NEXT Biometrics Announces 3rd Quarter Results; Details Outlook

OSLO, NORWAY--(Marketwired - Nov 22, 2016) - NEXT Biometrics Group ASA (Oslo Bors: NEXT) today announced interim results for the third quarter and nine months ended September 30, 2016 and outlined its expectations for the fourth quarter of 2016 and first half of 2017.

NEXT, the leader in high-quality low-cost fingerprint sensors based in Oslo, Norway, summarized highlights:

• Sales in the Third Quarter of 2016 of 28.4 million Norwegian Krone (NOK), up from MNOK 26.6 in Second Quarter
• Shipped first 1 million fingerprint sensors
• Generation 2 fingerprint sensors implemented in all modules
• Generation 2 ASIC in testing stage and on track
• Second volume Smart Card design win for 250,000 flexible sensors 

Tore Etholm-Idsoe, CEO of NEXT Biometrics, said, "Regarding NEXT product implementation of the new generation low power, high yield fingerprint sensors was completed in all modules late in the third quarter. Significantly higher yield rates contributed to COGS reductions from September onwards."

The CEO highlighted NEXT's outlook for the fourth quarter of 2016 and first half of 2017:

• Fourth quarter sales are expected to be level with previous quarters
• Strong focus on flexible fingerprint sensor mass production ramp-up during the first half of 2017
• Continued progress and negotiations with major players in the Smart Card industry
• Further improved production yields and higher production capacity
• Implementation of second generation major cost down ASICs
• Continued focus on NEXT-Enabled segments

Etholm-Idsoe said during the third quarter, "The first versions of the second generation ASIC were completed and testing commenced. The project is on track for implementation and volume module deliveries with major effects from the third quarter of 2017. This project represents major component reductions and will bring the company modules to its long targeted cost levels."

In a presentation, NEXT Biometrics CEO Etholm-Idsoe and CFO Knut Stalen detailed NEXT's results and outlook, posted online.

He added, "NEXT continues in close collaboration with its strategic partner INNLOUX, to make advancements in its activities targeting flexible fingerprint sensor mass production capacity within the end of the second quarter of 2017. In parallel, a range of system level activities are proceeding targeting volume deliveries of the world´s first fully ISO-compliant flexible fingerprint sensor Smart Cards in the second half of 2017."

Discussing sales and market, the CEO said, "The company focuses its resources on quality dependent market segments that require high uncompromised levels of security and convenience coupled with the ability to serve close to 100% of a given population. These markets include Smart Cards, NEXT-Enabled markets, traditional markets, high-end security focused smartphones and notebooks where the NEXT technology is uniquely positioned."

He added, "The Smart Card segment is the primary focus for the company. NEXT believes it holds a fundamental competitive advantages within this market and that early Smart Card customer projects involve significant value propositions. The company has over the past 12-to-18 months identified significant opportunities within several major Smart Card market segments."

Etholm-Idsoe noted, "The Smart Card order announced in April demonstrates the attractive early stage commercial viability of the NEXT's Smart Card activities. The April order was followed by a new design win, announced in November, with an Asian governmental customer project for an initial amount of 250,000 flexible fingerprint sensors. The project is targeted to start in the second half of 2017, following completion of the on-going ramp-up project with the company's mass production partner, INNOLUX."

NEXT Biometrics, in its profit and loss statement that operating revenue in the third quarter of 2016 was MNOK 28.4, compared with MNOK 26.6 in the previous quarter and MNOK 0.2 in the third quarter of 2015. For the first three quarters of 2016 revenue amounted to MNOK 60.3 compared with MNOK 2.9 for the first three quarters of 2015.

So far in 2016, the company said, several of the initial cost elements related to production and delivery are still one-offs, or temporary, and do not provide a clear and relevant indication of cost of goods sold. Significant improvements were realized late in the third quarter and this is continuing into the fourth quarter of this year and the first quarter of 2017. 
The CEO said, "NEXT expects the operation mode to normalize from the first quarter of 2017 and to make a leap in terms of margins from the introduction of the new ASIC from the third quarter of 2017." 

NEXT noted that payroll expenses amounted to MNOK 8.7 in the third quarter of 2016, compared to MNOK 16.4 in the previous quarter and MNOK 14.4 in the corresponding quarter of 2015. The reduction in payroll expenses in the third quarter of 2016 is explained by a reclassification of stock options of MNOK 3.7 from salary to operating expenses. In addition, social security tax of MNOK 5.7 was reversed. Adjusted for these two effects the payroll expenses amounted to MNOK 18.0, corresponding to MNOK 16.4 mill in the previous quarter. Payroll expenses for the first three quarters of 2016 amounted to MNOK 40.9 compared to MNOK 33.1 for the first three quarters of 2015. The increase was mainly due to increased R&D employees in the US and operations staff in Asia. 

The company said other operating expenses amounted to MNOK 62.1 in the third quarter of 2016, compared to MNOK 60.7 in the previous quarter and MNOK 15.5 in the corresponding quarter of 2015. The increase from the corresponding quarter last year of MNOK 46.6 was mainly related to higher costs of goods sold due to increased sales. The R&D costs included in other operating expenses are MNOK 15.6 in the third quarter of 2016, compared to MNOK 18.7 in the previous quarter and MNOK 7.6 in the corresponding quarter of 2015.

Other operating expenses amounted to MNOK 160.2 for the first three quarters of 2016 compared to MNOK 44.9 for the first three quarters of 2015. The increase of MNOK 115.2 was mainly related to increased sales and R&D costs. Total R&D expenses, included in both payroll and other operating expenses, amounted to MNOK 77.2 for the first three quarters of 2016, compared to MNOK 38.7 for the first three quarters 2015.

Depreciation and amortization amounted to MNOK 1.1 in the third quarter of 2016 compared to MNOK 0.8 in the previous quarter and MNOK 0.7 in the corresponding quarter of 2015. For the first three quarters of 2016 depreciation and amortization amounted to MNOK 2.9 compared to MNOK 1.8 for the first three quarters of 2015. 

Investments amounted to MNOK 0.3 in the third quarter of 2016 compared to MNOK 0.8 in the third quarter of 2015. Investments for the first three quarters of 2016 amounted to MNOK 0.4 compared to MNOK 17.8 for the first three quarters of 2014. The main investment in the first three quarters of 2015 was the MNOK 15.5 investment in coating technology tools completed in the second quarter of 2015.

Net financial items amounted to a net cost of MNOK 1.0 in the third quarter of 2016 compared to a net cost of MNOK 0.2 in the previous quarter and a net gain of MNOK 0.5 in corresponding quarter of 2015. For the first three quarters of 2016 net financial items amounted to a net cost of MNOK 1.7 compared to a net income of MNOK 2.4 for the first three quarters of 2015. The decrease was mainly related to foreign exchange gains and losses. 

Net loss in the third quarter of 2016 was MNOK 44.4 compared to a loss of MNOK 51.5 in the previous quarter and a loss of MNOK 29.9 in the corresponding quarter of 2015. Improved yield after introduction of the new sensor reduces the production costs and is the major sources of the improvement from the second quarter to the third quarter. Net loss for the first three quarters of 2016 amounted to MNOK 145.4 compared to a loss of MNOK 74.0 for the first three quarters of 2015.

The company said NEXT operated at a loss and did not incur deferred or payable income taxes for the first three quarters of 2016 or in 2015, except for an insignificant amount in the fourth quarter of 2015.

Cash and cash equivalents amounted to MNOK 157.0 by the end of the first three quarters of 2016 compared to MNOK 130.2 at the end of 2015. The operations, including investments, consumed cash in an amount of MNOK 54.7 in the third quarter of 2016 compared to MNOK 54.3 in the previous quarter and MNOK 30.6 in the third quarter of 2015. Total amount for the first three quarters of 2016, including investments, amounted to MNOK 162.7 compared to MNOK 83.9 for the first three quarters of 2015. 

NEXT said the net proceeds from the private placement of 200,000 new shares in July 2016 was MNOK 25.5. In addition, 207,125 incentive stock options were exercised in the beginning of September and gave net proceeds of MNOK 3.6. The company's share capital is NOK 15,158,980, divided into 15,158,980 shares with a par value of NOK 1 per share.

Equity amounted to MNOK 221.5 at the end of the first three quarters of 2016 compared to MNOK 172.7 at the end of 2015 and MNOK 90.1 at the end of the first three quarters of 2015. This was mainly due to the net proceeds of MNOK 160.0 in the second quarter and the net proceeds of MNOK 29.1 in the third quarter described above and the loss of MNOK 145.4 for the first three quarters of 2016.

ABOUT NEXT Biometrics: Enabled by its patented NEXT Active Thermal principle, NEXT Biometrics (www.NextBiometrics.com) offers high quality area fingerprint sensors at a fraction of the prices of comparable competitors. A wide range of product formats including smartcards, smartphones, tablets, PC's, access control, time registration systems, wearables, payment terminals, flash drives, USB tokens, key fobs and many more are targeted.

NEXT BIOMETRICS GROUP ASA is a publicly listed company headquartered in Oslo, Norway and with sales, support and development subsidiaries in Seattle, Silicon Valley, Taipei, Prague and Shanghai. Media and Investor contacts for NEXT Biometrics: Tore Etholm-Idsøe, CEO, Tore.Idsoe@NEXTbiometrics.com and Knut Stalen, CFO, Knut.Stalen@NEXTbiometrics.com.