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Fingerprint Cards AB: Year-End Report January – December 2022

Fingerprint Cards AB
Fingerprint Cards AB

Highlights, fourth quarter

  • Operating profit is impacted by three non-cash items: a SEK 22 M inventory write-down, a SEK 116 M write-down of capitalized R&D projects and a SEK 317 M goodwill write-down related to the acquisition of Delta ID that was finalized in 2017. For more information, refer to pages 7-8.

  • Fingerprints received its first volume purchase order for its optical under-display fingerprint recognition solution, FPC1632.

  • Infineon and Fingerprints signed a joint development and commercialization agreement pertaining to a plug-and-play solution for biometric payment cards: SECORA™ Pay Bio.

  • Fingerprints completed a set-off issue and a rights issue that contributed SEK 341 M after issue expenses.

Fourth quarter of 2022

  • Revenues amounted to SEK 190.3 M (356.6)

  • The gross margin was 8.8 percent1 (31.7)

  • EBITDA totaled negative SEK 74.3 M (pos: 26.7)

  • The operating profit was a negative SEK 527.3 M2 (pos: 3.9)

  • Earnings per share before and after dilution amounted to a negative SEK 1.48 (pos: 0.02)

  • Cash flow from operating activities was a negative SEK 103.9 M (neg: 16.8)


January-December 2022

  • Revenues amounted to SEK 861.8 M (1,355.8)

  • The gross margin was 19.3 percent1 (29.3)

  • EBITDA totaled negative SEK 116.0 M (pos: 85.6)

  • The operating profit was a negative SEK 631.0 M2 (neg: 7.6)

  • Earnings per share before and after dilution amounted to a negative SEK 1.92 (0.00)

  • Cash flow from operating activities was a negative SEK 334.1 M (pos: 24.3)

1. Includes inventory write-down of SEK 22.5 M in the fourth quarter (SEK 15.9 M for full-year 2022).
2. Includes write-down of capitalized R&D projects of SEK 116 M and a write-down of goodwill of SEK 317 M.

CEO’s comments

As expected and previously announced, Fingerprints’ sales and gross margin were adversely impacted also in the fourth quarter by the sharp downturn in demand for smartphones in China. The Group’s sales fell 47 percent year on year (down 57 percent in constant currency terms), due primarily to a sharp decline in mobile phone sales in China as a result of the restrictions owing to COVID-19 that were in effect in the country for much of 2022. However, our sales rose 33 percent relative to the third quarter of 2022 (42 percent increase in constant currency terms), driven by higher sales volumes. Adjusted for the non-recurring effect from the inventory write-down this quarter, we also noted an improvement of the gross margin from 12 percent in the previous quarter to 20 percent in the fourth quarter. The weakening of the gross margin in relation to the preceding year is due to increased price competition and lower volumes, a situation that we expect will continue to adversely impact Fingerprints’ sales and margins, at least during the first half of 2023. We are continuing to implement cost-saving measures on an ongoing basis in order to streamline our operations and to ensure that we return to profitability. In the fourth quarter, Fingerprints completed a set-off issue and a rights issue, which contributed SEK 341 M to the company after transaction expenses. This boosts our equity/assets ratio and our liquidity, and allows us to continue financing customer projects and several key product development initiatives, both within and outside the mobile phone segment. To strengthen our market-leading position, we will continue to focus on developing innovative products, broadening the supplier base and ensuring a competitive cost structure. Our R&D portfolio is strictly focused on projects that we deem will be able to generate significant profitable growth.

Let me begin by commenting on the performance in Fingerprints’ largest product segment, Mobile, and then return to the other three main areas in which Fingerprints’ biometric system solutions are used: PC, Access, and Payment. Mobile phone manufacturers and their suppliers had planned for significantly higher sales volumes in 2022. In the last few quarters, they therefore focused on reducing their surplus inventory of components and assembled devices, which had a significant negative impact on Fingerprints’ sales. The introduction of tighter restrictions in China at the end of the first quarter of 2022 meant that the industry went rapidly from a situation where, owing to the earlier component shortage, inventory had to be built up several months in advance to ensure delivery capability to a situation where a significant decrease in demand needed to be managed. The supply chain in the mobile industry is complex, with several stages and long lead times. Sensor suppliers such as Fingerprints are further back along this chain, which means that we were able to start reducing our own inventory only in the fourth quarter. Fingerprints’ competitors are in a similar situation with inventories that are too large, which has led to increased downward pressure on prices. In December 2022, China began removing its “zero COVID” restrictions that affected a large part of the population during the year. Consumers in China showed restraint during the period of restrictions, and we expect a recovery – albeit not fully initially – to the historical demand for mobile phones. This trend benefits Fingerprints since we generate a significant portion of our sales in China.

On December 30, 2022, we announced that we had received the first volume purchase order for FPC1632, our optical under-display sensor solution. This means that Fingerprints has now begun generating revenues in an entirely new market segment in Mobile, thereby opening attractive growth opportunities. Fingerprints has long been a well-established world leader in capacitive sensors, and we can now offer our customers a comprehensive product range of fingerprint sensors. Capacitive sensors currently account for approximately two-thirds of the volume in the market for fingerprint sensors in smartphones, while under-display sensors account for about one-third. In terms of value, these two markets are more comparable in size since the average selling price (ASP) for under-display sensors is higher. Our entry into the under-display segment thus entails a significant expansion of our addressable market. Fingerprints’ goal is to capture a considerable share of the under-display market while remaining a world leader in capacitive sensors.

Over the last two years, PC has emerged as an important new product area for Fingerprints. We anticipate favorable growth in the short and long term, since the share of computers with fingerprint sensors is expected to continue growing. Fingerprints dominates the market for fingerprint sensors in Chromebooks, while four of the world’s six largest PC manufacturers integrate our technology into their products. To meet the rising demand for biometric solutions in the PC segment, we are further refining our biometric solution that is specifically adapted to this application area by developing a microcontroller unit. This will enable Fingerprints to offer PC makers a complete biometric system, consisting of a fingerprint sensor and an MCU. Fingerprints’ MCU development project is endorsed 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. Fingerprints’ proprietary MCU will further refine our biometric Match-on-Chip PC solution, which was added to Microsoft’s approved vendor list (AVL) for Windows Hello Enhanced Sign-in Security in 2022. We expect the Match-on-Chip segment to increase its share of the market because of new requirements from Microsoft, expected to come into force during 2023 and entailing that Match-on-Chip will become a prerequisite for suppliers of biometric solutions for Windows Hello Enhanced Sign-in Security.

The primary market for our MCU development project is the PC segment, but there are also attractive applications in the Access field where we also continued to strengthen our product portfolio during the quarter through the launch of FPC1523, a new fingerprint sensor model that delivers an extremely high security level for Access applications. Biometric solutions for the Access/IoT area constitute a fragmented but growing market that includes such products as access cards, door locks, cars, remote and gaming console controls, smart household appliances and authentication keys. We are still only at the beginning of this trend, and there is significant potential for biometrics to create value in a range of different application areas, in the form of increased security and more user-friendly products. Fingerprints is the market leader also in this segment, and we are continuing to grow our customer base globally in order to defend our position when the market expands. An interesting area of growth in Access is access cards and security keys with fingerprint sensors. We are seeing significantly increasing interest among many companies and organizations, since the same key can be used to facilitate uniform, secure access to PCs and systems, as well as to physical spaces. Valmido, a French startup offering a multi-app device to authenticate mobile and web services, launched its first biometric access card using Fingerprints’ technology, ProFIDO Bio, in the fourth quarter. During the quarter we also announced a partnership between Fingerprints and SmartDisplayer, a Taiwanese card manufacturer, with the goal of launching a biometric FIDO2 card that integrates Fingerprints’ FPC1323 sensor as well as our FPC-BEP software platform. The card facilitates secure, user-friendly access to a multitude of devices and data.

Together with PC and under-display sensors for mobile phones, the Access area is the one we assess will grow the fastest over the short term. It is therefore a priority area as regards R&D investments over the coming year. Together with PC, Access currently accounts for the largest share of our revenue outside of our traditional operations in China in capacitive fingerprint sensors for mobile phones. Under-display sensors for mobile phones, and our operations in Payment, are also part of these new areas. Our operations outside of capacitive sensors for mobile phones accounted for just over 30 percent of sales in the fourth quarter, and we estimate that this share will increase to around 45 percent at the end of 2023.

Let me conclude with a few words on the Payment area, which represents a considerable potential market and is an important area of long-term growth for Fingerprints. In the fourth quarter, two additional commercial launches of biometric payment cards were announced, which means that Fingerprints’ technology is thus far being used in ten commercial launches in different parts of the world. We conduct continuous development work to further enhance our offering and are making significant progress within the framework of our strategic collaborations with central players in payment card manufacturing. In November 2022, Fingerprints and Infineon signed a joint development and commercialization agreement pertaining to a plug-and-play solution for biometric payment cards: SECORA™ Pay Bio. The goal of the cooperation is to make the production of biometric cards as simple and easy as producing a standard dual interface payment card. By combining and integrating Fingerprints’ FPC1323 sensor and Infineon’s SLC39B Secure Element into one system package, we will be able to offer leading biometric performance executed in a single chip. This will simplify the manufacturing process for biometric cards considerably, a crucial condition for facilitating launches on a truly large scale. At the same time, card issuers are now taking steps to promote the acceleration of this new global market for biometrics. One example is that several banks are now simplifying the enrolment process so that this can be done at home without needing to visit the branch of a bank. We are also now seeing examples of banks that have begun issuing biometric payment cards automatically to certain customer segments, and not only to the customers who actively order such cards.

Ted Hansson, Acting President and CEO


Today at 09:00 CET 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 is available at fingerprints.com

The presentation will be webcast, and participants can register via this link: https://edge.media-server.com/mmc/p/y6j23b45

For media and analysts: Registration for the teleconference is carried out via this link: https://register.vevent.com/register/BIac7ddd3a662c4b2bb93af1ac231fc1c2

For information, please contact:
Ted Hansson, acting CEO

Per Sundqvist, CFO

Stefan Pettersson, Head of Investor Relations:
+46(0)10-172 00 10
investrel@fingerprints.com

Press:
+46(0)10-172 00 20
press@fingerprints.com


This is the type of information that Fingerprint Cards AB is obligated to disclose pursuant to the EU’s Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out above, on January 26, 2023 at 07:00 a.m. CET.





About Fingerprints
Fingerprint Cards AB (Fingerprints) – the world’s leading biometrics company, with its roots in Sweden.
We believe in a secure and seamless universe, where you are the key to everything. Our solutions are found in hundreds of millions of devices and applications, and are used billions of times every day, providing safe and convenient identification and authentication with a human touch. For more information visit our website, read our blog, and follow us on Twitter. Fingerprints is listed on Nasdaq Stockholm (FING B).

 

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