Fingerprint Cards AB (publ)

Welcome to the FPC Q1 2025 earnings presentation. 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 telephone question, please press star 1 1 on your keypad to join the queue. To withdraw your question, press star 1 1 again. Alternatively, use the ask a question tab on the webcast. Please be advised that today's conference is being recorded. I would now like to hand over to Stefan Pettersson, Head of Investor Relations. Please go ahead.

Thank you, Paul. And good morning, everyone. And welcome to FPC's earnings call following the release of our Q1 report this morning. So we'll begin by a presentation by our CEO, Adam Philpott, and then by our CFO, Fredrik Hedlund. And if you're following the 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, and welcome to the Q1's earnings presentation, everybody. As always, I'm joined by Frederick, and we'll take you through the following agenda. So if we go to the agenda, please. I'll start, as always, with an executive summary. We'll talk about the key numbers throughout the quarter and some of the key headline items there as well. But then what we'll do is As you all know, we're going through a transformation as a company. It's something we've talked about on the last, I've got quite a number of earnings calls now. But I'll take you back a little bit, first of all, to the first year of the transformation, what we were focused on there to stabilize the business and move towards profitable growth, and then where we are now in the second formation as we look to accelerate our growth execution. I'll talk about how we're executing against the strategy that we put in place as a result of that transformation program. We'll talk about some of the things that we said we would do and what we're doing about them in Q1 as well. And then I'll hand to Fred to talk about discontinued operations, which I'll touch on in a second. And we'll go a little deeper into the Q1 financials. So with that, let's get to the executive summary. Headline news, really strong growth in our core business. So great to see the revenues double Year 9.1 in Q1 2024 to 18.2 million SEK in Q1 2025. Really positive to see how that revenue in our core business is continuing to improve. That 100% is a very precise number. It just happens to play out that way. And also really stable, strong gross margin. Of course, a big part of the transformation plan was to ensure that we were moving into more profitable markets where our value is desired and where we can monetize it. And you can see there with those strong gross margins, that continues to be the case. Not only doubling revenue, but doing so with very, very strong gross margins as well. Our EBITDA performance looks very strong. That was underpinned by the smart eye deal of nearly 30 million SEC that we announced very early in Q1. As you look at the underlying EBITDA, of course, it is still negative overall, and we continue to drive improvements within that as we focus on the turnaround, but a good result nonetheless as a result of some of those asset monetization things we've been working on, particularly smart eye. With free cash flow, negative 22 million SEC was related to discontinued operations. And so we are improving. We're not yet positive, but we're seeing a really strong directional trend in terms of free cash flow. And you can see that from the historical periods noted there in the table to the right as well. So continuing... It shows that the turnaround isn't done yet. We never said it would be. It takes time to transform the company, but as you can see, all of the indicators are moving in a very positive direction. And then, of course, with headcount, again, not just about focusing on revenue and margin to drive our overall income performance, but also... managing how we've done a thorough job as a part of the transformation in doing that down 70% year on year in terms of headcounts, really leveling out where we need to be from an organizational perspective. We've also improved our reporting clarity. So you'll see in this report, and Frederick will spend some time on this a little bit later, that mobile and PC is now classified as discontinued operations. And we're doing that to give a very clean view of how the core business is performing. We'll see that go completely away, and it allows us to then focus on, well, what is the core business that we have and how is that performing? Only that, it's a little bit last year. We're moving R&D depreciation, which was historically categorized under COGS. We're moving that under development expenses. So again, we have a very, very clear view of gross margins. So tidying up the reporting as a result of the transformation that we've been through or are going through, we've now completed. And then as it comes to strategic execution, really important to think about how are we going to continue to grow? Where are we going to get new revenue from moving forward? We announced an anonymous partnership very late in Q4 2024, and we've recently literally just announced that we are now starting to deliver the initial product coming off the shelves from that joint collaboration. So a decentralized biometric authentication platform integrated with PingOne. I'll talk a little bit more about that later in the presentation as to what that means. And of course, the word at the moment seems to be tariff, not necessarily the most beautiful word in the English language, but something we're very focused on, a very chaotic economic environment as a result, very unpredictable. But of course, as a leadership team, we have been very focused on this. We've spoken with many of our customers to ensure that we understand how this can play out and have a plan in place to act in a very agile way as it does. We feel that there are limited direct impacts from US tariffs because of the amount of hardware we ship directly versus through our channel. managing that. But at the moment, it's very much under continuous review. I think like many of our customers, what we're not looking to do is overact, which could destabilize the business. But of course, just monitor how this is playing out and ensure that we have the agility built in to our operating model to be able to act accordingly when it becomes appropriate to do so. So just a little bit there on tariffs as well. If we go to the next slide, this kind of is a reminder. Many of you will remember this. Gosh, I've seen this slide so many times. But this was really the transformation program. I launched this when I joined the company. And I launched it on my first earnings call, which was back in October 2023. And this was the these are the six pillars of the transformation. And this was number one about stabilizing the company. You know, we were losing money at the time and we had a lot of work to do in order to real core value was desired. in the marketplace, and we did so through these six pillars. At the same time, whilst the focus was on stabilizing the company, it was also about the second phase, which was gearing it for growth. So whilst we were stabilizing, we were ensuring that the organization and the focus and the strategy we were putting in place was geared to be able to be a springboard to accelerate growth. That was the first phase we went through. That was about a year, that phase. I see us concluding that early into this year, late into last year. And so as we move... This moves to the next phase of the transformation. So year two, 2025, is all about then moving to this accelerate growth phase. So on the left, you can see we've left the stability phase, we've stabilized the company, and we are now moving towards accelerate growth. Doesn't mean that there aren't things we still need to do. We need to be very disciplined still. We've done a lot of work on our OPEX and we need to ensure that we don't lose those gains that we've had. So we'll continue to ensure that there's solid business rigor on an ongoing basis. That's something we simply need moving forward as a business anyway. Any good business needs that. But the focus now is on accelerating growth. Not only that, though, as we think about accelerated growth, we should also be thinking about where we're going in the future as well, and that's about having really strong operational excellence. And so you can see these four pillars, and the fourth pillar really ties to that operational excellence as well. Three pillars, of course, are very growth-oriented. So let's go to the next slide, and I'll talk a little bit more about each of those phases. So for each of those pillars rather. So for this next phase, year two, around accelerating growth, it's about execution. The first is around our core revenue. And so one of the items we look at here is around our sales capacity. And I look at that in two ways. Have we got enough sales capacity to go and drive growth? That means a couple of things. It means, do we have enough people? So we are looking at expanding our sales in the United States, but there are other areas that we're also looking at as well as funding becomes available for us to invest through the income that the business generates. So we're looking at how we're using our income to fuel our growth moving forward in terms of physical human capacity for sales. The thing that we're looking at is it's not just throwing people at the problem. It's also about looking at the sales resources we have and how we can ensure that we maximize the amount of time our sellers have to be productive to get out there and do prospecting, for example, versus account management. Just getting the balance right between having sufficient capacity to go out and build new customers as well. So that's what we're focused on from a sales perspective. And that second piece around productivity ties to business modernization, and I'll touch on that in just a moment. The second piece of core revenue growth is our marketing engine. We've put a new marketing leader in place, and marketing for me is a sales function. The role of marketing is to generate business. It's a value-adding function. It's not a cost. It's an investment. But our job is to now transform or evolve our marketing into something that creates leads. It's metrics-oriented rather than just keeping the lights on. So a couple of interesting things happening in core revenue growth as we focus and spend more time prospecting there, whether that be through sales or through marketing. On the asset monetization side, we've already We've got the smart ideal that we wrote in Q1 is a really good example of asset monetization. And this is really about patent partnerships. So we've announced another partnership with patents. We've got a great body of patents there that we're going out to monetize. We're focused on our high value IP. There's lots of IP in the company, but really focused on those IPs that we think are of value that we go and therefore maintain moving forward. But it's also about the licensing models we have. And as I said, SmartEye is a really good example of that. And these licensing models throw up different opportunities. Some are incremental opportunities. Some of these opportunities are how we think about our larger existing business. Sometimes when we write new projects with our customers, it's about them baking our sensors into their products. So there's a long cycle for our products. into their product, for them to test their product, then they have to take their product to market, and then they have to be successful. That's a really long set of steps before we get any revenue. So licensing models opens up a slightly different approach to that. Instead of waiting till the very end and we get paid per unit, whether that be through NRE or through licensing. And then at the back end, when they start to sell lots of units, there's more of a royalty approach. Lower than selling per product because we've de-risked it by front-ending some of the income. What that means is a slightly different shared risk model with our customers. It means we get some money up front. It means we de-risk the success of the product. But for our customers, it also means they're skin in the game so that they're incentivized to sell higher volumes because then they really get breakthrough benefits on a per unit basis. And of course, they reduce the overall cost of goods for their product at higher scale. So a really interesting model that we've done some work on, and I see us doing more work on that as well. On new revenue streams, of course, the nonabit is a really big one for us there. We've made an announcement. We've got some more products coming in future as well as we expand what we do. I'll touch on that one. But this is about us expanding what we're selling to our existing clients for those clients who want to have shared devices, for example, and use one sensor for many, many fingerprints. But also getting us into new clients, new logos and into a new market of workforce authentication where. So this is a great new opportunity for both existing and new customers for us to go to market. And we're now starting to see product roll off the shelves. But it's also about the edge. In the past, you may remember we talked about cloud and edge. The intelligent edge is also really important to us as well. This is not just inorganic through partnerships where we have additional modalities. It's also about what we're doing as an organization organically. We have great skills in Gothenburg. We have great skills in the company to innovate. And part of what we're doing there is building intelligence into the edge, whether that's on the sensor, whether that's in our algos, in our software, including artificial intelligence to make very smart decisions and improve performance in terms of how those algorithms function. But of course, it's also about expanding the intelligent edge as well. And again, SmartEye is a good example of that. algorithm. There are other partnerships we're looking at in other biometric domains as well, whereby we can have a suite of different intelligent edge modalities. What that means then is it offers choice to users. They may want to use voice. They may want to use face. They may want to use iris. They may want to use finger. They may want to use behavioral. Very many different modalities that we can give them choice depending on the devices they're accessing their systems with. Not only that, it means we can combine those modalities together. So having two modalities to authenticate a user offers much higher efficacy is deep fake proof. It helps us avoid some of the AI attacks that we're seeing in terms of faking identity to be able to have a very, very strong security posture, but also a very, very strong user experience. So those are some of the things that we're doing on the intelligent edge moving forward. And then... And finalization, that's about how we operate as a company. We live today in an agentic world. AI agents becoming more and more common in terms of how we execute business process at scale, how we offload capacity from our intelligent workers to have our focus on high value problems. And they then have AI agents working on their behalf. And there's a couple of things that we're working on here as an organization. One is around revenue operations. What does that mean? That means professionalizing our sales engine in terms of how we do prospecting, using worldwide web using data helping our sellers make smart targeted decisions and helping them use multi-channel ways LinkedIn email phone calls meetings as they reach out to clients in an orchestrated way minimizing the administrative burden on them so that's a key focus which ties back to that core revenue growth as we think about sales capacity and then as a company we're now small So we have the opportunity to be very agile and instead of adding head counts for every problem that arises, we first start with looking at how AI can help every single member of our staff. And we ask our staff to go and self serve and find ways to solve problems using AI within our corporate policy in a way that's secure, of course, to augment themselves and to drive productivity at massive scale. So that's really what we're focused on in terms of our business modernization. Let me touch a little bit finally on the another part of Frederick to talk about some of the financials. So late last year into January 2025, here's the partnership that we spoke about. We announced the need to have a cloud offering to be able to super scale biometrics by storing templates in a decentralized and secure manner. And that's what our partnership with Inonavit enables. And so since then, we've been working with them on joint product, and we announced last week that we've integrated with Ping One DaVinci. Who are Ping One? A key part of the workforce authentication market is a space called IAM, Identity and Access Management, key pillar within cybersecurity and within workforce authentication. Ping One are one of a few key players in that space. They are an organization with whom we have much tighter links, and so that's the first product off the shelves. We're working with Ping One to ensure that it's very, very easy for their customers to use biometrics instead of passwords. So this is about finally starting at scale to remove passwords from workforce authentication. Every time you want to log on to something, depending on the risk rating, we can use biometrics to be able to do that. Whether you're in the office, whether you're a frontline user in a healthcare setting, for example, different ways of using biometrics to solve that problem to improve security, and to improve the user experience. So this is the first milestone we aimed for. We've hit it. Now we're going to market, certifying our sellers to be able to go out there and engage with customers, compiling target lists to go out there and reach customers. But this is just the first milestone. There's a lot more to come from Anonabit as well, and we look forward to continuing that partnership. And so that's a little bit on the transformation, a bit on where we've come from, a little bit on where we are, where we're doing what we said we would do. But with that, Frederick, let me hand over to you, and perhaps you can talk a little bit about discontinued operations, what that means, and then deep dive into the numbers a little more.