Fingerprint Cards AB: Interim Report January – March 2023

Highlights, first quarter

• As expected and previously communicated, the quarter’s results were impacted by intense price competition and lower volumes compared with the preceding year.
• Although the combination of insufficient demand and continued destocking in the industry are expected to continue to negatively affect Fingerprints’ sales and margins, at least during the second quarter, the company anticipates a gradual improvement in the sales volume and gross margin from the second quarter of 2023.
• The value or the confirmed orders that the company has so far received for delivery in the second quarter exceeds the revenue in the first quarter.
• Fingerprints received its second volume order for the company’s optical under-display solution, FPC1632, from another mobile-phone manufacturer.
• To date, Fingerprints has delivered more than a million T-Shape sensor modules for biometric payment cards.
  
  
  

First quarter of 2023

• Revenues amounted to SEK 117.0 M (300.2)
• The gross margin was 17.3 percent (20.4)
• EBITDA amounted to negative SEK 60.2 M (neg: 10.1)
• The operating result was a negative SEK 75.7 M (neg: 31.7)
• Earnings per share before and after dilution amounted to a negative SEK 0.17 (neg: 0.09)
• Cash flow from operating activities was a negative SEK 42.3 M (neg: 90.3)

CEO’s comments

As expected and previously communicated, the first quarter was characterized by intense price competition and lower volumes compared with the preceding year. Demand for smartphones and computers remained subdued during the first quarter, which also tends to be the quarter of the year that is seasonally weakest for Fingerprints and other component suppliers. At the same time, our inventory levels and those of our competitors remain too high, which led to continued strong price pressure during the quarter. Due to rising interest rates and uncertainty surrounding economic development, our customers – the distributors and the module houses in the electronics industry – have reduced their inventory to levels significantly below normal. This had a negative impact on our order intake, which was very weak at the beginning of the quarter. However, we noted a steady improvement in order intake during the first quarter and also at the beginning of the second quarter. As a matter of fact, the value of the confirmed orders that we have so far received for delivery in the second quarter exceeds our first quarter revenue.

The Group’s sales declined by 61 percent compared with the corresponding period in the preceding year (65-percent decrease in constant currency terms), while the gross margin declined to 17 percent. The gross margin was negatively impacted by intensified price competition and lower sales, which also meant that depreciation/amortization according to plan as a share of sales – and included in the gross margin – increased to 10 percent in the first quarter of 2023 from the more normal level of 5 percent in the first quarter of 2022.

Although we anticipate a gradual improvement in both volume and gross margin from the second quarter of 2023, we expect that the combination of insufficient demand and continued destocking will continue to have a negative impact on the industry and thus also Fingerprints’ sales and margins, at least during the second quarter. Since the end of 2022, our inventory has decreased by 10 percent to SEK 274 million at the end of the first quarter. We believe that we will be able to continue reducing inventory at a more rapid pace during the second quarter.

If we look at development within Mobile, the Chinese mobile phone market has begun to show signs of recovery following the withdrawal of the country’s “zero COVID” restrictions in December 2022. Despite a global decrease in the sale of smartphones, Fingerprints has actually increased its addressable market in Mobile. This is a consequence of our entry into the under-display segment, which accounts for about a third of the volume of the market for fingerprint sensors for smartphones. Capacitive sensors, for which Fingerprints has long been a well-established world leader, account for the remaining two thirds. After Fingerprints received the first volume order for its optical under-display solution, FPC1632, at the end of 2022, we received a second volume order from another mobile-phone manufacturer. Fingerprints’ goal is to capture a significant share of the under-display market while remaining a world leader in capacitive fingerprint sensors.

Our operations outside of capacitive sensors for mobile phones – which, apart from under-display sensors, include PC, Access, and Payment – accounted for just over 35 percent of sales in the first quarter, and our assessment is that this share will have increased to around 45 percent at the end of 2023. Fingerprints has a clear diversification strategy and is well positioned to take a significant share of new, emerging global markets for biometric solutions. The product areas that are prioritized outside of Mobile are PC, Payment and Access, and our R&D portfolio is strictly focused on projects that are deemed to be able to generate significant profitable growth in these areas. In order for our external reporting to better reflect this strategy, we are expanding the provision of information by reporting sales by product group (see page 17), starting in this interim report. The development in the new product groups is positive with good growth in PC and Payment, while sales within Access decreased in relation to the corresponding period in 2022. We see a positive demand trend in all these new areas. At the same time, the periodization of revenues is generally more uneven than in Mobile, which means that the development from one quarter to another can be volatile.

The global PC market remained weak in the first quarter, with a decline in deliveries of as much as 30 percent compared with the corresponding period in 2022. The volumes in the industry are now comparable with the levels of 2019, before the Covid-19 pandemic led to an upswing in computer sales due to a strong increase in working remotely. Despite weak global PC sales, our sales have tripled in the PC area compared with the first quarter of 2022. A growing share of new computer models are equipped with fingerprint sensors, which means that we foresee continued positive growth potential. Fingerprints has a highly competitive product portfolio and is well-positioned to increase its market share. As announced earlier, we have initiated a project to develop our own microcontroller unit (MCU) to strengthen our market position. This will make it possible for us to offer our PC customers a complete biometric system consisting of a fingerprint sensor and an MCU. The project is proceeding to plan, and we will commence our first customer project during the second quarter. Fingerprints’ MCU development project is supported by our largest PC customers, since we will be able to deliver better overall system performance while optimizing costs and strengthening our control of the supply chain.

During the quarter, we reported several collaborations in Access/IoT, a growing market that includes such products as access cards, door- and car locks, remote and gaming console controls, smart household appliances and authentication keys. Together with PC and under-display sensors for mobile phones, the Access area is the one we deem will grow the fastest over the short term. It is therefore a priority area as regards R&D investments over the coming year. One example is the collaboration we have established with Flywallet, a start-up within wearables, for the purpose of developing and launching wearable technology with biometrics for the European market. Flywallet’s products enable, for example, secure payments, ticketing and loyalty services, password-free login to online services and building and car access control.

At the beginning of April, we announced that, to date, Fingerprints has delivered more than a million T-Shape sensor modules for biometric payment cards. Our technology plays a key role in making card payments more secure and the fact that we have now passed the milestone of a million delivered T-Shape modules for payment cards reflects the strength in our collaboration with customers and partners throughout the value chain. It also clearly illustrates our position as the leading supplier of biometric solutions for payment cards. The volumes are still low in relation to our other product groups, but we increased sales within Payment by approximately 160 percent compared with the corresponding period in 2022.

Ted Hansson, Acting President and CEO

Today at 09:00 CEST, Fingerprints’ acting CEO Ted Hansson 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/7d7za9s2

For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BI4a729c58893141628348ad2d8ac78119

Attachment

• Interim report Q1 2023