Fingerprint Cards AB: Interim Report January – September 2021

Highlights

• After the end of the quarter, the Board decided to commission Carnegie Investment Bank to evaluate the conditions for supplementing Fingerprints’ financing with debt capital in order to further accelerate the company’s growth.
• Sales increase in constant currency terms of 25 percent. Gross margin improved by 10 percentage points
• Dell launched five models with our new biometric PC solution and Microsoft now allows all users to completely get rid of passwords in favor of biometrics.
• For the fourth quarter of 2021, Fingerprints expects Group revenues to be in the range of SEK 350-390 million, based on the exchange rate SEK/USD 8.60.

Third quarter of 2021

• Revenues amounted to SEK 354.3 M (294.0)
• The gross margin was 28.6 percent (18.1)
• EBITDA totaled SEK 32.3 M (8.7)
• The operating result was SEK 10.8 M (neg: 4.7)
• Earnings per share before and after dilution amounted to SEK 0.04 (neg: 0.01)
• Cash flow from operating activities was a negative SEK 45.5 M (pos: 67.7)

January-September 2021

• Revenues amounted to SEK 999.2 M (886.3)
• The gross margin was 28.4 percent (21.2)
• EBITDA totaled SEK 58.9 M (26.9)
• The operating result was negative SEK 11.5 M (neg: 39.0)
• Earnings per share before and after dilution were negative SEK 0.02 (neg: 0.09)
• Cash flow from operating activities amounted to SEK 41.1 M (111.2)

CEO’s comments

It is gratifying that we increased our sales by 25 percent in constant currency terms compared with the corresponding period of the preceding year. At the same time, we improved our gross margin, compared with both the third quarter of 2020 and the preceding quarter. This was partly due to a more favorable product mix in Mobile, and partly because we are also growing in other areas: Access, PC and Payments.

Although we are still affected by the prevailing semiconductor shortage in the world, our access to production capacity continued to improve during the quarter, both among the large semiconductor manufacturers and the module suppliers that are responsible for the integration and packaging of various components into modules that are ready for assembly. We continue to work with our existing semiconductor suppliers to ensure as large volumes as possible from them, while at the same time, we are making a continuous effort to establish collaboration with new producers to increase our access to additional capacity on reasonable terms and conditions. We try, as far as possible, to increase the degree of standardization in our product design to enable a more flexible and cost-efficient production process. We have, as previously communicated, a very positive view of the continued development of the market for biometric solutions. The development of long-term, strategic collaborations at the highest level with key suppliers – both within and beyond Mainland China – is therefore a very high priority.

At the same time as demand for our products remains healthy in the mobile industry, our revenue streams are now being diversified at a higher pace than previously, into areas with attractive margins. Our activities within the Access area are developing favorably, while PC is now emerging as an important new area for Fingerprints. We anticipate favorable growth in the short and long term, partly due to considerably more computers being sold now compared with pre-pandemic volumes, but primarily because the share of computers with fingerprint sensors is expected to grow considerably from today’s relatively low levels. Our sales to the PC industry have all the prerequisites to outgrow the Access area in the next 12-18 months and thereby develop into the second largest application area for our products. In September, Microsoft announced that the company now permits users of the company’s products to entirely do away with their passwords in favor of biometric authentication and authentication apps. Corporate customers have already been able to use the service for a few months and it is now to become available to everyone. I welcome this development, which corresponds well with Fingerprints’ vision: A secure and seamless universe, where you are the key to everything. Fingerprints already has three of the world’s five largest PC manufacturers as customers. During the quarter, Dell launched five models that are fitted with our sensors: Latitude 5320, 5420, 5421, 7320 and 7420. I expect that we will be able to announce many more PC models with Fingerprints’ sensors in the quarters to come.

The launches of biometric payment cards by BNP Paribas, Europe’s largest bank, and Crédit Agricole, number three in Europe, entail that another global mass market for our products is now significantly on the way to being opened up. The response from the bank customers who gained access to a biometric card in conjunction with the initial commercial launches is overwhelmingly positive, and both BNP Paribas and Crédit Agricole are now planning nationwide rollouts in France. France has spearheaded the introduction of this new technology within the payment area and it is interesting to follow the development of French consumers’ attitudes to biometric payment cards. Accordingly, during the third quarter, we conducted a questionnaire survey together with Kantar of 1,000 participants from various parts of France. The results confirm the growing interest in and demand for biometric payment cards among consumers from all demographic groups in France. 59 percent of the participants in the study said they wanted a biometric card, which is 8 percentage points higher than the preceding year’s result. Among those who knew that biometric cards already exist in the market, a full 70 percent wanted to have such a card. 52 percent of the respondents said that they were prepared to switch banks to gain access to a biometric payment card. In some parts of France, this number was as high as 64 percent. In addition, 55 percent were willing to pay an average of EUR 3.20 per month extra in card fees for a biometric card, an increase of 5 percentage points since last year.

The interest in biometric payment cards is also increasing in other parts of the world. As previously communicated, in June 2021, BBVA Mexico became the first bank in Latin America to announce the launch of biometric payment cards. And now during the third quarter, Jordan Kuwait Bank announced that it will use Thales’ cards, with Fingerprints’ technology, in the launch of biometric cards to the bank’s customers in Jordan. The level of activity is also growing in Asia. During the quarter, we were able to announce two collaborations on that continent. Fingerprints and MoriX Co., Ltd, a leading Tokyo-based electronics company, are collaborating to develop and launch biometric payment cards in Japan. In addition to this, Fingerprints and Seshaasai, a leading card manufacturer in India, signed an agreement to develop, launch, market and sell contactless biometric payment cards in India and the APAC region.

We expect to see more banks launch biometric cards in the near future. Our technology is used in all commercial launches to date in the world and we conduct continuous development work to further enhance our offering in the payment area, not least within the framework of our strategic collaborations with central players in payment card manufacturing. On September 29, we announced that we, together with Infineon, had taken a very significant step forward by enabling biometric authentication to be executed entirely within the secure element on a payment card, with retained performance and higher security. With this solution, there is no longer any need for a separate micro-controller unit (MCU). This milestone, which many in the industry have regarded as impossible to achieve, makes it less expensive and easier for card manufacturers to develop and roll out biometric payment cards on a large scale. To continue driving development forward, we are focusing on scaling up our operations with the right business partners. We have well-established partnerships with several of the world’s leading players within payment cards. Together, we have the coverage, size and deep technological expertise to ensure that contactless biometric cards will become the next global mass market for biometrics.

Christian Fredrikson, President and CEO

On October 21 at 09:00 CEST, Fingerprints’ CEO Christian Fredrikson 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 webcast and the presentation material can be accessed through https://edge.media-server.com/mmc/p/xbb5vbpp

For analysts and media: The telephone conference dial-in is +44 (0) 2071 928000 (international participants) or 08-506 921 80 (Swedish participants). Please state conference ID 8383093.

Attachment

• Interim report Q3 2021