Precise Biometrics AB (publ) (FINGB) Earnings Call Transcript & Summary

Thank you, and good morning, and warm welcome to Precise Q4 and end of 2021 presentation. This will be my final presentation for Precise Biometrics. And I will do together with the CFO, Annika Freij present very stable financial results and also give you some highlights on how we see the next coming quarters. So please now turn to Page #2. 2021 was a very interesting year. We made great progress in the Digital Identity and Algo area. Despite the corona situation, we ended the year in a very strong way. We were able to increase our sales in last quarter compared to the same quarter 2020, and we also had a huge sales increase in the Digital Identity area. Out of last 9 quarters, we are now had 8 quarters that have been EBITDA positive. We have also shown that the base for Precise is solid and that we have been able to run an efficient setup despite the COVID situation. We have now 2 business units with huge opportunity for growth. The focus and ambition for 2021 were to land the full year at a positive EBITDA level, and now we have delivered that, a fantastic result during the existing circumstances. The base is the Algo business and based on that, we have now established a Digital Identity business. So the journey in front of us is clear that we should continue to grow to business. We will later show how the DI has grown. And with the acquisition of EastCoast, now we have a healthy DI business, above SEK 20 million that will continue to grow. We acquired EastCoast Solutions, the leading provider of visitor management system, and we complete several successful installations of YOUNiQ, also outside Sweden, where we had the first installation at Algeco in Germany. In Algo business, the components shortage among our customers continued in the fourth quarter, which contributed to reduced royalty income. We also, at the end of the year, signed a license agreement with 2 new customers in the automotive industry. Sales for Q4 2021 landed on SEK 27.4 million versus SEK 22.5 million quarter 4 in 2020, which is a 22% growth, primarily driven by increased license revenue in our -- in Algo. As a result of business in the automotive industry in combination with progress in the Digital Identity area. Through the acquisition of EastCoast, we have increased our base of recurring revenues, ARR with good profitability and through our SaaS model, we have ARR in order of approximately SEK 13 million at the end of the year. This year area will continue to grow coming period and over time, be the major sales contributor for Precise. Sales in the Digital Identity amounted to SEK 4.7 million versus SEK 0.1 million the year before in the fourth quarter, once again, a huge growth compared to last year. We have an interesting pipeline with, among other things, pilot projects with EastCoast that are planned for commercialization during first half of 2022 and further projects within existing customer base within YOUNiQ. Like the first 9 months of 2021, the fourth quarter was also characteristic by a continued lack of components at our suppliers, which had a negative effect on the royalty income within Algo. Despite this, we achieved an EBITDA result of SEK 1.7 million versus SEK 0.7 million the year before in Q4. Mainly due to new -- 2 new customers in the automotive industry as well as the acquisition of EastCoast, which delivered its best month of the year in December. We have continued to focus on strategic partnership. After the end of the quarter, we entered into a partnership with Infineon to provide our fingerprint technology, Precise BioMatch, to automotive industry. This partnership offers many opportunities in the future in the new vertical which is completely in line with broadening what we are doing within Algo. And we see potential for more areas of use in the long term outside -- also outside the automotive industry. Now please turn to Page #3, division. Our strategy ambition is no matter who you are, where you are and what you do, you should always have access to your Digital Identity, owned and controlled by you in a safe way. This is how we build our solutions, how we communicate in all forms and execute accordingly. You are the key -- you are the key for all applications and resources and everything is owned and controlled by you. Now we have added the visitor management area into our proposition and also the car industry, 2 more verticals with the solution. We had the foundation for growth in all areas where you are the key. Now please turn to Page #4 to Digital Identity. This business area continued to grow rapidly. The Digital Identity area will be the major sales contributor for Precise in the future. Our addressable market, as presented earlier is huge. We have the product now in close to 70 installations and a churn rate of 0%. This means that we have a stable product line offering and a very good quality. During the period, we have been able to sell it to Sodexo, which will use it for entrance at their own headquarter. With Sodexo, we have the opportunity to grow at their own premises, but also with them to address the solution to their customer, upsells and strengths via them as a partner. We have also a new combination now with EastCoast, where we will very soon present the first product version at [ Zech tech ] in Norway, 9th to 10th of March. This means that we will combine our offerings and by that, address new features to an existing customer base very soon. During the year, we will be -- there will be several feature upgrades and interesting user cases that we will support. Another achievement were the first installation at [indiscernible] which means we now also address the solution directed to different property owner companies. First, the installation at our own headquarter but ambition to roll out to other facilities during the year. We also continue with our own sales forces to sell to midsized companies, such as the installation at, for instance, at [indiscernible] On top of this, we can now also see a very interesting trend where installation partners start to contact us directly for quotations. And 1 very important contract lately is the 1 with Certego, a very good installation partner for us. Integration with existing access platform suppliers continue and now we have integrated with all major players in the Nordic regions, such as RCO, Axis, Integra, et cetera. And in the last quarter, we also added integration [indiscernible] into the list. We will, of course, continue this journey going forward, especially when we go outside Nordic contracts over time. One other very interesting area going forward is the environmental control, energy and power saving, which we will install at a customer now in Q1 2022. Very interesting to see different applications, not only access, but in this case, YOU are the key for saving energy. And by that, reduce the negative environmental effect by using our YOUNiQ solution. Now please turn to Page #5. ARR. One of the most important performance indicator is the Annual Recurrent Revenue, ARR, this is the key metric used for our SaaS subscription business within the Digital Identity area. As you can see, we have increased our recurrent revenue rapidly. Due to the acceleration of YOUNiQ and acquisition of EastCoast. Our ambition is to continue the growth in this area now with a combination of YOUNiQ and EastCoast product portfolio. The revenue today is more or less 100% related to the Swedish market, and we have just started that journey. We ended 2021 with approximately SEK 13 million in ARR. Now please turn to Page #6, Algo. Once again, very solid revenues with high margin in the Algo product area despite continued COVID effect on semiconductors availability and components shortage. There is a clear trend of stronger market demands for Algo sensors as the semiconductor availability returns to normal. It will, of course, take some time, but we have been able to handle the situation in a very fast and efficient way. And of course, we'll continue like that depending how the market develops. So even if some of our customers have been suffering due to the situation, we have been able to compensate with new customers, new verticals within the Algo business. Lately now 2 new commercial license agreement with 2 ODMs, which will use Precise BioMatch, for vital vehicle application. We have also after Q4, announced a new collaboration with Infineon Technology to jointly provide fingerprint technology, including Precise BioMatch, for the vehicle industry and potential other applications. We have a very solid position in Algo, high margin, positive cash flow. So with a fantastic team, we can continue to broaden up for new applications area, customer and partners within Algo area. By that, I hand over to our CFO, Annika Freij.

Thank you, Stefan. So please turn to Page 7. So Q4 has been a truly eventful quarter, both within Digital Identity and within the Algo business. In Q4, we were proud to present what we have been working on for a while within the Algo team which is using our fingerprint solutions in the automotive industry. It's a quite different step-up compared to industries we're used to with longer production cycles and higher unit prices. It's good that we have managed to broaden the customer base as we still suffer from component shortages. Our strategy continues where Algo business is funding the development of the Digital Identity business. With the acquisition of EastCoast, our Digital Identity business has taken a big step forward. We have a goal to increase the SaaS business within the Digital Identity area, and the acquisition has created a good base to build from. We are increasing our annual recurring revenue with more than 3,000% compared to the end of the year 2020. We have quickly started to work on efficiencies and joint solutions and we look forward to soon show you our first solution from Precise Biometrics and EastCoast. Please turn to Page #8. Net sales and gross margin. Net sales during the quarter were SEK 27.4 million versus SEK 22.5 million previous year. Net sales were split between royalty revenues of SEK 6.5 million versus SEK 10.9 million previous year. License fees, including support and maintenance of SEK 18.7 million versus SEK 10.7 million previous year and other of SEK 2.2 million versus SEK 0.9 million previous year. The component shortage and therefore, lower sales volume among our customers related in lower royalties. The license -- the increase in license fees mainly depend on 2 new customers in the automotive industry, but also due to the acquisition of EastCoast. The reason for the increase in Other is mainly due to hardware sales due to new installations within Digital Identity. The Algo business is healthy and profitable, delivering a strong cash flow. The component shortage and lower sales volumes among customers reduced royalty, but we increased the license fees in the quarter. And these new customers will also contribute with royalties based on actual sales numbers, together with the recurring fee for support and maintenance starting in 2020 -- in 2022. We have increased our Digital Identity area with the acquisition of EastCoast, but we also see a lot of activities when it comes to YOUNiQ. We have new installations in Q4 and we are working on new installations in 2022. We have been improving and integrating YOUNiQ with other solutions, and we have been building a big partner network, and this is beginning to pay off. We are also working closely with big customers like Algeco, which is important for our growth. The gross margin during the quarter was 77.4% versus 84.7% previous year. The decrease in gross margin is primarily due to lower margins on hardware than on software and the increased amortization of capitalized development expenses. Total amortization of capitalized development expenses was SEK 3.2 million compared to SEK 2.6 million previous year. The increase in amortization of development expenses related primarily to Digital Identity. Amortization of acquired intangible assets was SEK 0.3 million compared to SEK 0.2 million the previous year. Please turn to Page 9. The profit at the EBITDA level was SEK 1.7 million in Q4 versus SEK 0.7 million previous year. Operating expenses for the quarter increased with SEK 2.2 million, totaled SEK 23.9 million versus SEK 21.7 million previous year. We had expenses relating to the acquisition of EastCoast of SEK 2.6 million. We continue to have a tight cost control, and we are continuously working on efficiencies, mainly within research and development. And this means that our operating expenses, if we exclude the acquisition costs actually was lower than previous Q4. Earnings per share for the quarter was minus SEK 0.01 versus minus SEK 0.02 in Q4 last year. The operating loss for the quarter was minus SEK 2.7 million versus minus SEK 2.6 million previous year. The slightly higher operating loss is explained by the higher net sales but lower due to the higher operating expenses. Please turn to Page #10. Cash flow. The cash flow for the quarter from current operations was SEK 3.2 million versus SEK 12.2 million last year. Of this SEK 2.7 million is due to changes in working capital mainly a reduction of current liabilities. The group invested SEK 0.6 million in property, plants and equipments during the quarter versus SEK 0.6 million last year. The 30th of November, Precise acquired EastCoast Solutions to a total price of SEK 86.2 million. SEK 24.5 million was paid after 31st of December 2021, partly via cash payments of SEK 18 million and partly via the issuing of 7 million new shares totaling SEK 6.5 million, and additional SEK 8.3 million has been paid in cash after the end of the year. The remaining SEK 55 million will be paid on 2 occasions. SEK 25 million will be paid in November 2022 and SEK 30 million will be paid in November 2023. As a part of the financing of the acquisition of EastCoast, a special issue of 28.8 million shares was also made corresponding to an amount of SEK 23 million. Capitalization and amortization of development work. Development expenses of SEK 4.1 million were capitalized during the quarter compared to SEK 5.1 million in Q4 last year. Amortization of capitalized development expenses was SEK 3.1 million during the quarter versus SEK 2.6 million previous year. Capitalized expenses are amortized over a 3-year period for the Algo as well as Digital Identity. Cash and cash equivalents at the end of the period totaled SEK 64.1 million versus SEK 76.3 million in the end of Q4 last year. So back to you, Stefan.

Thank you, Annika. And then please now turn to Page 11, the summary. So despite the COVID-19 effect on semiconductor availability impacting royalty revenues within Algo, we grow sales for Q4 to SEK 27.5 million versus SEK 22.5 million last year, an increase with 22%. We continue with further successful integration of YOUNiQ and new strategic partnership within Algo. We expand our Algo solution into new applications area, which positively impacted license revenue. We also continued expansion of our SaaS business area, Digital Identity with a solid platform for continued ARR growth now with approximately SEK 13 million in ARR end of last year. We acquired EastCoast, which means a very solid base for Digital Identity, a base of more than 650 customers where we can do upsells and buy that faster acceleration and growth. So YOU are the key. And now I hand over to the moderator, and you are free to ask questions. We have also received some questions via mail, social media, et cetera, and I will take them after you have asked the questions online. Thank you.

[Operator Instructions] And currently, we have 1 question on the phone line so far. That's from the line of Rebecka Gärderup of ABG.

I have 1 question regarding EastCoast that delivered the best month in the year in December. What -- approximately how much sales did EastCoast contribute with? And what can we expect from this going forward?