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IDEX Biometrics ASA (OMTP) This autumn 2022 Earnings Name Transcript


IDEX Biometrics ASA  (OSX:OMTP) This autumn 2022 earnings name dated Feb. 22, 2023

Company Individuals:

Vincent Graziani — Chief Govt Officer


Vincent Graziani — Chief Govt Officer

Nice. Thanks. Good morning, good afternoon and good night, everybody. Thanks for attending the IDEX Biometrics This autumn Quarterly Presentation. I’m Vince Graziani, CEO of IDEX, and I actually respect everybody taking the time to affix us right here.

I’ll begin off by saying that 2022 was a giant 12 months for Biometrics, and IDEX particularly, however the entire biometrics {industry} generally. I’ll cowl that in rather more element within the presentation. As many individuals typically say, when does this market actually going to occur? And I believe, these of us which can be available in the market and on the within, we see optimistic indicators day-after-day. And I’ll deal with that right here within the presentation. And I believe, as Kristian Spetalen identified, one of many analyst from Arctic who tracks our firm and tracks the {industry}, in an analyst be aware over the weekend. If we concentrate, there are actually optimistic indicators for this biometric market taking place almost day-after-day. So, let’s see if we are able to cowl a few of that as we speak right here within the presentation.

Earlier than we begin, it’s necessary to notice the conventional disclaimers that this presentation might include some forward-looking statements and precise outcomes might fluctuate. So, let’s simply transfer on after the formalities there now, and discuss IDEX Biometrics and those who know the corporate already know a few of this, however IDEX has taken a full resolution technique. So, not like our rivals, we’re not doing only a biometric fingerprint sensor, however we’re actually increasing our providing and doing the full resolution.

In as we speak’s presentation, I’m going to speak to why we try this after which the outcomes that we’re getting from it because of this. However we do the industry-leading know-how for biometric sensors and matching algorithms for software program. So, clearly, arms down, we’ve got the most recent tech within the {industry}, very differentiated by way of value efficiency, which interprets into person expertise. Then we’ve got the complete card working system, and I’ll speak somewhat bit extra about that in a second why that’s actually necessary. After which, we do full options, together with card working system and applets for purchasers for numerous markets, which once more permits folks sooner time to market, and we’ll discuss how that interprets into design wins and in the end into income.

And why are we focusing on this market? We’ve talked about this up to now, however there are greater than 3 billion contactless sensible playing cards manufactured yearly. So, as a quantity market, that is simply an enormous alternative, greater than every other market alternative for a corporation like IDEX or nearly any firm within the semiconductor area.

So, IDEX Biometrics, as I talked about, we’ve got a full options strategy. And when you have a look at our street map, you look again, and people of you that had been at our Capital Markets Day again in September, you’ve seen this earlier than. However we first launched our know-how, the IDEX Biometrics’ TrustedBio sensor, state-of-the-art, has many benefits by way of efficiency and value. However when we’ve got solely the sensor, then at the moment in pre-2021, you possibly can solely work with refined card manufacturing companions like our accomplice, IDEMIA, who has the know-how and the know-how and the wherewithal to do their very own safe aspect and their very own card working system, and many others, to finish the answer. And that took years for us collectively to get that resolution out to market.

Now, with IDEX, we’ve moved ahead, and we’ve built-in with different safe aspect companions, most notably Infineon with the SLC38, their newest technology safe aspect. So we’ve executed all of the software program for that. We’ve now additionally executed a full IDEX Pay reference platform, which incorporates the working system. And why is that necessary? And I gave this analogy earlier than, if folks suppose again to when different new applied sciences had been launched again within the ’80s, Intel did essentially the most superior microprocessors on this planet and launched the idea of a desktop PC. The imaginative and prescient then was to have a PC on everyone’s desk in everyone’s workplace. Nevertheless it was not till the Home windows Working System got here alongside and actually made the PC helpful and made it simple for software program builders to develop new apps that that market actually took off.

And really equally, for IDEX, we view the biometric cost card as a small digital gadget, which truly has two high-speed processors on it now, very refined software program working. And with the cardboard working system, you possibly can have numerous applets then working on it that actually allow the know-how, and that’s actually what’s going to allow it to take off. So we are able to have the usual cost apps for Visa and Mastercard and the EMV huge networks. You may have cost apps for native cost schemes for debit networks. After which, you possibly can have safety apps, safety for digital authentication or bodily safety, entry management, and even the crypto pockets, HASHWallet. And once more, these are all numerous applets that run on the identical platform. And the explanation that is actually necessary is, these of you that perceive how this {industry} works, having this simplification accelerates design wins, and design wins then speed up income.

So let’s discuss a few of the highlights for This autumn this final 12 months in 2022. Concentrate on first on financial institution launches. Within the fourth quarter, we had a number of financial institution launches, together with First Abu Dhabi Financial institution and Sella Group. These had been along with a accomplice, IDEMIA. After which, completed monetary within the UK, difficult financial institution within the UK who’s introduced the launch with IDEX, the truth is accomplishes now — in a position to execute transactions on the EMV community on the Mastercard community, utilizing our full turnkey resolution, our full IDEX resolution, together with our card working system and the IDEX Pay.

And that’s not launched in manufacturing but, however a number of of our crew at IDEX, the truth is, have playing cards and have been out buying and working transactions by completed financial institution utilizing our full resolution that I simply talked about earlier. There are two different main banks in France which have confirmed they’re in preparation to do launches, and in addition two pan-Nordic banks additionally making ready to launch. So, we had nice traction on financial institution launches in This autumn.

On digital authentication, I’ll speak somewhat bit extra about this software later and why it’s necessary. However we had a number of companions there introduced, Enqura in Turkey, TrustSec in Poland, the Sentinel Pockets with our accomplice Sentry within the US, after which a latest one which was simply introduced with our accomplice Zwipe at Civix. And I believe there was simply an announcement as we speak about how they’re deploying that at an airport within the US.

We had a number of producer design wins, and we’ll speak extra concerning the whole design wins. However within the quarter, we had a serious design win at M-Tech, a serious card producer in India, Komsco in South Korea and Sentry Enterprises within the US. So, a complete of 12 card producers now available in the market with IDEX by the tip of 2022.

So, once more, only a reminder of what’s included once we discuss this full resolution from IDEX. We embody the sensor. We’ve the complete system resolution, together with IDEX matching algorithms, our anti-spoof software program, after which we offer a software program interface and API in order that when folks need to develop apps on this platform, it’s simple to handle new purposes. The complete reference card resolution makes it a lot less complicated for card producers to arrange and manufacture a card. It contains the IDEX sensor system, as I talked about, the SLC38 safe aspect from Infineon, which is their actually newest technology know-how, 40-nanometer safe aspect chip out within the {industry}, and the complete EMV module and inlay design and all of this will probably be precertified. So we are going to take lots of the certification burden off the cardboard producers as nicely.

And what’s the purpose behind this? And once more, while you have a look at the whole {industry}, what has modified in the previous few years? And one factor we need to have a look at right here is, when you simply return one 12 months to 2021, solely the Tier 1s had been actually out within the market with options for biometric sensible playing cards. Our accomplice, IDEMIA, Thales and G&D, all had options out within the market. And when you quick ahead now to 2022 with all of the design wins within the {industry}, many of those had been IDEX design wins. A few of them had been design wins with our rivals, some with our accomplice, Zwipe. However general, the full variety of design wins grew dramatically to 20-plus now producers within the {industry}.

And clearly, the Tier 1s have the dominant market share and dominant energy. However in lots of elements of the globe, these different producers run lots of quantity and are very dominant of their native areas. So that is actually necessary when folks take into consideration the entire biometric {industry} on this biometric card {industry}. Is it actually taking place? And I believe, while you actually have a look at the macro image, it turns into apparent that the market is going on and rising quickly.

Now let’s have a look at abstract financials for the quarter as nicely. So, if we check out the quarterly outcomes, and really even the year-end outcomes, so on the — one factor to notice with IDEX, we had income development of 44% year-over-year. This was, we really feel, a really robust consequence given lots of the macro headwinds, the availability constraints we bumped into in China and a few of the different headwinds that got here out, geopolitical, warfare breaking out in Europe. Nonetheless, we had been in a position to develop the enterprise, the highest line income 44%.

Our margins did get well within the quarter to above 30% as we promised final quarter. The margins actually elevated largely due to product combine. We’ll proceed to work on bettering these margins over time. After which, one of many different issues I talked about on the finish of final 12 months and the final quarterly presentation was, we’ve put in place some measures to cut back our bills, our working bills. Total, opex was down 12%. And if we have a look at our working expense, excluding value of supplies and depreciation, we knocked that down mainly $1 million. That largely got here out of payroll bills, primarily nearly all of it out of payroll bills. And we did lots of these value discount measures within the fourth quarter, so lots of these haven’t been absolutely realized but, you’ll see additional value reductions present up within the numbers for Q1 of 2023 as nicely.

So, general, financially, we really feel fairly pleased with the outcomes for the corporate. We proceed to work to enhance on the highest line, backside line and on the working prices as nicely. So, our working mannequin has not modified. We’re a fabless semiconductor firm. These of you which have been investing in different fabless semiconductors that Nordic Semi is an efficient instance that lots of our buyers will find out about. The rationale we emphasize that’s, within the fabless mannequin, corporations like Nordic or Broadcom or NVIDIA, you don’t have the big capex expense of getting your individual manufacturing unit and fabs. We do all the things outsourced. So, TSMC is our foundry accomplice. And our packaging and check is finished exterior at Amkor, the biggest outsourced packaging and check firm on this planet.

So we hold our opex very low. And nonetheless, we’re promoting on worth. So we’re in a position to drive larger margins. And that’s one of many advantages of this whole resolution sale that we’re doing with our full resolution, together with card working system, is then we’re promoting on worth. And we’re including extra worth to our prospects by way of the worth of the software program, the differentiation, and new purposes they’ll deal with and saving them the price and effort and time of doing the certifications utterly on their very own. So with this strategy, we’re nonetheless strongly focusing on 50%-plus gross margins long run, 30% working margin, and our opex and capex ought to nonetheless stay very low for a corporation like IDEX and given the market that we’re addressing.

So, let’s go into somewhat bit extra element now on the industrial replace. I actually need to focus lots on this presentation on market activation by way of design wins and what meaning for financial institution launches, and many others. So, if we go on to the subsequent slide, if we have a look at the way in which the world appeared for IDEX financial institution launches in 2021, you’ll look and see that there have been actually no banks launching in 2021 with playing cards based mostly on IDEX know-how. IDEMIA in 2021, our accomplice simply obtained their Visa and Mastercard certifications within the fourth quarter of 2021, and no new banks had been launched but at the moment with IDEX.

And when you look quick ahead now to 2022, we had 9 banks launching with IDEX Biometrics and along with our companions. So, a complete of 9 banks in Europe and the Center East in comparison with zero in 2021. So, once more, stable momentum, extra to come back, however simply these 9 banks signify greater than 16 million potential prospects. So, once we have a look at the market, we are saying 2022 was actually an inflection level. The market is basically beginning to occur. And the opposite key be aware is that in 2021 and 2022, there was just one main producer on the market with IDEX Biometrics sensors. So, that is going to be key once we discuss design wins to know that amplifying impact that comes from having extra producers in market and in numerous areas to assist launch these areas as nicely world wide.

So then shifting on to speak about design wins. We discuss card manufacturing design wins. In 2022, we had eight new world producers choose IDEX resolution for his or her biometric sensible card applications. And we already had IDEMIA within the market. So, along with the 4 that had been already on the market, we now have a complete of 12 card producers who’re both launched or are on the brink of launch biometric sensible playing cards based mostly on IDEX Biometric resolution. And to attempt to quantify this a bit, these producers collectively manufacture greater than 1 billion sensible playing cards yearly.

So, when you attempt to perceive learn how to relate this to IDEX Biometrics enterprise mannequin, if I have a look at simply this group of producers and say, collectively they manufacture 1 billion playing cards. If simply 1% of these playing cards turn out to be biometric sensible playing cards utilizing IDEX, that’s 10 million playing cards a 12 months for IDEX. And to place a enterprise level, what does that imply for the corporate? A ten million playing cards per 12 months, IDEX is a really worthwhile firm. So, simply offer you a way, the size that we are able to get from these design wins and the way necessary it’s to drive design wins, I do know that every one of those producers have aspirations a lot larger than 1% of their playing cards turning into biometric sensible playing cards. So in the event that they’re profitable, IDEX will probably be profitable in an enormous means.

After which, we see new purposes, different purposes rising. There’s a serious software that simply developed throughout the 12 months in 2022, and that’s on digital entry and cryptocurrency administration. And notably within the digital entry area, this can be a market that has been evolving over the past a number of years. And when you consider it, there’s lots at stake while you discuss cybersecurity and digital entry. And the position that the biometric sensible card can play right here within the digital entry area is a giant one. Most of us now are utilizing multifactor authentication.

And I do know, personally I hate it when our safety system decides that I’ve obtained to reauthenticate Vince earlier than I give him entry to his outlook e-mail. And that at all times occurs on a day when it’s actually necessary for me to get into my e-mail rapidly. I then must reenter my 30-digit cross code with particular characters after which look ahead to the second issue authentication when the safety firm behind the scenes sends me a code through textual content to my cellphone, after which lastly after 5 minutes of problem, I get again into outlook to start out my enterprise day.

The fantastic thing about purposes just like the biometric sensible card is, you should utilize that biometric sensible card along with different authentication, along with your smartphone, along with your purposes within the workplace, and it actually simplifies, it’s rather more handy, as a result of it’s 2-factor authentication, all by itself. The cardboard is one thing you will have, one issue. The fingerprint authentication is one thing you’re. So, two issue, very fast and simple authentication. And with a lot at stake, if there’s a single information breach, corporations can lose hundreds of thousands — if not billions. So, corporations are keen to pay some huge cash to have larger safety. And due to worker satisfaction, they need to have that larger comfort. So, we’re seeing this market actually beginning to take off, and we’ll see increasingly design wins and extra volumes popping out of this market going ahead.

The opposite factor I needed to speak about somewhat bit was our industrial crew and our go-to-market strategy. Practically two years in the past, it’s onerous to imagine, however it hasn’t even fairly been two years, we employed Catharina Eklof, an govt from the funds {industry} with lots of expertise in historical past, not solely in funds, working at Mastercard, however within the safety {industry} as nicely. And she or he constructed a extremely unbelievable industrial crew. And a part of the technique of this industrial crew is, we now have a look at very focused areas on this planet and say, this can be a area that has lots of cost card alternatives for us. They’ve lots of acceptance terminals, buy quantity, it’s a bank card or a cost card utilizing a part of the world, and we assault that area. And we did that fairly nicely in Turkey for example.

So, simply in Turkey alone, it’s a giant market. And if I am going ahead, we put in place an govt from IDEX that Cat was in a position to rent and entice, who was in a position to do a really targeted go-to-market program for Turkey. It began out as a market evaluation, understanding what hurdles and obstacles there is likely to be to addressing this huge market alternative, together with even regulatory points that we had been in a position to overcome and get regulatory approvals for biometric sensible playing cards.

Then, we went out and sought ecosystem companions. So, within the native cost networks, within the native card producers, we launched these folks to our full resolution strategy and obtained them able to deploy a full resolution. After which along with these companions, we instantly deal with banks and fintechs and educated them on biometric sensible playing cards and the advantages and the patron worth and the worth to them, frankly, how do they earn a living on it.

And now quick ahead by June of 2023, so mainly in a single 12 months, we’ve gone from zero to playing cards available in the market in Turkey, which is a really massive market alternative. So, IDEX just isn’t solely a stable know-how firm, however we’ve got a really, very stable industrial crew and go-to-market technique. And you will note us execute this comparable technique at different very promising areas globally, I believe, by the subsequent time I current, you’ll hear an fascinating story about India. So extra to come back on that.

When it comes to 2023 outlook, we actually do see a considerably broadened market alternative for us. As I mentioned earlier, we had eight new design wins. These will probably be coming to market throughout ’23, and 12 whole card producers now within the market with IDEX. We’re getting industrial acceleration with banks. The fintechs are shifting in a short time. A few of the bigger banks are additionally shifting. So we’ll see increasingly momentum within the banks and issuers, and extra launches constructing all year long.

After which, we are going to proceed to see constructing momentum on this new market and digital authentication and bodily and logical entry management in addition to the HASHWallet, the cryptocurrency chilly pockets options. So we’ll see increasingly of this momentum constructing by the 12 months. And these design wins, anyone that is aware of the semi {industry}, design wins are actually what result in income development sooner or later.

So that’s actually our quarterly end in a abstract. Once more, IDEX addressing a really massive multi-billion greenback market alternative. We do have the industry-leading know-how, which results in industry-leading buyer expertise. And actually that’s what it’s all about is comfort and ease of use for the purchasers. And we’re actually capturing the market on the inflection level. We expect we’re very nicely poised. Solely two rivals out available in the market at this time limit. There’s clearly constructing momentum within the market, and IDEX has the superior resolution to reap the benefits of that.

So, with that, I thanks very a lot for listening to our This autumn quarterly outcomes abstract and look ahead to talking to everyone within the close to future. Thanks.


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