Earnings Call: Q1 2021

May 12, 2021

Quarterly report

Hello, and welcome to the Precise Biometrics ADT1 20 21 Report. Just to remind you, this conference call is being recorded. Today, I am pleased to present Stefan Pearson, CEO and Ulrik Nielsen, CFO. Please go ahead with your meeting. Thank you, and a warm welcome and good morning to a precise Q1 2021 presentation, I will together with our CFO, Oleg Mendson, present the financial results and also give you some highlights on how we see the next coming quarters. Now turn to Page number 2, please. So despite the situation due to COVID, once again, I'm happy to present another quarter with a positive EBITDA And that we had a sales of SEK 20,300,000 here. That shows some stability despite the corona situation out in the world. We have also very good cost control, and we have been able to continue our investment in the future for UNIQUE and with a clear focus in the access area. We continue to roll out more installation of Younique and with focus on building form an ecosystem around the product offering with different collaborations and integrations. Our new SaaS model, software as a service will be the major revenue contribution over time going forward, but it will take some time before we get large volume in this area. A new mega interesting mega trend is the sustainability area. We have now dialogue with customers that want our intelligence from a system to handle energy, air and water optimization also. As we talked about in the last meeting, we have now Next generation Algo to some of our partners and now launched the first mobile with a sensor from Qualcomm implemented in May 2, 2018. This is the world's fastest and highest secured algo implementation in the world. Now we have the possibility to win more contracts within this setup together with Qualcomm. In general, the mobile era is a very competitive environment with a lot of players involved. And with the COVID situation and component shortage, it's tricky to estimate and forecast the 2021 revenue. Even if the industry has been hit by corona, we have been able to continue to deliver our software to our partners. And with today, we have a very strong team in Asia, Europe and U. S. That can continue to support our customers and maximize opportunity to win new projects. Now turn to Page number 3, the vision. We continue to communicate our strategy and visions in our forum like Twitter, LinkedIn, webinar, social media, Q reports and web page. So please continue to follow us in this type of media communication. It's about no matter of who you are and where you are and what you do, you should always have access to a digital identity. It's owned and controlled by you in a safe way. And we continue to communicate even more about the benefit of that you are the key. You are the key for all applications and resources. It's owned and controlled by you. You are the key. Next slide, please. The digital identity. We can see that the market is demanding solutions with the ability to verify person's identity in a convenient and secure way. We continue to focus on the Swedish market, where the excess of our market size just in Sweden is identified to be more than SEK 1,000,000,000 2025. We continue to install more now with our Gekko, previously temporary space Nordic, And now also later here with Science Village in Lund, Sweden. We also have had the first installation in U. S. And recently also in Norway. Very interesting is the open platform for integration with other applications, such as access solutions to reduce the CO2 emissions. This is, of course, a sustainability megatrend for more energy efficient buildings. UUniq also eliminates the need for plastic cards, key tags and traveling due to the end to end digital solution. We continue to focus on larger accounting unique area in the 6 main verticals we addressed: Construction, apartment blocks, commercial buildings, TIM, industrial buildings and public. There is a huge interest, but some longer processes now due to COVID, and it takes a little bit longer time to decide about investment. This will change when corona situation will get better. We entered the market last year 2020, and it will take some time to get up large volume, But market is there, and we have just started a very interesting journey for precise with the new product and the SaaS model. Now please turn to Page number 5. The Algo. The new Algo product Daria, a combination of former private area mobile and smart cards will lead to a more efficient use of resources in our development and sales organization. Now we can combine the platform development and can utilize the resources in an optimum way. The development of the new algo based on AI will continue to support our customers. We also announced the first mobile based on the new generation of Algo, the BioMatch mobile integrated in the latest ultrasonic sensor from Qualcomm, We implemented now in May 2, 2018, which resulted in the world's fastest fingerprint matcher with extreme high security level. Our ambition is to continue the cooperation with Qualcomm and win even more projects the coming quarter. We will further integrate the fingerprint software in a series of mobile devices during the year in collaboration with our partners. So despite the COVID-nineteen effect on semiconductors availability, we still have big hope for this year. But forecast for the full year is very, very tricky and unfortunately not possible. Still the same situation in the smart card area, No major volumes for 2021. We received together with Konais the Mastercard letter of approval for their biometric payment card And here, we're utilizing PreciseBioMed card. We have seen an increased interest in other smart card applications, such as, for instance, the access area. But smart card, as it is right now, is just a bonus market for Precise. In general, we are strong believer in fingerprint algorithm for our own devices, owned by yourself. But for public devices, we will see an increase in the face biometric area. By that, I hand over to our CFO, Ulrich. Thank you, Stefan. Please turn to Page 7. The execution of our strategy continue. Our mobile business is healthy and profitable, and we work towards expanding our role with taking responsibility for larger parts of the delivery. This year 'eighteen is just one example of a successfully won project with Qualcomm, now delivering the world's fastest fingerprint matcher. The component shortage among our customers resulted in lower production volumes and consequently resulted in lower royalties. We see then increased client activity and promising growth in digital identity. So we continue adding the customers as well as expanding business with existing customers. The net sales during the quarter totaled EUR 20,300,000 versus EUR 23,100,000 previous year. Net sales were split between royalty revenues of EUR 10.9 Versus $13,000,000 last year, license fee, including support and maintenance of $8,800,000 versus $8,500,000 last year and other of EUR 700,000 versus EUR 1,600,000 previous year. The increase in license fee is a result of precise strategy focusing on deeper collaboration with our customers. The fall in other is attributable to reduced sales and development licenses. The net sales of Digital Identity totals €500,000 versus €0,000,000 in Q1 2020, and this is reported under other. The gross margin during the quarter totaled 77.4% versus 87.7% previous year. Change is primarily due to increased amortization of capitalized development expenses as well as changes in the product mix. Total amortization on the capitalized development expenses was EUR 3,000,000 versus EUR 2,200,000 in the previous year. The increase in amortization write downs on development expenses related primarily through digital identity. Please turn to Page 8. Our mobile business delivers healthy profit. We continue executing our strategy working in deeper collaboration with the key customers, and this is allowing for full leverage on scalability. Continued investments primarily in the area of digital identity. We see that in the sales organization where we continue to invest. In the digital identity area as well, on the capitalization, we've seen increase. The operating expenses for the quarter, they fell by EUR 500,000 and totaled EUR 19,500,000. The cost reductions, they come primarily from the reduced research and development costs. From here, we have an increased portion of expenditures for development work, which is being capitalized. The reinforcement of the sales organization will continue with that during the period, and this is resulting in increased selling expenses. Operating profit loss for the quarter totaled 3,800,000 negative versus EUR 0,100,000 previous year. The reduction in operating profit is explained primarily by lower net sales and then the lower gross margin. Please turn to Page 9. The cash flow for the quarter from current operations totaled negative EUR 700,000, Out of which, dollars 1,000,000 is attributable to increased capital tied up. The group invested EUR 300,000 versus EUR 600,000 in PB and E during the quarter. We invest in digital identity. Capitalization and amortization of development work. The development expenses, we capitalized 4.6 EUR 1,700,000 previous year. The amortization of capitalized development expenses totaled $3,000,000 versus $2,200,000 during the previous year. The financial position, cash and cash equivalents, a total of EUR 70,400,000 versus EUR 78,400,000 previous year, which is giving us a healthy cash balance. Back to you, Stefan. Thank you, Ulrik. And now into the turning to Page number 10, the summary. So we can see a clear increase increased client activity and promising growth in the digital identity. Still, of course, a lot of things to be done, But we are absolutely on the right track here. Unique as the sustainable access solution is actually a new area, which means new opportunity to gather with our customers. We will help them to reach their environmental targets together. And Algo, a new product area, launched to prepare for the next phase of growth. We integrated our Beomatch Mobile into the next generation sensor for Qualcomm, And it's implemented now and launched with MACEU 'eighteen. Extremely good feedback and very interesting opportunity down the road, together with Qualcomm here with this new setup with their sensors and our algo. We can see an increased volatility due to the COVID-nineteen effect on semiconductor availability. But after all, a very stable Q1, and it will continue to be a very interesting 2021. By that, I'm now turning to Page number 11, and we will open up for questions. Thank you. We have no question at this time. Please go ahead, speakers. Okay. Thank you. We have received some questions before the meeting. One is In the area of physical biometric door locks, what's happening in that area, We have our embedded solution in that area. It's very disruptive market and a lot of low cost player involved, we can also see now that due to COVID effect, fewer are interesting to have door locks In public area with fingerprints without more interest into the face. So we are Addressing the market, but not actively. We see a huge not a huge potential in that market as it is right now. Then we also have got questions regarding Unique Access, other competitors. Right now, we are focusing on our own solutions. There are not So no real competitor in this area right now with this digital end to end solution that will, of course, come. It's a huge market, and we love competition. There are place in Korea That has similar solution, but it's on prem registration. And we can see it is popping up in U. S. Also. But as it is right now, we are the only one in the world who can provide this solution. Of course, there will be, as I said earlier, several players in this area. Of course, it's a very interesting area for the future, and this will gain traction over time. But the market is big enough for all of us. That's all from us. If there are no other further questions online. No other questions. Then I say thank you all for listening in, and hope to talk with you soon again. So thanks a lot. Bye bye.