Neonode: All eyes on the lawsuit
Research Update
2024-08-09
07:25
Analyst Q&A
Closed
Jesper von Koch answered 6 questions.
Redeye states that while the Q2 report held few positive surprises, all eyes are now (once again) on the lawsuit. With positive development concerning the swipe-to-unlock patent in mid-July, the temperature is now rising. With a possible decision on whether or not to reverse last year's dissapointing Markman decision just around the corner, the stakes are high. However, as the stock market currently places a very low probability on a successful lawsuit outcome, the risk/reward is appealing. Redeye raises its Base Case.
Jesper Von Koch
The financial development in Q2 was soft, with the only positive surprise (product sales) being of one-time character. The low license sales (-44% y/y) is only explained by "low demand", which is worrisome. On the positive side, Neonode's DMS customer is developing according to plan, and the company mentions continued promising traction in this area.
Samsung, Apple and Google failed in mid-July to persuade a panel of Federal Circuit judges to kill patent ‘879. However, it is still unclear whether the Markman decision from one year ago will be reversed or not. Patent expert, Andreas Iwerbäck, argues it ‘could’ indicate this. As such, while this is obviously good news for Neonode, the Markman decision is yet to be reversed. Any date for this is yet unknown, but it could be imminent.
While we still await the Markman decision in the lawsuit, we decide to increase our assessed probability of a succesful outcome (from 3% to 7%, of which 5% is for a settlement). Also, following this spring's CEO departure and the company's refocusing towards DMS and HUD, we have re-evaluated our Redeye Rating. Our People rating is lowered from 3 to 2 and our Financials rating from 2 to 1. This stems from continued poor financial performance, and that the company's DMS and HUD traction need to significantly increase in order to ever reach positive cash flow. Bear Case is USD0.9 (1.2), Base Case is USD4.0 (3.0), and Bull Case is USD35 (36).
| USDm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Total Revenue | 5.5 | 4.4 | 5.0 | 5.2 | 8.0 |
| Revenue Growth | -6.4% | -18.6% | 13.2% | 3.2% | 53.8% |
| EBIT | -5.5 | -10.7 | -7.4 | -7.6 | -5.2 |
| EBIT Margin | -100% | -241% | -148% | -146% | -64.5% |
| Net Income | -4.9 | -8.8 | -2.9 | 6.9 | 8.8 |
| EV/EBIT | -4.2 | -2.3 | -3.7 | -2.6 | -1.1 |
Total revenue was USD1.42m, +19% y/y and 12% below our estimates of USD1.63m. While Product sales exceeded our estimates, License sales came in well below our estimates. Due to the margin nature of this product mix, with low high-margin license revenues and high low-margin product revenues, gross profit came in below estimates, rendering a bigger loss on EBIT than estimated.
Disclosures and disclaimers