator here from Canada. They have developed product that we call Phantom, and it's a new product for them, Realizing a contactless touch interface for their elevated 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. Here's one example from a health care center in Toronto, Canada, where we have very positive feedback and I'm very satisfied both buying customers and end customers, end users. We have similar stories From our other partners, Newhurst in the U. K. And Finetec in Korea. And we are also starting to approach Elevator OEMs and other players in the elevator markets, both in Asia, Europe and North America. So Elevator is and will be one of our main focuses going forward. And we have, today, Actually, move forward our position quite considerably compared to last year and even compared to the Q1 this year. So personally, I see that we have a very, very good and strong play in elevators going forward. Kiosks is perhaps even more interesting for 2 reasons. 1, There is around 20,000,000 elevators in the world. But if you would count the number of interactive kiosks Of all types, it's almost $40,000,000 and that number is rapidly growing every year. So the CAGR 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 the international airport outside Tokyo. So all the Olympic participants traveled 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 a more massive scale with 1 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 train stations, bus stations, subway stations and so on. We have similar check-in, baggage drop kiosks And ticketing kiosk, where our contactless touch technology fits very, very well. So self-service The Okta Airports and other transportation hubs is another area where we continue to work and where we have already seen 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 future restaurants In Japan, there are examples of companies using our touch sensor modules to do touch contactless touch interfaces for hotel check-in and other hospitality applications as well. If you consider and handle the restaurant, for instance, I think and keeping this in mind about The transmission of viruses and bacteria from tough surface on the kiosk, 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 distaste for this now. So I would really appreciate if the handle addresses I frequent if they would also convert their kiosks to compactless interfaces. It brings a lot of value, I And we will continue to push here with different partners and different customers to grow our business with 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 NSE, the Japanese IT company, awarded us with a letter of appreciation last month For good cooperation 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 sales Service kiosk 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 expose Of customer activities, I wanted to review with you this case with Mitek. We have, in the beginning of the summer, released the press release that Mytek shows our touch sensor modules for smart AI kiosks. This is significant for two reasons for us. One is that the Mitek Kiyok had a 32 inches screen, and Mitek used 4 sensor modules per kiosk to realize the contactless interface and to reach the performance they were looking for. 2nd, this is a smart AI kiosk, and we think this is pointing way to the future Obviously, for Mitek and they believe strongly in this themselves, but also for other kiosk manufacturers. And we at Neonode, Using our camera based technology to monitor human activity in cars or in other 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 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 are continuing to execute on our strategies. And remember, our main focus areas is elevators and kiosks, And KeyOps consist of many subsegments, everything from transportation to restaurants And to retail and further segments as well. It's a great opportunity, but we can work both retrofit and new equipment. Also, I'm very eager To share with you that NeoNodes, we are a value driven company. Our core values are shown in this slide. One team, we purpose customer focus, Make Tomorrow Better. And building on Make Tomorrow Better, we Continue relentlessly to execute on the strategies we have and also to try to Improve the way we work and everything we do. So during the last month, during the Q2 and throughout the summer, We have had a special focus on our sales and marketing and engineering activity and to work to improve how these teams work together and how they work individually. One result is that we decided during the Q2 to reorganize our sales team into regional Responsibilities. And as you know from the previous earnings call, where we described this in some detail, We are now working with one team focusing on sales in the APAC region and another team with sales on the EMEA region and the third team will We're already starting to see some really good results from this in terms of increased focus In bigger funnels 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 achieved from the reorganization and The recruitments that we have done of new talent and experience through the NeoNodes team. And this is what Motivates me to come to the office every day to see the progress we are 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 just 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 This is more about this and in general about our go to market strategy. First of all, we think that this type of pyramid Illustration, it's very suitable to describe both elevator and the kiosk market. At the top here of these two markets, there are like 10 or so really big multinational companies representing a large For elevators, it's in fact 4 companies that Make up more than 60% of the market on new elevators. With the kiosks, it's again five Companies that have a dominating market share globally. But on the other hand, below them, there is a number of Quite sizable. And here, they are represented by the middle segment here, midsize 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 I think that this illustration is suitable to describe these two markets. And how do we approach These customers, yes, we 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 doors that are close to us, for instance, in Asia because the way the business is typically done in 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 BB Key and Cereal, and we have to manage the sales through them in an automatic way, have to save time and money for us and just We are finding that this hybrid go to market strategy combining direct sales and indirect sales with Partners is 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 The difference subsegments, but overall, this is the model that will continue. We are quite happy with the results we have achieved So far, we are happy with the partnership 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, retrofits 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 1 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 It helps us penetrate the market and get these solutions out. What we are starting to see with elevators, in some cases, with kiosk, It's that OEMs, they get aware of our solution. They see the 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 So then 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, also impossible us to go directly to the OEMs. But as mentioned, these elevators and some types of kiosks, we are at the OEM level now in our sales cycle. And just to name drop 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 sort of the 3rd phase of the sales cycle. This is typically even longer sales cycle. But then on the other hand, if you have built up momentum in the 2 previous phases, and we have established a good relationship with these OEMs. It will sort of Play by itself when we get there. So taking together with the other slide 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 are using to reach customers and to drive We have to understand that it's in different phases in the sales cycle, and it's been also a bit 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 the 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 on a good business. We already see in some examples where Partners have significantly increased their business, thanks to being able to offer our 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 With 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 compactless 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. Well, we are very happy with the progress we have made during the Q2 despite headwinds caused by the COVID-nineteen 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 Our main focus continues to be elevators and interactive kiosks, as I've described In the previous slides, elevators is pretty straightforward. The first and obvious application is to convert The control panels in the elevators, if it's a control panel with physical buttons or with a touch display that is We can convert both to contactless touch operation. You can also convert the so called hold call buttons or displays that you have outside on each floor. Well, 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 whole call button. This is pretty straightforward. In the next And in the future offerings from Neonode targeting elevated customers, we would also include more innovations and Smart features that makes just 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 Case and forms, point of sales terminals, self-service kiosks at airports and restaurants And so on. All this, we grew into interactive kiosks. It's a very exciting market, good growth numbers. There are around 40,000,000 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 in other hospitality and retail applications that We will have to get used to more and more of these self-service kiosks. And Neonode, we are here to make them contactless for Overall, we are convinced that we are well positioned to accelerate growth I capitalize on the 2 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 the Q2 in 2021. And in the 2nd year of the pandemic, I'm quite happy to This brings me to an end of the presentation. I thank you for your attention, And I give the word back to you, Dave. Thanks, Urban. I now open the call for Q and A from our covering analysts. We'll take our first question from Christian Schwab with Craig Hallum. Please go ahead. Your line is open. Hi, guys. This is Tyler on for Christian. Thanks for letting us ask a couple of questions. First, it seems like everything is progressing well here as expected. So I was Just wondering if you could maybe give some more color, break out maybe what was better than expected or worse than expected over the last 90 days, If that's by end market or geography or even just regarding your pipeline and outlook, that'd be great. Yes. So during the Q2, we saw actually good growth numbers for both our licensing business, and that It's mainly related to automotive customers and printer customers. Actually, we are quite happy, and we are up more than 50% on the lease licensing revenues. So there, we can say that we are back on a good level, and this is a trend that also was Present during the Q1. But this is good news, and we are satisfied with this. We are also working on some new Licensing or MRE projects that will, in the longer term, generate new licenses. So Our solutions business continues to be one of our focuses that we work on, automotive, military, Onyx, medical, this type of Customers we are talking about. But even more interesting, I think, is the growth of our products Which is growing quite nicely and actually several 100 percent, like I talked about in the previous earnings call with you guys, we are now seeing that type of growth. And personally, And so far, Asia is leading the way and in particular, Japan and South Korea. This is no secret, and this It's also what we expected. But we are happy to see that our sales funnel, both in Asia And Europe and North America is filling up with quite interesting leads that we are now working to qualify And push forward into new deals for us. But of course, even though there is a pandemic and many And end customers feel like a pressure to come out with like contactless touch interfaces. We have to remember that the OEM customers here That we are working directly or indirectly with. They are still large Fortune 500 companies, many of them. They won't change their Purchasing processes and development processes or launch processes. So things take a little time. And in some cases, in Japan and South Korea, actually, the projects we are seeing now being rolled out, they started Last year in Q2 or Q3. And now we are seeing the results from them. So It's true. Europe, North America is a little bit behind, but the sales funnels also there are Starting to fill up with a lot of interesting leads that we are now working to qualify, and It's exciting for us, and it's looking very, very promising for the coming months and quarters. That's great. I appreciate the color. And second question, I understand the focus near term here is on the kiosk and elevators and You outlined that very well, so not to distract from that. But I wanted to ask you about your in car cabin monitoring solutions. Any change, update There seems still very interesting, but longer term opportunity. Maybe just a comment there would be great. Yes. It's one of the technology areas that I personally find very, very interesting. Here, we are using Cameras and camera inputs and combining this with AI software to detect humans, for instance, Inside a car, we can obviously use it also to detect humans inside an elevator. So for me, it's a little bit more generic. But Yes, you're right. And this is also what we have indicated. Our main focus has been driver monitoring and in cabin monitoring for automotive applications so far. We continue to develop the technology platform and to develop also applications around this for automotive customers. We are involved In a number of interesting discussions, we are invited to participate in some RFQs that we are Answering up to right now, but it is a longer process. And this is something that If and when we can win some of these projects, it will then be followed by an interesting development phase of 2, 3 years before the corresponding vehicle models are launched and then we can start to generate and see some royalties from this business. It's a long term more long term venture that we are doing, and the technology development is progressing well. We will also use kiosk and elevator applications, and it fits very, very well into our technology portfolio. So There is both the business aspect of this and the product portfolio and technology aspect of this venture that we are doing here with DRIVID in cabin monitoring. That sounds great. That's all for us. Thanks guys. We'll take our next question from Jesper Hendrickson with Redeye. Please go ahead. Hi, guys. Thanks for the presentation. Fredrik mentioned that you had updated your pricing list of some products, which had a positive effect on margins. Could you repeat what that was and elaborate a little on this? Yes. Urban here. I will answer the question on behalf of both me and Frederic. So obviously, we have spoken in previous earnings calls and other presentations that our main focus is to grow our top line. So yes, to grow the revenues from our product sales, that's true. But also, the gross margin is super important for us. And we have continuously monitored this. And we saw, for instance, in the previous quarter, What I think not satisfactory gross margins on our product sales. Now it should be clear, and we write this in the report, This is a lot due to onetime effects from sales of old AirBar products That's what we did in the beginning of the year. But during the first, second quarter, like the end of Q1 and beginning of the 2nd quarter, we have implemented new price lists for our distributors and our customers for The sensor modules, but also aviation kit, that helped us increase The gross margin to a more healthy level like above 40%, where we are targeting With the current volume. So actually, on the running distance, we have a very, very good gross margin between 40% 50%, And the average numbers we show in the report include also some sales from the beginning of the year that a little bit drags us down. But now we are on a good level. Of course, we try to always apply Value based pricing, and that applies both for MRE when we work on development projects And when we do, for instance, software development for some customers and for the sensor modules, That if we have an opportunity to increase prices to improve our margin, we will do. We are also working on the cost side, obviously. We are a product company. We produced the sensor modules ourselves, so we have a continuous focus on cost reductions in terms of Component cost, manufacturing cost and so on. So that has also helped to some degree. And going forward, we will have Still the main focus on growing the top line, but we will make sure that also the gross margin is on a good level because that gives us, In the end, the profits, and that will, let's say, help us Improved cash flow into black figures and positive cash flow, first, obviously, month by month but then year on year. That's the background. Housekeeping and just being focused on our business and our margins. Great. And you also said that you have moved forward your positions considerably even compared to Q1. I think that was Mainly in regards to HMI Products. Could you elaborate a little on this? Yes. This is Duane. Contactless touch for elevators in kiosks, that continues to be our main focus. This is also where we measure The most and where we have the highest activity in our marketing and sales development. So Here is also where we have now covered larger parts of the sales cycle for us, where we have We started to feel that we have, in some cases, penetrated the retrofit opportunity and moving into the new installed and new equipment OEM customers that are pulling us along. So that's quite encouraging. At the same time, if I move From, say, Asia into Europe and North America, we can see that, yes, they are a little bit behind. But during the second quarter, We believe to a large extent supported by our move into a regional sales organization where we We have been able to increase, 1st, the sales funnel here and also start to convert some of these And convert prospects into real customers. But this is an ongoing work, and We are a global team. So I can promise you we work literally 20 fourseven on this, starting in Asia And then continuing in Europe and ending the day in actually in Southern California. So we have a pretty global team, and Everyone in the team is working on this around this launch. Nice. And as a follow-up Question on that. You say that you have come basically all the way in the sales cycle process in retrofit solutions. Could you Talk a little bit about how you expect sales in the retrofit solutions, yes, develop going forward Since we've reached that stage. I had in one slide, you remember this Peram is sitting upside down. On the slide, the investor phase opportunity also long term Will continue to be our main opportunity, and this is because the installed base in both elevators and the relevant types of It's at least around $20,000,000 plus $20,000,000 So there is a huge installed base both in elevators and kiosks. And every year, I mean, realistically, how many of these can we reach? Yes, a few percent or 5% or Something like this. But doing the math, that's a good number. And the lifetime of an elevator is Far beyond 75 years, I would say many try to keep elevators for, say, 50 years, but of course, with regular refurbishments and upgrades. At every such upgrade, we have a retrofit opportunity. Perhaps the Real estate owner, the landlord, they will not replace the whole elevator, but they will perhaps replace and update the Motors, control electronics and inside the control walls and the control panel is inside the elevator, and then we have an opportunity with elevators. Kiosk, you can check Jesper. A typical kiosk costs everything between $5,000 $10,000 If you have you are the owner of a hamburger restaurant, that That represents a huge investment for you. And if they buy 5 or 10 kiosks for their restaurants, which is common, Yes. They will not replace them every year. So they will use them for as long as possible. And Also for Kiosk, we hence have a good retrofit opportunity every year To penetrate and supply a certain portion of the market with our solutions. Now to install this In every kiosk and every elevator, we need, what you could say, boots on the ground. They need to be in Japan. They need to be in Korea. They need to be trends in Sweden and U. S, Canada. And again, here is where we see a good Opportunity for the right partners to come in and build a business. And we have several such examples that Have engineering resource and capabilities so that they can develop good hardware solution, which is mainly mechanical housing, But also that can work on the software application. And then they have technicians or they work in turn with service providers In different countries, in different locations to go out and install this. And one of our partners that I just Talked to just the other day, they worked a lot with airports, and they have started to use The airport technicians to work as installers and operators of kiosks. So that's another tenant for us. All right. And do you see Any specific partners or OEMs starting to ramp up their installations? Yes, several. It's gradual. NSE is one that we can obviously name, But we are working with a few elevator OEMs, and Madduhurst FinTech are also OEMs. Okay. They are controlled kind of OEMs, but they have started already to roll out and Launch their product and earn it in the market. But this is coming along, and it's a gradual process. It will not happen overnight. And this is what we mean again by we are building our business pipeline. Good. And then my last question about Dewhurst. Will that Initially only target the U. K. Market? And if so, what are the chances of a global expansion? And in what time horizon? I can group you have to get with MAD. Both, they are interesting companies. They are leaders in control panels and buttons for elevators. They work internationally. Mab is located at headquarters in Canada, but they cover North America and also sell into Europe. BlueHurst is a U. K. Company. They have a big market share in the U. K, but they also sell in other parts of Europe, at least. Both Matt and Dewhurst, they work both with tap to market sales and OEM sales. So We have heard from 1 of the 4 leading elevator OEMs in the world that, yes, they use control panels for New projects from both NAV and ViewFirst. So this type of company is interesting, both as a direct customer to us and as a lead Into elevator OEMs. And they are say, they have this in their catalog. They are doing installs and rolling Finetech is a third company, very similar. And I can also mention that in China, we have 2 companies. 1 is Jardine Schindler, and the other one is called Rowborn. They are doing installs. And the 3rd Chinese or Hong Kong companies, HKPC, that have already during the Vince is starting to roll out and launch Their own complex expertise of elevators in Hong Kong and China. So Elevators is happening. And again, this is a gradual rollout. And you can realize, If you talk retrofitting an elevator or even a new installation, you have to visit every building and you have to install the elevator or the control panel. So this is the dynamics of this market that we're working in, and we have had to accept that. But our module fits very well through these It's simple to use, easy to install. And so far, customer reactions are Great. Thanks a lot for transferring my questions. Thank you. Yes, sir. And there are no further questions. I'll turn the call back over to you, Mr. Brunton, for any additional closing remarks. Thank you. We want to thank you all for joining us for our call today. Have a great day. Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.