Welcome to the Precise Biometrics Audio Cast with Teleconference Q4 2021. Throughout the call, all participants will be on listen-only mode, and afterwards, there'll be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I am pleased to present Stefan Persson, CEO, and Annika Freij, CFO. Please begin your meeting.
Thank you, and good morning, and warm welcome to Precise Q4 and End of 2021 Presentation. This will be my final presentation for Precise Biometrics, and I will do together with the CFO, Annika Freij, present very stable financial result and also give you some highlights on how we see the next coming quarters.
Please now turn to page two. 2021 was very interesting year. We made great progress in the Digital Identity and Algo area. Despite the corona situation, we ended the year in a very strong way. We were able to increase our sales in last quarter compared to the same quarter 2020, and we also had a huge sales increase in the Digital Identity area. Out of last nine quarters, we have now had eight quarters that have been a bit positive.
We have also shown that the base for Precise is solid and that we have been able to run an efficient setup despite the COVID situation. We have now two business units with huge opportunity for growth. The focus and ambition for 2021 were to land the full year at the positive EBITDA level, and now we have delivered that, a fantastic result during the existing circumstances.
The base is the Algo business, and based on that, we have now established the digital identity business. The journey in front of us is clear that we should continue to grow the two business. We will later show how the DI have grown, and with the acquisition of EastCoast, now we have a healthy DI business, above SEK 20 million that will continue to grow.
We acquired EastCoast Solutions, the leading provider of visitor management system, and we complete several successful installations of YOUNiQ, also outside Sweden, where we had the first installation at Algeco in Germany. In our Algo business, the component shortage among our customers continued in the fourth quarter, which contributed to reduced royalty income.
We also, at the end of the year, signed a license agreement with two new customers in the automotive industry. Sales for Q4 2021 landed on SEK 27.4 million versus SEK 22.5 million, quarter four in 2020, which is a 22% growth, primarily driven by increased license revenue within our Algo as a result of business in the automotive industry in combination with progress in the Digital Identity area.
Through the acquisition of EastCoast, we have increased our base of recurrent revenues, ARR, with good profitability, and through our SaaS model, we have ARR in order of approximately SEK 30 million at the end of the year. This area will continue to grow coming periods, and over time, be the major sales contributor for Precise.
Sales in the Digital Identity amounted to SEK 4.7 million versus SEK 0.1 million the year before in the fourth quarter. Once again, a huge growth compared to last year. We have an interesting pipeline with, among other things, pilot projects with EastCoast that are planned for commercialization during first half of 2022 and further projects within existing customer base within YOUNiQ.
Like the first nine months of 2021, the fourth quarter was also characterized by a continued lack of components at our suppliers, which had a negative effect on the royalty income within Algo. Despite this, we achieved an EBITDA result of SEK 1.7 million versus SEK 0.7 million the year before in Q4.
Mainly due to new customers in the automotive industry, as well as the acquisition of EastCoast, which delivered its best month of the year in December. We have continued to focus on strategic partnership. After the end of the quarter, we entered into a partnership with Infineon to provide our fingerprint technology, Precise BioMatch, to automotive industry.
This partnership offers many opportunities in the future in a new vertical, which is completely in line with broadening what we are doing within Algo, and we see potential for more areas of use in the long term outside the automotive industry. Now please turn to page 3, the vision. Our strategy and vision, no matter who you are, where you are, and what you do, you should always have access to your Digital Identity, owned and controlled by you in a safe way.
This is how we build our solutions, how we communicate in all forums, and execute accordingly. You are the key for all applications and resources, and everything is owned and controlled by you. Now we have added the visitor management area into our proposition and also the car industry, two more verticals with a solution.
We have the foundation for growth in all areas where you are the key. Now please turn to page four, the Digital Identity. This business area continues to grow rapidly. The Digital Identity area will be the major sales contributor for Precise in the future. Addressable market, as presented earlier, is huge. We have the product now in close to 70 installations and a churn rate of 0%.
This means that we have a stable product line offering and a very good quality. During the period, we have been able to sell it to Sodexo, which will use it for entrance at their own headquarters. With Sodexo, we have the opportunity to grow at their own premises, but also with them to address the solution to their customers. Upsales and sales via them as a partner.
We have also a new combination now with EastCoast, where we will very soon present the first product version at Sectech in Norway, 9th to 10th of March. This means that we will combine our offerings, and by that address new features to an existing customer base very soon. During the year, there will be several feature upgrades and interesting user cases that we will support.
Another achievement was the first installation at Diös Fastigheter, which means we now also address the solution directly to different property owner companies. First installation at our own headquarters, but ambition to roll out to other facilities during the year. We also continue with our own sales forces to sell to mid-size companies, such as the installation at, for instance, Acconeer.
On top of this, we can now also see a very interesting trend where installation partners start to contact us directly for quotations. One very important contract lately is the one with Sveaskog, a very good installation partner for us. Integration with existing access platform suppliers continue, and now we have integrated with all major players in the Nordic region, such as RCO, ARX, Integra, et cetera.
In the last quarter, we also added TIDOMAT integration into the list. We will of course continue this journey going forward, especially when we go outside Nordic countries over time. One other very interesting area going forward is the environmental control, energy, and power saving, which we will install at the customer now in Q1 2022.
Very interesting to see different applications, not only access, but in this case, you are the key for saving energy, and by that, reduce the negative environmental effect by using our unique solution. Now please turn to page number five.
ARR. One of the most important performance indicator is the annual recurrent revenue, ARR. This is the key metric used for our SaaS subscription business within the Digital Identity area. As you can see, we have increased our recurrent revenue rapidly due to the acceleration of YOUNiQ and the acquisition of EastCoast.
Our ambition is to continue the growth in this area now with a combination of YOUNiQ and EastCoast product portfolio. The revenue today is more or less 100% related to the Swedish market, and we have just started that journey. We ended 2021 with approximately SEK 13 million in ARR.
Now please turn to page six, Algo. Once again, very solid revenues with high margin in the Algo product area, despite continued COVID effect on semiconductors availability and components shortage. There is a clear trend of stronger market demands for Algo sensors.
As the semiconductor availability returns to normal, it will of course take some time, but we have been able to handle the situation in a very fast and efficient way, and of course, we'll continue like that pending how the market develops.
Even if some of our customers have been suffering due to the situation, we have been able to compensate with new customer, new verticals within the Algo business. Lately now, two new commercial license agreements with two ODMs, which will use Precise BioMatch for vehicle application.
We have also after Q4 announced a new collaboration with Infineon Technologies, to jointly provide fingerprint technology, including Precise BioMatch for the vehicle industry and potential other applications. We have a very solid position in Algo, high margin, positive cash flow. With a fantastic team, we can continue to building up for new applications area, customer, and partners within Algo area. By that, I hand over to our CFO, Annika Freij.
Thank you, Stefan. Please turn to page seven. Q4 has been a truly eventful quarter, both within Digital Identity and within the Algo business. In Q4, we were proud to present what we have been working on for a while within the Algo team, which is using our fingerprint solution in the automotive industry.
It's a quite different setup compared to industries we're used to, with longer production cycles and higher unit prices. It's good that we have managed to broader the customer base as we still suffer from component shortages. Our strategy continues, where Algo business is funding the development of the Digital Identity business. With the acquisition of EastCoast, our Digital Identity business has taken a big step forward.
We have a goal to increase the SaaS business within the Digital Identity area, and the acquisition has created a good base to build from. We are increasing our annual recurring revenue with more than 3,000% compared to the end of the year 2020. We have quickly started to work on efficiencies and joint solutions, and we look forward to soon show you our first solution from Precise Biometrics and EastCoast.
Please turn to page number eight, net sales and gross margin. Net sales during the quarter were SEK 27.4 million versus SEK 22.5 million previous year. Net sales were split between royalty revenues of SEK 6.5 million versus SEK 10.9 million previous year.
License fees, including support and maintenance of SEK 18.7 million versus SEK 10.7 million previous year, and other of SEK 2.2 million versus SEK 0.9 million previous year. The component shortage and therefore lower sales volume among our customers resulted in lower royalties. The increase in license fees mainly depends on two new customers in the automotive industry, but also due to the acquisition of EastCoast.
The reason for the increase in other is mainly due to hardware sales due to new installations within Digital Identity. The Algo business is healthy and profitable, delivering a strong cash flow. The component shortage and lower sales volumes among customers reduced royalties, but we increased the license fees in the quarter.
These new customers will also contribute with royalties based on actual sales numbers together with a recurring fee for support and maintenance starting in 2022. We have increased our Digital Identity area with the acquisition of EastCoast, but we also see a lot of activities when it comes to YOUNiQ. We had new installations in Q4, and we are working on new installations in 2022.
We have been improving and integrating YOUNiQ with other solutions, and we have been building a big partner network, and this is beginning to pay off. We are also working closely with big customers like Algeco, which is important for our growth. The gross margin during the quarter was 77.4% versus 84.7% previous year.
The decrease in gross margin is primarily due to lower margins on hardware than on software and increased amortization of capitalized development expenses. Total amortization of capitalized development expenses was SEK 3.2 million compared to SEK 2.6 million previous year. The increase in amortization of development expenses related primarily to Digital Identity.
Amortization of acquired intangible assets was SEK 0.3 million compared to SEK 0.2 million previous year. Please turn to page nine. The profit at the EBITDA level was SEK 1.7 million in Q4 versus SEK 0.7 million previous year. Operating expenses for the quarter increased with SEK 2.2 million, totaled SEK 23.9 million versus SEK 21.7 million previous year. We had expenses relating to the acquisition of EastCoast of SEK 2.6 million.
We continue to have a tight cost control, and we are continuously working on efficiencies, mainly within research and development. This means that our operating expenses, if we exclude the acquisition costs, actually was lower than previous Q4. Earnings per share for the quarter was SEK -0.01 versus SEK -0.02 in Q4 last year.
The operating loss for the quarter was SEK -2.7 million versus SEK -2.6 million previous year. The slightly higher operating loss is explained by the higher net sales, but lower due to the higher operating expenses. Please turn to page 10. Cash flow. The cash flow for the quarter from current operations was SEK 3.2 million versus SEK 12.2 million last year.
Of this, SEK 2.7 million is due to changes in working capital, mainly a reduction of current liabilities. The group invested SEK 0.6 million in property, plant and equipment during the quarter versus SEK 0.6 million last year. The 30th of November, Precise acquired EastCoast Solutions to a total price of SEK 86.2 million. SEK 24.5 million was paid at the 31st of December 2021, partly via cash payments of SEK 18 million and partly via the issuing of 7 million new shares totaling SEK 6.5 million.
An additional SEK 8.3 million has been paid in cash after the end of the year. The remaining SEK 55 million will be paid on two occasions. SEK 25 million will be paid in November 2022, and SEK 30 million will be paid in November 2023.
As a part of the financing of the acquisition of EastCoast, a special issue of 28.8 million shares was also made corresponding to an amount of SEK 23 million. Capitalization and amortization of development work. Development expenses of SEK 4.1 million were capitalized during the quarter compared to SEK 5.1 million in Q4 last year.
Amortization of capitalized development expenses was SEK 3.1 million during the quarter versus SEK 2.6 million previous year. Capitalized expenses are amortized over a three-year period for the Algo as well as Digital Identity. Cash and cash equivalents at the end of the period totaled SEK 64.1 million versus SEK 76.3 million in the end of Q4 last year. Back to you, Stefan.
Thank you, Annika. Please now turn to page 11, the summary. Despite the COVID-19 effect on semiconductor availability impacting royalty revenues within Algo, we grow our sales for Q4 to SEK 27.5 million versus SEK 22.5 million last year, an increase with 22% . We continue with further successful integration of YOUNiQ, a new strategic partnership within Algo.
We expand our Algo solution into new applications area, which positively impacted license revenue. We also continued expansion of our SaaS business area, Digital Identity, with a solid platform for continued ARR growth, now with approximately SEK 30 million in ARR end of last year. We acquired EastCoast Solutions, which means a very solid base for Digital Identity, a base of more than 650 customers where we can do upsells and by that foster acceleration and growth.
You are the key. Now I hand over to the moderator, and you are free to ask questions. We have also received some questions via mail, social media, et cetera, and I will take them after you have asked the questions online. Thank you.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial zero two to cancel. Currently, we have one question on the phone line so far, and that's from the line of Rebecca Grocke of APG. Please go ahead. Your line is open.
Hi, Stefan and Annika, and thank you for taking my questions. I have one question regarding EastCoast Solutions that delivered the best month in the year in December. What approximately how much sales did EastCoast Solutions contribute with, and what can we expect from this going forward?
Yeah, thank you, Rebecca, for the question. As we presented in the material that was sent out prior to this call, they delivered SEK 2.1 million in December. It was the best month during last year. They have, of course, been affected by the COVID situation.
People have not prioritized the visitor management system while all people have been working from home. That has changed now. We can see a clear trend that more people are going back to the office, and by that they have got a lot more requests about the system and system integration and all that.
Our , of course our ambition this year is that we, together within the DI setup, will deliver more than SEK 20 million in this ARR area, of course, as presented earlier. There is a good trend within both the YOUNiQ and EastCoast Solutions. We will come back to that within the Q1 result that we presented later, but so far the year have started in a good way.
Nice to hear. Also one question about the royalty sales, lacking from customers, due to the component shortage. How have this continued so far in Q1, and what effect should we expect there going forward?
We still have a lot of interest. We still have a lot of optimizations together with our customer base, which means there is a lot of ongoing discussion with their customer, which is really good. We can see some positive signals, but it's too early to make any conclusions when it comes to component shortage in the market and how that affect our customers.
So that we also need to come back when we present the Q1. It's not going in the wrong direction. I think it's going in the right direction. How the effect will be for Q1 is impossible today because they're reporting after the Q1, so we have not seen any results so far.
Okay. Thank you very much. Thank you.
Thank you.
Thank you. Once again, if there are any further questions from the phone lines, please dial zero one on your telephone keypads now. Okay. There seems to be no further questions coming through from the phone, so I'll hand back to you for the emailed questions.
Thank you. We have several questions here, so we try to group them together. We got one question regarding a specific phone, Samsung Galaxy S22, and also the one phone from Vivo, iQOO 9 Pro. The question is that if we are part of that or not as a supplier of the Algo. As always, when it comes to if we are part or not part of a specific phone, it's very tricky to get out information from the vendors.
They report quarterly of the usage, and that is one challenge. Another one is, in many cases, they're also using second and third source supplier, which means it's extremely tricky to estimate volumes and to really understand if you're part of a full model or not.
Some of the vendors inform directly to us, and then, of course, we communicate directly, either as a PR or as a news flash, depending on the estimated volume and the financial impact. As soon as we get the information, I have seen a lot of comments on social media and all that, and that's not any official communication.
We have direct communication with our customers as Egistec and Qualcomm. When we receive information that we are part of a phone, then of course we communicate that directly to the market, as requested and required. Another question is that if we believe that Qualcomm will increase their sales 2022 compared to 2021. Once again, extremely tricky for us to estimate.
That's what we can see is that they are very active with a unique solution in the ultrasound area. Large sensor area start to get the traction. In the end, how successful they will be is impossible for us to estimate. They have a very good product, and we of course are in deep collaboration with them and to help to develop and launch the best solution for them.
In the end, it's up to them to be successful with the different mobile phones OEM. An indication can be that we see more activities this year compared to last year. Another question is that last year in September, we presented the cooperation with Doro, another Swedish company in the health area.
The question is that if we have more information to the market and what will happen going forward. Proof of concept is ongoing. We have direct discussion with some of their customers about the first proof of concept/test installation. Hopefully before mid this year, we will have something up and running together.
Then, if we're really lucky, roll out later 2022. It will not have any major financial impact on 2022, but it's a very interesting area for the future. The digitalization in the health area is a must, and with our technology that we can provide and help Doro, they will be the leading player in this field. Another question is regarding Samsung.
Samsung recently presented a new solution for biometric cards, and the question is if we are part of that. We have had several cooperation with Samsung's different area, and we have that still. We have not received any information that indicates that we are part of their card solution.
Still, as we have communicated several times, and a clear indication from the market is also that the card business has not taken off. This is not our main business right now. It might change over time, of course, but we wait for volumes in this area. We are ready to go, but so far, no indication of any real contract. A lot of tests out there, of course, this will not have any impact on our business, 2022.
We have questions regarding the payment of EastCoast, and that we have split that payment in three part. We have paid the first part first of December last year, and now we have a payment here this year and then a payment next year. The cash situation for that, we have a very solid cash situation, as Annika presented earlier.
Our Algo and EastCoast operation is extremely profit-generating business, very healthy, good cash flow. As presented, we have been invested in YOUNiQ for a rapid growth to accelerate the sales. Now with our product proposition, where we combine YOUNiQ and EastCoast, we can accelerate our positive growth even faster.
There are more questions regarding Infineon and opportunity there and if there are opportunity outside the car industry. Step one now is the car industry. Of course, we are very pleased about the solution and open to try to sell it to other applications.
Not any specific defined areas right now, but all embedded solutions where Infineon think this is a solid solution, then of course we support them in that area also. Step one now is the car segment. There is a question about if we are looking into the sensor business area for laptops and computers. Absolutely yes. Together with our partners, we can see some very interesting opportunity in that area.
The total volume for computers are of course less compared to the mobiles, but yearly a very stable volume with interesting audience. Absolutely on our radar together with our partners. There have been some questions about our information strategy, how we communicate to the market. I will repeat myself. I have told the market several times how we do that and exactly the same as we have discussed earlier.
We will press release activities such as significant strategic shifts within the company, if there are any changes in the board of directors or senior management, activities that have a significant financial effect, short-term or long-term, that we will of course communicate with PRs, and strategic partnerships that we will also communicate with via PRs.
There will of course, more or less, not weekly but monthly be additional communication via our communication channels like social media, internet, et cetera, where we update with you about interesting contracts or any other interesting information about Precise. That was the last question. I would like to.
Maybe we got one more. We got one more question about the car contract and how we have handled the income there. One part is related to the platform where they bought the platform license that we got now here last year. Then there is a royalty related to a number of units that will be shipped out that will start from mid this year, approximately.
We don't know exactly when the car will be delivered, but they have said that hopefully they will start to ship mid this year, and then we'll of course get royalty out from that also. Out of the SEK 9 million approximately Swedish Krona we got, there is SEK 6 million that is related to the platform's licensing in the 2021 result. The rest will be in the coming quarters as fee for handling adaptations before the launch. That is how the first payment here for our Algo.
I would like to thank our shareholders, partners, and of course, the most important, our employees for being part of this Precise journey so far. I will now from 1st of March hand over to Fredrik Sjöholm as Interim CEO until Patrick Höijer comes on board as the new CEO from 1st of June.
I'm convinced that Fredrik and Patrick and the team will continue to advance the company position as a leading global supplier of identification software where you are the key. Thank you, and goodbye for this time, and thank you for listening. Stay safe and have a great weekend. Thank you.