Fingerprint Cards AB (publ)

Good day and thank you for standing by. Welcome to the Fingerprint Cards Q4 Results 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please note that at any time, participants on the webcast can submit the questions using the Q&A box on the webcast interface. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stefan Peterson, Head of Investor Relations. Please go ahead.

Thank you very much and good morning everyone and welcome to Fingerprint Card's earnings call following the release of our year-end 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 you can post questions throughout the call if you're following this conference call on the web. And with that, let me now hand over to our CEO, Adam Philpott.

Thank you very much, Stefan. Great to be with everyone today. And welcome to our Q4 2024 earnings results. Just by way of agenda, it will be myself and Frederick Hedlund, our CFO, doing the talking today. For the agenda, we'll start with an executive summary. Then we'll spend a bit of time on the strategy. Where are we going and what are some of the things that we've been doing to execute that strategy before then taking a deeper dive into the Q4 results that I'll initially share in just a second. So let me get to the executive summary. And I want to start by saying that we're pleased with the results. It's not the end of our transformation by any means, but we're very pleased with the progress that we're making. And we're pleased with how the transformation is showing up in terms of our financial results as well. So in terms of the executive summary, starting with the key financials, we're really pleased with the gross margin. We've adjusted gross margin for R&D depreciation. That's how we'll be reporting moving forward. But we're really pleased that without R&D depreciation, GM's up to 49.8%, which is exactly on track with where we're trying to get to. We do see continued improvement potential ahead of us as we continue to drive that up. But what's important here is this is a really strong reflection of our transformation plan. A year ago, our adjusted gross margin was 17.9%. So you can see this dramatic improvement as a result of the transformation plan focusing on higher margin markets. We're also pleased with the revenue trends in our core business. Our core business being that business excluding mobile and PC, which we're exiting, as you all know, up 12%. It's actually 11.6% year on year. And even good exit momentum quarter on quarter versus Q3 2024. So really positive trend in the core business, double-digit growth there also. So those are really strong signs. that how we're transforming the business and focusing are really starting to pay dividends. As I said at the beginning, we're still transforming the company, but we are very pleased at those results. The total revenue is much lower. Why is that? Because we've been exiting those poor profit markets of mobile and PC, very high revenue, very poor profitability. But as you can see, that shows up in our gross margin in a very positive way, of course, as well. Not only that, as we run fiscal discipline within the business, we've continued to reduce our OPEX. Headcount, as we've said before, is about 70% of our OPEX. We've been focused on both headcount and non-headcount, driving that down with extreme detailed rigor. Headcount reduction, we've got 71 staff as of the end of December versus 185 a year ago. So 62% year-on-year reduction in headcount. And we even saw a strong quarterly reduction in headcount, which Frederick We'll touch on a little bit later as well. So positive movements in terms of the things we're doing to control the cost of the business. In terms of that headcount, really focusing on maintaining headcount where we need it. So ensuring we're taking our investor capital and applying it to where we're going to get growth. So it's not just about cutting, it's about being very smart about how we invest in where we're going as a company as well. And then, of course, after the quarter end, the rights issue raised 115 million SEK in February 2025 before transaction costs, which leaves us in a debt-free position, a very strong balance sheet from that perspective. So those are the core financials. As we think about the strategy, though, of where are we going as a company, you'll have seen some very strong announcements for the company. We announced a none of it in December. So in Q4, our partnership there to expand into the cloud and solve identity problems at scale where they exist today. And I'll touch a bit more on that in just a moment. you would have seen the SmartEye announcement that we made in January. Really powerful partnership there, demonstrating the value of our core assets, in this case, Iris, but also looking at a bilateral partnership where we receive a multimodal asset from SmartEye. Really keen to see that manifest and partner very closely with Martin and the team over there because that bolsters our edge strategy, which, again, I'll touch on in just a moment. And then finally, some organic, great organic work we've been doing throughout the year, our all-key biometric system, partnerships with companies like JNET, for example, really good examples of how we'll also organically leverage on our core capabilities in order to execute this strategy. And so let me talk a little bit about strategy, and we'll go and do a deeper dive into the financials just a little bit later. And what I would start with is that our vision remains highly relevant today. You are the key to everything, remains our vision. And this is such a powerful vision. A vision shouldn't change overnight. It shouldn't flip-flop. This is a really enduring vision. And the reason... this is such an enduring vision, is that the problem, if you like, hasn't been solved. The problem is this. There are more and more digital services. There are more and more devices connecting. We as humans are interacting in the digital domain in ever more close ways. Yet at the same time, there's less trust in the industry. There's a framework called zero trust. So there's less trust about identity. So the challenge remains How do we identify at scale with an ever-expanding surface? And the reality is today that is done primarily by passwords, and then a number of other things have arisen around passwords to try and solve it, which just add more complexity. So passwords aren't working. Alternatives and ways of mitigating passwords aren't working because it's not secure and there's a poor user experience. And so our strategy puts you as the key to everything, the human, instead of a proxy for you. And we have a strategy of edge and cloud. The edge is where we've always been. And so we will continue to play a very strong role in the edge. What do I mean by edge? That's the place at which you as a human turn yourself and transmit a digital signal of identity. We will continue to play there and we will expand what we do in that area. And I'll touch on exactly what we're doing there in just a second. At the same time, the more modalities we add, the more we can reach people, because this is about availability as well as efficacy. It's great to have a very high efficacy fingerprint or iris, but if people don't have access to that means of transmitting an identity signal, then they can't participate in using biometrics instead of passwords. So we need to look at other modalities that allow us to reach a broader set of users so that everybody can use biometrics. Not only that, the more modalities we have, the better we're able to triangulate that information and have an even higher efficacy authentication using multi-modalities for a single identity. So really powerful piece on the edge. At the same time, if we just do that, we don't solve our customers' problems because they need to integrate this into the use cases they need. They need to integrate this into onboarding. They need to integrate this into login. They need to integrate this for step-up access, for more secure use cases or higher-risk assets. for things like account recovery to prevent account takeover, lots of different use cases that we need to do more than just provide a signal. We need to help them orchestrate that signal as part of their offering too, so that they can use something I am for security, not something that can be lost or stolen like something I have or something I know alone. So that's where we're going as an organization. As we talk about then, what are we doing about it? There's a number of things that I've already mentioned that we've done, and there's a number of other things that we'll continue to do. So this is about doing what we've said. We're growing the core business by adding new capabilities like all key that we announced earlier last year. The partnership with JNET that we announced earlier this year. Different things that we're doing to leverage our capabilities on the edge to allow more people to access biometrics, to then displace passwords and have a better user experience and a more secure outcome for their organization. We've also done some inorganic things as well. So for example, the partnership with SmartEye, where they're using our iris to improve their capabilities in the automotive space. But at the same time, we get back a multimodal asset, including face and including eye tracking as well. So some great capabilities to build out our multimodal edge to allow us to reach different users and different use cases and expand the reach of biometrics that we can offer. Other organic things, I mentioned the Infineon partnership. That's a really strong example of some of the things that we've been doing to continue to evolve the payment space as well. And then as we move to the right, you can see here, obviously, the Anonabit partnership that we also announced. I'm going to spend a bit more time on that in just a second. So this shows how we are building out more on the edge, but also diversifying into the cloud as well. If we go to the next slide, please, Stefan, the AnonoBit partnership is a really powerful one, very strategic, moves us into the cloud, moves us into a more software modality and an ARR model in time. What is Anonabit? It's a highly performant decentralized biometric cloud. It's sharded, which is, I don't know if that word translates well for everyone. Let me call it fragmented. So what they do is take the biometric template and fragment it across the cloud, which offers them really deep security and very deep privacy for a given user. So highly secure, highly private. And so what it allows is, is a highly scalable use of biometrics so no longer tethered and locked to just on a piece of hardware but actually anyone can access or anyone can use it to be able uh to uh to authenticate at a very very high scale so and that allows your organizations to break away from passwords and have an easier to use more secure means of authentication not only that it underpins zero trust. All customers are deploying zero trust as their primary cybersecurity framework. Zero trust is dependent upon identity, and this allows them to really solidify identity rather than have the weak link being passwords. So it unifies that process, offers a full identity cycle and a number of different use cases. And it's these use cases here on the right that are really, really important. Customers are telling us these things really, really matter to them. So remote onboarding, particularly given working from home and new working patterns, If you don't see someone, it's very important to have a mechanism to ensure that the person you're signing up is the person they say they are and ultimately the person that joins your company. So a way of mitigating fake identity using this technology. Call center verification. This is a huge one. It's a very large breach vector. People pretending to have lost their credentials, phoning into the help desk. Help desk don't see them. So it's very difficult for help desk to ascertain their identity. And that becomes the weak link because they then share credentials with a given user. We've seen a number of breaches in this use case in the past. So this is a very hot topic. So again, reinforcing a human-oriented business process or even taking the human out of it to automate it using digital identity based upon biometrics. Account recovery, self-service recovery is a huge one for many customers as well. Lost details, another way in which would-be bad actors can get credentials. And if an attacker does get those credentials, they're in. They hide in plain sight because they appear to be a legitimate user. Very, very big threat vector. So you can see some of these different areas, highly, highly critical areas. to our customers and things that haven't been solved. And this is where the puck is going. Think about skating towards the puck. We've solved a lot of things as a company in the past, but the problems then move upstream. So we're moving upstream to where those problems haven't yet been solved and need to be solved. And these are very, very resonant examples with many of our customers. And so if we also look at some of the other agreements that we've made, we did a great announcement with SmartEye, a really strong partnership based in Gothenburg as well. So a very nice alignment with the guys at SmartEye. We announced this in January. For those of you who don't know who SmartEye are, I guess most of you do, they're an in-vehicle monitoring company. So I deliberately use that language because it's much more than driver monitoring. They observe the whole cabin. They have detection. They have sentiment. They have AI. They have eye tracking. So a number of different capabilities that these guys have that if you think about the cabin and then expand that out to broader areas, opens up a lot of different opportunities for us because we get back a multimodal asset that includes face as well. So really, really powerful set of capabilities that we'll receive back from SmartEye that we can take to our customers. And again, it allows choice. for those customers if they want something highly available. Maybe they use Face. If they want something highly secure, they then blend it with Iris. They can blend it with Fingerprint. They can blend it with a number of different modalities that will continue to partner on and build out as an organization. So it really opens up that edge side of what we're doing to offer more to our customers. And you can think about service stacking for those customers. and an enterprise license type approach for those clients also. So great opportunity, really excited about the partnership with our friends at SmartEye also. And then the final one I want to touch on, this is more organic. Some of the work that we've been doing, we announced Aukey last year, but we haven't just launched it and then stopped. There's a number of great capabilities where we're adding to Aukey. So the whole point of Aukey is that we give our customers all of the tools they need to integrate fingerprint sensors into their products, whether it's a FIDO token, whether it's a car, whether it's an e-scooter, it could be anything at all where you want to ensure that the person using that device is the identity that should be, or perhaps a number of different people. And so this is what Aukey does, is give our customers the choice to be able to use that. Not only that, it has capabilities like scrolling, so you can use it for navigating a menu. It has a really powerful CPU, so it opens up additional use cases for other things they might want to use that local compute power to go and do. But we've also added mesh, or we are adding rather, mesh networking to this. So you can have a number of these sensors, for example, dotted around a home that then share the template. So you don't need to enroll in every single one. So as you can see, a number of different things that we're doing to continue to evolve and ensure that fingerprints can be used in a very easy way, much, much easier than PIN codes or passwords. for a variety of use cases based on a common platform, in this case, Aukey. So great capability. We've also announced our partnership with Future Electronics because this is about scaling. It's no longer about us having to be right in the middle of this and have to help our customers fine-tune everything, but really giving them the tools so that they can go out and scale using our technology. And then JNet's a really good example of how we've then built further on top of that, because what JNet do is then bring a software layer for things like Fido that people can put on top of that as well. So it's kind of like an all-key plus, if you like, so putting more capability on top too. uh for a number of different outcomes so that anyone can produce something like a fido token or some other software device with all of the capabilities baked in i mean for example you might turn a peripheral a keyboard into a fido token so lots of different things that we can do with the jnet partner building on top of what we've already done with all key also so hopefully that gives you a sense on uh how we're leveraging our core technology how we're monetizing it with partners But also how we continue to build out what we can offer our customers as we see the problem continue to evolve and grow and we move towards solving it in a high scale way for our customers because nobody else is solving this today. So let me move and come back to the financials a little bit more. We can spend a bit of time on that. I'll ask Frederick to jump in in just a moment and help me. But it starts with our revenue and clients. As I mentioned at the beginning, we grew our core business by 12% year on year, 53% quarter on quarter. You can see how that pans out by business unit too. We saw strong performance in access, particularly from an exit momentum perspective. So Q3 to Q4 was particularly strong in that business. A number of our very strong clients being very successful with fingerprints as a mechanism for identification. So some of our large, very large customers In the FIDO token space, doing a great job ensuring that people are using fingerprints instead of other mechanisms to identify themselves. Also in the fintech space, very large financial organizations using our technology to tether identity to their licenses, for example. And of course, in the payment space, we saw great announcements with Infineon, with the Sakura Biopay now fully certified with Visa, already certified with MasterCard, of course. So really nice to see that in the payment space and continue to see the build-out happening there too. On the payment space, what I would say is interesting to see how that's evolving too. I see payment moving towards a feature as a part of a smart card rather than a pure standalone product. We will see biometric payment cards in some cases but i think what we're also going to see and this is where we're pivoting towards is seeing a payment is a feature on a smart card i've talked about this notion in the past of the swiss army card if you like where it's a multi-function smart card that includes payment it includes logical access it includes physical access it includes crypto it includes eid and it includes third-party software for other flexible use cases too so That's kind of how we see this market continuing to evolve in a multifunction way with payment is one of a number of features on there. So really interesting to see what's happening here, but great results from the core business. Frederick, let me hand to you now, and maybe you can talk a little bit more about some of the key metrics.