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Edited Transcript of NEXT.OL earnings conference call or presentation 21-May-19 6:30am GMT

Q1 2019 Next Biometrics Group ASA Earnings Presentation

Oslo Jun 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Next Biometrics Group ASA earnings conference call or presentation Tuesday, May 21, 2019 at 6:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alain Faburel

NEXT Biometrics Group ASA - Chief Sales & Marketing Officer

* Knut Stålen

NEXT Biometrics Group ASA - CFO

* Ritu Chanchal Favre

NEXT Biometrics Group ASA - CEO

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Presentation

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [1]

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Good morning. My name is Ritu Favre. I'd like to welcome you to the Q1 2019 presentation for NEXT Biometrics.

Today, we'll have myself; Knut Stålen, our CFO; and Alain Faburel, our Chief Sales and Marketing Officer, present on our earnings results.

So I will start with some of the highlights by market segment for the company. So from a business perspective, it was actually a pretty good quarter in terms of our pivot to multimarket, multiproduct, multicustomer kinds of revenue generation.

As we've talked about in the past, from a strategy perspective, we're looking to move from the notebook space that we've been in traditionally into markets that value the large-size, high-security benefit that our sensors offer. And so we are looking at really making progress in the government ID and the smart card space. What you'll find inside this quarter is that we actually made significant progress in both of these areas.

In the government ID space, we've announced several design-ins for both India and China for India, and we've also received new POs, which we've shipped against as well as increase in our lead pipeline so that we expect to see an acceleration in revenue in the second half of this year. Alain will spend quite a bit of time kind of unpacking what's happening in our India market and how exciting that's looking for us.

On the smart card side, we've also been making a lot of progress. This is where we've been talking about doing a lot of development in the Dual Interface space of smart card. We've previously announced that our sensor can be powered by a contactless reader, and we're making a lot of progress in our technical development around Dual Interface capability.

We signed an agreement with WizCard, which is a Tier 2 smart card maker. What Alain is going to be talking quite a bit about in the smart card space is that, that market is still emerging, and so it's very important to create partnerships, network, operator, network -- payment network types of contracts as well as a lead pipeline inside this space. So Alain will be spending quite a bit of time talking about our smart card activities.

We also received and delivered against a purchase order of -- for Tactilis of 30,000 units, that's recorded inside the Q1 revenue. In terms of what we announced after the first quarter, we did provide a card specification for a top 5 U.S. payment network. We announced that a couple of weeks ago. And so Alain will be spending a bit of time talking about what that means inside the context of smart card.

We also are really excited about the partnership we announced with Newland on biometric POS. Newland is a #2 POS maker in the world, behind Ingenico. And they are really getting aggressive about playing inside the entire POS space. And biometric POS inside of the POS space is an exciting emerging market that we're seeing driven by India, but we're starting to see that develop around the rest of the world as well. And then we also talked about a design-in and first shipments to KSI, which is a keyboard maker. They've actually integrated our sensor into their keyboard. And Alain will talk about that in terms of Access Control.

On the financial side, it was actually a very good quarter relative to a year ago, Q1 2018. We had a 18% increase in our revenue, NOK 27.5 million, compared with NOK 23.3 million a year ago. We saw seasonality in our notebook shipments, Q4 to Q1. This is caused by Chinese New Year and this is something that happens every year. But we are very excited to see the 18% increase, which is also showing a diversification in our revenue, showing the progress towards that goal that we have.

We also have achieved the bulk of our cost reduction program. The quarter was very busy getting through some of these cost reductions we'd already announced. We expect to see the full impact of that cost reduction in our expenses in the Q3 time frame. And then we also raised NOK 179 million in net proceeds in our private placement.

So Knut will talk a lot more about our financials, and then I'll be back to talk about our strategy.

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Knut Stålen, NEXT Biometrics Group ASA - CFO [2]

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Thank you, Ritu. Financials. As Ritu said, Q1 2019 over Q1 2018 was a 18% increase in the numbers and the revenues from the Tier 1 -- U.S. Tier 1 is increased in Q1 2019 compared to last year, so it's a substantial impact compared to that quarter. We have also then been able to add new customers and new revenues from other sources in this quarter.

The quarter is slightly down compared to Q4 2018. When you look at gross margin, a year ago, we had 19% gross margin and now we are on 34%. We have been 30% or about for the last 3 quarters. The EBITDA adjusted have been on the same level for the last 3 quarters. There are some one-offs and some special items, and I'm coming back to that a little bit later. But the EBITDA adjusted is EBITDA ex options.

Please note that we have also implemented a new IFRS standard, meaning, that some of the rent expenses are now capitalized and then put in the -- as depreciation. That's a normal accounting process according to IFRS standard.

If you look at the expenses, and I said we are approximately the same level the last 3 quarters. We have -- all the projects in the R&D space are on track for the expected volume market to take off, especially in the smart card space. We have announced in January the cost reduction program, and we target a 20% decrease with full impact in Q3 2019, and that program is going as planned.

And in the quarter, we had one-off severance pay and other cost of NOK 4.8 million in Q1, so it's actually a substantial decrease in expenses compared to last quarter, if you account for the severance pay. We are also optimizing the organization with increased focus on sales.

If you look at the EBITDA ex options, I show that the EBITDA ex option is approximately down the same level, but we have 2 special items: one in Q4 '18, where we benefit from NOK 5 million positive contribution from Skattefunn. That means that the actual EBITDA ex options would have been NOK 5 million lower if we didn't have the Skattefunn in Q4.

And on the other side, we have Q1 '19 where we had to book the severance pay of NOK 4.8 million. So that would mean that if we haven't had the severance pay, we would have been on the lower EBITDA ex options.

If you look at the cash flow and adjust for these 2 special items, our cash flow from operating activities have been, on average, about NOK 30 million in both quarter if you adjust for the Skattefunn effect and also the severance pay.

Last slide. As you see on the balance sheet, the only special thing on the balance sheet if you dig into it is that we have implemented IFRS 16 regulations. But if you look at the cash flow development, we have cash flow at the beginning of the period, the NOK 36 million from operations, we have the financing of NOK 179 million and cash at end period is NOK 189 million. Thank you.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [3]

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Thanks. Okay. I'm going to spend a little bit of time talking about our strategy and our differentiation as a company, and then I'll turn it over to Alain. So we've spoken about this before, biometric sensors have been in the market for some time, probably since around the 2013, 2014 when Apple integrated the fingerprint sensor into the Apple iPhone.

What was happening at that time is these were small sensors, it was cost that was driving it, it was convenience that was driving it and about 1 billion sensors worldwide have been shipped in this fingerprint sensing area. What we're seeing is there's a new wave of applications that are emerging that require a higher security level than what was required for notebooks and smartphones.

In this particular market, our technology is ideally suited. I'll talk a little bit about that, but our ability to create a large flexible fingerprint sensor that is highly secure at a cost-efficient point is a significant advantage for our technology. There's 2 markets that require and mandate by specification a minimum sensor size that is quite large.

So if you look at the smart card space, the ISO standard mandates 169 square millimeter sensor. To be clear, if you look at the iPhone today, that's about a 25 square millimeter sensor. So about 5 to 8x smaller is what's sitting in a cellphone versus what's mandated for a smart card by ISO.

If you look at some of the government identification markets, that mandates something that's even bigger. So what you'll see on the left-hand side of the chart, NEXT's smallest sensor is 144 square millimeters. We then go up to something that's close to 300 square millimeters, which is in development, which is the FAP20.

And so the unique capability that we have is again the ability to create a large-sized sensor that's very, very cost effective. And so if you look at these markets that are emerging, our technology is very well-suited in these spaces.

So what we've done is said, okay, we've been playing until now with a U.S. Tier 1 player in the notebook space. And as time goes on, that market is not going to value the security advantage of a large-sized sensor. There are certain segments of the notebook space, which do value that, so the commercial, rugged, high-security portion of the notebook market will continue to value size, and we will continue to play in that space in notebook. But our goal was to diversify our revenue into markets that will value this large-sized security that our sensors can offer.

So that was Access Control, smart card and government ID. In the Access Control space, what we're finding is that's a very fragmented market. Alain will talk a little bit more about that, but what we've decided is we have to focus in particular areas that we can win with the large-sized security advantage, and we'll do that using our existing portfolio through distribution channels.

The markets where we truly have a benefit that we can win in are the government ID and the smart card space. The goal in the government ID market is to continue to build on the Aadhaar certification that we got in India and win market share. Here, the goal is to start to ramp revenue, gain market share and then begin to build on that with a new product that we're making for the India market as well as leverage the FAP20 sensor that we're in design on into these larger-sized kinds of government ID markets.

Smart card remains the #1 priority for the company, the large flexible sensor is very well-suited in this space, and I'll talk a little bit more about that in a minute. But this is where the bulk of our development effort is going, is in the smart card space.

So this chart is a little bit busy, and we've actually used a version of this in some of our Capital Markets Day. But what I want to talk about here is the idea that physics actually matters. This is going to be one of these charts where I'm going to get into a little bit of technical detail and then try to simplify it as much as possible.

So, again, talking about why NEXT is differentiated, what unique value we bring. Our sensor can capture more fingerprint data in one touch than any of the other fingerprint sensors that are playing in at least the smart card space today.

What we see is that we can do a one-touch enrollment, and you can do a one-touch verification. And so this is a very convenient way to use a fingerprint sensor. If you look at a much smaller sensor, which is what is mostly out there, you have to touch it 8 to 10 times to enroll and then verification is less secure, and I'll get into that in just a second. But number one is that you can get more features off of a large sensor just if you think about the size and how much area you're able to capture in one enrollment, that is one reason why it's much more convenient to use a large sensor.

This middle chart is the one that we've been trying to explain for a while, and we're going to continue to try to make sure that this gets as clear as we can make it. We've done a study through the Madrid University that shows the benefit of size on both convenience and security. And the way to read that particular chart is if you -- it's a chart that sort of backwards from what people would think. Security is getting better as you go towards the left of the chart. Convenience is getting better as you go down the top of the chart.

And what you'll see, what we have -- as we've been talking to a lot of the payment specifications, as we're talking to banks, as we're talking into the smart card ecosystem, what we're hearing is in addition to a size specification there's also a minimum security and convenience ratio that you have to meet. And that happens to be 3% at 1 in 10,000, which means 1 times out of 10,000 when you touch your sensor, you'll get an acceptance. But at that particular security level, you have to be under 3% reject. And the way to think about that is if you're taking your credit card and you're going to go pay for something at your store, if you touch that sensor and it doesn't work, 3 out of 100 times, you're going to get very frustrated. You're going to be trying to buy your groceries and you're touching your sensor and it's not working. It's very annoying.

And so what this chart is attempting to show from a science perspective is that our sensor, relative to all of the competition that's out there, is much, much better on the convenience side. So we are 20 times better than the best competitor on this chart, and we're 100 times better than the worst competitor on this chart.

So if you look at it, we have a 0.1% relative to the worst competitor on this chart, which is at 13%. And again, the way to think about that percentage is the number of times your sensor fails under ideal conditions. If you have fingers that are cracked or you have some other issue, then you're going to have an even worse what's called a false reject rate.

The other piece that we have an advantage in is that our sensor is, essentially, if you want to think about it, like a piece of plastic. So when you put it into a credit card, you can bend it like you can bend a credit card. If you think about some of the competitors, they are in silicon. And just to be clear, silicon is glass, so if you think about a piece of glass, that kind of breaks when you bend, versus plastic, which does not break.

So we were trying to really simplify some of the advantages that we have in the smart card space. And now that we've shown that our sensor can operate in a contactless field, you have to meet a minimum set of power requirements, and we have already shown that, over the past year, that our sensor can work in the field of a contactless reader.

And once you have that, then all of these advantages start to play out in the smart card space. So again, we're really excited about our unique technology. It's just been a little bit difficult to explain, and so we're going to continue to explain why it's so much better to have a large-sized sensor.

So with that, I'll let Alain talk all about each of the different markets and what we're doing.

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [4]

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Thank you, Ritu. So good morning. I met you back in January. It was in that building on the 24th. And I think that other time, I gave you some update on what we have, what we have in the radar. And so I'm going to explain you a little bit with our achievement in Q1, what have we done and what are the perspective in the coming quarters.

And we'll start with smart card, this is a good transition with what Ritu said. And so we had an extremely busy Q1 on the smart card. There is some traction in this market. This is a very complex market. The ecosystem of this market is quite complex. There are a lot of players from semiconductor to guys who are doing the personalization of the car. So this is something that is quite complex. And there, the payment network as well and the payment network are the one who are driving the specification of the card. And one very good achievement we had in Q1, I think that I announced this to you back in January, we will sign an agreement with one of the top payment network, which we did in Q1.

So what is the deal? The deal is that we are going to -- we are providing consulting services to that payment network. And with our knowledge of the biometry, we help them to build the specification of what is going to be the next generation of biometric smart card. So this is extremely important for them because they work with somebody who has some experience.

We are not a newcomer. We have delivered billion of sensors in several industry, and they have full confidence that what we bring them is just not a piece of technology, it's just -- this is not -- just not the hope that we are going to do a lot of volume and business with them. This is the conviction that what we bring them is based on user experience.

And why is it so important? One of the key items that Ritu mentioned is convenience. I've been in the smart card industry for many years, and one of the fact that I could see is that this is a conservative market when you are working with banks. It takes time to achieve a milestone to go to another milestone.

It took a lot of time to move from the mag stripe banking card to a chip card. It took a lot of time to move from a contact chip card to a Dual Interface card. And it is going to take a lot of time to move from a contact or contactless smart card to a biometric smart card. And banks want security, banks wants convenience for their customer, their user.

What are the most important things that when you are going to do shopping at Christmas time, you want that your authentication is going to perform immediately. The merchant doesn't want that there is a queue behind you because you are going to activate the fallback mode. You are going to look in your smartphone or on a paper what is your old pin code, the famous 4 digits that you will need to enter to replace your authentication because your authentication with the finger is not working and this is not acceptable. So the networks with whom we are working it's extremely important for him to make sure that we have a technology that is going to prevent any risk on unconvenience when they deploy the technologies. It's why they've been working with us.

So we delivered Phase 1 of specification in Q1. And pipeline, we are going to work with them in Q2 and Q3 to deliver a more detailed specification to build their smart card.

One of the very good achievement, and this is the extension of our partnership. As you know, this is a market where we need to be everywhere on the planet so we need to have partners in Asia, we need to have partners in Americas, in Europe and we extended our partnership with a company in Taiwan to cover that country. You remember that we have our historical customer, which is Tactilis, so we deliver to Tactilis 30,000 sensor in Q1. Still up to today, Tactilis is a customer that has delivered on the field, a big number of sensor.

Just to remind you, if you go to the press and you see the announcement, there are a lot of company announcing pilot or partnership in the smart card. There is no real deployment and massive production today of biometric smart card, there are pilots.

So the banks are testing the technology. The payment networks are testing the technology. But there is no real development and pilot in mass production of biometric smart card. And that particular customer, Tactilis, is one of those who have developed -- deployed in the field most of the sensor to date.

So what we see in the pipeline, we are working with 2 other car manufacturer. I like to keep my promise, so the first one on the payment network was one of my promise in January. You will see in the coming 2, 3 weeks an announcement with another car maker that we are signing. So it's going to also extend our footprint in an area in which we are not present today in term of addressing the final customer for smart card. So this is good because we extend this market reach.

We are going to work again with this payment network to deliver the Phase 2. And of course, we are going to make some demonstration for Dual Interface technology that is ready in term of proof of concept, in terms of demonstration. This is something that we can show to any of the customer, so this is something we are going to do in Q2.

Our priority is to continue to align with the main stakeholder of the ecosystem. I mentioned the payment network. I mentioned the semiconductor industry. So Infineon is one of our partner in the secure element part. This is a semiconductor, and we're going and we continue to work with Infineon. This is extremely important that we have this partnership and we are going to develop some of the what we call the reference design. So some of their ready-to-use solution that can address other market then only the payment market. It's very important that we diversify and we are targeting the payment, but not only the payment. There are some of those areas into the smart card environment when our technology can be a bigger set for the customers.

And last, obviously, we are preparing to have some new wins into the market with our new Dual Interface technology.

When I move to government ID, one of our main focus, you remember, is India. So India is, I think I will say this each time because this is the reality, India is very complex market to work in.

You remember that, last year, we had this Supreme Court judgment that hold on a little bit of activity in India. This year, we have the election, which are exactly right now, this week. But the process for having election in -- I don't know the way it is in Norway, but in India, it takes more than a month. And during 3 months, there is a code of conduct that say that there is no tender, there is no business from government administration. So the business was a bit on hold during Q2. But in Q1, we have a good result and good achievement.

I told you in January that we had the 4 partnership customers in the -- pretty well advanced in the pipe and we signed 3 out of the 4. Those 3 out of the 4 are giving us a good part of the volume that I expected to reach with these 4 partners, so we are in very good shape. Q2 was a bit low because of election and everything is a bit slow in India. But we are starting to see some new tenders and business is ramping up from beginning of June.

So I have really good hopes on what we do in India. We started our shipments in February. One of the customer we have was interested to have a new product, which was not totally in the portfolio that we have, but we saw this as a real interest. Expecting this technology to be available also for other customers.

So I remind you that, in India, we sell readers and we sell modules. So the modules is a sensor that we give to our customer, and the customer is going to work the integration of the module into, for instance, point-of-sales or a tablet or another reader. They see what they do with our product, and so we have this particular product, this is with the Customer B, that you have on the screen here, Digitsecure, which is a good partner.

We also signed design-in with a POS -- Chinese-based POS, Basewin. POS point-of-sale -- I remember you that POS means that any citizen in India can make some authentication for remote location in a small village using either a POS, which is powered by electricity, or mobile POS that is going to be powered by battery in remote location where there is no electricity. And they use that kind of device to put their finger in and to authenticate, to give -- to have access to social benefit, pension, doing transaction as well, money transaction as well. This is what they are using the device for. So POS you will also hear that, in India, POS is big. This is big market because this is a device that we use to perform the authentication.

What we see in the pipeline is we're going to open a new distributor. We have an historical distributor, which is AqTronics, that you know, we mentioned already this one. And we are going to sign a new one in the coming 2 weeks. And this new distributor is going to give us access to a wider market in India. They are also distributing some product today, but they are going to increase their portfolio with our own technology.

I have good hopes on this one. The customer deal that I mentioned in January, as you can see, it is not yet signed, to be very transparent. But we are working on this and I have good hopes that this one is going to be signed in the coming months. I guess this is something to be closed before the end of the summer and with all of this, we are going to accelerate our revenue in H2. And if there is no other Supreme Court verdict or election or any macro economy or political issue, I have really good hope that we are going to increase this time very big time our revenue in H2 and next year in India.

So we continue with our priority. We increase our market share in India and there is a new program that we call the Aadhaar L1, which is the continuity of the existing product with a little bit more complexity into the sensor.

We are, of course, part of the companies that are working on this. We have started our development. We are on the -- in line with the schedule, and we are going to demonstrate our technology to our main customer in this current summer, so the plan is on track.

When I said at the beginning of my pitch that I would give you an update of what we do compared to what we promised. What I want to pass you as a message is NEXT Biometrics is a company that deliver. We deliver our product to our customer, and we deliver the promises. You can see here that what we have delivered in Q1 is what I told you we would deliver in Q1. And what we deliver in smart card is what I told you we would deliver in smart card when I met you in Q1. And this is extremely important that we keep our promises.

The government ID, I would say, non-India, the government ID, non-India, is what is authentication program in some countries that are going to use exactly the same devices to make the authentication. This is point-of-sales, this is mobile point-of-sales, this is ATM and this is tablet.

And to be good in this business, we need to partner with the biggest point-of-sale vendor in the world. We are very proud that we managed to sign with Newland Payment Technology, which is #2 worldwide POS vendor. And we had intensive discussion with the team of Newland, and including the CTO and this is a quote from the CTO. They have been using our technology, they made design for a product which are addressing the Indian market, but also for product which are our legacy product. And also with our new FAP20 that we mentioned a couple of time, that is targeting the vertical government ID. So they made the design-in with this 3 families of product. And with this, they are going to address the market outside of India, outside of China. There are biometric program in Brazil, in Africa and in Middle East, and they are going to use our technology to do this, of NEXT Biometrics. So we are very proud of this partnership with the top leader and #2 worldwide POS vendor.

We -- still, there are some other POS vendor. The market of POS in 2017. It should take the top 6. It's 43 million POS during the year. Obviously, the number of biometric is not at that level. It's very small compared to this, but we have to work with the 6 -- top 6 POS vendor to have a reach in India, but outside of India, all around the world. And we are in good shape to close some other contract with the POS vendors, and you will see this in Q2.

And this is with our FAP20 sensor, as I said. Our priority is to grow our product portfolio with this particular partner in the POS to penetrate some other market in Asia Pacific as well. But also in Latin America and in Africa, again government ID business is in India, but this is in -- the Brazil, the Russia, the South East Asia, that kind of country that need to have some financial inclusion program and that need to have a device and an authenticated -- authentication-based device to make some social benefit transfer.

On the Access Control, this is for us an emerging volume market. We have not been very big into this market. We are trying to catch up and we had some good achievement in Q1. We extend our footprint in some territories where we were not so far. We have signed agreement in Russia with Unicom.

We are expanding our territory coverage with a traditional distributor, which is Arrow, that gives us access to Israel and to Turkey, areas in which we were not present in the past year. And we have closed 2 others, with Israel and with Turkey, in the past months. So there is a first good achievement extending this presence, and we are very proud of this agreement that we signed with KSI.

KSI is a keyboard manufacturer, a very big one, there are 2 or 3 keyboard manufacturer in the world, but KSI is a very big one. And they are testing not only our legacy technology, but also our new FAP20 product. So they did the design-in, we made some announcement. They did the design-in with our legacy technology but also with the FAP20 product. And this is very important because this KSI company is taking us also in some environment for which we have some difficulty to access because this is a domain we don't know in detail. For instance, KSI is extremely present into the medical industry. For us, this is very difficult to go to medical industry everywhere in the world. But with this partnership with KSI, this is giving us an access to this industry.

In the radar, we're going to work on 2 additional agreement to extend still our geographical coverage. We're going to make a focus in China, this is our plan in Q2. And we should see all revenue growing from the Access Control segment starting from H2. Our priority this market penetration with the new product portfolio, this is especially the FAP20, and increasing our geographical presence not only in the Eastern Europe, but also in some other continent, like South America.

Last, this is the -- our traditional, legacy, historical notebook market. We are in this market targeting the commercial and rugged environments that require security kind of product. We ramp up our volume with Fujitsu, we are making much more volume than what we did last year. So this is extremely positive.

We introduced to our customer in the notebook area our FAP20 product, which is extremely well-received. So we have started doing design-in with large -- when we are talking about notebook, we are talking about all the large vendors. We all have laptop on this table. All of them are included into the one to which we are working to make some design-in.

So our priorities is to, number one, to maintain the strong customer focus. We deliver good product with good quality, so we want to maintain this relationship. We increased our footprint with some others through the new product road map, which is the FAP20. And then we are going to make some additional partnership with notebook vendor with whom we were not totally in partnership so far because the technology we had was not totally suitable for them. The new FAP20 is one that is matching much more what they require, so we are going to make some new design-in with them.

The outlook is that the number of our U.S. Tier 1 platform using our sensor is declining or is going to decline in the coming quarters. At the same time, the Fujitsu volume is increasing in H1, but we are going to see this in H2 as well. So we had -- we are almost at the beginning of June, we have very good visibility on H1, and this is positive. On H2, we have less visibility of the volume we are going to get from this market.

So this is what I wanted to share with you. And I think, Ritu, you are going to continue. Thank you.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [5]

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Thank you, Alain. So let me try to sort of wrap it up and bring it together.

We've been on a journey at NEXT Biometrics. We've been working to go from sort of a technology development company into a product company. We're looking to mass-produce our entire portfolio. Our goal is now to pivot to revenue generation in the markets that we know that we can succeed in, and also develop products for the smart card market, especially the Dual Interface technology.

We have a heavy focus on growth and profitability now, as Alain was mentioning. We're looking to grow in the India market immediately, looking to grow in the rest of the world with our FAP20 sensor, growing in the biometric POS space. We have several Access Control markets that we're looking to grow in, while we continue to invest in partnerships in the smart card space.

We've been continuing to improve our gross margin. We have our costs under control with the cost reduction program that we've implemented. And we're being very targeted in our R&D spend, particularly in the smart card space.

Again, just to reemphasize on the market side, stay strong in the high, rugged, commercial high-security portion of the notebook market; expand share in our government ID space, this market is very well-suited for our large sensor technology; grow in Access Control where we are able to target with our products; and then on the payment card portion of the market, be ready when that market takes off.

So in terms of what we're looking at for the remainder of 2019, again, just to be very clear, increased design wins, increased revenue across the products that we know that we can win in now; ramp the India sales, very, very motivated team there, a lot of energy going there for our company; continue to expand the smart card ecosystem partnership and network. We've shown a few times how complex this particular

(technical difficulty)

market is. There are still some things that have to happen to trigger that market to take off. So continue to work inside that space, demonstrate and sample our Dual Interface sensor solution, continue volume production of our FAP20 sensor, continue to grow the shipments to Fujitsu as we've spoken about in the past and then decline our OpEx in the second half of 2019. So with that, I will wrap up the prepared comments, and we can take it to questions.

Yes, Christopher?

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Questions and Answers

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Unidentified Analyst, [1]

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Christopher from DNB Markets. We could start with the notebook segment. You previously said that you expect it to be flat in volume year-over-year in 2019. Is this still it or is it kind of now you're seeing upside risk and that's why you're not commenting on the second half? Or is that downside risk to the volumes for 2019 relative to '18?

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [2]

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Do you want to take it or do you want me to take it?

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Knut Stålen, NEXT Biometrics Group ASA - CFO [3]

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So if you look at the revenues from the notebook, we have pretty good visibility for the first half and we have less visibility for the second half. We see that the revenues from Tier 1 is continuing and in good shape this half, and we have less visibility next half. We have between 3 to 4, 5 months in forecast from these guys. And so far, it looks okay. But we have less visibility for the second half.

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Unidentified Analyst, [4]

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Yes, but will -- if they kind of ramp down their volume, will you still get the ramp you need from Fujitsu to kind of make this stable year-over-year? Or -- because you're not saying in the report that you expect it to be stable year-over-year, does that mean that you don't expect it anymore? Or...

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Knut Stålen, NEXT Biometrics Group ASA - CFO [5]

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So what we know is that Fujitsu is a much smaller customer than Dell. And if you have a complete conversion to Fujitsu, then you would have less revenue. But we expect the Tier 1 to continue with the

(technical difficulty)

More specific than that, I don't think we can actually be.

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [6]

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Just if I may complete this. Absolutely true, the only thing that is important also to understand is we are spending our H1 this year to introduce the FAP20 new product, which means that the notebook market is interested in this product. So we are not, at the moment, we are not able to tell you whether it's going to compensate or not. What we are going -- what we are able to tell you is that we do everything we can and with some success to penetrate some other notebook makers so the market should not be limited to the U.S. Tier 1 and Fujitsu. There are some other, okay? And keep this in mind, this is the introduction of the new FAP20 that is going to help us to keep a strong presence in this notebook market.

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Unidentified Analyst, [7]

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That was my question. We move on to the Indian market. You note the 140,000 units, could you just remind us what time period that volume is for and what ASP range you expect for that volume as well as the gross margin?

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [8]

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So I'm not going to comment on the gross margin and I'm not going to comment on the ASP, but I'm pretty sure that you guys are going to be able to make the mathematics. What is sure is that, in January, I talked about the 140,000, which was what we had in the pipe in the discussion with the 4 customers. I mentioned 3 of them that we have signed, which is good achievement, by the way, because we had -- we are not at the end of first half and we have signed 3 out of 4. We are in good

(technical difficulty)

the level we indicated in January.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [9]

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So that -- just to be clear, that 140,000 was for

(technical difficulty)

2019.

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Unidentified Analyst, [10]

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Okay. Great. So, Newland, that was great to see working with Newland, but could you just give some thoughts on what kind of penetration you're expecting there? And I guess it's early, maybe, but should it be a single-digit percentage or double digit? Or...

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [11]

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So it is linked to the Indian market, so it's a bit complex to make some forecast of what's going down there. But the -- it's linked to the Indian market, but not only. And then one of the difficulty of this market is this is a tender market, this is not -- when we are talking about POS for banking transaction, this is a recurrent market. The POS market is steadying in 2017, 43 million of POS to the merchants. They know this business, this is a recurrent one.

When it come to biometric POS, the biometric POS volume is less than 3% to 4% of the total POS industry, just to give you a number. So this is very small. But at the scale of the 40 million, this is quite a big number of POS. And with Newland, why it is extremely important that have good partnership with them is that we are the only to work with them. And we are addressing a few customer that we have in India with their POS and their mobile POS, and we are the only one. And this is very important, to be the only one with the #2 worldwide.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [12]

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And I would say again, just a little more on the biometric POS piece. It's a market that's emerging, as Alain is saying. And for us, again, with the large-sized, we have a very thin form factor of our module. And then the power, interestingly, is lower than the competitor's. So our solution is actually very well-suited for biometric point-of-sale, so when we talk about the Newland kind of partnership, I think we're well positioned in the biometric POS space partly because of the India traction that we're getting and partly because our product is very well-suited in that space.

The problem is that I know you guys are looking for numbers, but it really is a -- it's a market that's emerging. All of these markets that need the large-sized are markets that are mostly kind of emerging, so it's difficult to provide volume estimates. But I will say that biometric POS, the reason we've been calling it out the last few cycles is that they're really interesting market for us to play in.

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Unidentified Analyst, [13]

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What I'm trying to understand is how you're -- what's the status now on your kind of road map towards breakeven, if that will happen late this year or the next year, et cetera. On the payment networks that you announced that you are working with, can you just talk a bit more on kind of how long the different phases will take and then when you expect to be kind of ready for issuers around the world to order cards based on this specification?

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [14]

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So the Phase 1 means that there is a Phase 2, minimum. So Phase 1 was delivered in Q1, so this is done, this behind us. Phase 2, we are going to welcome Phase 2 starting this summer, and it's going to be an effort of 4 to 6 months on the Phase 2. And after Phase 2, the payment network will decide to stop production or not. What we can imagine is that with the Phase 2, there might be a FAP family pilot, which means this is in fact the employee of the back of the network that have a card. Generally, this is 100 to 200 people that have a biometric smart card. And they perform real transaction, this is not fake, this is real transaction. So they test the technology.

So in the road map, the perspective is that one. We are going to work them between the summer and the end of the year with probably a pilot with this and then they will decide around purchase as well. That means that is there a time issue or they have a bank that is affiliated to their network that can do the issuance.

Good try, good try.

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Unidentified Analyst, [15]

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Okay. Good. Last one for me is on the investment level. You're currently not investing anything, which is I would expect that you continue investing again quite soon or is that something that you're not planning to do?

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [16]

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What do you mean?

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Unidentified Analyst, [17]

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Your investment level during the quarter was quite low.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [18]

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That's the goal. The goal is to continue to reduce our...

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Unidentified Analyst, [19]

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There is nothing you see that you need to buy or anything in the future -- near future?

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [20]

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I mean, you can speak to that. But I don't think -- we're not planning to see an increase in that investment level. The goal is to keep it in that sort of range and even reduce to some extent. I mean, that's the goal.

Are there any other questions?

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Unidentified Analyst, [21]

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We have previously heard about the U.S. government market, how are you progressing in the U.S.?

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [22]

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So the way that we're going to address the U.S. market is the FAP20. So we will be -- we're planning to have that ready to go by the -- kind of the end of this year. The key thing is we have to get PIV certification, which is sort of the FBI certification. As soon as we get that, then we'll be able to penetrate some of these U.S. markets. So when Alain is talking about some of these notebook makers that we're speaking with, they're U.S. notebook makers that are looking at it specifically for the FBI certification on the FAP20.

So I would say towards the end of this year, we would be announcing news around that.

Another one?

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Unidentified Analyst, [23]

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Sorry, last one. No, I just noticed in your press release regarding the payment network that you specified that it was a top 5 U.S. card -- or payment network. Is there a reason why you're not saying global? Is that because it's not part of the top 5 globally? Or was that just a typo?

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [24]

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It is a top 5 U.S., but this is also a top 5 worldwide.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [25]

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No, there are no questions from the web, so we're done. Okay. Then we will wrap it up. Thank you very much.

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Alain Faburel, NEXT Biometrics Group ASA - Chief Sales & Marketing Officer [26]

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Thank you.

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Ritu Chanchal Favre, NEXT Biometrics Group ASA - CEO [27]

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Appreciate it.