Precise Biometrics AB (publ)

It is August 26th and Precise Biometrics today released its Q2 earnings report. For the first time I would like to give a special welcome to the previous shareholders of FPC who are now shareholders of Precise Biometrics as a result of the recent merger. Today I am joined by Precise Biometrics CEO Joakim Nydemark. Hello! Hej! Good to see you. So there's been a lot happening in the last few months, in particular the merger with FPC and the recent capital raise. But perhaps we should start with the Q2 results. So if you were to sum up the second quarter, what are you most pleased with and what has been the most challenging?

I would say during the quarter there has been, of course, a lot of work related to the merger. And even though the merger was closed after the quarter, I'm still very proud that we finalized that. We have started the integration work and we have also finalized now the rights issue. I'm also pleased with the positive response we have got from customers and partners related to the merger, where we think that, I mean, even though we strongly believe in this ourselves, it's always nice to hear the same sort of opinion and feedback from the customers and partners and markets. The third thing I would like to raise is that we continue to see growth in access and business management, which is also positive. The more challenging side is, of course, the drop in revenue and volume, which is nothing that I'm pleased with at all, of course. It has an explanation. It's related to the low-end market. And the thing is that the prices of hardware has increased. And this was something that we have seen coming. However, that is impacting to the largest extent, the low-end and non-ultrasonic market. So if we look at the ultrasonic market, that is sort of on track. However, the drop in volume now is related to other software for other sensors that we have. And we thought and it was estimated that we should be able to bridge that. So with a drop in the low-end market for other sensors, we were hoping for bridging that with the ultrasonic. However, we weren't able to really beat that, but we still see sort of the trend for our focus area ultrasonic. Moving forward here, I'm still confident in the business we have.

So, Dan, to go into some more of the actions that you've taken then to offset this drop in volume, you mentioned the ultrasonic, but also perhaps the merger and the cost control and any other particular actions that you would like to highlight?

Yes, so I would say that we have a firm strategy now and the merger is certainly part of that where we now take a step in the direction where we grow in the value chain and with this merger we double the revenue and we lower the cost and we put ourselves in a much a much much better financial position but also in a much better offering position so looking at ultrasonic this is something we will continue to focus on from a software perspective but with the merger we get a broader offer And this has also been a very clear sort of part of the strategy here moving forward. And as you mentioned the cost control, we are working continuously with optimization of our business overall and also making sure that we keep track and keep sort of the cost at the level where we need to be.

And the FPC numbers were not included in this Q2 report since the merger was completed after Q2. But do you want to go into anything about how FPC performed during the second quarter?

That is correct. So since this is a report for Q2 and the merger happened after, that is not part. So the first quarter where we will have the numbers included from FPC will be in the Q3 report here in November. And in that report then, it will be the numbers for the FPC part from the 20th of July, which was the merger date. Looking at the FPC performance in Q2, it is according to the plan and our expectation. And the important thing now is that we really keep track and traction in the ongoing business on both sides, both the FPC and the precise site and making sure that we don't lose any customer. On the contrary, that we move the customer we have forward and then making sure that we now integrate everything and get the new offerings in place and address the market with these new offerings from a sales and marketing perspective.

Got it. So for those viewers who might have been on summer vacation and not read up on all the news that came out of or surrounding the merger, do you want to perhaps remind them a little bit about what this merger means for Precise strategically and commercially?

I would like to summarize this as the start of the new beginning. So this is really a big step. We also have a much larger market reach with this new company and also the offerings as such, including both hardware and software that we now are able to target a much broader audience with. So all in all, I think there are a lot of sort of both strategically and commercial things that is falling into place with this merger.

Yeah. And so then very briefly, do you just want to go into a little bit about what these offerings will look like and what the value offered to consumers would be as a combined company as opposed to being two separate entities?

So, what we are achieving now is a biometric system that includes both hardware and software. And in more detail, this is about where we have both the actual sensors, we have secure elements, we have the MCU or the computing power, we have, of course, the algorithm and the SPOOF, and all of that is wrapped all together in one offer. and this is something that we can then provide to a number of different products. To give you some example, this could be a feeder token, for instance, this small security keys that protects sort of the user of a computer or computer programs. And the other part of the business is related to our turnkey solutions. And this is physical access and visitor management where we have turnkey offerings enterprise business. So in essence, the customer pain we're looking at, and this is, we have several, but one of them, one of the more important ones we see is that AI is driving cyber threats, identity thefts, and data breach. And with our now solution, including both hardware, software, and these secure elements and everything, we're able to provide a solution that increases the security of the system. But more importantly, we're able to connect the user and the user identity to the authentication and the login. And that is something I strongly believe will be key for this kind of secure solutions here moving forward.

And from what I understand, you will also be achieving estimated cost savings annually of around 45 million kronor. Do you want to go into a little bit how that will happen and what kind of cost synergies we're talking about?

So the integration project as such is ongoing. So it started already before the merger, but now it's definitely up in full speed. 14 work streams as part of this integration. And we have already executed on more than 30% of these cost synergies. So I think we're moving really fast in this. So looking at what's happening here during the fall is that we will continue to execute on the cost synergies and making sure that we get all the integration bits and pieces in place. and the target is to have everything done and start fresh in 2027 with everything in place, companies integrated and the cost synergies executed.

And I also want to go into the rights issue that was executed here during the summer and provides the company with 100 million kronor in new capital. What will you do with the money, the funds that you raised?

So when merging two companies, there is a cost related to that. So what we need to do here with some of the money is, of course, to make sure that we now execute on the integration and realize these synergies that we forecast and make sure that we We can bring those things and activities with us into 2027. But also we will continue to grow and invest, of course. So a very forward leaning sort of spendings in sales and marketing to really make sure that we know capitalise on these opportunities and offering. And of course also to get the product offerings merged and together. So here we see that we have already good complementing business and products, but also we need to make sure that we merge these two in a good way and capitalise on those benefits where we're one plus one. becomes more than two, and that is definitely what we see will happen.

Now that the merger is done, the capital raise is done, what milestones should investors look for here in the 12 to 18 months ahead?

Certainly, within 12 to 18 months, the integration is done, the cost synergies are realized, and we will be able to show growth, looking at the cross-sell, up-sell, new customer opportunities that we now foresee in this combined company. also with a combined offering. And then we have the product packaging. So what I see will happen here as well is that we will be able to further explore opportunities in areas like national ID and FIDO tokens to give you some examples where we can together increase the value of the product and also for the customer and increase the growth and sales. And then, if we look at an 18-month, I would like to include also further consolidation and potential acquisition that is part of this plan. When we have now proven that we are able to execute on this kind of consolidation that we now are working on with FPC, that open up opportunities also in the next step for further consolidation.

So, if you want to summarize the investment case, the updated investment case now then after the merger, what are, let's say, three points that you think are important that's changed now?

Three points. I would like to say double revenue and lower cost. So that is one area that I think is important to bring. Growing the value chain, that means higher value for the customer, but also we can address those offerings we now get to a larger customer base. And the market reach as such, the geographical presence and the larger customer base we get with a merged company is key. So those, I would say, are the top three. And then we can add the geopolitics and what is driving the opportunities for this merged company, which is the overall security situation in the world and the fast AI development, as mentioned earlier, where we see the identity theft and so on, that is driving the need for biometric security and identity solutions.

Yeah, so the timing of this merger is, in a sense, everything, right? Because it's driven by actual market demand that you've identified, if I understand it correctly.

That is correct, yes. So it's a combination of the timing, what we are now doing in this joint company, this merger, and the market out there where we see the need and the opportunities.

Okay, very good. I think that's all the time we have today. Thank you Joakim and for all of those for all of you who are watching this today on August 26 in the morning, we would also like to remind you that the company will be hosting a live Q&A session this afternoon at 1pm with Joakim and CFO Maria. You can find the link on precise biometrics website and in the description below. Thank you very much for watching and we'll see you next time.

Thank you.