FPQ1 Fingerprint Cards AB

Highlights

• 10.5-percent revenue growth vs. Q2 2023 in our Core product groups, outside of Mobile
• Gross profit in Q2 2024 negatively impacted by SEK 24.3 M in planned non-cash depreciation of previously capitalized R&D expenses. Gross margin excluding this effect was 25.4% (19.7% in Q2 2023).
• Rights issue in June strengthened the balance sheet
• Cost optimization progressed according to plan, with employees decreasing to 95 as at June 30, 2024, compared to 159 at the end of 2023
• Significant improvement in cash flow from operating activities vs. the first quarter of 2024
  
  

Second quarter of 2024

• Revenues amounted to SEK 112.4 M (203.3*)
• The gross margin was 3.7 percent (13.1)
• EBITDA amounted to negative SEK 2.4 M (neg: 57.7)
• Adjusted EBITDA** amounted to negative SEK 47.6 M (neg: 57.7)
• The operating result was negative SEK 90.8 M (neg: 75.7)
• Earnings per share before and after dilution amounted to a negative SEK 0.25 (neg: 0.18)
• Cash flow from operating activities was negative SEK 20.9 M (52.4)
  
  

January-June 2024

• Revenues amounted to SEK 258.8 M (320.3)
• The gross margin was 7.9 percent (14.7)
• EBITDA amounted to negative SEK 52.9 M (neg: 118.0)
• Adjusted EBITDA** amounted to negative SEK 98.1 M (neg: 118.0)
• The operating result was negative SEK 165.7 M (neg: 151.4)
• Earnings per share before and after dilution amounted to a negative SEK 0.41 (neg: 0.35)
• Cash flow from operating activities was negative SEK 81.0 M (10.1)
  
  

* Numbers in brackets refer to the year-earlier period
** EBITDA adjusted for costs related to restructuring measures, amounting to SEK 17.3 M in Q2 2024, and for other operating income amounting to SEK 62.5 M

CEO’s comments

In the second quarter, we continued to execute our Transformation Plan, focusing on lowering our cost base and reducing cash burn while stimulating growth in core markets. With personnel costs accounting for most of our operating expenses, the significant headcount reduction will result in meaningful cost savings in the latter half of the year. An important objective of our Transformation Plan is to achieve positive cash flow, and our actions have already translated into a significant improvement in cash flow from operating activities compared to the previous quarter.

Positive revenue momentum in our Core product groups

We delivered solid revenue performance in our Core product groups outside of Mobile, achieving 10.5 percent revenue growth in these areas. Revenue development in our Access product group was particularly encouraging, with a sales increase of 64% compared to the second quarter of last year. The continued positive demand trend for biometric authentication for logical access control, especially in FIDO-certified products, is evident from the purchase order we received in July from a global FIDO solutions provider, valued at over USD 1M.

Sales in the PC area also increased compared to the corresponding period last year, albeit lower than the previous quarter. Our position in the PC market remains strong due to our best-in-class capacitive technology, support, and team. As a relative newcomer to the PC industry, we are still establishing our position. This ongoing process of building our market presence, while executing on our Transformation Plan, may lead to short-term revenue fluctuations, particularly as significant models featuring our biometric technology reach the later stages of their product lifecycle.

Gross margin performance

Intense price pressure in our remaining Mobile product group continued to negatively impact the gross margin, reinforcing our decision to accelerate the winding down of Mobile operations. This allows us to focus capital and investments on higher-margin existing product groups and new diversification areas.

Additionally, the decrease in revenue from the ongoing wind-down of Mobile has led to an increase in the ratio of planned depreciation of previously capitalized R&D expenses to revenue, significantly impacting gross margin (though not cash flow). If we exclude the non-cash impact of this depreciation, gross margin was 25.4% in Q2 2024, an improvement from 19.7% in Q2 2023.

Transformation progressing according to plan

We are making steady progress with our Transformation Plan, targeting significant financial improvements in the second half of this year. Although still negative, our cash flow from operating activities has improved significantly compared to the first quarter of 2024, moving us closer to achieving positive cash flow and enabling self-funded profitable growth.

Strengthening financial position

The rights issue in June 2024 strengthened our balance sheet. After repaying a SEK 60M bridge loan, proceeds from the rights issue in Q2 amounted to SEK 169 M, with an additional SEK 44.9 M forthcoming upon HCM, the largest guarantor of the rights issue, receiving a favorable FDI decision from the Inspectorate of Strategic Products (ISP). We will publish a press release once HCM has obtained this FDI decision.

Cost optimization

Our cost optimization program is progressing as planned, with SEK 17.3 M in costs related to restructuring measures incurred in the second quarter. The number of employees was reduced to 95 at the end of June 2024 from 159 at the end of December 2023 and 210 at the end of June 2023. These reductions will translate into decreased costs in the second half of 2024, enabling us to significantly improve our annualized OPEX run rate by the end of this year. We are finding additional opportunities for cost optimizations and may further reduce costs beyond our initial baseline target if needed.

Accelerated wind-down of Mobile

The decrease in Mobile revenue reported this quarter will continue in the next few quarters as we refresh our portfolio to focus on profitable areas. In June, we announced an exclusive partnership agreement with Egis Technology in the Mobile area, enabling a faster, more efficient wind-down of Mobile operations and inventory depletion. This agreement ensures continued employment opportunities at Egis for some of Fingerprints’ former Mobile-dedicated staff and ongoing support for our customers. We expect the Mobile product group to be entirely phased out by the end of this year.

Strategic focus on digital identity

To execute our strategy, we are continuing our focus on the core biometric business whilst expanding to digital identity, a core component of human-digital interactions. Current identity verification largely relies on passwords, a primary threat vector in cyber breaches. Zero Trust security frameworks are becoming standard, requiring continuous user authentication which is typically dependent upon passwords, offering poor security and user experience. In today's digital landscape, where generative AI and deepfakes are increasingly sophisticated, biometrics have become more relevant than ever. As AI technology advances, the potential for digital impersonation grows, making traditional security measures like passwords more vulnerable. Human-centric approaches, such as biometrics, serve as a "back to basics" strategy, focusing on the inherent uniqueness of individual biological traits, safeguarding against digital impersonation, and enhancing trust in digital interactions. As a biometric identity company, we believe we can begin to insert a more reliable means of identity authentication into Zero Trust, using biometrics and data to augment then replace passwords, thus strengthening cyber security whilst improving the user experience. Our new Chief Strategy & Technology Officer, David Eastaugh, who will assume his position on August 19, will spearhead this capability development. As we move to an agile, start-up organization, we’re also reducing cost in the c-suite. Hila Meller will be leaving the company, and the sales and marketing team will report directly to me. I’d like to thank Hila for her valuable role in driving sales 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/a3t6orx9

For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BIcafd46ebd3174087bf1e7d3d312da2df

Attachment

• Interim report Q2 2024

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