Fingerprint Cards AB (publ) publishes interim report for January – March 2024

Highlights

Q1 2024

• Positive momentum in PC continued, with an 80-percent year-on-year growth
• Slight increase in gross margin compared to the previous quarter, as profitability in non-Mobile areas continues to be strong
• Continued execution of cost optimization program, with a nine-percent reduction in the number of employees since the end of 2023
  
  

Post-Q1 2024

• By winding down the loss-making operations in Mobile, we will have a focused and profitable growth business
• Announced partially guaranteed rights issue of up to approximately SEK 310 million, strengthening balance sheet by reducing debt and increasing equity through an early repayment of outstanding convertible bonds

First quarter of 2024

• Revenues amounted to SEK 146.4 M (117.0)
• The gross margin was 11.1 percent (17.3)
• EBITDA amounted to negative SEK 50.5 M (neg: 60.2)
• Adjusted EBITDA amounted to negative SEK 50.5 M (neg: 60.2)
• The operating result was negative SEK 74.9 M (neg: 75.7)
• Earnings per share before and after dilution amounted to a negative SEK 0.14 (neg: 0.17)
• Cash flow from operating activities was negative SEK 60.1 M (neg: 42.3)
  
  

CEO’s comments

Our PC Product Group, along with mobile, has driven a 25% increase in overall revenue compared to last year, a significant performance that underscores our positive revenue momentum. A highlight of this is an 80% surge in the higher-margin PC Product Group, in a quarter in which we announced the launch of the Asus Expertbook B5 laptop featuring our Match-on-Chip biometric solution. With our technology now adopted by four of the top five Windows PC manufacturers globally, we expect sustained growth in PC adoption with fingerprint sensors, reinforcing our strategic direction. Additionally, despite challenges in the Chinese residential real estate market affecting biometric door lock sales, the rising demand for FIDO-related logical access solutions in North America and Europe signals our successful pivot towards higher-margin markets and system-level expansions.

Gross Margin Performance

This quarter, we observed a slight improvement in our gross margin from the previous quarter, primarily due to robust profitability in our non-Mobile Product Groups. However, year-on-year comparison reveals a six-percentage point decline in our gross margin. This reduction is mainly due to challenging market conditions within our Mobile Product Group, which remains our most significant revenue contributor. Despite inventories stabilizing at more typical levels, substantial price pressures in the Mobile sector continue to challenge us, and we expect these pressures to persist in the upcoming quarters.

Completing the Transformation Plan

We launched our Transformation Plan in October 2023, targeting significant financial improvement by the second half of 2024 through a phased implementation. This comprehensive plan has six key elements:

1.        Devising a new strategy,

2.        Strengthening the balance sheet,

3.        Refreshing our portfolio,

4.        Optimizing costs,

5.        Enhancing talent and organization, and

6.        Improving governance and incentives.

We are currently progressing through the Stability phase of this plan, effectively halting losses and strategically repositioning the company towards sustained profitability and enhanced cash flow in our core business areas.

Portfolio Refresh: Winding down the loss-making Mobile business

In our year-end report for 2023, we announced our decision to redirect capital and investments away from mobile sensor hardware toward more profitable business areas. We are accelerating this pivot by phasing out the loss-making Mobile business to safeguard our company's financial health and future viability. As a result, revenue from Mobile will decrease as we concentrate on more profitable sectors. We expect significant improvements in profitability as our focus shifts toward non-Mobile areas.

Continued Cost Optimization

In October 2023, we set a target for our operational expenses (OPEX) to reach approximately SEK 180 million annually, taking full effect in the second half of 2024. We are currently implementing restructuring measures aimed at achieving these savings. Through a dedicated focus, we have identified an additional SEK 30 million in savings, lowering our targeted annual OPEX to SEK 150 million by the end of this year— a significant reduction that is now fully underway.

Strengthening our balance sheet

On April 26, 2024, Fingerprints announced significant measures to address its financial position. These steps include reducing debt and increasing equity. The company will repay its outstanding convertible bonds early to provide greater financial flexibility and level the investor playing field. Fingerprints has agreed with Heights Capital Management to redeem these bonds early at their total nominal value of approximately SEK 105 million, including accrued but unpaid interest. Additionally, to ensure liquidity until the completion of the upcoming rights issue, which aims to raise up to SEK 310 million, a consortium of investors has extended a bridge loan of SEK 60 million to the company. This rights issue, offering preferential rights to existing shareholders, is pending approval at the annual general meeting scheduled for May 28, 2024.

Strategic Focus on Biometrics and Identity

Biometrics and Identity, where we hold a pioneering role, represent exciting, significant, and growing markets at the forefront of human-digital interactions.

Our strategic position is unique and robust across several key market areas. In the PC sector, we have transitioned from supplying mere components to delivering comprehensive fingerprint recognition systems, including our in-house microcontroller units (MCUs). Beyond PCs, we envision a future of multimodal solutions that seamlessly integrate fingerprint, iris and other modalities. This innovative approach not only enhances security and usability but also enables applications like continuous authentication and deep-fake mitigation. Our technology's versatility extends to driver monitoring systems (DMS) and augmented/virtual reality (AR/VR) devices. Recently, we successfully integrated our iris recognition technology into DMS for authentication, a solution we are now promoting to automotive OEMs in partnership with a tier-1 supplier.

Our commitment to innovation is evident in our vast patent portfolio, which boasts over 700 registered patents. These patents cover a wide range of areas, from algorithms and biometric image processing to sensors and hardware packaging. This wealth of intellectual property not only presents numerous opportunities for monetization but also underscores our dedication to staying at the forefront of the industry. On May 6, 2024, we announced that we have signed a patent license agreement with a major global company as the licensee. This represents a milestone as Fingerprints’ first-ever patent license agreement, arising from the New Business team initiative which was announced in July 2023 with the aim of developing new business and driving revenue growth. While this initial agreement alone will not have a material financial impact, as Fingerprints’ first-ever patent license agreement it is an important milestone in pursuit of additional monetization opportunities. We see an increased potential in this area, and we work with leading patent law firms to capitalize on this opportunity.

Our vision for Fingerprints to expand into other segments of the identity value chain is exciting. While biometric technologies have been around for some time, their integration into all digital interactions remains unfulfilled, primarily due to their complexity. We believe in a platform that ingests our best-in-class modalities in software, combines it with identity data for a high-efficacy authentication and authorization outcome, and orchestrates identity within a client’s workflow for simplified, ongoing identification. This will simplify consumption, improve the user experience, provide continuous identity security and mitigate the rise in deep-fakes. We are excited to lead this transformation.

Adam Philpott, President and CEO

Today at 09:00 CEST, Fingerprints’ CEO Adam Philpott will present the report together with CFO Fredrik Hedlund in a combined webcast and telephone conference. The presentation will be held in English.

The report will be available at fingerprints.com

The presentation will be webcast, and participants can register via this link:   https://edge.media-server.com/mmc/p/p3xotyyb

For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BIcea941f6b5fb498aadb3d6e18ba349d6

Attachment

• Interim report Q1 2024