NEXT Biometrics Group Announces Interim 1st Half Results

OSLO, NORWAY--(Marketwired - Aug 25, 2015) - NEXT Biometrics Group ASA (OSLO: NEXT) today announced interim results for the second quarter and first half ended June 30, 2015. NEXT, the leader in high-quality low-cost fingerprint sensors, summarized highlights:

• TIER 1 customer launch planned in 5-7 weeks.
• Great customer acceptance of second generation products
• New ultrathin sensors enabling highly competitive Smartphone designs
• Entering India and Korea by signing AqTronics and WPG as NEXT distributors
• Significant growth in NEXT-Enabled market prospects.

In discussing results, NEXT Biometrics CEO Tore Etholm-Idsoe said, "Based on detailed market feedback in 2014, the first half of 2015 included release of six different modules to replace the first original 2014 module. This lead to agreeing with customers to delay ordered shipments until new sensors can be delivered. We believe that this will have a significant positive impact going forward. NEXT now has a product portfolio that covers the market needs in all targeted key market segments."

The CEO said that, "NEXT experienced a steady growth in the number of customer leads, now totaling more than 190 projects worldwide. During 18 months of sales work, the company has become a highly recognized player and is at a fast increasing rate being asked for quotes by leading customers in all key market segments."

He added that in the Smartphone segment the NEXT value proposition combines higher levels of security and convenience with a low price, and is getting increased attention. This is partly due to the market trending toward more quality critical payment, cloud access and corporate access solutions and partly due to increased major player recognition of the NEXT proposed integration of sensors in the phone backside.

In the NEXT-enabled Markets, which are markets in need of NEXT's unique combination of quality and low cost, the number of high quality leads is growing fast.

The company added that significant resources have been allocated to the company's first Tier 1-customer project, in order to secure the best performance from NEXT, as the Tier-1 customer is expected to launch in approximately 5 to 7 weeks.

Etholm-Idsoe said that, "One major reason for NEXT attention from TIER-1 customers is the clean IP situation, with no patents close to the company's patented Active Thermal principle. Hakuto, the Japanese distributor of NEXT fingerprint sensors, recently highlighted this IP strength when asked by stock market analysts."

Foxconn, the world's largest electronics manufacturer and a NEXT Biometrics shareholder, is now proving its worth to NEXT by introducing the company and opening doors to the decision makers in several market segments, he added.

The CEO explained, "In terms of competition, there is an increasing number of suppliers in the market for small-sized smartphone sensors. In high-end smartphones and all other targeted market segments, larger sensors are required and there is limited competition. NEXT believes that this market development will continue in the foreseeable future."

He noted the recent comprehensive Madrid Report record-sized study at the University Carlos III in Madrid in which more than 180,000 sensor prints were collected. The study confirms that when comparing sensors of same size, the Active Thermal principle patented by NEXT performs in line with capacitive sensors 3 to 5 times more expensive.

He said, "The Madrid Report confirms what market experts have stated for years, that sensor size is one of the most important factors determining the quality of any fingerprint sensor system. As sensor size is reduced, false rejection rates increase exponentially, and the system is no longer user-friendly for a large portion of a given population. Small sensors should never be offered in devices targeting enterprise, government, payments and other markets in need of both security and convenience for a high percentage of a population."

In applications where quality is paramount, like corporate access and payments, the market continues to trend towards larger sensors, he said adding that, "No other supplier can deliver a sensor with a size large enough to secure high quality for an acceptable percentage of the users, at an acceptable price."

Etholm-Idsoe said that, "NEXT is now one of only three suppliers worldwide having secured a TIER-1 design-win and able to deliver product in high volumes. With the custom built coating machine installed at INNOLUX/Taiwan in Q2, monthly sensor production capacity is now 1.2 million units. This has dramatically brought down production cost."

NEXT announced revenue in the second quarter of 2015 was NOK 0.3 million (krone), compared with NOK 2.4 million in the previous quarter and NOK 0.7 million in the second quarter of 2014. The revenue in the second quarter of 2015 consisted of operating revenue and was generated by shipment of 4,000 fingerprint sensors. The reduced revenue level was due to introduction of the second generation sensors replacing the single module sold in 2014.

Yesterday, NEXT announced the introduction of ultra-thin fingerprint sensor designs that remove the need for large bezels, or metallic frames, used in the first generation of NEXT sensors, making them tailored for the design-focused smartphone, tablet and notebook markets. The NEXT CEO said, "We expect the new ultra-thin fingerprint sensors to assist us significantly to expand NEXT's share of the smartphone, tablet and notebook market for fingerprint sensors."

NEXT said that in the first half of 2015 revenue amounted to NOK 2.7 million compared with NOK 0.7 million in the first half of 2014. The revenue in the first half of 2015 was generated by shipment of 56,000 sensors compared to 17,000 sensors in the first half of 2014.

Due to low production volumes and high ramp-up related manufacturing costs, the calculated gross margin is still negative, said NEXT. The Cost of goods sold for these initial delivered sensors are currently included in other operating expenses. Several of the initial cost elements related to production and delivery of these units are one-offs and do not give a clear and relevant cost of goods sold.

Regarding operating expenses, NEXT said payroll expenses amounted to NOK 10.3 million in the second quarter of 2015, compared with NOK 8.4 million in the previous quarter and NOK 6.3 million in the corresponding quarter of 2014. Increased research and development (R&D) costs included in payroll expenses, increased operational activity in Asia and share based remuneration cost after new issue of options in this quarter were the main reason for the increase from the previous quarter and the corresponding quarter of 2014.

Payroll expenses in the first half of 2015 amounted to NOK 18.7 million compared to NOK 10.3 million in the first half of 2014. The increase was mainly due to higher R&D costs and increased operational activity in Asia, the company said.

Other operating expenses amounted to NOK 13.5 million in the second quarter of 2015, compared with NOK 15.9 million in the previous quarter and NOK 11.5 million in the corresponding quarter of 2014. R&D costs included in other operating expenses was reduced to NOK 4.8 million in the second quarter of 2015, compared to NOK 6.8 million in the previous quarter and NOK 6.7 million in the corresponding quarter of 2014. The remaining increase from the corresponding quarter of 2014 was mainly due to higher cost of goods sold and mass production ramp-up.

Other operating expenses in the first half of 2015 amounted to NOK 29.5 million in the first half of 2015 compared to NOK 22.3 million in the first half of 2014.

Total R&D expenses, included in both payroll and other operating expenses, amounted to NOK 23.1 million in the first half of 2015 compared to NOK 20.3 million in the first half of 2014.

Depreciation and amortization amounted to NOK 0.25 million in the second quarter of 2015 compared to NOK 0.02 million in the second quarter of 2014. In the first half of 2015 depreciation and amortization amounted to NOK 0.49 million compared to NOK 0.04 million in the first half of 2014, NEXT said.

Investments amounted to NOK 15.5 million in the second quarter of 2015 compared with 0.3 million in the second quarter of 2014. The main investment in the second quarter was the coating machine with a capacity of 1.2 million units per months. When additional capacity is needed, the lead time for extra coating machines is expected to be 5-6 months. In the first half of 2015 investments amounted to NOK 16.9 million compared to NOK 0.5 million in the first half of 2014. The total investment in the coating machine amounted to NOK 15.5 million.

Net financial items amounted to a net cost of NOK 0.7 million in the second quarter of 2015 compared to a net income of NOK 2.6 million in the previous quarter and a net income of NOK 0.2 million in the second quarter of 2014, said NEXT. The decrease in net income from the previous quarter was mainly related to foreign exchange losses compared to foreign exchange gains. In the first half of 2015 net financial items amounted to a net income of NOK 1.9 million compared with a net income of NOK 0.1 million in the first half of 2014. The increase was mainly due to foreign exchange gains.

NEXT said that net loss in the second quarter of 2015 was NOK 24.5 million compared with a loss of NOK 19.6 million in the previous quarter and a loss of NOK 17.0 million in the second quarter of 2014. Net loss for the first half of 2015 amounted to NOK 44.1 million compared to a loss of NOK 31.9 million in the first half of 2014. The increased loss from the corresponding half year was mainly due to higher level of cost of goods sold, increased R&D costs and higher sales activity. NEXT operated at a loss and did not incur deferred or payable income taxes in the first half of 2015 or in 2014.

The company added that cash and cash equivalents amounted to NOK 76.0 million by the end of the first half of 2015 compared to NOK 129.3 million by the end of 2014. The operations, including investments, consumed cash in an amount of NOK 22.8 million in the second quarter of 2015 compared to NOK 30.5 million in the previous quarter and NOK 25.4 in the second quarter of 2014. Total amount for the first half of 2015, including investments, amounted to NOK 53.3 million compared to NOK 50.9 million in the first half of 2014.

NEXT said the cash consumed in the first half of 2015 was mainly related to the loss of NOK 44.1 million and continued inventory build-up of NOK 6.2 million. Equity amounted to NOK 118.7 million at the end of the second quarter of 2015 compared to NOK 161.6 million by the end of 2014 and NOK 203.1 million by the end of the first half of 2014.

ABOUT NEXT Biometrics:
Enabled by its patented Active Thermal Principle, NEXT offers high quality area fingerprint sensors at a fraction of the prices of comparable competitors. A wide range of product formats including Smartphones, Tablets, PC's, Doors, Time registration systems, Payment terminals, Flashdrives, USB-tokens, Key fobs and many more are targeted.

NEXT BIOMETRICS GROUP ASA, online at www.NEXTbiometrics.com, is a publicly-listed company headquartered in Oslo, Norway, with sales, support and development subsidiaries in Seattle, Silicon Valley, Prague, Taipei 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.