Categories Earnings Call Transcripts, Technology

IDEX Biometrics ASA (OMTP) Q4 2022 Earnings Call Transcript

OMTP Earnings Call - Final Transcript

IDEX Biometrics ASA  (OSX:OMTP) Q4 2022 earnings call dated Feb. 22, 2023

Corporate Participants:

Vincent Graziani — Chief Executive Officer

Presentation:

Vincent Graziani — Chief Executive Officer

Great. Thank you. Good morning, good afternoon and good evening, everyone. Thank you for attending the IDEX Biometrics Q4 Quarterly Presentation. I’m Vince Graziani, CEO of IDEX, and I really appreciate everyone taking the time to join us here.

I’ll start off by saying that 2022 was a big year for Biometrics, and IDEX in particular, but the whole biometrics industry in general. I will cover that in much more detail in the presentation. As many people often say, when does this market really going to happen? And I think, those of us that are in the market and on the inside, we see positive signs every day. And I’ll focus on that here in the presentation. And I think, as Kristian Spetalen pointed out, one of the analyst from Arctic who tracks our company and tracks the industry, in an analyst note over the weekend. If we pay attention, there are really positive signs for this biometric market happening nearly every day. So, let’s see if we can cover some of that today here in the presentation.

Before we start, it’s important to note the normal disclaimers that this presentation may contain some forward-looking statements and actual results may vary. So, let’s just move on after the formalities there now, and talk about IDEX Biometrics and those that know the company already know some of this, but IDEX has taken a full solution strategy. So, unlike our competitors, we’re not doing just a biometric fingerprint sensor, but we’re really expanding our offering and doing the total solution.

In today’s presentation, I’m going to talk to why we do that and then the results that we’re getting from it as a result. But we do the industry-leading technology for biometric sensors and matching algorithms for software. So, clearly, hands down, we have the latest tech in the industry, very differentiated in terms of cost performance, which translates into user experience. Then we have the full card operating system, and I’ll talk a little bit more about that in a moment why that’s really important. And then, we do full solutions, including card operating system and applets for customers for various markets, which again enables people faster time to market, and we’ll talk about how that translates into design wins and ultimately into revenue.

And why are we targeting this market? We’ve talked about this in the past, but there are more than 3 billion contactless smart cards manufactured every year. So, as a volume market, this is just a huge opportunity, bigger than any other market opportunity for a company like IDEX or almost any company in the semiconductor space.

So, IDEX Biometrics, as I talked about, we have a full solutions approach. And if you look at our road map, you look back, and those of you that were at our Capital Markets Day back in September, you’ve seen this before. But we first introduced our technology, the IDEX Biometrics’ TrustedBio sensor, state-of-the-art, has many advantages in terms of performance and cost. But when we have only the sensor, then at that time in pre-2021, you can only work with sophisticated card manufacturing partners like our partner, IDEMIA, who has the technology and the know-how and the wherewithal to do their own secure element and their own card operating system, etc, to complete the solution. And that took years for us together to get that solution out to market.

Now, with IDEX, we’ve moved forward, and we’ve integrated with other secure element partners, most notably Infineon with the SLC38, their latest generation secure element. So we’ve done all the software for that. We’ve now also done a full IDEX Pay reference platform, which includes the operating system. And why is that important? And I gave this analogy before, if people think back to when other new technologies were introduced back in the ’80s, Intel did the most advanced microprocessors in the world and introduced the concept of a desktop PC. The vision then was to have a PC on everybody’s desk in everybody’s office. But it was not until the Windows Operating System came along and really made the PC useful and made it easy for software developers to develop new apps that that market really took off.

And very similarly, for IDEX, we view the biometric payment card as a small electronic device, which actually has two high-speed processors on it now, very sophisticated software running. And with the card operating system, you can have various applets then running on it that really enable the technology, and that’s really what’s going to enable it to take off. So we can have the standard payment apps for Visa and Mastercard and the EMV big networks. You can have payment apps for local payment schemes for debit networks. And then, you can have security apps, security for digital authentication or physical security, access control, or even the crypto wallet, HASHWallet. And again, these are all various applets that run on the same platform. And the reason this is really important is, those of you that understand how this industry works, having this simplification accelerates design wins, and design wins then accelerate revenue.

So let’s talk about some of the highlights for Q4 this last year in 2022. Focus on first on bank launches. In the fourth quarter, we had several bank launches, including First Abu Dhabi Bank and Sella Group. Those were together with a partner, IDEMIA. And then, accomplished financial in the UK, challenging bank in the UK who’s announced the launch with IDEX, in fact accomplishes now — able to execute transactions on the EMV network on the Mastercard network, using our full turnkey solution, our full IDEX solution, including our card operating system and the IDEX Pay.

And that’s not launched in production yet, but several of our team at IDEX, in fact, have cards and have been out shopping and running transactions through accomplished bank using our full solution that I just talked about earlier. There are two other major banks in France that have confirmed they are in preparation to do launches, and also two pan-Nordic banks also preparing to launch. So, we had great traction on bank launches in Q4.

On digital authentication, I’ll talk a little bit more about this application later and why it’s important. But we had several partners there announced, Enqura in Turkey, TrustSec in Poland, the Sentinel Wallet with our partner Sentry in the US, and then a recent one that was just announced with our partner Zwipe at Civix. And I think there was just an announcement today about how they’re deploying that at an airport in the US.

We had several manufacturer design wins, and we’ll talk more about the total design wins. But in the quarter, we had a major design win at M-Tech, a major card manufacturer in India, Komsco in South Korea and Sentry Enterprises in the US. So, a total of 12 card manufacturers now in the market with IDEX by the end of 2022.

So, again, just a reminder of what’s included when we talk about this full solution from IDEX. We include the sensor. We have the full system solution, including IDEX matching algorithms, our anti-spoof software, and then we provide a software interface and API so that when people want to develop apps on this platform, it’s easy to address new applications. The full reference card solution makes it much simpler for card manufacturers to set up and manufacture a card. It includes the IDEX sensor system, as I talked about, the SLC38 secure element from Infineon, which is their really latest generation technology, 40-nanometer secure element chip out in the industry, and the full EMV module and inlay design and all of this will be precertified. So we will take a lot of the certification burden off the card manufacturers as well.

And what is the goal behind this? And again, when you look at the entire industry, what has changed in the last few years? And one thing we want to look at here is, if you just go back one year to 2021, only the Tier 1s were really out in the marketplace with solutions for biometric smart cards. Our partner, IDEMIA, Thales and G&D, all had solutions out in the marketplace. And if you fast forward now to 2022 with all the design wins in the industry, many of these were IDEX design wins. Some of them were design wins with our competitors, some with our partner, Zwipe. But overall, the total number of design wins grew dramatically to 20-plus now manufacturers in the industry.

And clearly, the Tier 1s have the dominant market share and dominant strength. But in many parts of the globe, these other manufacturers run a lot of volume and are very dominant in their local regions. So this is really important when people think about the whole biometric industry in this biometric card industry. Is it really happening? And I think, when you really look at the macro picture, it becomes obvious that the market is happening and growing rapidly.

Now let’s look at summary financials for the quarter as well. So, if we take a look at the quarterly results, and actually even the year-end results, so at the — one thing to note with IDEX, we had revenue growth of 44% year-over-year. This was, we feel, a very strong result given a lot of the macro headwinds, the supply constraints we ran into in China and some of the other headwinds that came out, geopolitical, war breaking out in Europe. Still, we were able to grow the business, the top line revenue 44%.

Our margins did recover in the quarter to above 30% as we promised last quarter. The margins really increased largely because of product mix. We’ll continue to work on improving those margins over time. And then, one of the other things I talked about at the end of last year and the last quarterly presentation was, we’ve put in place some measures to reduce our expenses, our operating expenses. Overall, opex was down 12%. And if we look at our operating expense, excluding cost of materials and depreciation, we knocked that down basically $1 million. That largely came out of payroll expenses, primarily almost all of it out of payroll expenses. And we did a lot of those cost reduction measures in the fourth quarter, so many of those haven’t been fully realized yet, you’ll see further cost reductions show up in the numbers for Q1 of 2023 as well.

So, overall, financially, we feel pretty happy with the results for the company. We continue to work to improve on the top line, bottom line and on the operating costs as well. So, our operating model has not changed. We are a fabless semiconductor company. Those of you that have been investing in other fabless semiconductors that Nordic Semi is a good example that many of our investors will know about. The reason we emphasize that is, in the fabless model, companies like Nordic or Broadcom or NVIDIA, you don’t have the large capex expense of having your own factory and fabs. We do everything outsourced. So, TSMC is our foundry partner. And our packaging and test is done outside at Amkor, the largest outsourced packaging and test company in the world.

So we keep our opex very low. And still, we’re selling on value. So we’re able to drive higher margins. And that’s one of the benefits of this total solution sale that we’re doing with our complete solution, including card operating system, is then we are selling on value. And we’re adding more value to our customers in terms of the value of the software, the differentiation, and new applications they can address and saving them the cost and time and effort of doing the certifications completely on their own. So with this approach, we are still strongly targeting 50%-plus gross margins long term, 30% operating margin, and our opex and capex should still remain very low for a company like IDEX and given the market that we’re addressing.

So, let’s go into a little bit more detail now on the commercial update. I really want to focus a lot in this presentation on market activation in terms of design wins and what that means for bank launches, etc. So, if we go on to the next slide, if we look at the way the world looked for IDEX bank launches in 2021, you’ll look and see that there were really no banks launching in 2021 with cards based on IDEX technology. IDEMIA in 2021, our partner just got their Visa and Mastercard certifications in the fourth quarter of 2021, and no new banks were launched yet at that time with IDEX.

And if you look fast forward now to 2022, we had nine banks launching with IDEX Biometrics and together with our partners. So, a total of nine banks in Europe and the Middle East compared to zero in 2021. So, again, solid momentum, more to come, but just these nine banks represent more than 16 million potential customers. So, when we look at the market, we say 2022 was really an inflection point. The market is really starting to happen. And the other key note is that in 2021 and 2022, there was only one major manufacturer out there with IDEX Biometrics sensors. So, this is going to be key when we talk about design wins to understand that amplifying effect that comes from having more manufacturers in market and in various regions to help launch those regions as well around the world.

So then moving on to talk about design wins. We talk about card manufacturing design wins. In 2022, we had eight new global manufacturers select IDEX solution for their biometric smart card programs. And we already had IDEMIA in the marketplace. So, in addition to the four that were already out there, we now have a total of 12 card manufacturers who are either launched or are getting ready to launch biometric smart cards based on IDEX Biometric solution. And to try to quantify this a bit, these manufacturers together manufacture more than 1 billion smart cards every year.

So, if you try to understand how to relate this to IDEX Biometrics business model, if I look at just this group of manufacturers and say, together they manufacture 1 billion cards. If just 1% of those cards become biometric smart cards using IDEX, that’s 10 million cards a year for IDEX. And to put a business point, what does that mean for the company? A 10 million cards per year, IDEX is a very profitable company. So, just give you a sense, the scale that we can get from these design wins and how important it is to drive design wins, I know that all of these manufacturers have aspirations much higher than 1% of their cards becoming biometric smart cards. So if they’re successful, IDEX will be successful in a huge way.

And then, we see new applications, other applications emerging. There’s a major application that just developed during the year in 2022, and that is on digital access and cryptocurrency management. And particularly in the digital access space, this is a market that has been evolving over the last several years. And when you think about it, there’s a lot at stake when you talk about cybersecurity and digital access. And the role that the biometric smart card can play here in the digital access space is a big one. Most of us now are using multifactor authentication.

And I know, personally I hate it when our security system decides that I’ve got to reauthenticate Vince before I give him access to his outlook e-mail. And that always happens on a day when it’s really important for me to get into my e-mail quickly. I then have to reenter my 30-digit pass code with special characters and then wait for the second factor authentication when the security company behind the scenes sends me a code via text to my cell phone, and then finally after 5 minutes of hassle, I get back into outlook to start my business day.

The beauty of applications like the biometric smart card is, you can use that biometric smart card in conjunction with other authentication, with your smartphone, with your applications in the office, and it really simplifies, it’s much more convenient, because it’s 2-factor authentication, all by itself. The card is something you have, one factor. The fingerprint authentication is something you are. So, two factor, very quick and easy authentication. And with so much at stake, if there’s a single data breach, companies can lose millions — if not billions. So, companies are willing to pay a lot of money to have higher security. And because of employee satisfaction, they want to have that higher convenience. So, we’re seeing this market really starting to take off, and we’ll see more and more design wins and more volumes coming out of this market going forward.

The other thing I wanted to talk about a little bit was our commercial team and our go-to-market approach. Nearly two years ago, it’s hard to believe, but it hasn’t even quite been two years, we hired Catharina Eklof, an executive from the payments industry with a lot of experience in history, not only in payments, working at Mastercard, but in the security industry as well. And she built a really fantastic commercial team. And part of the strategy of this commercial team is, we now look at very targeted regions in the world and say, this is a region that has a lot of payment card opportunities for us. They have a lot of acceptance terminals, purchase volume, it’s a credit card or a payment card using part of the world, and we attack that region. And we did that quite well in Turkey as an example.

So, just in Turkey alone, it’s a big market. And if I go forward, we put in place an executive from IDEX that Cat was able to hire and attract, who was able to do a very focused go-to-market program for Turkey. It started out as a market assessment, understanding what hurdles and barriers there might be to addressing this large market opportunity, including even regulatory issues that we were able to overcome and get regulatory approvals for biometric smart cards.

Then, we went out and sought ecosystem partners. So, in the local payment networks, in the local card manufacturers, we introduced those people to our full solution approach and got them ready to deploy a full solution. And then together with these partners, we directly address banks and fintechs and educated them on biometric smart cards and the benefits and the consumer value and the value to them, frankly, how do they make money on it.

And now fast forward by June of 2023, so basically in one year, we’ve gone from zero to cards in the market in Turkey, which is a very large market opportunity. So, IDEX is not only a solid technology company, but we have a very, very solid commercial team and go-to-market strategy. And you will see us execute this similar strategy at other very promising regions globally, I think, by the next time I present, you’ll hear an interesting story about India. So more to come on that.

In terms of 2023 outlook, we really do see a significantly broadened market opportunity for us. As I said earlier, we had eight new design wins. Those will be coming to market during ’23, and 12 total card manufacturers now in the marketplace with IDEX. We’re getting commercial acceleration with banks. The fintechs are moving very quickly. Some of the larger banks are also moving. So we’ll see more and more momentum in the banks and issuers, and more launches building throughout the year.

And then, we will continue to see building momentum on this new market and digital authentication and physical and logical access control as well as the HASHWallet, the cryptocurrency cold wallet solutions. So we’ll see more and more of this momentum building through the year. And these design wins, anybody that knows the semi industry, design wins are really what lead to revenue growth in the future.

So that is really our quarterly result in a summary. Again, IDEX addressing a very large multi-billion dollar market opportunity. We do have the industry-leading technology, which leads to industry-leading customer experience. And really that’s what it’s all about is convenience and ease of use for the customers. And we are really capturing the market at the inflection point. We think we are very well poised. Only two competitors out in the market at this point in time. There’s obviously building momentum in the marketplace, and IDEX has the superior solution to take advantage of that.

So, with that, I thank you very much for listening to our Q4 quarterly results summary and look forward to speaking to everybody in the near future. Thank you.

 

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

© COPYRIGHT 2021, AlphaStreet, Inc. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

Most Popular

CCL Earnings: Carnival Corp. Q4 2024 revenue rises 10%

Carnival Corporation & plc. (NYSE: CCL) Friday reported strong revenue growth for the fourth quarter of 2024. The cruise line operator reported a profit for Q4, compared to a loss

Key metrics from Nike’s (NKE) Q2 2025 earnings results

NIKE, Inc. (NYSE: NKE) reported total revenues of $12.4 billion for the second quarter of 2025, down 8% on a reported basis and down 9% on a currency-neutral basis. Net

FDX Earnings: FedEx Q2 2025 adjusted profit increases; revenue dips

Cargo giant FedEx Corporation (NYSE: FDX), which completed an organizational restructuring recently, announced financial results for the second quarter of 2025. Second-quarter earnings, excluding one-off items, were $4.05 per share,

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top