Precise Biometrics AB

STO:PREC

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Joakim Båge]

Hello. It's 10 a.m. on Tuesday, May 14 here in Sweden. Welcome to this interactive Q&A with Precise Biometrics. The company has this morning released its earnings report for Q1 2024. My name is Joakim Båge, and I'm the moderator for this Q&A. And today, I'm joined by CEO, Joakim Nydemark. How are things with you?

[Joakim Nydemark, executive]

It's fantastic. Thank you. How are you?

[Joakim Båge]

I'm great, too. Thanks. S, for those of you who are listening in, and this is the first time you are listening into one of these interactive sessions, you can enter your questions in the chat box right here next to the video player, and then we can see them and address them and we'll try to get to as many as possible.

[Joakim Båge]

I have also received some questions in advance that I thought would start with. So Joakim, first of all, congratulations on a nice Q1 report. What is the reason for the increased revenue and improved results?

[Joakim Nydemark, executive]

I think overall, it's a combination of things. We have been very active in marketing and sales. We have gained new projects. We have opened an office in, or opening up sales capabilities in Europe down in Amsterdam. So those are a few other things.

We also continue to pay attention to cost, and we try to be and continue to have an efficiency in our organization on how we work and make sure that we have the right people and the focus on customers and increasing sales.

[Joakim Båge]

So biometrics have been around for a long time. But recently, there's a lot of positive discussions in media again about potential new use cases. Can you explain a little bit about what is going on right now? Why is biometrics so hot again? And how is Precise benefiting from that?

[Joakim Nydemark, executive]

Yes, we are experiencing that from the market and increased interest. And I think it has several driving factors. I think one is an overall view from the society about the security and safety and that biometrics is technology that can solve and improve that kind of things.

I also believe that AI, there's a lot of good things coming with AI, but it's also coming with the ability to scan and create false accounts and what have you. And that is also something that we can prohibit with the sophisticated biometric solutions.

So I think overall, if I look at what Precise contribute in this space is that, we have a variety of solutions based on biometrics that can increase the security and safety.

And we are providing that in a variety of use cases, including mobile phones, tablets, cars, but also for like payments and/or access visiting at company sites and so on and so forth. And, all in all, I think this is sort of driven by this overall sort of view from the society.

[Joakim Båge]

One question that was e-mailed into us. What is the status regarding ultrasonic sensors and the cooperation with Qualcomm?

[Joakim Nydemark, executive]

Yes. This is a very exciting area. So ultrasonic sensors is the, I would say, the latest type of sensors for fingerprint recognition or identification. And the reason why this is sort of increasing now in businesses volume, and that is what we see happening moving forward is that the new generation of displays requires a different kind of sensors for fingerprint in order to work.

So the optical sensors will not work to the same extent as before. So ultrasonic is the one. We have been working with Qualcomm for I think all in all, 8 years in the space of fingerprint. And, Qualcomm, they provide hardware, these ultrasonic sensors. And we are the provider of the algorithms related to that and it's a very complex technology.

So there is only a few companies in the world capable of providing or developing and deliver this kind of algorithm for ultrasound, and we are one of them. And we are out of the market, by the way, so it's proven on the market, but we see now an increase in projects here moving forward as well.

[Joakim Båge]

So without getting too technical, I mean, I guess you can explain it this way that there's a lot of different technologies being used to identify a fingerprint or a unique biometric signs from people used in mobile phones.

And we've got a question coming in here related to that, too, fingerprint cards declare that they are leading the mobile market because of weak demand, how come Precise is seeing a lot of demand in mobile? Can you perhaps explain a little bit how the mobile market works for those who are not that involved in this market?

[Joakim Nydemark, executive]

Yes. So first of all, I think that even though there are other companies in the space of biometric, I think that the uniqueness of Precise Biometrics is that, first of all, we provide software. So we are a software company, so we provide the algorithm.

Secondly, we really excel when it's like complicated environments and high security and high level of convenience. So the combination of high security and convenience and where there is a demand for very well working sort of solutions in that combination. I think that is where we excel.

So with that said, I think that, for instance, these ultrasonic sensors are a very good area for us to be because it's right down our alley when it comes to those different aspects. I also believe that as a software company, you don't struggle with inventories of hardware and logistics and that kind of things. We have a higher sort of flexibility in our business where we can move between sort of different kind of projects, different kind of verticals.

So that is another. So that in combination, just to comment specifically again on the mobile market is that we also see a growing volume on the mobile market. So looking at the global volumes Q1 '23 compared to Q1 2024, we see an increase of about 10% according to several analytics reports. And that also, I think, is a parameter for us believing in that industry.

And we are well positioned there with partners like Qualcomm and EgisTec and others. So, we are there, we'll stay there for sure.

[Joakim Båge]

So just to summarize then, what you're saying is that when it comes to the demand in the mobile phone market, it's so big and there are so many different kind of sensors so that the demand shifts depending on what kind of sensors and what kind of technology that is in demand right now, and that is perhaps an issue if you're a hardware maker and you invest in a lot of hardware and then that's not in demand anymore.

Whereas if you're a pure software maker like Precise Biometrics, then it's much quicker to be able to adapt to market demand and go to the kind of sensors or supply software for the kind of sensors that are most in demand right now.

[Joakim Nydemark, executive]

Correct.

[Joakim Båge]

So let's move on then. We've got 2 questions here on the U.S. market and perhaps you want to comment a little bit on how the push in the U.S. is going as that was one of the primary reasons for the increased investments last year?

[Joakim Nydemark, executive]

So the business in North America or the U.S. is moving on. So as we have communicated earlier, we have increased the sales force. We are increasing or deepening the partnership we have there but also increasing the contact network.

As you know, our biggest partner there is Genetec. But Genetec, they, in their turn, work with a big amount of system integrators and so on in different parts of the U.S. And what we are building up now is the network and making sure that these companies that is out and on a daily basis, selling this kind of solution that they are up and running, they have the sales tools, they have the demos and everything at hand in order to bring in sales.

And I think we have done that very successfully. So we are now seeing that the number of leads are increasing, and we are seeing that we are getting pilots coming up. So I think we are moving along there. Things tend to take longer time than one hope for. And then I'm pretty eager to really get this moving and growing in a big scale. But I think we are on a good path.

[Joakim Båge]

Yes. And you've done a marketing push there and you've also physically been to different fairs and trade shows and so on. What is the feeling on the U.S. market right now? Do you feel when you're out there talking about biometrics?

[Joakim Nydemark, executive]

Yes. So I visited together with our U.S. team, the ISC West, which is one of the biggest, I would say, security trade shows in the U.S. And I think the feedback we are getting from our solutions is very positive.

We had a lot of good meetings both with potential partners, but also with potential customers that we met. So I think it was a good feeling and a positive feeling that we brought back to Sweden for sure.

[Joakim Båge]

Another question coming in here. We're jumping from topic to topic here. But licensing revenues is down driven by downtick in biometric technologies is what a person is asking here. Can you elaborate on what's behind this?

[Joakim Nydemark, executive]

Well, so we have several sort of parts of our business model. That includes what we call the annual license fee, we have an annual support fee and we have a running royalty. And those 3 parameters is something we sort of negotiate around in different cases.

So for instance, you can have prepaid royalties, you can have commitment of royalties. You can have a license fee, and you can have sort of a support fee. And this can go up and down over time. So as you can see, maybe the license fees has gone down a little. But on the other hand, the royalty fees has gone up. So it's usual business, I would say, and depending on sort of the specific customers and business cases that we sign up.

[Joakim Båge]

Yes. And the business model is a little different in your different business areas, too. And we've got one question here about what's going on with your ARR, your recurring revenue. And what's the growth projections there?

[Joakim Nydemark, executive]

Yes. So I think we are according to plan. As you can see in the numbers, we're up year-on-year. We are flat from Q4 to Q1. That was expected. We did the best quarter ever in Q4. So it was expected to have sort of a slower Q1. Q1 is always lower for this kind of solutions.

So both those factors in combination, I think, provides sort of the expected outcome. We are on track for the year. I see that we will have a good increase in the ARR here over the year. And again, it's according to plan. Year-end is also a period where we have some churn. So there may be a few companies that have left us. That is also a usual part of the business. So nothing strange. We're on track there.

[Joakim Båge]

So I think we have time for 1 or 2 more questions. One that was e-mailed into us was regarding palm recognition, which was launched earlier this year. And, perhaps the question is, why is that product important? And when would the solution be available on the market, hence, when will we start making money from palm recognition?

[Joakim Nydemark, executive]

Yes. So we are very excited about palm recognition. I think palm provides a very good complement to face and fingerprint. And I see that we will be able to open both new business but also new verticals with this kind of technology. So very excited about that.

It's also to large extent based on our sort of know-how and code base from fingerprint. So we are very comfortable in sort of the performance of this specific algorithm for palm. It's available now. We have sort of the algorithms ready. So what continues now is to work with partners and customers for specific use cases.

And, as we have announced, we have a cooperation with the U.S. company hand.ID, and they are developing a very specific, let's call it, the palm scanner. It's not a scanner per se. It's more like a combination of camera sensors. So we don't have physical contact. It's still sort of at a distance, but we call it the Palm Scanner.

And that is one of these hardware solutions that we foresee where we will be able to provide together with Hand ID for specific use cases. That could be, for instance, payment kind of use cases. They have announced that they will have their first sensors or scanners available here during the fall. So we are cooperating with them on that.

But we are also able to run our technology in, let's call it, more off-the-shelf kind of cameras. So it will be sort of different tracks depending and again on the specific use case.

[Joakim Båge]

All right. So I think we have time for one more question. I'll try to summarize because we got a few different questions in here, both for the e-mail inbox and in the chat here. But now you have had an effective cost control and you're starting to show a positive EBITDA 2 quarters in a row here.

And the business seem to be on track. How do you balance this in the future when it comes to continuing to invest in marketing and in innovation while still being able to show nice results and continue to grow? So what's that balance now going forward?

[Joakim Nydemark, executive]

Yes. So I think that is a very good question. And this is part of the work we are doing. Of course, we continue the development and we're always looking at sort of business opportunities from both sort of the business perspective, but also to what extent we can provide our current technology or we need to tweak or develop sort of different or new parts of technology.

And I would like to say also that the proof of that work is ongoing, I think, it's the palm, right? So we just recently provided a new product here related to our biometric new modality. So I think that is a good proof. But we are also looking at what we call new business.

So looking forward, it will be a combination of, of course, taking the technologies we have and moved that into new verticals and new business cases. It's a matter of improving or increasing the functionality. For instance, in our unique visit solution, we have requirements on new bells and whistles that we would like to add to even more attract new customers and keep the ones we have.

So that work is ongoing. And then we also look at new sort of areas of business where we can utilize our competence, our technology and create more business outside sort of the current areas where we work today. And all of that is, of course, ongoing. But where we are right now, I think it's important to make sure that we are sort of profitable and that we can have a sustainable business.

So that, I think, is top priority now. Hence, the focus on sales and sales power, both in the company, but also together with partners and external companies.

[Joakim Båge]

Okay. Sounds promising. And that is all the questions or all the time we have for questions today. Thank you, Joakim, for participating and for all of you who are listening in on this and perhaps if we didn't get to your question, you can always e-mail it into the IR inbox at [e-mail] and somehow will get back to you as soon as possible.

Again, thank you, Joakim. And until next time, have a nice day, and thank you for listening in.