Fingerprint Cards AB (publ)

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stefan Pettersson, Head of Investor Relations. Please go ahead.

Thank you, Sandra. Good morning, everyone, and welcome to Fingerprint Card's earnings call following the release of our Q2 report this morning. So we'll begin by a presentation of the report by our CEO, Adam Philpott, and thereafter by our CFO, Fredrik Hedlund. And if you're following the conference call on the web, you can post questions throughout the call. And with that, let me now hand over to our CEO, Adam Philpott.

Thank you very much, Stefan. Good morning, everyone. Welcome to the Q2 earnings call. I'm joined by our CFO, Frederick Hedlund, today. Let's move straight into the agenda. A few things we're going to be sharing this morning before we take questions from you. We'll start with executive summary with some highlights from what's been going on in the business over the Q2 period. From there, we'll update you on the progress. Many of you have been following the transformation plan that we've been going through. We'll update you on the progress and the performance related to that plan throughout the call. Then we'll come on to some key facts and figures along with product line updates from Q2. Finally, then coming to Q&As. So in terms of the executive summary, in terms of the highlights from the quarter, a few things that we want to call out. Firstly, really positive to see growth in our core business, 10.5% growth in the core business. That's the business that we're focused on as we wind down the mobile business. So really pleased to see nice double-digit growth in our core business, particularly impressive given the backdrop of a massive transformation, huge transformation we're taking the company through. So to be able to maintain that business whilst going through that, really positive. In line with our expectations, it's aligned to market growth rates. So very, very pleased with that. Of course, we saw a total top line reduction of 45%. Absolutely expected. We're winding down the mobile business. That's a big revenue line. We're winding that down due to its poor profitability. And so, again, that's also in line with expectations. We've previously committed to winding that business down by the end of the year. And so I think that's tracking exactly as expected also. So positive news in the core revenue line there for Q2. At the same time, I mentioned a massive amount of change as part of the transformation plan that we're going to spend a lot of time on on the call today. A huge amount of cost takeout. A big part of the cost takeout is, of course, people. And so really focusing on reducing headcount has been a primary focus. We'll spend a little more time on that later, too. Focusing on headcount is really a lead indicator. We've seen OPEX come down, but we'll see more of that come down as we see the costs come out from the reduction in headcount too. So also really impressive as we right-size the business and get the cost model into the right place with the focus, of course, on headcount. So great work done in Q2 in order to right-size that also. All of those things then leading to a significant reduction in our cash burn. So again, showing greater financial control, increased operational efficiency as we improve, as we reduce our cash burn and move the company into a much more positive cash environment. position also. So very pleased with that. Improved by 42 million. They reduced the cash flow by that amount, which was excellent for us to go and do. There was an anomaly as you do a compare with Q2 2023. You'll see a slightly anomalous number there. That was driven by an 80 million inventory reduction. So if you think about backing that out, it gives you probably a more fair compare there too. So that was quite an anomalous reduction. And you can see some details in there, too. In terms of gross margin, as we tidy the business up and drive some of this transformation, you'll see we wash out certain things. Massive depreciation of capitalized R&D. That's a non-cash item, so it doesn't affect cash. But as you can see, as you back that back in, actually, the right compare for our gross margin was actually 25.4%. versus 19.7 in the previous year. So again, lots of things going on as we tidy the business up and as we transform, but if you account for those really positive signs in terms of how the business is running and the things that we're doing to transform the direction of travel. Of course, this is a massive transformation, so I don't just want to grandstand on these really strong results. I also want to share that we'll continue to see volatility as we go through this phase of stability. We're going to see volatility in the business as we implement the transformation plan, and that's something we'll just manage as we go through each quarter. Let's move forward. I want to just remind you all of the transformation plan. We're not going to focus on every item today. We're going to focus on really four items in the transformation plan. We'll talk about the portfolio refresh. We'll talk about cost optimization. We'll talk about how we're strengthening the balance sheet. And we'll be talking about strategy, too. Strategy is a really important one. We've just hired a new chief strategy and technology officer, a really important move for us to look at how we expand the markets that the company is in. And we're also going to talk today about moving from stability to growth. We've been doing a lot of work on cost optimization, and that's really important to get the foundation of the company right. But of course, there's also an important aspect of how we're going to drive growth. Growth in the core markets that we're in, but also expanding into new markets. So we'll spend time on those things today too. Let's go to the next slide and let's start with that stability to growth piece. I think that's a really important conversation for us to now have as we wash some of those challenges out of our balance sheet and out of the system. One thing I will say is this doesn't mean that we're now stable and we're now flipping to accelerating growth. What it does mean is that we're probably midway through that stability phase now. There's still work to do to tidy the business up and get it into a very strong committed to as well but we are then start to think about and how are we going to drive that future growth both in the core markets and in new software markets also make sure that as we stabilize we've got those ingredients baked into the company to be able to go and do that the other thing I would say is it's about our focus on continuing to be a value player best in class both in our core business and and in new markets. That's one thing I've seen consistently since I've joined the company is really valued as a best-in-class product, high-quality, very efficient, high-performing product. That's what we want to continue to focus on. And so as a value player, there's really good opportunities in our core markets. We're in the payment market. We're going to stay in that market. We see a real opportunity there for that market to take off. We've invested a lot in that market. We can also see the ecosystem, our partners investing still investing a huge amount in that market to make it ready for prime time. And so we see a lot of growth ahead in payment. On the access side, similarly, smaller companies, Need our support need great products there too. So we've got a lot more room to run in access We've talked about scaling through the channel in the past and that's something you'll see us start to do in the second half of this year So some good opportunities as a value player there and then finally PC the bigger segment that we're in On a project by project basis as we get into new models again We see an opportunity to be a value player there to working with our large customers in that space. So So good opportunity to grow in core, but also a good opportunity to diversify into new markets. And I'll talk about strategy a little bit later. As we think about how we balance across the portfolio, I think about hardware and software. We've got real strength in our ASICS team. Our algo team can span both hardware and software, helping us move into new markets. And then we're also bringing new skills in for software as well. So it's really about executing the strategy work, the external strategy work we did in Q1, bringing a new chief strategy and technology officer in who starts actually on Monday to help us go and execute and make sure that we're leveraging what we're great at with our existing core team, but also getting in to new markets. Let's talk a little bit about the second element of the transformation plan, which is, of course, our portfolio refresh. So on the last Early school, we talked about winding down mobile graciously. We entered into a partnership there with Aegis in Taiwan to help us also do that and support the customers who had previously committed to us and that we committed to to make that a very graceful wind down. That's proceeding very, very well. We're pleased with how that's going. But of course, we continue to review our business in this way. We review all of the projects that we work on across our core business. And also, of course, in new business to think about what's the right way to invest. Do they meet our IOC requirements to make sure that it's greater hurdle rate than our cost of capital? So very, very much a rigorous process implemented by Frederick, our CFO, to ensure that we're making smart decisions. And then from there to look at, well, how do we invest in these things? Are these things that we want to invest in? Are they build or buy opportunities for us? or are they partner opportunities? So we think about all of the projects we work on in that way and all of the businesses that we're in are by and large project business as well. We've applied that to mobile, we apply that to our core business, we apply that to our new business and we'll continue to do that as we're smart with the funds that we receive and how we think about returns that we're going to get from them as a value player. Let's move to the third box and talk a little bit about cost optimization as well. I touched on this a little bit in some of the headlines. As I said, as we focus, continue to focus dynamically and in an agile way on our cost base, Headcount is a really important area for us to look at. And that's what we've done in the past. We've done a really good job. We were very public about what we were doing with regards to headcount. Headcount is about two-thirds, about 70% of our total cost. And as you can see, from Q1 to Q2, we've been able to bring headcount down by 31%. And that's on top. of the earlier phases that we announced as well. So really pleased with the results there. Of course, that's a really challenging thing to do, but now we end up with a much more agile team, fewer layers between them, less management structure so that we can really focus on being an agile startup type of company with the resources that we have. It's also a need indicator. We've seen good OpEx reduction, but we'll see more coming as a result as the headcount moves out of the company. We'll see more impact there too. And that then flows onto our free cash flow. As you can see, we've massively reduced the cash burn there, 42 million reduction in cash burn. So again, very pleased with the direction of travel, but Rome wasn't built in a day. Still a long way to go in the transformation, it doesn't happen overnight, but pleased with the direction of travel so far. And then the third pillar of the transformation plan was about strengthening the balance sheet. As you will all know very, very well, we did a rights issue. That is nearing completion. That involves an early redemption of the convertible bonds, which then reduces further dilution for the shareholders, of course. There's a slightly delayed settlement in that due to FDI regulation before the convertible bond is paid, but we feel we're nearing conclusion across that rights issue, of course as well and this is part of stability getting in place the right foundation in the balance sheet for the company to become stable to give us more financial flexibility to put our shareholders on a level playing field and of course to reduce the deaths overhang so pleased with the progress also in that pillar of the transformation plan Let's go now to the fourth pillar I want to touch on, which is related to our strategy. We did some great work in, I think it was Q1, where we got an external party in to help us look at our strategy to revitalize it and to move it forward. We're a highly experienced, highly successful biometrics player. We've operated at huge scale. So the way we want to think about our strategy was always, how do we take what we're great at? And it's not just what great products we have, it's what great people we have, what supply chain we have, what partners we have, what market we're in, what the market more broadly that we serve. So we did some great work on strategy in Q1 to reassess the problems that we're solving and that we have credibility to address. And this is also about how we leverage biometrics into the broader identity market. Biometrics is a smaller part of the market. We see identity as a much bigger part and the two are very, very related and we have a right to play in the bigger market. So we wanted to think about how can we leverage what we're great at and how can we explore a bigger market and solve some bigger problems or some other problems that still haven't been solved. And as I think about that, The passwords are very much at the core of that. Passwords are really what biometrics seeks to solve, whether it's pass codes, passwords, or anything else, that's what biometrics seeks to solve. Instead of saying, this is a string of things I know, you're saying, this is something I am. Passwords are still the primary means of identifying and authenticating. And they were established a long time ago where we needed few passwords, we had few internet services, and they were a low cost means of doing so. But the challenge remains today, they are still primary in a time where the world is significantly more complex, the digital world. So the user experience is poor, the number of passwords we need. They're equally the primary source of breaches. that there's a highly complex industry that's grown up around passwords to try and solve this poor UX and this breach issue. And so they're no longer secure, they're no longer easy to use, and they're no longer cost effective. So it's not working. At the same time, the paramount means of securing organizations today zero trust. That is a contemporary framework. It's ubiquitous. Everybody in the enterprise world has a zero trust strategy, a zero trust framework being applied. But zero trust is based on continuous identification. And today, as I've said, identification is based upon passwords. So it's fundamentally flawed. It's a house built on sand. And so our opportunity is to participate in what's happening, how organizations are securing themselves by removing their dependence on very flawed, very poor user experience passwords by bringing other means to bear. That's our opportunity as a biometric company with a great track record. We feel we have a right to play there. And that's exactly the market that we're going to be going after. Let's talk a little bit then about how we're going to do that. Let's talk a bit about the approach we're going to take. We have a new CSTO joining us. He was hired specifically to help us in this errand. I wanted to be a little clearer about the direction of travel. Of course, when David joins us, he'll really bring this together and give even more clarity. But really, you can think about it in a couple of ways. Let me talk about those circles on the outside, first of all. Those things are the inputs and interconnects that we play a role in. And you can see we already play a role in some of them. We already play a role in modalities. So I think of that as business as usual, the things that we're already great at, whether it's our products or whether it's the talent and skills that we have in our organization, We're very strong at biometric modality, and that's an important part of this overall system, this overall solution, and will continue to be. So there's some great things that we can do there to ensure that people can use biometrics to replace passwords to connect to the digital services that they're seeking. But it's not only our modality. It's also about engaging in partnerships with other parties. depending on the technology people have access to. So there's a great opportunity for us to partner in this space too. Another interconnect is FIDO. Using FIDO tokens, for example, is a way of replacing passwords. We already have great partnerships there, people using our technology, we see growth there, and that's the market, as I said earlier, will continue to be committed to in what we do as a company. We're involved in passwordless multi-factor authentication. We have a legacy historical mobile business. We have a PC business. But not only in products, we have experience in that in terms of how we can leverage and integrate those things as part of a passwordless authentication system. And then there are some new areas that we can go into as well. Engaging with enterprise IT stacks such as their single sign-on systems. That's a new opportunity for us. Passwordless login. That may be something we have skills in. It may be a new area. So some new things we can go into there as it relates to the interconnects. But at the core of this is the engine. How these things tie together, how we process them, that's a new area for us. It's software-based. It brings all of those means of authentication together, but it also augments them using things like a digital exhaust, people's data, and how that can also complement an identity decision. using AI. We use AI today in some of our products to make them more efficient. I think there's a lot more we can do with AI as it relates to improving efficiency, risk scoring, continuous improvement, threat mitigation, et cetera. We have experience in anti-deepfake today. The team in our iris business, for example, and on our fingerprint business have been doing anti-spooting for some time and moving into anti-deepfake as well. So again, some core capabilities that we can bring, but reimagine them in a very new way as we help companies remove passwords and replace them with biometric and other means of identification. So that's the direction we're going in. And you can see on the right, the reason we're going in that direction is we're in 20% of the market today. We want to get access to 80% of the market. There are other competitors in there. It's not a market just waiting for someone to arrive, but we feel we have a right to play there and we're very excited about starting to move now in that direction. So that's a little bit on the overall transformation plan, the status of where we're at with different elements of that plan. Let me move now into a bit more data. I'm going to share some views on how we performed across our lines of business, across the product groups for Q2, and then I'm going to hand to Frederick to talk a little bit more about some of the results as well before we close for questions. So in terms of the performance in Q2, I talked about the 10.5% growth in the core business. That's the business we're really focused on. Of course, we saw total top line reduction as we exit the mobile business. We've been very open about what we're doing there, and that's exactly what we expected to see. And actually, we're very pleased with those results because that's moving in the right direction. That's a low margin business. As we go through line by line, good to see continued growth in PC, slightly lower than the growth we saw in Q1, but still nice to see. In terms of that growth, that's about in line with expectation. Volume grew by about 1% in Q2. So if we pegged to that, we feel pretty good about holding or slightly growing share in that space. But not only that, we're relatively new in the PC business. There's quite long cycles, and we've only been in it for a few years. So what we're also focused on is continually getting into new models. I talked about how we allocate capital, the cost of capital and how we select which projects we engage in. We're very focused on using that as we look at the projects that we get involved in with our PC customers and continuing to stay engaged to make sure we're very active with our customers, we're innovating with them and of course we continue to bring our best in class value for them. So we're making good progress with a number of clients on getting into new models. At the same time, as we listen to our customers, they're asking us to have alternative supply chains, international supply chains outside of China, whether that's for political reasons or whether that is for disaster recovery. Having alternative supply chains is something we've been investing in now for PC also. So pleased about holding the penetration rate. One word of caution I will offer is that we are seeing pressure in the PC business for PC companies looking at just using face instead of having face and fingerprint sensors. The reason they're doing that, of course, is they need a camera on most laptops anyway for video calls, et cetera, and so adding an additional means of authentication when they can already do it through the camera adds cost. We haven't seen massive pressure, but we are seeing some pressure from the face modality. To counter that at the same time, interestingly, Apple in their new iPad, in the iPad Air, have reintroduced Touch ID. So quite interesting to see some of those dynamics. It's not on the display. It's capacitive. So interesting to see Apple reintroducing that too. So some really interesting battles going on there between the face modality and the finger modality. I'll come back to face in just a moment. On the access side, really strong growth on access. Logical access was a particular highlight as we think about the different types of segments within the access market. But at the same time, we saw a very broad range of demand. In the access market, very different to PC. Both are project-driven, but PC is big projects with a few customers. access is many projects, smaller projects with many customers. And so we saw demand across a lot of different sectors there. EVs, electric vehicles was a particular standard, not automobiles. Our focus on automobiles is through Iris, but really interesting to see lots of different business coming there. So still see a great opportunity and a long way to run in the access market. I've talked a lot about channel since I've joined and we've got some channel focused products coming to market very soon. And that's how we're going to drive scale into this market. So really nice to see that. We'll talk more about that in due course in the access segment. And of course, we've got, Iris is still a future bet that we have, that we've invested in. Primary focus on that today is DMS for driver monitoring systems. Why? Because that's where there's capable hardware. You know, we have to be able to, if we're going to use Iris, we have to have a capable signal, and therefore we have to go with where the hardware is. That basically defines where the attack surface, if you like, the market opportunity is. What's very interesting in ours is that we're now seeing hardware costs coming down, which start to open up where those cameras are being invested in, what platforms they're arising on. And so we're talking to a number of different sectors around what they're seeing with cameras starting to come to fruition and how we can use those as well. I said I'd mention face again. Because of the rise of deepfake, the face modality is becoming less secure, but also socially less popular people don't really like it as much as more discrete means of Authentication and so of course we have you know one day in fingerprints But we see iris is really a good opportunity for that future much harder to fake And so we see a really really strong opportunity in iris moving forward as the hardware comes down in cost and becomes More ubiquitous as well longer term, but still important for some of the investment cycles. We have as an innovative company and On the payment side, quite a soft quarter on payment. Not a huge amount of business transacted. Of course, we don't fulfill business directly with banks. You'll have seen us make some banking announcements earlier in the year. We fulfill stock, and then it's our partners, our card manufacturers, who then call off that stock to deliver. We're still very much in a pilot phase in this market. We are still very committed to it. We see good opportunity. We monitor early indicators. We monitor signs of life in this market that things are starting to take off. And it's not just customers doing pilots. It's people really starting to kick the tires on the technology. So we're seeing a lot of demand coming from LATAM. and Middle East and Africa in particular. Lots more activity from our partners, both in terms of what they're asking us to do, questions they have as they're starting to really deploy technology, but also a lot of investment coming into the ecosystem or that the ecosystem is pumping in to this market. And a good example of that is POS Enrollment. So today you can enroll your fingerprint on a card in a sleeve. You saw Garanti Bank do that, for example. You can authenticate and enroll your fingerprint through your mobile phone. So there's suppliers who have apps to be able to do that or embed them in banking apps. And then the third pillar of this is being able to do it on the positive and all itself. We're seeing that mature across multiple partners now and suppliers. And of course, we expect that to then roll out to EMV Co. in due course sometime in 2025. So again, continue to see investment coming in. It's investments to get this market even more ready to underpin capability, to overcome some smaller obstacles and different obstacles so that we can get the mass market rollout. So good to see that our ecosystem is also investing. On our part, a lot of the investment's already done. Of course, we want to keep that alive, tweak the technology, overcome issues, et cetera, and maintain it. but we don't get need to move to a next gen of technology. We put a lot of investment in and feel very ready to deliver a high quality product to the market. What I will say is our focus is on after a period of turbulence in the company is we've given a big transformation is to get to that stability. To settle things down that we're spending lots of time with our partners, lots of times with their customers, helping them drive demand and that's something I've been vocal about since I joined. Finally, just on mobile, the Graceful wind down is on track. I call it Graceful because it's really important to us to ensure that we help our customers if they've committed to us and they have commitments to make for their customers. And so with the partnership with Aegis, it's progressing very well. We feel good about that. And our customers are continuing to be supported on those products too. So things moving in the right direction there as we migrate away from that lower margin businesses. focus on the value we can offer elsewhere. With that, Frederick, let me hand over to you just to talk a little bit about some of the other key figures for Q2.

Yep. Thank you, Adam. Let's look at a summary of the key results for the second quarter. Let's start with revenue, where Adam mentioned that our core revenue grew by 10.5%. And as you saw on the previous slide, It was mainly driven by our access product. And as also mentioned, we are focused on cash. So we've introduced this notion of adjusted gross margin in the presentation. So you can look at our gross margin excluding a depreciation of capitalized R&D, which is non-cash. And when you look at the gross margin excluding these non-cash items, actually our gross margin increased by five points versus last year, which you feel really, really good about. And we are laser focused on reducing our cash burn. And our cash burn reduced by two-thirds versus the first quarter of 2024. And related to a cash burn, our headcount was down by a full 31% versus the first quarter of 2024. And this is a metric that we track rigorously because headcount is two-thirds of our OPEX. And it's a core element as part of our transformation plan to make our headcount as efficient as possible. And with that, Adam, over to you.

Thank you, Frederick. Let me just come off mute there. So let me just wrap up and then we'll go to some Q&A. So in terms of where we're at as a business, as you all know, we're taking the company through a major transformation. At the same time, We've been able to drive our core revenue increase of 10.5%. As we phase out the mobile business, obviously top line down 45%, but really pleased on the area that we're focused on. Good to see growth there whilst we're making these changes. But also, as we look at gross margin, flushing out some of the things in our balance sheet and in the system to make sure that we really bring that gross margin back up, which was the intent of exiting the mobile business. So some really nice indicators, both on revenue and on gross margin for Q2. At the same time, of course, we're taking costs out of the business. Great to see that reduction in headcount. Not only that, but enhancing efficiency. Not only did we take that cost out of the business and that headcount out of the business, we actually reduced it slightly further as well. We introduced fractional working, or it's called fractional now, it used to be called part-time working. So a number of roles where we felt we didn't need full capacity, dial those down a little bit, which led to an even further reduction. As you think about FTEs or full-time equivalents, we've actually driven that down even further than that headcount number might suggest. So really pleased with that, driving more efficiency, Focusing the resources on people out there doing rather than management structure, far fewer managers. They're very pleased about the way we've gone about that, which is then, of course, driven that free cash flow significantly up. So pleased about the cost optimization story. As it relates to the balance sheet, obviously, we conducted the rights issue. That's close to closing, including the early redemption of the convertible bond. So I think that gets us in a nice position both for our shareholders and for the balance sheet. We've refreshed the portfolio with the continued migration wind down of mobile but we continue to focus using ROIC versus WAC in order to think about each of the projects that we're looking at and how we can add the right value for our customers whether it's directly or whether it's by looking at how we partner with other organizations in order to offer a greater value to our customers so that's something we're going to continue to do not just for our core business but of course also for our new businesses we look at getting into new areas and thinking about whether we build by a partner there also. So I'm really pleased to have our new chief technology officer joining the company from a software background. He'll be adopting that framework and helping us move into those new areas. That's something we'll continue to update you on as we make progress around that. As we move away from mobile, we consolidate on our core business to drive value there, and we expand the value that we offer in new software segments. So more to come on that as we continue this expansion of our company and this shifting of our portfolio. With that, let me pause there, and I think we can come to some questions. So Stefan, let me ask for your help in doing that.

Thank you, Adam. I think we'll begin by taking questions from the phone line. There are any?

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. We will now take the first question. Coming from the line of Marcus Almirud from Carnegie, please go ahead.

Yeah, hi. Marcus at Carnegie. Can you hear me? Yes, we can hear you, Marcus. Perfect. Let me start with Axis. Really nice growth there. What's driving that is my first question. And more particularly, is there any growth in China, in China and door locks part of that, or is it the other part of the business growing?

Yeah, great question and great to have you on, Marcus, as always. In terms of the access business, that's really the rest of the world. There's not China business driving that growth. It's coming from the rest of the world. A key area of growth, and it's actually really pleasing to see this because I mentioned this It must have been three quarters ago, maybe two quarters ago, that we saw good potential in logical access. Logical access being where I use biometric tokens, for example, to allow me access to digital applications or services. That's exactly the driver that we're seeing there too. So really nice to see that Logical Access delivering the type of benefit we thought it could. It actually ties back to the strategy I talked about also. We want to replace passwords. We want to replace it with something I am. Obviously, Logical Access is also combined with something I have. Normally, it's a token. So that's a really big driver of growth, which is great to see. The other thing I would say is that it's a very broad market. There's lots of different opportunities in the access market, which is both a blessing and a curse because you can be spread really thin as a small team. So one thing that I'm thinking about with our sales organization is how we prioritize, but also how we offload, so to speak, and how we work with partners and a channel to be able to go and help us scale that myriad of opportunity. So we see a lot to do still in access, and it's actually really exciting.

And does it mean also, and I'll come back to PC, but if I compared it to access is, as you said, smaller orders, smaller customers, Does that also mean it's more stable over time, you would think, than PC, which could be a bit lumpy because of the customer profile?

It's a really good question. I asked my team this a couple of weeks ago as well, because I think it's very project-driven. All of the businesses we're in are very project-driven, so they are all quite volatile. What I'd like to get us to is a place where you operate at a certain level of scale, that volatility smooths out. You have fewer peaks and fewer troughs. I do see the channel as an opportunity for that because then you're operating at a level of scale where the number of deals balances out that volatility in terms of the business profile. What I would say is having set up channels in the past, setting up a channel, we do have channels of course, but bringing new products and partnering in a different way probably takes about the same time as a large deal. It probably takes kind of 18 months to 24 months. So that's not going to happen overnight, but that's absolutely the direction of travel we want to go in, whereby we do smooth out that volatility. How possible it is, we don't know yet, but that's absolutely an objective, Marcus.

And on PC, do you think, are you at the standstill right now where the industry is kind of choosing between technologies or... Or is it something else going on where you see kind of stability compared to Q1?

Yeah, I think Q1 was obviously, like you said, it's a lumpy project business. We're still relatively new in this market, having won some design wins a while ago and now seeing the fruits of that. So our focus has to be on winning new projects because we can't forever trade off wins we've already made because models come and models go and models get end of life. So with PC our focus is on ensuring that we are present with those customers, understanding what value they're seeking, making sure that we're playing a role to fulfill their needs and being profitable as we do so. We've had good profit in PC and that's what we'd like to continue. So I think we will continue to see lumpiness and volatility in the PC business. There's very few companies, of course, so it's a highly competitive market. There's quite a lot of suppliers there, too. So there's some challenging competitive dynamics. But as I said, our focus is to ensure that we're winning new models. We're actively engaged on a number of flights with new models. But, of course, there are cycles that come with that, and you see gaps in between models. So that's the balance that's going to take time for us to manage, particularly as a newer player.

Mm-hmm. And when you talk about face modality, maybe increasing a bit of competition, does that go for both the enterprise market and the personal computer market?

Sorry, ask me that question one more time.

Yeah, so when you have face, which is coming a little bit more, you say you see a little bit more competition from face than you had before. And if that is both on the enterprise market and on the consumer market.

Primarily it's coming from the enterprise market because that's where, you know, those devices sold to either corporations or individuals who do video calls is their primary means of connection in the modern working environment. But we do see the risk that that trickles down into the consumer devices as well, where there's more price sensitivity. And therefore, if they can have one mechanism for already existing hardware versus two for authentication, then they may do that. But, you know, that battle is far from complete. You know, I don't see space completely overtaking that today, but it's absolutely, no pun intended, something we need to keep our eye on.

And then I was thinking, when it comes to product portfolio, do you have the product in place to kind of do the next move that you want to do? Do you need to increase R&D cost?

Yeah, that's a really good question. So in terms of that, I talked about the ROIC versus WAC earlier, but that obviously talks about the available capital that we have to deploy. As we think about it, I feel that we've got what we need for our core business, We may need to think differently about our expansion business. You know, we've got our new CSTO coming in to join us. He and I have spent lots of time together thinking about build by partner. We feel that we can cover a good level of R&D for build. There may be different options in terms of how we partner that are lower capital options. So I think partner is a good opportunity. If buy were to be an option, then of course that would have to be something we would need to manage in a very, very thoughtful way. So we actually see good opportunity with build with no code, low code software capabilities today. You can pretty rapidly stand up a minimum viable product. But of course, there are other companies out there who are struggling with the cost of capital, who are looking for new ways to partner and expand as well. So there's some good opportunities out there in the market. So we'll just be thoughtful about those different mechanisms of what's the right one for us in terms of our available capital, but in terms of those capabilities themselves.

Okay. And then finally, talking about zero trust. and maybe the acknowledgement in the market. So the users of the SEER Trust, which are now using passwords, do you feel there is an acknowledgement of the problem with passwords, or is it something that needs to be created?

Oh, no, no, no. Passwords are very well known to be, you know, antiquated. You know, they kind of, survived longer than they have for a couple of reasons. One is they were historically cheap because they were quite easy to do. Although, as I said, and now a whole industry has surrounded it with additional complexity and cost, so that's no longer the case. But also, I think, Where was I going with that? Yeah, I mean, I just think that the industry absolutely knows that it's kind of the primary gap in the armor, if you like, but they're ready for something to replace it with. What they want, though, is someone to come with them with a cost-effective means of doing so. And so that's where we think there's an opportunity to play. There are a number of other companies who have identified this problem, too. I actually think it's really exciting. As I said earlier, everyone is deploying zero trust. but zero trust is based on identity and identity is based on passwords and so as we focus on that i think there's a massive opportunity and you know i think it's one of those one of those opportunities that once you see it it's so clear it's really exciting however you know they've got it in the detail executing that is where the uh where the real challenge comes in and where the real excitement comes in okay

Okay, perfect. I'll leave it there for now. Thank you very much.

Thank you, Marcus, and look forward to catching up with you tomorrow.

Yep, thanks. You too.

Thank you. If there are no further questions on the phone, please go ahead with any webcast questions.

All right. Thank you. There is one question on enrollment for biometric payment cards, and the question is, can you not use the mobile phone since this is a trusted device? for enrollment, that is.

Yeah, so I mentioned earlier, there are three enrollment mechanisms that we've been pursuing with our ecosystem partners. The easiest to get to was the sleeve, where there's a hardware sleeve, you put your card in, and it has some flashing lights that tell you how many times you need to do it and your success. That's good. However, it involves more hardware. There's environmental issues because there's an additional device. There's cost issues because you then have to ship something to a customer or have them come into your branch. So it's not perfect, far from perfect, because it doesn't fit into the existing business process. But that was the easiest one that we delivered first. And actually, that's one that's been used by many customers. The second one, in terms of easiness, so slightly harder to do than the sleeve, but easier to do than the third one, was around actually app enrollment, so exactly what you're talking about, We don't do this, but we've supported a number of our partners in the ecosystem in helping do this. A number of our partners actually do this today. They have an app using NFC where you can hold your card against the phone, put your finger on it, and you can see the enrollment success and how many times you need to put your finger on the sensor. Not only that, we've actually augmented it. So with phones, they have very different NFCs. There's so many different phone models out there. What we've done, and we have some IP around this, It's put in place a kind of paper template that you can ship out as a letter. It's got some inbuilt capability where you put your card on there and it makes it easier for you to be able to more readily do some enrollment involving a mobile phone too. So we're helping with that process. That already exists today. And in the future, I see that being embedded actually in the bank's application themselves. So that one already exists. Haven't seen mass market on that one yet. Again, as I said, this market's kind of still maturing. The capabilities are still being built, but those things are absolutely ready for prime time. And then the third area is not yet happening in the market that I touched on earlier is on the post terminal itself. We've now got a number of partners who are able to demonstrate and do that in a pilot environment. The next is to certify that with EMV co and move that to a fully blown production capability. So those are the three mechanisms. It allows consumer choice. It allows it to integrate into existing business process and therefore make this whole thing easier for customers to consume and experience and for banks to be able to deliver.

Okay. Thank you, Adam. And there's another question on biometric payment cards. If you look at the mobile segment, there are many alternative authentication methods, such as spatial recognition. And then if you look at biometric, payment cards, would you say that there are also other competing technologies to the capacitive fingerprint sensor?

I mean, biometric payment cards as a market is yet to take off. The primary vehicle that the partners, the card manufacturers, so these are people who already sell cards. They are now trying to sell biometric payment cards. So we don't see alternatives today through those card manufacturers. Why? Well, because capacitive is very, very durable, very, very easy to use, relatively low cost compared to those other mechanisms. And so because it writes shotgun, it's embedded into the actual card itself, it's an integrated solution, that's emerged as the primary means of improving security on the card itself so i don't see i'm sure there are corner cases of additional people trying to come into the market and do different things but i think that's quite a good head start on capacitive sensors on biometric cards so we thought we feel pretty good about that that market of course we're excited for it to take off and we're impatient for it to take off but we feel pretty good about our position in it. And we also, the other thing I would say is you talked about alternatives, you know, on the mobile phone, things like Apple Pay. I think there's a geographical slant here because in a number of markets, You know, the card is a kind of possession that people have status around. There's a social preference for using card versus mobile phone. I think that's what we're seeing more in the Middle East and Africa, and that's what we're seeing in LATAM as well. So we're really starting to focus in those markets. That's not to say, of course, we're not focused in mainland Europe as well, but I think there's good opportunity and a lot of noise coming out of those markets, demand coming out of those markets.

Okay, thank you. And can you comment on how many more people will have to leave fingerprints as a result of the cost cuts? And how will you be able to execute on your strategy going forward?

Yeah, so we don't give guidance on numbers. We've been very open about the targets we've set on OPEX. We set a kind of line in the sand, if you like, on 150 million OPEX. What I would say, though, is we try to have a very dynamic approach to how we manage cost. With business as it flows, we want to make sure that we have financial controls in place and make sure that we're well geared to ensure we have the cash we need to invest in R&D and to drive future growth. So we'll continue to take a dynamic approach to that. But as we've previously stated, we're very well on track to meet and exceed those targets that we've set out.

Okay, thank you. And one last question on IRIS. If there are any additional comments you can make on the progress in touchless IRIS recognition?

Sorry, can you say? Progress on IRIS recognition? Yes. I think I'll put it IRIS then. Yes, so on IRIS or touchless, we're making great progress with a number of partners. It's quite a consolidated market, the DNS market. Again, it's an ecosystem. It's not us selling directly to the car manufacturers themselves, but more a case of us embedding with partners in DMS systems. So we're engaged with a number of partners, but primarily one partner that we're focused on. We've done a lot of work on in DMS. We're just coming up to do some more work with them on the next phase of that program as well. Of course, you know, this is long-term investment. Think about investment cycles in all some of the deals. They're pretty long cycles. We've been in this for a little while. We feel good about where we are in DMS. and we'll continue to focus on that as a segment for Iris. So the team, Mikkel and team, are doing a fantastic job there. At the same time, as I said earlier, we focused on PMS because that's where hardware was capable of delivering iris authentication now we're starting to see the costs really come down in terms of the hardware that's iris capable and so we're starting to see it's going to appear in new devices you know we're talking to pc manufacturers for example about what they're seeing probably at the higher end of enterprise to begin with and then trickling down from there, particularly as it relates to the rise of deep face, but also people's concern over face recognition technology. Not just in PCs, we've got our eyes on where else, again, no pun intended, we've got our eyes on where else we'll see that hardware manifest, and as we start to see it come through, we go and engage with those customers to see what role we can play with them as it relates to authentication.

Okay, thank you, Adam. And let me hand back to you for any closing comments that you may have.

Nice. I want to thank everyone for joining the call. I want to thank you for coming with us on this transformational journey. It's a massive journey. It's a very exciting journey. It's not always a very easy journey. So as I look back at Q2, I'm very pleased with the way that we performed. Getting that core business that is getting all of our attention now, continuing to drive double-digit growth there, whilst managing massive cost takeout program. I think it's just I'm really pleased with the way the team has performed. I want to thank our customers for coming through this journey with us as well. And I look forward to future calls to update you on the progress we're making. So thank you.

this concludes today's conference call thank you for participating you may now disconnect