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

Hi. Welcome to Carnegie, and our interview with Fingerprint Cards. My name is Markus Almerud, I'm an analyst here at the bank. I've got the pleasure to have Adam Philpott and Fredrik Hedlund, who is CEO and CFO with Fingerprints, with me. Hi, gentlemen.

Hi, Markus, great to be back with you.

So I'll leave the word over to you. You'll have a presentation, and then we'll come back for some Q&A at the end. So without further ado, the word is all yours.

Excellent. Thanks very much, Markus. So just a few slides to take you guys through today, really building on what we've shared in previous presentations throughout the rights issue. What we'll do today is we're going to talk a bit about our current assets as a company, how we're expanding, and as we do so, the new areas we're going into, but also how we leverage those existing assets in new ways. So a few things we'll go through today. In terms of the agenda, we'll quickly reframe some of the content we've shared previously just to orient people around the company today. But then we're going to come back to our strategy and talk about where we're going. We're going to talk about the actions we've taken around our strategy. So not just what we're saying we're going to do, but actually what we're doing about it as well. And then we'll go a little deeper into some of those things. We'll talk a bit about Anonybit, we'll talk about Smart Eye, we'll talk in a higher level about some of the other announcements we've made in the last few weeks and months. So let's start with who we are today. We've got a really rich history as a company. I'm not going to read all of this. I know some of the words are a bit small, so we're going to share this for you guys to have. But we have a very rich history as a company. We've been in the identity space for a very, very long time, specifically in biometrics, which is really all about making things easy to access, instead of using PIN codes or passwords, and very secure to access as well. So biometrics is a fantastic pillar of something I know, something I have, something I am, obviously being something I am. We're also really well known for quality as an organization, for trust, for having high efficacy in what we do, for being able to scale and for the support that we offer to our clients, too. So those are the things that have made us a great company that leading brands wish to work with. But not only that, not only are we great at what we do, we also do it in a very important and growing market. So we've been very much in the access business and in the nascent payment market. But more than that, we're very adjacent to what's going on in cybersecurity. Cybersecurity is predicated on identity. It's really important that as you interact with things and information, we know who you are and we can ascertain your identity. That's not working well today with passwords. So we're in a great place to help with that, both organically and inorganically. And so as we come to our vision and our strategy that we've spoken about over the last year or so, any good vision shouldn't change dramatically over a short period of time. But you know when you have a good vision, because you know it remains a really enduring and compelling opportunity. Our vision has been for some time: you are the key to everything. And that remains today. We've looked at it. I thought, should we change it? No. Really, really powerful message and really, really relevant to our customers. And the reason it's relevant is because we connect to more and more services, digital services. We connect to more and more different types of devices. And as we do so, there's less and less trust out there around who is actually connecting, because of cybersecurity challenges. So it's really important to be able to address this problem at scale. And the way it's been working is based upon passwords and pass codes, and it's not working. Passwords are not secure. They're the primary threat vector. And for all of us, it's a very poor user experience. I was on -- I took some annual leave over Christmas, and I heard some people chatting about going back to work and how they had to then go and reset all their passwords and what a pain it was. We all live this experience. It's not good enough. So we can help with that. Biometrics is something I am, really powerful way of solving that security and that usability challenge. And so the way that we're doing this is by continuing in the edge. What do I mean by edge? I mean the point at which a human interacts with a telemetry. It could be a camera for iris or face, could be a fingerprint sensor for fingerprint, could be many other types of modality as well. But it's the point at which the human transmits a digital signal of identity. We play there today. We're going to continue to play there and expand on that and evolve what we do there as well. But it's also really important to be able to orchestrate that signal, to receive it and insert it into a workflow so that, instead of asking for a password, a given application or tool asks for a biometric signal instead. So it's about bringing these 2 things together and orchestrating that, all the way from the first time we see a person and onboard them through to continuous access, through to account recovery if they lose their device or their credentials, all the way through to offboarding. So that's what we're going to be doing as a company, a really powerful play in a big market as we move further into cybersecurity, leveraging the great things we already do on the edge. And so as we think about not only what we say we're going to do, but showing the actions around it, we've taken a number of actions on this already. We're doing what we've said we're going to do. So we're continuing to focus on how we're growing the business. We made some announcements last year around AllKey. I'll touch on that in a moment. We recently made an announcement around a partnership with jNet, lots of partnerships that we have in our customer base where they're consuming our technology in new ways. IFX in the payment space. I'll touch on all of these. So we continue to drive growth and leverage our existing assets in our core markets and leveraging our edge technology. But it's also about then continuing to expand what we can offer there as well. And so I'll talk a little bit later around the announcement, for example, with Smart Eye, where we'll see some additional modalities coming into our portfolio. We'll look at monetizing these assets above our regular go-to-market, too. So a number of different things that we're doing there, including monetizing our IP. All of these things I'm going to touch on just in a little bit more detail. But at the same time, it's important for us to move into the cloud. That's where a lot of orchestration in today's IT systems take place to allow any-to any access. So with our partnership that we've announced with Anonybit, that really moves us into the cloud. So let me spend a bit more time firstly on Anonybit, and then I'll come in to some of those other items as well. So Anonybit is a great partnership for us. We had a great look across the market. David, our CTO, came in to help us make sure there was technical credibility in what we were looking to do and how we were looking to do it and with whom. And so Anonybit were the perfect partner for us to work with. They have a highly performant centralized biometric cloud, a bit of a mouthful. What does that mean? Well, it's centralized and it's in the cloud, meaning that all templates for biometrics are stored there. So it doesn't matter where you're connecting from in the world or what device you're transmitting that biometric signal over, we can access that in the cloud. So any to any. Highly performant means that when you do that, it doesn't take ages for you to get that signal back to give you access, millisecond performance based on the distributed cloud that they have. So great centralized assets that open up a massive number of use cases at scale. It's also what they call sharded for deep security and privacy. What does that mean? Well, we don't just store a template in the cloud in one place. That's referred to as a honeypot in cybersecurity, a high-value asset, but we distribute it. We take a biometric template and break it up into many, many pieces and distribute it and it cannot be put back together again through any type of breach. And so it makes it very, very secure, but also protects privacy also. So very unique technology there. So this allows us to use biometrics at a much, much greater scale, with dedicated hardware that we do today or without dedicated hardware, with software. So it opens up a number of use cases for us. And it allows our customers and organizations to break away from passwords, to make it easier to have -- to ascertain identity and to give them more confidence that they're getting the right authentication done. Not only that -- I've talked a lot about this before -- most companies are deploying zero trust as their architecture. This massively underpins zero trust because identity is a key pillar of zero trust. It says never trust, always verify. So having this baked in, really, really powerful and addresses the weak link that many of our clients are facing today, whilst unifying that whole identity cycle that I touched on earlier. So lots of opportunity that arises through there. Let me talk about a few other partnerships just quickly, and then we'll move to some Q&A. We did announce the Smart Eye partnership as well, really interesting partner, great cultural fit for us with Smart Eye. Actually, we're very nearly located as well, which is very helpful. But often people think of Smart Eye as being -- sorry, a driver monitoring system. So in vehicle, monitoring the driver, are they paying attention? Are they looking at the road, et cetera? Do they look drowsy? But it's actually much, much more than that, the software that Smart Eye have. They monitor the whole cabin. You'll hear this "whole cabin" or "in vehicle" used a lot. They can see all of the passengers in the cabin. They can detect who they are. They can look at things like sentiment. They have AI. They can do eye tracking for more than just driver monitoring. So it adds a lot of capability to what we're actually trying to do. It adds face as a modality, which is really powerful because it's very accessible. And when you couple that with the other things we're doing, we can make triangulated decisions using multimodal biometrics. And so this gives us a lot of different opportunities, a lot of new edge technology that we can go and deploy with our customers. So while some of the headlines in the deal about Smart Eye was rightly about the fact that they've scoured the market to find the best iris, they picked ours as the best iris out there, and then we've been able to monetize that with them as they bake it into their product. It's also about, for me, the asset we get back. I see the partnership much broader than just the upfront or milestone-based monetization. Lots of opportunity with Smart Eye also. Let me touch on a few more announcements that we've made, just to refresh on some of the things we spoke about previously and add some new to it as well. We've spoken about AllKey in the past. We announced that, and what AllKey represents is us moving up the value stack, not just doing wafers, not just doing sensors, but moving up with MCU. This is really powerful. This is really powerful, because we're actually giving all of the tools to our customers to be able to integrate themselves. In the past, they've had to come to us. We've had to do bespoke work. We're a small company. That's a bottleneck to growth. So we're now out of the way, reducing friction and giving the tools to our customers and our partners what they need to go and integrate. But it's even more than that. It's actually a platform as you think about it. We've very much overpowered the MCU in this product so it can be used for a lot more than just biometrics. You can use it for different things so they can add more and more features to their products, leveraging the core system that we put in there. So very much a Swiss Army knife. Not only that, we're working on mesh networking here as well so that you can have multiple of these sensors dotted around a local area so that you can share templates across them. So you don't need to enroll in each one of them, but they share information together in a fog computing or mesh network type of approach. So really powerful additional things we work on there. And then finally, it includes AI. So we've had AI in there. We used to call it algo. It's actually artificial intelligence to ensure that we're looking at the templates on there, and as users get older or have wet fingers or have different circumstances, the system itself can automatically update to have the optimal templates on board, and we see more opportunity for that in future also. And then, of course, we have the jNet announcement we made just a few days ago now. And what jNet brings is all of what I've talked about on the AllKey, but we also add software on there for FIDO as well. So it's really a ready-to-go FIDO capability that organizations can bake into different devices. Let's say, for example, you provide a keyboard and you're already using that for connecting to -- for typing with your laptop, you can now turn that into a FIDO device or a mouse or other peripherals, just as an example of the capabilities that are out there as a turnkey solution for organizations to adopt and use. And then finally, we made another couple of announcements with Infineon, a great partner of ours, recently got certified by Visa as well, as we continue to build out our capability in the payments market. So I can -- go to the next slide for me, Fredrik, please. Building out that -- the product necessary to get that market to take off, having Visa sign off, really, really powerful step as well, manifested in an order from Infineon, which is helpful to us, too. So really nice to see continual building and investment from these very large strategic partners in that space. And of course, we made an announcement about IP commercialization as well. We did some great work previously in commercializing some of our patents. We see more opportunity. So some of that monetization we made, there are other vectors that we can go and monetize that set of patents, particularly in the content management space. And so we're working with a new partner to then take it to the next level of customers, or rather organizations, that are using that where we can defend our IP. So really big opportunity for us too, as we continue to drive that and leverage the great R&D work that the team have done in the past. So with that, I'm going to hand over for Q&A. Just one more callout I would make. Markus and I are no strangers. We've done a few videos in the past. It's certainly, if you haven't seen our last video, it was about a month ago we put this one out on the wire, do go take a look at this. You can see the topics, 15 minutes long, really good conversation between Markus and I about the broader rights issue, what we're doing, why now is a great time to invest, et cetera. So with that, I'm going to pause, and Markus, maybe we can come back to you and we'll do some Q&A.

Maybe I'll start off the Q&A by just asking, well, you are in the biometric market, but you're also talking some about entering the cybersecurity market. And maybe a little bit about how you're planning on doing that.

Yes. Great. That's a really good question. So I think what I would say to start with is that we've always been cyber adjacent. We've always been in the identity space and we've always been about biometrics as being a much better way to connect to information applications and devices than passwords or PIN codes, whether it's a door lock, whether it's a pad lock, whether it's a mobile phone or any other device for that matter. So that's always been about identity and access. That is a subset of the identity market and identity is a subset of the cyber market. So I think what we're doing now is moving even more into cyber because it's such a vast market. And the interesting thing for me is that identity is the piece that's got the most room to develop, because it's so predicated on passwords today. So we see a big opportunity to move more into that. We leverage what we're already doing. We're not getting out of what we're doing. We're leveraging what we're doing in order to do that, building on our strengths. But there is some incremental things we need to do. That's how we're going to do it. We will partner as well as we go into that. Anonybit is a great example of a partnership. So is Smart Eye, getting more edge modalities, particularly ones that are software that are highly accessible over a common camera. Great way for us to engage more broadly in the digital domain to offer an alternative, a superior alternative to password. So that's how we're going about it.

And there's a question from the audience, and actually one that connects to what you just said about the edge and the cloud. Why is it important to be in both?

Yes, that's a really good question. So I mean we looked at what our customers need, right? And they need much stronger identity. And so if we -- we can continue to provide them with hardware through our customers. That's one way of solving it. But that only meets one segment of the pie. It only meets one type of use case. If we're really going to solve it, we need to help them insert biometrics more deeply into their infrastructure, into their workflow so that when you try to log on to something, it asks you for something other than a password. And so to do that, given that most systems today are in the cloud in order to be highly accessible and highly scalable and available, we had to move into that space to be able to orchestrate the receipt of that signal. It's one thing to transmit it, but there needs to be another way of receiving it and ensuring it's orchestrated into their workflow. Not only that, but the cloud also opens up new opportunities for us also. So it opens up opportunities in onboarding, in identity access management, in account recovery, et cetera. So it opens up a lot of opportunities there. But we need to be on both sides, not just on the delivery, but on the control as well, and that's why we've made the partnership announcement with Anonybit.

And on the partnerships, I mean, you have announced a lot of partnerships in the recent past, or several partnerships in the recent past. Is this the path you've chosen? Should we expect more of these kind of collaborations?

Yes. I mean, I'll tell you what I would say is that we have a build-by-partner strategy as we think about how we execute. And so we look at this market and what we're not going to do is announce millions of partnerships that bolster our tech stack. We're been very precise about where we think we need to go and do that. But we're also being very thoughtful about which ones are we going to build, which ones we're going to partner and, in due course, which ones are we going to buy. And so we're trying to be very surgical about that, because otherwise we'll get spread so thin we can't execute. I think we need to be a little clear on partnerships because there's product side partnerships where we develop things -- Anonybit, Smart Eye. And then there's customer partnerships where we sell things -- Infineon, jNet, et cetera, et cetera. And so we're going to do lots on the sell side, but we're going to be very selective and surgical on the product side. Fredrik, I don't know if you have any other comments you want to make on the partnership side, but that's kind of how I think about it.

I think it's right. One is we are selective. Two, we spend time on them to make sure that we go in with eyes wide open. We build business cases. In the end, we have to create a return on investment that exceeds the cost of funds. And that's the type of analysis we're doing, including payback, to make sure that we are managing the funding that we have.

And maybe continuing on the partnerships and maybe specifically on Anonybit, we've talked a bit about the identity life cycle in the past. What opportunities does the identity life cycle bring?

Yes. I mean what I do is I kind of break it up into the stages. So stage 1 is onboarding. We've never seen you before, how do we ascertain who you are based on your biometrics. So there's eKYC, IDV, pick your acronym, there's a market around that. Now I'm not suggesting we're going to go into that market. It's quite fragmented globally, but there are partnership opportunities to ingest, work with some of those companies as a part of that life cycle. So that's an interesting part of the pyramid. It may not be the first one, but it's an interesting part of the pyramid. But as we move forward then, there's a market called identity and access management, IAM. That's a very big market. It's actually very broad. And so I'm not saying we're going to go and take that market on, but there's lots of opportunities for us to insert in that market so that we help companies move to password-less, for example, which is where we need that cloud orchestration piece as well. Not only that, there's a really powerful piece around continuous security. Now if you were to do that with passwords, you'd have to keep putting your password in. What a pain that would be. That's too much friction. People would find ways to work around it, and it's not secure anyway. So I think this continuous security is going to be a really interesting future dimension of identity access management. There's another segment called step-up authentication. If you're accessing some low-risk information, maybe you just need one modality. Your face, for example. If you're accessing some core banking services, maybe you need a lot more than that. Maybe you need iris, maybe you need fingerprint, for example. So again, it allows you to have a policy based upon the nature of the user. Are they an exec or someone lower down, and what's their risk rating and the information they're accessing. So really powerful way of thinking about a roles-based access control, which is also a market, too. So that's a really interesting one. Account recovery is a powerful one. People lose information or lose their device and then they're stuck. We see a lot of that in the physical space, for example, on tokens. We can help with that so that help desks aren't trying to figure out who you are and giving your credentials to someone else. And then the final one is account takeover, where help desk get all these calls, "I'm such and such a person, I work for you, I've lost my PIN, please give the access." And that's how many companies get breached, because help desks are unable to ascertain that. Not only that, it's an expensive workflow because it's human-centric. Instead, we can automate that using biometrics. So there's a number of different areas that we can go after in this space, but we need to be thoughtful to make sure that we're not trying to take everything on in one go, but being very targeted based on where our customers need us to go.

But you do have a lot of patents. And I mean, you have a very, very broad patent portfolio. And we talked a bit about monetization with regards to the partnership. And you should be able to monetize this patent portfolio at quite a good profitability. Is the partnerships that you have announced an example of that?

Yes. I mean here's the way I think about it is we were really successful in enforcing our IP about a year ago when we announced it publicly, because we've done a great job in developing capabilities and sometimes they find their ways to being used without any monetary return. And so what we're doing is working with a partner who's pretty well known, a good, focused partner. We're unable to announce their name because we feel it might impact their ability to execute, honestly. If that's an elephant in the room, I'm happy to share that. But what we're doing is saying, look, we've been successful here, but we think there's lots of other opportunities to commercialize and monetize that. And with them, we're going after exactly that. So doing more of something that has been successful for us. Fredrik, I don't know if you -- I know you've got some passion around this, too. And any thoughts from you on that one?

Yes. I mean, in some ways, Adam, I think we are lucky, right? We're sitting in a portfolio of up to 800 patents. We like the patents. We're not using all of them. Investment has gone in into the past to produce these patents. So we should monetize them.

Yes, absolutely, like any good company does as well.

And then maybe finally, we're running a little bit out of time, but the rights issue. Will funds be enough to support what we just talked about, all the partnerships and to take you to positive cash flow?

Yes. So as I said on the video that I mentioned a minute ago that you and I did about a month ago, absolutely. That's why we've done this rights issue, is to help us have the right fiscal path for the year ahead. We feel really good about the transformation plan we've put in place. We feel good about the revenue outlook. We feel good about how we're managing OpEx as well. So I think we've done -- I feel really good about the job that Fredrik and I and the whole Fingerprints team have done for us to manage that. It's not been an easy path. The team have done a fantastic job on executing what we said we would do. And that's what we do, is we tell the market here's what we're going to do, and then we do it and we tell the market here's what we've done. So I feel really good about that. In fact, I feel so good about it and so does Fredrik, we're putting our money where our mouth is as well. We're investing beyond pro rata in this rights issue. We communicated that because we felt it was appropriate that the market know about that, but we're behind this very much also. Fredrik, again, let me bring you in on this one.

No, I echo what you said. We feel good about the execution around the transformation plan in terms of delivering or starting to delivering on the strategy, the say-do is there. You look at these 6-plus recent announcements, right on track strategy. We're filling in the edge. We have the cloud. Yes, like you, I'm feeling good.

Yes. I'll tell you one other thing actually is I think as we came into the new year, that feels like a long time ago now, but very much pivoted as a company. We did a lot of difficult things, including exiting China last year. As we come into this year, it's about looking forward. We're really executing on what we're doing. We're not just talking about, oh, this is what we're going to do. We're doing it, but we're looking forward about how we're going to then monetize this and continue to grow the company and transform the company as well. So a really interesting pivot over that -- from one year to the next, I would say.

With that, on that note, thank you very much for coming here to talk to us, and thank you for everyone who has listened.

Our pleasure. Thanks, Markus.

Thank you, Markus.