Precise Biometrics AB

STO:PREC

Earnings Call Transcript 2023-Q2

[Joakim Bage, executive]

Hello, it's 10 a.m. on August 15 here in Sweden. Welcome to this interactive Q&A with Precise Biometrics, which released its earnings report for Q2 and the first half of 2023 today. My name is Joakim Bage, and I'm the moderator of this Q&A today. I am joined by CEO, Patrick Hoijer; and CFO, Annika Freij. How are thing with you?

[Patrick Hoijer, executive]

Good. Thank you. Good morning.

[Annika Freij, executive]

Good morning. Thank you.

[Joakim Bage, executive]

Good. We have tough competition today. Women's Soccer World Cup finals, but thank you all for tuning in. This is how it works. You can enter your questions in the chat here in the interactive video player. You can see there's already some people who have put their questions in there, and then we can see them and address them. We'll try to get to as many as possible today. We have also received some questions in advance that I thought we would start with.

[Joakim Bage, executive]

So the first question was e-mailed into us. Can you give us an update on sales on the U.S. market for digital identity, which was mentioned as a prioritized market for future growth? Perhaps you want to start with that one, Patrick?

[Patrick Hoijer, executive]

Of course, yes, and thanks. I think it's a good question and also an area where we have also really stated that we are prioritizing and focusing on. I think to start with, the U.S. market has a great potential. The U.S. market is 25% of the global access market in the world, and it's a market which is quite mature when it comes to applying biometrics. What we have done during the quarter is that we have strengthened our organization. We have recruited local partner manager. And as you also could see in our previous communication is that we have signed a partnership with Flowscape in the market. We've also continued building our partnership with Genetec, a big North American access management company. And right now, we are really focusing in on building sales channels through system integrators. System integrator is the partners that are installing our services in the market, and they hold the key to the end customers in the market. And I think we're doing good progress, and I think it's good that we're doing this job thoroughly with the local organization as this will build scalability for the future.

[Joakim Bage, executive]

Okay. Great. Thank you. Second question that was e-mailed into us. When will you reach positive cash flow? Can you give us any guidance on if this last capital raise is enough to carry the company to profitability? Perhaps, Annika, you want to take a stab at that.

[Annika Freij, executive]

It depends partly on the -- when the mobile market will turn, which depends, of course, on what's happening in the world. So it's difficult to say. We have previously said that we believe in a churn in the mobile market in 2024. But at the same time, we are broadening our product portfolio so that we will be less dependent on the mobile industry.

[Joakim Bage, executive]

Okay. Let's take a question from the chat here from Nikola. Could you let us know what lead times look like within the Algo segment? And have they changed in any way lately?

[Patrick Hoijer, executive]

Yes. So it depends a little bit on which segment we're talking about. If we're talking about the Mobile segment, which is our biggest segment today. Most of the OEMs, the big mobile manufacturer, they released new models every year. And the lead time for these projects are 6 to 9 months. So we already know some of the projects we won for next year together with our partners. But there are also some, of course, we're working on together with our partners for the middle of the year next year. Beyond that, if we look at other segments like automotive, it's way longer lead times. And the projects are, of course, also much longer. Revenue comes during more years than maybe in more quick moving consumer electronics areas. So 6 to 9 months to many years depending on which product that is.

[Joakim Bage, executive]

Okay. We actually got a follow-up question on that since you mentioned the mobile, the automobile industry. What does the typical user case look like when it comes to automotive industry in cars? How would we use biometrics in the car in the future?

[Patrick Hoijer, executive]

I think it's actually a very interesting question. I had the chance to travel around in Asia during the quarter as well. And we met -- we were in China, for example. And if you walk around in China today, there are a bunch of different new car manufacturers, electrical car manufacturers in the market. And why that is interesting because that sparks innovation. I mean we can see a huge change overall in the car industry, where more and more is focusing in on software. And when software moves in and when the markets being innovated were disrupted, new user cases comes in as well. And with that, you also need to increase security. So we can see that everything from access, of course, to get into the car, to secure the [ your ] driver, to payments in the automotive area are our clear user cases, and what better way than biometrics in this case, to secure security and make it as convenient as possible for you as a driver.

[Joakim Bage, executive]

Okay. We -- I'm picking another question here then from Christer that came in. Cybersecurity key firm, Yubico , is merging with ACQ Bure SPAC in this buyout that's been communicated where they value Yubico at SEK 8.3 billion. Does Precise Biometrics support these kind of products, the security keys that Yubico, I guess, there are competitors. You can't comment specifically on them, but this market.

[Patrick Hoijer, executive]

Yes. Yubico is not a direct competitor to us. It's more a complementary product to what we have. But to start with answering your question, of course, this is -- I mean, we can also see an increased demand for services in this area, I mean, due to the overall increased security demand in the world. And with hardware keys, you can achieve that for your software, for your computers. And once again, I mean, what better way to handle that than through biometrics. We can also see that in correlation with this, Windows Hello and [ Sona ] are also using match on chip, which means that you -- when you log in, you do your fingerprint credential directly, which decreases the risk of being hacked. So overall, I mean, we see this as a very important area and -- but it is also a security area, which means that we usually are not allowed to tell which our customers are, unfortunately. But it's an important -- it's an area we are supporting as well.

[Joakim Bage, executive]

Right. So -- but Precise Biometrics' algorithms can support these kind of security keys?

[Patrick Hoijer, executive]

Absolutely.

[Joakim Bage, executive]

Yes. Okay. All right. Let's pick another question here from Nikola. Could you tell us anything about where you plan on placing your key focus now in the second half of the year?

[Patrick Hoijer, executive]

Yes. So I think as we communicated before, I mean, if we look at the two different business units we have, starting with Digital Identity. As I mentioned, our focus is very much now on building up sales channels in the U.S. market. So we are doing that together with the system integrators and the local team we have in the U.S. As stated, I think that's progressing well, and we see huge potential in that. On top of that, we also see an increasing annual recurring revenue as well in this segment, which is very important, giving us stable revenues for the future and something to grow on. On the Algo side, I mean, as stated, we are strong in the partnerships we have. We are waiting for the volumes to come back into the Mobile segment. Beyond that, we are also broadening our proposition into new verticals like we stated. So we're working into automotive, into other type of laptops, door keys and so on and beyond that.

[Joakim Bage, executive]

Okay. Another question that was e-mailed into us, perhaps this one is for Annika. It was mentioned that increased ARR within Digital Identity or that ARR has increased within Digital Identity. How much of your income going forward is going to be of the reoccurring kind?

[Annika Freij, executive]

We already today see a broadening of our products. So we have 30% from Digital Identity. And the ARR is increasing. So we do see that this is increasing going forward. But it's, of course, hard to predict how much of it.

[Joakim Bage, executive]

Yes. Okay. Let's see. We have a few more questions coming in here. A question from Pim. Why did Egis not participate in the share issue?

[Patrick Hoijer, executive]

Yes. I think to start with, that's, of course, an owner question, so I can't fully answer it. However, Egis is still a very active owner and a very important partner to Precise. Jimmy Hsu from Egis is also part of the Board. And I think that's clearly showing their continued support for Precise and the close collaboration we have. I think -- I mean, of course, consumer electronics and the macroeconomic development that we're seeing right now is, of course, also affecting Egis. But beyond that, I mean, I'm very happy to see that we have got new strong shareholders taking positions in Precise, like Maida Capital.

[Joakim Bage, executive]

Yes. That was one question that was e-mailed into us as well. Can you say something about Maida Capital?

[Patrick Hoijer, executive]

So once again, this is, of course, an owner's question, right? So it's more for them to answer it. I think Maida is a Swedish holding investment company. They hold a lot of interesting position in technical companies on the Swedish Stock Exchanges.

[Joakim Bage, executive]

Okay. Another question that was e-mailed into us. Do you collaborate with Qualcomm?

[Patrick Hoijer, executive]

Yes, we do. We have -- I mean we have, as we have communicated historically, a partnership with Qualcomm. We see it as one of our most important customers, so of course.

[Joakim Bage, executive]

Question from Oscar. Why don't we see more business in the U.S.? I guess the question is when will we see the sales effort that we have communicated or that you have communicated in regards with the share issue as well, when we're going to see that materialize?

[Patrick Hoijer, executive]

Yes. So what we've done in Precise is that we have built up a dedicated organization during the last 3 to 6 months towards the U.S. market. We also strengthened our organization during the quarter. And as stated, this is a step-by-step approach, right? So what we did is that we started building up a close collaboration with Genetec, an American access company. That is giving us a proof point in the market. It's a very important partnership. What we're doing right now is that we're building up partnership with the system integrators. And we're doing that with a major one in the market, and that is helping us to take the next step and build the scalable sales channels in the market. I also want to state that, I mean, overall, in the Digital Identity area, as we stated before, we are building up, increasing our annual recurring revenue already, although we haven't really seen the big uptick in sales effort in the U.S.

[Joakim Bage, executive]

Are the lead times as long in Digital Identity as they are in Algo?

[Patrick Hoijer, executive]

They are. They're not as long. They are. I mean, of course, when you're building up sales channels in the beginning, it takes a bit longer time than when you have the sales channel fully up and running. But with that said, maybe it's 3 to 6 months.

[Joakim Bage, executive]

Okay. All right. Another question coming in here from All In. Can you give examples of some new verticals besides automotive?

[Patrick Hoijer, executive]

So I think during the quarter, I mean we also talked about CanvasBio, where we're working in the laptop space together with them. We also have a good partnership when it comes to door locks, for example. I think, overall, if you look at the algorithm that Precise has developed, we have a unique position in the sense that we have developed very generic algorithms that can be applied in many different user cases. So I mean, we also talked about hardware keys and so on before in this discussion, right? We can apply these in all of these verticals. We're also working together with partners on other type of sensors and more exploratory to see where we can apply our world-leading competence in image processing.

[Joakim Bage, executive]

Okay. Maybe we have time for one more question here then. This is one question that was e-mailed into us. We've touched upon this earlier on, but might be a good question to round this off with, too. When will the market recover? And I guess they are asking about the mobile market. But you can address it from any point you would like.

[Patrick Hoijer, executive]

Yes, absolutely. So I mean, as we also communicated in the report, I mean, I was traveling around in Asia as well, which is a good thing to do because then you get sort of first discussions with partners and customers. The general expectation right now is end of 2023 and clear up the next year 2024. That's the expectations right now.

[Joakim Bage, executive]

Okay.

[Patrick Hoijer, executive]

And that, of course, means that royalties will increase again is the expectations.

[Joakim Bage, executive]

Right. And when will we see the new verticals, especially in the U.S., start to materialize? Would you like to clarify any further on that?

[Patrick Hoijer, executive]

No. So what we said is that we are now building strong sales channels in the U.S. market, building up scalability together with them. We don't give financial forecast fully when it will come. But this is a clear focus for us, and we see great potential in it.

[Joakim Bage, executive]

Okay. So last question to round this up then. What are you most excited about now going into the second half? Now you've had the share issue. There's been some organizational changes and so on. What are you looking forward to?

[Patrick Hoijer, executive]

Yes. I think Precise is in a really good position right now. I mean we have strengthened our financial position during the quarter, which means that we now as a company can focus really on commercialization on our partners, on our customers and building with that shareholder value in the long term.

[Joakim Bage, executive]

And the same question to Annika. Do you enjoy your work right now? Do you see where -- are we heading in the right direction?

[Annika Freij, executive]

Yes. And I also think that we've -- I mean, we've worked a lot on the costs in the organization and to have a more efficient organization. So I think we're well fit for the future.

[Joakim Bage, executive]

Great. Well, I think that's all the questions we have time for today. Thank you, Annika, and thank you, Patrick, for participating and for all of you who are watching this slide for tuning in. You can also e-mail your questions into the IR inbox, if we didn't have time to get to them today at [e-mail], and someone will get back to you as soon as possible. Also, please let us know how you like this new interactive video format of the Q&A. Until next time. Have a nice end of your summer from all of us here at Precise Biometrics.

[Patrick Hoijer, executive]

Thank you.

[Annika Freij, executive]

Thank you very much.