Fingerprint Cards AB (publ)

Good day and thank you for standing by. Welcome to the Q3 Results 2024 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Alternatively, you may submit your questions via the webcast. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stefan Petersen, Head of Investor Relations. Please go ahead.

Thank you, Sharon, and good morning, everyone, and welcome to Fingerprint Card's earnings call following the release of our Q3 report this morning. We'll begin by a presentation of the report by our CEO, Adam Philpott, and thereafter by our CFO, Frederik Hedlund. And as Sharon pointed out, 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, Stefan. So as Stefan said, great to be here. Thank you for joining the call. Great to have Fredrik, our CFO, on the call with me also. me jump straight in through the agenda we're about a year into the transformation plan this time a year ago was my first earnings call where we announced our transformation plan we're now obviously a year into that and here's what we're going to cover on today's session i'll start with an executive summary of the q3 results then we'll talk a little bit about some of the key pillars of those strategic initiatives of that transformation plan. We'll talk about our transformation to drive profitable growth, which is what the point of the transformation plan is. And within that, we'll talk about cost optimization, how we're now debt-free, and we'll talk a little more on how the strategy has evolved. We'll then dig into some key financial results with the help of Frederick, and then go to Q&A. So let's get on straight into the executive summary. So first of all, I'll start with how we've performed financially and against the transformation plan. You can see from the charts on the right that revenue is down slightly year on year as a result of us getting out of the mobile business. That was a key pillar of the transformation plan itself. You will also see, though, that the point of the transformation plan is to improve gross margin. So when we adjust for R&D depreciation as a result of getting out of some of those unprofitable markets, you can see a really strong performance in how gross margin is improving. And we expect gross margin to continue to improve as we continue to execute the transformation plan. Another key pillar of the transformation plan was, of course, right-sizing the organization, so driving cost reduction. So we've really focused on that with the team. Obviously, headcount is a key pillar of our OPEX, about 70% of the OPEX. So we've continued to focus on that, and we'll continue to drive right-sizing in the organization, as we'll talk about today. We completed the rights issue, and a key part of that was removing the convertible bond. So we're now debt-free on our balance sheet two. And our mobile plan is phasing out as expected. We announced that earlier in the year. That is now phasing out as expected. We continue to see some revenue, and therefore we continue to see some dampening on the gross margin. But as we exit that, we see those gross margins improve. We do, of course, expect to see continued volatility. This is a big transformation plan. It doesn't happen overnight. I've said that over a few quarters. We continue to see that, but that's what we're managing as an executive team. I think the big highlight, though, that we saw, or the low light even, was on the PC business. We did see increased headwinds in our PC business. We'll spend a bit of time on that later. We expected to see PC commoditized similar to mobile. We are starting to see that, perhaps a little earlier than we expected, that we will be exiting the PC business just as we did with mobile because of the untenable margins now in that business. And as a result, we'll be exiting the China market. That's something we've spoken about in the past. We're now moving to conclude that as well. As a result of exiting PC, we'll see further OPEX reductions too, of course, associated with that as a large chunk of OPEX for the business. And we'll touch on some of the data just later in the presentation with regards to that. At the same time, we have a strong core business. So with access, continue to be robust, particularly sequentially as a business. We're starting to see signs of the payment pipeline moving forward as well. And whilst we're exiting PC, we are in active conversations across all of these lines of business around investment partnerships. So people coming in to support the cash burn, particularly for a PC as we exit that business to do a similar move to that which we made with mobile to have someone take on those assets and those customers as we wind that down. We will continue to increase our focus on that core business. So while we're leaving those volume markets where it's very China centric and super competitive, tolerating volume over value, we continue to focus on those markets that value value. our products, slightly lower volumes, of course, in those markets. And so really focusing on the access product group. We see payment is an upside in the market. We're not deeply invested in that. We've done a lot of the investment upfront on that. And so we have a very strong position in payment with the ecosystem. And so we see that as an absolute upside to pay off for some of the investments that have been made in previous years. And of course, we maintain very active engagement with that ecosystem too. And then finally, it's also about expanding the business, getting into new markets. I've spoken about our strategy in the past. We hired a new CTO, David Isto, in Q3. David has worked tirelessly to help us really ruggedize that strategy and identify areas both partners and M&A investment opportunities that we want to look at in order to drive expansion into the broader identity market. So that's absolutely something we're going to continue to do and we're going to continue to execute on. If we go to the next slide, Once again, I want to refresh you on what the transformation plan is, because we're going to touch again on four pillars of the transformation plan. We're going to touch on portfolio refresh, how we're changing the portfolio. We're going to touch on cost optimization, how we're continuing to optimize the cost base and drive down OPEX. in the organization. We're going to touch quickly on the balance sheet, of course, and how we've now moved to a debt-free balance sheet. And then I want to expand on some of the strategy that I've spoken about in the past, thanks to David's help, as we've been able to drive a new level of specificity around that. And in doing so, identify a number of partners and potential investment opportunities for the business as we seek to expand into cash and margin rich areas and into into software in particular. So I'll touch on that a little bit later also. And of course, this is also about how we move from our stability phase into accelerate growth. This plan takes time, so it's going to take time to shift between these pillars. It's not an overnight transition, but that's the transition that we're starting to make is to move through stability and move into executing growth. Let's move to the next slide to talk a little bit about that. And so as we move towards growth, it's really about looking at removing some of the loss-making revenue, bad revenue, if you like, where there's good top line, but there's very, very weak bottom line, particularly when you take into account CapEx, not just looking at GM, but looking at the CapEx market. some of those businesses have carried as well. That's particularly true of PC. And so really this is about to get to stability, moving from volume to value, retooling the business that we're not chasing very, very low margin business, gross margin business, but instead focusing on value. And that's something we've been retooling the business for so far and we'll continue to retool against as well. So that's a key part of how we move. through that. It's also about building out new revenues, of course, moving to new areas that we can grow. And I talked about the expansion into the identity market that our new CTO has helped us really bring into focus. We talked last quarter about how we make those decisions. We review the business we're in. We look at the return on capital compared to the in the case of mobile and PC to divest in those businesses too. And then we move to accelerate. So let's keep moving and talk a little bit about some of those key pillars in the transformation plan. And so the first one is portfolio refresh. You know, we are continuing to develop our core products. You can see access and payments remain as core products. Those business much less subject to some of the rapid commoditization that we've seen in the volume markets. much more value-driven markets, much more fragmented, also markets that can support design services and NRE. So really focusing on those markets to continue to drive growth. We've actually had a number of launches in those markets in Q3, of course. Also, we had a new Iris launch with our 4.0 technology. an all-key launch in our access space on the fingerprint sensor and with infineon the secure pay bio launch also in q32 so as you can see not standing still in those markets continuing to drive new products with customers and continue to develop those markets for future growth also We are also targeting new partnerships. So if you look at business that will one day move into the core as we start to make investments and partnership choices there, I'll talk a little bit about what some of those companies will look like, but really targeting new partnerships and investments specifically in the identity space. So I'll show you some information on that just a little bit later. And then if we think about our core business, it's not just about us investing with our partners and continuing to build new technology. But a lot of our customers and partners depend on our technology. And they're also interested in coming and investing with us. Because as all of you know, some of the cycles for this productization takes time. It's not just us building new products. It's also then embedding those in our customers' new products. So there's a long lifecycle associated with that. We've talked in the past, for example, about automotive, long lifecycle. So as we work with our partners, there's a renewed interest from those partners to come in and invest with us and help sustain the R&D efforts that we're sharing resources, pooling capital to help us drive innovation. And we're talking to a number of partners in access, in IRS and in payment around doing exactly that. And then, of course, as we exit the PC business, PC fell below the return on invested capital bar, very capital intensive, long life cycles, and constant refresh in the models that PC companies put out to their consumer and enterprise customers. So it's not a case of get a product in and then sit back. You're constantly having to invest in new products for their new products and show constant innovation. super capital intensive, very, very competitive. They have many choices, so they spread their business across multiple different vendors. And so the returns fall below the ROIC versus cost of capital bar. That's why we've chosen to exit. At the same time, as we're talking to potential partners on access and payments, we're also talking to potential partners on PC who may want to pick up those assets and take our best-in-class technology to serve customers who have already baked it in and want to continue to bake it into new products as well. So that's how we think about portfolio refresh, big chains being PC, moving out of core, and being wound down due to the OPEX that it carries and the return it delivers. With that, let me hand over to Frederick. And Frederick, perhaps you can talk a little bit about cost optimization, how we're progressing there, and how you see us moving forward.