Fingerprint Cards AB (publ) publishes year-end report for January – December 2023
Highlights, fourth quarter
Ten percent constant currency revenue increase
Transformation plan execution commenced
Diversification - sales to the PC sector increased by two-thirds
Cost optimization program initiated; OPEX includes SEK 37.5 M attributable to restructuring measures
Fourth quarter of 2023
Revenues amounted to SEK 200.3 M (190.3)
The gross margin was 9.5 percent (8.8)
EBITDA amounted to negative SEK 83.8 M (neg: 74.3)
Adjusted EBITDA amounted to negative SEK 46.3 M (neg: 74.3)
The operating result was negative SEK 105.2 M (neg: 527.3)
Earnings per share before and after dilution amounted to a negative SEK 0.22 (neg: 1.48)
Cash flow from operating activities was negative SEK 60.4 M (neg: 103.9)
January-December 2023
Revenues amounted to SEK 705.4 M (861.8)
The gross margin was 12.7 percent (19.3)
EBITDA amounted to negative SEK 242,2 M (neg: 116.0)
Adjusted EBITDA amounted to negative SEK 204.7 M (neg: 116.0)
The operating result was negative SEK 320.4 (neg: 631.0)
Earnings per share before and after dilution amounted to a negative SEK 0.74 (neg: 1.92)
Cash flow from operating activities was negative SEK 88.3 M (neg: 334.1)
The Board proposes to the Annual General Meeting that no dividend be paid for the 2023 fiscal year
CEO’s comments
Execution of our Transformation Plan
As announced in our previous interim report, we commenced execution of our Transformation Plan during Q4, including cost optimization, profitability, organizational changes and strategy evolution. Accordingly we began to see initial signs of transformational impact. We saw a modest gross margin improvement compared to the corresponding quarter last year, and fully expect improved profitability going forward as we focus our capital and investments outside of Mobile sensor hardware, in our higher-margin existing lines of business along with new diversification areas. As highlighted in our last report, gross margin in the Mobile product group is unsustainably low. The negative outlook for Mobile looks set to endure, along with ongoing geopolitical risks, further reinforcing the need for this transformation plan.
The cost optimization program is progressing according to plan, and we incurred SEK 37.5 M in costs related to restructuring measures implemented in the fourth quarter. As previously announced, our cost optimization program is expected to yield 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. We continued to decrease our inventory in the fourth quarter, from SEK 156 million at the end of September 2023 to SEK 134 million at the end of December 2023. This means that we are entering 2024 with an acceptable inventory given current industry demand. However, there is still excessive stock at a sector level, and we continued to see aggressive destocking measures by several suppliers during the quarter.
We also made some important organizational changes during the quarter, transitioning to a functional organizational model and appointing world-class talent. This focus enables the timely execution of our pivot from a mobile biometrics component provider to a broader biometrics platform player.
Revenue growth and continued diversification
I’m pleased that revenue grew by 5 percent in the fourth quarter compared to the corresponding period last year and by 8 percent sequentially (both of which were an increase of 10 percent on a constant currency basis). This increase was driven by higher sales in our Mobile and PC product groups as well as in our Access business outside of Asia. Our Payment business, however, has yet to show a meaningful revenue ramp-up. This is despite us maintaining a market leading position with very high performance in terms of transaction speed, power efficiency and security, as proven in several commercial launches. Our primary focus in 2024 in the Payment area will be on targeted go-to-market activities, as the market requires more time to achieve widespread adoption of biometric payment cards.
At the same time, we are already seeing our diversification bets start to bear fruit. PC is showing a reliable growth and profitability profile, delivering considerably higher gross margin than Mobile. Biometric solutions for PCs have quickly emerged as an important new product area for Fingerprints, and we anticipate continued market growth since the share of computers with fingerprint sensors is expected to continue rising and our premium offering is valued. We also made significant progress in further enhancing our highly competitive offering to PC OEMs by launching our newly developed, complete biometric system for PC makers in October 2023. The development project has been endorsed from the start by our key PC customers, as total system ownership by Fingerprints will allow for better overall system performance. Customer feedback has been very favourable, especially in terms of the enhanced speed that our biometric system offers. This results in much quicker unlocking, providing a seamless, secure means of accessing PCs. Selectively expanding the scope of our solutions to capture a bigger portion of the value in the industry is a key part of our Platform Strategy, and I believe that our biometric PC system illustrates this approach - we are no longer just selling biometric sensors to our PC customers, but a complete system solution which also integrates Fingerprints’ in-house microcontroller unit (MCU).
In terms of other elements of our platform portfolio, Access, whilst project driven, has shown a consistent growth trend, with more opportunities to unlock, particularly in logical access – a huge new market in which we have great value to offer as an incremental near-term opportunity. I’d also like to highlight our assets in touchless solutions including our iris recognition software. We see an increased interest in our iris authentication solution, both in relation to Driver Monitoring Systems (DMS) where IR-cameras will be added in most cars, as well as iris authentication in relation to AR/VR devices, triggered by the launch of the Apple Vision Pro device where authentication is made by an iris solution called Optic ID. Regarding DMS, we announced an agreement with a tier 1 automotive supplier in July 2023, with the objective of further developing Fingerprints’ iris recognition technology so that it can be seamlessly integrated into DMS to handle authentication. The development phase of the project is now complete, and the solution will be promoted to automotive OEMs as an add-on feature. We will be making other bets this year beyond these current markets. As you look holistically at this portfolio, we see strong potential for the short, medium and long-term, particularly as we complement them with additional technologies to expand the platform.
Adam Philpott, President and CEO
Today at 09:00 CET, 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/c3j3y979
For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BI2499f066045c41f88c2425a2c417bbbd
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