Welcome to the Precise Biometrics Q4 report conference call. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Patrick Höijer, CFO Annika Freij. Please go ahead.
Good morning, everyone, thank you for joining today's webcast, where we will run you through the Precise year-end report for 2022. I'm Patrick Höijer, CEO of Precise. By my side, I have our CFO, Annika Freij. Before me and Annika would start running you through the results and the operation progress, let me start off by highlighting that the fourth quarter was a period that we delivered operationally in line with our strategy for both our business units, Algo and Digital Identity. This gives me comfort that we are well-positioned for long-term growth once the mobile market returns to normal levels. This is the agenda for today's presentation. We will walk you through the quarterly highlights and then give you an operational and financial update.
Finally, I would also like to sort of deep dive a little bit into the clear strategic direction we have going forward. Let's jump right into it. Let's start with the financial highlights. Revenue landed at SEK 19 million due to a mobile market which is affected by oversupply at the mobile manufacturers and module houses side. This in combination with a low-end customer demand has negatively affected royalties during the last quarter in our business unit, Algo. This, however, was partly offset by an increasing recurring revenue from our business unit, Digital Identity. The decline can also be explained by the fact that we last year in Q4, during the comparable comparison period, had a one-off income of SEK 6 million.
As already stated, for our Algo business unit, revenues were negatively impacted by volume-dependent royalties, while license fees developed more stable. The Digital Identity business unit showcased a strong finish to the year. The increase in revenue was heavily driven by our risk management solutions. For the full year, revenues were up 9% to SEK 91 million with a positive EBITDA. I think it's also worth noting that despite the current macroeconomic environment, Precise continue to generate positive cash flow from operating activities. The macroeconomic situations remain uncertain, which means that we have a strong focus on cost control. This includes that we are reducing the number of consultants in favor of employees. We have also integrated our EastCoast, recent acquisition of EastCoast into our Precise YOUNiQ business, and we are also optimizing our R&D initiatives.
These savings are expected to have a clear impact in 2023. They are all in line with our increased focus on commercialization of our solutions. We then jump over to our operational highlights for the quarter. As we communicated in the report, the fourth quarter was characterized by the same high level of activity as we've seen before to drive the development of the company for long-term commercial success. During the quarter, we announced a strategic reorganization in our business unit, Digital Identity. Through the reorganization, Precise is merging the sales, customer service, and R&D functions of our recent acquisition, East Coast, with the corresponding functions at Precise YOUNiQ business unit. This will improve the commercialization of both solutions and enable the entire sales force that we have to reach the market with both our products.
We have also been able to present notable success in line with the strategy, including new collaborations with sensor manufacturers such as the French company Isorg. This deal will during 24 months generate a total of at least SEK 11 million only including license and support fees and potential upside in royalty fees. We have also earlier communicated our intent to grow into new verticals for our Algo business. In Q4, it is therefore pleasing that we signed a development agreement with the Korean sensor manufacturer, CanvasBio, to jointly explore possibility to deliver fingerprint technology to laptops. Another important event is that we received SEK 41 million relating to the previously made direct issue to EgisTec and the following rights issue. Egis Technology now holds 12% ownership stake in Precise.
We are also pleased to share that in February this year, Precise joined the Genetec Technology Partner Program. Genetec being a strong access management company in the U.S. market. This is to strengthen our presence in the U.S. market for our YOUNiQ access solution. I think this is a true proof point of us building up sales channels in the U.S. market. Before we deep dive into the different business units, I would like to go through the different business areas and explain them, and also look into a little bit of trends that are driving our development. We have, of course, been around for many years, and have, during these years, established a strong global footprint in Europe, North America, and Asia.
Today, we are organized into two business units through which we provide our solutions. In the Algo business unit, where we offer software for fingerprint recognition and anti-spoofing solutions, which can be used in various applications such as mobile phones and door locks. In this area, we have global customers, which generate revenues from annual license fees and from volume-driven royalties, where we win projects together with them. In the Digital Identity business unit, we offer access solutions based on facial recognition, and this solution we call YOUNiQ. We have a market-leading visitor management solution, which we call East Coast. Our customers in this area is mainly in Sweden and now starting up in the U.S., and this area we create recurring revenue as we're selling our services here as a software as a service business model. If we then look a little bit into the trends.
Our offering and strategic focus is of the global trends we're seeing for biometric applications. Biometrics is all about measuring each person's unique physical characteristics, which then can be used to identify individuals. Fingerprint reading and facial recognition are of course, good example of different types of biometric technology. If we look at the trends for our Algo business to the left here, our fingerprint business, we can first of all see that biometrics are entering new segments and use cases. In our biggest segment, in the mobile space, on the display sensor, the market segment which we are predominantly supporting, it's forecasted to grow. We can also see that new needs and requirements in new verticals are rising, for example, in laptops, automotive, and door locks.
In, for example, the laptops vertical, new requirements comes with Windows Hello, for example, to perform biometric matching on-chip to support higher security when you log into your computer. We can also see that the automotive industry is looking in new user cases for in-car payments, for example, and not only convenient, which also, where also biometrics could come into good play to support this development. For our other business unit, Digital Identity, namely the access and visitor management solutions, we see a global trend of increased security, which can be met by biometric-based access solutions by using fingerprint and facial recognitions to grant access. Biometric access is also very interesting in combination with tags or cards, so you can create a strong multi-factor authentication with really high security.
Both biometric access as well as visitor management markets are forecasted to grow during the coming year. The market overall is forecasted to grow during the coming years. To summarize, there are strong global trends that Precise is well-placed to capitalize over time. With that, let's look into the two business units, and let's start with the Algo business unit. Within Algo, revenue decreased to around SEK 30 million in Q4 from just below SEK 23 million last year. As I had mentioned, this is due to lower demand in the mobile market and high inventory levels at mobile manufacturers and module houses. Furthermore, the decline versus comparable period last year can also be explained by one-off license fee of SEK 6 million last year to two customers in the automotive industry.
Precise, however, I want to underline, stands strong in its strategic partnerships, and as soon as the mobile market recovers, we expect royalty revenues to normalize. In line with our strategy, at the end of the year, we started development collaboration with Korean company CanvasBio to deliver fingerprint technology for laptops, as I mentioned. The partnership is part of our growth strategy for Algo business unit, which include building new partnership with additional sensor vendors and growing into new verticals. At the year-end, as also mentioned, we signed an important deal with Isorg, a French player with a new type of sensor for mobile phones. This is to supply fingerprint software.
We are pleased that, this deal, we have, in this deal that we're supplying more software components, not just the matcher, but also the ISP and liveness, which demonstrates our competitiveness and completeness in our solution in the Algo space. We will continue to explore new related verticals such as automotive, and evaluate new types of sensors that could, over time, provide Precise with a larger market for our world-leading expertise in advanced image analysis. Let's walk over to our Digital Identity area. For Digital Identity in Q4, we showcased a strong finish to the year. Revenue increased to nearly SEK 6 million, increasing from SEK 4.7 million last year.
The increase was mainly driven by our visitor management solution. Sales-wise, 2022 was a strong year, which has resulted in our recurring revenue, the core of the Digital Identity business unit, to increase from around SEK 30 million- SEK 16.2 million by the end of the year. We are happy to have won several deals during the quarter. We won YOUNiQ deals with Iver, Bravida, among others, as well as additional projects with Algeco. We also won EastCoast Solutions deals with Mathem, Office Management, Visma, among others. Operationally, we have a clear strategy for Digital Identity Sweden. We are focused on building sales channels through partnerships with access system vendors and with key installation and system integrators in the market.
To improve the conditions for commercialization, to strengthen our commercialization of YOUNiQ service, we decided during the fourth quarter to integrate EastCoast Solutions and YOUNiQ respective organization as mentioned. Through this reorganization, to underline again, we're merging the sales, customer service, and R&D functions of EastCoast Solutions with the corresponding functions in YOUNiQ. This means that the entire sales force can now sell both product lines. We're also pleased that we in February 2023 can announce that YOUNiQ is integrated into Genetec access platform, Genetec being a very important partner in the U.S. market. We will continue to focus our sales efforts and sales channels efforts on the U.S. market through local presence and partnership.
The integration is therefore an important step in building the sales channels in U.S. after we won our first contract in U.S. for YOUNiQ in the fourth quarter in 2022. With that, I would like to hand over to you, Annika.
Thank you, Patrick. Let's move into the financial performance. Looking at the revenue development over the last two years, we can clearly see the trend where the beginning of 2021 was affected by the component shortage, mainly affecting royalties and low sales number in Q1 to Q3 in 2021. In Q1 and Q2 in 2022, the royalty increased again as the manufacturers in the mobile industry was building up inventories as the situation with the component shortage improved. In Q3 in 2022, the situation rapidly changed into a sharp decline in demand and an overstock at the global mobile manufacturers, which led to a double negative effect in sales. Our royalties are directly related to sales volume, therefore the royalties have been hugely reduced.
The changes in revenue depend a lot on royalties as the license trend over time has been fairly stable. Adding to the trend of revenue is of course acquisition of EastCoast, which was finalized on the 30th of November 2021, and after this contributing with extra revenue. The total revenue of EastCoast during 2022 is SEK 17.9 million. The gross margin development over time is directly related to royalty revenue, as the royalty revenues directly impact gross margin, as it basically does not add any extra cost of sales at all. Also, the increase in Digital Identity where EastCoast is one part affects the margin, so part of the sales is hardware with lower margin. For the quarter, net sales decreased to SEK 19.3 million versus SEK 27.4 million in Q4 previous year.
Net sales was split between volume dependent royalties of SEK 1.9 million versus SEK 6.5 million, and license fees of SEK 12.1 million versus SEK 18.7 million. The license fees include, for example, fixed annual fees for Algo and recurring revenues, so-called System-as-a-Service revenue for Digital Identity. We also have the other of SEK 5.3 million versus SEK 2.2 million in Q4 2021. The royalties were impacted by the decline in demand, as I explained before. The decrease in license fee is primarily due to high license fees in Q4 2021, which included a non-recurring license fee of SEK 6 million for sales to customers in the automotive industry. The increase in other is largely due to hardware sales.
The gross margin for the quarter was 65.6% versus 77.4% previous year. We are working on OpEx reductions, which we mainly will see the effect on from Q2 in 2023. The goal is that we will reach the same OpEx levels as in 2021. That means so before we acquired EastCoast. On the next slide, we're looking at the Algo. From the beginning of 2022, we started to report two different segments, Algo and Digital Identity. We re-report that down to gross margin level, as you can see in the report. So starting with the Algo segment.
Net sales for Algo was SEK 13.4 million versus SEK 22.8 million in quarter four, are reported under royalty at SEK 1.9 million versus SEK 6.5 million, licenses at SEK 10.1 million versus SEK 15.7 million, and other at SEK 1.3 million versus SEK 0.5 million. Last year's component shortage was replaced by a declining demand for mobile phones, which resulted in the low production volumes on the mobile market. The license fees, as I said before, in Q4 last year, we had a license fee of SEK 6 million as a fixed fee, that can explain the higher license fee in that quarter. The gross margin during the quarter was 88.9%. Let's move on to the Digital Identity segment, which consists of the products EastCoast and YOUNiQ.
The net sales for Digital Identity was SEK 5.9 million versus SEK 4.7 million in Q4 last year. This is reported under licenses of SEK 2 million versus SEK 3 million last Q4, and other of SEK 3.9 million versus SEK 1.7 million last Q4. The increase, of course, is primarily due to EastCoast Solutions, which contributed with SEK 4.9 million in Q4, compared - SEK 2.7 million in Q4 2021. Here I must say that this included only December, as the acquisition of EastCoast Solutions was completed the last day of November in 2021. The gross margin during the quarter was 12.5%. The gross margin in Digital Identity is lower than the Algo segment as a high proportion is hardware.
Also the cost in Digital Identity's cloud platform was unusually high in the fourth quarter as a result of updating and migration of EastCoast Solutions' application to Precise Biometrics' production environment. This cost will be normalized during Q1 2023. From quarter four, we are following up on Annual Recurring Revenue on a more detailed level for EastCoast Solutions. The Annual Recurring Revenue for Digital Identity is SEK 16.2 million in the end of December 2022. We're very positive to the development of the recurring revenues in Digital Identity, as we are more and more moving from on-prem installation with point-in-time sales to a cloud-based solution driving recurring revenues. This change affects the revenues negatively right now, but instead it will give us revenues going forward. Therefore, we believe in a double-digit growth going forward.
On the next slide, we're looking at the cash flow. The cash flow for the quarter from operating activities was SEK 0.3 million, versus SEK 3.2 million last year, of which SEK 2.4 million, compared - SEK 2.7 million last year, depend on changes in working capital. The group invested SEK 0.1 million versus SEK 0.6 million last year in property, plant, and equipment during the quarter. The group also made a payment of SEK 30 million for the acquisition of EastCoast, and the proceeds of SEK 41.5 million from the share issue were completed during the third quarter and was paid out during the fourth quarter. Total cash flow for the quarter was SEK 5.2 million, compared - SEK 8.4 million in quarter four last year.
Looking at the full year, the cash flow for the full year period from operating activities totaled SEK 3.9 million versus minus SEK 1.5 million last year. Of this, SEK 3.1 million versus minus SEK 2.6 million is attributable to changes in working capital. Also looking at the full year, as we said we had a, we carried out a new share issue of SEK 41.5 million after issue cost, and we made a total payment for the EastCoast acquisition of SEK 38.3 million as we did a payment in the beginning of the year as well. Cash and cash equivalent per December, the 31st of December, was SEK 46.4 million, compared - SEK 64.1 million in the end of the year 2021.
If we look at the summary of the total year of 2022, net sales for the full year was SEK 21 million versus SEK 83.3 million, which equals to a growth of 9.2%. Net sales for segment Algo for the full year was SEK 67.8 million versus SEK 76.8 million last year, which is a reduction of 12%. That depends mainly on royalties, which actually decreased from SEK 31.3 million in previous year. This means that except for the volume depending royalties, the sales in segment Algo have increased slightly in 22.
I see this as a good sign because it shows that the underlying business is stable, as soon as the volumes in the mobile industry comes back to previous levels, the company is in a good position. Net sales for segment Digital Identity for the full period was SEK 21.2 million versus SEK 6.6 million last year. This is mainly explained by the acquisition of EastCoast Solutions, and the total contribution from EastCoast Solutions was SEK 17.9 million versus SEK 2.7 million last year, which again, was only December sales. The gross margin for the year was 71.9% versus 76.3% last year. It depends mainly on higher proportional sales with Digital Identity and the reduction of royalties from the Algo segment, which has really high margins.
Operating expenses for the year increased to SEK 85.5 million compared to SEK 77.6 million. That is primarily due to the addition of expenses for EastCoast, which was SEK 14.8 million compared to SEK 1.2 million last year, which was again only December. We are continuously working on reducing operating expenses. As I said before, we expect to be in the same levels in 2023 as before the acquisition of EastCoast. The pro-profit at the EBITDA level was SEK 1.1 million versus SEK 1.9 million last year. The cash flow for the year from operating activities was SEK 3.9 million versus -SEK 1.5 million. Back to you, Patrick.
Thank you. Thank you, Annika. As stated, we've been able to present significant success in line with our strategy during the quarter and generated a positive cash flow from operating activities despite the uncertain macroeconomic situation. Before I summarize the key takeaways from the quarter, I would like to go through the priorities and the growth strategy for Precise. Let's look into that. We have a clear growth strategy for both our business units in Precise. For the Algo area, our fingerprint area, we intend to leverage our strong world-leading position by focusing on our strategic partners within the mobile phone segment, so that we together with them can jointly win new project, which means that we are included in new generations of smartphones. I think that we are well-positioned in these partnerships today.
We will also continue to broaden our business to new verticals such as automotive, laptops, et cetera, also to new types of sensors. We also, as we are world leading in image analysis, are also exploring more use cases, even outside of fingerprint biometrics, to broaden the addressable market for our advanced algorithm. Our vision in this area is to become a strong software powerhouse for advanced image processing. I'm also very pleased that we yesterday could announce that Joakim Nydemark will join Precise as EVP and CCO Algo from the 1st of June. Joakim is presently working at Crunchfish. I firmly believe that Joakim's background will give a strong support and boost to our strategic growth journey within the Algo area. Very welcome, Joakim.
We also see solid opportunities across the market for Digital Identity, which we intend to capture. This will be made via focusing on building partnership with strategic access installation partners in Sweden. This will give us stronger go-to-market channels. We will also focus on the U.S. market, where we see good signs, such as the recent deal with St. Lawrence Health in N.Y. and the recently announced Genetec partnership. We will continue to develop an integrated solution based on existing products to manage people flow. Our vision in this area is to be leading provider in people flow management. Overall, the focus is on commercialization of the opportunities we see in each of these business areas. Good. Let's look at the key takeaways to conclude.
I am pleased to see that Precise is growing 9% for the full year with a positive EBITDA and a positive operational cash flow, despite that we are temporarily affected by a very weak mobile market. During the quarter, we have improved our cost structure. These savings are expected to impact Q23, as we expect operating costs to be similar to 2021, as Annika explained. We also include EastCoast Solutions cost base in the 2023 figures. We are also showing solid growth within Digital Identity when it comes to recurring revenue with over 25% - SEK 16.2 million. In addition to that, we reached a significant milestone in line with our strategic, through cooperation with CanvasBio, as well as the commercial agreement with Isorg during the quarter.
We will continue to focus on building sales channels in the U.S., where YOUNiQ is being integrated into Genetec's access platform. This is seen as an important step for us. Good. To finalize the presentation, let's end with what Precise is all about. Using our biometric solution, she or he should know that no matter who you are, where you are, and what you do, you are the key. I would like to thank you all for listening in. Let's conclude now and go over to the Q&A session and turn to the next slide. Over to you, Financial Hearings, if there are any questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. There are no more questions at this time, I hand the conference back to the speakers for any closing comments.
Yes, thank you. We have got a few written questions. Let's start with them, and then we can come back if any other question comes in on the way. I have one question here in Swedish. I will translate it. The cooperation with Isorg is continuing until 2024 with revenues of SEK 11 million . What's your margin, and what happens when the agreement ends, and what do you expect as revenue after that? I think that it's important to see that the partnership we done with Isorg is a strategic partnership between us, where we're working together to improve the quality of the sensor that Isorg is taking to the market. The software part which we are delivering is a very significant and important part of them winning future projects.
The SEK 11 million that was announced is only for support fees and license fees. It's not including potential royalties, if and when they win new projects. When it comes to the margins in the Algo business unit, we have 88.9%. Correct me if I'm wrong, Annika, overall margin. Of course, this is software delivery. Of course, these kind of deals comes with very high margins. Yeah, I think I'll stop there.
Yes. We also have a question about the total cost for R&D during 2022 and what we estimate them to be in 2023. As you can see in the report, the R&D costs are SEK 34.9 million, actually, when you look at the functional income statement. As we said before, the target for OpEx is to come back to the levels of 2021. The savings that we do is a reorganization of EastCoast Solutions that affects basically sales and R&D and management. We're also working on changing consultants to employees. We are also reducing the R&D costs within YOUNiQ because we think that we spend a lot of time to get the product up and running, and now it's more to commercialize.
We're not reducing any employees when it comes to Algo. Again, we are working on lowering the costs by having employees instead of consultants.
Good. We have another question here. How do you estimate the revenues when it comes to the cooperation with Infineon concerning fingerprint technology in automotives? The technology should use different applications, including automated adjustments of driver settings in a car. If we look at Infineon, if we look at the sort of cooperation we have in the automotive area, we announced that deal last year, in Q4, and we have sort of a base, we booked a base of license and support fees for that part. However, royalties are expected to come in later this year.
We can see that in the automotive space, the independent predictions is that the market will double between 2023 and 2024 when it comes to biometrics within cars. We can also see that user cases are extending. Initially, the user case was very much connected to convenience, like user settings and so on, where you could use biometrics to ensure that you got the right settings when you're driving. I think the interesting part is that some car manufacturers are also exploring in-car payments as a option for with biometric support, which of course further really strengthen user cases.
In this case, also from a personal note, I think that fingerprint. It's a very interesting solution there as it shows clear intent when you're pushing, your finger to something and then accepts a payment versus other techniques.
We also have questions about our estimations of our sales in the coming years. As we said before, we don't give out forecast regarding that, actually.
What we stated is that we believe in a double-digit growth for the recurring revenue, in the Digital Identity area.
Yeah.
How big part is EastCoast Solutions of the total turnover for the company, which now should be fully integrated in the company? What kind of revenue growth do you expect in EastCoast Solutions? The revenue part in EastCoast Solutions was from EastCoast Solutions was SEK 17.6 million, approximately 20% of the revenues.
17.9, actually.
Okay. Thanks very much, Annika. We are correctly, we are integrating EastCoast Solutions into the Digital Identity area and don't report EastCoast Solutions standalone. What we can say is that EastCoast Solutions solution itself has a positive cash flow contribution. The guidance we're giving is the ones that you gave when it comes to double-digit growth in the overall Digital Identity area when it comes to recurring revenue.
Also to add to that, I mean, as I said before as well, we are more and more moving from on-prem solutions with point-in-time sales to a more, like, software-based, system service solution, which, of course, affects net sales now, but it gives us a future, income flow instead.
Good. If no more, oral question, we can have a look at that in the line, if there anyone in the queue, Annika. No.
No.
With that.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Thank you so much. Once again, thank you all for listening in, to the quarterly report from Precise, for Q4. Thank you very much. Have a great day.
Thank you.
Bye-bye.