Earnings Call: Q4 2020

Feb 16, 2021

Thank you, and good morning and warm welcome to Precisei's Q4 and Year End 2020 Presentation. I will, together with our CFO, Olek Nielsen, present the financial results and also give you some highlights on how we see the next coming quarters. Next slide, please. Once again, I'm happy to present another quarter with a positive EBITDA. The sales is in line with our early communication, and we had the total sales of SEK 22,500,000 in this 4th quarter. We have a very good cost control and we've been able to continue our investment in the unique with clear focus in the access area. We have also positive cash flow and by that been able to strengthen the cash situation for the company during 2020. We continue to roll out the unique with focus on building the platform and ecosystems around the product offering with different collaboration such as recently announced the Cellhard Corporation. And they have installed a system at their headquarters to be able to show it to customers. We continue to open up for integration and different cooperation. This is the key area for us in the go to market strategy to be able to accelerate the rollout of unique access product. We have also launched a new marketing profile with focus on You Are the Key, which means a very clear message to the end customer and partners, easy to remember and easy to understand, simplicity in all aspects. In our mobile area, we have now Our next generation algorithm to some of our partners. This means we, together with these partners now, have the possibility to win even more contracts. In general, a very tough environment with a lot of players involved, so it's tricky to estimate and forecast the 2021 revenue. Even if the industry have been hit by the corona situation, we have been able to continue to deliver our software to our partners, and we have today a very stable way with strong teams in Asia, Europe and U. S. And due to that, we have been able to deliver Q4 as early communicated, which means we ended 20 2020 with a small growth and with a strong cash situation, so our investment in Uniq continue as planned. Next slide, please. The vision. We continue to communicate our strategy and vision in all forums. No matter of who you are and where you are and what you do, you should always have access to a digital identity, owned and controlled by you in a safe way. And we have now started to communicate even more about the benefit of that, you are the key. One identity verified by your biometrics and used in different applications and resources, a digital end to end solution controlled and owned by the user. Next slide, please. The digital identity. 2021 will be the year we focus on larger account in unique area. 2020 was sold indirectly to end customer to get enough reference and installations for the future. Now the focus will be on installation partners and distribution partners. We have 6 main verticals we address: constructions, apartment blocks, commercial buildings, industrial buildings and public. Due to the corona We see a slowdown in the gym and commercial buildingsoffices. Gym market suffers a lot and more people working from home, which means less opportunity in the commercial buildings right now. But the Construction and Industrial buildings is still open, very interesting in upgrade and of new installation of YOONIC. Today, we have integration with Acio Telkred Axis NS2, and there will be more coming around the corner. The idea to have a light integration with all access system and then deeper integration with the major larger player. Also to make sure we have an open platform so other players can integrate with us. We recently launched our affiliated program together with direct Sales and Via Distributed and Integrators and Platform Companies, we will address the whole market. We have today 50 installations and more to come. Next step now is more installation with Algeker, for instance, previous temp space company, but there are also other accounts ongoing. The plan now is AR homepage present all installations going forward, so you can follow the progress in real time. We just signed our 1st contract in U. S, which is a very important milestone. Our focus is still Nordic and especially Swedish market, But our sales office in U. S, we can see an opportunity in U. S. Also. We will start in a very controlled way now with integration with S2 to in U. S. We entered the market last year, 2020, and it will take some time to get up large volume. But the market is there, And we have just started a very interesting journey for Precise in this area. Next slide, please. Mobile. We just launched our new generation of Algon, which we have delivered to our customer and to some of the OEM partners. As always, very tricky to predict the volume and so far for 2021, but much better situation compared to some years ago. The new Algo helps So our customer with preprocessing capability, so we can get better total quality for the OEMs. We continue to deliver according to our brand high quality and high security. We can also see an increased interest in the liveness part. A clear trend now More and more of people interact is to be at a mobile phone, such as payment, etcetera. And therefore, high security is a must. Multitapping and continuously authentication will come, but maybe also multimodality where you combine different type of biometrics. We strongly believe in fingerprint for the personal devices such as mobile and computer, but face for public environment. A stable mobile business in combination with acceleration in YOOIQ give us a very interesting future. The next slide please, Smart Card. The pandemic situation increased the need for contactless payment. It's actually more relevant than ever, but we don't foresee any volume this year in the card area. Precise is not pending on this segment. We see it as a bonus if it will happen. The ease of use and reliability to work in all environment is a must. Then we also need to see a clear cost of mass production and volume. As earlier communicated, our prediction together with our partners is that 2021 will be very limited volume in this area. There are more technology and optimization in the industry needed before launch. We can also see a strong increase of other digital payments such as via mobile phones or direct rear phase is gaining more and more attraction. SupreCise don't need volumes in the SmartCall area for future success, and it will be a bonus if and when it happens. Important part is that you are the key for future payment, independent of Carrier, Flow, Card or JASM Biometrics. By that, I hand over to our CFO, Ulrich. Thank you, Stefan. Execution of our strategy continue, And our Algo business is healthy, profitable, and our work towards expanding our role with taking responsibility for larger parts of the delivery shows success. Precise Unique has received very good reception in the market, and we continue to add customers and do upsells to the existing customer base. Please turn to Page 8. Net sales in the quarter totaled $22,500,000 versus $38,800,000 last year. Net sales was split between royalty revenues of SEK 10,900,000 versus SEK 20,000,000 License fees, including support and maintenance, of SEK 10,700,000 versus SEK 17,800,000 and other €900,000 versus €1,000,000 previous year. The decrease in royalty in the isolated quarter comes from more even royalty distribution in 2020. We then have a negative impact from the appreciation of the sec versus the U. S. Dollar of 12%, which is approximately SEK 1,500,000 under royalty revenue. This is in accordance with the sensitivity analysis that we gave in the annual report for 2019. Additionally, quarter 4 in 2019 was fairly high. Fall in license fees is a result of previously communicated strategy in which we focus on deeper collaboration with fewer customers. We have, in this change as well, successfully implemented an increase in the base license fee. Annual license fee as well as supporting maintenance are sold as a license to the customer, which is paid in advance, 3 to 12 months, whereas royalty is a usage based license, invoice based upon usage and consequently paid in arrears. Based on the way we sell, the combination of annual license fee and support and maintenance, they should be analyzed together, which is the rationale behind that we now combine the two lines. Gross margin during the quarter totaled 84.7% versus 91.9% previous year. Change primarily related to the change in the product mix. Total amortization and write downs of capitalized development expenses was SEK 2,600,000 versus SEK 2,800,000 previous year. And the amortization of acquired intangible assets totaled $200,000 versus $200,000 previous year. Please turn to next page. We continue executing the strategy, and the work in deeper collaboration with key customers is allowing us full leverage on the scalability. We are then developing our capabilities within digital identity and improving our ways of working. Overall operating expenses for the quarter decreased by $1,400,000 and totaled 21,700,000 versus NOK 23,100,000 previous year. We continue to improve the ways of working, driving both the efficiency and effectiveness, and we're leveraging on the digitalization tool. Digital Identity, We see that the potential is further confirmed, and our strategy is investing in the capabilities. We see that in R and D as well as in developing our sales channel capabilities. Operating profit and loss for the quarter totaled minus SEK 2,600,000 versus SEK 12,500,000 previous year. Decrease in the operating profit loss is explained primarily by the lower net sales and the lower gross margin. EBITDA is positive for the 6th consecutive quarter and totaled SEK 700,000 versus SEK 16,000,000 previous years. Please turn to next page. Financial position and liquidity. Well, cash and cash equivalents increased at the end of the period and totaled SEK 76.3 €1,000,000 versus €73,700,000 end of last year. Our business model shows efficiency, allowing growth with minimal need for incremental working capital. The cash flow for the quarter from current operations totaled SEK 12,200,000 versus SEK 14,300,000 previous year, of which SEK 10,600,000 is attributable to reduced capital tied up. The group invested NOK 600,000 in profit, plant and equipment during the quarter. Back to you, Stefan. Thank you, Rick. And then back to slide next slide, the summary. So the summary. A growth year on year and a strengthened financial position, which means we continue our journey according to our strategy. We have a very solid position within mobile, a very competitive market, and we have successfully developed a new generation of fingerprint technology available for the market this year. Due to the success in 2020, we have invested a lot in Unique and a digital identity for the future growth. This is key for future success, and we will continue to invest in this area during 2021. We have, as you know, identified a diversable market potential of SEK 1,000,000,000 by 20 25 just alone in Sweden for a unique access product. And we continue to secure the future with Strategic collaboration for Ynique and the sales activities will be our main focus for 2021. So a stable mobile business in combination with acceleration unique gives us a very interesting future. Next slide, please. So thanks a lot for listening in. And now we open up for questions. Thank We have a question from the line of Jesper Bjerg Jensen from ABG. Please go ahead. Good morning, Stefan and Ulrik. I have a couple of questions here. First off, Stefan, you addressed a little bit, but do you expect to see top line growth in 2021, I know you see it's I said it's hard to forecast here, but any input on that would be great. And also, What kind of contribution do you see from Aegis Technology during 2021 seeing as it's been a strong driver in 2020 and Q4 2019? Yes. So thanks for the question. When it comes to the top line there, it's very tricky to do any forecast for 2021. It's a very challenging market in the mobile and the mobile will be the major driver also for 2025 2021 until we have accelerated the unique and even out the sales for the 2 different business units there. As you said, EDGIS is the major contributor to the top line and EDGIS is our main customer in the mobile area. And we can't do any forecast when it comes to the EDU sales and they have not done it themselves, so to say. So We have a deep collaboration with them. We have supplied our latest. I'll go through them. So we have a high expectation that we will follow them. But To forecast their success is absolutely impossible. I understand. Thank you. And also moving on to the Digital Identity segment. You mentioned now the installations are up to around 50 versus For the Q3, is this the sort of pace which you should expect during 2021? Or do you see this ramping up there on a quarter to quarter basis? Last year, we had a lot of installation with smaller account where we were focusing on getting out the product, be able to communicate about the product, the different customers who test the product. And so far, we just We have very good feedback when it comes to all our customers. Our ambition is, of course, to increase the sales this year. We increase it via our distribution channels, installation partners and also we are own sales. And we plan is to address A larger account this year, of course, the process internally for larger account is a little bit more complex. But the ambition is to have much more installations end of this year than we had end of 2020. Got you. Thank you. And on the same topic there, Would it be possible to get any type of revenue split for Digital Identity as of right now on a I mean compared to overall revenues? Right now, we have not communicated a split there. We were looking into how to handle that in the future. We should remember that We started 2020 with 0. So the installation there was 0 and there will be a continuous growth. The ambition is, of course, that down the road here, the unique access and unique will be the majority of this company. But that will take some time before we reach that level. So right now, very important to continue the stabilization with the mobile And then over time, acceleration of the unique will help us to stabilize the company and grow the company. What we have decided now also is that we will, on a regular basis, update our homepage when it comes to all installations, so you can see that and follow the progress there with our customers. Got you. Last question on the Smart Card segment. I mean, I know you mentioned in the past that, I mean, you stand ready to kind of deliver your solution here, but these other players, the Value chain is not really ready for a larger rollout, have you seen? And further I mean, has it Change to Q4 as the 2nd wave of COVID has kind of driven on the other players and the value chain has to move forward and prepare for a larger roll up. Very good question. So no, we have not seen that. And as I said earlier, we are not Pendant on any success in that area, it's just a bonus if it will happen. It's still a very tricky market. The ease of use, the stability in the quality and the cost structure need to be there before we see any large volume. And when we discuss with our partners and potential customers, they don't see any large volume during 2021. I understand. Okay. Thank you. Those were all the questions for me. Thank you. We have one more question from the line of Jorg Carlson from Novartis. Please go ahead. Hi, Stefan. I have a couple of questions if that is okay. I'll start With one question about Qelcom. You often tell and write about your cooperation with QErkom. And I wonder if you can tell us anything about your cooperation with QErkom. What are you working with PureChem? So when it comes to Qualcomm, We have, as earlier communicated, deep collaboration with Qualcomm and that continues. And when there will be any interesting news in that partnership, we will communicate that. So nothing has changed. We have delivered our new algo to Qualcomm and they are satisfied with what I have seen. It's a huge improvement compared to our earlier outlook, which was good already at that time. So we have, of course, a continuously interesting discussion with Qualcomm about the possibility to win royalty now in the future together. Does that mean that you are not involved in Qualcomm's latest ultrasonic fingerprint sensor. So I can't comment anything about that. It's that we have a collaboration with these guys and we're working together to get the best experience for our customers together. And when there will be more information about that, I will announce that to the market. Okay. Yes. And I'm also wondering about your progress About extending your share of the value chain in terms of software for fingerprint sensors like preprocessing and Liveness detection and stuff like that. Have you managed to sell that to any new customers? Yes. So when it comes to actually, I received a similar question from another person via mail here. And that's So the total algo is, we can say, divided into 3 areas: preprocessing and the algo as such and the liveness detection. And it's impossible to sell only the preprocessed sensing part, ISP part, you sell that together with Algo, But you can buy only the algo or you can buy only the line of detection. So different customer are using different part of the algo. Some are only using the algo, some are only using the liners detection and some are actually using both the ISP algo and the liners. So that we have the possibility to do right now. And we have been able to ship all three parts to customers right now. And hopefully, we will see some volumes in this area. So that is something new. We invested a lot of Time and effort into that last year. And as I said, now during this year, we have started to ship to our customer that I presented for the mobile phone manufacturers. Okay. Thanks. And now about The unique access. I've heard that sometimes you say that your focus is the Swedish market. Sometimes you say it's the Nordic market. And can you explain what you mean? What is precise biometric focus? Yes, very good questions and the clarification there might be needed. So the focus is Sweden. Absolutely, right now, the market is huge. And we should remember that we need to utilize our resources in the right way to be able to handle the whole value chain there. So Sweden is the focus. But via our partners and platform partners, We have actually been able to address Norway also. So we have started to look into Norway and have a dialogue in Norway. But that we do via our partners as such. So therefore, we have been talking about the Nordics, but the focus is Sweden. When it comes to U. S, that is via our sales office in U. S. We have done the first integration with the S2. That market is huge and we need to take that step by step because we can't handle everything. So we have started with S2. S2 is the integration done for the first customers there, the Clarkson University. And now we will try to rule out that implementation in U. S. But it will not have any impact on the sales for 20 2021, that is more long term. So focus now 2021 is Sweden. Okay. Thanks. And can you give any new estimates regarding and earlier you said that it's like SEK 1,000,000,000 for 2025. But if you now extend your focus area to, yeah, At least Norway and also U. S, do you can you give any new numbers for 2025? No, no, we will not do that. We have not done it. It's, of course, even a larger opportunity than we have communicated earlier. Taken earlier. Yacht, Sweden is an enormous big opportunity for us. And the good thing with this product is that it's a software, it's a revenue which is on a monthly fee. We have direct contact with the end customer and it's cloud based, which means it's rather easy to scale it when we have the capability and capacity to do that. So to enter new market It's rather easy, but we will not do that now because we need to keep the focus. Okay. And if you exclude Unique Access, can you tell us Anything about any progress with Unique ID? Any other areas for Unique ID? Yes, the unique idea is still ongoing, less focus, of course, because the focus is access. There is still a huge need and interest for that type of solution. But we said that during 2020, especially now when it comes to COVID situation and all that, It's been a little bit more tricky to address this type of product to the bank and financial institutes, etcetera. We still had the cooperation with cover, but the focus is access and it will continue to be that during 2021. It doesn't mean that we have stopped anything when it comes to the ID, but right now it's about access. Okay. Yes, thanks. I also have some specific questions regarding some cooperations, and we can start with Cover security, do you have any news about that? As I said earlier, we Still have a dialogue and discussion with Kvaer, focusing on that part of the total value chain. But of course, it's possible to utilize our biometric part of the ID into their solutions. So we have a regular discussion with the guys, but not any direct projects ongoing right now. Okay. Thanks. And next question is about Infinity Optics, the very interesting area Combining biometrics and hash. Do you tell us anything about that? Yes. So when it comes to the distribution of biometrics in a very controlled and secure way, this is absolutely of highest interest for us, especially in the future, to be able to get access without any on prem registration and all that. So this is absolutely something that we will continue to work with. Right now, There are different technologies that are interesting. Hash is 1. And as I said earlier, this is on a research state. And there is no commercialization around the corner for this right now. We should remember that this must be extremely good quality and high security before we announce and launch this because if you distribute your biometrics and can't control it, it will have a very negative impact. And for precise, the brand and security and quality is absolutely a must before we do enter any new areas. But it's a very interesting area for the future also. Yes. Okay. Thanks. I've seen news from the fingerprint sensor company called Suppress about their products for the car industry. Can you give us any updates on your cooperation with Suprefs? We have some actions, but very limited in the embedded area because of our focus in the mobile phone and the computers when comes to Algos. We still continue to monitor it, but and still have cooperation in this area. But the volume are as such is very small and the cost pressure is very high. So the return it's tricky to get the return on investment in these areas. But we have several companies We're working together with in the embedded area, but no major sales for 2020 and plan for 2021. Okay. Last question is about your new web page. I'm wondering if you are planning to bring up all the companies you have Cooperation with in your partner list, because I'm missing a lot of companies that you have had cooperations with. So either the corporation is ended Or why don't you update the full list? So what we have done is that we have a list of the major relevant partners and also with strategic partners on that list. And it will be continuously updated, of course. We have a lot of contracts for tryout licenses and all that with different companies. And when there will be any major changes in terms of volume or opportunity or from a strategic point of view, we will update that. So we will not have a list of all companies that we just have a tryout license with. Okay. Then Question or suggestion. Is it possible to get your partner list based on business areas like mobile Smart card partners and unique partners? That's, of course, possible. I'm not We're going to do it. It's already now pretty clear in which area we operate with different partners. But we will bring that back home and see if we can clarify even further on our homepage. So Okay. Thank you very much. Thank you. And as there are no further questions, I'll hand it back to you. And so I don't think there are any further questions. So thanks a lot for listening in, and have a great day. And hope to talk to you soon again. Thank you. Bye bye.