Precise Biometrics AB

STO:PREC

Earnings Call Transcript 2023-Q3

[Joakim Bage, executive]

All right. Hello. It's 10 a.m. on November 10, here in Sweden. Welcome to this interactive Q&A with Precise Biometrics, which released its earnings report for Q3 2023 today. My name is Joakim Bage, and I am the moderator for this Q&A. Today, I'm in Stockholm, and I'm joined by link from HQ and I am joined by CEO, Joakim Nydemark and CFO, Annika Freij. How are thing with you?

[Joakim Nydemark, executive]

It's perfect today. So happy to be here for actually the first question time here as CEO so happy to be here.

[Joakim Bage, executive]

Yes. Things are good with you too, Annika?

[Annika Freij, executive]

Absolutely. Thank you.

[Joakim Bage, executive]

Great. Well, so just quickly on how this works for those of you who listen in live, you can enter your questions in the chat box here in the interactive video player by clicking on the chat icon below the player and then we can see them and address them. We'll try to get to as many as possible.

I have also received some questions here in advance that I thought I would like to start with.

[Joakim Bage, executive]

So first question was e-mailed into us. You have hired 3 new members to the management team. One of them was previously a consultant. Why is it better to hire people on full time and keep them as consultants?

[Joakim Nydemark, executive]

Yes. So in a role, I think that consultants are great contribution for -- where we have a lot of things to do. We may have peaks in our development, and we want to cut that peak, and then we can use consultant for that or if it's a very specific expertise. But in general, I think that employees is, especially for strategic roles, I think it's very important that they are fully committed to the company and part of the crew as employee.

When it comes to Sarandis, as the new CCO, I'm really delighted to have Sarandis onboard as an employee and also maybe more importantly, in the role at CCO. Sarandis has, I mean, many, many years' experience from sales and business development and good insights in technology. And the fact that he has also been in the company here for some years, is a great contribution. So he will be -- have a flying start, I can say.

[Joakim Bage, executive]

All right. So another question here in no particular order from the Investor Relations inbox. Can you please comment on the market situation in China? What is going on there from your perspective?

[Joakim Nydemark, executive]

I mean China is, as the rest of the world, facing sort of consolidation and problems due to this macroeconomic situation and volumes are down. I have been traveling a lot in China and Taiwan during both the summer but also now in the past months and meeting a lot of companies, a lot of customers in different segments, including mobile phones, smartphones -- sorry smart locks and automotive.

And I think that looking at the different segments, I would say that the mobile phone segment is starting to pick up. I see sort of the smart lock market is definitely on an increasing path with our current customer like Betterlife in a good position. So we see sort of a good opportunity in that segment. And also automotive -- I mean, to no surprise for anyone, I think the automotive industry is changing a lot. And I see that there are a lot of opportunities coming up related to automotive and electric vehicles in general.

With that said, I mean, it's -- the Chinese market is a market where EVs are exploding at the moment. So we'll see what happens there. But for sure, I can see good opportunity in general coming from China here moving forward.

[Joakim Bage, executive]

Okay. Great. We are starting to see some questions come in here from the chat. So I'll get to one of those. Regarding the Algo segment, has the appetite for investments and partnerships from your clients, partners and changed during the quarter?

[Joakim Nydemark, executive]

The engagement from partners has not changed. So I mean, we are continuously working with partners and distributors, if we look at the digital identity part. So in general, I would say that we have a strong cooperation with our current partners. And I see that we continue to build sort of that cooperation here moving forward.

When it comes to -- and that's for the biometric technologies. So coming -- looking at the digital identity, I see that we also there, continue to grow with new customers but also we are continuing to explore opportunities together with the current partners as well as finding new ones.

[Joakim Bage, executive]

All right. We'll get to one of the questions that was e-mailed into us now. When will you reach positive cash flow? Can you give any more guidance on what the factors are that will affect when you reach profitability? Perhaps this one is for Annika.

[Annika Freij, executive]

Yes. I mean we don't give forecasts, as you know. But we have worked with the cost structure. So we are in a good position going forward. And we do add new customers all the time, but we have suffered because we have had low royalties to the mobile industry because they have had so low sales volumes.

But as soon as the mobile industry turns and their sales volumes go up, our royalties go up as well. And our royalties have very good margins because it doesn't really add any cost. So we think that the mobile industry market will change and go up during 2024.

[Joakim Bage, executive]

Okay. Let's get to another question -- another question from the chat here. Could you share some more insights regarding your growth prospects within the automotive industry and your commercialization efforts in that area?

[Joakim Nydemark, executive]

So in general, I think -- as mentioned just before, I think the automotive industry is under a lot of change. And I think that opens up opportunities for biometric solutions in general. I -- we have this close cooperation with Infineon that we are now extending as well with a lot of different activities, I would say.

So we were down in Munich. We were presenting our offering and educating their partner network in biometrics and our specific solution for fingerprint. We will train their sales personnel moving forward. And we have also a cooperation when it comes to marketing activities or visiting, for instance, trade shows moving forward that I think will bring new opportunities and leads into this business.

So in general, I mean, Infineon is providing their sensors to typically Tier 1 or Tier 2s and then their customers are the automotive suppliers. And there are concrete projects ongoing, and I hope that we will see commercialization of that here in the very near future.

[Joakim Bage, executive]

Okay. We have 2 follow-up questions here. We'll start with the latest one then, since we're talking about Infineon here. The Infineon partnership, is it only for vehicles? Or could it be extended to other areas -- electronic areas as well as -- such as smart cards?

[Joakim Nydemark, executive]

It could certainly be extended to other areas. Our focus right now is in automotive because that's where we have come the furthest in this discussion. But Infineon is a big company. And I think we are a very trusted partner to them in this space. And I could conclude that we were the only -- one of the few partners in general that got the opportunity to present at this event down in Germany and the only one in biometrics. So I think there are definitely opportunities that come our way, given sort of the broad business that Infineon has.

[Joakim Bage, executive]

Okay. We have a follow-up question for Annika too on the cash flow and when you reach positive results, you mentioned that 2024 is looking brighter. Do you think that this quarter marks an end to negative growth is one question that came in here on the chat.

[Annika Freij, executive]

Yes. Again, we don't give financial forecasts, but we -- I think what we think right now is that the royalties will go up in 2024 -- in the beginning of 2024. It's a little bit hard to predict, I would say, the quarter 4. So it's hard to comment on.

[Joakim Bage, executive]

Yes. Let's get to another question here. Can you give -- this came in on the chat. Can you give some more update on specific sales efforts for unique on the U.S. market?

[Joakim Nydemark, executive]

Yes. So a lot of activities in the U.S. So we have, during the summer, hired one more sales manager, and he is definitely now up to speed. We continue to work on the Genetec and Flowscape corporations or partnerships. And the way that works is that, for instance, Genetec, they have -- it's a big company, so they have a lot of entities all around U.S.

And what we are doing now is that we are on a journey here where we approach their network and make sure that they have sort of all the sales, material demos and all the tools that is needed to sell and market sort of this offering. And we work together with them also to approach end customers.

I think I see a good sort of leads and prospects coming together. We have worked hard to build that up, and there are a lot of very good discussions in terms of potential business. So I'm very, very positive about that. We also have marketing activities. ISC, is the International Security Conference, here is coming up next week. So we will have a booth there.

Genetec will be there, and we will show demos that have a lot of meetings lined up so very excited about that as well. So in general, I think making progress then. We need to realize also that things take a little time. So -- but I think what I'm focusing on now is to make sure that we accelerate the efforts as much as possible and get sort of good traction. And we will do that on a number of different tracks as just mentioned.

We also have this new CMO coming in. So there are a lot of ideas how we could sort of work together with him as well to address sort of both the European and the U.S. markets with the DI offering.

[Joakim Bage, executive]

Okay. We get some more questions here on the numbers for the quarter. Can you say anything more about the growth numbers in digital identity in the U.S. to provide any more clarification on that?

[Joakim Nydemark, executive]

So I mean we have shown the numbers that we can show. So I mean -- again, there is only one way that is, I mean, forward, upwards. We want to grow this, and we want to come to profitability, and we will do everything in our power to make that happen as soon as possible.

[Joakim Bage, executive]

Okay. One more question here on -- you have mentioned before that there is -- and it's mentioned in the report as well that there is a cost reduction program ongoing. What are you doing specifically now to improve the margins?

[Joakim Nydemark, executive]

I mean the cost reduction has been something that we have worked on during all of this year. And I think that we are at a level now where we are in a good position. We have reduced our cost base and the hiring we have been doing here during the last quarter that has been communicated, strengthened the management team and a few others.

It's a lot related to strengthening our sales and commercial power in the company. But in general, there is no big increase in costs coming with that because it's a restructuring of resources and also, for instance, our marketing director left. So we are replacing her. So all in all, I think we are in a good shape. So cost wise, we are where we want to be. And now it's a matter of growing the business and increasing revenue to come to profitability.

[Joakim Bage, executive]

Yes. And on that note, we are coming to an end. I know both of you have a lot of meetings today that you need to get to. But we have one question here that's a little bit more about the rest of the year. What do you look most forward to the rest of the year and what are your ambitions for 2024?

[Joakim Nydemark, executive]

Yes. I would say pretty much what I just stated, I think that -- I mean, we have good technology. There are a few things that remains -- I mean, as I think a lot of people know, we are a technology company, so technology needs continuous development.

But -- I mean, looking at the Algo, it's very mature, and we are out there selling that hard. If we look at DI, there are a few things that we can sell it for sure already, and we are. But what I would like to do is to spend some development for to optimize sort of the delivery and installation process, so we can scale this even faster and better.

I see the possibilities and improvement potential in some areas there where that could sort of accelerate the growth here moving forward so that I will spend time on. And then, of course, to have -- or as we have communicated, we see some changes now in the market in general, and volume in certain key segments starting to increase [ instead of ] decrease. And with help of that new customers and this new sort of sales power coming into the company, I think we are in a good position.

[Joakim Bage, executive]

Okay. Well, it sounds like you are busy and doing great work. But I think, unfortunately, that's all the time we have for questions today. Thank you, Annika, and thank you, Joakim, for participating, and thank you for all of those of you who are listening into this live.

And for those of you who are watching this or listening to this afterwards, you can always e-mail your questions into the Investor Relations inbox at [e-mail], and someone will get back to you as soon as possible. Until next time, have a nice day.