Precise Biometrics AB

STO:PREC

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to the Precise Biometrics AB Q1 2021 report. Throughout the call, all participants will be in a listen-only mode and afterwards, there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present Stefan Persson, CEO; and Ulrik Nilsson, CFO. Please go ahead with your meeting.

[Stefan Kenth Persson, Chief Executive Officer]

Thank you, and a warm welcome, and good morning to precise Q1 2021 presentation. I will, together with our CFO, Ulrik Nilsson, present the financial results and also give you some highlights on how we see the next coming quarters. Now turn to Page #2, please. So despite the situation due to COVID. Once again, I'm happy to present another quarter with a positive EBITDA and that we had a sales of SEK 20.3 million. That shows some stability despite the corona situation out in the world. We have also very good cost control, and we have been able to continue our investment in the future for YOUNIQ and with a clear focus in the access area. We continue to roll out more installation of YOUNIQ, and we focus on building the platform and ecosystem around the product offering with different collaborations and integrations. Our new SaaS model, Software as a service, will be the major revenue contribution over time going forward, but it will take some time before we get large volume in this area. A new interesting mega trend is the sustainability area. We have now dialogue with customers that was our intelligence from a system to handle energy, air and water optimization also. As we talked about in the last meeting, we have now introduced our next-generation algo to some of our partners and now launched the first mobile with a sensor from Qualcomm implemented in [ May 2 '18 ]. This is the world's fastest and highest secured algo implementation in the world. Now we have the possibility to win more contracts within this set up together with Qualcomm. In general, the mobile area is a very competitive environment with a lot of players involved. And with the COVID situation and component shortage, it's tricky to estimate and forecast the 2021 revenue. Even if the industry has been hit by corona, we have been able to continue to deliver software to our partners. And today, we have a very strong team in Asia, Europe and U.S. that can continue to support our customers and maximize the opportunity to win new projects. Now turn to Page #3. Division. We continue to communicate our strategy and visions in all forms like Twitter, Linkedin, webinar, social media, Q reports and web page. So please continue to follow us in this type of media communication. It's about no matter who you are and why are and what you do, you should always have access to a digital identity. It's all then controlled by you in a safe way. And we continue to communicate even more about the benefit of -- that you are the key for all applications and resources. It's owned and controlled by you. You are the key. Next slide, please. The digital identity. We can see that the market is demanding solutions with ability to verify person's identity in a convenient and secure way. We continue to focus on the Swedish market, we had a accessible market size just in Sweden is identified to be more than SEK 1 billion 2025. We continue to install more now with Algeco previously temporary space Nordic. And now also latest here with science Village in Lund, Sweden. We also have had the first installation in U.S. and recently also in Norway. The very interesting is the open platform for integration with other applications, such as access solutions to reduce the CO2 emissions. This is, of course, a sustainability mega trend for more energy-efficient buildings. YOUNIQ eliminates the need for plastic cards, key Tags and traveling due to the end-to-end digital solution. We continue to focus on [ larger accounting ] YOUNIQ area in the 6 main verticals we addressed: construction, apartment blocks, commercial buildings, [ tin ], industrial buildings and public. There is a huge interest, but some longer process is now due to covid, and it takes a little bit longer time to decide about investment. This will change when corona situation will get better. We entered the market last year, 2020, and it will take some time to get up large volume, but the market is there, and we have just started a very interesting journey for precise with the new product and the SaaS model. Now please turn to Page #5, algo. The new algo product area, a combination of former product area, mobile and smart cards, will lead to a more efficient use of resources within our development and sales organization. Now we can combine the platform development and can utilize the resources in an optimal way. The development of the new algo based on AI will continue to support our customers. We also announced the first mobile-based [indiscernible] generation of Algo, the bio match mobile integrated in the latest ultrasonic sensor from Qualcomm, implemented now in [ May 218 ], which resulted in the world's fastest fingerprint Matcher with extreme high security level. Our ambition is to continue the cooperation with Qualcomm and win even more projects in the coming quarter. We will further integrate the fingerprint software in a series of mobile devices during the year in collaboration with our partners. So despite the COVID-19 effect on semiconductors availability, we still have big hope for this year. But forecast for the full year is very, very tricky. And unfortunately, not possible. Still the same situation in the smart card area, no major volumes for 2021. We received together with Kona, the Mastercard letter of approval for their biometric payment card. And here, we're utilizing precise biometric card. We have seen an increased interest in other smart card applications, such as, for instance, the access area, but smart card as it is right now, is just a bonus market for precise. In general, we are a strong believer in fingerprint algo for our own devices, owned by yourself. But for public devices, we will see an increase in the face biometric area. By that, I hand over to our CFO, Ulrik.

[Ulrik Nilsson, Chief Financial Officer]

Thank you, Stefan. Please turn to Page 7. The execution of our strategy continues. Our mobile business is healthy and profitable, and we work towards expanding our role with taking responsibility for larger parts of the delivery. This year, [ 18 ] is just one example of a successfully won project with Qualcomm, now delivering the world's fastest fingerprint Matcher. The component shortage among our customers resulted in lower production volumes and consequently resulted in lower royalties. We see then increased client activity and promising growth in digital identity. So we continue to be adding the customers as well as expanding business with existing customers. The net sales during the quarter totaled SEK 20.3 million versus SEK 23.1 million previous year. Net sales were split between royalty revenues of SEK 10.9 million versus SEK 13 million last year, license fee, including support and maintenance of SEK 8.8 million versus SEK 8.5 million last year, and other of SEK 0.7 million versus SEK 1.6 million previous year. The increase in license fee is a result of precise's strategy of focusing on deeper collaboration with our customers. The fall in other is attributable to reduced sales of development like licenses. The net sales for digital identity totaled SEK 0.5 million versus 0 in Q1 2020, and this is reported under other. The gross margin during the quarter totaled 77.4% versus 87.7% previous year. Change is primarily due to increased amortization of capitalized development expenses as well as changes in the product mix. Total amortization on the capitalized development expenses was SEK 3 million versus SEK 2.2 million in the previous year. The increase in amortization and write-downs of development expenses related primarily to digital identity. Please turn to Page 8. Our mobile business delivers healthy profit. We continue executing our strategy of working in deeper collaboration with the key customers, and this is allowing for full leverage on scalability. Continued investments primarily in the area of digital identity, we see that in the sales organization, where we continue to invest. In the digital identity area as well, on the capitalization, we see an increase. The operating expenses for the quarter fell by SEK 0.5 million and totaled SEK 19.5 million. The cost reductions, they come primarily from the reduced research and development costs. And here, we have an increased portion of expenditures for development work, which is being capitalized. The reinforcement of the sales organization will continue with that during the period, and this is resulting in increased selling expenses. Operating profit loss for the quarter totaled SEK 3.8 million, negative versus SEK 0.1 million previous year. The reduction in the operating profit is explained primarily by lower net sales and then the lower gross margin. Please turn to Page 9. The cash flow for the quarter from current operations totaled negative SEK 0.7 million, out of which SEK 0.1 million is attributable to increased capital tie-up. The group invested SEK 0.3 million versus SEK 0.6 million in [ PPNE ] during the quarter. We invest in digital identity. Capitalization and amortization and development work, the development expenses, we capitalized SEK 4.6 million versus SEK 1.7 million previous year. The amortization of capitalized development expenses totaled SEK 3 million versus SEK 2.2 million during previous year. The financial position, cash and cash equivalents totaled SEK 70.4 million versus SEK 78.4 million previous year, which is giving us a healthy cash balance. Back to you, Stefan.

[Stefan Kenth Persson, Chief Executive Officer]

Thank you, Eric. And now turning to Page #10, the summary. So we can see a clear increased client activity and producing growth in the digital identity. Still, of course, a lot of things to be done, but we are absolutely on the right track here. YOUNIQ as the sustainable access solution is actually a new area, which means new opportunity together with our customers, we will -- where we will help them to reach their environmental targets together. And Algo, a new product area launched to prepare for the next phase of growth. We integrated our bio match mobile into the next-generation sensor for Qualcomm, and it's implemented now and launched with [ May 218 ], extremely good feedback and very interesting opportunity down the road together with Qualcomm here with this new setup with their sensors and our algo. We can see an increased volatility due to the COVID-19 effect on semiconductor availability. But after all, a very stable first quarter, and it will continue to be a very interesting 2021. By that, I'm now turning to Page #11, and we will open up for questions.

[Operator]

[Operator Instructions] And we have no question at this time. Please go ahead, speakers.

[Stefan Kenth Persson, Chief Executive Officer]

Okay. Thank you. We have received some questions before the meeting. One is in the area of physical biometric door locks. What's happening in that area. We have our embedded solution in that area. It's a very disruptive market and a lot of low-cost player involved. We can also see now that due to COVID effect, fewer are interesting to have door locks in public area with fingerprint to that are more interesting to the face. So we are addressing the market, but not actively. We see a huge -- not a huge potential in that market as it is right now. Then we also have got the questions regarding YOUNIQ access. Other competitors. Right now, we are focusing on our own solutions. They are not a real competitor in this area right now with this digital end-to-end solution that will, of course, come. It's a huge market, and we will love competition. There are players in Korea that have similar solution, but it's on-prem registration, and we can see it's popping up in U.S. also. But as it is right now, we are the only one in the world who can provide this solution. Of course, there will be, as I said earlier, several plays in this area. Which, of course, it's a very interesting area for the future, and this will gain traction over time, but the market is big enough for all of us. That's all from us. If there are no other further questions online.

[Operator]

No other questions.

[Stefan Kenth Persson, Chief Executive Officer]

Then, I say thank you all for listening in, and hope to talk with you soon again. So thanks a lot. Bye-bye.