Neonode Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unless otherwise noted, financial amounts below are in U.S. dollars and rounded to millions. Neonode develops optical sensing and machine-perception technology, earning revenue primarily from technology licenses, products, and non-recurring engineering (NRE) services.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1.20m | $1.27m | $2.45m | $2.59m |
| Gross profit / margin | $1.16m / 97% | $1.16m / 91% | $2.37m / 97% | $2.42m / 93% |
| Operating loss | $(1.63)m | $(1.69)m | $(3.20)m | $(3.08)m |
| Net loss attributable to Neonode | $(1.51)m | $(1.55)m | $(2.93)m | $(2.93)m |
| Loss per share, basic and diluted | $(0.10) | $(0.11) | $(0.19) | $(0.22) |
- Revenue mix: Q2 license fees were $1.09m, products $0.08m, and NRE $0.02m. For the first half, license fees were $2.24m, products $0.19m, and NRE $0.03m.
- Cash flow: First-half cash used in operating activities was $2.32m, compared with $5.21m in 2022. Investing activities used $0.04m. Financing provided $7.81m, primarily from ATM share sales.
- Liquidity: Cash and cash equivalents were $20.29m at June 30, versus $14.82m at December 31, 2022. Working capital was $24.0m. Management said current resources and planned operations were sufficient for the 12 months following the report date.
- Debt and obligations: The balance sheet reports no conventional borrowings. Finance and operating lease liabilities totaled approximately $0.17m; total liabilities were $2.01m.
- Equity financing: Neonode sold 903,716 shares through its at-the-market facility in the first half, raising $7.87m net. Shares outstanding rose to 15,359,481 at June 30 from 14,455,765 at year-end.
Changes versus the prior comparable period
- Revenue declined 5.3% in Q2 and 5.1% in the first half. Higher license fees—up 14.8% in Q2 and 9.0% year to date—were more than offset by lower product and NRE revenue.
- Management attributed increased license fees mainly to higher customer shipment volumes as semiconductor supply constraints eased. Product revenue fell amid low customer demand; NRE revenue also decreased.
- Reported gross margin increased to 97% from 91% in Q2 and to 97% from 93% for the first half. First-half gross profit nevertheless declined 1.9%.
- First-half operating expenses rose 1.4% to $5.57m. R&D expense decreased 14.0%, while G&A increased 17.4%, primarily due to higher professional fees.
- First-half operating loss widened to $3.20m from $3.08m, while net loss attributable to Neonode was essentially unchanged. Higher interest income contributed to the year-over-year improvement in Q2 net loss.
Outlook, risks, and unusual items
- Management expects revenue growth to help reduce operating losses in coming years and intends to pursue operational efficiencies, but gave no specific financial guidance and cautioned that targets may not be met.
- The company has a history of operating losses and negative operating cash flow. It warned that additional capital may be needed if operations do not become cash-flow positive; further equity financing could dilute shareholders, and debt financing could impose restrictive covenants.
- Customer concentration is significant: four customers accounted for 71% of accounts receivable and unbilled revenue at June 30. Hewlett-Packard represented 37% of Q2 revenue and 34% of first-half revenue.
- AirBar inventory was subject to a $0.3m reserve because of low sell-through. The company also cited reliance on customer product launches, supply chains, technology competition, intellectual property, foreign exchange, and economic conditions as risks.
- Neonode disclosed exposure to deposits above insured limits and said it had recovered its uninsured deposits at Silicon Valley Bank and ended that banking relationship. It cannot assure access to uninsured deposits if another institution fails.
- A third party’s patent litigation against Samsung resulted in judgment for Samsung on August 2, 2023; its case against Apple remained ongoing. One of the patents at issue had previously been invalidated, with an appeal pending. Neonode’s filing says it is not a party to pending legal proceedings.
- No material change in internal control over financial reporting was reported. Management concluded disclosure controls were effective at a reasonable assurance level.
Key facts for investors to verify
- Whether license-fee growth and customer shipment volumes continue, and whether declining product and NRE revenue stabilize.
- Cash burn relative to the stated 12-month liquidity assessment, and whether further ATM or other financing is required.
- Customer concentration and dependence on a small number of customers’ product cycles and shipments.
- Product demand, AirBar inventory recoverability, and the assumptions behind returns and warranty reserves.
- Developments in the Apple and Samsung patent cases and whether they generate any proceeds for Neonode.