Good morning, welcome to Fingerprint Cards earnings call following the release of the Q1 report yesterday. My name is Stefan Pettersson. We'll begin the call with a presentation of the report by the CEO, Christian Fredrikson, and then by our CFO, Per Sundqvist. Following this, we'll have a Q&A session. If you're following the conference call on the web, you can post questions throughout this call. For those of you participating on the phone conference, you will get instructions on how to ask questions by the operator before we get into that session. With that, I now hand over to our CEO, Christian Fredrikson.
Thank you. Good morning, everyone, and welcome to the call, which will focus on Fingerprint's progress and performance in the first quarter. I am sorry about the short notice we gave you for this call, as you know, the company decided to release the report earlier than previously communicated, since the work to complete the report could be finalized earlier than planned. If we start with the financials, I have to say that I am very pleased with the 32% revenue increase in constant currency compared to the same quarter last year. Our gross margin also improved to 29%. The last months have been a turning point for us, we are now back to growth. We achieved this despite the prevailing semiconductor shortage in the world, which has affected us, as we have said earlier. The demand for our product and products remained strong in the first quarter.
Our limiting factor is really the supply chain constraints, and we do see continued challenges in this area, as I'm sure you are aware of what's happening globally also. We are continuing to work hard to secure additional capacity, and we are making progress. This is a priority for us, and we have many improvements going on in this area, but it takes time, and as we have said, but we are making progress. As we have communicated in earlier reports, our product mix has been improving, and this trend has a positive impact on our gross margin this quarter. This is mainly because of the new innovative products, which I am very proud of, and our team has performed well with the new launches. Our profitability also benefited from continued high sales from inventory, continued effective cost control, and also a certain positive currency effect in relation to Q4.
Next slide, please. We are continuing to make good progress against our strategic priorities, starting with the mobile area. Demand is strong for our new innovative products. The newest addition, FPC1542, is doing very well. During the first quarter, the first smartphones in the world that have a curved side-mounted fingerprint sensor were launched. This FPC1542 sensor is an innovation made possible by our unique capacitive technology combined with our advanced matching algorithm. We will keep investing in driving innovation in the mobile area. Increased sales of our new products is also having a positive impact on our gross margin, as I just said. Demand for our new product for the PC area is also strong. As previously communicated in January, we could announce the first major purchase order for our new PC solution for several hundred thousand sensors.
In Q1, the first computer with this solution launched, the RedmiBook Pro 15 from Xiaomi. Several more products from leading PC manufacturers are going to launch using our sensor solution, and we expect continued favorable growth in the market for fingerprint sensors for computers, partly due to the fact that increased remote working accelerates demands for secure authentication for PCs. I am very pleased with our progress in the PC area, and this is clearly becoming a key new area for us. We announced some good news in the access area during the quarter as well. Pinaka Innovation Private Limited, an Indian digital lock manufacturer, has launched biometric-enabled locks named QTouch for wardrobe and cabinets. The locks integrate our FPC BM-Lite module for a seamless and secure authentication experience for private homes and commercial areas.
Technology provider and smart card manufacturer CardLab and the software house TrustSEC released a dual-interface biometric FIDO2 card that features Fingerprint's T-Shape sensor module for a secure tokenized authentication. FIDO2 is a strong tool for digital access, and by integrating it in biometric card, it will enable passwordless authentication and protect individuals' identity and enterprises against unauthorized access. Finally, we also had a major achievement in the payments area. More about this soon, which is then going to the next slide, please. Fingerprint and Fime have collaborated to achieve compliance with Mastercard's reference specification for the most recent generation of Fingerprint's T-Shape sensor module and software platform for biometric payment cards. This is significant because it will simplify the approval process for card producers, which in turn will save time and money when they start and scale up biometric card projects.
The latest generation of our T-Shape sensor module represents a significant step forward, both in terms of performance and cost efficiency. While delivering improved image quality and speed, as well as better power efficiency, the design of this new module will also significantly reduce the total cost of producing a biometric payment card. The competitiveness of the new T-Shape in terms of performance and total biometric card cost is already world leading. The new T-Shape will reach a price below USD $3 in volume production. Fingerprint's close partnership with key ecosystem partners such as leading secure element and inlay producers, as well as card producers, enable the optimization of various components in relation to each other. This makes it possible to reduce the complexity of the inlay by also simplifying the production process. Fingerprint Cards' products are known for their power efficiency.
Neither the second nor the first generation of T-Shape module require a separate power management unit, which is called PMU, as the power harvesting functionality in the card's secure element is sufficient. The updated T-Shape is even simpler to integrate into the standard automated card manufacturing process using a proven and industry-accepted packaging on reel in dual rolls. This will increase throughput, reduce waste, and lower the embedding cost for card producers. A significant breakthrough with the new T-Shape and its associated software is that it enables both fingerprint extraction and matching to occur in the secure element, removing the need for including an MCU and further simplify the card architecture. The new T-Shape supports secure transmissions such as integrity protection and encryption.
We will, of course, continue developing to reach a total card cost below $3 by 2026 and above in high volumes as our strategy is. Next slide, please. We have now entered the commercial rollout phase of biometric cards, albeit still in limited volumes. To date, we have seen three launches. Cornèr Bank was the first in Switzerland, followed by BNP Paribas. Now the latest launch by Crédit Agricole in France. Far, user feedback has been favorable. After having tried the card, BNP Paribas customers were even more positive towards using their fingerprints to pay contactless. The initial deployment of around 15,000 card has been a great success. The bank is preparing to roll out the offer to all their customers in the very near future.
Finally, Crédit Agricole has successfully launched with a few thousand biometric cards so far, so-called soft launch, and are planning to extend the offer nationwide later in this summer. Next slide, please. On Crédit Agricole, this is, of course, all the public news that they have also stated themselves. Let me also highlight the FPC1542, a very important addition to our product portfolio. This is a new volume product for the mobile segment based on earlier versions in the same product family intended for side mounting on a smartphone. The FPC1542 is a slim and curved capacitive touch sensor which works very well in the latest smartphone models. This is an innovation enabled by our unique capacitive technology, once again combined with excellent work on with the algorithm and the team from there.
As demand for side-mounted touch sensors grows, the curved sensor offers OEMs enhanced design flexibility while improving user experience with a seamlessly integrated sensor that can double as power button or volume control, or be used to operate the camera shutter and to scroll. It has been very well-received, and the first smartphones integrating the sensor were launched in the first quarter. As I already said, this, of course, is the product that is contributing to our positive mix and impact on our margins. Next slide, please. I've said earlier as well that we have a very positive view on the development of the market for biometric solutions in the years to come. I do have to say that I feel bullish about the coming years with biometry. We are still only the infancy of development in a uniquely interesting industry of the future.
Fingerprint intends to continue to play a leading role, and we are planning for volume growth in the next few years. Significant, particularly in prioritized areas outside the mobile industry, we are focusing on driving product innovation in the most promising growth areas, which I just went through. We also made some organizational adjustment in order to support this growth agenda. The world's top payment card producers are all based in continental Europe, while most of largest smartphone OEMs are headquartered in Asia. We have created two regional offices, one in Shanghai, China, and the other one in Zug, Switzerland. The Shanghai office is our center for mobile business line, and the office in Zug is our payments and access business line center.
Shanghai, being the most important economic, financial trade, and shipping hub in China, is close to our major customers and partners in the mobile industry, while Zug has become a well-respected and established hub in the payments marketplace. We are also setting up sales and distribution hub in Singapore to streamline inventory management and realize economies of scale in our distribution operations. This distribution center will own our inventory as well as invoice customers and pay suppliers. This is important step for us in terms of also managing the whole supply chain for us, which has become so much more important. As we enter the next phase in Fingerprint's development, I believe that close collaboration and proximity to key customers and suppliers and partners, as well as to critical talent, will be even more crucial for our success and growth. I'm sure this will benefit our operations.
The parent company, as we have said, are listed in Nasdaq Stockholm, will remain in Sweden, with other main functions already present in Sweden. Next slide, please. In summary, the positive trend continued in Q1 with a 32% constant currency revenue growth rate compared to Q1 last year. We see healthy demand in the core mobile area as well as in emerging areas like PCs. The first computer launch with our new PC solution is a milestone, and there will be many more in the quarters ahead. It is gratifying that we improved our gross margin driven by an improving product mix as well as by continued high sales from inventory and continued effective cost control.
The fact that the most recent generation of our T-Shape sensor module and software platform achieved compliance with Mastercard's reference specification is also a significant development because it will simplify the approval process for card producers, our customers. Of course, it is just simply a great product. Despite current supply chain challenges, which will continue in the market, our strong market position provides me with a bright view of the future, and we remain strongly committed to our strategic priorities. With that, let me hand over to Per Sundqvist . Thank you.
Thank you, Christian, and good morning, everyone. Let's move to the first slide in the financial results section, please. Starting with our revenue, we reported a 14% increase compared to the corresponding quarter last year and a 32% increase in constant currency terms, which should be compared to the previous quarter, our revenue was flat in constant currency. Demand for our products is still very strong, as Christian mentioned, and the improving product mix have had a positive impact on our gross margin, which came in at the 29% in the quarter, a five percentage point increase compared to this last year same period. We're reporting a positive operating profit amounting to SEK 1.7 million and also a positive net income of SEK 7.5 million. This is mainly a reflection of a very positive trend in the mobile area with an increased proportion of new products. Next slide, please.
If we look at the development of revenue and gross margin on a 12-month rolling basis, we can clearly see the impact of the supply chain limitation Christian mentioned and that we have been experiencing over the last few quarters. The situation eased somewhat in the last two quarters, although we do expect continued challenging and challenges within the supply chain. The situation is most significant limiting factor we see at the moment as the market demand for our products and solutions continues to be very strong. The positive gross margin trend strengthened this quarter, and as we stated in the report, a more favorable product mix contributed the most to this improvement. In addition, we also continued to have high sales from our inventory. This, coupled with a high focus on procurement and sales prices, has supported the gross margin situation.
We are, as always, continuing our efforts to improve profitability and the supply chain capacity paired with a relentless drive to innovate new products. We are also continuously increasing our efficiency by diversifying our business into new customer segments and application areas. Next slide, please. If we then turn and look at our operating expenses for the first quarter, they were in the area of SEK 100 million, which could be compared to SEK 92 in Q1 last year. The increase year-over-year is mainly within our R&D department and the investment area.
That is due to the fact that since we have increased our product development projects and also increased our investments relating to broadening our supplier base, both types of our investments are deemed to be very important to support and grow our business going forward. Development costs of SEK 19 million were capitalized during the quarter, which corresponds to 33% of total development costs and should be compared to 31% for the corresponding quarter last year. Please note in this circumstance that Q1 and Q4 typically every year have a seasonal effect whereby the capitalization percentage usually is lower due to lower product activity. That is less capitalized cost out of the expense line in the P&L. Q1 slightly more so than Q4.
We will, as always, maintain a strong focus on cost and capital efficiency going forward, and at the same time making the necessary investment to continuously drive the company growth. Next slide, please. Our core working capital, that is accounts receivables plus inventory and less accounts payable, was SEK 147 million at the end of the quarter, which should be compared to SEK 267 million in the same quarter last year and SEK 132 million last quarter. The increase compared to last quarter is due to slightly higher accounts receivable. We, of course, continue to work also very actively to manage our working capital in the same manner as with the cost. Next slide, please. Our cash flow from operating activities was a positive SEK 36 million this quarter, which is to be compared with a negative SEK 38 million in Q1 last year.
Our cash position stood at SEK 314 million versus SEK 485 million in the same quarter last year, and SEK 377 million at the end of Q4 2020. Own shares have been repurchased for SEK 241 million since the end of Q1 2020. During the quarter, as I've mentioned above already, we continue to focus on our working capital. Plus, we also have increased our focus on sales and purchase price control and pair that with effective internal cost control. All in all, creating the strong cash flow and thus enabling overall efficient capital control via the share repurchasing program. Finally, cash flow from investing activities in Q1, meaning capitalized development expenditures, was SEK 23 million compared to SEK 26 million last year's same period. Thank you, everyone, and we are now ready to take questions.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Once again, if you would like to ask a question, please press star one on your telephone. Thank you. At the moment, we have no questions on the phone lines.
Okay. I think we'll begin by a few questions which were submitted by François-Xavier Bouvignies from UBS, who was unfortunately unable to join us in person. The first one.
Mix with a higher share of new products, and that contributed to improving the gross margin during the quarter. Secondly, the profitability also benefited from continued high sales from our inventories and continued effective cost control on procurement prices and sales prices, as well as paired with certain positive currency effects in relations to the preceding quarter. At the same time, having said that, we still have an issue with regards to insufficient access to production capacity. As previously communicated, we are planning for significant volume growth in the next few years, mainly in areas outside of the mobile phone industry.
For this reason, the work to continue to broaden our supplier base is very important. We have intensified our efforts to secure more suppliers on key components within as well as outside of mainland China. We are progressing well with this project. We do not, however, give guidance on margins. Again, reiterating, we are continuing our efforts to improve profitability by driving product innovation, continuously increasing our efficiency, and by diversifying our businesses into new customer segments and application areas.
Thank you. Next question is on OPEX. OPEX is volatile and difficult to forecast. Can you help us understand what base we should work on going forward? How do you explain such volatility?
If I can start with the second part of the question, the biggest cost component we have in our OPEX is the R&D part. The R&D is very much so affected by how much we capitalize. That is how much we take onto our balance sheet in terms of new projects. That part is driven by the various projects that we have, and as I have mentioned in one of the slides that we showed in the call, that of course depends on what we have in the pipeline. Combined with that, there is also the seasonality effect. Q1 and Q4 is typically time of the year when we have less activities in the project due to, for example, Christmases and Chinese New Year. That in combination creates what you might perceive as a slight volatility in how the OPEX is showing.
Okay, thank you. BNP Paribas and Crédit Agricole are both supposed to be live by summer this year. Can you elaborate how these launches are evolving? When should we see an impact on the P&L, if any?
All right. As I went through this a bit in my start, the feedback from the launches, if I look at the BNP Paribas now, has been favorable and very good, not least about the convenience of the card. Consumers are clearly happy, and they have no particular issues in terms of concerns. The enrollment is seen as fast and simple. It is our understanding that BNP Paribas is now preparing the extension of the offer to all of their customers, the retail branches at the end of first half this year, so in the summertime frame as Francois is saying here. The initial rollouts in the Crédit Agricole launch have just started as a soft launch, and they have said that the enrollment is going to be expanding to the local branches, also by the summer.
I don't have any other feedback from the Crédit Agricole at this stage. On the P&L impact, we don't give any specific, of course, but I can say that the volumes are still low in comparison to our overall volumes as a company. We expect 2021 to be the year when this market takes off and has started to move, as we can see with the launches, and we expect higher volume rollouts in 2022. As you know, we have a very positive view of the development in the next few years, but I cannot give you any near-term guidance as we are not doing that. It is still up to the banks how they roll this out. We do expect more launches from banks this year still.
Okay, thank you. T-Shape generation two has been approved by Mastercard. When should we expect it to be on the market? When do you expect Visa approval?
Mastercard approval for T-Shape is a new part of their approval process. That is a new part of the process that they have put in place because of the biometry. Now they test the sensor as well. We are working together with our partners now on integration into cards. Obviously, we are not the bottleneck, so it's not up to us in that terms, but we expect this to happen in the second half of this year so that the full card is then that's the normal process, how it goes. When it comes to Visa, we expect similarly as we had when we did with T-Shape version one, that they will come one after the other. The partners are working also with the process for approvals in there. That should also come here in its time when it goes through the process.
That is, I don't see any particular issues with that, but it just goes on and takes its time to come out.
Okay. Thank you. Do you have any timeline for the next generation of T-Shape, version three?
We're an R&D innovative company that always wants to work on a roadmap. Of course, we are working with our roadmap, which we have also set in terms of our strategic goals to drive the total card cost down together with our partners. We do this together with our partners, but I cannot give you any timeline. We wouldn't reveal that at this point of time. Of course, as I said, we have a roadmap, and we are working on it. Now we are happy to launch T-Shape 2 and get out with that into the market, from getting to approvals in second half this year.
Okay, thank you. I think we have some questions from the phone line now.
Yes, we have a question from the line of Farzad Limki calling from Millennium Capital. Please go ahead. Your line is open.
Hi, guys. Thank you for taking my questions. Good morning.
Yeah, hi there.
Hi. I have quite a few questions, if I can just go through them one by one. One is quite topical. Apple yesterday launched Touch ID on their iMac with a fingerprint sensor on their keyboards. I know that you all do not provide to Apple, given they are always the leaders in this place or in most hardware, and it sort of ends up being quite a must-have or a key feature of a lot of products, do you think that this would actually accelerate the move for having fingerprint ID on laptops, keyboards as well? Apple was talking yesterday about the fact that it's not just the ease of use or just security of getting onto your machine, but then using it for making payments and doing all sorts of different secure transactions rather than remembering passwords. That's the first question.
Okay. Well, I think that my answer is very simple. Yes, Apple has a tendency to impact markets. At the same time, we see this already in our PC business. The fingerprint sensor is coming in. We see this as a great new leg for us, a great new opportunity, and we are looking forward to all these developments. I think that absolutely, fingerprint sensors is coming into PCs and into tablets and into the keyboards. I do also agree definitely that it will be used for payments and to mitigate online fraud. It helps in that one, because then you know the identity of the person really who is actually doing the transaction. Yes to the both. I think, this trend is happening, clearly.
Okay. Second question is on the Pinaka QTouch that you just mentioned. Just looking on their website, they have quite a few products, QTouch Pearl, QTouch Emerald, et cetera. It seems to be like a new product or a new-ish company. Is this some product that is already on the market and selling, or is this something to be released because they seem to be looking for dealers and distributors currently?
It's going to be released, and coming into the market. I just took this as one example of many of these different use cases that is coming out.
This would be the same fingerprint sensor that you are using for the mobile phones, not the biometric payments?
This is the BM-Lite, so it's a own product, a bit different version that you can integrate into different access products actually, that we are using here. Of course, it's the same capacitive sensor. It's just a little bit different. There are differences in the size, typically in the access, there might be a bigger size that is used there, for different door locks and so forth.
Thank you. Another question is on the capacity constraints that you mentioned even in the release yesterday. If capacity constraints were not a problem or did not occur, what level of uplift could you probably see in your turnover vis-a-vis the demand that you see?
I get that question a lot, I can't answer that. We don't give that information out. At the end of it is, of course, painful for us, and it is a key priority for us now to work on this one. I know it's also, of course, painful for many other players and industries right now. We don't give out what it means. At the end of it doesn't really matter, because these are the numbers that we can deliver now, and that's really the only thing that counts. What we can't deliver or opportunities that we can't meet, it doesn't really help. It only adds to the pain right now, but we're not giving any numbers of that one. I have said before that if it would be below 10%, then it wouldn't be something that we would be mentioning a lot as a constraint.
Clearly it's, I guess, significantly above 10% for the time being.
Yeah. I don't give you anything more than that.
Okay. Thank you. Just on the launches that we've seen, you seem to indicate that BNP will launch it to all their customers by the end of summer. From my contacts within France, it seems like BNP is already rolling it out to all their customers, not their premier customers currently. The problem seems to be the access to branches, et cetera. Are there any other pilots, either in France or in different countries that could result soon in commercial launches elsewhere on the globe?
Well, Crédit Agricole, I mentioned, that is a new one that have said themselves and have started the soft launch. They have gone out with a smaller amount now. They have said that by summer they will go also nationwide. That is what they have said themselves. That is one. That's the third one. That is a commercial launch. We believe that there will be more launches, more commercial launches this year, from other banks. Of course, I can't say anything more than that, but because it is really up to the banks as they launch it.
May I ask if you are aware of the number of pilots that have been launched already globally, which are using your solution?
There are 23 pilots altogether now, and we are in all of them. It's not so much about new pilots anymore, actually, because it's more about getting I think, the card players are not so much interested or pushing for pilots anymore. It's more about getting the soft launches and getting going, actually more about getting banks are making directly that decision. Maybe you'll see a few more pilots here and there now, but it's not like that is going to be the defining anymore of how many pilots there are.
Sorry. What I meant was, these sort of soft launches. Pilots are more to test proof of concept. What I'm trying to figure out is, how close are we to many more commercial launches over the next 12 to 18 months?
That will time tell. We believe that you will see more commercial launches this year still. Of course, many banks are looking at this right now. Their timing, I wouldn't dare to go into when they will come out, and we will happily tell about it when they launch.
All right. Thank you very much.
Thank you.
Okay. We have a few more questions from the web. First one on the T-Shape 2 sensor. What is the total cost for a card with the new T-Shape 2 sensor for the banks?
The banks don't really buy our T-Shape. They buy it from the card manufacturers such as Thales or G+D, and they are then delivering the card. That card price has been. It was in the $20 and then $15, and now it can go below $10 for the cards that go to the banks. We have said that with T-Shape 2, we are going below $3 for the sensor. That's what we have said.
All right. Do you see different kinds of wearables integrating sensors like the FPC1542, and could it become even smaller?
Well, FPC1542 as a curved sensor is right now in the phones. I can see that now when we can do curvatures, that that can be used in other different form factors and designs. Yes. Maybe a different version of that as well, but that remains to be seen now. Depends very much on the form factor of the devices. Somehow it has to be something that has use of the curved form factor. On the question, can it become even smaller? The answer for us is yes, and that's a question of design again. We will have to see how we develop that side. It can become smaller, it can become bigger, it can become longer. There are many ways that it can go depending on the need.
I'm pleased with our capability to keep the efficiency and the performance with even smaller sensors with our great work on both hardware and the algorithm. We will see what new launches we do. We will definitely continue innovating in this space.
All right. Thank you. A clarification on the Crédit Agricole launch. Do you think that this launch means that they will be offering the biometric card as their standard card for all customers or as a card that the customers can choose if they want to?
Well, I suppose that is up to the banks on what time that is. I think that, so far, what they have said themselves is that they will offer it as an option for the customers. It's not so that it is the only thing they offer, but it is an option. That's the way banks seem to start with it. Customers can choose it. Typically, if you look at the trends in the card business, that's how it starts, and then over time it changes. You have to get the big mass volumes, bigger volumes before you actually start making the only standards, I would say.
Maybe a final question. What new application areas is Fingerprint looking to expand into? For example, law enforcement or any other areas for biometrics.
At the moment, we have gone, as you know, mobile PC access. Access is, of course, very broad. It has thousands of different sub-segments. That in itself is through our thousands of partners, is expanding into different places, including even, in some cases, law enforcement. It is not us who are then in that channel. We are looking at then, of course, into the payment area, as you know, and the PC, I said already. We will look at. I think in the access, there will be many opportunities. We are also working, of course, with the iris and expanding that, and we have iris also used by some of our partners in border control applications. There is so many applications, so many different areas to go into.
I think this payment area is, of course, very interesting for us, as well as the whole electrified or digital identification as a whole for us as a company. We are already in the access area. It is in a huge amount of different use cases and applications.
Okay. Thank you. That was it for the questions. Christian, do you have any final comments before we close the call?
Yes. Thank you. Once again, that was the end of the call and questions and answers from our side, and thank you very much for joining again, and we will speak soon as time flies by in the next quarter, in this format, and after Q2. Look forward to that. With that, I wish you well, stay safe, and talk to you soon. Thank you, everybody, and bye now.