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

Now the meeting has started. So I would like to welcome everybody to this investor presentation in Precise Biometrics. CEO, Joakim Nydemark, will discuss the rationale behind the merger with Fingerprint Cards and how the proceeds from the ongoing rights issue will be used. And please feel free to write any questions in the chat, and we'll try to answer them in the end of the presentation. Joakim, you can take over.

Thank you so much, and very welcome to this presentation about Precise Biometrics and about 2 pioneers and 1 future. So Precise Biometrics and FPC, we have both companies a long history within biometrics. And we have, over the years, provided both software and hardware related to a number of use cases within the areas of biometrics. Now we are merging the 2 companies, and we are creating this one future where you are the key. The agenda for today is I will give a short company introduction. I will talk about the merger. I will talk about the rights issue, and then I will end with a summary of what we have talked about here today. And again, you are welcome to put questions in the chat along the way, and then we will take those questions in the end of the presentation. So biometrics, what we are talking about is that with fingerprint, with face, with palm or with iris enable authentication and identification of a person that enables that person to log in, open doors or open your mobile device or computer. And this is done in an extremely secure way since you have a connection between the user and the access rights that user has. So the offering in Precise Biometrics relates to 4 modalities. It's fingerprint, palm, iris and face, and we provide those modalities within the frame of software algorithms, hardware and hardware-related systems and, of course, our deep domain expertise that we have gained together in these 2 companies and now the merged company for almost 30 years. We provide these solutions in digital security, and this is an area where we use the technology for logging into devices more in a digital way, if you like. So this could be accessing computers, applications, server systems. This could also be related to payments, for instance. And then we have the physical security part that is more related to the actual access to buildings, to secure locks or what have you. To put this in a little more context, I would like to dig into the different -- or examples of different areas where we apply these systems. So again, logical passwordless access. This is an area that is really hot for us. This is an area where both companies historically has been active and where we now together can provide an even more comprehensive and complete solution altogether. This is to enable with, for instance, secure tokens, secure ID tokens, again, enable log-ins and access to computer systems and servers. We have the government identity programs. This is an area where also -- or in specific, Precise Biometrics has been very active, but to some extent, also FPC, but where we together now form and are able to provide a more comprehensive solution together where we combine both hardware sensors and software. We already have our product software-wise on this market. We provide this for the Aadhaar systems, and this is about matching fingerprint, but also for anti-spoof, which is a really relevant area nowadays that enables or prevents thieves or those who want to manipulate the system to get access. And this has been an important area for the solution to get into the Aadhaar system, for instance. But this is a more general solution we have. So this is something we can address not only Aadhaar in India, but all national ID systems, including areas like Southeast Asia, France, South America. So this is a really exciting area for this joint company. We have the mobile phones, of course. This is an area where we will continue to provide software solutions. And this is more targeting or specifically targeting ultrasonic sensors. Precise Biometrics has a history in this. We have a close cooperation with Qualcomm in this space. And this is where we provide our software technology, both for matcher and anti-spoof to mobile phones worldwide. And this is a growing area for us. Ultrasonic as a specific sensor is something that is growing within the frames of mobile phones and where we have a strong presence and where we again see a growing market. Then we have biometric hardware systems in general for consumer, for IoT, for payments. And this is where we are really active today, and this is an area that is also growing where we can enable biometric system that increase not only security, but also convenience. And you get this mapping between the user and the rights to access. That increase the security substantially for high security facilities down to secure safety boxes. And then we have the physical access and visitor management, which is an area that we also see a lot of potential in. Here, we have the modality of face and palm. And this is where we also have a growing market. We have over 800 customers already. This is enterprise business. And this is also a growing market where we see good potential more in Europe, but also in the United States. So looking at the market in general, this is a market that is partly driven also by the macro trends. We have AI that is on everyone's lips nowadays, but this is also driving the need for even more secure systems and technologies since it's also enabled fraud capabilities for criminals. We have the digitalization as a driver, but also the secure climate in the world. So the secure situation and the security situation in the world in general drives the need for more secure solution. And this is where we are able to provide both hardware and software technologies for the areas that I just mentioned. If we look at the core segments, they are expected to grow 15% to 25% annually over the next 5 years according to analytic reports. And this includes physical access visitor management and cybersecurity areas in specific. And so there is good potential. But what I want to stress, this is also areas where we are able to gain market share with this joint offering we are now forming with the merger. If we look a little at sort of the rationales behind the merger, we can see 4 fundamental things. We have the complementary offerings. I mentioned it already. Precise Biometrics historically come from software, FPC from hardware. Together, we get this mix of products that increase sort of the position in the value chain, but also the broadness of the offer where we can address not only customers that we had and were able to address on our own, but now we can address other types of customers, and we can get the bigger share of the wallet, if you like, from the customer since we are growing the value of the offering. We have the synergies, and this is extremely important. When merging 2 companies, we have gains from cost synergies, and this includes everything from joint systems, administration, management, the Boards and so on and so forth. And altogether, this adds up to more than SEK 45 million that we will be able to execute on here during the fall of 2026. And we will then move into 2027 as sort of this -- with the synergies executed. The extended reach and relevance, this is extremely important. So we have -- together, we get more presence geographically, but we're also able to bring this broader offer to a bigger variety of customers. And we will do this both with the current sales force, but also we will add more sales and market efforts here moving forward when we address this larger market with this larger offering and will enable then the cross-sell and the upsell to customers, but also addressing new customers. And the #4 here is the foundation for consolidation. So with bringing these companies together, we get a bigger company, but we also get the capabilities of continued growth with further consolidation when we have shown the success with this integration and this merger and create this leader in biometrics and security and identity. So if we look a little at the numbers, so if we look at the 2025 numbers, actually we had about the same revenue, SEK 78 million, adds up to SEK 156 million. So this is the pro forma for 2025. If we add then this cost synergies of SEK 45 million, that will bring us to a profitable EBITDA number of 17%. So what I want to show with this picture is that the fundament for sort of the financials here moving forward is there. So if we can execute on this SEK 45 million, add sort of the increased sales and customer value in the next step and accelerate that journey, we will definitely be able to prove a profitable growth here during 2027 and onwards. So I touched on the geographical reach. So we have the headquarters in Lund. We have also offices in Gothenburg and Stockholm. But maybe even more importantly, and this is where we have the majority of development and part of the sales as well. And then we have presence on local markets, both in Asia and India and United States. And this is to show this complementary go-to-market footprint that we enable with the combined company. And again, we enable also climbing the value chain, we are able to address sort of a greater share of the customer wallet and upsell, cross-sell capabilities, not the least here moving forward. So looking at the growth, we look at organic growth and a continued M&A journey. So we had a fragmented market. There are a lot of companies within the area of cybersecurity and identity management and so on and so forth that is a little struggling with the growth because they are limited on a specific geographical market or in a specific customer segment or offering segment. This is typically an area where we can come in and, with a larger scale, we can bring those companies in and continue this journey. So I see that we will be able to grow organically with the current customer base, new customer base and our current offering and winning new strategic customers with this bigger offering, but also in the next step to do these M&As with the smaller companies within, for instance, identity management and security and, yes, related areas, I would say, where we can bring value into our offering technology-wise or customer-wise, but also from a geographical standpoint. We have a new organization in place. So we have a management team. I'm really happy about and proud of this management team, really strong members, which is a mix of Precise and FPC managers. And I feel really confident with this team and that we will be able to execute here moving forward. We also have a really strong Board, also that a mix of FPC and Precise, but more importantly, vast experience in very relevant areas, including both hardware, software, security and general background history and know-how of running a company and growing a business. If we look at the time line, so we had the 20th of July as the day for the merger. And we have a project ongoing now for the integration and the synergy work. And this is something that has been going on for some time, and we are already executing on that in full speed. We have already come a good part of the way here towards the SEK 45 million in cost savings, continue to execute on that. And the target here is to have that in place by the end of this year. So we will be able to have sort of the companies fully integrated, have the synergies executed and go into 2027 as this merged company with forward-leaning marketing and sales capabilities, but also a larger product portfolio. With that said, we will also be very careful with sort of the current customer base. So we will be very, very sort of focused here initially also to take care of the current customer base. And we will grow into these new offerings and cross-sell capabilities here during the fall and into next year, so that we can continue to grow from where the 2 companies come in, in this merger here by the 20th of July. So a few words about the rights issue coming up. So we're targeting to raise SEK 110 million. SEK 100 million is guaranteed already. And the use of these proceeds is to, of course, realize this merger and integration and the synergies so that we can get the companies together, so we can still sort of be able to execute in full speed, but with a lower customer -- sorry, cost base, but also increased, here, revenue moving forward. We will also enable the commercial initiatives, as mentioned, with the sales power of this enlarged team with new geographical markets for the -- each of the companies and also this broader offering that we will bring to the table with the merged companies. And we have a bridge loan that we need to finance as well. So those are the 3 main things. And again, what is attractive with this new setup and the business here moving forward, I have talked about the synergies and the SEK 45 million in cost savings. So that altogether brings more comfort into the financial. But I think more importantly is the strong combined product and solutions that we are able to create together that can address the physical and logical security, national ID, as I mentioned. We have the ultrasonic business, payments. We have payment cards as part of this business. This hasn't really taken off yet, but there is a good potential in that when the day comes where we can execute on that. But there is already today business in that segment, but that combines also the access part of using biometric cards. So that is really interesting. And then we have the visitor management. That is an area that is also growing. We have a really strong presence in Sweden and Nordic. And we are now sort of moving outside the Nordics into United States and rest of Europe with this. I also would like to mention the product as such, where Precise has, over the last 2, 3 years, worked really hard to develop the next generation of software products for matching and anti-spoof and then also grow the capabilities within data collection and anti-spoof collections. And together with FPC's hard work with the all key offering where they have brought a sensor into biometric secure platform that together with the software creates a full stack hardware/software platform that enables sort of biometrics in these mentioned areas is really strong. So altogether, the combined offer here has really interesting potential. To add to that is the structural tailwinds due to geopolitics and then AI that I mentioned earlier regarding the security situation in the world that is driving sort of the need for more secure solutions and specifically biometrics. So moving into the summary. So really important to keep the momentum in the current business. So we will make sure that we handle the current customers, but also continue now to accelerate sales and marketing and get sort of the offering together, execute on the integration and be on track for that by the end of this year and deliver on the cost synergies and the joint capabilities. And I think what is really important here also is the offering moving forward. So step 1 will be to take the obvious parts of the business where we combine sort of the current software algorithm with all key hardware and make that. But there are, of course, a lot more potential here in the next step when we together develop sort of the next step of solutions that will deliver the security of certified and well-tested security solutions of highest standard. And we will enable this towards physical and logical access, but also payment and identity management, of course. And the whole need and the requirements from the market and the -- why companies and our customers will need and will be able to and will want to pay for this is to prevent this unauthorized access, identity fraud and cyber-attacks. So with that, I would like to say thank you. We make people's everyday life safe and seamless in a world where you are the key. And this is where we are driving this company. Thank you.

All right. Thank you, Joakim. I think we can proceed to answer some questions that we have received during the meeting. And the first question that we received was, is the integration project initiated and what's the status?

It is indeed initiated and up and running. So we have 14 work streams that we're executing on with a number of tasks. And that includes everything from making the systems merged, financial system, IT system, patent portfolio, customer contract partners, you name it. So it's a long list, and it's fully up to speed. And this includes also the cost saving activities here over the next 6 months. And as mentioned earlier, we have already started with the cost savings and is way ahead already on that. So I'm really -- I feel really confident that we will be able to execute on this here within the next 6 months.

All right. And which areas and markets do you see as the most exciting for the combined company in the coming years? And where do you see the greatest growth potential? We actually got a specific question regarding the biometric cards.

Yes. So I would summarize this in saying that logical and physical access is definitely one area. This is -- or maybe several areas, but one larger part of the scope here within access. So where we have logical access, which is the FIDO tokens and secure digital logins and we have the physical access. So this is important and areas where both companies have previously also been active. So this is something that is growing. We have the national ID and this is an area where we have activities where we are already sort of a certified solution provider, but where we together can bring a larger offering to the table that we will be able to do here moving forward. And we have the ultrasonic sensors, as mentioned, this is a software business, but great growth in that. And then we have the security solutions, specifically then related to crypto wallet, but also payments. So payments and payment card are definitely an area where we have a strong certified solution. The market for payments has not taken off. So we see this as sort of a potential growth area. And important in that space is also that this technology and these cards can also be used for secure access. So it has the dual capabilities from that sense. And so when talking about sort of these payment/access cards, I see good growth potential here moving forward as well.