IDEX Biometrics : Q1 2021 report

INTERIM REPORT FIRST QUARTER 2021

INTERIM REPORT		FIRST QUARTER 2021

CEO'S COMMENTS

In 2018, IDEX embarked on a new, focused strategy to reposition the company as the leading provider of fingerprint biometric solutions for payment cards and adjacent market applications. The demanding technical challenges of these applications required new, highly differentiated solutions to be developed and a revised go-to-market approach to serve a fragmented, still-evolving market space. A new management team is executing on this strategy, and I am pleased to report our focused efforts are paying off. Our momentum is accelerating.

Our latest generation solution, TrustedBio™, introduced in February 2020, has been extremely well received and is at the core of industry partnerships and customer engagements that will drive our expected revenue growth. TrustedBio is a family of products whose superior performance is enabled by patented and proprietary innovations in fingerprint image capture, extraction, and matching, and, through industry-leading silicon integration, unmatched power management, component reduction, and design flexibility, all within the standard ISO/IEC payment card format. For fingerprint biometrics to "cross the chasm," in Geoffrey Moore's words, in our targeted markets, solutions cannot be based on retrofitting yesterday's biometric technologies that were successful in very different applications, such as mobile phones, which have relatively unlimited battery and processing power and much less demanding physical constraints. TrustedBio is enabling customers, whether card manufacturers, system integrators, or card issuers, to achieve the lowest solution costs, the necessary security, and high levels of cardholder satisfaction.

Our go-to-market strategy addresses the current structure of the market space and the various requirements of our customers. To accelerate the adoption of card-based biometric authentication, we have partnered with leading vendors of Secure Element (SE) microprocessors, integrating our solutions into vendors' proprietary NFC1, secure storage, and card operating system functions. Similarly, we have partnered with card manufacturers and systems integrators, which also may be our customers, to enable the implementation of turnkey solutions by early-adopting card issuers. Our emphasis is on providing the lowest cost, highest performance solutions, but doing so with a product offering that affords maximum design flexibility. A customer's specific card design needs can be met, using all of our TrustedBio solution, or elements thereof, depending on which SE architecture the customer requires.

1 Near-field Communication

INTERIM REPORT		FIRST QUARTER 2021

Evidence of our momentum is seen in the robust relationship we have with IDEMIA, a worldwide leader in identity authentication solutions. Elements of our TrustedBio solution are integrated into IDEMIA's F.CODE payment card platform, which uses IDEMIA's own secure element. F.CODE was the first product line of fully EMV-compliant2 cards introduced to the market, and represents the initial large-scale deployment of TrustedBio. We have begun shipments against production orders to IDEMIA and channel partner ZWIPE. As adoption accelerates, we anticipate sustained revenue growth through the fourth quarter, and into the coming years.

Another indication of momentum is the expanding position we have with card manufacturers pursuing the card-basedhardware wallets for the People's Bank of China's Digital Currency/ Electronic Payment initiative. We have partnered with secure element-developers and leading card manufacturers in China, to develop card-based digital wallets secured by fingerprint biometrics. We believe this initiative, one of an estimated 60 programs worldwide involving research into central bank administered digital currencies, is a harbinger of a rapidly approaching future in which paper-based currency is replaced, in part, by payment cards secured by biometric authentication. Our involvement in the early development of the Chinese initiative is advantageous, as the potential of this concept expands our available market opportunity many times over.

Although I cannot take credit personally for the 2018 change in IDEX's strategy, it is now clear this was a sound decision. Commercial interest in card-based biometric authentication is growing globally at an accelerating pace, and an ecosystem up and down the supply chain is developing. With opportunities in payment cards, access control, and, potentially, digital currencies, I believe IDEX has a promising future.

Vince Graziani, CEO, IDEX Biometrics ASA

2 EMVCo, an industry consortium controlled and funded by payment network operators Visa, Mastercard, JCB, American Express, China UnionPay, and Discovery Financial Services, maintains industry security standards for credit, debit, and prepaid smart cards.

INTERIM REPORT		FIRST QUARTER 2021

FIRST QUARTER HIGHLIGHTS

• First Quarter Financial Results
  o For the first quarter of 2021, IDEX recorded consolidated revenue of $624 thousand compared to $100 thousand for the first quarter of 2020, an increase of 524%, resulting from sustained shipments to an important early-adopter implementing a global network access control solution based on our second-generation solution. Revenue rose about 4% sequentially, i.e., from the fourth quarter of 2020, also reflecting these sustained shipments.
  o Total operating expenses in the first quarter of 2021 were $8.1 million, compared to $6.4 million in the first quarter of 2020, representing an increase of about 27%. While personnel expenses increased with higher number of employees, the majority of the year-over-year increase was associated with costs associated with financing activities,
• • Purchases, net of inventory change, increased by $201 thousand in the first quarter of 2021, compared to the first quarter of 2020. This increase was due to an increase in the consumption of purchased raw materials and finished goods associated with increased product sales. On a pro forma basis for the first quarter of 2021, the Company recorded a gross profit margin on Revenue of about 65%. For the first quarter of 2020, a similarly calculated pro forma gross profit margin was approximately 81%, reflecting the high percentage of service-related revenue recognized in that period. Service-related revenue generally is characterized by relatively low accompanying materials cost, and as such, higher margin.

1. In February 2021, the Company completed a private placement of common shares, raising $27.2 million. Also, during the first quarter, IDEX completed the process of registering 60.0 million common shares in the United States, and the Nasdaq listing of 800,000 American Depositary Shares, each representing 75 shares of common stock.

• 1. James A. Simms was appointed as Chief Financial Officer. Mr. Simms has extensive experience with publicly listed companies across high technology.
• Commercial and Market Updates
• 1. IDEX's customer and partner, IDEMIA, launched the second generation of its F.CODE payment card, which utilizes IDEX's TrustedBio sensor. The F.CODE card is the most highly integrated solution available today, leading the industry in terms of biometric performance and card integration efficiency.

1. IDEX achieved certification from China UnionPay, China's largest provider of bank card services and transaction networks, for a biometric payment card based on TrustedBio

INTERIM REPORT		FIRST QUARTER 2021

developed with our partner Goldpac Group, a leading Chinese developer of financial services technologies. This is IDEX's second certification with a card manufacturer on the China UnionPay payment network.

1. IDEX made further progress in pursuit of the emerging Digital Currency Electronic Payment (DC/EP) initiative of the People's Bank of China:
2. • IDEX's fingerprint sensors and biometric technologies featured in Digital Renminbi Hardware Wallet trials being run by the Postal Savings Bank of China.
   • Goldpac has selected IDEX as a strategic technology partner and has placed initial orders with IDEX in support of the DC/EP initiative.
   • Chutian Dragon, a leading, independent card manufacturer in China, expanded its ongoing collaboration with IDEX to include development of a digital currency solution for the DC/EP initiative.