Fingerprint Cards AB (publ) publishes interim report for January – September 2023, and announces cost optimization program
Highlights, third quarter
- Healthy revenue growth across Mobile, PC, Payment, and Access outside of Asia
- On October 19, 2023, Fingerprints announced the initiation of a cost optimization program – expected to yield cost savings of approximately SEK 204 M on an annual basis – to respond to challenging market conditions that the company faces in the short term (see below under “Cost optimization” for more details)
- Repayment of bond loan, following the convertible bond issue and rights issue, will lower interest expense by approximately 75 percent, while increasing financial flexibility with no restrictive financial commitments
- Cash flow impacted by approximately SEK 20 M in one-time expenses associated with refinancing
Third quarter of 2023
- Revenues amounted to SEK 184.8 M (143.2)
- The gross margin was 12.8 percent (12.2)
- EBITDA amounted to negative SEK 40.4 M (neg: 38.1)
- The operating result was a negative SEK 63.8 M (neg: 59.8)
- Earnings per share before and after dilution amounted to a negative SEK 0.17 (neg: 0.17)
- Cash flow from operating activities was negative SEK 38.0 M (neg: 111.6)
- Revenues amounted to SEK 505.1 M (671.5)
- The gross margin was 13.9 percent (22.3)
- EBITDA amounted to negative SEK 158.4 M (neg: 41.7)
- The operating result was a negative SEK 215.2 (neg: 103.7)
- Earnings per share before and after dilution amounted to a negative SEK 0.52 (neg: 0.29)
- Cash flow from operating activities was negative SEK 27.9 M (neg: 230.2)
Let me begin my first interim report as CEO by giving you a summary of our performance in the third quarter including headline revenue growth, along with the completion of our refinancing to significantly improve our financial flexibility. I’ll then discuss the Transformation Plan I’ve set in motion including a large cost optimization program to ensure our growth brings strong future profitability with it, organizational changes that bring fresh energy, agility and new DNA to our company, and a new strategic direction for Fingerprints to thrive in this incredible Biometrics market, all of which we are announcing today.
Q3 results and financing
I am pleased that we are reporting 29-percent year-on-year revenue growth. We saw growth in our Mobile, PC and Payment product groups, as well as in our Access business outside of Asia. In Asia, Access sales decreased, driven mainly by lower demand for door locks because of weak development in the construction sector. Whilst the top-line growth is encouraging, we continue to face intense price pressure in Mobile – our largest product group in terms of revenue – as the industry still struggles with excessive inventory. Aggressive destocking measures have had a significant negative effect on the average selling price and thus on our gross margin. Since the end of the second quarter 2023, we have decreased our inventory by 23 percent and we expect to reach an acceptable level before the end of this year as previously communicated. On an industry level, however, we expect that it will take longer for competitors’ inventories to normalize. Once this happens, we expect selling prices and margins to improve. At the same time, we are continuing to increase our share of the market for biometric solutions for PCs – a segment offering higher margins and attractive growth potential. We also expect to continue growing revenue in the Access and Payment areas, even though revenue development in individual quarters remains volatile as these industries are less mature when it comes to the use of biometric solutions.
Following the completion of the convertible bond issue and the rights issue, we repaid our SEK 300 M bond loan at the end of September. This will lower our interest expense by approximately 75 percent, or around SEK 30 M on an annual basis, while increasing financial flexibility with no restrictive financial commitments. As a result of this, our ability to execute on our growth and diversification plans has significantly improved. That said, our cash flow from operating activities in the third quarter was impacted by approximately SEK 20 M in one-time expenses associated with the early redemption of the bond loan, the convertible bond issue and the rights issue.
In response to the challenging market conditions that are impacting gross margin, we are initiating a plan to implement a number of restructuring measures which are expected to yield cost savings of approximately SEK 204 M on an annual basis with full effect from the second half of 2024, resulting in an OPEX run rate of approximately SEK 180 M on an annual basis. This effectively halves our OPEX run rate. Restructuring costs are currently estimated at SEK 62 M, half of which will be recorded in the fourth quarter of 2023, and the rest in 2024.
Let me outline why we are doing this now, what it will mean for Fingerprints and our key stakeholders, and how we will move forward as a premium solution provider.
First of all, current market conditions in our largest operating segment mean that our gross margin is at a level that is economically unsustainable given our existing cost base. As already mentioned, we expect the situation in Mobile to improve once inventory levels normalize. However, we view these cost reduction measures as necessary in order to safeguard the financial health and future of the company. Our top priority is to arrest losses, while continuing to diversify our revenue streams to new, higher-margin areas, including and beyond PC, Access and Payments. The global market for biometric solutions is large and growing, and I see abundant opportunities to innovate by leveraging our premium capabilities and technology assets in new areas. At the same time, we are fully committed to supporting our existing customers including those in Mobile. Profitability will be the overriding consideration in our evaluation of new projects, focusing on those projects where our premium capabilities are valued.
A new organization and governance model
Whilst changes affecting our people are never easy, it’s important that we look forward as a company. I believe that we can significantly reduce organizational and operational complexity, with a streamlined and engaging model that injects more speed and efficiency into our company.
We must deploy our talent efficiently, aligning our people with strategic projects quickly as market opportunities evolve. To achieve this goal and create an empowered, efficient organization, our plan is to transition to a functional organizational model, enhancing accountability and enabling agility. The two primary pillars of such a structure will be Product and Sales, with support from Finance, HR and other operational functions. Both the new organization and our new strategy will be underpinned by enhanced governance, accelerating throughput and conversion from innovation through to sales.
A new strategy
Fingerprints is a highly innovative biometric hardware and software company that, based on our skills and IP, provides premium value to our clients. Today, the bulk of our revenue is generated from sales of fingerprint sensor modules to customers in the consumer electronics space - mainly mobile phone manufacturers. These are high-volume, highly competitive and mature global markets, but are still only a small part of the vast, double-digit growth biometrics market. Around three-quarters of the revenue in biometrics – including software applications – is currently generated in the government & security, enterprise & industrial, healthcare, and financial sectors. In addition to these massive opportunities, there are other attractive growth vectors available to us, including new technologies, new channels and partnerships and new business models such as software licensing.
To capitalize on these myriad opportunities, I am pleased to announce Fingerprints’ Biometrics Platform. I believe we can better leverage the value of our talent and portfolio by developing and expanding them as part of a cohesive, extensible platform which can then be applied to address a greater array of customer challenges and opportunities. Instead of disparate technologies, the Fingerprints Biometrics Platform is a common, integrated set of tools and capabilities that combine in multiple ways to maximize our addressable market and customer value creation.
The Fingerprints Biometrics Platform has four layers: devices which capture and transmit a signal; software modalities such as fingerprints, iris, face or gait that extract key indicators from the signal; software analytics engines such as algorithms and AI that match the signal to a given outcome like identity or behavior, and the software data layer where the information is managed and securely stored. Fingerprints are best-in-class at doing this with the highest efficacy within our current portfolio. Expansion across the Fingerprints Platform will be delivered through building, partnering or buying new capabilities to unlock new markets.
There are a multitude of development and expansion opportunities. With thoughtful allocation of our capital, we’ll explore a set of potential focus areas including new software modalities, such as face and health; analytics engine expansion for outcomes beyond identity with AI; new verticals including retail and government; new use cases including FIDO and KYC (know your customer). To accelerate monetization, we’ll explore new licensing models and partnerships.
Fingerprints continues to be a leader in premium biometrics solutions as shown by our Q3 growth. By addressing our underlying costs and evolving to a new dynamic organization, we’re well positioned to drive profitability performance. Launching the new Fingerprints Platform we can realize our rich set of capabilities in new, impactful ways.
Adam Philpott, President and CEO
Today at 09:00 CEST, Fingerprints’ CEO Adam Philpott will present the report together with CFO Per Sundqvist 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/fh4xhi3a
For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BI0e4ebb1c8919498382f40810e7346087
|For information, please contact:|
Adam Philpott, CEO
Per Sundqvist, CFO
Stefan Pettersson, Head of Investor Relations:
+46(0)10-172 00 10
+46(0)10-172 00 20
This is the type of information that Fingerprint Cards AB is obligated to disclose pursuant to the EU’s Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, on October 19, 2023 at 07:00 a.m. CEST.
Fingerprint Cards AB (Fingerprints) – the world’s leading biometrics company, with its roots in Sweden.
We believe in a secure and seamless universe, where you are the key to everything. Our solutions are found in hundreds of millions of devices and applications, and are used billions of times every day, providing safe and convenient identification and authentication with a human touch. For more information visit our website, read our blog, and follow us on Twitter. Fingerprints is listed on Nasdaq Stockholm (FING B).