Next Biometrics Group ASA
OSE:NEXT
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Next Biometrics Group ASA
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Welcome to the NEXT Biometrics Q1 2020 presentation. [Operator Instructions]Today, I'm pleased to present Peter Heuman, CEO. Please begin.
All right. Good morning, everyone. And welcome to NEXT Biometrics quarter 1 report and this conference call. As you hear, it's me attending, Peter Heuman; as well as we have our CFO, Eirik Underthun, on the line. We will -- me and Eirik will guide you through the quarter 1 presentation, and we have approximately 10 slides. If you don't have them, you can find the slides also under nextbiometrics.com and under Investor Relations. And further to the Q&A, as just announced, you are also more than welcome to also send questions directly to me, peter.heuman@nextbiometrics.com, and we will try to bring your questions into the Q&A session. And if time doesn't allow, I then have the possibility to follow-up online.You can expect our presentation to take a little bit less than 30 minutes. And we have structured the presentation, including, of course, highlights and figures from quarter 1 2020. We will then also touch upon and talk a little bit about the commercial momentum that we have identified and established since I started here late 2019. And we will end with some further guiding on -- especially the activities recently announced and then guiding of activities going on within the company for quarter 2 and onwards. But with that introduction, once again, welcome, and I think we'll get started with our slides.So if you then go to Slide #3. That is with the header and me and Eirik will try to guide you with the header names. So it -- this slide has a header, Quarterly Highlights. And as you probably have seen in our quarter 1 report, and based on what we told you during our quarter 4 presentation, this is the first time that you will hear me say since I started as a CEO that we are at least satisfied in several dimensions with this report. But bear with me because when I say satisfied, what I mean is that we are satisfied that our identified and executed measures have started to deliver positive steps in the right direction. Especially -- and both related to the lowering of our cost base that has started to show positive signs as well as the increased revenue during the quarter.And saying that, as you can see on the slide here, we are up more than 120% compared to the articulated low point quarter in 2019. And with -- as you have seen in our publications, we are in the middle of a turnaround of NEXT Biometrics, and that's why we're also going to compare a lot with the low-point quarter of 2019.So with that in mind, you see our revenues are up. You see our gross margins are up, they are still not at the levels that we are aiming for, but from the low-point level, that's what I mean, we are taking steps now in the right direction.The EBITDA has also improved compared to quarter 4. But more importantly, and this is what you're going to get some more information from Eirik around, is that the underlying OpEx, excluding FX, foreign exchange, and also onetime cost related to all the changes that we are implementing is also down in a good way already during quarter 1 compared to quarter 4 when we took a lot of measures.The cash position at the end of the quarter 1 is NOK 54 million. If you look in our balance sheet, you will also see that we have some good accounts receivables there. And we have good faith that we can collect this money, and that will then also improve the cash position. Further, I just want to make a note that activities that has been going on is, of course, the management changes of the company and which are now implemented. And then that we have extended and accelerated cost reduction programs throughout the company. And Eirik will come back to that during the presentation.I also want to guide you a little bit here, but I think we also have a proof point in the quarter that I'm happy with the changes that we started to implement already during quarter 4 and then have executed during quarter 1 when it comes to our sales management, new sales organization, new way of steering. And I think they have quickly built up a much more tangible momentum with tangible opportunities if I compare to what I saw in our funnel and sales activities in 2019. I find this very positive, but I want to give you a little bit of a note already here as well that the COVID situation that I think we all are aware of that's going on globally, may risk that a part of this very good momentum that we have built up. We'll have a little bit of a hit, but I'm not worried that we are losing anything of the good momentum in a way. I'm just seeing that a few deals might get delayed due to the corona situation.But I feel confident that we are doing the right thing and that the new sales organization is heading in the right direction.I think that's the summary. And I would like to hand over to Eirik, so he can run you through the P&L and some further clarification of achievements and numbers related to costs and other items. So Eirik, over to you.
Thank you, Peter. This is Eirik Underthun, CFO at NEXT Biometrics. Let's turn to Slide 4, Key Figures. So Q1 revenues was NOK 20.5 million, which is up from NOK 9.2 million in quarter 4 2019. This corresponds to 122% increase in quarterly revenues relative to Q4, our low point in revenues per quarter.The revenues in the quarter was mainly coming from shipments to India and delivery of notebook sensors to our regular notebook partners. And the new sales organization, as Peter mentioned, has quickly provided solid revenue and sales momentum during the quarter, and also, we have a pipeline of new prospects that is at advanced stage, as Peter will get back to, at the end of the quarter.The gross margin was 17% relative to minus 2% in quarter 4 2019. As you can see, the gross margin is heading in the right direction during the quarter. Still, it has only reached part of the potential relating to new products, which will have higher margins. The OpEx was NOK 37 million relative to NOK 44.3 million in quarter 4 2019. The OpEx is heading lower, but it's not fully visible in quarter 1 due to both foreign exchange effects and nonrecurring costs. We will get back to that and explain it in more detail in the next few slides. The contributing factors to the lower OpEx are the number of employees reduction as well as cancellation and renegotiation of supplier agreement.This supplier and procurement work will continue in the coming quarters. The EBITDA adjusted was improved by NOK 10.7 million compared to quarter 4 2019.Then let's turn to Slide 5. So in this slide, we have tried to explain the OpEx development a little bit in more detail and sorting out the recurring OpEx development. So we've continued execution of the cost reduction measures during the quarter. In the chart, you can see the OpEx development from Q4 to Q1 and our future OpEx target of NOK 15 million per quarter. As you can see, our OpEx -- recurring OpEx was NOK 31 million compared to NOK 45 million in quarter 4 of 2019, which is a NOK 14 million improvement quarter-over-quarter. And it's also been adjusted for nonrecurring costs and foreign exchange effects relative to quarter 4.We increased the annual cost reduction target by NOK 20 million during the quarter. And as Peter will explain, we increased the saving target further in quarter 2, and we set it to NOK 15 million in recurring cost, as you can see in the chart.NEXT had nonrecurring costs of NOK 4.4 million in quarter 4 and the foreign exchange negative impact was NOK 2 million as a result of the weak Norwegian kroner. There was a net reduction of 10 employees in the quarter.Let's turn to Slide 6, OpEx Metrics. We had an improvement in our key OpEx KPIs in the last few quarters. During Q1, we implemented management changes and canceled and renegotiated supply agreements. Moreover, we executed a further reduction in external R&D costs. Please also see the chart with the number of employees, which has been reduced over the last few quarters. We also have a favorable development where NEXT has an increasing share of employees in low-cost countries going from 24% in quarter 3 2019 to 32% in quarter 4 2020. This number will increase even further in the coming quarters.Please observe, there's a lot of changes that are being made at NEXT, so that the Q2 and the -- Q1 and the Q2 cost reduction program is not fully reflected in the Q1 2020 financials.Thank you. Then, I will turn back to Peter.
Okay. Thank you, Eirik, for that part of the presentation. And let's go to Slide #7, which has the heading, Q1 Summary. And on this slide, without me reading all the different lines here, it's a way to try to provide you with some more insight what's going on within the company. But I want to start by saying that based on the 100-day program that we talked a lot about since I started and especially during the quarter 4 presentation, you see the main focus area here for the company in our transformation and turnaround of NEXT Biometrics. So of course, it's about the tangible growth agenda and the commercialization that we talked about before. It's about customer-centric to become a customer-driven kind of company. And then it's also about how we handle our capital and how we balance the resourcing capital allocation in the company, where we have also made quite dramatic changes to deliver and enable a better growth and at a lower cost.I think that's kind of the summary. But if I take a few other points here, as you can then see and as you heard Eirik explain, the revenues are up more than 120% from the last quarter. A main contributor during quarter 1 was the earlier announced USD 1.1 million deal that we won in India and in the Indian market. I think to put a little bit of perspective on that, if we make a deal of that size, even in India, and in the biometrics market in India, we have heard from a lot of competition that they see us as a threat and that we very relevant.I think that's a very good point of the -- what I earlier explained as the positive momentum that has built up from our sales team and the new way of steering them.We also announced in the quarter the first commercial PIV FAP20 sensor sales and even though it was a fairly small sized deal in terms of dollar and revenue, it's an important POS vendor that has designed us in and put an initial purchase order. And we do have -- we are aiming at, and we have good hopes in the closer way of operating with some of our partners now that we will see follow-up orders coming from also that particular customer. Maybe I should also mention here the last point that I want to be balanced so that we can deliver what we tell you. But I -- when I talk about momentum, I want this quarter 1 to be at least one proof point for you as shareholders and I would like to tell you that we are doing everything we can, and I have at least good hopes that we, within a short time frame, should be able to present tangible orders, where you can see quantities, et cetera, that we are expecting from some interesting partners. And especially, we have a lot of focus on that related to our FAP20 sensor, where we see a strong interest in the market, and where I find it very interesting that we are -- I think it's the sweet spot product that we talked about. If I compare with our competing companies who might be very good from a capacitive sensor technology point of view, there is also some very good companies when it comes to optical sensor technologies, but both of them find it difficult to make a larger-sized sensor with the same form factor and to the same cost that we can do and that we can provide from NEXT. And that's why I believe that we have a very good proposition here in the market and where we have some interesting dialogues.The other aspects, customer-centric, I take that for granted. We talked a lot about it. So I'm not going to talk a lot about that here. I can say that for some of these larger potential partnerships that we are engaged in, we do run a task force within the company to pull our organization and gear the organization towards these tangible revenue potential partnerships. And I personally governed some of these task forces and continue to do so within the company.Resource and capital allocation. Yes, if we should transform and turn the company around, it's important that me and Eirik are -- take a resolute kind of implementation strategy of how we dare to allocate both dollars and resources and capabilities. And there's been quite a hectic shift in the company and more or less all critical resources are now allocated to near-term revenue potential. But there can also be resources who are critical that can support Eirik and myself in negotiations, et cetera, with external parties so we can lower our cost levels.There can also be critical resources in our product organization, R&D organization, when we end up in interesting potential revenue-generating projects with partners where we need to bring high technical skills close to the customer to be able to succeed and win the business. So this is how we are steering and guiding and allocating our resources and capital to enable growth at a leaner and more cost-oriented operation.Then capital in the situation for NEXT, of course, that's important, like we told you already in quarter 4, me and Eirik and management are working with the Board of Directors related to future funding options. But be aware that also all the activities we are doing now when we are increasing revenue, providing better gross profits and also substantially lowering our cost levels. These are all parameters that we can play with that can prolong our runway as a company and then provide us opportunities to look at different options for funding.Also helping here, even though it's a tough situation globally and for most of us who are working from home, the COVID and corona situation, we managed to get a loan is the correct word, part of it can be forgiven by the U.S. government. So that's probably why we brought that loan. And we got that of USD 1 million, and we have that on our account today, and that's mainly to help companies who are affected by corona, and we were qualified for that, and this is, of course, helping us as well.So I think that's the summary slide for quarter 1, including the previous numbers.With that, I think we should take a look at some of the opportunities. And even though we don't specify them, I think what I wanted to say here that -- and now we are on Slide #8, there is multiple sales funnel opportunities at advance stage. So like I said, our new sales management steering and focus and execution has built a much stronger sales momentum compared to 2019. And in several of our target markets, we are in advanced stages with interesting partners with potential of recurring revenue contracts.And we aim, in spite of the corona situation, to announce a few of these deals, at least before the summer and within a short period of time. We are -- if I should go into the different areas, we are growing with some of our existing customers in the notebook area. We are also in a good dialogue regarding FAP20 for certain segments of both our -- with both our existing and some new potential customers.When it comes to government ID, a lot of that is, of course, related to India, where you saw that we won a large tender during quarter 1. And we are participating in several different large-scale tenders in India. You should be aware that due to the lockdown in India, that have slowly now started to open up somewhat from the 3rd of May, some of these tenders are delayed for everyone in India, not in particular for NEXT, but that might affect the good momentum that we have. But like I said, when we started, more from a timing point of view, it's not that we see that the tenders and these big potential deals are disappearing or being awarded to someone else, it's more that the tenders themselves are somewhat delayed due to the lockdown in India.But we -- I think we have built a great momentum with the team in India, in particular. But related to them, both government ID and access control, we are also in dialogue, and then we are mainly talking our FAP20 module and sensor, where we are promoting in this, and we are in good positive dialogues. And like I said, I have -- we are aiming at -- since we say advanced stage here that we will prove that to you within a short period of time.And if we do not manage to get some of these deals, since you know there are long sales cycles and then from the moment the sale is actually done until we start to ship them in large volumes, but we will aim -- we will be aiming to communicate to you at least what the orders are, the size of them and when you can expect to see revenue from them.So mainly in India for government ID and then also POS related -- POS, point-of-sale, partners who are interested in FAP20 in access control, it's also mainly FAP20 with different kind of device manufacturers, et cetera, where we feel that we are delivering a very interesting solution.When it comes to smart card, as you have probably seen and at least compared to some of our competitors who are mainly running towards the smart card market, we have completed the development, and we are ready when it comes to the dual interface solution. But we are more opportunistically following the payment card ecosystem. We do believe that it's -- we need to respect a little bit the time it's going to take before we can see revenue from that market segment. We do believe, however, that the more broader smart card market, which might also be linked to access control, has both a very interesting long-term future with many new use cases due to the digital development in the world and where certain partnerships are required probably to succeed, but this is also where we see a much higher margin potential for us as a sensor supplier. So that would be our view and where we currently are on the smart card.So this gave you a little bit of a glimpse. And we are trying to balance here, to be honest with you, that we don't overpromise you anything, but we still want you to know that there is a good underlying momentum buildup. It's somewhat affected by the COVID-19 looking into quarter 2, but we do at least dare to tell you that we believe that we can announce some very interesting deals for you going forward after this quarter 1.Okay. Then we have 2 slides left. So I go to Slide #9. And this is more of an outlook. We want you to get a good insight of what's going on within the company in the transformation of NEXT Biometrics and in the turnaround here. So on Slide #9, outlook, 100-day program findings under implementation is the header. You see the main focus area from the 100-day program. And here, you can see on the time line horizon, a little bit what's going on -- what has been executed during quarter 4 and quarter 1. And also what will happen during quarter 2 and onwards during 2020. We want to provide you a little bit of this information since we have executed a lot during quarter 1, but we have also announced a lot of different activities during quarter 1 and into quarter 2. So we find it fit well that you can get an insight from us related to what activity is going on.I think we have already talked about what has been going on in quarter 4 and quarter 1, as you can see here. If you look into what's happening right now in quarter 2, as we are presenting here, it's an acceleration of our optimization and cost reduction. We also will get a new Board in place, hopefully here later today, which I think will be very good for the company. And we are then into quarter 2, quarter 3, quarter 4. Basically, from a cost perspective, heading towards our announced target of reaching NOK 50 million OpEx run rate by the end of -- by -- during quarter 4 2020. So that's from a cost perspective.There's also a big activity going on where we are simplifying and rationalizing our product portfolio. The product portfolio includes some great products with global potential, very well positioned. But the product portfolio also includes a lot of other related items, and we are trying to simplify here. This will drive less cost. It will improve the focus and it will also bring us closer to the real potential with our customers and help us reach higher revenue levels in a more simplified and faster way.So I think that's an insight into what's going on, on a high level and in general terms in the company linked to the focus area and the findings of the analysis of the 100-day program.So then if we go to the last slide, and the last slide is named Outlook, NEXT's turnaround status. So trying to summarize both quarter 1, but then also looking a little bit ahead with the recent announcements. Since there's a lot going on in here, we thought it's great so that you really understand that what we are targeting here, while we are doing all these changes is, of course, to safeguard the company's intellectual property when it comes to both our solution and products capabilities and the key kind of IP individuals. We are also doing this to maintain existing and to be able to bring new customer relationships and that we can carry out all deliveries and service levels to these customers.We also do this to reduce the need of growth capital and to really improve the working capital management of the company. So these are kind of the north stars that we are aiming at when we do the transformation and that we cannot jeopardize. While we are then aiming to lower our OpEx levels, we have announced that it's a mix of activities here. We will -- and we are already outsourcing part of operations to lower-cost countries. We are reducing headcount. We are renegotiating and streamlining lower vendor costs. And we are also aiming at simplifying our legal structure, providing lower administration costs. And like I said before, simplify our product offerings.So in essence, as you probably have understood, there is a large focus on executing and ensuring that we can run the company on a much lower cost level. The second large -- or the second part, not the second largest, is, of course, what we call the tangible growth agenda, where you should feel at least comfortable that we have now one proof point of -- that we have created a much better momentum in our sales and that we have multiple opportunities in good stages with customers. And you should -- and the reason for why we might not be shipping as many press releases as some other companies in the market is that we want to make sure that when we ship them, they are at least tangible to use. You can understand when they will start to provide revenue and what kind of use cases, et cetera, that we are in.But we do all this to kind of reset the company, conserve more cash and to enable NEXT to become a commercially focused technology company.And with that, I think we should jump into Q&A.
[Operator Instructions] Our first question comes from the line of [ Eric Chen ] from NEXT Biometrics.
I do not have a question.
[Operator Instructions] And as there are no questions, I'll hand it back to the speakers again.
Okay. That's fine. And I have a few questions that we have received over e-mail, and I thought we can try to answer some of them here. I have one question, it's, Peter, with all the changes going on in the company, how many employees do you have? And how many of these are working with marketing and sales?And I think that's a good question. We are -- at the end of quarter 1, I think we are -- and Eirik can correct me here, but it should be around 55, 56 full-time employees. I would say that at least a decent percent of that and without going into all the details, but let's say, between 10% and 15% of these are directly working with sales and marketing and customer engagements. Of course, then we also have part of -- the larger part of the organization who will be at different stages, very much involved in some of these high-profile projects that we are involved with, with clients.But I think we have a good balance and actually the way the communication that we have done, the number of FTEs might be lower, but the balance of keeping the growth agenda as top priority will always ensure that we have a good pool of staff that is working with sales and customer engagements.I have another question, which is how much are you expecting to sell during the rest of the year? And do you see any possibilities in U.S.?Yes. We do not guide on exact revenue targets for the rest of the year. We try to articulate here during this call that we have build up. I'm satisfied with the momentum that has been built up. And if I compare that with what I found -- when I started here at the end of 2019, I also try now during this call to say that corona and the COVID situation might risk the near-term a little bit, but the underlying good momentum that we have built and the relationships and the interactions that we have, I see that the already long sales cycles before maybe extended a little bit due to very simple reasons due to the corona situation and that when you test and do things with these sensors when you're close to an engagement, it is a little bit more complicated for our potential customers to do that since they are also many of them working from home.But still, I see good progress. So I think quarter 1 needs to speak for the momentum that we have initiated and that we tell you that we think we have a good momentum that has been built up with the new sales management and the new sales organization.I have further questions coming in here on e-mail. One is how long -- this is in Swedish, I think, or Norwegian, so how long will your capital last is the question?Also something that we are not guiding on in dates or anything. But as you can see, what we are aiming for here is to increase revenue and gross profit as well as substantially lowering the cost levels. At the end of the day, with the communicated target of reaching an OpEx level of NOK 15 million a quarter at the end of the year versus around NOK 45 million a quarter earlier is going to require much less revenue per quarter and with an increase of gross margins, at the end of the day, we should be enabled to reach profit levels much, much sooner than -- rather than later. So with the activities going on, we are at least securing longer runways and without going into the exact details of any dates here.The fourth question is, when do you think that payment and will it ever start the market?And I think that's an interesting question, and you probably have as many aspects of that as you have individuals. I think if I try to say what I've said before, and since I have an experience from the payment industry for several years, I have respect for the time it's going to take before this is implemented on a global payment scale and level. Whether it's going to happen or not, that I'm not the right guy to answer because it might actually happen, but I have respect for how long time it's going to take. But that's also why we say that the broader smart card market, both has a higher-margin potential and is probably less parties involved compared to the global payment industry. So that speaks for that, that can take off quicker. And I think that's maybe then a better potential for NEXT.And then I have another question that comes up here every now and then, and that's, Peter, why have you still not bought any stocks in NEXT?Yes. But let's say like this, I have received from the Board of Directors, I think it's a 220,000 option as an incentive to be here. And I'm -- like I said before, I really want to start as a CEO. I was potentially a little bit, as I have articulated before, surprised over the situation of the company. And I want to make sure that I'm in here and can establish a firm and solid road for a company that can succeed long-term and this is something I consider, and you will hear back from me related to that. But I think the Board has tried already from the beginning to put some kind of incentive of a more long-term option program with me. So I think that's what I will say at this stage.I think those are the main questions that I have received. So operator, if you have received any more questions, please allow that. And otherwise, I think we are good.
There are no further questions on the phone.
Okay. Then thank you, everyone, for listening.
This now concludes the conference call. Thank you all for attending, you may now disconnect your lines.