Next Biometrics Group ASA
OSE:NEXT
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Next Biometrics Group ASA
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Good morning, and welcome, everyone. Great to see that we have so many participants. And welcome to this webcast where we will introduce the quarter 1 results for NEXT Biometrics. I'm Peter Heuman, I'm the CEO. And with me, I also have our CFO, Eirik Underthun.
The material we will run through here today is also available already now on nextbiometrics.com. And we will end today with a Q&A session and you are free to send us, me or Eirik, or to the events at nextbiometrics.com some questions. But even better [Operator Instructions] and we will try to cater for all those questions by the end of the session.
So once again, welcome, and I think we try to get started, Andrea.
So if you go to the agenda slide. So I'm going to start off today provide you with some reflections and a short update on the business for quarter 1, while Eirik will run through the actual report. And then at the end, I'm going to give you a little bit of what you can expect from us in the coming quarters in an outlook. And we end with a Q&A session.
So with no further ado, let's go to the next slide and get started. So yes, while you are probably looking at this slide, I wanted to say that it's been obviously quite a challenging quarter for us, which is almost frustrating when you look at our performance of some of the most important KPIs. I mean it is becoming a bit frustrating when I do -- when we don't deliver higher revenues in this quarter and not delivering enough design wins either.
But having that said, I still feel very confident that we are executing in the right direction to make this company both profitable and successful. And I say that because if you then look at, yes, we did only bank one large design win early in quarter 1, and that was the India OEM, and we're going to talk more about that later today. But if you now look into quarter 2 here, we have already scored 3 design wins during the first month of quarter 2. So we are up to 4 design wins when we are starting off in May. And as you know, we have communicated that we're going to try to make sure that we keep an average pace of 3 design wins per quarter. That means that there are 3 new customers, new products that are integrating our sensors into their product.
So sitting here now in early quarter 2, we already have 4 new design wins. And yes, we could only book 1 of them in quarter 1, but I feel confident that by the end of quarter 2 because we have so much time left of quarter 2 and I can see what we have in the funnel, I feel that we're going to be on our target average rate of design wins when we end quarter 2. So for quarter 1, yes, a little bit frustrating, but do we execute in the right and continue to execute in the right direction, that's where I feel confident.
But like I said, it's a bit frustrating as well, of course, that the revenue is not higher. We booked NOK 10.2 million this quarter. And of course, we could have booked a little bit more if we wouldn't have been challenged by the supply -- global supply chain challenges. In particular, it is the microcontrollers where we are challenged a little bit. But I would actually say that we are in less of a challenge compared to many of our new customers.
So we have 28 design wins to date, but we see more and more than many of our customers they also faced this challenge, meaning they do not get enough components to build their product even if we can supply them with our sensor. And hence, they are delaying their orders and we can't ship and book that as revenue. So that's a little bit where the frustration from my CEO perspective arrives. But I also tell you that I feel confident that we are executing in the right direction.
Gross margin this quarter, since the volume is rather low, it's also a little bit lower. And it depends on -- as you -- many of you who have followed us for a while now, you would know that very much depending on the number of FAP20s shipped in the quarter, that will influence our margin quite a bit. And this quarter, it was a little bit less of shipped FAP20s and more of standard sensors, where we have a little bit lower gross margin. And that's why you see that in the report.
We still keep our low cost level, I think Eirik will talk more about this. And I think one of the best indicators for this quarter, while these other figures look like they do, I mean, we have not burned a lot of cash at all. I think it's NOK 7.5 million looking at quarter 1. But I think Eirik will come back to that.
So with that, Andrea, I think we should move into the next slide. And I have 2 slides, I'm going to try to run them through rather quickly. But I thought it could be interesting for you to understand where do we then ship, what kind of products are we talking about when we are talking design wins. And here, I have 2 slides. I'm just going to quickly give you a little bit of insight, so you understand where are our sensors used.
And this is one of the most recent design win, and it's related to Africa and an agriculture financial inclusion case. So here is the product from a company called Waxed Mobile. They're going to start to launch in Nigeria, which is, as you might know, a very large African country with, I think, around 200 million citizens. This product will be used in management of microfinancing for farmers and create a cashless agriculture ecosystem. That's what they are doing.
And the good thing with this is that, as you can see on this quite rugged product, but you can probably understand why it needs to look and be a rather rugged product when you are in this use case, you see that they are using double FAP20 sensors from NEXT Biometrics. So if we are lucky enough that this product starts to take off for Waxed Mobile, then we can ship them for every product 2 sensors.
It's a FAP20 sensor, so that's good. And I think we've -- as you might have seen earlier, we have sent out press releases that we were first being certified and passing regulatory approval in Nigeria. It's something called NBISS (sic) [ NIBSS ] certification. And due to our sensor was already certified in Nigeria, Waxed Mobile could easily pick NEXT Biometric and put our sensors into their product.
Okay. I think we can have a quick look at the next design win that we recently announced. And yes, I don't think this is going to be the largest potential volume driver, but I find it an interesting use case. And this is also from an already existing customer, Televic, in Belgium. They have already bought sensors from us at NEXT Biometrics. That was for a product used in a voting system for the Turkish parliament. But since they then believe that our sensors are working well and fits their solutions, they are now building a second product with -- where they are integrating our FAP20 sensor. And this use case is an access control -- within access control. So they are linking their CCTV cameras in a jewelry chain, where they do that in the shops, in the manufacturing and in warehouse, so where you have high-end goods that needs high security. To be able to enter the shops or for the people working in the manufacturing or in the warehouse, et cetera, they link the camera with a fingerprint biometric verification and then they can keep a good security around this.
It's a leading European jewelry chain. They are based in 3 countries, and they are trying -- they are going to try to expand this and then include this solution in there.
But like I said, I don't think you're going to see the biggest -- this as a very large volume driver, but I find it very interesting that we have an existing customer building yet another product and picking NEXT Biometrics. I think that's something that we bring with us as a very positive.
Okay. So there was 2 quick use cases of design wins that we have recently won. So Andrea, if you go to the next slide. I think another important part that we -- and why I say that I think we are executing in the right direction is something I want to -- and that we have executed upon during quarter 1 is how we could in an efficient way scale up our sales capabilities, both in improving our market reach as well as without building up a lot more OpEx or binding capital in the company, how can we do that.
So what we have done is that we have signed contracts with 2 distributors, biometric distributors, in 2 interesting markets. So the first one is a distributor in Brazil, which is, I think, the third largest biometric market globally. And they have a large installed base of primarily optical sensors, and that's where we also believe that our technology fits very well to start to compete with. The market need is high since there's a lot of security around Brazil. There are many use cases, so we think it has some potential there. The distributor itself is already experienced and they have already existing biometric business volumes.
And we have signed an agreement, we are training their staff and we hope and we start to see that our funnel is increasing a little bit by working through these distributors.
And then the other market is Vietnam, where we have signed with another biometric distributor. It's a little bit different use cases. It's an up-and-coming biometric market, but it's a large country again. And it's mainly related to governmental authentication and identification of citizens in the market. And this distributor, again, has already existing biometric volumes that they are driving.
And I think this is a way for us with limited resources to try in smart ways to scale our business. So I hope I will come back here, hopefully, during the second part of this year where we can inform you about our first wins coming via these distributors. So I think it's been good activity and good executed by the team that we have managed to get this in place during quarter 1.
Okay. And with that, I think I will hand over to Eirik and he will run you through the numbers. So you can change slide, Andrea.
Thank you. Next slide, please. We now turn to the financial figures for quarter 1 2022. The revenues were NOK 10.2 million in the quarter. This was versus NOK 14.1 million in quarter 1 2021. The NEXT revenues continued to be impacted by the semiconductor shortage, particularly in the PC sensor segment. Quarterly revenues would have been NOK 18.2 million if all components had been available.
NEXT gross margin was 21% during the quarter. In comparison, the gross margin was 27% in quarter 1 2021. The product mix that we had in quarter 1 2022 was less favorable than the product mix in the same quarter last year, but also compared to the quarter 4 2021.
The OpEx ex options was NOK 14.0 million versus NOK 14.9 million in the quarter last year.
The adjusted EBITDA was negative NOK 11.1 million, which is similar to last year.
As you understand, the cash burn was low in the quarter both as a result of continued low OpEx but also as a favorable development in the working capital. NEXT had a cash position of NOK 94.7 million at the end of quarter 1 2022.
So to summarize, NEXT experienced a temporary softness in gross margin due to the product mix, and there was a low quarterly cash burn with only NOK 7.5 million.
Next slide, please. So the Q1 takeaways. As you can see, we have -- continued to have low operating costs and we're below the NOK 15 million per quarter target and continued to operate at this level. The cash burn was only negative NOK 7.5 million, confirming the positive trend that started in 2021.
On design wins, we achieved one design win in the quarter. But then already now as per today, we have 4 design wins year-to-date. And we added 2 distributors with focus on 2 different promising large biometric markets.
In summary, operating costs, operating cash flow and design wins continued to trend in the right direction. Thank you. Then I turn to Peter.
All right. Thank you, Eirik. Andrea, we can move to the next slide. Very good. And we can move yet another slide, so we get to the outlook. I will try to brief you here.
So if you look, if we now -- as quarter 1 has already passed and we look into a little bit of future and what you should expect from us, of course, you should expect that by end of quarter 2 already, we should be very close to our average 3 design wins per quarter. As you heard and as we have both communicated, me and Eirik, we are already at 4 design wins. Should we keep our average, we should have 6 design wins by end of quarter 2. And that leads us driving towards -- we ended 2021 with 24 design wins. If we keep our pace, you should be able to expect us to deliver around 36 total design wins by end of 2022.
So I think we are heading in the right direction looking at the first 3, 4 months, and we are doing everything we can to live up to this KPI. I think it's really the foundation for us to scale up NEXT Biometrics.
Like I also communicated here earlier, we have added now 2 distributors in 2 interesting markets. It's going to take a little bit of time before we have trained them, before they have filled their funnel with cases that can materialize, but I think we are expecting and you should expect us to start to deliver some news around these initial deals during the second half of 2022 at least.
Then just briefly coming back, but I find it very important, it's around some of our historic press releases around partners. We talked quite a lot about this during our quarter 4 about the potential we have with our new go-to-market in India where we are now working with 2 large players, and they are well positioned for the India market. But our customers are sitting there waiting, running through biometric certification, validation and testing. That is currently ongoing, and that's to get the government approval to enter the India market under the new regulatory certification program by the authorities of India. This is all heading fairly well.
What concerns me is point #2 here, and that is when the authorities finally will launch what they call them the L1 certification for all these companies to start to ship volumes into the market. This is already delayed due to primarily COVID in India with almost a year or around a year. But I do see risk of further delays because what's included in these government certifications in India is that the biometric providers need to use also a -- by India authority-certified microcontroller. And then as you understand, there is a global challenge particularly around microcontrollers, so-called MCUs.
So I do see a risk that we're going to see further delays even though our partners are being certified and they can use the certified MCUs connected to the sensors they are buying from us, so they can have a ready-to-go product. But if they can't get enough of these certified MCUs, then the authorities cannot launch.
So I think the whole program in India is somewhat delayed due to -- first, it was delayed due to COVID. Now it's getting delayed to -- because even if all the product manufacturers and the authorities, even if everyone wants to launch, if they don't have enough MCUs available and line of sight when they will have those volumes, that speaks for that we're going to see a somewhat further delay.
And unfortunately, I think, for us, that we -- I see it more because I think we have a tremendous good position and we have good partners, customers that we are working with locally that we have introduced to you. And we believe that this is going to be potentially large volume. It is a large volume market. So -- but unfortunately, we're most probably going to have to see a little bit further delay in this important market.
And I think that goes to how I started today a little bit. Of course, it's a little bit frustrating feeling that we are executing in the right direction, bringing these design wins, but still we can't give you, as shareholders, what I would say high enough revenues coming out of these. And this is somewhat of the explanation for why. But I still believe the day they launch, I think we are in a very good position.
So I think with that, we should start to round off. You have heard about the new distributors. We see an improved funnel in the company. We have interesting customer targets and design wins in our funnel, and we think we can add that up even further, starting to execute with these initial 2 distributors. And we might even come with further distributors during 2022.
So with that, Eirik, I think we are more or less done with the presentation for today, and I think we should start to open up for a Q&A. And I believe you have some questions already.
Yes, yes. And -- thank you, Peter. We have still have the possibility to enter the questions on the chat function here in this webcast, so please add your questions if you have any. And then we will continue as long as we have new questions coming in.
So Peter, what's -- I mean, how do you view this quarterly report?
Yes. I think, like a started, Eirik, I'm not going to say too much around it. I think for those of you who are here, you heard I said underneath I feel confident that we are executing in the right direction. But of course, it's a bit frustrating that we can't get the revenues on the right level. And there are things here that I don't want to use it as an excuse, I have the confidence we are doing the right thing.
Of course, I will be very happy the day India is opening up so we can enter the L1 market and when the global MCU and supply chain challenges are gone because I think they are influencing, unfortunately, not only us but many companies. But for us, it's so obvious and I would love to see that open up and ease up. And then I think we're going to bear the fruit of well-executed direction that we are in. I think that's a little bit how I would summarize it.
Thank you, Peter. Then the next question is related to the Televic design win on the jewelry chain. Can it really be any high volumes on this design win?
Let's see. No, it's a good question, Eirik. And to be honest, no, I don't see that this is going to be a major volume driver. I think we're going to see a small- to midsized-volume customer. But what I take away from the Televic customer is actually -- and that use case that I introduced today is rather more the confidence it provides to me and our organization that our product is good, solid and working well. Because if a customer already built their product and then decide to build yet another one and continue with our FAP20 sensor, I think that's one of the best proof points we can get that we have a solid product. So I think that's more important for me looking at that specific use case.
Right. So here comes the next question. It was interesting to hear about your new distributors. What kind of volumes and business do you think you can get from these players?
Yes. Good question again. And yes, you're right, I can't say any specifics around what we should expect from the distributors. When I hired Ulf Ritsvall , who's now heading our sales and marketing, when he arrived with his experience from the biometric market, this is -- was one of his main focus and proposals to do and he started the execution of that.
I think we're going to have to come back, like I said, maybe during second half of this year. I think that's when we're going to start to see the initial deals coming in. I start to see a little bit how it influenced in a positive way our funnel, but I want to see how it materializes before I guide or dare to guide anything on it. But I think it's -- it is a very good way for a small company like us, which should mainly make sure that we develop and ship very good, solid products to our customers, that this could be a good and smart way to scale up and get a better market reach.
So I'm going to try to come back during the second half of this year, hopefully, with some of the first design wins arriving from these distributors and then maybe I can try to have some kind of guiding on what we should expect in terms of both number of distributors and markets we're going to try to focus on and what they potentially can bring.
Yes. I got another question. This is about supply chain challenges. How large are your customers' supply chain challenges? How many NEXT customers or percentage of quarterly business volume is affected?
Yes, yes. That's a very good question. And percentage, I wouldn't say because this is also more soft information we get through all the communication we have with these soon 30 product companies that had decided to bring our sensors in.
But clearly, I mean like I spent quite a bit of time here talking about India, where it's now mainly held back a little bit due to the global supply chain challenges related to microcontrollers. I mean the day the India authorities and our customers there can feel confident that they can have supply of this, I mean, in quarter 4, we talked about the total market in India and what the potential is there where we are working with 2 of the potentially 5 largest companies now. I mean, for us, it has a tremendous potential but we need to see that, that opens up.
So I think, like I said, I'm less worried about our own challenges rather than for some of these customers that we have introduced to you as shareholders, but I think this India-related one, what I mean is the tech giant that we have talked quite a bit about historically who are in a very good position there and then these other India OEM that we introduced here in quarter 1.
Another example that I think I touched upon during quarter 4 or that time frame was the crypto wallet with the Belgian company NGRAVE. And I know that he is challenged. I mean he has a waiting list on his website with customers who are buying his product, just waiting for him to ship, but he can't build more than he has components and he has a challenge by the end. And that might also be a company who can take off in a very positive direction.
So I can say when these global supply chain challenges arrived, I think I was worried about our capability towards some of our main customers. Today, I'm a little bit more concerned over our customers' capability of finding the components required for them to build their products because it's only when they can build their product that they will place their orders with us.
That was maybe a long answer to a shorter question. Sorry for that. You have any more, Eirik?
Yes. There is a follow-up here as well on the tech giant. When do you think the next order will come?
Yes. But I think the biggest volume potential with the tech giant we have communicated earlier today is related to India. There are some other use cases and products that we are in dialogue with them about, but I don't want to say exactly when and so you should expect. But I think the largest volume potential through that contract is related to India. And there, we have to wait and see when the authorities are finally launching this new certification.
Right. And then there is a question about India again. Can you say something about the potential in India when it finally comes? How many sensors can it be in the total market? And is it possible that NEXT can take 30% to 50% of this market together with its partners?
I think we communicated quite a bit around this during quarter 4. But to put it in some perspective, there's 2 things that's going to happen when this new certification launch in India. First of all, there will be a long-term replacement of the existing biometric products. And there, we are talking up to tens of millions of products. On a yearly basis, historically, under the current license, you have at least biometric products sold in the millions. Everything between 3 million to 6 million, I think, is at least not an overestimation. And it's a good question. So this is kind of the potential market, which is, for us, very big then.
And like we have explained what we have done, we have partnered with 2 large players. There are mainly 5 companies who are providing these volumes. Two of them have now decided to work with NEXT Biometrics on the new certification. The tech giant, for example, I don't know what exactly -- what exact market share that we, through our partners, can gain out of that volume. I know for sure that the tech giant is a large company enough, so they are not going to go for a 1%, 2% market share. They are probably going to go for at least a double-digit market share of that volume. The other India OEM, already historically looking at the current certification, has a double-digit market share of that volume.
So I think in combination of those -- being with those 2 and when that launch and we succeed with them, there is a great potential to at least be part of a potential somewhere double-digit market share coming from these partners. I think that maybe guides a little bit in terms of volume, market share potential and with respect to the partners we have chosen to work with.
Then there are no further questions. [Operator Instructions] Otherwise, we will shortly finish this session. Thank you.
Yes. By then, Eirik, I think we should finish the session and close. And we thank everyone who have attended. And if there's any question coming, feel free to connect with me or Eirik directly and we're going to try to cater for any questions you might have. So thank you, everyone, for joining.