Q2 PRESENTATION AUGUST 25 th 2016 CEO Tore Etholm-Idsøe/CFO Knut Stålen
Summary Q2-16 MNOK 26.6 in Sales (MNOK 5.2 in Q1) Showcased the first flexible Smart Card sensor compliant with ISOspecifications Major events Q2 Received the market s first volume order for Smart Card sensors (MNOK 12) Raised gross proceeds of MNOK 164.9 in new equity. Subsequent repair issue in July raised additional MNOK 26.6 Launched low-power, high yield sensor for H2-16 & 2017 markets
The Financials Knut Stålen CFO
P&L statement Amounts in NOK 1 000 Condensed consolidated interim P&L statement 2016 Q2 2016 Q1 2016 YTD 2015 YTD 2015 YEAR Operating revenue 26 647 5 171 31 817 2 668 4 571 Other operating revenue 0 0 0 0 0 Total revenue 26 647 5 171 31 817 2 668 4 571 Payroll expense (16 413) (15 843) (32 256) (18 704) (54 000) Other operating expenses ( 60 695) ( 37 311) (98 006) (29 474) (70 520) Total operating expenses (77 107) (53 154) (130 261) (48 178) (124 520) EBITDA (50 461) (47 983) (98 444) (45 510) (119 949) Depreciations and amortizations 796 1 030 1 826 488 1 866 EBIT (51 256) (49 013) (100 270) (45 999) (121 815) Net financial items (196) (448) (643) 1 897 304 Taxes 0 0 0 0 (23) Net profit (loss) for the period (51 438) (49 461) (100 956) (44 128) (121 533) Comments Operating revenue NOK 26.6 million in Q2-16 Total Operating expenses (including COGS) of NOK 77.1 million in Q2-16 compared to NOK 53.2 mill in Q1-16 Payroll expenses increased from NOK 15.8 million in Q1-16 to NOK 16.4 million in Q2-16. Main reason is increased accruals (NOK 1.1 million) for payroll tax related to options Other operating expenses have increased from NOK 37.3 million in Q1-16 to NOK 60.7 million in Q2-16. This primariliy related to increased sales (COGS) Costs of goods sold, ramp-up expenses are included in other operating expenses 2016 figures are unaudited
Payroll expenses MNOK 25.0 20.0 20.9 15.0 16.4 15.8 14.4 10.0 10.3 8.4 5.0 0.0 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Sales/Operations R&D Other personnel expenses Options
Other operating expenses (including production costs) MNOK 70.0 60.0 60.7 50.0 40.0 37.3 30.0 25.3 20.0 10.0 15.5 13.6 15.9 0.0 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Operating Expenses R&D Cogs/One-offs/Ramp-up Write-down inventory No Capitalisation of R&D
Cash Flow Statement Condensed interim Cash Flow Comments Amounts in NOK 1 000 Q2-16 Q1-16 2015 Profit (loss) before taxes (51 452) (49 461) (121 511) Taxes payable 0 0 (22) Share based remuneration 1 529 1 600 3 564 Depr. and Amort. 796 1 030 1 866 Change in working capital (5 182) (6 813) 6 474 Net Cash from op. act. (54 309) (53 643) (109 629) Purchase of tangible assets 0 (69) (18 484) Net cash from inv. act. 0 (69) (18 484) In Q2-16, NEXT had a negative cash flow from operations of NOK 54.3 million compared to the negative cash flow of NOK 53.6 million in Q1-16 The working capital was increased by NOK 5.2 million in Q2-16 New funds raised in the beginning of May 2016, gave net proceeds of NOK 160 million Proceeds non-current debt 0 0 0 Share issue net of expenses 159 965 388 129 121 Net cash financing 159 965 388 129 121 Translation differences 14 (57) (41) Net change in cash flow 105 670 (53 381) 966 Opening cash balance 76 850 130 231 129 265 Closing cash balance 182 520 76 850 130 231 2016 figures are unaudited
Balance sheet Consolidated balance sheet Comments Amounts in NOK 1 000 Q2-16 Q1-16 2015 Patents & Intangible assets 6 826 6 947 7 068 Machinery and office equipment 17 210 17 373 18 725 Financial assets 0 0 0 Total non-current assets 24 037 24 320 25 793 Inventory 22 729 27 128 22 140 Accounts receivable 11 496 3 051 1 680 Other receivable 16 150 14 424 12 913 Total receivable 27 646 17 075 14 594 Cash and cash equivalents of NOK 182.5 million by end of Q2-16 compared to NOK 76.9 million by the end of Q1-16 Inventory of NOK 22.7 million in Q2-16, compared to NOK 27.1 million in Q1-16 Cash and cash equivalents 182 520 76 850 130 231 Total current assets 232 895 121 053 166 964 Total assets 256 932 145 373 192 757 Share capital 14 752 13 512 13 474 Share premium-reserve 537 527 378 803 378 453 Other paid-in capital 23 288 21 759 20 158 Retained earnings (340 320) (288 883) (239 365) Total equity 235 932 125 190 172 720 Total non-current liabilities 0 0 0 Accounts payable 7 455 6 916 7 929 Public duties payable 187 370 179 Other current liabilities 14 044 12 897 11 930 Total current liabilities 21 686 20 183 20 037 Total liabilities 21 686 20 183 20 037 Total equity and liabilities 256 932 145 373 192 757 2016 figures are unaudited
The Company Tore Etholm-Idsøe CEO
NEXT BIOMETRICS GROUP ASA Oslo (HQ) Seattle Sillicon Valley Munich Prague Shanghai Taipei NEXT BIOMETRICS GROUP ASA Headquartered in Oslo, Norway. 65 employees, half of these in Seattle. Dedicated to Active Thermal fingerprint sensors LISTING / SHAREHOLDERS Company listed on Oslo Stock Exchange Approximately 5000 shareholders $ 20.5 million high quality stock issue May 2016
The core technology Area sensor technology Thermal conductivity vs Capacitive sensing Active Thermal Heat conductivity A heat pulse is generated and a response measured by every pixel Capacitive sensing An electrical radio frequency signal is generated and response is measured by every pixel Players Players 5-6 NEW CHINESE
Market changing cost levels and product formats LTPS Manufacture at Rigid & Flexible substrates -> 840 sensors per sheet The Active Thermal Principle, patented and owned by NEXT, is based on transfer of heat from sensor into finger ridges and valleys The unique simplicity of the NEXT Active Thermal pixel designs allows for mass production in standard high quality display fabs Facilitating mass production at a lower costs plus access to both rigid and flexible product formats
5 strong and significant competitive advantages Rigid & Flexible Adaptable to both rigid and flexible or shaped substrates Significantly lower costs 70% lower production cost vs same sized silicon area sensor modules Uncompromised security & convenience Company not forced to compromise on sensor size in order to stay competitive For close to 100% of a population Scalable Scalable to 10 s & 100 eds of millions of sensors Strong IP Strong IP - protected by a range of patents & trade secrets Strength vs crowded capacitive space
Strategic focus NEXT Strongholds Smart Cards NEXT-enabled & Traditional markets Notebooks & Tablets Smartphones Key requirements -Large size -Physical flexibility -Low cost Key requirements -Large size -Low cost Key requirements -Medium & Large size -Attractive ID -Low cost Key requirements -Small size (today) -Attractive ID -Low cost -ISO compliance Addressable market 100 eds of millions Addressable market 10 s of millions Addressable market 10 s of millions Addressable market 100 eds of millions FOCUS FOCUS FOCUS FOCUS VERY HIGH HIGH HIGH LOW
Strategic focus Competition Smart Cards NEXT-enabled markets Notebooks & Tablets Smartphones LARGE SENSORS ONLY NEXT LARGE SENSORS ONLY NEXT SMALL SYNAPTICS FPC EGISTEC LARGER NEXT SMALL SYNAPTICS FPC (APPLE) LARGER NEXT SMALL/MEDIUM IDEX, FPC GOODIX IDEX EGISTEC Silead Focaltech MD Chipone MicroArray Pixir. QUALCOMM Vkansee Holtek NEXT keeps its unique competitive positioning
Small format markets Larger format markets Smartphones Convenience only Notebooks & Tablets Convenience only Smartphones & Notebooks Security & Convenience New NEXT-enabled markets Traditional markets Convenience focused small formats 144-201 mm2 - Formats offering both convenience & security In quality critical/focused markets -a sensor system needs to work: - Securely (FAR 1/10 000 or 1/ 100 000) - Coveniently (FRR < 1%) - Everyday (over the lifetime of the device) - Everywhere (indoor, outdoor, in dry, in humid conditions) for - 98% + of any given population - coping with «problem fingers» NEXT Only major player to offer high quality 3 rd party documentation of performance
The first Smart Card Deal Deal life cycle Signed April 2016 Shipments starts Q3-2016 Long multi-year lifecycles Status August 2016 : Initial deliveries made in Q2 Prototype card completed in Q3 Low volume shipments in Q3 Partner progress on new leads Preparations 1.5 years of preparations Sensors tests passed Prototype cards completed using existing sensor and ASIC Status / Volumes First order, NOK 12 million (USD 1.5 million) received Expansions to a total of 650 000 sensors estimated in H1 2017 Client with multiple additional project leads NEXT is the first player to secure a high volume agreement in Smart Cards
Smart Card industry mandatory requirements As defined by leading smart card industry projects I Technology/ Performance FRR <1% at FAR 1:10 000 Full compatibility with all the ISO standards below - ISO/IEC 17839, Biometric System-on-Card and - ISO/IEC 7810, Physical characteristics and - ISO/IEC 10373, Test methods and - 8 other partially overlapping ISO standards II Scalability Access to credible, high volume production processes Strong and credible partners Ability to ramp up production to millions and 10 s of millions units per month III Cost Cost levels compatible with the value proposition of the targeted volume markets
Cost down : Yield Gen 1 vs Gen 2 sensors TYPICAL INDUSTRY YIELD CURVES AT INTRODUCTION OF NEW LTPS PRODUCT TECHNOLOGIES (DISPLAYS)
Cost down : Yield Gen 1 vs Gen 2 sensors Gen 2 sensors will replace first generation sensors in all NEXT modules during Q3-16. The present Gen 2 sensor design has the targeted maturity, yield and quality. This sensor version is expected to last for 18-24 months. NEXT GEN I SENSOR : YIELDS REALIZED IN FIRST Q1 and Q2-16 (THE FIRST HIGH VOLUME QUARTER) WERE BELOW FORECASTED TARGETS NEXT GEN I SENSOR : YIELDS REALIZED IN JUNE-AUGUST (WITH EFFECT FROM LATE Q3 ) ARE ABOVE FORECASTED LEVELS..
NEXT Enabled volume markets Status.. Both of these modules will before mass production be upgraded to Gen 2 sensor versions Smart Home Concepts Key Fobs Remote controls Internet of Things The NB-1411-Series The World s first Full size, Low cost, Embedded module The NB-2023-Series A new Gen-2 sensor based module targeting markets where processing is done in separate controllers Portable hard drives Tokens Built to develop and serve a wide range of new NEXT-Enabled volume markets
The Dell Project Status NEXT sensors now sold in 12 different Notebooks & Tablets Volume shipments since April 2016 Most models will be using full sized 12*17 mm sensors
On Track -> Mass production capacity expansion of rigid modules Sensor Sensor coating ASIC Module & Assembly 3 ISO-9000 APPROVED PARTNERS Component. Capacity April 2016 Unlimited capacity 1 mill units per month Unlimited capacity 0,5 mill per month Scalebility 8-9 months lead time for extra coating machines Scalable with 3-6 months notice
On Track -> Mass production capacity expansion of flexible sensors Sensor Sensor coating ASIC Component Capacity H1 2017 Target 2 mill / month 1-3 mill units per month (new tool) Unlimited capacity Scalability 2018.. 10 mill/ month 8-9 months leadtime for extra coating machines
Corporate snapshot- The Share OSLO STOCK EXCHANGE (NEXT) Shares outstanding 14,951,855 Total options: 1,335,936 average exercise price NOK 31.66 (USD 3.80) Share price 23 August 2016 = NOK 137 (USD 16.5) Market Cap 23 August 2016 = NOK 2,048 M (USD 247M) No of shareholders approximately 5000 OSE main list from December 2015 Included in OSEBX from June 1 st 2016
Outlook As of August 2016 Sales Q3 and Q4 expected to marginally increase compared to Q2-2016 Improved production yields and higher production capacity Outlook Strong focus on building mass-production facilities for flexible sensors Continued negotiations with major players in the Smart Card industry Further investments in 2018 generation Smart Cards Continued focus on NEXT-enabled segments New ASIC Generation Significant cost down project 2017
Q&A NEXT in Pole Position Full size sensor Fully ISO compliant Fully flexible - in all directions Mass producable - in high volumes and at low cost Protected by a range of patents and trade secret