Good morning and welcome to this webcast outlining NEXT Biometrics’ results for Q4 2021 and a summary of the full fiscal year. I am Peter Heuman, CEO, and joining me is our CFO, Eirik Underthun.
As a developing company now in the scale-up phase, we will begin with a review of our position at the end of Q4 2021. Our CFO, Eirik Underthun, will present the financial figures for the quarter.
At the end of Q4 2021, we can provide three of the four proof points required for long-term success. The first is design wins, which occur when customers decide to integrate a NEXT Biometrics sensor into their product.
Our 2021 portfolio includes a mix of small, medium, and large design wins, with several representing significant volume potential. The second proof point—and a key message of the Q4 report—is our achieved 47% gross margin. This performance significantly exceeds our previously guided blended gross margin target of 35%–40%.
This nearly 50% gross margin is a direct result of large shipments of the FAP20, our disruptive prime product. Customer satisfaction with our pricing, combined with this margin profile, demonstrates the substantial potential of this technology. We are now transitioning this metric from a theoretical target to a verified proof point.
We have successfully secured three of the four required proof points for NEXT Biometrics. The final element is revenue. While we are satisfied with our progress, there is a natural time lag between a design win and the receipt of recurring revenue.
This lag occurs because our sensors are components that customers must integrate into their own finished products. This process requires significant investment in time and capital for technical integration across software, hardware, mechanical, and electrical domains.
The integration process typically ranges from 9 to 24 months, particularly for PC manufacturers, depending on the maturity of the company, the product, and the market. This structural time lag explains the delay between the announcement of a design win and the receipt of purchase orders.
I frequently compare a design win to planting a seed; harvest is not immediate. Furthermore, when introducing a new product or market segment, the exact yield—or revenue volume—cannot be precisely determined until the harvest begins. Despite this delay, we remain focused on securing design wins as they are the prerequisite for future revenue.
With that, Andrea, I'm gonna talk a little bit more about these design wins, and on this slide I'm gonna try to provide you insight into 2 or 3 customers where we, from the dialogues we have with these customers, we estimate, based on these dialogues, that they have the potential to be great volume drivers for NEXT Biometrics out of the current design wins. If we look at the first customer that I wanted to spend a little bit more time on, it's the recently won India OEM. We have classified that as great potential, and they will enter the India market, the L-1 market, with our FAP20. I will outline this further in the coming, upcoming slides as well.
We recently secured an initial order of $2.2 million from a new customer. This represents a substantial commitment and demonstrates strong confidence in NEXT Biometrics’ technology.
Being able to enter the India market, both the tech giant and this India OEM, they have to run through a regulatory and government approvals. This is not a process that we at NEXT can control. We have good dialogues with these customers. We follow them through these regulatory and government processes, and we support them during the processes. That's also one of the reasons why it takes time for them. If you look at the tech giant, they have already built a product and a solution, but they are not authorized to sell this solution until they have the certification in this market, and exactly what day that will happen, we try to take all the input that our customers are aware of to understand when it's most likely.
Our Indian OEM and global technology partner estimate the market will transition in Q3 2022. However, since even our primary customers hold differing opinions on the exact timing, we remain cautious in providing specific volume guidance to shareholders. This variability explains why high-potential design wins do not immediately reflect in the P&L.
We recently received a follow-up order from NGRAVE, a startup that has launched a high-security cryptocurrency wallet. Despite a significant waiting list and a move into mass production, NGRAVE is managing third-party supply chain challenges unrelated to NEXT Biometrics.
We have received a follow-up order, illustrating the typical duration between a design win and the recognition of recurring revenue. We have identified three specific customers within our portfolio of 24 design wins that we believe possess significant volume potential.
Regarding NGRAVE, this was initially a small design win for us. However, through ongoing dialogue and a deeper understanding of their market strategy, we now estimate that this customer represents significant volume potential. NGRAVE, a startup in the high-security digital asset space, secured their design win by the end of 2020 with an initial order.
The market for NGRAVE centers on protecting cryptocurrency keys and passwords during digital asset trading. This is a rapidly expanding sector; in 2021 alone, the global user base grew by 200 million, bringing the total to 300 million unique users.
Many current cryptocurrency wallets are USB-based and rely on long passwords that are easily forgotten or vulnerable to hacking due to their computer integration. NGRAVE solves this with a cold wallet, which remains entirely offline and disconnected from a computer.
We believe NGRAVE has the potential to become a significant volume-driven customer for NEXT Biometrics, even if they do not fully achieve their projected market share. Consequently, we maintain a close strategic relationship with them as they scale.
Our partnership with a global technology leader follows the same strategic logic and is a core component of our new go-to-market strategy for India. Two years ago, NEXT Biometrics managed the government regulatory approval and product certification processes independently. These were historically long, costly, and resource-intensive operations.
India is undergoing a significant technology shift in government-related biometric certification. Currently, the market is authorized only for products with an L0 certificate. However, government bodies will soon mandate that all biometric products must be L1 certified for authorized sale.
All existing L0 devices must be replaced by higher-security L1-certified readers. Our customers and local teams anticipate the first L1 biometric readers will enter the market by the end of Q2 or early Q3 2022. Although authorities originally scheduled this launch for a year ago, COVID-19 related delays have shifted the timeline, and the exact launch date remains unconfirmed.
Historically, the L0 market has generated annual volumes of 3 to 6 million units. However, the mandatory shift to L1 certification creates a replacement demand for an additional 15 to 20 million devices. We have optimized our go-to-market strategy by securing partnerships with two of the five major players in India.
We have secured contractual agreements with two of the five major players in India and are actively pursuing partnerships with a third and fourth. This approach provides a significantly stronger market entry position than independent operations. By shipping our standard FAP20 sensor to these large-scale companies, we avoid direct exposure to numerous smaller local end-customers.
Eirik, we should go to the next slide, and I think that's gonna be the Q4 numbers. I'll leave it up to you, Eirik.
TIn Q4 2021, we achieved revenues of NOK 13.7 million, compared to NOK 8.8 million in Q4 2020. Quarterly revenues would have reached NOK 23.7 million if components had been available; this shortfall in PC sensor revenue is directly related to the global semiconductor component shortage.
The company recorded a NOK 6.3 million inventory write-down, predominantly related to payment card and first-generation sensor components. Adjusted OpEx remains stable at approximately NOK 15 million.
Working capital increased this quarter due to the ramp-up of FAP20 production and year-end module shipments, resulting in higher accounts receivable compared to Q3. Operational cash flow was negative NOK 12.4 million, which is lower than our adjusted EBITDA due to this working capital shift. Our primary financial achievements remain the record-high adjusted gross margin and consistent OpEx of approximately NOK 15 million.
Twelve months ago, we shared our transformation goals; today, we provide three tangible proof points of success. Operating costs and our 24 cumulative design wins are both tracking in line with targets. Most significantly, our adjusted gross margin is well above the communicated target, demonstrating that our technology is successfully disrupting the market.
The remaining piece is revenue. While we recognized NOK 13.7 million, our team had orders totaling NOK 24 million that were delayed solely by supply chain challenges. Combined with our high gross margins, this indicates we are approaching the break-even point once delivery constraints ease.
In addition, in Q4 , we delivered the highest quarterly FAP20 shipment levels in the company history. That's a good start. Like I said earlier, we established a new go-to-market model, but not only that, we also secured local partners according to that go-to-market model in India, one of the most promising biometric markets. Subsequent to Q4 , we announced the initial $2.2 million deal with the OEM in India. We also announced a new repeat purchase order from what we are very excited about, the NGRAVE crypto wallet. With that, I think we should go to the next slide, Andrea. I think we're gonna end up this session before we go to Q&A with one or two slides on the outlook and what you can expect.
In Q4, we delivered the highest quarterly FAP20 shipment levels in company history. We have also validated our new go-to-market model by securing local partners in India and announcing a $2.2 million initial deal. Furthermore, we secured a repeat purchase order for the NGRAVE crypto wallet.
NEXT Biometrics is now firmly in a scale-up phase. We will continue to target three new design wins per quarter, with a specific focus on maintaining a high ratio of FAP20 opportunities in our sales funnel. Our strong balance sheet and slim operations allow us to focus entirely on scaling revenue through both existing and new partnerships across diverse markets.
Higher revenue is the final piece of the puzzle. While the first three requirements have been addressed—including a resolved cost structure—improving gross margin naturally takes longer. With this report, that transformation is now complete and demonstrated.
We are diligently converting our current pool of design wins into recognized revenue. To provide a clear statement to our shareholders: had we been able to fulfill all current orders on hand, we would have booked NOK 25 million in revenue this quarter.
With a 40% gross margin, which is our communicated target level, NEXT Biometrics will reach break-even. I feel confident in the estimates derived from our dialogues with the 24 companies in our portfolio.
If we were to stop acquiring new customers today, our existing 24 design wins would be sufficient to reach our target levels over time. However, we intend to maintain our momentum by targeting three new design wins per quarter on an aggregated basis moving forward.
We are currently receiving questions in the meeting chat, and participants are encouraged to continue submitting them. Peter, given our record adjusted gross margin this quarter, is this a level that shareholders can expect to see sustained in the future?
As we are in a scale-up phase with relatively low revenue volumes, shareholders should expect some volatility in future quarters. Our gross margin remains highly dependent on the product mix—specifically the ratio of FAP20 sensors versus other standard sensors.
Congratulations on the initial $2.2 million purchase order with the Indian OEM. As we approach one year since signing the contract with the global tech giant, can you provide an update on that cooperation and your order expectations for the current year?
From an external perspective, the timeline for this partnership may seem extended, but we have already received an initial purchase order from this technology giant. They have developed a product specifically for the Indian biometric market, which represents our highest volume potential.
The technology giant is already established in India and is targeting a market share significantly higher than 1% to 2%. Given that the historical annual volume of L0 devices is 3 to 6 million units, even a minimal market capture provides substantial volume for NEXT Biometrics. We believe they will secure a much larger portion of the market.
It also different tenders where we have a dialogue
Thank you, Peter. There's another question about India. In the presentation, you state that the local partner holds the certificate. Does this represent a risk to NEXT?
Our partners hold the L1 certificate, allowing them to operate in the Indian market. Entrusting this to them reduces our risk compared to an independent entry, given the multi-dimensional complexities of the region. The primary risk would be if a partner were dissatisfied with our product performance.
For us, I think the upside is much, much larger than any risk, and we are also removing many other risks. When all come to play, I believe this is a much safer and much better way for us to go to market.
Very good. There's another India-related question, and that relates to the recently launched Oyster III product. Is Oyster III to be L1 certified?
At the moment, we are selling our PIV-certified FAP20 reader as a standard global product. We are not currently seeking independent government and regulatory approval for our own certificate. While we may consider this as the market develops, our current focus is partnering with companies that can drive the largest volumes most efficiently.
that reader could be sold in many other markets around the world.
I have another question that's about design wins. Peter, you're informing us that you're very focused on design wins. When can you describe the volumes that you're expecting from these different design wins?
Today, I have provided insight into the design wins with the highest estimated volume potential. These include the Indian OEM, the global technology giant, and NGRAVE.
Regarding exact timing, several factors of uncertainty remain outside our control. I will not provide a specific timeline for events influenced by external variables, as I want to ensure our shareholders have accurate expectations.
I think I will make a mistake if I said something outside of that and guided you as shareholders. I will be a little bit careful there so no one of us end up in the wrong corner.
We are reaching the end of our current inquiry list. We have a question regarding the NGRAVE product: Which specific sensor does NEXT Biometrics supply to them?
We supply a small-form-factor sensor for the back of the NGRAVE device. This is a FAP10 sensor, specifically our Access 200 model, which is one of the standard sensors we typically provide to the PC industry.
We have another question regarding our product line: Can you provide an update on the laptop market and the sensors we supply to the PC industry?
The current situation is mixed. On a positive note, our largest PC customer is performing well and increasing their order volume. However, they represent a significant portion of our backlog because we face challenges in absorbing certain components.
Both our largest PC customer and NEXT Biometrics are currently facing supply chain challenges. While underlying demand is very positive, securing specific certified chips for the SecureBio solution remains a hurdle. Despite these constraints, general demand from the PC industry remains strong.
The demand is very good from the PC industry.
Beyond the segments we have discussed, are there new markets you are evaluating, such as the automotive industry?
Our current design wins demonstrate that our technology is valid across many different segments. We are expanding beyond traditional biometrics like physical and logical access control. For example, a few years ago, the use of fingerprint sensors in Point-of-Sale (POS) terminals was not widely anticipated today, we are working with several providers in that space.
The adoption of biometric sensors in "cold" crypto wallets for protecting private keys is another emerging segment. Regarding the automotive industry, several brands have already integrated biometrics into specific vehicle lines. While competitors have entered this space with varying sensor sizes, we believe there is long-term potential for NEXT Biometrics in automotive applications.
Given our success with the FAP 20 form factor, are we evaluating the development of larger sensors, such as FAP 30, or other new product sizes?
Our current results provide strong proof points for our disruptive technology, which we believe is highly beneficial for both customers and shareholders. However, given our history and current resources, we must carefully evaluate the significant investments in competence, time, and capital required to develop further products. We are constantly assessing the trade-offs and opportunities for expansion within our specialized scale.
The market response to our FAP 20 sensor suggests an opportunity to expand into even larger sensors where market prices and margins are significantly higher. This represents a strategic trade-off regarding the timing of our roadmap.
We have received several inquiries regarding margins for individual products. We do not comment on specific product margins and instead communicate our overall quarterly gross margin. Peter, do you have any additional comments on this?
No.
There is a question about, can you say something more about the sales pipeline that you have at the moment?
We are guiding shareholders toward a target of three design wins per quarter across diverse segments. Our sales funnel currently includes products for mature markets—specifically customers with established historical sales volumes.
Securing a customer with an established sales history would provide a clearer baseline for volume projections. Currently, many of our design wins involve new products in emerging markets or regions requiring regulatory approvals, where no historical performance data exists.
We maintain a consistent target of three design wins per quarter. To secure this, we manage a sales funnel with a surplus of opportunities, which we use to guide and review our sales team's performance.
Now we are approaching the end of the questions from the meeting chat.
I would just check the email as well if there is any additional question. Peter, is there any way to accelerate sales and design wins beyond what you're already doing?
There is always room for improvement, particularly given our history. I am pleased to have Ulf Ritsvall on board; his extensive industry knowledge is a significant asset. As a smaller company, we can engage directly with partners or sell through distributors and online channels.
Our strategy is a balance of prioritizing actions that provide an immediate return on investment while securing long-term volumes. We are committed to resource discipline and avoiding initiatives that do not offer a clear advantage.
There is a new question, do you think you will break even during 2020?
2020 I can guarantee you we are not gonna reach break even because that's two years ago.
I guess the question was 2022.
It was 2022, sorry.
I am intentionally avoiding specific timing guidance. However, the calculation and proof points provided today demonstrate that our current design wins are sufficient to reach our targets. This assessment is based on our current timeframe and available cash reserves.
How is NEXT Biometrics addressing the challenges related to microchip shortages?
Our supply chain team is utilizing our network of suppliers, distributors, and industry contacts to manage component availability. We are also collaborating directly with our larger PC customers to jointly approach component suppliers. This coordinated strategy has already demonstrated positive results in securing necessary materials.
Addressing supply chain challenges as a mid-sized Scandinavian firm is difficult compared to larger volume players. However, our smaller volume requirements can also be an advantage. I am confident in our team's management of these relationships and our collaboration with customers to mitigate these effects.
In 2021, you stated that FAP 20 would be a disruptive force, replacing legacy technologies. Can you provide examples of design wins where customers chose NEXT Biometrics over capacitive or optical sensors?
Do you have some examples of design wins or customers that chose NEXT instead of other types of technology such as capacitive or optical sensors?
We stand by that claim. Approximately 50%–60% of our current design wins are for FAP 20, where customers recognize benefits in both price and form factor while maintaining or improving security. In many of these cases, we are directly replacing more expensive solutions with different form factors. Each FAP 20 design win further validates our technological trajectory.
Every additional design win, particularly for FAP 20, further validates our technology. We are satisfied with our current trajectory.
Yes, that's the end of the question and answer session. Thank you for participating.
Thank you very much for attending. If you have any further questions, you can feel free to reach out to me or Eirik after the meeting. All right, thank you.