Next Biometrics Group ASA
OSE:NEXT
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Next Biometrics Group ASA
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Good morning, everyone, and welcome to NEXT Biometrics Investor and Shareholder Conference Call for our Quarter 3 2020 Report. Today, you will hear me, Peter Heuman, CEO of NEXT Biometrics; and alongside me, I have our CFO, Eirik Underthun.We will together now guide you through today's presentation. And the presentation, if you don't have it and with the webcast and the conference bridge that we are using, if you don't have it in front of you, I would recommend that you go to nextbiometrics.com, and there, under Investor Relations and Financial Calendar, you will find the presentation that me and Eirik will be using during this call.And while some of you might now be -- go there and find that presentation, I will just quickly outline what today's call will be about. And you will hear me and Eirik talk a little bit around some of the main takeaways from the quarter 3 report as well as the financial summary that Eirik will present. The main part of the presentation, we then later go on with further information regarding an update on our cost reduction and efficiency programs, where you can also see in the report that I think we have done a fairly good job, and Eirik will outline more about that. And then I will personally also spend a little bit more time and provide you some insights into what you have heard me talk a lot about since I even started in NEXT Biometrics, and that has to do with our growth agenda and the systematic approach. And I'm going to try to give -- provide you some insights into the actual status where we are.We all know that this is a crucial point for the company. We all are aware that we also have a pandemic that are somewhat influencing us here. I still believe, and as we write in the report, that our team now and the sales organization that we have in place since quarter 1 2019 have done a decent and very -- or even a very good systematic job. So we will outline some more information there.But having that said, I think we should go straight into the presentation, and we start with some main takeaways from the quarter 3 report. And as you can see here, the most prominent aspect of the report that we outlined is that we're already one quarter ahead, claim that we have reached our target cost level. We were aiming to reach that target for end of quarter 4. But with the team, and for those things that we control and can execute on within the company, we have with great support from our staff, partners, et cetera, managed to reach this target one quarter ahead. So I think that's a great achievement from our team internally here.We also grow the company from the low point that you have heard us talk about earlier that was quarter 4 2019, and that is with 65%. And we also told you that we were going to grow from quarter 2, and we did with 12%. And like we say in the report, due to the pandemic here, we have a few delayed POS. We were potentially expecting a little bit higher number. I'm still happy that -- to see that we are, so to speak, inching upwards in revenues from the starting point that we normally talk about, which is quarter 4. So in total, at least, we are heading in a positive direction, even though from low levels.What you also will see later on today is that we are now designed into multiple point of sales and other and additional biometric device manufacturers. This is what I believe a foundation to build a more systematic and tangible growth. And I will come back to that later on during today's presentation.With that, I think I will hand over to Eirik, and he will guide us through the numbers. So we can go to the next slide, which is key figures from quarter 3. So Eirik, I hand over to you.
Thank you, Peter. So we're now on Slide 5. So during this quarter, we achieved a revenue of NOK 15.2 million. We had a gross margin of 14%. This is an improvement versus the minus 2% we achieved in quarter 4 2019. The gross margin is depending on our production volume and our product mix in the individual quarter.In this quarter, we continued to have a high portion of our products in, let's say, the more low-margin products; while the FAP20 product, which is our highest-margin product, still is at a low level during this quarter.The OpEx adjusted for options expense and Skattefunn was NOK 17.3 million versus 43 -- NOK 44.3 million in quarter 4 2019. We are now seeing the effects of our cost reduction program, and we are now heading lower, and we're very close to the target, and we achieved our cost level that we have targeted at the end of this quarter. The reason for the cost reduction is a lower number of employees, a number of cancellations and renegotiations of supplier agreements and as well a general cost efficiency focus in the company. So with this, we have seen that EBITDA, ex options, has improved by NOK 30.1 million compared to quarter 4 2019.During this quarter, we also completed a NOK 10.8 million subsequent share offering that was completed in July. We ended the quarter with a cash position of NOK 86.8 million.And we will now turn to the next slide, which is Slide 6.
Yes. Thank you, Eirik. Thank you, Eirik, for that summary. And it would be great now, like you say, if we change and go to the next slide and where you can outline for our audience a little bit more of the -- what I believe is a great achievement by the team here in terms of how we have -- how far we have gone to set a new baseline for our cost structure and the way we are operating. So please go ahead with the next slide.
Yes. The cost reduction program has now been completed. We are now at a cost level that is sufficient to reach our long-term goals. And still, even though we are at that level, we will still have a cost effectiveness and a focus on doing the most with our operating expense, getting the most benefit from what we do. And that will continue.We also completed a number of selecting -- selected outsourcing measures. And we have now implemented all of these at the end of this quarter. We'll continue to see the benefits of this in the future. We are continuing to limit our R&D spending, and we're focusing on the projects that are having the most sales and revenue potential in the near term.After the quarter was closed, we implemented further cost reduction measures relating to office leases in Seattle and Oslo, and we will see the benefits to that in the interest and the depreciation expense accounts going forward. We now have a -- per end of October, we have a headcount of 30, and this is down from 64 in December and 77 average in 2019. We started the quarter with a headcount of 33.As you can see in the graph, we have a -- had a sequential decrease in cost for every quarter since quarter 4 2019. And we are now very, very close to the target and completed the program. And -- but we will continue to have a cost-efficient focus and do the most we can with the cash and the resources we have.I will then turn back to Peter.
All right. Thank you very much -- all right. Thank you very much, Eirik, and -- for that update on our efficiency. And we will now turn into the next agenda point, which is the growth agenda.We have a couple of slides here, where we're going to try to provide you some more insights because I can understand, as frustrating as it is for us internally, when we really want to make this turnaround of this company and with the pandemic coming in also influencing for our industry already fairly long sales cycles. It is a little bit somewhat frustrating that we cannot demonstrate for you, shareholders, that I do believe, as a CEO, that our organization is now doing a very good job in setting the foundation for growth. And the whole point with this section of the agenda is that I'm going to try to outline that.So as you can see on this slide, and if I try to take a little bit of a step back, but you have heard me talk about this and will not be focused too much on the history. But I think you know that when we started this turnaround at the end of last year, this company were more or less solely responsible and receiving revenue and responsible towards one customer. But that is maybe not the most profound challenge that I saw when I stepped in. The challenge was that if you want to influence the revenue in a company like NEXT Biometrics, a foundation to succeed with that is that you are engaged with and implemented and designed into several different devices that you can scale your business with. The challenge that I saw mainly was that we were only with one customer, that we're constantly putting orders and pulling orders out of NEXT Biometrics. Of course, we work with that customer, and I will come back to that. But I think that was the main challenge from a revenue perspective.But -- so what we did here in quarter 4, we initiated then this growth initiatives with a new go-to-market, where we really focus on the number of devices that we're going to try to be implemented with, that we can scale with successful product companies that can drive the volume for NEXT Biometrics, that is a key part of the change that we implemented during quarter 4 and into quarter 1. Then on top of that, the way we steer this and how we work to engage with these customers, everything from normal operational steering from a KPI perspective in different dimensions and clear and just operational efficiency on how we follow up on that and how we and me, as a CEO, guide our sales force and how we work from a customer-centric approach.I think another important step was -- and that was a good part from the history, which I also talked earlier about, is that we just launched in quarter 1 this fairly disruptive sensor, the FAP20, that I believe -- and we did a lot of validity and competitiveness verifications with it. And I feel confident that we have a very good solution and a very good product. And I will come back to that.But to -- if that is the history and if we look at where we are right now, just shortly outlined, then you can see and I think most of you understand that the main revenue source still for this company is coming from the PC segment. But we are now in project because one way of trying to do more and gain more revenues, of course, that we engage with our existing customers and deliver good service. We are doing that, and we are now developing a new product that our main customer will most probably then implement and start to utilize. But I think like in the PC cycles, they are fairly long. And we see that there is a target that they are targeting early part of the second half of next year to launch this product. This will benefit NEXT and our shareholders from a revenue perspective but also from a margin perspective. And we believe that we will help this existing customer in a positive way in the market.We do also mention in the report that we are actually now engaging quite far with another PC manufacturer. And if this one will be won by us, then this will also start to generate orders and revenue in the early part of the second half of 2021. So I think it is a good foundation for us, this segment, and we are focused on it working with our existing customers; but also with some of these new products and solutions for this segment, we are now engaged with also -- and quite far with yet another PC manufacturer.We also have PC and biometric devices, where you have seen us announce during and up until quarter 3 several design-ins. I will come back to that. We have, as you understand, very strong focus on the FAP20, which we believe is very much positioned in this segment for these type of devices. You have also seen us deliver some volumes. We are established now, and we have a network in India under current certification of the India authorities. It's called the L0 biometric framework, and that's where we have sold both sensors and readers. And we have even a device in India where one of our sensors are now designed into. We see, because there is a large program in India, where the authorities will bring the biometric framework into a new level, and it's called L1. And we believe this is going to unlock potentially more opportunities. But also for us, new and smarter ways on how we can partner and potentially go-to-market in India, something that we're operationally working with.And then we have another segment, where we are also having a few customer dialogues. I think it's more niche verticals, and that's what we now call smart card and IoT. And we do believe that in some of these areas, there are potential to utilize biometric sensors. And we think we're going to be able to see that in certain verticals, and we do believe that these verticals will also be beneficial from a -- both revenue and margin potential perspective.So with that, I think we should go to the next slide. And I just want to say a few words because I think I talked about this earlier. I think we have not been unclear that our main product, our tool, so to speak, to turn around the company is our FAP20 product. So I'm now on Slide #8. And to the left here, you just see a general overview of how we compare ourselves with our TFT technology, with our active thermal technology versus the capacitive technology and the optical technologies. And we do see that we have, for many use cases, a very, very good technology that is almost disrupting how some of these, for example, FAP30, even larger than the 20 size. And if you look at the technology we are providing, we see that we can really challenge from both a form factor perspective and a price perspective in a very positive way.So some of the unique selling points if you go further into the product of the FAP20, why is this product -- what makes this product so good? Why do we believe in it? It is to start with a very slim form factor, so that makes the product very suitable for portable and mobile devices. There are many new devices being connected in the world, as more and more devices are being connected and we do more and more digital businesses. And then it's good to have a very slim form factor.From a price perspective, the way our organization have developed the product, it provides us -- and there are 2 aspects. One aspect is our efficient and disruptive way that we have created the product on a cost efficient way, but also how the market price -- how the market is pricing sensors in the sizes of FAP20 and FAP30. We believe that our technology can provide our customers with the disruptive, from a positive point of view, price advantage if they buy our sensor. But the beauty of it is, at the same time, from selling a traditional NEXT sensor, we can get up to 3x the revenue for this sensor and improve margins. And so this is why the FAP20, as we see it and where we are standing today, from a financial point of view, it provides our customers with a great benefit, but it also provides NEXT and our shareholders with a great benefit. And that's why we should have such a strong focus on the FAP20.You might have seen as well that in addition to this, it is an FBI-certified sensor. We recently also got the first, from a biometric standpoint, together with Newland, got certified by the authorities in Nigeria, which is a fairly large market in Africa. I mean, it's a country with almost 200 million or around 200 million people, and they also have a biometric framework. So I think it proves that we have done something good, and we passed all the tests and requirements in -- by at least these 2 authorities.We can also have this sensor available in both rigid and flexible format with our technology. It's a low power consumption, high resolution image. So in all in all, I think it's a disruptive, good technology that has this great potential. And we do see them, as we summarize here, several untapped growth areas for this type of sensor.And with that, I would like us to go to the next slide, and I think that's Slide #9, and this is where I'm going to talk about the design-ins. And excuse me, it's a slide with a lot of information on -- my main message here is actually that if you look at 2019, end of quarter 4 2019, there was mainly one product, if I -- for every brand here represents a product. There was mainly one product that delivered revenue for NEXT Biometrics. And that gave me the tool to -- if I want to influence the revenue for this company, and to do that, then I can only go to that customer and see if we can have them put some more orders.But what we then put in place and what you have heard me talk about earlier, the systematic approach. If you look to date in quarter 3, you see that we have actually, over these 3 quarters, from quarter 1 of 2020, when we end quarter 3, we are now integrated, and we have customers that have put design-in NEXT Biometrics in their devices. They are all in different stages of when they are launching their products. But the purpose for us is that we have a strong focus, like I started this conversation today this morning, with setting the foundation for a long-term growth for NEXT, is all about making sure that we are designed in. And in summary, we had one customer, one product where our sensor were designed in that provided continuous orders at the end of quarter 4, and that was with Fujitsu, the PC manufacturer.Today, at the end of quarter 3, we are in total in 8 different devices. And as you can see here, in general, we have a -- we see a high interest in the FAP20. And as you can see here, it's applicable for multiple different use cases and customer segments. All of these we have announced publicly. The latest one, number six on this slide, with Page Electronica and the company, the end customer, NGRAVE, is a digital wallet for cryptocurrency, a blockchain technology. And that's actually something that we have just announced today, I think, at 8:45. It's a new customer. But the main takeaway here is that we started the year with one customer that can build revenue and continuous business for NEXT. We are now in quarter 3, and we have 8 customers, where we are designed in. And I think that's a -- this is what I mean that I think that our organization and sales team are now starting to set the systematic foundation enabling future growth.And as you can see, different markets, different countries. We are in U.S., China, Europe, Asia and Russia and India. And we are going to try to -- going forward, we're going to try to provide you some more insights in when we win more design-ins, and we are now working closer and closer with these customers here.You have seen us announce in Newland who have picked up, for example, some repeating orders. We are now in dialogue with them when we do our business planning for 2021, and we get insight into what kind of volumes Newland are planning and aspiring for during 2021. In that way, we work closer with our customers. The first step has been taken, and we're going to try to both add more design-ins and companies and products where NEXT sensors are integrated into. And we are going to work closer with these customers to make sure that we can predict and be working very close with them to get the most out of it as possible.And we can go to the next slide, so that's Slide #10, that will end the growth agenda update. I think you should see this slide as fairly illustrative. At least the dotted lines are more of an illustration. But what we try to show you is what I said on the last slide. So end of quarter 4, we had one major customer who were driving revenue for NEXT Biometrics. And here, you can see throughout these quarters up until quarter 3, we have managed to bring 7 more devices that are now utilizing NEXT Biometric sensors. They are, as you can see on this chart, in different shapes, and they have different product lifetimes depending on all kinds of aspects of when they are launching their product.For example, one example is we went out already, I think, around quarter 1 with Credence ID. But like you can see on this slide, they are going to launch their product in quarter 4, and they do believe that we are going to start to see the first orders coming in during quarter 1 2021. While we have others here who have been maybe even faster in launching their product, but it all also depends on -- but at the end of the day, we believe that the more product that we add on the axis here and the more -- some of these customers are going to start to yield revenue, probably not all of them. But if some of them do, then NEXT Biometrics has a much better foundation to stand on.So I think with that, I hope we have provided you a little bit more detail and better insights into what our activities and what we mean with our systematic approach. And I think the takeaway is that you should remember that when we started this turnaround, we were depending on one product. Now we are actually in 8 products. And I can promise you that there will be more products coming that will integrate with NEXT Biometrics sensors when I look into the pipeline.So with that, we are done with that point on the agenda and the growth agenda update. We have one slide left, and that's the outlook and the summary of today's call. So as you can see here on Slide 11, we expect our quarterly revenues to rise from current levels. But we should be -- I want to be careful in exact timing and volume. And you can see that I see that we have some swing deals in our funnel now, which can influence the quarter in a big way. But I think we do feel confident with having more and more products utilizing our sensors that we should be able to start to see a rise of our revenue levels.Like I said, there are multiple additional biometric device manufacturers in pipeline. The latest one we announced today this morning during this call. And like I said, the more POS biometric devices in general that we are designed into, the more likely our revenues will grow going forward.Notebook sensor products will be launched with the existing customer early part of the second part of next year. And we are also internally -- due to the long sales cycles and design-in processes that is at play in this industry, we are also looking into and evaluating some untapped growth areas where we can potentially shorten our sales cycles. That's a high focus that we have internally.But to summarize and to what Eirik said before, we are fitter and leaner than ever before. And what I see in the pipeline, I hope that you will soon see that we are having NEXT sensors in more than 10 devices. But we will keep you continuously updated on the number of devices that utilize NEXT Biometrics.And with that, I think we are done, me and Eirik, with providing you with the information about the quarter 3 result as well as more insight into the cost and effectiveness that we have put in play here into the company to make sure we work in an efficient way but also much more insight and hopefully some useful information for you in how we -- in the systematic way, try to set the foundation for growth for this company.So with that, Eirik, I think we should hand over and see if we have questions that we can support in answering.
Yes, Peter. We have some questions here. And I'll just mention that there is an e-mail address in the conference call invitation. It's still possible to send questions to that email, and I might be able to get it -- get you the answer in this session. If not, then we will try to answer you on e-mail.So this is the first question. Peter, what has been the COVID-19 impact on sales and in general on the company?
Yes, that's a good question. And I think, like everyone, we are affected. I think everyone are. But there are several dimensions to this. First of all, we need to take responsibility towards society and in particular, our employees. We have employees in different parts of the world with different situations due to the pandemic. And we take good care, and we constantly follow all local regulations to make sure that our staff is safe and healthy. I think that's one important dimension.If you look at the sales aspect and the important topic for the company to grow the company, yes, and I mean, I think maybe we have been even too clear because I think everyone understands that, that's going to influence our capability to quickly grow the revenues, and it has, of course, had an impact.But like -- I think in summary, I'm not concerned that we are losing any business due to the pandemic. But what is even worse for this quarter, it is influencing the timing. I think it's quite obvious. We have a few customers here who have received samples, for example. But when that product company, then they are going to enter their design phase of their own solution. But if there is a lockdown in that country where they are doing their manufacturing, so their staff cannot go in and do that for 1 month or 2 months or 3 months, of course, they are not going to be able to develop and launch their product. So we can see that in some cases, we might already be there, but our customers have not been able to develop their solution and launch their product with their original timing. And that will affect us as well in the stage where we are.But this is something we cannot influence it. We can only do whatever we can with what we have at hand. We have to have respect for the pandemic. But I also see that our new organization, updated organization have actually managed, like I said here, to bring in NEXT sensors into 7, 8 new devices during a pandemic. So it is influencing us in different ways, but it's still possible to do business.
Yes. Okay. Here's the next question. You mentioned your largest customer in the PC market and that you're developing a new product for that customer. What is the name of that PC customer? And what is the status of the R&D project?
Yes. But our existing largest customers is Fujitsu. I think that's obvious, and I think I said that earlier here, and that is the customer that we are working closely with.The new product is actually something that the PC industry is looking and putting a lot of focus on and looking into enable a launch during 2021. And it has to do with the secure bio framework and the ability to verify that they can be qualified to claim that they are providing modern PCs.And then there are aspects of that in the biometric framework, and this is exactly what we are working with Fujitsu on. But this is also what we are in dialogue with, what I said, a potential new PC manufacturer. I should also be clear, this one is not won and final and signed, but I think it looks promising. And I just want everyone to understand that we are not just sitting here and working with one existing customer. We do believe that there are certain parts of the PC segment, where our high-secure sensors can fit well and where we are on top of what's happening with the biometric frameworks going forward for the PC manufacturers.I hope that answers the question to some extent.
Yes, I think so. Here's a new set of questions. I have a few questions for your quarterly 3 presentation. Pipeline prospects, how many percentage of active dialogues are relating to sales of FAP20?
That's also a good question. And then when I say that this is the most promising product to enable the turnaround of the company and to start to enable the growth of the company, at the same time, I don't think we should go in and guide exactly what our pipeline looks like.I can say it like this. If you look at the slide that I demonstrated just a couple of minutes back, you saw that 6 -- I think, no, 5 out of the 8 devices that I communicated around were actually involving the FAP20 sensor. I think I can easily say that a majority of the deals in our funnel is related to FAP20. But I think I will stop there. I'm not going to go much further whether it's 50% or 90%. But you have a ballpark, and I can tell you that it's majority of the prospects that I see in our pipeline.
Yes. And here's the next question. What is the current status of the sales team? And what changes are we to expect in 2021?
Also, thank you, a very good question. The status of the sales team and what I'm about to say is that the current sales team were put in place as a mix of some of the former employed salespeople in NEXT Biometrics with a mix of new recruits. And that group, our existing sales team that had been running, that group was put together during quarter 1 and has been complete since quarter 1. And this is the team that has now performed and accomplished all these devices up until quarter 3 and continue to be very focused on this. So I think that's the status of the current sales team.What you can expect from 2021, I cannot tell you that. But what I can tell you, what I'm -- what I hope that we're going to see is that we are actually starting to grow the revenue. And with that, there are primarily 2 main parts of the sales organization where we will gradually then, with our growth, start to add people. And that would be in pure sales, of course, but also in the technical sales support, so we can work even closer with our customers, both in an initial stage and to be the thought leader, so to speak, of our technology, of the biometric industry and of the understanding of our customers.So I think both in sales and in kind of technical sales support, working close with our salespeople and our customers, they are the main roles where we can, as soon as we see the revenues picking up, that's where we're going to start to add people. And I hope we're going to reach that sooner rather than later.
Okay. Here's another question. Where do you set the limit for what orders you choose to announce publicly?
Yes. To be totally transparent here, we do not have a set limit or something. What we try to do, I would say, me and Eirik, primarily is to make sure that we provide correct information that can demonstrate a little bit both the focus and our true agenda on how we are trying to turn this company around.There might be -- for example, we try to make sure that our shareholders and parties understand and also our partners understand when we have integrated with a new device. We might not know at that stage whether this device is going to sell in large quantities, in medium quantities or in smaller quantities. But we try to make sure because we think, like I said earlier, it's an important foundation.That might not be a public announcement about a large-sized deal. But if we do believe that this product has some potential and can provide something going forward from launch, we think it's good that we announce that, so shareholders and others and our manufacturing partners can see that there is a high activity index. Of course, if we do larger orders from new customers, we are also going to announce that, and we try to do that. What we don't announce is if we have a recurring demand from an existing customers. A concrete example, we do not inform the market or send any announcements when Fujitsu, for example, is every quarter pulling orders from us. It is an important revenue source, but it's not something that we announce. We want our shareholders to be aware that this is an important customer, who are recurringly putting orders with us. But there, we don't do announcements.Yes. I think that's the answer, Eirik, to the question.
Yes, and there's another question. I read that the Credence ID had a potential of 100,000 FAP20 per year. Is there ongoing talks with prospects with similar potential?
Yes. This is also a very good question. And as you might have seen in some of our later press releases, when we design into a new device, what we try to do with these customers in our -- first in the prequalification but then when we also finally sign up the customer is to get an insight into what they are planning, what their plans are, what their growth agenda is because that's profoundly important for us. So sometimes, when we have a good dialogue with them -- and of course, these customers might hesitate sometimes that we publicly announce any numbers or aspiration from these companies, but we try to always understand what the potential would be.I don't want to put any false hopes here for something that we cannot deliver. The main foundation is and what we believe is the more devices we are integrated into and designed into, we feel confident that some of these products will be large-scale projects. And then we will benefit from it. But I don't want to go into detail of these customers. And we work differently with different customers here. But I mean, it's important for NEXT that we do get integrated with some solutions that can drive large quantities, and that's what we are focused on.
Okay. Here's another question. Hi. I've seen there has been a lot of announcements from competitors in the payment cards and the smart card-related business. Has there been any development in this market really hitting to smart cards for NEXT? And what is the prospects here?
Yes, that's a good question as well. I hope that we have been fairly clear that the payment card market, we are not really a big believer, so we are not focused on that market. Having that said, what we are focused on, like I said earlier in one of the slides, there are smart card potential verticals where this can be utilized. And we currently have a few dialogues in our pipeline with these kind of companies. We -- and I think that's the best way I can say it. We -- I'm not going to go much more into detail there. But payment card, not. Smart cards, in smart cards, we do have in our pipeline. We do believe that there are verticals that has potential. And that's what we follow actively, and we are actually in dialogue with a few. So that's part of the whole potential, you can say. But we still have to see, I think, globally, where some of these verticals really take off.
Yes. Here's another question. I guess, that's one for me. Can you give some color on the gross margin and its development?So we started -- we had a 14% gross margin during this quarter. It's a little bit up compared to the last quarter. So during this quarter, we had a high volume of, let's say, the same kind of products that we had earlier in the year. If you look at the FAP20 volumes in -- during this quarter. It was a very low level compared to other products in terms of revenue and also in volume. And that's something that's going to be important for the gross margin and in the future. So if we are able to grow our volumes with FAP20, then we will also be able to grow the gross margin.Moreover, we're still at a -- as we have stated in our quarterly report, we are still at a low volume, overall volume in terms of production, and we have some fixed production costs that are going into the cost of goods sold. So that means that as overall volumes grow, then we will also be able to grow our gross margin.As you know, we are also having our income statement and balance sheet in Norwegian kroner, and there has been some volatility in the Norwegian kroner exchange rate versus the dollar. And during quarter 1 and early quarter 2, the Norwegian kroner was pretty weak, and that's also something that's coming into the cost of goods sold and also in the revenues.So as we are buying products or components for our sensors and putting them together, and we have all our costs in dollar, and we have revenues in dollar. But obviously, we buy parts and components before we are shipping products, so there is some delay in the currency and the way that costs and revenues are impacted.So I mean, when we're in this kind of environment that we have been in quarter 3, where the Norwegian kroner has been strengthening, and then we bought the parts at a, let's say, expensive U.S. dollar exchange rate and then we did our revenues later at a lower exchange rate, that means that we would have a negative effect on the gross margin during that quarter. And oppositely, in a quarter where we have a strong U.S. dollar and a weak Norwegian kroner, then this will be the other way. So this is also impacting our gross margin in the individual quarter.
Yes. But Eirik, I think, I guess, the important aspect then when it comes to gross margin is on these -- we are still inching upwards in revenue but from fairly low levels. So to your point, the gross margin will be fluctuating here on these levels, around the levels where we are.If the foundation that we are setting in place and if the big portion enough is FAP20, that's when we believe that we can reach the target. And we have communicated above 35% gross margin. That's what we're aiming for and believe is truly workable when we drive the revenue numbers upwards.
Yes. And that's totally clear that the FAP20 volume is -- and the portion of FAP20 products was truly the dominant factor in determining the gross margin.So we have...
Okay, Eirik, do we have more questions? Or should we try to round off?
We have a final question here. The cost base at the end of the quarter, what was that? And will it go lower?As I stated earlier, we have had the cost reduction program. We have implemented the cost reduction program. We have done what we said we plan to do. We are now at a NOK 5 million level at the end of this quarter. And we will continue to focus on cost efficiency, and we think we have reached an efficient level. And I think I will leave it at that.And Peter, do you have any closing comments?
No. I just want to say I think we should round off here. But good that we got all these questions as well. So with that, I think me and Eirik would thank everyone who's been listening. And if you have further questions, don't hesitate to send those e-mails, et cetera, and we will try to respond.And with that, I think we should just -- fitter and leaner than ever before and systematically trying to grow the company. I think that's the main takeaway that we would like to send as a message to you. So thank you very much, everyone, for listening. Bye-Bye.