Next Biometrics Group ASA
OSE:NEXT
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Next Biometrics Group ASA
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Okay. We are live -- I think we are live, and I would like to welcome everyone to this quarter 3 presentation from NEXT Biometrics. Just going to make a quick check with Eirik Underthun, our CFO, who will join me. Eirik, can you hear me?
Yes, I can hear you very well. Thank you, Peter.
Perfect. So again, welcome, everyone. And -- to this quarter 3 presentation. The material we will go through today, you can also find on nextbiometrics.com. During the presentation, you are also very welcome to send your questions to events at nextbiometrics.com or even better, you can drop your questions right here in the chat function in the team's application. And at the end, me and Eirik are going to run through the Q&A. And I see we have a few questions that have arrived already, which we appreciate. And with that, I think we should get going. We have just a couple of slides. And Andrea, maybe we can go to the agenda, please. You see here, we will start with a quick business update. I'm going to tell you a little bit of at least some of the main takeaways that I see important that has been going on during quarter 3. And then we're going to, of course, run through the financial report and the summary of that. And at the end, a little part of an outlook and a Q&A session. So with that, Andrea, if we start with the first slide? And I would like to start today by basically summarizing that we at NEXT Biometrics, we see a very long-term favorable growth of the biometric market. And we see that not only we have that perception as a company, we see that several sources that are following this market are mentioning that it is a favorable market. And there are several aspects to this, but there is a lot of development going on, which favors biometric solutions in different shapes and forms. You can see, for example, that Microsoft now have permitted users to replace their passwords with biometric authentication methods. I do believe this will create ripple effects among many different businesses, organization and other tech companies. And there are so many use cases, whether it's smartphones, IoT solutions, passport and multiple different kind of use cases and devices that can benefit from biometric solutions. So overall, we are very positive. And I think that's the main message I want to have on this first slide for you guys. All right. Andrea, if we go to the next slide? And we go a little bit closer to NEXT Biometrics. One thing that we have talked around quite a bit and you guys have also started to see some positive effects from it, but I want to give you a little bit of an insight. So we did introduce around the March time frame 2021 that we signed an agreement with the tech giant. You -- and we have communicated that we are engaged in several customer projects in different products -- related to different projects and products and different markets. You could then see that shortly after, and I say shortly because it's around 6 months from the announcement of this partnership you saw the first purchase, the initial purchase order from this tech giant on our FAP20 sensor. It was in the range of a little bit more than NOK 5 million which is, for our company, quite a sizable purchase order. And I think it's very good for us to see that only 6 months after the announcement, we got the first and the initial purchase order. We wanted to also inform you that we are engaged in different tenders, both smaller and larger globally with this partnership and with this customer, and we are in poll position in one of the world's largest biometric markets together with them. And the tenders could be anything from biometric readers to other portable devices. We demonstrate a few examples here to the right. It's not pictures related to devices to exactly this partnership, but there are several potential devices and use cases where we are engaged with this customer. So we think it's a good start. We know that some of these potential devices and use cases will take absolutely some time, but we do feel very comfortable that we are in good hands and in good progress with this customer. And also positively, and as an end note, you can see the last point here on the slide, I do believe that the market that we are operating in, even though the name is not public because the customers do not want us as a, let's say, a component provider to them, they don't want us to mention the name, but I think many organizations and businesses in the biometric market knows who this tech giant is. And this has created a ripple effect. So we now see other OEMs contacting us or that we can easier get into contact with other OEMs since this tech giant had decided to go together with NEXT Biometrics. So I think it's positive that quite quickly after announcement of this design win and this partnership, we got an initial purchase order, a first one, and we do expect more to come. So that's 1 good takeaway. And the other one is, of course, that this has also helped us and verified our technology, and that gives a ripple effect that we have easier to communicate with other potential new customers. So I see this as very, very positive. So Andrea, if we go to the next slide? And during quarter 3, you saw that one of the most important design wins that we introduced during quarter 3 was a design win with a large Asia-based PC OEM, a new PC OEM for NEXT Biometrics. We won this fingerprint sensor design win with this PC OEM. It's going to start with smaller purchase orders. We have already received some of them. The customer will use one of our standard sensors that we normally provide to PC OEMs. And interestingly enough here, we have managed to step in through the door with this customer and got the customer to implement a dual source in their supply of fingerprint sensor technology. So their current provider will now be challenged by NEXT Biometrics. And we have already won 1 new PC model with this manufacturer. And we are, of course, hoping and aiming for getting into more and more pieces with this customer. But what can you expect now as a shareholder from this new design win? Yes. The first initial product where we will be integrated into, the customer target to launch around quarter 1 2022. Their initial production is going to start somewhere around the end of quarter 4 of this year. It's going to be smaller quantities that the customer will start to order in the beginning. And I want to give you the -- my own conclusions and expectations on this. And since I started as a CEO, I have gone back and checked how long time did it take from design win for NEXT Biometrics to get into a little bit more of a regular order volumes from the PC OEM of our historic PC manufacturers? And like we wrote, I think, in the press release during quarter 3, it normally takes up to almost a year before you get the customer up to a decent volume level. So I think you should not expect a dramatic increase in revenue very recently from the announcement that we do, but you have to expect that it's going to take up to a year before the volume starts to be there. But I think we are in a good position. We have entered the door, and we are going to try to just bring a larger share of wallet from this PC OEM with our technology. Okay, Andrea, we can go to the next slide. And I think this is, like I have probably stated before, one of the most important slides that me and Eirik can communicate with you as shareholders. And I think it's one of the best slides that demonstrates, when I say that I think that the team I have now in NEXT Biometrics is doing a decent job in trying to really establish a foundation for growth and revenue growth and going towards profitability. This is the design wins since we kind of started the reset of the new NEXT Biometrics at quarter 4 2019, where we basically had 1 customer utilizing our great technology. As you can see now at the end of quarter 3 of 2021, we have accumulated up to 21 design wins. This means that there are 21 customers that have now implemented or are about to implement and have confirmed to us that they will implement one of our NEXT Biometric sensors into their products, into their devices. And like I've said many times before, I think this is the absolute best measurement that I can use as a CEO in the company to enable the company to -- in a steady and a structured way, get the company into revenue -- long-term revenue growth and profitability. You can see here that we have extrapolated -- because with the current pace of design wins, we have now accumulated 21 in the last 21 months, then we can -- you can -- we -- I think we have demonstrated for you as shareholders that the pace that we are adding design wins is, of course, with approximately 1 design win per month or 3 design wins per quarter. And if we then extrapolate and let's assume that we're going to be able to keep that pace, and I can guarantee you, we are, of course, trying to increase the pace, to add even more design wins. But if we just look at -- let's say that we manage to keep the same pace, you can see here, going 3, 4, 5 quarters ahead, it's quite easy for you as shareholders to understand how many products, how many devices are going to utilize NEXT Biometric sensors and our technology. So I think the team is doing a decent job here. And other important aspects for you to understand here and why maybe the design wins doesn't reflect directly the quarter -- the next quarter's revenue is, of course, that there is a lag from the design win to initial production and of our customer and their products. And we say that we can see now with the more we learn from these design wins that it takes from 6 months up to 24 months for certain use cases before our customer is really in production and starts to sell -- and they start to sell their products. And that's when we're going to get the volumes. And that's when we -- when these design wins are going to be reflected in our P&L, in our revenue. It's also good to see that around 50%, and this differs a little bit quarter-to-quarter, of the design wins are with our FAP20, which provides a higher revenue per sensor as well as a much improved gross margin for us. But I think this is really the foundation for a long-term recurring revenue growth for the company. And I wanted today to -- since I find this very, very important. So the number of design wins and the pace how we are adding them, I think this is a crucial important step for NEXT Biometrics. Other important aspects of these design wins is, of course, what is the average revenue per design win? And what is the time from design win to order? For you, as shareholders to understand how you should value these design wins. But I wanted to give you 1 example of 1 design win that you can find in this graph. I think I will pick a design win on the next slide, which is from quarter 4 2020. So Andrea, if we change to the next slide, please? And here, as we say, an example of one of these design wins who were in the previous graph. And this is a product, a very interesting product. The company who is producing this product is called NGRAVE, and they state that it's the most secure hardware crypto-wallet on the planet. It's a start-up company from Belgium, and they are producing this hardware as well as some software related to it. We introduced this in a press release in quarter 4 2020 with a smaller initial order from NGRAVE. You, as shareholders, have not seen much revenue from this 1 out of the 21 design wins yet. But what you might not know is that the NGRAVE has not launched their digital crypto-wallet yet. They have only until now taken prebookings on their website. And we have received repeated orders from them, not in a larger scale, but this is what has been going on. But remember, NGRAVE have not launched their product yet. Still, I believe they have a very interesting demand. And we, from NEXT Biometrics, we have a lot of -- and high expectations on NGRAVE. They are just about to launch this product. And the official launch is planned any day now. But then remember, we announced this design win already in quarter 4 2020. Our customer has not launched their product yet, only placed initial smaller orders with us. But now they are going to go in full production, and they're going to launch and sell their product. This is one of the design wins, which we know very little about, but we have high expectations on it, when we have started to learn more and more of this design win. So this is 1 example of the design wins, and we can provide more examples. As I told you in the beginning, one of the other design wins in the previous chart is, of course, the tech giant, who already placed an initial order of more than NOK 5 million. So I do believe that with the many different use cases and with many different design wins in different markets that enables and is what we call a structured growth agenda of design wins that will lead to a long-term recurring revenues and growth, but you will not see them immediately after introduced design wins. But this is an important, and we are excited to have NGRAVE as a customer, and we are working very close with them, and we are really anticipating that this product is going to do great. And it is a fast-growing and a very interesting market where we are then integrated into. Okay. Andrea, I think we should go to the next slide. So before I hand over to Eirik, these were some of the business update and business highlights from quarter 3. We have the tech giant, we have a new PC OEM and we talked -- I talked quite a bit about these important design wins. So -- and give an example of that. So now, Eirik, if you run through the quarter 3 financials and the report, and then I will come back later?
Thank you, Peter. So please, next slide. So on this slide, you can see the key KPIs and figures for the quarter 3 2021. And you can find more information in the quarterly report about the details in the financial position and the profit and loss statement. During this quarter, we had orders received of NOK 17.4 million and revenues of NOK 12.4 million. So the revenues were still impacted by the semiconductor shortage. So if we had the components available, we would have been able to ship products to achieve a NOK 17.4 million revenue. But unfortunately, we have not been able to secure the components, as we also indicated in the presentation we had for you investors back in August. So that's still the situation, and Peter will get back to the -- to talk about the impact of this in the future. During this quarter, we had a gross margin of 22% versus the 14% in quarter 3 2020. So relative to 2020, we had an improved product mix. But relative to earlier this year when we have had some higher degree of FAP20 shipments, we are still lower on the gross margin due to the limited amount of shipment of FAP20 products in -- during this quarter. The OpEx ex options was NOK 11.9 million in this quarter relative to NOK 16.3 million in quarter 3 2020. So we're continuing to deliver on our operational cost efficiency measures, and we are hoping you, as shareholders, are happy with this. The EBITDA ex options improved by NOK 5 million compared to quarter 3 2020, both as a result of the reduction in the operating expense, but also as a result of the improved gross margin in absolute Norwegian kroner numbers. The operational cash flow was at minus NOK 1.7 million. So this is an all-time best quarterly operational cash flow from NEXT Biometrics. So I think that's really a good development. And from the finance point of view, we're really happy with that. We -- obviously, we'll see the operating cash flow fluctuating going forward. But now you're seeing some of the improvements that we have done on the finance side of the business. The cash position was NOK 116.9 million versus NOK 86.8 million in quarter 3 2020. So to sum up, we have an improved growth in orders received, and we are continuing to deliver on our quarterly OpEx level, and we are also now improving our operational cash flow. So with this, I will leave it to Peter to take you further into the key takeaways for quarter 3.
All right. Thank you, Eirik. Yes, with that, Andrea, we can move to the next slide. Okay. So to summarize a little bit the numbers and the actual quarter 3 report, you saw that, and I talked about it earlier, we received the first purchase order from the tech giant. We had 2 design wins during the quarter, of which 1 is something very interesting for the future of the company. And I think you remember we talked about rejuvenating our PC business. And I think this is one of the good proof points of that with that design win. And I'm happy that we have managed to accumulate and have 21 design wins in 21 months, and we are doing everything we can to keep that pace and maybe even trying to increase the pace, the revenues and orders. So strong PC sensor order bookings during the quarter. And we basically have that for upcoming quarter 4 as well. But as Eirik stated, we have some challenges with the supply chain and we have an unfilled backlog of around NOK 5 million. That would have put us at -- like Eirik said, at NOK 17.4 million in orders booked. The FAP20 shipments is rather low during the quarter, but they will increase during quarter 4. And then quarterly OpEx still lower than communicated target. And I think the very low cash burn sets a new record and hopefully demonstrates a little bit of a trend where we are getting closer to in terms of profitability and so forth NEXT Biometrics. So with more design wins, very strong and good handling of the company cash, I think we together are doing everything we can to get to a very good point. So I mean, the numbers are not that wonderful, but I think the important underlying aspects of the business in treating the cash with a lot of respect and trying to work very efficiently and have a very strong focus on the design wins is really what we are doing in NEXT Biometrics. Okay. We can go to the next slide, Andrea. And that's going to be me, I think, talking about a little bit of an outlook. So if we go to the next slide? So once again, here, you see what I have stated is an important graph, but we'll take the bullet points one by one. So as I said in the beginning, there is a favorable market trends, several of them. And with Microsoft's latest announcements, I think it's going to create a lot of ripple effects because when a company like that basically say that traditional password might not be the smartest way and they will allow for more biometrics, I think that opens up the eyes for many different parties in the market. Structured increase of FAP20 design wins. Yes, I talked and spent a lot of time on that. And you're going to see to the next point that in quarter 4, we have both historic design wins and hopefully some new design wins on the FAP20. But of the design wins, currently, we are a bit over 50% of all the design wins is on our sensor where we have the highest revenue and the highest gross margin. We do expect other of these design wins to place larger purchase orders with us. But we want to be very careful with communicating an anticipation of exact timing or so of that. But the basis for getting these is working with both potentially smaller companies who starts to grow dramatically or working with large companies who has the potential to drive volume. And I think that's exactly what we are trying to do here with our design wins, with many different use cases, many different markets. So I think that's something underlying -- that is underlying and very good from a structured growth agenda. Like we said, 3 new design wins per quarter since quarter 4 2019, and we are doing everything to keep that pace or potentially increase that pace. You can expect during quarter 4 that you're going to see some more design wins. We are close to signing a few more, and you shouldn't anticipate that during the last weeks, months here on quarter 4. And as you saw in quarter 3, maybe a point that we haven't spent too much time on today, but we have initiated a partnership with Paravision in U.S. for face recognition. And we are actually in a few dialogues with customers right now together with them and that would be a way for us to be even more relevant in the general biometric market and providing a potential for customers who are looking for dual biometric authentication methods that we can be very relevant with a very strong partner. And on top of that, hopefully, we could add a little bit of software revenue. So a strong FAP20, strong FAP20 design win development. We have a general market development going in the right direction, and you should anticipate a few more design wins for the rest of this year. So I think with that, Andrea, we are done, and we can go to the next slide, and I think that is the Q&A.
Thank you, Peter. I will start then on the Q&A. So we have 1 question here. Again, you announced a new customer in the Asia best space tech company and you haven't told us the name. Please explain why you cannot tell the name of the company that you have a design win with?
All questions are good. It's very straightforward, I think. We are providing a fingerprint sensors into companies who produce and launch products. If they, when we have a design win, tell us that we are not allowed to publicly state their name, which could be of the reason, for example, that they are going to launch a new line of products with new lines of functionality, features, they don't want us to go globally public with that company before they have done that themselves. That's normally the case and a few cases where companies don't want us to use the name. And we -- every time a customer, if we can have a design win and they don't want us to state the name, but we believe this could be a great design win for NEXT Biometrics that we are just going to follow that contract obligation until the customer has potentially launched, then we will ask them, of course, as soon as possible to be able to tell everyone that who it is exactly we are working with. But some customers don't want us as one of the component or features that they are going to launch in their products. And so that's why we don't say it. And we always have this dialogue with our customers. Many are totally okay that we make public if we work with someone. Some companies don't want us to be too quick on doing that, and then we don't do that. But we are going to try to come back when products, et cetera, are launched to make public also from our side who exactly our customers are.
So there's another question. You said you have 21 design wins by the end of this quarter. Why is it not impacting the Q3 financial revenues with increased growth relative to last year?
And I think that's a very good question. And a little bit like I stated there, there is a time lag from design win to revenue recognition. And when I mean revenue recognition, there is a whole process behind when our customers decide they want to utilize NEXT Biometrics' fingerprint sensor, they're going to have to produce products, they're going to have to start to sell these products. And there will be a natural lag from design win. And like, I think, I stated on the slide there, that could be from 6 to 24 months depending on the situation of our customers. That's why there is always a time lag. I think what we should try to do as a company since we started here now a bit 20 months back, we're going to try to not only demonstrate to you, shareholders, the number of design wins, but also be more precise in maybe an average timing from design win to revenue. But this is basically the explanation why you can't see a direct effect from a design win in the next 1 or 2 quarters. So there's always going to be an exception. And I think the NGRAVE example I gave, we won the design win in December 2020. And not until now is that product going to be launched. That's like a 12 month. And hopefully, he's going to launch now and that market will take off and then we know we're going to get much more orders.
Right, right. There's another question here. How satisfied are you with the FAP20 sales on your design wins?
No, but I'm very satisfied. I mean if we could -- I don't know if the question exactly if I answered it correctly now. But I'm happy if we can keep more than 50% on our design wins on the FAP20 sensor because I think that's going to gain our shareholders a lot more than the traditional sensors since we have produced it in a very cost-effective way and we are very well positioned in the market. And the market price for these sizes of sensors, because it's a little bit larger sensor, is much, much higher. So that is a great benefit for us. So I'm happy if we can -- as long as we can be on that pace, then I think that's something we should be fairly satisfied with.
[Operator Instructions] So there's another question.
Yes, Eirik, I see a question here as well in the chat, which is related to what I just talked about on NGRAVE. The products -- the question is the product seems very interesting, could you please tell me what is NEXT selling to them? And how much do NEXT earn on these sensors? Yes, I agree. We find it a very interesting product. And if you really look into a little bit more market dynamics of the NGRAVE crypto-wallet, and some of their competitors and how many wallets they have sold and how much more secure the NGRAVE product is. That's why we believe this company has a great potential. We are selling one of our standard sensors to NGRAVE. We are not selling them the FAP20. That has to do with the form factor perspectives and others where NGRAVE wanted to have a little bit of smaller sensor, so they decided finally to go for one of our more standard sensors. And we normally do not tell explicitly the gross margins, et cetera, on the specific sensor that we are selling them. But we find it, like I said, a very interesting company to work with. They are just about to launch their product, and they have bought one of our standard sensors.
And Peter, I actually heard you're going to get that this product yourself now, this NGRAVE product?
Yes. Yes. Absolutely.
So yes. So maybe next time, we will show it to you in the call. And there's another question. With all these design wins, when do you think NEXT will be able to start making money?
Yes. That's the Holy Grail question and the whole ambition that the whole NEXT team is working on. I'm not going to -- I'm going to try not to be too specific or anything on it. I think the foundation that we have started to create with all these design wins, and if you extrapolate that, like we are trying to demonstrate today without saying that that's exactly or any exact guidance or so in the number of design wins, I think the foundation is what we are doing. And with the low cost base that we have right now, if we can get some of these design wins to start to launch their products and then the orders will come to us. We don't need that much volume to actually start to reach a profitable level with these low operating expenses that we have right now. And that's really what we are aiming for.
Right. And then I have 1 more question here. But after that, I don't have any more questions. [Operator Instructions] So Peter, you claim to have a substantial improvement in operational cash flow in the quarter, is this something we can expect going forward to repeat?
No. I shouldn't guide on that. I mean there are onetime activities in this specific quarter as well that influence the, so to say, cash burn. But I think it demonstrates a little bit the combination of more and more design wins. And then the low operating expenses and the good work by the organization here. It is starting to demonstrate the trend in terms of how close we will be. If we have a quarter where one of our design wins starts to pull a lot of requests on, for example, FAP20s, we are not going to be far away from reaching that profitability level. So I think we shouldn't -- we are going to stick to the low OpEx level that we have stated before of NOK 15 million per quarter, but the cash burn was very, very low and very positive in that sense having such a low cash burn this quarter, but I don't think we should guide or so on that specific note.
Right. Yes. I think that was it, Peter.
Okay. Very good. Yes, I don't see many more questions. There might be some.
There are suddenly some more questions.
Yes, there is a few more here, Eirik, I see...
Suddenly.
Is the company fully financed going forward and until profitability? Yes, that's a very good question and a trick question, I think. I think we have a strong cash position. We have almost NOK 120 million. And like you saw, we burned very little cash this quarter. And we are maybe going to burn a little bit higher or maybe even lower, a little bit going forward in the quarters. But I mean, if -- as soon as some of these design wins start to add on top up we already have, I think we are -- we have a long -- much more long-term potential, and we have more time than the company has ever had with the strong cash position we have. I think that's one important aspect. I think another -- and if I should be very transparent what's worrying me, it would not be the cash position because I think we are burning such a low amount of money per quarter in the way we run it. However, being transparent, what would worry me -- what is worrying me a little bit is the whole global supply chain situation. As you can clearly see, we have a backlog. We have very good orders coming in also in quarter 4, but there is a challenge for us for certain components, and this is in delivering these products in, for example, quarter 4, and we have a backlog already. So that's 1 aspect. But maybe even more worrying and sometimes a little bit frustrating is the global supply chain situation for our customers because as I state, we have at NEXT Biometrics a certain challenge. But our customers who are producing, manufacturing and many of them complicated products or at least products with several different components in them, they also -- we clearly see that they have a challenge building and manufacturing their products. And of course, then even though they could potentially place an order with us among these new design wins, it becomes delayed because they can't find other components to manufacture and build their products. And I think that is what's currently hampering what I believe is -- I start to see very positively on the turnaround of NEXT Biometrics and the number of design wins that we are adding, but we are unfortunately being also hampered a little bit around that our new customers can't build their total products. I do hope that this going to -- and what I see the trend and when I read market reports, et cetera, I hope during at least 2022 and maybe the later part of 2022, this is going to normalize. And I think that would be very beneficial for us.
Yes. And there was 1 more question now. If the NOK 17.5 million revenues were fulfilled in quarter 3, what would the gross margin be?
Yes. That's maybe more a question for you, Eirik. But we know...
Yes, I don't think we can comment so much on that. I think you really have to figure that out yourself. I mean this whole -- also this question on the breakeven, it's really a calculation you can do for yourself in terms of revenues, the gross margin and the OpEx, which is already pretty much available in the quarterly report, and we have also talked about the mix between the FAP20 and other products where the FAP20 has a higher gross margin than the other products.
Yes. All right. But with that, I think we are going to close the quarter 3 presentation. Me and Eirik are going to be available. You can always reach us over e-mail or contact us and we will try to accommodate any questions. So with that, I think we should say thank you to everyone attending. And hopefully, we meet you at the quarter 4 presentation. So thank you very much.
Thank you. Bye-bye.