NEXT Biometrics Group ASA (NEXT) Earnings Call Transcript & Summary

[Technical Difficulty] To this innovation presentation. I'm Odd Harald Hauge, Chairman of NEXT. I'd just like to see a few words before I hand over to management. When management presented this idea to the Board a few months back, we immediately said we have to do this if it's possible. And in the months since they have confirmed we can do it. And the beauty of this innovation is that it's so simple to understand the benefits of it. Billions of people will understand the benefits of this. And we are targeting an industry with millions of people working there, some of them super smart. And they will take the fundamentals that we will present today and play with it and come up with a lot of new uses for this, new cool things. You just wait and see. My prediction is in 6 years, 7 years, 8 years from now, everyone in this industry will use not necessarily our technology, but they will. This will be in every device. Okay, management, you start.

I start. Thank you. So here with us today, I'm Ulf Ritsvall. I'm CEO of NEXT Biometrics since last year. I also have with me Marcus Lauren. He's a Chief Product Officer, which is responsible for the product development within NEXT Biometrics. I'm so excited actually to stand here today. It's extremely pleasure to introduce a completely new segment. This is something you've never even imagined that this technology can do. NEXT is today entering a completely new segment for NEXT Biometrics. Step by step adding human capital within the biometrics within the segment as such. We feel confident standing here in front of you today. We're confident and excited to introduce this to you. And it's not only a vague statement that anyone can do. We have already taken the first steps into this. Let me tell you a bit more about it in the next slides. But I would like to emphasize that the existing business, which I'm not going to talk about today, it will continue. It will continue as is and it's going as is great. This new market segment is well in line what we as a company have as a vision. Our vision is make human interaction with devices more secure, easier and protect you as a person in the digital society. This is exactly solving this vision. Next slide. I will move over to -- it is a huge potential. I cannot emphasize it even more. It's a huge potential for NEXT Biometrics. It's a market that where 1.2 billion devices were sold last year. It's challenging, but it's extremely high reward. Biometrics is already proven in this segment. As a matter of fact, 80% of the 1.2 billion devices carry biometrics today. You may already now have guessed where we're heading. We are, of course, heading into the smartphone segment. So today, we are improving the usability, we are improving the convenience and our DNA. We are actually increasing the security with this. How? Okay. Today, you open up your phone 100-plus times every day? Time consuming, yes. And most of you actually use biometrics opening up the phone even without thinking about it. This technology will, of course, do that, but it actually makes it possible to open up the phone on this side of the screen, on this side of the screen or on this side of the screen. The screen will be covered with authentication of yourself. So, no matter if you're right handed, left handed, you can choose, I want this area. You can even increase the security by adding 2 fingers. That multiplies the security. But this is not the step we're looking for. This is not the greatest idea. The greatest benefit, as I said, is the security. So, once you have an open phone, your corporate e-mails are probably just one click away. Today, we will secure your corporate e-mails. You have kids. You may want to have them watch YouTube. And accidentally, they send out an e-mail, somebody. That is no longer possible because you will authenticate yourself opening this application. There are 4 million applications in the ecosystem, iOS, Android today. Those are innovative people out there. And it's actually only the imagination that sets the limit for this technology. I would like to hand over to Marcus to explain a bit more about the technology and the steps going forward. I will change slides.

Thank you. So fingerprint on display, great opportunities. We've just been scraping a little bit on the surface to see what can you do with this. And it will just come up more. Every time we talk about it, we come up with one more application. And those 4 million apps, they will also address this and add even more applications where you can use this fantastic technology. It is a complex segment with top players in each technology in the smartphone business. The competition is fierce. We have all the best companies working here due to the big volumes and the greatness of phones. We have the best display makers, smartphone makers and the fingerprint. I mean, all of these guys are competitors, and it is fierce. They all want to make this fingerprint on display. Many have tried and still now, they are trying. And I've been working in companies before trying, but that was with the wrong technology. We believe we have the right technology. It will be possible to make, and we know how to do it. We will use the advantages we have of our patented Active Thermal technology and combine it with display technology. We are already combining to some extent, how do our fingerprint sensors and how display is done. And we will further continue that cooperation and combine it in a way that we not only can see a good screen or only can take the fingerprint, but actually do both at the same time. And that's what we say when we think about when we say this is opportunities, great opportunities. Okay. Changing slide, going to the ecosystem. It is fierce competition, as I said before. And nobody really makes one smartphone, the whole phone. It is made by a lot of components. So, partnership is key in this business. When you do smartphone, it's a combination that not one company has the technology to solve it all. So, you buy a processor from the company that's best on making processors, you buy a screen from the company that makes the best screens. And you basically combine the best of the best and make the best product, or you buy something cheap and make a cheap product, but nobody makes everything. So, partnership is really the key. What we're doing here is we are partnering up because we will not do it all alone either. That's not how it works. So, we continue to partner up with those that have the best technologies and the best engineers. We have done it already with our fingerprint sensors. We are a fabless company. We don't have our own industry. It's another factory that actually makes a product that we have been thinking and making and engineered and filing patents for. So, that's how we will continue. With tight cooperation with us and with the partners we choose to work with, we will jointly develop solutions for the challenges of how to do it because, as I said, no one has done this before. There will be challenges for sure, but we are ready for them. All right, Ulf. Is there any volume in this? Should I change slide?

So as I said -- thank you, Marcus. Of course, the market potential, I would say, as Odd Harald said in the beginning, all these smartphones will sooner or later have this technology. Last year, 1.2 billion smartphones were sold. If you look at the market potential, the immediate market potential within the next years, it's slightly smaller number. But the high-end smartphone -- change slide, please. It's 300 million smartphones in the high-end segments, which is the addressable market -- immediately addressable market. I could have written 1.2 billion here. But then it's a longer journey. As Odd Harald, maybe 5 years from now, it's not only NEXT that produces ones like this. This is the immediate targeted volume we're looking at. Good thing about the high-end segment of smartphones, 100% of them are equipped with biometrics, all of them. You can change the slide, please. What's in it for us? What's in it for NEXT? I would say we haven't decided on how much money we will make. We will determine the future business case depending on the complex ecosystem we have and how the business model will look like in this ecosystem. Just an example, the high-end display product was about $120. We are adding percentage of that. Do we have a hardware model? Yes, maybe. We take the delta. Do we have a licensing model with 100% margin? Today, we are working on defining this. At the same time, Marcus development is working on securing the technology. Of course, on the business side, we're securing the business case and how we will address the market. Another comparison is probably all heard about the Apple Face ID. Just the addition on the bill of material, the cost of that, it's USD 30 to USD 40. So would people be okay to pay extra for this? Will OEM smartphone manufacturers, would they be okay to pay extra? The last 5 years, 6 years, all OEM smartphone makers have been striving to find this technology. So, no matter if we get a fraction of the 300 or we take the 100%, this is the major step for NEXT Biometrics. Today is the day we are changing the company from today and onwards. Change slide, please. So what's the expected timeline? It is not -- I must admit, it's not the summer 2025 product. And it's most likely not the summer 2026 product either. We have a journey to make here with the different partners and ecosystems. But we will, of course, make it globally available as soon as we have developed it. The integration work with the different display manufacturers are now starting. This is -- we'll take milestone sort of going to the next phase. That's why we're here. We want to talk to industry players. But we believe that a market launch of this product will be -- we will rock the Mobile World Congress in the years to come. There's been very little innovation in this segment, new camera, new pixels, new sort of. This is a game changer in this industry. Next slide, please. So if I just -- a few words on the summary, why we are -- before opening up for Q&A. A few words what we've seen today. I would assume the largest OEMs are watching this today. We are in the beginning of this journey now. We are entering this new segment, the smartphone segment today. It's a huge potential business. Yet, as Marcus said, it's a complex ecosystem. It's challenges ahead, always. That's the nature of business. But it's 300 million phones waiting. We are, of course, going to update you once we have updates and of course, on a regular basis in this company with the progress we make, milestones we take and the different steps. Before I open up for questions, I hope there will be a lot of questions because it's a completely new area. Before I open up, I would like to remind you -- we will rock. We will rock Mobile World Congress 2027. I will end there.

So there's a possibility to ask questions online as well. If I -- do we have any questions online maybe? I will try to repeat them. So, this will take a bit of time, but -- and....

We have a few questions. So let me read it out. So, we see a lot of Face ID. What are the advantages for someone using the full screen display sensor?

Very good question. So the question was for you online, what's the benefit of using the full screen display, fingerprint sensor display on top -- instead of Face ID? So, very good question. Face ID based on coordinates, twins have the same DNA, same coordinates. Twins can open up the phone, each other's phone. Some sisters and brothers can open up the phone, same coordinates. The fingerprint is different on 2 twins. So it adds additional security on top of what we have today. Do we have any more questions?

So can you elaborate on the 300 million smartphones number?

So the question was, if I can elaborate on the 300 million smartphones. So, 300 million smartphones, it's divided into phones above a certain level, a certain selling value, $600 selling from, for example, from Samsung to the retailer, $600 and above. So retail price, probably $800. Those phones are 25% of the total smartphone market today. The 300 million phones are divided by 2/3 iOS phones, so Apple phones, 1/3 smartphones in the Android space, so Samsung, Huawei and so on. Those are all addressable in the high-end segment. Do we have any more?

Yes. Now when you are developing this, will this turn your company product line in another direction?

So question is, if this -- now we're adding this, will it change the company to a different direction or -- the product line, yes? We -- as I said in the beginning, the business we have with the government ID, the access, the laptop, continues. We have obligations. We have deliveries. We have -- that will stay and increase as we have communicated earlier. This will be an addition to this. We will start. We will continue with existing human capital and increase gradually in this. But I would say working smart with the partners, we are good in the spending type. Do we have any more questions? Maybe we have a question in the room or everything is crystal clear or everybody is thinking about 300 million or 1.2 billion? Please?

Okay. So, you say that you are quite certain that you can manufacture this product or integrate it. Have I understood you right that there is no technical obstacles on your way to make a pilot or....

Yes. So the question is -- thanks for the question. The question is, if the product as such is -- if there's any technical obstacles on the way going forward to a demonstration unit, if I understand it correctly? We have been scouting this for quite some time. Actually, when I joined NEXT, this was my first idea to make it -- I'm from the smartphone industry. Is it done? No. Is it patented? Yes. So, we will continue taking the steps together with the different suppliers. But to be able to talk to the top-tier display makers, including the one we have today, we are today using Innolux. It's #5 display maker in the world. We hold this event today. Is it ready? No, not yet. When? We have some internal milestones that we do not want to disclose. Yes, please?

You mentioned the costs of the Face ID sensor like on iPhone's $30, $40. I understood your arguments regarding the twins and the increased security. But are there any incentives for Apple on the cost side to use your technology instead of the Face ID, speaking then of the costs? What will be the cost of implementing such a screen compared to the Face ID?

Okay. The question for you online is about an incentive, for example, for Apple to switch from Face ID to the full screen fingerprint sensor. So, Apple started off with fingerprint sensing technology. They acquired a company when they saw this. They still have the technology in-house for the -- in the laptops. They do have the fingerprint sensing technology. Will they swap to this? Probably not in the first generation. They are never first movers. Second generation, when they see it works, there's the possibility that they will do because the innovation level and the way you actually interact with the device is totally different from today. And I mean, sometimes the Face ID is also -- benefits of fingerprint sensing is you can start your operations already when you have it in the pocket, then it's open when you're actually here instead of first moving and then open. There's a few benefits of fingerprint sensing, both on the backside or on this. So yes, time will tell if they have the ambition to change.

If I can just add, of course, I mean, Apple is then, yes, 2/3 of those 300 million. So, that's a huge chunk. So of course, you don't forget about that big chunk. So also talking about Apple then, design is a big thing. What happened when they removed the fingerprint sensor on the front is actually you can see a little bit more of the screen because the cell phone is actually much more screen. There is no big fingerprint sensor stealing the screen. But there still is the Island stealing the screen. You wouldn't need an Island if you had a fingerprint sensor hidden in plain sight on the screen. Just...