Good morning, good afternoon, good evening, wherever you are. A warm welcome to this Quarter One earnings call with NEXT Biometrics. We are online, and today we have today's speakers. It's me, Ulf Ritsvall, CEO of NEXT Biometrics, and we have Eirik Underthun, CFO of NEXT Biometrics. We will share the Q1 report and, as well as Q1 highlights. We will go through the Q1 financial numbers. We will continue the business and market updates. We'll share a bit of forward-looking outlook, and we will end this session with a Q&A. Important thing here is to, you have in your application, there's a Q&A link where you can ask questions to us already now. We will bring that on in the end of this, in the end of this session. Let's move over to the highlights of Q1.
Already in early April, we announced our Q1 revenues did not reach our targeted value. However, I am happy to see our improved revenue pipeline over the quarter. Up until now, we have added new orders, and we have added long-term revenue contracts. We are proud to have the adjusted gross margin still high, 52%, even if it was down from Q1 2024. We maintain the high gross margin as we have communicated and guided on. This, we see, will continue throughout the next quarters. I am happy to see that we have signed a new multi-year MOU valued at NOK 30 million. It is a contract that will start delivering our enhanced F520 product during the fall and will continue for 18 months of deliveries for those NOK 30 million. It is an MOU. The purchase orders will arise in the fall.
Happy to announce, you know that we are measuring the design wins. We have normally a target of doing three design wins every quarter. Actually, this quarter was a good quarter when it comes to design wins, and we added six new design wins. We have actually what's worth to mention, maybe you remember we added the touchpad segment as a complement to our fingerprint sensing technology. And we actually have the first design win for the touchpad segment. It's a keyboard that will be launched during the first half of this year. We will see more orders coming in on the touchpad segment, which is fantastic to see. We also have a FAP20 sensor that will be used in a certification solution in a tablet for India's largest banks. That's two examples of our design wins. We have also design wins with our standard Oyster III USB reader.
Maybe one of the major announcements came actually yesterday. After the Q1 closing, we signed an agreement and at the same time received a purchase order at a value of NOK 55 million-NOK 107 million. That is with ACPL in this case. I will have a more detailed slide on this deal later on, but it is a fantastic milestone for us. It is, I believe, one of the biggest purchase orders in NEXT history, actually, which is well achieved by the team in NEXT Biometrics. We can move to the next slide, and I will hand over to Eirik to do the Q1 financial summary. You can take the next slide, please.
Next slide, please. Thank you, Ulf. I will now run you through the Q1 financial highlights. The revenues were NOK 6.9 million versus NOK 12.8 million in Q1 2024.
The revenues were impacted by the pause in the India market, as well as slowness in China that has been mentioned by Ulf before. The adjusted gross margin was 52% in Q1 2025 compared to 56% in Q1 2024. We had operating expenses or adjusted operating expenses, as we reported, of NOK 17.3 million compared to NOK 16.3 million in Q1 2024. The quarterly adjusted OpEx is increased in line with the plan to increase sales and R&D efforts. The adjusted EBITDA was negative NOK 13.7 million compared to negative NOK 9.1 million in Q1 2024. The reduction in the adjusted EBITDA is mainly due to the reduced revenues we saw in this quarter. We ended up with cash of NOK 39.9 million compared to NOK 62.9 million at the end of Q4 2024.
The Q1 operational cash flow was negative due to the operating losses seen in the quarter triggered by the lower revenues, as well as negative contribution from working capital. The main message in this quarter is that the India pause and the China market slowness is still impacting quarterly revenues, as we already reported to the market in the middle of April. Moreover, Next has increased its traction on accounts receivable collection during this quarter and calculated. With this, I turn over to Ulf again.
Thank you, Eirik. Please move to the next slide. Okay, I will continue with the business and market updates. I have a few slides on what's going on on the biometric markets. You can move to the next slide, please. I would say I focus on two different regions as we have the strongest presence in those two markets, and it's China and it's India. China market recovery is still pending. The domestic China market is we have shipped a limited number of units to during the Q1. We see somewhat recovering, and we see anticipations that they actually start to deliver. Mainly, actually, the Chinese manufacturers are looking outside China. For the African market, they look at the Indian market, they look at the U.S. market to actually see where the electronic manufacturing will be able to deploy their products.
Instead of domestic China, they're looking outside China. Luckily, it's basically the same OEMs, the same targeted customers that we are working with. It is also so that shifting their focus from domestic China to Africa products requires some tuning and tweaking. Basically, the result of the downturn in China gives them the opportunity to look outside and compete with other vendors that are already present in Africa. We actually have ongoing collaborations. We have announced a few. As we have said, we have 70 design wins. Some of them are actually the OEMs where they already have designed in the fingerprint sensor into their Chinese OEM devices. We actually expect in the near-term future that these will actually be deployed on the market.
As Eirik said, the focus is also on collecting the AR that is in the channel where we have the products in the channel. We are also expecting actually stimulations in the Chinese economy for the domestic market. We believe and we see that the Chinese economy and the need for biometric fingerprint authentication is actually increasing this year compared to 2024. India, we have talked a lot about. We had a pause in the L1 program for all vendors basically from November to during Q1. We announced in the beginning of March that our product made by, refined by ACPL, were L1 certified again in early March. We right now see the ramp-up again of the L1 products. What we also communicated previously was that we will see that fewer vendors will be able to certify in the Indian Aadhaar system.
That's exactly what's the case right now. We are anticipating an increased market share in India, supported by the contract we just signed yesterday. We see that there's a strong demand of biometric upgrades in the market. However, also very important, the Aadhaar program is actually expanding. This is mid to long-term very important for NEXT Biometrics and for the Indian population as well as the biometric authentication. We are seeing that the Aadhaar system is opening up for third-party applications. Today, the L1 is closed for the banking applications and the social welfare and a few others. Now, the Indian government would like to at least double the amount of Aadhaar interactions. They are doing that by enabling third-party applications using the Aadhaar ecosystem. That will, of course, also boost the volumes in India. You will see new types of applications in India.
You will see new hardware designs. You will see new IDs in how you can actually use the Aadhaar authentication system by verifying different identities. That is yet to come, which is fantastic news for the biometric industry and also for NEXT Biometrics. If we move over to the next slide showing what we actually announced yesterday, we announced a longer-term strategic partnership with ACPL. That is demonstrating the increased demand they see and their market share. It also shows their global expansion deployment of sensors. They are not only looking at India. They are also targeting Mexico, Morocco, South Africa, and more, which is great for NEXT Biometrics sensors to be deployed globally. We, of course, have the proven technology in this. We have the compliance in the different applications in Aadhaar L1. We have mostly compliant and FBI and so on.
This contract is valued at NOK 55 million to NOK 107 million. And many of you may think, "Oh, that's a big span." Yes, it is. There are two products in this contract. There is a standard FAP 20 product that we already ship today. And then, as we announced in last year, October, we are building a product jointly with ACPL, which will increase our average selling price, maintain our gross margins on the product. And this product is soon to be launched in NEXT Biometrics and available for the public. But this product has a lot higher ASP. It is targeted for different applications such as point-of-sales terminals and more integrated products. It is a match-on-chip product, including an MCU compared to the standalone FAP20. So we are increasing the ASP, and this product will be available for shipments during the second half of this year.
This significant order, of course, increases the complete confidence in NEXT Biometrics product and also the outlook, the revenue outlook for the second half and also 2026, because these volumes, this NOK 55 million to NOK 107 million , will be delivered during first deliveries in Q2 and onwards in 2025 and 2026. It is a major milestone for NEXT Biometrics taking this order and this agreement. We can move to the next slide, please. I would like to mention the FAP30 as well in this call. The progress is fantastic. We have samples that customers have communicated previously. It is a product that is more sophisticated than the FAP20. It serves a different market and different use cases compared to FAP20. It is not a replacement for FAP20. We actually see the two products in parallel. We maintain the communication that we will have product revenues during 2025.
We are in various discussions with customers and partners, and we actually see stronger interest than we anticipated for our FAP30. As I explained in the Q4 earnings call, the market is kind of smaller than the FAP20, but the ASP and our gross margins are by far higher than the FAP20. The market as such is a high-end market for the government ID and healthcare voting system and others. It is typically use cases for the FAP30. Customers are primarily in the Western market and enhancing our geographical diversification. The market launch of the product itself is during the first half. Q2 is only remaining in the first half, so during Q2. We will get back to you on expected high-value contracts and key customers on this. Okay, you can go to the next slide.
Just, of course, a question that many of you have is, of course, our cash flow. As Eirik mentioned, we have improved the receivables collections during Q1. We are targeting significantly growth in the cash inflow in Q2, Q3. We will actually have more cash in Q2 compared to Q1. As Eirik mentioned, we are actually enhancing our trade terms towards our customers and distributors. We are even getting some of them upfront payment, partial upfront payment of the purchase orders, which is enhancing our cash flow in the company. Our FAP30 is positioned in a different way. It's more for the Western customers, meaning standard, more reliable payment terms. I would say the AR situation is definitely under control and solved. By Q1 2026, those will be a memory and gone.
Yes, as we said, we will go into a summary and outlook. You can take the next slide, please. If there's any question, of course, please raise it. We move to the summary and outlook. We had a very low revenue in Q1, as you saw, due to the Indian pause that, of course, shifted our revenue and revenue pipeline basically one quarter. Therefore, we reduced the guidance of the full year. I would say we still have an upside of this. The revenue pipeline is well above, as communicated previously. We have more than NOK 300 million per year in full swing. That, of course, will be starting ramping. The majority of the revenue will be done in H2.
As we have explained, we have a higher ASP product in the intake L1 product, and we have FAP30, which is selling at a higher average selling price. We are also expecting Q2, Q3 for the combined revenue being between NOK 60 million and NOK 70 million, with a slow ramp-up during Q2 with the Indian pause in mind. That is how we project the revenue going forward. As I said, continue to focus on strong FAP20. It is a unique product. It has its competitive advantages. We are now transforming this 70 design wins to purchase orders and revenue. The primary growth markets are India and China, as communicated previously. Of course, our short-term goal is, of course, to achieve a break-even quarter with the strong FAP20 sales.
As icing on the cake, I would say the FAP30 is expected to drive revenue growth towards the second half of 2025 and even more in 2026. We have a strong security market out there. We have very good requirements in this field, meaning we have greater potentials in the FAP30 markets. Efficient scaling of this should, of course, lead to even stronger revenue growth for NEXT Biometrics. As I said, the demand of FAP30 sensors is actually much greater than the original forecast and business case we actually did. I am looking forward to drive this expansion further in 2025 and 2026. It will be a fantastic journey. I think with this, I am opening up for Q&A. Do we have any questions out there?
Yes, we have a few questions.
As Ulf mentioned, it's still possible to write questions in the Q&A chat of this call. Please write a question if you have any. One of the questions says, "Enhanced credit terms now in place supporting Next Growth Strategy." They want to know what this means. I think Ulf mentioned this. What we are talking about is the credit terms we're setting towards our customers and distributors. As I mentioned earlier, also, we're working on working capital financing options. We're looking into how we can finance our receivables and various kinds of other working capital financing options. Right now, we don't have anything to announce on that point. We're not able to provide the detailed terms and conditions that we're having in our contracts. That's private information between our customers and ourselves.
We said earlier that normally we are now having 30-60 days credit terms. In some instances, we also have prepayments in our agreements and purchase orders with our customers. There is a question on the new order, Ulf. The first question is, "Have the shipments started?" This is about the contract that we announced yesterday, and the shipments have not started. The question, Ulf, is, "What is the contract period? How long is this contract lasting? What are the payment terms?"
Okay, thank you for the question. The deliveries have not yet started. It will start in Q2. They will pick up the goods very soon during May and June. The payment terms, it is under NDA.
I will say that we have actually one portion of the actual purchase order is with the distributor, and we have an upfront partial upfront payment on this, which enhances our cash flow in this. Of course, we have, yeah, the cash upfront payment and then credits on sort of fixed days of that. A lot more favorable than compared to previously. We also see that the channel is shrinking, and we will actually get paid in a faster way compared to previously when we actually built up this channel in India. Yeah, and let's go on some more questions relating to the same contract. One is, I will answer that one. Next, guesstimate for sales value. We have provided the interval of NOK 55 million to NOK 107 million. This is depending on the mix of products that the customer is ordering.
It is both the existing FAP20 product, and there is this newer advanced product that is also based on the FAP20. Are we able to comment on that, really, Ulf? I mean, we provide a wider range because we do not know the exact mix that we are going to have here, right?
No, that is correct. We believe that towards the end of the purchase order, the majority will be the more advanced product. In the beginning, as the product is not in mass production yet, for Q2 it will be FAP20 sensors only. Then it will gradually move over to this more advanced product during fall. In 2026, we believe that the majority of the products will be based out of the more advanced product. Sorry, I forgot to answer.
The contract is, we believe that the purchase orders will be over and out in the end of 2026. All those volumes and revenues will be accounted for during 2025, the remaining, and 2026.
There's another question relating to the new product. Are we in a position to explain more about the details of this product, Ulf, or will that be announced later?
I can try to explain it a bit. There will be a more public announcement on the website with pictures, images, and unique selling points and so on. It is basically one more advanced product. We had a product; you can compare it with a product that we sold to Fujitsu previously. It was a match-on-chip product. It was called Next Secure Bio. It is actually the sensor itself and an MCU where you actually store the biometric data encrypted.
Those two will then be called a match-on-chip. There is a secure communication between the MCU and the sensor itself. In this case, we will actually have a single board type of solution, more integrated and more suitable for higher integration products like the point-of-sales terminals. They have certain size requirements. With this product, we actually make a slimmer product compared to what is existing. This will then be able to integrate into a point-of-sales terminal, for example. It can also go into a reader, and it can also go in other various products. There will be a public announcement on the product a bit later this quarter. There will be more information about it at that time.
Thank you, Ulf. That concludes the Q&A session. Please, you can call Ulf or myself, Eirik, on the email or a phone call.
We can talk, and we can answer any other questions you may have. Thank you.
Thank you, and have a good day.