Edited Transcript of FING B.ST earnings conference call or presentation 13-Feb-20 8:00am GMT

What is sweep is that this outbreak is having an shock above the tech supply chain. And China is a large divide of the global tech supply bind of today. Many factories at China are no running at complete capacity, though many of them desire and eat done important capacity improvements at -- and will carry out at the next few weeks and eat done already at the last few days. Also, there eat been challenges and last to exist challenged at condition of traffic of goods.

Our analysts desire a lower GDP and consumptions because smartphone sales at China will exist impacted at the short term. There will, of course, either exist a bounce-back of some friendly though the status improves. complete at all, we are expecting a dampening result above our operations, though the extent of the shock is however unclear and we're working above it. besides we eat good cooperation over the complete bind at the moment.

Next slide, please. Looking at fair launches and commerce development, 12 new smartphones with our technique were launched. 2 of these were equipped with our new ultra-thin side-mounted sensor, the FPC1540, which we launched at Q4. This sensor factory too sturdy at the most trend smartphone models. because example, at devices that are borderless or foldable. We are seeing that the capacitive technique is being embraced to an increasing extent at new areas of applications. Examples at Q4 contain Chromebooks, bright suitcase and a gate lock expansion.

During the quarter, we either launched our Touchless 2.0 platform. By combining iris and facial recognition, we can offer a high security flat without compromising user friendliness. Touchless 2.0 offers a more win and more cost-effective glorious to advanced facial recognition, no only because smartphones besides because a amount of applications at various industries.

As you know, we eat been talking approximately biometric payment cards because a expectation time, both though a company and though an industry. besides I study trend developments represent that biometric is now at last underway to making its entrance into the card payments area.

First, we saw the world's first commercial launch of biometric payment cards at Q4, albeit at too limited volumes. This launch was conducted by Cornèrcard at Switzerland at November 2019 with our partner, Thales, though the supplier of the card, which includes Fingerprints' T-Shape sensor module and software platform because payments. This was a large minute because us though a company and because the industry though a whole.

And at the beginning of 2020, Thales announced that the company's card, at which Fingerprints' technique is integrated, has been certified by Mastercard. This is an significant step that enables card issuers throughout the soil to offer their customers now at last biometric payment cards.

Next slide, please. The Mastercard certification is certainly definite news. besides I study that we will however lack to wait because a nevertheless because any large-scale commercial rollouts. And with mass or large-scale commercial rollouts, I intend hundreds of millions of biometric payment cards. I study we'll shout on that some of the fair trials we're involved at will transition now direct into commercial offerings during this year. And they will begin targeting apt premium segments at the first wave. There will either last to exist follow-on trials during this year. And we will shout on extra though trials now coming up at 2020.

While we don't desire mystery volumes this year, we are prepared and refining our offering and working together with our partners to pattern the complete system flow level better. We hire direct with complete sumit 3 card producers at the world, who together cope with approximately 3/4 of the market. We either vocation with, because example, win constituent and inlay partners. And this allows us to attain smaller card producers lacking at complete in-house capabilities.

Next slide, please. if we emerge at this from the consumers' perspective, it's sweep that there is appetite because biometric payment cards. We recently did a learn at China, France and the U.K., which confirmed this. And we really shout on a significantly high advantage either at China, which was fairly interesting.

Next slide, please. consequently what has the feedback been consequently distant because these trials? at general, it has been too good. The statements above this glide are based above feedback from fair trials at few countries. What we can shout on is that nation find these cards to exist convenient, win and reliable. Fingerprint authentication because contactless transactions is clearly and greatly appreciated though it manner that the payment can at last exist listed, owing to the higher security level.

Most nation talk that they used to upgrade their modern favorite cards to a biometric one if offered and while offered. at fact, one learn concluded that half of the participants will really exist voluntary to salary a higher monthly salary because a biometric card. These trials eat either generated insights into the preferences because enrollment. And it clearly seems that family enrollment is preferred.

Also, a limited amount of POS terminals eat old software releases, which we eat learned. And this to exist easily fixed by the schemes. Discovering issues such though this during limited fair trials is, of course, valuable, trying out various solutions under genuine conditions, collecting feedback from consumers and fine-tuning parts of the system ahead of the coming broader rollout.

Next slide, please. We last to pattern proceed against our strategic priorities at Q4. while it comes to strengthening our attitude at mobile area, we expanded our produce portfolio, though I eat already mentioned, the slim-fit FPC1540 side-mounted capacity sensor either though the Touchless 2.0 platform. We're either continuing our vocation to arrest attitude at a growing fair because under-display sensors. We are now running a few R&D tracks at this district with various time horizons.

So far, we eat no secured any create wins. besides our ambition of capturing a important portion of this fair remains. besides it has clearly taken more time than we initially estimated to enter this market. And we will continue, and it is significant because us, to insure the flat of security and trait that Fingerprint is known because once we enter. We will, of course, update you while we eat something more tangible to communicate approximately this.

If we emerge at the new fair external of the mobile area, we participated at the world's first commercial launch above biometric confidence cards by Cornèrcard at Switzerland either though at the U.K.'s first fair trial because biometric cards by Natwest with the card provided by our partner, Thales. We either strengthened our portfolio at this district by launching FPC BM-Lite, our biometric software platform because payments. This platform is, because example, used at the commercial launch at Switzerland I impartial mentioned either though at the U.K.'s first biometric confidence card pilot.

Next slide, please. consequently allow me quickly summarize ago handing at to our CFO, Per Sundqvist. Our sales operation was good with an 8% sequential increase. We are doing and last to carry out sturdy at the capacitive sensors because smartphones, and we eat again strengthened our attitude at this market. We are no fortunate with our margins, and we will last to concentrate above improving and launching successful new products and working above the produce mix, which will exist significant at this context.

In the quarter, we expanded our produce portfolio with the FPC1540 sensor. Responding to passenger demand, this slight sensor enables a mountain of the latest smartphone designs, including borderless and foldable phones. Also, we launched our Touchless 2.0 platform combining iris and encounter regulation.

As I eat pointed out, our aim of capturing a important portion of the under-display fair remainder level if we eat no entered yet. at the quarter, we participated at the world's first limited commercial launch of biometric payment cards at Switzerland. And our technique was also, though I said, used at the U.K.'s first biometric confidence card trial.

With that, I thank you, and I'd alike to hand at to our CFO, Per Sundqvist. amuse influence at ahead.

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Per Sundqvist, Fingerprint Cards AB (publ) - CFO [4]

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Thank you, Christian, and good morning, everyone. Our revenue came at at SEK 381 million, a diminish of 10% compared to the too epoch last year. The chief reasons after the diminish are weaker sales external of mobile and the declining medium selling price. though a mitigating factor, however, the strengthening of the dollar against the SEK has had a definite shock above our revenue. And that manner that if we expressed at continual money terms, the revenue declined 16%. A aspect letter above that is, because us, the medium SEK to USD appraise was 9.63 versus 9.04 last year.

On a definite note, our revenue grew by 8% compared to the foregoing quarter, which historically has been a seasonally stronger belt because us than Q4. Our complete edge improved by 2 percent points compared to Q4 last year and was at queue with the first 3 lodging of this year. Our operating advantage came at at a negative SEK 15 million versus a negative SEK 25 million at the too belt last year. Operating advantage was impacted by a SEK 2 million definite money translation effect. However, the ratio of fixed price to revenue either increased though a originate of the refuse at the quarter.

These factors combined are the 2 chief factors after the diminish of the operating margin. And that can exist highlighted at the red queue at this chart. Our net allowance was a negative SEK 19 million versus a negative SEK 17 million at Q4 2018. We had a important negative shock above net allowance from the result of unrealized changes at exchange rates above money accounts amounting to SEK 17.2 million. This is entirely owing to the weakening of the U.S. dollar versus the SEK during the fourth quarter.

Next slide, please. This glide highlights the development of revenue and complete edge above a 12-month rolling basis. The diminish at revenue at this epoch is owing to the ASP refuse and the relatively lower portion of revenue from applications external of the mobile industry at the last connect of quarters. However, if we emerge at the complete edge at time, it has been fairly stable at trend lodging at 23%. though Christian already pointed out, we are, of course, no fortunate with this flat and are continuing to strengthen our efforts to improve profitability, both by increasing efficiency over the board and either by diversifying our commerce into new segments.

Next slide, please. Excluding other operating allowance and expenses, our operating expenses because the third belt were SEK 105.4 million versus SEK 116.9 million at Q4 last year. development costs of SEK 16.3 million were capitalized during the fourth quarter, which conform to 31% of complete development costs versus the 19% at Q4 2018 and 51% last quarter. The OpEx enlarge compared to last belt is mainly due to: a, money effects either though to the fact that; b, we capitalized a smaller portion of the R&D expenses at this quarter.

Next slide, please. Our center working capital, that is, at this context, accounts receivable plus inventory less accounts payable, was SEK 215 million at the differ of the quarter, which compared SEK 324 million at the too belt last year and SEK 257 million at last belt is a lean improvement. We last to vocation too actively to control our working capital. And working major though a percent of revenue is significantly lower than last year.

Next slide, please. Our cash flow from operating activities was definite SEK 82 million, which to exist compared to a negative SEK 26 million at Q4 last year. Our cash attitude remainder sound at SEK 564 million versus SEK 540 million at the too belt last year and SEK 537 million at the differ of Q3 2019. Our investing activities, mainly capitalized development expenditures, was negative SEK 19 million versus negative SEK 31 million last year.

And by that, I thank everyone because listening, and we are now ready to accept questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first mystery comes from the queue of Francois Bouvignies.

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [2]

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The first mystery I had is above the virus. impartial to clarify, you eat been too sweep above your statement. I was impartial wondering if the shock -- carry out you shout on any shock now? Or is it something that, because now, you don't shout on anything and we will shout on going forward?

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Christian Fredrikson, Fingerprint Cards AB (publ) - CEO & headmaster [3]

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I study that we see, I study typically -- maybe, Francois, I can reply alike this, that typically you eat the Chinese New Year. And that always makes the belt weaker though you learn well. besides clearly, with the shutdown that has happened and the sound actions that the Chinese government has taken to stop the disperse of the virus, it has had an shock at -- and it will eat an shock at Q1 at condition of dampening the plead and though factories eat no been at complete capacity.

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [4]

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And also, I intend if we emerge at last year, you had a too good belt last year. consequently I was impartial wondering if at Q1, it's no going to eat more impact, I mean, at condition of year-over-year trend.

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Christian Fredrikson, Fingerprint Cards AB (publ) - CEO & headmaster [5]

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I don't desire to unity any guidance though we don't unity that now. besides it will eat a dampening impact. Of course, this has been a too Chinese miracle at the beginning, right? consequently complete the other parts of the world, it has no has had an impact. besides of course, the logistics of China is a large divide of the high-tech industry overall, right? consequently then it friendly of spreads from there. And that's why it's dampening the industry. besides the plead has been -- the chief shock has been China obviously if you emerge at the plead divide of it. And the supply bind has friendly of a secondary shock a slice later, if you may, right? though you eat filled the channel ago with phones, right? consequently maybe that comes at friendly of 2 phases at that perspective, the dampening impact.

But also, I used to talk -- I used to either say, by the way, that complete the learnings, if I emerge at the -- it's too -- it's no simple to compare to various outbreaks, right? besides we had the SARS. besides at the time, China wasn't though dominant at high-tech industry at that time. besides clearly, we desire either and everybody expects a bounce-back once this friendly of is over. besides while it is over, and I assume nobody of us knows really how that -- and I'm no a medical proficient either. We're following this too closely. We eat too shut discussions with complete the supply bind partners either though complete the customers daily really above exactly how their factories are now coming up.

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [6]

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And what can you do, I mean, above yourself to bounds the shock at condition of supply chain?

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Christian Fredrikson, Fingerprint Cards AB (publ) - CEO & headmaster [7]

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I study what we are doing is, including me personally, it's a daily face now. consequently we are at daily face complete the time. And we eat a too good progposal from that, I used to say, at condition of what the customers can shout on at condition of plead at China and how that is progressing. besides either then the complete supply chain, how nation are returning to factories, how the factories are getting up to accelerate again after this. They are coming up now. besides there are various parts while it comes to either substrates or LGA or produce of wafers.

So there are too various places where we eat factories. consequently what we can carry out is, of course, know clearly how it goes and shout on over that we can assist at using the factories that we eat at China and external of China though our partners to maximize our capabilities to backward our customers at this ramp-up still. And everybody knows that there will exist a bounce-back also. consequently that's why nation are looking at how to build either the capabilities to reply to that once it happens, right?

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [8]

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Okay. One language above optical, I intend you said that this case is taking a slice more time. besides to we however desire some create wins this year, you think?

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Christian Fredrikson, Fingerprint Cards AB (publ) - CEO & headmaster [9]

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I intend our purpose is absolutely to eat create wins this year. Yes, because sure, absolutely. And -- besides yes, it has taken us longer than we wanted. There is no getting away from that one, because sure.

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [10]

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Okay. And above R&D, I intend you said that the OpEx has been up. I intend this belt was specially sound versus last quarter. impartial wondering exactly, I intend you mentioned currency. besides I intend money versus last quarter, it's no that different. consequently impartial quarter-on-quarter, it's a large bump. consequently impartial maybe it's a seasonal high quarter. besides impartial trying understand, I intend to we accept this OpEx though a flow rate? Or how to we study approximately '20 impartial to acquire an idea?

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Christian Fredrikson, Fingerprint Cards AB (publ) - CEO & headmaster [11]

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Well, I study you to shout on Q4, at this case, a slice more of a status where we eat had a few slice less activity above what we eat been capitalized because the rest sheet. We eat the too flow appraise above OpEx normally at R&D though we've had at complete the other lodging this year. However, this specific quarter, what we attitude above rest fragment and the plan activities were slightly lower. Hence, the genuine cash flowing over the P&L pretty than into the rest fragment was a slice higher than they eat been at the connect of last quarters.

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Francois-Xavier Bouvignies, UBS Investment Bank, investigation part - technique Analyst [12]

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