Next Biometrics Group ASA
OSE:NEXT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.2
9
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Next Biometrics Group ASA
Earnings Call Analysis
Summary
Q4-2023
NEXT Biometrics achieved a 19% year-over-year revenue increase in Q4 2023, ending at NOK 14.3 million, driven by new orders, customers, and design wins, now standing at 46. Growth was bolstered by strong demand for its FAP20 sensors and increased gross margin, rising to 45% from the previous year's 24%. The firm also secured significant contracts, particularly in India and China, including a substantial healthcare agreement, given regional mandates for higher security biometrics. Furthermore, the company is capitalizing on its innovation in anti-spoofing technology, poised to become a standard in Chinese healthcare, setting the stage for revenue expansion and margin growth.
You don't have any saved screeners yet
Okay. Thank you. Welcome to this Q4 report. It's -- my name is Ulf Ritsvall, heading up the NEXT Biometrics. I will present the agenda for you quickly. If you take the next slide, please, for today's earnings call. Next slide, please. Next slide. So we'll start with the Q4 presentation, and if you stay online, there will be a small gap 5 minutes, and we'll continue with the Capital Markets Day in -- online and in this room.
Speakers for the first session, you can swap to the next slide. Yes, I can do it here, sorry. Now it's more automatic than yes. So yes, it's me, Ulf Ritsvall, and it's Eirik Underthun that will present the Q4 earnings. And we'll start, of course, with the business update on the key parts that happened during Q4. We will do Q4 highlights, outlook and Q&A as pretty standard. We'll have quite a bit of shorter highlight and walk through of all the activities because we will have the majority of the -- the speech in this lunch afternoon in the Capital Market.
So in summary, I'm proud to present that we increased the revenue with 19% from Q4 2022 to Q4 2023. We ended up at NOK 14.3 million. We have -- we continue, of course, bringing in more orders. We continue bringing in new customers. And we increased the number of design wins, which we have talked about a lot with 2, we're now at 47 -- 46, sorry. And what also I'm proud of is the increased gross margin compared to previous Q4, which is actually up where we have seen that we will be in the future as well.
We have continued strong efforts and business development in progress in both India and China. I will talk slightly a bit more about that, but I'm happy to see we received a few new purchase orders. We have -- and India is progressing well as we have seen as well as China. So if we see the significant progress we had. So ACPL, our first Indian customer. They picked up the first batch, which means, actually, they actually are on the market, which is fantastic news. We have been waiting so long for the L1. The first batch is actually out on the market, which is great.
The distributor placed another NOK 12 million order on the top 20 for the ACPL, and we will continue seeing these orders throughout the quarters. It's a good base for us and for ACPL. Of course, there will be additional OEMs in India as we have announced, picking up additional orders. But this is a good baseline. As you have seen in the news, we have another OEM in India, making L1 Bluetooth-enabled device. We have a few examples actually out for the ones that are here that is outside the room here for this, and we can demonstrate the use case.
And also, I'm very happy to announce that we actually had the first stocking order. As you remember, we had a breakthrough agreement in June last year. So the same distributor, Asian distributor, placed the first stocking order with us and for the FAP20, which is fantastic. It's according to the contract and it's according to the plan. But actually, what I'm most proud of is actually the ChinaID certification, which is a prerequisite for the Chinese market. And this stocking order with a small initial stocking order from the Asian distributor would not have happened if we wouldn't have the ChinaID certificate.
This is the mandatory part for China. And now we are there. Happy to see that the team, the technology team and all teams involved managed to pull this off. We also, after the quarter, announced an exclusive Healthcare agreement, where we will go through that later in more detail because Joshua, who is in my sales representative in China, he will go through it in more detail. But it's actually a very, very good agreement with the health care business, this health care company, they are serving 22 different regions in China. And they are now replacing same as the Asian distributor. They are replacing optical sensors for the NEXT sensors, and it's starting now. So that's one.
But the best part of the agreement is actually technology wise, we have a feature that we call anti-spoofing. So basically, it's hard to have another person logging into your own device. This feature, this company, will recommend for the Chinese Ministry of Health care to bring into their specification into the health care organization, which then means that it will be mandated for all health care devices to actually have anti-spoofing. And we are a strong player in that field. I think that's actually the biggest part of this agreement.
I will hand over to Eirik for the next slide on the financials.
Thank you, Ulf, and good morning to everyone. So Q4 revenue was NOK 14.3 million, which is up from NOK 12 million in quarter 4 2022. And the revenues were concentrated towards the end of the quarter and also affected by the strengthening of the NOK to the U.S. dollar exchange rate. So we ended a little bit up a little bit lower than we expected when we announced the Q3 guiding. The growth in revenues was mainly resulting from increased FAP20 shipments. And the gross margin in Q4 was 45%, which is up from 24% in quarter 4 2022. And this is mainly resulting from the improved product mix with a higher percentage of FAP20 sensors, which is kind of proving what we are looking for in the future. OpEx [ ex ] options was NOK 14.8 million, which is around the expected level that we have seen this year. And the adjusted EBITDA was minus NOK 8.3 million, which is an improvement both relative to quarter 3 and quarter 4 last year.
The Q4 operational cash flow was negative NOK 18.5 million. This can be explained by the higher sales we had in the quarter and high -- the concentration of the revenues in December. So we haven't collected on the account receivables yet. And this was representing a negative NOK 9 million of increased account receivables during the quarter. And we also paid the share issue costs that was related to the share issue we completed in quarter 3.
So with this, I will hand over to Ulf to provide a more detailed overview of the outlook and the general status of the company. Thank you.
Thank you, Eirik. So I would say with this slide with a bit different colors, I try to highlight what's actually have happened in 2023, we have set the foundation for this company. We have set the foundation of India and China revenues, and it's happening now. As I've said, India is ramping up. We are progressing very well. We have the L1, we have the ACPL, and we have a few other contracts. And we have a NOK 300 million contract value over the next 3 years period, and that's starting now.
For China, as we said previously, we have secured the contract for the Asian distributor. He is now -- he's been waiting for the ChinaID. It's now in place, placed the first order. This will then be integrated into the different devices he has. He has 5 to 6 different OEMs that he's working with. And all of these will then now start implementing the next biometric FAP20 sensors. So why is it happening now, you can ask? I would say there is a big demand of -- in the mature biometric market like India and China, everybody is using biometric in these countries. [ D.J. ] will talk later on how India is set up and why you use Aadhaar and how important it is for India. Same is actually in China. A lot of people are used to biometrics that there's also a lot of spoofs. There's fraud in the systems.
So governments, other partners see that, okay, we need to do something about maybe the not so secure biometric devices. We need to take one more step in the security. That means you need slightly larger sensors, which NEXT Biometrics have and you need to have increased spoofing. So what we call spoofing, spoofing attempts, we -- so you cannot log into another person's device. We need to have a verified that you actually are a live person, for example.
These are the key fundamentals in the market, and that is happening now because India has been going on for quite some time, China, quite some time. And they have realized, okay, we need to do something about security. That's why NEXT is on the pole position in China and India is already ramping.
We also have discussions. One year ago, we signed a contract with a go-to-market partner in China. They are now proving themselves and helping NEXT Biometrics to actually not only sell the sensor only, but we take one more step in the value chain selling one solution. That means the component itself, but maybe there's a flex cable, maybe there's a small other gadgets at PCB and MCU. That solution is, of course, a lot higher value for price, what we sell at. And revenue will increase, margin will be going up even further on this specific solution. So China, we do direct sales with the solution, and we do distribution sales through the Asian distributor at -- when we sell the stand-alone sensors.
Since we have the ChinaID certificate, the ramp is starting Q1, the mass production will start in Q1. So Asian distributor already picked up a few sensors already Q4. It will pick up additional in Q1, and we will see more orders coming very, very soon. And then, of course, in the health care market, that's -- so Asian distributor serves mainly in police, banking area. Now we have a health care ministry that we are a company that we're working with. So we are addressing the health care market and medical insurance.
We are also targeting the e-lock, not saying the smart door locks because that's a market which has very small and very competitive pricing. We are targeting the e-locks like turn styles like border control areas for -- when entering into China and other countries. Those are the ones with high security and higher price for NEXT biometrics. We are expecting to have at least 3 OEMs. We have 1 today. We have ACPL that we have announced. You've seen that we have a few others in the pipe. We are expecting 3 out of -- so the -- out of the certified L1-enabled Indian OEMs. We will expect 3 to have certification in 2024. We expect at least 30% market share on the Indian market selling sensors.
On top of that, we see Aadhaar is actually increasing. There's a demand for having external through third-party companies accessing the Aadhaar database. It's 1.4 billion people in the database. You have certain surroundings -- certain services around it. Today, it's locked for the government like applying for a SIM card, applying for a bank account, applying for -- if you have a social welfare, you need some rise, that type of services. But of course, there are so many other services around this that can use this database. So this Aadhaar is actually looking into opening up the system during '24. That will increase our total addressable with at least 20%. So that's what's happening in India, and we believe will happen this year.
So if you take the outlook, we believe we will -- we have set the foundation. We had a low Q3, slightly higher Q4 and of course, Q1 2024 will be, of course, even higher. So we are on the right path in revenue right now. We have set the foundation, and we will scale this company, and we can do so because we are fabless, we can scale our production very easily. We have all the technology parameters are in place. And again, we are expecting EBITDA breakeven at the end of Q2 '24 with the traction we have today. And I wouldn't say that if I didn't believe it.
Of course, potential in this and grow beyond this 2025, 2026 is enormous. And we will talk more about that in the next coming hours here. And again, we're expecting gross margin at least at 50% when the -- and continue the low OpEx run rate. By this, I would like to open up for questions. If there's any questions in the room or in the chat maybe. Yes, we have some questions in the chat. Maybe we start in the room here if there are anyone that have some questions here.
Just a question regarding the Indian market. You mentioned that ACPL has substantial market share. But what -- can you just explain, you said there are 32 OEMs, but isn't it fair to say that the top 5 OEMs control the market? And how much of the market have the top 5, and we have 1 of them? And what's your comments regarding getting 2 or 3 of the top 5?
So yes, the top 4 or 5, yes, they have probably of the Indian market, yes. And ACPL is -- so IDEMIA has historically been #1. Mantra, #2 and ACPL #3, if you take it percentage-wise...
Historically, as a percentage of ACPL has today.
They historically have been between 25% and 30%, depending on which tenders they...
Sorry. Is it fair to say if you get one more OEM that you'll be way beyond 30%?
That's fair to say, yes. Yes. Yes. Yes.
And you think you're confident that you'll get one more of the top 5.
Anyone? Okay. Then we will do a few questions from the chat, and then we will have a short break after that. There is a question here. You have 46 design wins. How many will be active in 2024? And then tech giant deal in 2021, what's the status on that one?
So some of the 46 items. You remember the Indian, they have gone from L0 to L1 specification. Some of the 46 is actually based on L0 projects, which, of course, will be discontinued. So there is a portion that will be discontinued. But I would say that the majority of the 46 is actually recurrent revenue that we actually work constantly with. And I see that going forward in 2024 as well.
About the tech giant, it's a bit slow, I would say, in the collaboration. They are trying to get into, for example, India and other markets. It's not easy to get into India today being a non-Indian OEM. Like the last tender, we -- I think just talked about it in Q3. The last 200,000 tender, IDEMIA used to get 50% of the tenders. That time, they got 10 because they are non-Indian. So India is making India. Modi would like to see more Indian companies. He's investing in semiconductor fabs, he's investing in everything. He wants to do everything in India. So importing a non-Indian device, which the tech giant is trying to do is hard. That's why you need to produce it locally.
Okay. There's a question about FAP30. And I guess we will go more into that in the session later today. But if you compare FAP20 to FAP30, how large are the differences in market size between those 2 market segments?
Market size in FAP30 is significantly smaller than FAP20. However, the competition is less. The -- I would say the average selling price of the FAP30 sensors, it's like 3, 4x higher than the FAP20. And our production costs it's not constant, but it's not that significantly higher. It's not 4x higher.
There's another question here. So please describe what markets you're aiming for in the coming years, 2024 to 2027 and what kind of revenues you're expecting from these markets? I guess maybe we cannot give that kind of detail, but...
No. But it's obvious when you're in high security sensors and governmental sensor [ section ] -- market segments. Africa cannot be untouched. So same regulation as Aadhaar in India. There's an external body called MOSIP that basically helps developing countries setting up a similar type of system as Aadhaar. Most countries are in the verge of actually starting this. They already today have hundreds of millions enrolled people in their system. And there's a lot of countries following India. So Indonesia, Ethiopia and so on. So we will definitely see. And of course, Africa as well as the Americas is, of course, the target for us going forward.
Thank you, Ulf. That completes the Q&A session in this Q4 presentation, and then we will have a short break, and we will reconvene here 11:30, which is in 5 minutes. Thank you.
Thank you.