Good morning. Sorry, I need to take it in English. Sorry. We're online. So, good morning and good afternoon, good evening, wherever you are. Welcome to this Quarterly Two presentation. Some of us are physically here, and some of us are online, so, broadcasting there as well. Today's speaker, it's myself, Ulf Ritsvall, and also our CFO, Eirik Underthun. Today's agenda, six bullets, six points, very interesting. We do the first Q2 summary. It's of course online as well on our website. I'll make a short brief presentation of the business update. I have some interesting information on the business, on the current revenue pipeline, so, what we see going forward a bit further ahead.
We are coming back with a FAP30, as we have discussed, maybe in the same room. In February, we actually started a new development. I'll also update a few things on the distributor setup, how we actually work with them, and the updates. Eirik will present the key figures on Q2, and then we finishing up with a outlook and the question and answers. So for quarter two, I'm happy to present and proud to present the revenues going up quite a lot since Q2 last year, compared to that. It's up 150%, NOK 18.3 million.
And also, the very key parameters in this is, of course, the margin, the 57%, record high margin for the quarter. And it's improved, and you will see it's continuously improving, on this. Revenue comes from customers. We have said that we will add one customer per month continuously. This is actually increasing now, when we have placed the distributor setup, and we have so many different OEMs, so this will actually increase. You see, we are adding five new design wins in this quarter, and we will see that the path is actually increasing in speed. But we have 55 paying customers in our customer list today, and this will increase in going forward.
We also are very proud of the first delivery in our China ID product. If you remember, we announced a China ID certification in the beginning of this year. In Q2, we announced that the customer actually accept our products and have integrated our product, and we have now delivered the first initial products to the distribution network that then will be deployed on the market during Q3. This is a great opportunity for China, and I think we're about to take a leading position, both in India, we're on track of that, but also in China with this new product. Again, we have shipped the first products. They are being deployed as we speak in different OEMs.
We have also during the quarter two formed a strategic partnership, so to be able to strengthen our position in China, dealing directly with OEMs in China, dealing directly with Chinese banks, we have formed a joint venture with a Chinese partner that will actually look like a Chinese company in China. Very important in China to be able to do that. This is a joint venture streamlining to participate in the Tier 1 tenders in the banking industry, in the healthcare industry, and the other governmental industries, so this is the first step in taking a position in that. And we have with the China ID product enhanced also the gross margin of that specific product.
It's a system co-product, and the pricing towards a OEM, original equipment manufacturer, are a lot higher compared to a standalone sensor system, which is great, and that's one of the reason for the product mix being different in Q2 compared to Q1. That's why we have increased gross margin. In India, we are progressing as we speak. We're on our way to gaining the 30% market share, at least, that we are communicating six months ago. We are shipping products to the ACPL, which is our largest customer at today in India. They are selling readers to the Indian market, and they are also having a module that they're allowed to sell to third party.
In this spring, we announced that we had the first design win for the ACPL module to go into a third-party device. This third-party device can be a point of sale device, for example. There are a lot of different point of sale terminals in the world. A lot of them, of course, come from China, and we have, with ACPL module, we are the only current vendor that can supply a L1-certified module to a point of sale terminal, compared to any other vendor in biometrics. As you saw, we also introduced Bangladesh as a new market. We have a multi-year agreement with this partner. It's also similar use case as we see in India. It's a reader.
It's connected to the USB and to a PC or a governmental service. And we are seeing this five-year contract as at the 95 million NOK, which is, it's a great achievement because it's integrated in the Pakist- in the Indian-- sorry, Bangladeshi system. Today also, we actually added in the same part, we're actually adding a new country, Pakistan. They have a similar system as India. They have a biometric framework. They're about 150 million people. 90 million are enrolled in this database, and similar to the Indian system, they are actually... If you wanna have a cell phone, if you want a bank account, if you want, yeah, obtain electricity, and so on, you actually need to present your fingerprint.
This is the first volume order, came in today, actually, this morning. And it's on our reader, standalone reader only. It's, we call it Oyster III. It's an end product from us, but the client here, Digital Data Systems, which is an integrator, have integrated it into the Pakistani, same as Aadhaar system. This is called NADRA system, National Database and Registration Authority. So this is a new country. We will continue adding new countries, which is great. The volume order. The first order is not the biggest order we have seen, so we didn't mention the numbers, but it's a first start, which is good, opening up a new country. If you look at the current pipeline, what we see, this is...
If you look at twelve to eighteen months ahead, this is what we are looking at today. Talking about received orders, customer contracts, and what we hear our customers want in the volume, in the pipeline. This is what we see twelve to eighteen months out. Of course, this is with the current existing customers, and of course, we will add more customers. So this is the projected revenue pipeline. Again, it's a mix of actual contracts, it's a mix of purchase orders, and what the customers are communicating to us, how many volumes they want per year, for example. Moving on to the FAP30. Since Capital Markets Day, when we introduced the FAP30, it's a sensor, it's a larger sensor.
It's 60% larger than the FAP20. With the size, actually, the biometric performance will be better improved. We have seen a spot in the market where we believe we can be more attractive, we can maintain our high gross margin, and it's again targeting the governmental and healthcare market. It's especially in the U.S. and Africa. This is the key developments. We are continuing that. We have made what we call a tape-out, so it's actually in the factory right now. We are expecting feedback very soon, and we are expecting the first customers to touch the samples during quarter four. We keep the schedule as we communicated in Capital Markets Day. We believe we will have revenues on the FAP30 during twenty twenty-five.
Very happy to see that progress. If you look at distributors, what, how are we, what's our strategy? We have 55 design wins today, but mainly seven distributors are actually contributing to the revenue. We have, of course, one or two distributors in the Americas. We have one or two in Africa, EMEA. We have one or two here and one or two here in these regions. They will, of course, have the market knowledge because they're local. They have the established networks towards our key customers, and they have the relationship. When, for example, when we release a press release of a distributor picking up a volume order of $500,000, this is then back-to-back-...
communicated and agreed all the way from the, from the OEM, which will deliver the product to the government or to the customer, the integrator, the, for example, ACPL and us. There's a back-to-back agreement all the way. So when this order is placed to us, it will of course take some time when these are being deployed. In the early phase, it will take some longer time, I would say. It takes a while to be able to walk. I mean, you don't walk immediately. But once this is actually in a more mature market, this will be a rolling mechanism, and which is great for us. And we have the distributor, of course, for supply chain efficiency. These customers are normally...
Let's say that we have shipped fifty thousand to a distributor, fifty thousand units. The customers themselves, they pick up three thousand this Monday, five thousand this Friday, five hundred this time. So this is very complex, how the markets are actually working. That's why supply chain efficiency for us is key. We are of course limited in bandwidth, and we would like to focus on selling the world-class biometric sensors. They're also helping us with scalability, they're helping us with marketing in the different regions, the distributors. That's how we use them. Then I will hand over to Eirik for the Q2 financials. I will slide over.
Thank you, Ulf. I will now run you through the Q2 financials, and on this slide, you see the summary of the Q2 P&L. The revenues were NOK 18.3 million versus NOK 7.3 million in quarter 2 2023, and the adjusted gross margin was 57% in Q2 2024, compared to 17% last year. As you can see, we continue on delivering a good gross margin in this quarter, also at the same level as in that we presented in May.
Again, this is a result of the product mix that we had in the quarter, where we had a large part of the revenues coming from FAP20 sensors, but now also the new product in India, now in China, the China ID sensors, which also is a high margin product that also contributes to the higher level of gross margin. On operating expenses, we ended up with OpEx excluding options of NOK 17 million compared to 14.4 million in quarter two 2023. As earlier stated, we are now making increased efforts on sales and marketing, but also on R&D, as mentioned by Ulf on the FAP30 project, for example.
This is in line with our plan to increase sales and also to accelerate the R&D efforts. The adjusted EBITDA was negative NOK 6.7 million, compared to negative NOK 13.1 million in quarter last year. The improvement in EBITDA is coming majorly from the improvement in gross margin. On cash, we ended up with NOK 40.9 million of Norwegian kroner in cash at the end of this quarter, compared to NOK 54.6 million at the end of quarter one 2024. The Q2 operational cash flow was negative NOK 14 million. The main message from this quarter is that Next achieved a very high gross margin of 57%, which is at a record level for us.
And the cash flow was negatively affected by the higher AR balances that is resulting from a very large part of the sale was coming in in June, the month of June. And also, we got a higher revenue in this quarter, and that then becomes increased working capital as a result of that. But also, we are still working with our clients to secure the accounts receivable, and it's been a little bit slow also during this quarter. But we are working to kickstart that process, to get it more in a more normal operating flow, as Ulf mentioned. So in this graph, you see the revenues per quarter from Q1 2023 to Q2 2024.
For both revenues and gross margin, we have seen a very positive trend, and also this year, and we're expecting this to continue also in the second part of the year. With this, I turn over to Ulf again.
Thank you, Eirik. So, yes, as you can see, the graphs are going in the right direction. So what to expect? So, I'm changing to the outlook slide. Let me just... So I think I show you the graph, securing the revenue pipeline. As you see, that it's a quite substantial growth, and that's because of the work we have done the last two years, actually, signing up with different distributors. We have now, again, top seven distributors are actually placing orders as we coming along, and the revenues will actually come from those seven distributors. We don't foresee that we will add that many new distributors. We will, of course, add new customers, but they will actually be shipped through the distributors.
We have over 500 million NOK in the revenue pipeline, as we see, with the current baseline of the current customers that we're talking about, talking to, and that we are targeting. This is what we are seeing. Of course, the potential outside this depends on the effort we make as a sales and marketing, but also the market is out there. It's a huge market, especially China is a huge market. We are addressing parts of it, and of course, that's fantastic to do. We see this growth. Of course, if I speak a little bit about 2024, we will of course continue on that trend, as the graphs showed.
I mean, we will continue the growth of revenue, and securing the-- we are targeting the profitability in second half this year. So, this is what we are seeing, and we are guiding still on above 50% gross margin. And, we will maintain the OpEx based on that for the second half this year. So, I see China is ramping up, maybe slightly later compared to what we had anticipated, because it takes some time for them to grow. India is actually up and running. We will see more third parties. We didn't discuss so much about other customers in India, but we have seen. So also communicated Evolute, they are in the process of certification.
They plan to actually have it certified by end of Q2. They're still not certified, but once they are, their volumes will actually be on par with ACPL volume in revenue-wise. So significant growth in India coming in the next quarters. And India is very soon there on that. And if we talk about twenty twenty-four and twenty twenty-five, I believe right now, India is the largest revenue contributor. We saw 8 million NOK coming from China Q2, 8 million NOK order out of the 18 million. In Q3 and Q4 maybe we'll see the same split, maybe 50-50, but in twenty twenty-five, China will be the majority, above 50% of the revenue flow, as we've seen it right now.
That's how we see it.
Yes, that's a quick summary of where we are. I would like to have a lot of questions, if any. Any online, maybe?
First question. We have one online question here.
Yep.
This is referring to the breakthrough contract announced in May 2023 with the Asian distributor. What is the status of the breakthrough contract reported on May twenty-three, twenty twenty-three?
On the contract itself, it's we announced that we actually have a exclusivity of six different OEMs in that-- in China. Three of the OEMs in China have actually chosen to shut down their biometric track. One of them is now in housing, whatever. So we have three customers that we're working with together with the Asian distributor. We have got some feedback on our product, which we have tried to correct, and we are right now in the pipeline of actually slowly ramping up this contract. It's been a lot longer journey than anticipated. The anticipation was that it should start smoothly in Q1 Q2. So the Asian distributor have picked up a few units already in Q4 and Q1.
This stock will be most likely consumed in Q3, and we will see additional orders coming in that direction. If I just general terms on the market itself, the market is Chinese market, if you look at the China ID, which we have talked a lot about, last year, the China ID deliveries were about, in units, three hundred thousand units, about due to Chinese economy and others. If you look at the China ID this year, it's between somewhere 500-800 million, million units. Thousand units, sorry. And next year, we would see growth in that China ID business. So the market is there, it's just a matter of transforming Asian distributors' OEMs to actual revenues.
Okay, I have no more online questions, but I don't know what... Yeah, one moment. I will have to-
Yeah. Thank you. Question regarding or if you can say something about the cash balance that you are currently and the growth rate that you're having in terms of working capital, and how do you see remaining half year and also for next year? Thank you.
Maybe it's a Eirik question I can fill in later.
Yeah. Okay. Yeah, so normally we see payment terms of 30 and 60 days. And, as stated earlier, we are a little bit behind on collection of some of these customers. And this is a part of the effort to kickstart the market, as Ulf mentioned. Maybe he can speak a little bit more about that after I've commented. So, what we're seeing is that, okay, we have the payment terms, and that we expect to also bring down the inventory in the second half, as well as the accounts receivable balances being collected, but also new sales that will happen, which most of the sales in quarter three we expect to collect.
And then we will have a healthy collection which will improve on the operational cash flow. At the same time, as Ulf stated, we expect increased revenues. And with our gross margin at more than 50%, there is a certain element of self-financing of the working capital. So with this, we expect this to normalize in this quarter, and then next year we'll then have to see what kind of growth rate we can achieve with the current working capital, and that's something we will discuss with our board. Ulf, maybe you can add to this.
Yeah, I think, I tried to explain when I the distributor setup. So basically, the end market is there. There's a back-to-back agreements between the bank, OEM, our distributor, ACPL, our distributor, and us. But if the order is coming slightly later, then it will be delayed because the cash flow situation with the distributor. So distributors are running on very thin margins, so they need the system to actually work. And we see some delays in the beginning, but we believe, as Eirik said, in Q3 it will be normalized, 'cause we will have the market in a better shape in that case, and we will have more orders from this back-to-back.
Two follow-up questions. First, will... What kind of security do you have for your deliveries? Second is, will you have more cash exiting 2024 than at end of Q2?
Okay. So, we have an internal process to evaluate the customers in terms of how much we can sell on credit terms to individual customers. So some customers get credit terms and some do not, and those who do not, we sell on the letter of credit or prepayment basis. So that's the answer on that part. On the cash balance, we don't give any forecast on the cash balance. But I answered earlier how we are approaching the working capital and the cash situation. Maybe you have something to add, Ulf?
I think, yeah.
Okay.
You got this big delivery at the end of June, and part of it was delayed until July.
Yes.
How can you say anything, how much was delayed until July?
So in the Q1 report, we said we will break even in Q2. That order was enough to make us break even in Q2. So it's more than 30% of the actual order coming in. There was an 8 million NOK announced purchase order. If that would be 30% larger, we would be at the break even. So that's now coming into Q3.
Mm-hmm.
Yeah, yeah, yeah. We have a question here, or we have a question there?
We have a question here.
Yeah, yeah.
You have earlier mentioned that Next will reach break even during first half 2024. What are the reasons for the delay?
... so, it was, I think it was same question. So the reason was a late order coming in, into the, in late June, so we were not able to deliver the, actual numbers. Correct.
Yeah.
Yeah, microphone.
So, please tell us a little bit about the margin potential on FAP30, and you said you can expect some revenues already in 2025. And is it correct that all the development cost has been taken through the P&L in 2024, so it's included in the NOK 65 million operating cost?
Yes. The FAP30 development is included in the NOK 65 million OpEx cost. Yes.
Can you say something about how much it is on the 65? Is it 5 million? Is it 10 million?
It's a mix of internal resources, man-hours, and then it's the purchase of... it's called sheets from our where we produce the sensor. We have to do a lot of tests and buy these sheets, and then all kinds of different kind of materials that go into the prototypes, and so on. So, this is built into the cost in the budget and in the communicated operating expense for 2024.
Was this-
We already spent some money on that during this quarter, and that is kind of explaining that OpEx has increased a little bit relative to last year, for example.
Of course, very good that you have taken the development cost included in the run rate of the year. If you look at 2025, 2026, what could a sensor like FAP30 contribute with margins and potential sales?
I think margin is by far bigger, larger than the 50% we are selling at currently. Development cost or the actual sensor cost is, of course, slightly higher. If it's 60%, larger, then you can anticipate how much more cost there is in the product. However, in the market itself, a FAP30 benchmark figures of a price is probably around between $80 and $90. If you have the FAP20 , as we have communicated earlier, it's between $15 to $25, maybe, in the same. The FAP30 is then between $80 and $100, so significantly higher. However, the market is not as large as the FAP20 . FAP20 market is by far larger than the FAP30 .
But we believe we will have a very good business case on the FAP30 going forward, and how much it will contribute, it's very hard to say right now. It's... But I mean, we have an internal business case showing a positive business case already in 2025 for this product.
I have one more question from-
Yeah
... the audience. What's the potential of the Bangladesh and the market in Pakistan?
Yeah, Bangladesh, we have a communicated 95 million over five years, so I believe they would pick up accordingly. So now there are some political turbulence in Bangladesh, so we'll see how that will be resolved. Pakistan is by far smaller than Bangladesh. It's a new country, it's a new use case, and it's a new product from us. But I wouldn't calculate too much on Pakistan. It will be a good sale, but not like India or China, or not like Bangladesh.
Any more questions from the audience here? Yeah. Okay.
Follow up on the revenues in Q2. It's nice to see that Q2 improved quite a lot. In the Q1 presentation and at the outlook, you said you expected revenues to increase by at least 250% versus 2023. Is that still the case today? Which then should suggest that the revenues in Q3 and Q4 should reach at least NOK 90 million.
I believe 250% is still about what we will see, yeah.
Thank you.
Yeah, yeah. In growth.
Somebody over there, no? No more questions from the audience here. No more from... Yeah.
Okay.
Yep. Any last round of questions? No.
No. So for the online guest, I wish you a good day, and thank you very much for listening to the presentation. I'm here for the ones that are here for questions. Again, thank you very much. Goodbye.