NEXT Biometrics Group ASA ($NEXT)

Good morning, good evening, good day, wherever you are. Welcome to the quarter 1 presentation from NEXT Biometrics. You can swap to the next slide. I'm here, I'm Ulf Ritsvall -- you can take the next slide. Ulf Ritsvall, CEO of the company. I'm here together with Eirik Underthun CFO, to present the earnings call. We -- you can take the next slide, please. So the agenda for today, we will go through the Q1 highlights. We will go through the Q1 financials, and we will take you through business and market updates, and we will round off with a Q&A session. You can ask questions in the Teams window or you can send an e-mail. We have already received a few questions that we will answer during the call. Yes, let's take the next slide. The Q1 highlights, we came in very, very much lower than expected in revenues in quarter 1. It was 40% down in -- compared to Q1 in 2025. We are suffering from a very slow market. As you have seen, the market size and market window from governmental is very, very slow. We, at the same time, have a global geopolitical turbulence in the world, which is not helping the governmental tenders to actually come through. We are operating in this tender-based, business mainly. And our, nowadays, 89 design wins, the majority of them are now integrated hardware and software into a hardware design. It's ready and it's tested and it's approved by the customer and majority is now actually waiting for deployment on the market. It's a slow system because the order needs to go from the governmental tender into the OEM to the [ OGM ] and to NEXT Biometrics for us. This is taking far longer time than we have anticipated and we have seen previously. I'll get back to that a bit more with the measures we are taking. During the quarter 1, we also received a very much needed FBI certification of our newly developed FAP30 sensor, our NEXT Granite sensor. This is very important for -- to be compliant to the different markets. It's a quality statement that we are very proud of being achieved. Also during Q1, we had some major breakthrough and communication in our anywhere on display IP development. We have key technical milestones achieved during the quarter. We have 2 patents now. We received -- announced one additional during Q1. And if you remember, in January, we announced that we have selected Giant Plus as a partner for this strategic collaboration and for the demonstration unit to be shown. We will move over to the next slide, and Eirik will present this. So I hand over to Eirik. Next slide, please.

Thank you, Ulf. Just wanted to everyone is aware that we have an ongoing NOK 50 million rights issue. You can see our stock exchange providing the details on that. Right now, we sent out a letter to shareholders in the [indiscernible] you should have received this letter by [indiscernible] and in those letters, we communicated that the rights have now been allocated to the shareholders. And these rights are currently trading in the market. And that is going to be [indiscernible] 3rd of June, 16:30 [indiscernible] end of trading that day, then of those subscription rights will [indiscernible]. There is no more trading after that. And the subscription period for the rights issue has already commenced. It's commenced 3 days ago on 26th of May and expires on 9th of June '26 at 16:30 end of business that day. And the prospectus is available at arctic.com/offerings. So to read the prospectus and [indiscernible] to understand the rights offering. And please be informed that these [indiscernible] as you can see on this slide if you would like to participate in the rights offering. Next slide, please. I will now run you through the Q1 financial. The revenues were NOK 1.8 million compared to NOK 3 million in the restated Q1 2025 and revenues were impacted by slow sales in India. The adjusted gross margin is 40% in Q1 2026 compared to 55% Q1 2025 and margin is due to product mix. On the operating expenses, we ended up with [indiscernible] expenses of NOK 16.5 million [indiscernible] NOK 17.5 million in the restated Q1 2025. The adjusted EBITDA was negative NOK 15.8 million compared to negative NOK 15.8 million in Q1 2025. And ended [indiscernible] the quarter with a cash flow of NOK 6.7 million compared to NOK 8.3 million at the end of Q4 2025. The operational cash flow was negative due to lower sales and we had [indiscernible] some financing, which was [indiscernible] to the share [indiscernible] we received the first tranche of the bridge loan. So the summary of this quarter that there were slow sales in impacted the revenues. [indiscernible] shareholder loan and the first tranche of the bridge loan [indiscernible] . The company had of NOK 9.8 million in net inventory write-downs, NOK 4.7 million in noncash costs. The noncash related to the, first of all, redundancy cost for [indiscernible] that were laid off as well as shareholder remuneration cost and also [indiscernible] investigation and litigation costs related to the [indiscernible] ongoing dispute in China. With this, I will turn over the call to...

Okay. Thank you. You can take the next slide. Actually, even one more slide. So going into the business and market update. I would like to start with what we are doing in this company. We are now in the transition period of actually transforming the company from sensor sales, which we see is very slow, and we need to take measures. I will take that in the next slide on doing this. We are now actually creating an IP, an intellectual property company. You can compare this to how -- for example, it's a large company called Arm doing similar type of IP licensing. We are now transforming. We are creating this anywhere on the display, which is -- has the potential to transform the biometric and display market to where we are now positioning NEXT to be in the forefront of the next generation of smartphone security. We are a few steps ahead on this journey. This journey is a few steps more. But we have now 2 newly granted U.S. patents, which is very, very important for us. It secures the core technology of the core IP of this transition. It creates a defensible competitive barriers for -- and a strong foundation for NEXT Biometrics to actually capitalize on this. We have -- 1 year ago, we sent out a press release about a smartphone market industry leader that are confirms the technology and commercialization and the commercial potential of this intellectual property and the use case itself. We have -- in Q1, we had a strategic manufacturing partnership announced, which is Giant Plus, and it's a leading display manufacturers, which is derisking the development as they are developing this hand-in-hand with us. We are taking prototype to demonstrate on the Mobile World Congress. We are having this milestone as demonstrating for key market leaders in display manufacturers, but also smartphone makers in this area. This is the type of premium positioning we now are taking. The technology is, of course, purpose-built for the premium smartphone at the end. But of course, it has the capability of actually exploding into the complete smartphone segments, including for example, where we are based today in the Aadhaar market, where you -- instead of walking to a bank, for example, and have external biometric reader to get a bank account, you can now actually use the cell phone and the display of actually confirming your Aadhaar identity at home. So it will ease up many of different applications. This specific use case, of course, long term. But in the near future, this IP technology will be able to convert into licensing -- upfront licensing fees for the different licensees. We are developing -- it's on track, and it's on schedule as we have it today. And this is the current road map of this innovation. And if there would be one reason for the investment and the prospectus that we have out right now, this is the reason because this is the next way of NEXT. I can take the next slide. But short term, of course, we are in a difficult situation, as you can read in our financial data. We are right now actively converting the existing inventory across all majority markets, India, Bangladesh, Americas, but also China, Japan and so on. We are seeing where the stock and the inventory suits best at this moment. We are actively pursuing this at this moment. This will, of course, give us with this revenue, it will give us a longer runway compared to currently communicated. As you have seen, we have an annual underlying OpEx trending at NOK 65 million. This has to go down further as you see on the figures. We need to take large measures. We have already taken measures internally to protect the cash runway for this. It's a combination of revenue focus as well as seeing where to cut costs in the company to survive until licensing -- IP licensing money comes into the company, and we are self-sustainable. So again, focus is, of course, revenue focus, cost reduction. We will announce whenever needed, maybe very soon on the costing structure. But we will also, at the same time, focus on the transformative technology, the Anywhere-on-display to deliver substantial revenue and profit to NEXT. Again, we have a very good IP position. We have patents in the U.S. They are now being deployed in other parts of the world. And again, this is a validation already done by key leading smartphone leaders and the prototype is on track, which will help us get into a profitability. It's a major commercial catalyst of NEXT Biometrics. I think I'll stay there and open up for Q&A. I think we have received a few questions already. Maybe, Eirik, if you can read them out, we can try to answer them.

Yes. There is one question Anywhere-on-display. And the question is, what's the potential value of the Anywhere-on-display technology? I'm not sure, but...

Okay. So the business -- the proposed business model is that we will engage multiple different display manufacturers. They will license the intellectual property from NEXT Biometrics. Once they have completed the display integration, NEXT Biometrics will get received unit charge. I mean, license -- sorry, unit fee from each sold sensor in the display. So the high-end smartphone market is 300 million phones, 200 million of them are Apple, 100 million are Android phones. If you have a comparable figure for a competitive type of license or royalty, you can say that it's between $1 and $3 per sold unit. Then you can calculate the value of the actual implementation, which is massive. Right now, we are building the prototype, demonstrating it. And we will -- by the time we have the prototype, we will be able to get these different licenses. Any more questions?

There was one question here regarding the earlier revenue outlook of NOK 70 million for [indiscernible] '26. Is this guiding valid?

I would say that the focus is to sell the inventory. If it's actively NOK 70 million, it's very tough to say as we have this very, very slow governmental market. It's not very likely that we will reach NOK 70 million at this moment in 2026. And -- but it's very hard to say and predict where we will end up. We have -- again, we have 25 to 35 active customers and active design wins in the sort of end journey before the mass production. So if more than a few hits in, then we could close into that. But again, actively converting the inventory first and then we'll see.

Yes, we have one more. Could you run us through the order book and the orders that you have...

Sorry, I didn't hear. It was very -- so I run through this order. I mean we have announced -- yes?

The order situation.

Okay. Okay. Yes. So we have -- we are announcing orders -- active orders above -- according to our communication guidance on the website, we are announcing orders that are above NOK 2.5 million. This year, it's been very few orders that has been above NOK 2.5 million. We have a few ACPL orders, one in December, I remember, and 1 or 2 during quarter 1. They are being delivered. Some were delivered in Q1, and the remaining will be fulfilled in Q2. Those orders are in our book and communicated. The smaller orders that are below NOK 2.5 million, we are not communicating in the order size, but we do communicate orders that are of significant information value to shareholders, including one order from on an Oyster III device, which was lower than USD 2.5 million, but of significant importance since it was a new market. So we do have order in stock on a secured order and delivering them as we speak during quarter 2 and quarter 3 and on. Any more questions?

No. That completes the Q&A session. Thank you.

Okay. Thank you very much. You can reach me on e-mail or on phone. Thank you for being here today and look forward to seeing you very soon again. Thank you.