INTERIM REPORT FOR THE FIRST QUARTER 2016
- Consolidated net sales increased to SEK 24.2 (4.5) million.
- EBITDA increased to SEK 8.2 (-6.4) million.
- Profit after tax increased to SEK 6.3 (-8.8) million.
- Earnings per share for the period increased to SEK 0.02 (-0.03).
- Cash and cash equivalents were SEK 58.6 (50.7) million.
SIGNIFICANT EVENTS IN THE FIRST QUARTER
- Precise BioMatch Mobile was integrated in over 25 smartphones.
- Licensing agreements were signed with sensor manufacturers Chipone and MStar.
- Gemalto, Fingerprint Cards, Precise Biometrics and STMicroelectronics introduced the first end-to-end security architecture for biometric fingerprint authentication at Mobile World Congress 2016.
- The licensing agreement with Fingerprint Cards was expanded to include Precise BioMatch Embedded for smart cards.
- Follow-on order for Tactivo from the Defense Logistics Agency (DLA), an agency of the U.S. Department of Defense.
SIGNIFICANT EVENTS AFTER THE FIRST QUARTER
- Precise BioMatch Mobile was integrated in over 15 smartphones.
- Licensing agreements were signed with the sensor manufacturer IDEX and the digital security company Oberthur.
- Precise Biometrics, won a framework agreement for Tactivo from the Defense Logistics Agency (DLA) within the US Department of Defense.
- Precise BioMatch Embedded was integrated in Fingerprint Cards (FPC) embedded biometric module solution FPC-BM.
On the occasion of today's interim report, we invite investors and journalists to a conference call today at 10.00. More information can be found at the last page of the report.
I am pleased to report another strong quarter, our best financial performance since 2009. Net sales increased with 438% compared with the corresponding quarter in 2015, with a continued high gross margin. We continue to invest in our business to strengthen our market position, while keeping our operating expenses under control.
Sales in the Fingerprint Technology business area continue to grow at a rapid pace with increased royalty revenues. During the quarter, more than 25 mobile phones were launched with Precise BioMatch Mobile, which is currently integrated in more than 90 mobile phones from more than 30 manufacturers. The smartphone market for fingerprint technology continues to grow sharply. Last year, more than 400 million smartphones were sold with fingerprint technology. The number of smartphones with fingerprint technology is expected to reach 750 million units in 2016, and analysts predict that up to three billion mobile devices with biometrics will be sold as early as 2020.
Since the start of the year, we have signed license agreements with sensor manufacturers Chipone, Mstar and IDEX. We now have a total of 13 of the most significant sensor manufacturers as customers. We have also signed a license agreement with the security firm Oberthur. The collaboration is the first of its kind and an important step towards increasing payment security using fingerprint technology. The broad base of customers who market solutions with different technologies and advantages makes us well positioned to capture a significant market share in a fast-growing market that faces stiffer competition between sensor manufacturers. We are also in discussions with several companies that provide additional sensor technologies.
We have received our first royalty revenues from our collaboration with Synaptics, who are making great efforts to gain market share in China, as well as many of our other customers. To help our customers more quickly gain market share, we have expanded our offering with complementary software to our matching algorithms and with integration services in order to facilitate the integration of the fingerprint software in smartphones.
After the end of the quarter, our customer Fingerprint Cards (FPC) announced its intention to incrementally begin to deliver its proprietary matching algorithm to its customers in the smartphone segment, with a complete transition to its proprietary solution in the beginning of 2017. Historically, the mobile industry has used a dual source strategy for manufacturers of key components. The reasons for this include wanting to secure production through several suppliers and to establish competitive pricing. The extent to which mobile phone manufacturers will want a proprietary solution remains to be seen, since it makes it harder for them to have several sensor suppliers. The market is growing rapidly and is facing more and more competition and greater price pressure. Many sensor manufacturers will compete to take part in the tremendous growth. We remain convinced that many of our present and future customers will claim a significant share of the growing market, thus ensuring our ability to grow with high profitability.
I see the market for smart cards as the next promising market for fingerprint sensors, in particular the credit card market, because the costs of card fraud are on the rise. Here, the demand for powerful and effective algorithm solutions is even greater than for the mobile market because the cards have even more limited processing power and memory. There are over 2.5 billion credit cards in circulation that are changed on average every other year, resulting in an addressable market of more than a billion cards per year. We are collaborating with our customers on several projects related to smart cards and other products like wearables and cars. Our integration in Fingerprint Cards embedded biometric module solution FPC-BM is a good example of a product that facilitates integration of fingerprint technology within new product areas. In the longer term, we assess that this market can be larger than the market for mobile phones.
Sales in the Mobile Smart Card Solutions business area were on par with the previous quarter. After the end of the quarter we signed, through a channel partner, a larger framework agreement with the DLA to facilitate a substantial increase in the number of Tactivo users within their organization. Sales in the Swedish and UK healthcare sectors are developing more slowly than expected due to long sales processes with extensive pilot projects. However, interest remains high in this market. In the fall, the City of Gothenburg will begin two pilot projects, with the aim to implement a mobile solution with Tactivo for 10,000 employees during 2017.
Precise Biometrics is well positioned for continued profitable growth with a goal of increasing sales and market share in the mobile devices segment. We are also well positioned to become market leaders in new product areas that require small sensors. The market for fingerprint technology continues to grow at a rapid pace and is dominated today by FPC and Synaptics, both of whom are customers of ours. As more of our customers establish themselves in the market, our earnings capacity will increase due to higher volumes and improved average revenue per sensor.
We expect continued growth over time in the Mobile Smart Card Solutions business area. Sales within the US Department of Defense are proceeding in the right direction. In the healthcare market we expect increasing volumes in the second half of 2016. Interesting pilot projects with Tactivo is underway in the United Kingdom and Swedish healthcare, as well as with German authorities at the departmental level, which can provide substantial volumes in 2017.
In conclusion, I expect continued profitable growth for the company.
Håkan Persson, CEO