Fingerprint Cards AB (publ) (FINGB) Earnings Call Transcript & Summary

Hi and welcome to Penser Bank and our interview with Fingerprint Cards. My name is Markus Almerud, I'm an analyst here at the bank. So I have with me, Fingerprint's new CEO, Adam Philpott today. Hi, Adam.

Great to be here, Markus. Thank you.

We welcome.

So you just have a couple of days really...

Indeed. Yes, this is day 3, I'm with you already.

Yes, I'm honored. But tell me a little bit, who's Adam?

Yes. Well, maybe just a bit of background, most of my career or certainly my recent career has been in cybersecurity, so I spent a lot of time in software. Some hardware, of course, as well as a part of that, with large companies like Cisco Systems, more recently accompanied by the name of Trellix. So a huge amount of time in cyber, which has actually led me to what I do today. Cyber, I find little frustrating because it's still underpinned significantly by passwords. And of course, that's a challenge. It remains the fundamental challenge, 80% of breaches come from password breaches. So I saw a real opportunity to go in a different direction in cyber, which led me here today. So a little bit on cybersecurity. Also a lot of my career has been with private equity. So a huge amount of change, really, really enjoyed working in private equity because that really taught me how to give a business a good workout, how to run it really efficiently, how to focus on things like rule of 40, driving top line, driving EBITDA, of course, as well. And also being a good custodian of cost management. So I learned a huge amount through private equity as part of my career, of course, as well. And then finally, all of my career, all of it has been about customer centricity. I've always been in customer-facing roles regardless of my seniority. And that tells me that we just really need to listen and care about the challenges our customers are facing. And only if we do that, do we monetize the problems that we solve.

But you've been on the Board since May. You're elected to the Board in May. So you have some insights [ to help ] even though you've only been in this role for a couple of days. So talk a little bit about your first impression. So both of the company and maybe the technologies but also the industry.

Very good. Very good. Yes. So I mean, my immediate impression when I joined the board, I wanted to get out there and meet some of the team. I'm big on listening, to understand. I'm big on data and part of data is not just looking at the numbers, it's talking to the team and getting insight. So I was really impressed with the team. I think they've done a really good job in the past. I look at what they've done in the mobile space historically. I look at some of the things that they're doing now to create new markets and drive new markets like payments, for example, really impressive, very high-value team, not a chasing commodity team, a high-value innovative team. So really impressed with the people that I've met in the organization -- is I think, then more about my impressions on the markets, the company is currently in and some of the markets the company is going into. Let's look at current markets, some of the bigger markets that we're in mobile, a really cyclical business, very interesting one, mobile. As you look at the volumes and trends that we've seen there pre, during and post the pandemic, for example, as well, look at some of the things that are going on with supply chain. So a very interesting cyclical business there in mobile, super competitive. I think the other big market that I keep an eye on, which is really starting to expand for us is the PC market, of course. That's a more nascent market, really interesting one as well, much higher ASP, about 5 times ASP still. It's quite an emerging market. And I think we've done a really nice job in being able to expand beyond pure componentry into more of an integrated stack with things like the MCU as well. And that's something I'm really keen to see is to do more for our customers and offer them a broader solution, solve more of their problems rather than just be narrow for them. So really nice to see that. Really nice growth coming on PC, of course, as well. So those are 2 core markets. Then I think about the new markets that we're in or are going into. I would say the big one is obviously payments. We've been involved in that for a period of time now. As you look at that team I talked about earlier, they've done a really nice job in positioning us in a leadership position. If you look at the banks, you look at the launches that they're doing on their products, there's been about 15 smart payment card launches. We've been in 10 of them. So we're really holding our own in terms of our presence in that market because we've got really great technology, and we have really great partners, partners want to work with us as well. So that's really nice to see the strengths and how that's manifesting and we think that market is really going to take off for us as well. And then there's some other interesting markets that we're in. We're in the iris market. That market, I think, is ready for disruption, and I think we're in a really nice position in iris in particular, some really nice applications that we can talk about a little bit later there, too. And of course, we're in the access market, which is a super fragmented market. And what I like about that fragmented market is that there's no dominant player. So there's plenty of room for someone to come in and start to build market share and grow a meaningful business there as well. So some nice observations that we're in a great market, the bio market, biometrics market is about $9 billion. U.S. growing at about 12% CAGR up to 2027. So great markets to be in, great people, great products. So I think we've got some good ingredients to really do a good job there.

And to pick up on one of the words that you mentioned positioning and maybe to transformation because before you started, you have -- before you came on Board the company started this repositioning of the firm and the company and that going away from mobile OEMs and then increasing the other share of the business. And I guess the trajectory of that is going to continue -- and that's something you will really work on.

Yes, that's absolutely right I think and that's what excites me about being in the company. I think there's so many possibilities that we can go and pursue. And we need to be smart and judicious about the priorities and choices we make, but there are myriad opportunities.

And if you talk about excitement, what excites you the most about the company?

Yes, yes. Well, I mean to begin with, I'm big on energy, I really like creating, driving energy. And as I look at some of the things I've seen the company go through, and I was part of this in coming into the Board, completely rejuvenated Board. So new people from diverse backgrounds, software, financial services, technology, FinTech. Obviously, a new Chairman of the Board as well with a great reputation, great track record, too, and a great partnership with those guys, really enjoying working with the Board. And that's really what got me into this in the first place, is seeing the possibilities by having a team with whom I can realize those possibilities as well. And so as we think about what are those possibilities, the way I think about what we do is about the human digital interface, how we're connecting human kind to the Internet, to the digital world, and that cannot depend on passwords. Passwords don't work. I talked about this earlier, 80% of breaches are related to passwords, don't work. And also they have a poor user experience. We can't turn up and sign-in all the time. We can use our identities as ways of interfacing securely with the digital world as well, which gives rise to many different ways for the Internet to grow and evolve in parallel with society, too. So a huge amount, I think, of possibilities as it relates to what we do as a company, biometrics, whether that's the products we already have with our fingers and our irises, whether that means zooming out and looking at our palms, looking at our faces, looking at our bodies, our gaits, looking at our behavior in how we interact with the world, of course, as well. All of these are very much in scope with our core competence. They are all signals and then we can interpret them in different ways. We can interpret them for identity as we do today. Are you who you say you are. But we can also interpret them in lots of different ways as well. We can think about -- think about a day in the life -- when you go to your car, why do you need this fob to do that? That's your car identity right there? Anyone can have that or hack it, quite frankly, or if your car recognizes you and it lets you in because it's you, not somebody else. Your partner, for example, using the car, then it changes the seat configuration. It puts the [indiscernible] the way you like it. It changes the heating to the way you like it. Even detects your body temperature and adjust the heating automatically based on your preferences as well. It obviously allows you access. It obviously allows you with your identity to start the car, so there's a security piece there. And as you're driving the car, it then looks at, are you concentrating, are you looking drowsy, is your eye movements -- what will determine is drowsy for example. So the cars is 1 example of how we can take all these different signals that we emit as human beings and interpret them in different ways to enhance the way that we engage in the world. And I see that as a huge possibility for us, of course, as well. I think the other thing I would say is, I think, about what we do today and how we can expand. So we have fingerprints, we have iris. Can we go into face? Can we go into voice? Can we go into behavior, gait, et cetera? Yes, we can. We can also then resell those to existing customers and give them more of what they're looking for. But also as we're in fingerprint and iris, there were components that we provide. How do we expand the amount that we provide to offer a full stack to our customers. So there's that level of a growth vector, of course, as well. And again, as we do all of those things, we can combine them together to get expansion with our customers and expand the wallet share that we have with the given clients. And then the final thing I would say is, for me, I'd like to envision this as a platform in the fullness of time. If we have these biometrics capabilities, let's think about all of the different markets we can apply them to. I talked about automotive earlier. You could talk about entertainment. I go to a stadium to a gig, and I don't need a ticket. My face is my ticket or my voice or my eye is my ticket depending on the level of security you're looking for. I think about all the different ways that we can interact and that's what a platform, I think, can offer, plus you can triangulate across that platform. Maybe my face isn't good enough for my front door, but my proximity approaching it and my iris or my fingerprint, they're okay. So we're up the security level and integrate these different elements of the platform to increase the value that we offer to customers and to the end customer outcome as well. So bit of a -- a lot there, but that's how I see the scope of the potential in this market and for fingerprints within it.

So lots of things going on obviously but history has been difficult at times. So if we look at challenges, what are the biggest challenges you see?

Yes. I mean, firstly, it's a super competitive market, right? As I said, it's fragmented, that means it's very, very competitive. So for us, it's ensuring that we are matching our capabilities with the value that we can create. So looking at where we need to add high value using more bespoke skills with our partnerships that we have or whether we need to offer volume type of value with our customers as well. So matching up those capabilities with the nature of the market opportunity is one because it is a very, very competitive market out there, of course. The other thing I would say is there are a huge number of external factors. I mean we've seen this in China, geopolitical factors aren't going away. And so as we think not only about how we service given sovereign nations, think about where we're based to be able to do that. But also think about supply chain, geopolitics is going to give rise to a significant number of challenges, I think, for every company, including ourselves, and that's something we need to keep an eye on, is we kind of move maybe beyond geopolitics, regulation also still in the political domain. Regulation will be a challenge for us to solve, of course, as well. People are sensitive about where their personal biometry is stored. People are cautious about privacy. Of course, we have regulations like GDPR, et cetera, all of these things are precedent and we're going to see more and more regulation of course, as well. And then, of course, the market itself. The market is very dynamic. I think as a company, our job is to do, I think, a better job in predicting where there's going to be disruption and being disruptor versus the disrupted, right? So our job is to make sure we're continually innovating, continually moving, monetizing our existing assets, but also moving and expanding as we build out our portfolio and build out our market presence as well. And then the final thing I would say is, I mean, as I said, I come from a customer-centric background. Challenges is one side of the coin, but it's a 2-sided coin, the flip side is opportunity. I think with our capability, we can be the disruptor. I think we can use regulation to our advantage as a European-based organization. So I think if we can take these things, it would be challenges to some companies and use them to our advantage as well.

And now you've only have been in your role for a couple of days as we said. If you look at the near future and you look at your focus, where will you spend your time over the next week/months?

Yes. I mean I'm very rigorous. I like structure. And so I think about it in a 30, 60, 90 -- and honestly, the type of human I am, I talked about this a little bit earlier. I'd like to diagnose before I prescribe. I'd like to listen before I act. Now, it doesn't mean I take months doing it like a consulting process. I'd like to move quickly as well. I'm quite energetic. So my first 30 days is all about listening, getting out there and looking at the data, understanding internal, external. I'm doing direct meetings with my team, skip levels all the way across the organization. I've told the team, book time -- I don't care who you are, what you do, you want time with me, book it, come and talk to me about what we do, what ideas you have for how we can improve. Tell me about what's working, what's not working et cetera. So listening is a really big part of the first 30 days, but also out there with customer spending time with our clients and our partners. Hearing from them, what do we do well? What don't we do so well? Where do you need us to go? Where do you need us to be? How can we help you more? What problems do you have that aren't being solved well enough that we can come and help you with, of course, as well and sharing the ideas with them on what if we were to go here, what would that mean for you too. So really provoking and listening to the customers is a part of that. So that's the first 30 days of what I'll do. The second 30 days, up to 60 days will be then about taking that thematic input and making some decisions, being fiscally responsible about where there's some quick win opportunities for us to be smarter about how we use our OpEx envelope in pursuit of growth. But putting in place our market strategy to say, these are the markets we're going to focus on. These are the new ones we're going after. These are the existing ones we're going to monetize. This is what we are going to do. This is what we're not going to do. Having clarity because there's a real hunger for that, I think, in the company. It feels like we've tread water a little bit. Now it's time to really come out of the gates with a purposeful view on what we are going to do and where we're going to be in the future. And then the final piece then is, okay, you've listened, you made some good decisions based on that input, now it's time to execute. And for me, execution is about getting the right talent in place. We may decide we're in markets where we need talent that we don't have. So looking at our talent profile to ensure we've got the right people in the business to go and execute that strategy. Making sure we have the right organizational design because it's great if you've got good people, but if they're not working together in an efficient manner, it doesn't work. You get a hole, which is less than some of its parts. We want a hole, which is greater than the sum of its talent part. So getting the organization model right is really, really important to me. Obviously, capital allocation, which pieces are we over investing in ahead of the curve in order to get growth, which pieces are we trying to monetize more profitably where we've already got a good existing business, for example. And then finally, governance, putting in place strong governance. And that doesn't mean bureaucracy. That means efficient governance, a few key metrics that matter, not reams and reams of data that everybody gets lost in so that people are accountable and they're empowered to go and go and execute that. But also there's a phrase by a famous boxer, which is everybody has a plan until you get punched in the face. Look, this won't necessarily work. There'll be things that don't work. And so having good governance in place allows you to then change gears to move quickly before you just get 2 years down the line and realize your way of course. So making sure we have governance in place to allow us to then monitor that strategy and tweak it as it hits the streets.

And maybe to pick up on some of the things you said and turn it around a little bit. And you look at yourself, you've been in leadership roles before. How would you describe yourself as a leader? What leadership...

Yes, yes. I'm going to -- I've kind of developed this, this kind of triangle or pyramid over time. And in the middle of that is about the customer. Everything we do has to be around the customer. I fundamentally believe in a value exchange. You have a need, I can solve that need. I will solve it for you and you give me money in return for doing that, is a value exchange. And so I think putting the customer at the core by consulting with them and involving them in your innovation process, but also by predicting things that they need that they don't already know about with a good innovation engine, I think, is really, really important. So having genuinely the customer at the core, not just thinking about how -- what else can I do with the product but what problems can I solve. I mean it sounds small, but it is a massive cultural shift. So that's really important to me having the customer there. Beyond that, then how organized around that, there are really 3 things that I look to do. One is get the very best talent in place, make sure you've got really, really strong talent and then develop that talent, give them direction to make them accountable, but also get out of their way, empower them to go and pursue the mandate that you've given them as well, but monitor that as well. So really strong talent with the right focus, the right energy directed is super important. The second thing I would say is then about having a teamwork between that talent. No point in having great people if the organization isn't designed in such a way that they're pursuing goals together. And also, there's kind of creative tension there holding each other to account but also supporting each other in pursuit of goals, of course, as well. That's the culture that I look to put in place in a given organization. And then finally, I talked about it a second ago, good discipline. Need to put a framework around this, not so narrow that no one can move and they're wearing straight jacket and you don't get any innovation, not so wide that everybody gets to pick their own adventure and go and do their own thing, good governance, to give them flexibility. You've got good talent, why not use them, but also ensure that energy is being directed in the right way.

And to pick up on that, and you have discussed it during the latest answer. But I know from experience how important corporate culture is, and if we dig down on that on corporate culture, I mean fingerprint is in fairly young companies, so how do you plan to foster it to build a corporate culture?

Yes. I think for me, culture comes on the top. I think you have to lead and live that culture. Then you have to bring in people or develop people to be -- to participate in that culture because a couple of things I would say. There's a phrase of fish rots from the head. So if you don't have the right culture there, it's going to go downstream as well. But equally, if you don't have the right people in place, then the culture isn't going to manifest further down in the organization. I'm a very collaborative leader. I like to engage with the team. I like to be very communicative bidirectionally with the team as well. So it's really important to me that culture. It's a bit like when you hire, the first thing I look for when I hire, forget skills, forget what you're looking for, attitude. If you don't have the right attitude, forget it, there's no -- interview over, there's no point in looking any further, then you get to your tick box of skills and experience. But that attitude is synonymous with culture, I think, so having the talent in place to do that and then leading them in the right way for me is how you do that. It takes time though. Culture is known for being glacial. I think we can move quicker than glacial.

Adam, thank you very much for coming here and talk to us. I really look forward to follow your journey. So thank you for listening.

Thank you very much.

Thank you.