Good day and thank you for standing by. Welcome to the Q3 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Alternatively, you may submit your question via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Stefan Pettersson, Head of Investor Relations. Please go ahead.
Thank you, Sharon. Good morning, everyone, and welcome to FPC's earnings call following the release of our Q3 report this morning. We'll start with a presentation of the report by our CEO, Adam Philpott, followed by our CFO, Fredrik Hedlund. If you're following the conference call on the web, you can post questions throughout the call. With that, let me now hand over to our CEO, Adam Philpott.
Wonderful. Thank you very much, Stefan. Thank you, Sharon. Great to be here with everybody today. Good morning. Let me jump into the agenda straight away. As always, quite a jam-packed agenda for you. I'll kick off by giving a summary of some of the results from Q3. Once again, we'll talk about the transformation of the company. As you all know, playing along for a couple of years now, four key aspects to the transformation plan. Number one, asset monetization. Number two, core growth. Number three, new growth. Number four, business modernization. We'll dig into all of those in a little more detail. I'll hand to Fredrik Hedlund for some key figures. Before I close off, talking a little more about the longer-term future and where we see growth ahead of us also. Of course, we'll close with some Q&A.
As we look at the executive summary, I want to start by talking about cash burn. I know that's a key item for the company and for our shareholders and has been for some time. I want to start straight away with that, talking about the continued progress that we've made. You can see from the table on the right, so that it will come up in just a moment, that we've made great progress in our EBITDA moving towards a positive EBITDA through the transformation plan that we put in place. That continues to be a key focus of ours is reducing the cash burn and getting to a place where we have positive EBITDA. That's the most important thing that drives us on a daily basis. If you look at some of the things that we're doing in order to achieve that, that's where the transformation plan comes in.
Asset monetization is an ongoing part of our revenue mix. When I joined in 2023, I talked about how diversifying our revenue streams, opening up capabilities and assets that we have to offer new types of income as well. I think we've seen a good track record in asset monetization. It doesn't mean these are like big deals. We don't get them every single quarter, but we certainly have a good track record and credibility in bringing different types of monetization opportunities to the table. That's an important part of our ongoing revenue mix. We obviously did the Egis deal in Q3. After Q3, early in Q4, we announced the PixArt deal. I won't spend time on that today. We'll talk about that in more detail at a future call. We think about core revenue growth. Super important. Good continued performance for our core revenue as well.
You can see up 35% year-on-year just for Q3. Year to date, up even higher. Our business is lumpy, and we get different deals coming in at different times. Like any company, big deals can make a big difference, whether they're core business, whether they're new business, or whether they're asset monetization. They make a difference. We're really pleased with the growth that we're seeing on our top line as well, and also pleased with the gross margin. Of course, when we bring asset monetization deals in, they bring very, very strong profitability. Even if you back those out and look at the overall business performance, very strong gross margins. I'm really pleased at how the team is focused on adding value to customers, but getting value in return based on the premium products that we're able to offer.
A really important part, and we're going to spend some time on this on the call today, in our core business is also how we're evolving. We've talked a lot about passwords. We've talked a lot about the identity market, and we'll continue to do that because we see a very, very rich market for us to sell into. There's also lots of opportunities in our core business as a part of that broader market. What the team have done a fantastic job on is, as we've moved to a high-value market, what we've also done is move up the value chain. Moving beyond sensors into integrated systems, which offer much better top-line revenues, 3x to the ASP, but also offer our customers the opportunity to simplify their costs, simplify their products, and accelerate their product development. [Audio distortion] It's a real win between us and our customers.
AllKey is going to be a really important part of our revenue mix moving forward as customers start to adopt that technology, build it into their products, and then take those products to market. We'll spend a bit of time on AllKey today as well. As we think about new growth, this is us really moving into some new market segments in software, particularly in cloud. We announced our Anonybit partnership towards the end of last year, and since then, been co-developing products with Anonybit too, manifesting in Q3 in the launch of a Microsoft Entra product. That's Microsoft's capability for orchestrating identity and access management. We can now dovetail into that. There's many, many customers who use that product. That opens up quite a big new market for us. Accordingly, what we've also done is invest in some new sales capacity.
Two dedicated sellers focused on the identity market in the U.S. in addition to our existing sales organization as we now pivot from developing products to then taking that product to market. A really important step in that new growth also. Finally, business modernization is about continuing to have the operational discipline that we put in place a couple of years ago to ensure that our cost base is at the right level, the right level to reflect the profit we're making, but also the right level to drive future growth as well. At the same time, have the right operating model in place so that with that headcount, we can grow without constantly adding heads in order to fuel that growth. Essentially driving top-line growth ahead of any operational cost increases. Accordingly, we are very much actively using AI to underpin our business in a very real way.
We have agentic models in place in marketing and lead generation. We're using AI in our engineering organization and in our corporate services as well. I'll touch just a little bit on that later in the call. As we go to the next slide, this is really a reminder of what the transformational plan is. This is the second phase. We had a six-point plan in the first phase to get us to a place of stability. Now we're really focused on how we accelerate growth and move to operational excellence. We have these four pillars that I've already touched on. Really pleased to see that this phase is continuing well. I see this, by the way, moving us into next year as well. Moving to accelerating growth and operational excellence is a multi-year endeavor.
I don't see us changing this plan significantly, but really continuing to focus on its execution. We're seeing good results. We saw the Egis asset deal in Q3. In Q4, we also saw a PixArt asset monetization deal as well. I'll break those down a little bit for you later. We saw great core growth, 53% year-to-date on our core business, 35% just for Q3. We're starting to see AllKey. Moving from sensors to higher value, higher revenue systems, really seeing that start to expand as a portion of our overall future pipeline. On new business growth, we announced the Microsoft Entra product, and we expanded the go-to-market so that not only are we building product, but we're also increasing our capacity, specialist capacity to be able to take that to market and now move through leads into opportunities. Finally, on business modernization, continued rigor around headcount.
Headcount is about 70% of our overall costs, so that remains a primary focus. You can see year-on-year significant change there as well. Good ongoing discipline on the headcount side, but also underpinning our headcount because we need our headcount to be productive. Augmenting the people capacity with AI or with agentic models, which I'll touch on later. What I'm going to do now is go into each of these just in a bit more detail so that you can understand how they're pillars that are driving our business. If we start with asset monetization, we've talked about those deals a couple of times already on the call. If I break that down, this is why we see asset monetization as an element of our ongoing revenue. It doesn't mean it happens every quarter. You can think of asset monetization really being like large deals.
You don't get huge deals every single quarter. They come in when they come in. They can be lumpy, just like we have large deals in our core business and in future, we will also have them in our new business too, whether that's Iris or our identity cloud. This is how we think about it. Asset monetization isn't just inactive assets. It's also active assets, things that we're still doing but want to monetize in different ways. The smart ideal that we did back in January, I think, is a really good example of how we're monetizing our assets in different ways, not always discontinued assets, but operating assets as well. Through our deals, some capabilities that we monetize. We have a very in-demand set of resources, whether it's our ASIC team, whether it's our algorithm team, particularly as they continue to build AI capability.
These people are in demand. That's how we're kind of using those capabilities also to monetize the team in different ways also. Of course, as we do those deals with our customers, typically we tie it to a royalty, which gives us a longer-term revenue. Great for the partnership because it means that we're really invested in a quality product that's going to manifest in volumes, but also great for us because it gives us a long tail, typically a couple of years after the deal because it takes time to productize some of these technologies. Typically here, a couple of years after, then you start to see those royalties flow as well.
This is a really good example, I think, of how we're evolving the revenue mix on an ongoing basis of core business as we also build out new business too. That is why we see those pillars as key elements of the transformation plan and also how we fund the business on an ongoing basis. I also want to talk about the move up the value chain. In our core business, you know we've seen good growth. That's great that we're seeing good growth, 53% year-to-date. We're also looking ahead at how do we continue to supercharge growth as well. What can we do to evolve our premium solutions? What can we do to ensure that we continue to move up the value chain and avoid, of course, commoditization? In the past, we were a component provider focused on fingerprint sensors.
As we've moved towards higher value markets, we've also wanted to move up the value chain as well. You've seen us do a really good job in moving from a fingerprint sensor to high volume markets to a fingerprint sensor in high value markets whilst driving up the margin. Now what we're also doing is focused on how we move up the revenue stack. Providing complete integrated systems, integrating with software, integrating with memory, integrating with MCUs, and also integrating with secure elements so that we can open up different use cases. As we do this, I'll start with the benefit to our client. As you look at the right of the chart here, the benefit to our client is that it reduces costs for them. They're reducing the number of suppliers by having more integrated systems from fewer providers.
It takes not only cost out in terms of the different components they need to buy, but it also takes total cost out in terms of the workload and the effort necessary to integrate complex systems. For us, of course, we benefit from that. We offer a greater portion of what they need and therefore drive up our wallet share. It's about 3x ASP for a system versus a sensor. Really positive to us on the top line. At the same time, we're able to maintain our margins and from a higher revenue when we increase profitability. It also accelerates velocity. It's easier to integrate. It's more of a turnkey system where they don't need specialist skills or certainly very high-end specialist skills to be able to integrate it. They don't need as much support from us with our limited capacity.
They can more self-serve in terms of how they integrate this into their product as well. It accelerates the development cycle and therefore their time to market. It's also a higher competitive moat for us, more complex systems, higher skills required to be able to do this, and therefore a higher barrier to entry for others to come in and be able to compete with us in that way. Finally, it opens up a bigger addressable market. As you then have secure element, there's different use cases that you can serve there, higher level of security, again, different use cases too. This is really going to be an important part of our core revenue mix moving forward as a way to drive incremental growth as we move up that value chain. AllKey, super important set of products.
As we look at that product family on the next slide, you can see it is truly a portfolio. It's not one thing. We announced AllKey and AllKey Pro. They were launched last year. That was when we first started providing test kits. We've now shipped a lot of test kits out to our distributors and to our end customers. We have new customers already testing and building new products with AllKey. Of course, at the same time, we have our existing customers who want to simplify their cost of goods, want to simplify the complexity in their systems. They're also looking at moving across to AllKey too. That's something we're really focused on as an organization, helping our customers reduce complexity and at the same time then benefiting from that value we create with a higher ASP. At the same time, it's not just those products we've already announced.
We've got new products that are coming to market where we're shipping engineering samples out to those customers to begin testing some additional products in this lineup. Now we've got AllKey Ultra, which includes a FIDO certified product, includes a secure element. It opens up different markets. Ultra Edge, which is a thin slim form factor product, also out to customers for different use cases. It really gives us a lot of flexibility in the support we can offer our customers and a more complete system that we can offer to them too. This is really important. This is something that we'll continue to talk about in our core business. Of course, we have new growth areas. A couple of areas that are key to us are, of course, Iris and the identity cloud, which is the partnership with Anonybit. We've got some really strong partnerships in this space.
If we talk about Iris for a second, we announced the next generation of our product with CMI Tech. Very longstanding relationship with CMI Tech. Some great products that those guys are able to produce. Very, very easy to use for the user. A good distance for Iris authentication. You don't have to be stood in a really specific position. Really easy for the user to interact with, but also very, very high efficacy. Very strong for things like border control use cases, mass transit use cases, all sorts of different things. With CMI Tech's new products, I think it's one example of where we can really continue to grow our Iris products. We announced the Smart Eye partnership early this year. We're now starting to see that manifest in some new products.
Really strong potential for a hardware partnership with Smart Eye too, particularly on a small form factor product, which covers face, eye tracking, and Iris modalities. Some really interesting areas that we're exploring with Smart Eye and where we can take that product to market and both sell to existing customers, but also open up new markets too. On the identity cloud side, identity, and I'll talk about this towards the end of the call, is a really hot area right now in the market. We've just announced a product that integrates with Microsoft Entra. Microsoft have about 700,000 customers using that product. That's a very broad market that we can now tap into to help those customers. When I talk about helping those customers, that means with some of the key use cases that they're trying to address. They're trying to address things like account recovery.
They're trying to address things like help desk as a threat vector. They're trying to address things like insider threat, where people are either losing or actually sharing their credentials for financial gain with bad actors who can start an organization and things like account takeover. Some really hot topics that we've seen are some very high-profile breaches because of password sharing. These are things that we can also address through biometrics, unifying the identity lifecycle. The announcements, I think, on our identity cloud side really open up new markets for us. Now it's a case of focusing on our go-to-market capacity and ensuring that we turn that into leads and into opportunities. The final area of our transformation plan is around business modernization.
Of course, core to this is about taking cost out and keeping that cost out so that as we grow, we're not adding cost in at a commensurate rate. To do that, obviously, we've done the hard work in taking cost out and all of our team have participated in that. Now it's about ensuring that we underpin that team so that they can scale. We are actively using agentic models in our business today. We're using AI agents to do deep research in the themes that we want to focus on with our marketing. We're using AI agents to create content for both LinkedIn and for Twitter or X. We're using AI agents to create visuals for that content. We're using AI agents to create animations for that content. We do this with a human in the loop so that we review that.
As a team, that's what we have. We have a marketing leader with AI agents underneath them helping create that content. As an example of a post on the right here, I think this post was out last Thursday, AI generated with human in the loop to ensure that it's high-quality content. We're doing the same on our leads generation process as well, AI response, but also AI augmented for our sales team. We're doing the same in engineering, using AI to do rapid prototyping and demonstrating new features, accelerating our time to market. We're using it to accelerate how we do our testing and showcasing our innovation. Lots of things are going on on the engineering side in terms of how we become more efficient using AI.
Again, we do the same on our corporate services team to stop people having to input data manually and accelerate some of those repetitive tasks using AI and get smarter outcomes from it too. This is all about scaling our top line without increasing headcount and using this in a very real way. With that, let me hand over to Fredrik to talk a little bit more about some of the key data points from Q3.
Great. Thank you, Adam. Let's look at the key figures for the third quarter. Revenue grew 53% and 35% year-over-year and 53% year-to-date. Gross margin was pretty impressive, 68.6% for the quarter. When we look at gross margins year-to-date, it was 58.7%. From an EBITDA perspective, EBITDA was - 9.8% for the quarter, which compares to - 40.8% last year and - 18.4% last quarter. We are getting significantly better year-over-year and quarter-over-quarter. That is also reflected in free cash flow, or what we call our cash burn. Free cash flow was - 2.3% for the quarter. It was - 27.6% last year and 18.4%, as you might remember from the last quarter. We had cash of $28.3 million.
If you look at headcount, we were at 49, which is 54% less year-over-year, but it's flat quarter-over-quarter. In the third quarter, we added two new sellers and we reduced support. Although the headcount is flat, we were pivoting more aggressively towards supporting the growth that Adam is talking about. With that, Adam, back to you.
Awesome. Thank you, Fredrik. Just to close, I want to talk quickly about even the medium to longer-term future as well. We're very vocal in talking about passwords. We've been very vocal about talking about identity as the primary threat vectors today. This is how bad actors are exploiting companies and breaching them. This market is a place where continued help and focus is required. I talked earlier about account recovery and help desk. These are such a primary threat vector today. We saw the Jaguar Land Rover. I don't know if you guys saw that breach recently. That was the most expensive cyber attack in U.K. history. GBP 2 billion that cost Jaguar Land Rover. That occurred through the help desk. It's a huge threat vector. We saw similar ones. Forgive me for using a couple of U.K. ones, but Harrods was also breached in its way.
Going beyond the U.K., MGM was breached in this way. Uber was breached in this way. These things are very top of mind for our customers. They are threat vectors. They are attack surfaces. They are looking to reduce and close. As we look at the threat landscape, it's very much about identity being the new perimeter. For us, though, as you look at this market, and that's why we put this graphic in front of you today, very fragmented, very siloed, and very complex. That does not help organizations seeking to secure themselves. Where there is complexity for an organization, there are gaps and vulnerabilities that can be exploited. There are opportunities here to simplify this as we present it to customers.
As you look at a lot of customers' identity strategies, it's about having identity-centric security, putting identity as the new perimeter and unifying the lifecycle from when you first onboard a person to when you continue to authenticate that person to when they need to recover their account, unifying that whole process so that it stops bad actors coming in, masquerading as individuals and having access to your network, whether or not that's through stolen credentials or what we're also seeing is shared credentials where insiders are selling, if you like, their credentials to allow people in. It protects against all of this where we're able to use biometrics instead of passwords. For us, it's about having multi-factor biometrics, ease of use biometrics by unifying this cycle. A big opportunity exists for rolling up organizations in this space, vendors in this space into single solutions that work across the lifecycle.
That is something we've very much got our eye on, unifying that cycle, offering defense in depth for those use cases that I talked about and use cases beyond those like continuous security, shared devices, et cetera. We as FPC find ourselves very well placed for that. We offer the highest efficacy biometrics today, and we believe that can be applied in ever more meaningful ways, both for digital security, but of course also for physical security as well. We have the skills, the efficacy in our products to be able to do that. This is something we've very much got our eye on as a medium-term opportunity as an organization as we think about solving the most critical problems in the industry today. With that, I'm going to just go to one final slide to summarize the Q3 report. Great progress on the strategic turnaround.
We saw good core revenue growth of 35% for the quarter, even stronger as we look at it year-to-date, well ahead of the market growth. We've seen continued discipline around our gross margin. It is great to see that and shows that switch or that improvement in mix in terms of going up the value chain into higher value products, but also having blended revenues from both our core operations and asset monetization as well, and continued operational discipline on the cost line, of course, then augmenting that so that the cost stays out and we leverage tools in order to drive growth. A number of milestones achieved, good asset monetization deals in the quarter with Egis, but also after the quarter with PixArt too.
Progress on our core business, moving up the value chain to systems from sensors with stronger ASP, more looking ahead on that one in terms of how that's going to improve our mix and our overall growth. For a new business, a great product launch with the identity cloud and then driving up the go-to-market capacity, as Fredrik spoke about earlier, whilst managing that cost control. The focus ahead is to continue that transformation plan to accelerate growth, continue those four pillars, but with a real focus on driving positive EBITDA. That's the north star that we're focused on, driving positive EBITDA, but also driving long-term growth to continue to get strong profitability as a company and leveraging our strength to expand into the broader identity markets. I'm going to pause. We'll come back for questions now.
Thank you. To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now go to our first phone question. Your question comes from the line of Markus Almerud from DNB Carnegie. Please go ahead.
Hi, Markus here. Can you hear me?
We can, Markus, yes.
Yeah, so a number of questions. Maybe starting with the growth, 50% growth, and we know that the market should be growing by some 20%. Can we dig into a little bit on that growth? I would guess at AllKey, which I'll come back to, but that's not the driver yet. What is the drive? If you dig into the growth and you're just trying to kind of elaborate a little bit on and give some color?
Yeah, no, I'm happy to take that, and Fredrik, feel free to jump in as well. So yeah, 53% growth. Markus, it's not 50%. And that's year-to-date, of course, 35% for Q3. Those are hard-won points of growth, so I'll correct that. It's a great question. I think what we're trying to have, Markus, is balance across the business. As you think about the transformation plan, those first three pillars are growth enablers or pillars of growth. The last one, which is business modernization, is about the foundation as to how we ensure we get that growth with the capacity that we have. As I think about the growth in Q3, there were some good elements of growth from asset monetization, and there was, of course, growth from core business. No growth yet from new business, or at least no growth in Q3 from new business.
Of course, we have seen growth from new business earlier in the year from Iris. It's a little early yet on some of the product development work we've been doing in our identity cloud with Anonybit. We're not seeing that yet. I expect to see that later on. Therefore, core business and asset monetization was really a key part of the mix. The way we also think about it is I think about big deals. Where can I get big deals from? Sometimes we get big deals in our core business. We saw some really strong performance, for example, in Q1 [audio distortion] with some of those big deals in our core business. I also don't just want to rely on that. Hence, asset monetization is an alternate source of big deals.
As long as we're getting one of those happening on a given quarter, then we look like we're in pretty good shape. It does mean there's some lumpiness in the business, but having multiple means of bringing big deals in gives us more optionality and balance across the business. Fredrik, anything you want to add there?
Yeah, I would just add that, you know, Markus, this is year two of the transformation. Year one was really, you know, taking out a ton of cost, winding down mobile. At the beginning of this year, we still continued to wind down PC. Really what's happened, you know, year-to-date, the first three quarters, is just we've been able to breathe. We've been able to focus our sellers. Our strategy is pretty clear. This notion of focus, I think, is a big driver for the 53% versus, you know, having the hair on fire and you're just really digging into the cost structure, the legal entity structure, and trying to phase out, which, depending on how you calculate, was 90% of our revenue, right? That's just being phased out. Now we have clarity and we have focus. People know what they need to do and they have clear targets.
If I just continue on that to follow up, because I also noticed that Asia is a big part of sales. Is that also because there is a lumpiness and a lot of it is coming from the asset monetization, et cetera, the thing that you were mentioning? Is that the reason as well why Asia is such a big part of it?
Yeah, no, you're right. I think it's a good expression there, you know, or data point of the lumpiness. It's fairly big this quarter. It 's a lot smaller other quarters. Europe's going to be big when one of our big European customers comes in and that customer tends to order once per year. It's really big. The same we have in the U.S. With a few of our bigger customers, when they come in, then North America is going to be really big. You're going to see this revenue mix by geography shifting around a fair amount.
Yeah, I would also say that those are the hallmarks of a balanced business, I think, as well. As we talked about the pillars in the transformation plan of assets, new business, and core business, you can also look at it horizontally or geographically to say we've got a strong business cylinder in the United States, we've got a strong cylinder in EMEA, and we've got a strong cylinder in Asia, including India as well. Again, as long as one or more of those cylinders is firing, we tend to have a good quarter.
Yeah, yeah.
Markus, if I can just jump in, the whole notion around asset monetizations, you know, I know you have access to the report and you read the entire 3Q report, but on page 29, it's the P&L of discontinued operations. Revenue for discontinued operations was $16.9 million. That is not part of the continued P&L or any of the numbers that we've been talking about, right? There's a very small portion of asset monetization that's continued business, you know, that we expect to do going forward. You have $16.9 million that's not part of this report. You only see it in the discontinued P&L. This discontinued P&L is going to be, it's not going to continue in 2026, right? Accounting-wise, we only allowed the discontinued operations for one year. It might be a little bit here in the fourth quarter as well.
The whole legacy PC mobile is gone forever. Mm-hmm. Moving down the P&L and looking at the gross margins, you had 58% or something like that if you exclude the Egis income. Is that kind of the, and this was just hardware. Is kind of around 60% a sustainable level, you think? I'll follow up on that when I come into AllKey.
I mean, yeah, I think we've been very clear on, you know, those sorts of levels of what we're looking for from the business. We're pretty pleased with that. You know, with lumpiness, you're going to get ebbs and flows on that, which get smoothed out over longer periods. We feel pretty good about sustaining the margin. As we also think about AllKey as a key component for future growth, we feel good about getting strong margin from that product as well. Very beneficial to the customer because of their manufacturing cycle and then beneficial for us to win a greater portion of the wallet share there too. We feel pretty good about the overall margin and sustaining it at around that level.
On AllKey, moving on to that, because you're moving towards system sales, this is what AllKey is doing. First of all, before we come into the profitability and ASPs, do you expect to convert old customers into using these systems in AllKey? Is it all about finding new customers or a mix of the two?
That's a great question. That's a really good question. I think as we look at it, there's some customers who are higher volume. They're probably going to continue to be sensor customers because they just operate at that level of scale. That's what their business model is built around. We will have a few high-volume customers that focus on sensors. I think the bulk of our customers by number, so the number of customers, have got the potential to shift to systems. That's really what we're focused on, week by week, line by line, looking at our customers. Have they got a test kit? Are they developing the product? What do we need to do to support them? How are we ensuring that we are flipping our revenue from sensors to systems with those customers? That's really where the focus is.
As I look at the pipeline, it suggests that that's taking place very well. There are really a few ways of looking at it, Markus. You can look at it by customers, which customers are flipping to systems. The second way you can look at it is what volume is switching to systems. The final one you can look at is what revenue mix is flipping to systems as well. They give slightly different results, but I think that's really the way we look at it. The primary one for me is our customers. Are they moving to systems? Are we bringing new customers on with this technology? Both are really a focus for us.
Because obviously, the ASP you said in presentation was 3x , was it for just a sensor? If you can just dream or hope, what do you think could be looking some years in? What kind of mix should we be talking about? What kind of part of sales could be systems and what part of sales could be just sensors?
Yeah, I mean, you know, we don't offer guidance, so I want to be a little careful on that. I certainly think that we can, you know, get a good percentage of our customers, certainly half or greater of our customers across to systems over time. What we're focused on, though, is ensuring that those customers are moving over. We're focused on maintaining margins as we go ahead and do that. The only thing I would add is, of course, it takes time to shift those over. We are not going to see a massive swing over to AllKey next quarter. What we are focused on is looking out over the next two years to ensure that each year, starting next year, we see an increase in mix from AllKey. The following year, we see an even greater mix.
Three years out, I think we really optimize that mix as well. That's kind of how we're thinking about it, monitoring our pipeline on a weekly, on a monthly deep dive basis, and of course, just keeping a firm eye on that.
Looking at gross margins, I mean, ASPs are 3x , but you also have higher cost because you're also buying the components, et cetera. Is gross margins kind of roughly the same, so around 60%? We should see this as a way of growing revenues and hence bottom line profit, but margin-wise, it's kind of similar.
Yeah, I mean, I think that the kind of range we gave in margin was around 50% - 60%. I would certainly see that being the case for AllKey as well. We think we can work within those realms. We feel pretty good about that range. Of course, you know, that drives higher profitability because it's off a higher revenue line. We certainly don't see like a massive drop in margin in order to deliver that because think about it, the value we're creating for our customers is that they're making savings elsewhere. Their net costs aren't going up. In fact, they're going down because they can consolidate their supply chain with fewer providers. They can reduce complexity. They can reduce the time and skills necessary to be able to integrate this into their product. There's actually a really nice value exchange for our customers as well.
They can probably net take cost out of their production cycle.
That's great. Looking at maybe new growth a little bit and the Anonybit partnership in the software sales, first of all, how does it work? I mean, I know that it's a partnership, but is it sort of, do you have a revenue sharing agreement? Because you also take on costs. You have two salespeople. How does it practically work here, and how do we expect the streams once they come in?
Yeah. We have a revenue share model with Anonybit. As I've said, it's been very much focused on product development over the last 12 months. As we come into next year, we're flipping now towards go-to-market. We have two dedicated sellers in the United States. We think that's a good market to start with. That's where Anonybit are also largely based. We do, of course, have our core sales team as well, who we're working with as additional capacity to create leads too. There are some opportunities arising through our core sales team, supported by the [specialist organization]. I think the focus now moves to, first of all, leads, because this is a new business. It's not a market that's already fully made. It's about developing, understanding, awareness. There's a huge need in the market, and we have a number of different use cases that we can solve.
Looking at where the real demand is from a customer perspective as we take this thing to market in anger. From leads, moving towards opportunities that are closable. In terms of our outlook, again, I'm not going to give guidance, but I will say I would expect to start seeing this bear fruit second half of next year, something like that.
That was actually my next question, when we should expect to see this kind of taking off. Also, when you sell this, is it kind of one-time cost or is it a SaaS model or sort of?
Yeah, it's recurring revenues. It's recurring revenues. It's an ARR model, a SaaS model, exactly as you say.
On your asset monetization, you talk about capabilities and then using your IP and your engineering team to kind of get further revenues in or to get further income or cash in. You mentioned Egis there. Is it something which is done? Is this part of the whole deal that you've done with Egis? Does it come on top or how does it work?
No, that's part of the deal structure that we've already announced with Egis. It's multifaceted. There are different capabilities that they value from us. Some of those were assets and some of them were skills that we have. I mentioned our ASIC team, for example, a really strong set of capabilities globally that our customers value. For me, when I joined, my starting point was to understand what are we good at and what do people need? What problems can we solve? When I married those two things up, it wasn't just, well, we sell products and they do this. It was also, actually we have skills, we have licenses, we have IP. We had a variety of different things that we could monetize beyond traditional products. My desire was that we were able to diversify and unlock that value.
I think that's what we've been able to show that we've done not just once, but multiple times. I think there are other interesting opportunities for us to explore in that realm as well.
Because I know that you said before, and you said on last call as well, that there is more to come from this from the asset monetization. There's more opportunities. Where are you most optimistic? Is it to, I mean, the old technology, the mobile and PC, let's say that's gone, there might be more, but the big parts should be done. The Smart Eye kind deals and the capabilities, where are you most optimistic?
I've always been a huge believer in partnerships because there's lots of locked-up capabilities in different organizations that one another can benefit from. I actually think that the capabilities side of it really interests me because we've got a unique set of skills that is valued both by some of the partners we've already done business with and then some new partners too. That really interests me as to what are other organizations out there trying to achieve and how can we share capacity and therefore share the value that that creates monetarily as we look to help them pursue those different product possibilities. For me, I think capabilities is a really hot one that I'm super interested in where I see more potential.
Okay, okay. And then finally, maybe on the cash flow. So minus $2 million in operating cash flow, which is very encouraging. Is that including the $20 million from Egis? Because you mentioned also the $5 million in revenues. Kind of just trying to put those two together and then follow up on that after that.
Yeah, yeah. So Markus, the way you, let's see, are we, so EBITDA is pure, right? EBITDA is EBITDA. It has no discontinued operations in there, right? If you want to see revenue or cost related to discontinued operations, you go to that page 29 table where I said it was, I think it was, you know, rounded $17 million of revenue and not a whole lot of cost, right? When you look at free cash flow versus EBITDA, the free cash flow is burned, is lower than the EBITDA, negative EBITDA.
Those two should normally be fairly close, free cash flow and EBITDA, unless there are major working capital changes, CapEx changes, or cash taxes changes, which we don't really have. The delta will be explained by going to the cash flow statement. There you will see that discontinued operations impact is broken out, that it's $6.6 million. The way you reconcile between the two is you take the, I have to just look at this, see the slide there. You take the free cash flow of -$2.3 million, and then you have, you know, a little bit more than $6 million of positive cash flow coming from discontinued operations. If you take that out, you get to kind of a -$9 million or so of free cash flow, you know. Then you reconcile back to the EBITDA. That's the best way to do the math.
All the $20 million that you were going to get from Egis, you've gotten everything. Everything is in now.
No, no, we haven't gotten everything from Egis yet. We've gotten the majority. We have some value left to deliver to them. When we deliver that value, we're going to be able to send them the invoice.
Obviously, the PixArt was closed in October. There's nothing of the PixArt in these numbers. That's still to come in Q4 and maybe some spillover in Q1.
Correct.
Yeah. Okay. Okay. That's all for me for now. Awesome.
Thank you , Markus. Appreciate the rigor, the detail. Really, really helpful questions. Stefan, let's hear what else there is.
Yeah, it's one question from the web here on payments. Do you see any projects in this area?
Yeah, that's a really good question. I mean, we follow up on the pilots that we've done on a regular basis. It is frustratingly slow, I have to say, because, you know, I think things move at a fairly slow pace because of the levels of risk associated for the banks in offering something new to their consumers. You look at chip and pin, probably took the best part of a decade to get off the ground. We do follow those pilots. Interestingly, I was at the Global Fintech Festival in India, in Mumbai, about three or four weeks ago. That was a really interesting opportunity. Goodness me, I go to lots of the payment events. 100,000 people go to the Global Fintech Festival. The scale is phenomenal. The energy there was incredible.
We spent a lot of time with a number of card manufacturers, with the industry overall in the Indian community. They actually still see a lot of good potential over there in India too. I think there's some interesting things going on geographically that we can see. I spend time with our partners on a regular basis as well. They're very focused on some of their key pilots that they're working on too. We still see activity there. We do see new opportunities come into the fore. One thing I've spoken about on the earnings call in the past is multifunction. Some of the interesting conversations in India were about a really focused multifunction card where you have biometric on the card for card presence. Instead of chip and pin or signature, you have biometric for the POS terminal.
You also use that very same card on your mobile phone for card not present for authentication, like a FIDO token, for example. There are some really interesting things that our partners are talking about there to solve a macro set of issues, not just one, but multiple problems, because card not present is also a significant fraud vector, probably greater than card presence. Some really interesting things going on over there, you know, but it is still slow.
All right. Thank you very much, Adam. Let me hand back to you for any closing remarks that you may have.
Very good. Thank you for all the questions. Thanks for coming along to the earnings call. Hopefully, you can see the great progress we're making towards EBITDA positive results, continuing to focus with real rigor on the cost line, but also on the top line. Hopefully, you can see that there are some really nice pillars of opportunity geographically, but also through assets that we can monetize, through core business as we move up the value chain into systems. As we get our new business lift off, as we start to deliver new products and pivot towards our go-to-market, there are multiple ways in which we can continue to drive incremental growth, breakthrough growth as we pursue profitability. Thank you for joining, and we'll see you next time.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.