NEXT Biometrics : Report

Quarterly report - Q3 2023

NEXT Biometrics Group ASA

Quarterly report - Q3 2023

Highlights

• Revenue of NOK 6.0 m (NOK 14.4 m Q3 2022)
• Adjusted gross margin of 37%
• 44 accumulated design wins by end Q3 2023
• Adjusted EBITDA1) of NOK -10.5 m in Q3 2023
• Cash position of NOK 86.1 m per 30 September 2023
• NEXT successfully completed a private placement in September 2023, raising gross proceeds of NOK 60.0 million

CEO Statement

Dear shareholders,

As was announced earlier this fall, Peter Heuman stepped down as CEO of Next Biometrics (NEXT) on September 30th, 2023. As of October 1, 2023, I was appointed the new CEO of Next Biometrics. Peter will continue as advisor to the Board and myself.

I would like to thank Peter for having served NEXT over the past four years. His dedicated leadership has been crucial during the turnaround of the company, and his legacy includes a financially healthy company with lots of potential. As you may remember, NEXT was previously downsized, and the high R&D spending on smart cards was discontinued from our offering. We now have a cost-efficient company, with a clear focus on high- security fingerprint sensors in our operations.

Our patented Active Thermal™ technology has paved the way for contracts in the world's largest biometric markets. With multiple new customers and design-wins, we have a strong market position and I believe we are well-positioned to continue our journey towards profitable growth.

My strength as a leader lies in building and driving organizations in growing environments toward a shared vision. As NEXT keeps growing, I'm delighted to confirm we recently and successfully raised new equity capital of NOK 60 million. I would like to thank all the existing, and new shareholders, who participated in the share issue.

Shortly after completing this transaction, I traveled to Asia and met with our key customers, suppliers and employees in the region. India and China are currently our most important markets.

Revenue-wise, the third quarter was below expectations with revenues amounting to NOK 6 million. Notebook sensor shipments were low. We now see that the global laptop market is awaiting 2024 and the new Microsoft Windows version, which has reduced short-term demand. At the same time, we continue to suffer delays on shipments to our accumulated pool of customers. Despite these temporary challenges, we continued to add new customers during this quarter, which is important to achieve NEXT's long-term revenue target. We also reviewed our inventory and our machinery in light of our updated product roadmap and the recent developments in India, which triggered an inventory write-down and an impairment of property, plant and equipment.

One of our Indian OEM partners became L1 certified in September. We expect this certification to provide NEXT new orders in the fourth and final quarter of 2023 and beyond. We also signed a contract with a new Indian OEM, which means we now have partnerships with a total of three, India-based OEMs planning to produce their products with NEXT's sensor integrated.

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Quarterly report - Q3 2023

We have also seen promising business progress in China together with our partners XM-Holder and Wiser. Worldwide, we secured three new design-wins (new customers) during the third quarter, and we are on track towards our target to deliver twelve new design-wins in 2023.

With a healthy orderbook, NEXT is in a good position to reach break-even already during the first half of 2024.

Thank you for your attention.

Ulf Ritsvall, CEO of NEXT Biometrics Group ASA

			9 months	9 months	Full year
(amounts in NOK million)	Q3 2023	Q3 2022	2023	2022	2022
Total revenues	6,0	14,4	20,1	36,3	48,3
Adjusted gross margin (%)1)	37 %	38 %	25 %	33 %	30 %
Adjusted EBITDA1)	-10,5	-8,0	-35,4	-29,8	-38,8
Cash - closing balance	86,1	72,5	86,1	72,5	69,3

1. See definition on page 13

Operational review

Three new design-wins were added during the third quarter. The total pool of design-wins was 44 customer products as per 30 September 2023 compared to 33 as per 30 September 2022.

Q3 PC-sensor revenues were lower than in Q3 2022. This is mainly due to the large volume of sensors shipped in Q3 2022 following the improvement in supply of microchips in September 2022. The quarterly volume of shipped FAP20 sensors decreased relative to Q3 2022 due to delays in India. It should also be noted that NEXT shipped its initial order of FAP20 sensors that was targeted for the India market in Q3 2022.

NEXT's Q3 2023 adjusted gross margin was 37%, vs 38% in Q3 2022.

The Group reached an OPEX ex. options of NOK 4.3 million per month for Q3 2023.

NEXT has a good market position in India following the introduction of the new L1 standard and NEXT partner ACPL's local certification. Products sales based on the previous technology standard is expected to be reduced following the introduction of the new L1 standard. This development and a review of NEXT's existing inventory of finished products has triggered an inventory write-down amounting to NOK 4 million during the quarter.

Interim condensed financial statements as of 30 September 2023 (unaudited)

Statement of comprehensive income

Revenues for Q3 2023 were NOK 6.0 million compared to NOK 14.4 million in Q3 2022. The decrease in revenues relative to Q3 2022 was mainly due to lower PC and FAP20 sensor shipments.

Payroll expenses excluding stock option costs were NOK 7.4 million in Q3 2023 compared to NOK 8.1 million in Q3 2022. Net employee stock option and option social security costs were NOK 3.0 million in Q3 2023 compared to NOK 1.3 million in Q3 2022. See note 4 for further information on stock option cost.

Other operating expenses were NOK 5.5 million in Q3 2023 compared to NOK 5.3 million in Q3 2022.

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Quarterly report - Q3 2023

Depreciation and amortization were NOK 1.7 million in Q3 2023 compared to NOK 1.8 million in Q3 2022. Impairment losses were NOK 1.1 million in Q3 2023 compared to nil in Q3 2022.

Net financial items were positive NOK 0.1 million in Q3 2023 compared to positive NOK 0.6 million in Q3 2022.

Income tax expense was NOK 0.0 million in Q3 2023, compared to NOK 0.1 million in Q3 2022.

Adjusted EBITDA was negative NOK 10.5 million in Q3 2023, compared to negative NOK 8.0 million in Q3 2022. The reduction in Q3 2023 adjusted EBITDA is due to lower revenues partly offset by lower OPEX ex options cost.

Loss after taxes for Q3 2023 were NOK 20.4 million compared to a loss of NOK 10.6 million for Q3 2022. The increased loss was mainly related to Q3 2023 inventory write-downs and impairment losses and increase in stock option costs. Adjusting for these non-cash costs (NOK 8.1 million) the loss after taxes in Q3 2023 would have been NOK 12.3 million.

Statement of financial position and cash flow

Cash amounted to NOK 86.1 million per 30 September 2023, compared to NOK 72.5 million per 30 September 2022.

Net cash flow from operating activities was negative NOK 9.2 million in Q3 2023, compared to negative NOK 10.1 million in Q3 2022. The negative cash flow in Q3 2023 is mainly due to operating losses.

Net cash flow from investing activities was nil in Q3 2023, compared to positive NOK 0.2 million in Q3 2022.

Net cash flow from financing activities was NOK 56.4 million in Q3 2023 compared to negative NOK 0.0 million in Q3 2022. The increase in cash flow is related to net proceeds from the private placement that was completed during the quarter.

Going concern

The Group's financial statements for Q3 2023 have been prepared on the basis of a going concern assumption.

Outlook

The Indian authorities launched the next-generation biometric standard, the so-called L1 certification, earlier this year. To summarize this change in short, this means stricter security requirements are now put in place, which places new demands on all partners in the Indian Aadhaar ecosystem.

Roughly 4.5 million devices are expected to be upgraded to the latest and most secure, biometric standard. On top of this there is a pent-up need, after delays in introduction of L1, on new L1 devices of roughly 1.5-2.5 million units. The implementation of the new L1 certification process has initially been rather time- consuming, affecting all players in the Aadhaar ecosystem. However, we now have indications of certification processes speeding up, partly driven by large banks starting to pick up L1 devices. The Department of Post in India also placed a large tender for L1 devices, providing the market further confidence to go ahead with the certification process.

NEXT now has three, local OEM partners in India that are preparing their individual launches in India, where one of the partners has already received its L1 certification from the local authorities. The market in India is expected to grow significantly starting from Q4 2023 and into 2024, and NEXT is in a good position to capture a part of this market through our local partners.

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Quarterly report - Q3 2023

In July, we also signed a preferred supplier contract with an Asian distributor - granting NEXT an exclusive preferred supplier contract serving five of the largest, and most prestigious, fingerprint sensor customers in China. NEXT is expecting its' first partner to certify NEXT's sensor in China during Q4, and we expect initial product shipments relating to this contract to start in Q1 2024.

We expect NEXT's PC sensor shipment volumes in Q4 2023 will pick up, compared to earlier this year. NEXT's PC sensor shipment level in 2024 is expected to be similar to 2023.

Based on signed orders and the further market opportunities we see in India and China, we expect strong growth in revenue in coming quarters. For Q4 we expect revenue FAP20 revenues from India to be significantly higher compared to earlier quarters. The company could reach EBITDA break-even in Q1/Q2 2024, and for 2024 in total we target a positive result.

Oslo, 31 October 2023

CEO and Board of Directors

NEXT Biometrics Group ASA

Ulf Ritsvall (CEO)

Petter Fjellstad (Chairman)

Emine Lundkvist (Board member)

Odd Harald Hauge (Board member)

Siri Børsum (Board member)

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Quarterly report - Q3 2023

NEXT BIOMETRICS GROUP ASA

Interim condensed consolidated statement of comprehensive income (unaudited)

				9 months	9 months	Full year
(amounts in NOK 1 000)	Notes	Q3 2023	Q3 2022	2023	2022	2022
Operating revenues	2	5 979	14 402	19 708	35 031	46 508
Other revenues		-	19	384	1 237	1 784
Cost of goods sold		-3 738	-9 012	-15 167	-24 430	-33 593
Inventory write downs		-4 039	-	-4 039	-	52
Gross margin		-1 798	5 408	887	11 838	14 752
Payroll expenses	3,4	-10 332	-9 412	-31 786	-26 161	-33 385
Other operating expenses	3,4	-5 477	-5 325	-16 300	-16 268	-22 207
EBITDA		-17 608	-9 328	-47 199	-30 591	-40 840
Depreciation and amortization		-1 690	-1 829	-5 521	-5 395	-7 229
Impairment losses		-1 139	-	-1 139	-	-
Operating profit (loss)		-20 437	-11 157	-53 859	-35 987	-48 070
Net financial items		57	645	418	1 785	1 676
Profit (loss) before taxes		-20 380	-10 512	-53 440	-34 201	-46 394
Income tax expenses		-44	-126	-141	-201	60
Profit (loss) after taxes		-20 425	-10 638	-53 582	-34 402	-46 333
Earnings per share (in NOK):
Basic and diluted		-0,22	-0,12	-0,58	-0,38	-0,50
Other comprehensive income (loss) that may be
reclassified subsequently to profit and loss:
Translation differences on net investments in foreign	-949	2 805	2 935	6 296	2 610
Other comprehensive income (loss)		-949	2 805	2 935	6 296	2 610
Total comprehensive income (loss)		-21 374	-7 833	-50 647	-28 106	-43 723
Profit (loss) after taxes attributable to:
Owners of the parent company		-20 425	-10 638	-53 582	-34 402	-46 333
Total comprehensive income (loss) attributable to:
Owners of the parent company		-21 374	-7 833	-50 647	-28 106	-43 723

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Quarterly report - Q3 2023

NEXT BIOMETRICS GROUP ASA

Interim condensed consolidated statement of financial position (unaudited)

(amounts in NOK 1 000)	Notes	30 Sep 2023	30 Sep 2022	31 Dec 2022
Deferred tax assets		-	42	38
Intangible assets		1 687	3 007	2 579
Property, plant and equipment		8 034	13 642	12 347
Total non-current assets		9 721	16 691	14 964
Inventories		26 030	24 046	22 935
Accounts receivables		3 726	14 896	6 261
Other current assets		10 744	8 881	8 387
Cash		86 150	72 540	69 302
Total current assets		126 650	120 363	106 886
Total assets		136 371	137 054	121 850
Share capital	4	103 996	91 981	91 981
Share premium		48 968	47 762	4 049
Other reserves		31 210	75 426	26 069
Accumulated losses		-76 746	-104 311	-26 099
Total equity		107 428	110 858	96 000
Deferred tax liabilities		67	-	-
Non-current lease liabilities		346	1 163	1 218
Other non-current liabilities		-	68	61
Total non-current liabilities		413	1 232	1 279
Accounts payables		6 148	7 301	7 776
Income tax payables		-	346	143
Current lease liabilities		2 117	1 815	1 748
Other current liabilities		20 265	15 503	14 904
Total current liabilities		28 530	24 965	24 571
Total equity and liabilities		136 371	137 054	121 850

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Quarterly report - Q3 2023

NEXT BIOMETRICS GROUP ASA
Interim condensed consolidated statement of cash flow (unaudited)
			9 months	9 months	Full year
(amounts in NOK 1 000)	Q3 2023	Q3 2022	2023	2022	2022
Profit (loss) before taxes	-20 380	-10 512	-53 440	-34 201	-46 394
Share based remuneration	1 877	1 424	5 141	3 984	4 733
Accrued share option social security cost	1 144	-131	2 643	-3 148	-2 663
Income taxes paid	-	-4	-69	9	56
Depreciation and amortization	1 690	1 829	5 521	5 395	7 229
Impairment losses	1 139	-	1 139	-	-
Inventory write-downs	4 039		4 039	-	(52)
Change in working capital items and other	1 305	-2 756	-2 734	-761	4 712
Net cash flow from operating activities	-9 187	-10 151	-37 760	-28 722	-32 378
Proceeds from disposal of property, plant and
equipment and intangible assets	-	-	-	-	-
Purchases of property, plant and equipment
and intangible assets	-	-1	-	(36)	-70
Proceeds from lease receivables	-	181	-	535	696
Net cash flow from investing activities	-	181	-	499	626
Net proceeds from issue of shares	56 916	727	56 934	727	738
Proceeds from interest-bearing loans	-	-	-	-	-
Repayments of interest-bearing loans	-	-	-	-	-
Payments of lease liabilities	-511	-712	-1 550	(2 051)	-2 738
Net cash flow from financing activities	56 406	15	55 384	-1 324	-2 000
Net change in cash flow	47 219	-9 955	17 624	-29 546	-33 751
Cash balance at beginning of period	38 625	82 544	69 302	102 706	102 706
Effects of exchange rate changes on cash	307	-49	-775	-621	347
Cash balance at end of period	86 150	72 540	86 150	72 540	69 302
Comprising of:
Cash	86 150	72 540	86 150	72 540	69 302

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Quarterly report - Q3 2023

NEXT BIOMETRICS GROUP ASA

Interim condensed consolidated statement of changes in equity (unaudited)

			Share	Other Accumulated
(amounts in NOK 1 000)	Notes	Share capital	premium	reserves	losses	Total equity
As of 1 January 2023		91 981	4 049	26 069	-26 099	96 000
Profit (loss) after taxes					-53 582	-53 582
Other comprehensive income (loss)					2 935	2 935
Total comprehensive income (loss)					-50 647	-50 647
Share issues net	4	12 015	44 919			56 934
Share based remuneration	4			5 141		5 141
As of 30 September 2023		103 996	48 968	31 210	-76 746	107 428
As of 1 January 2022		91 681	47 335	71 442	-76 205	134 253
Profit (loss) after taxes					-34 402	-34 402
Other comprehensive income (loss)					6 296	6 296
Total comprehensive income (loss)					-28 106	-28 106
Share issues net		300	427			727
Share based remuneration				3 984		3 984
As of 30 September 2022		91 981	47 762	75 426	-104 311	110 858

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Quarterly report - Q3 2023

Notes to the interim consolidated financial statements

Note 1 - General information and accounting principles

NEXT (the Group) consists of NEXT Biometric Group ASA (the parent company) and its subsidiaries. NEXT Biometrics Group ASA is a public limited liability company incorporated and domiciled in Norway and is listed at Oslo Stock Exchange under the ticker NEXT.

The Group's operations are carried out by the operating subsidiaries. The Group has five wholly owned active operating subsidiaries: NEXT Biometrics AS (Oslo, Norway), NEXT Biometrics Inc. (Seattle, USA), NEXT Biometrics China Ltd. (Shanghai, China), NEXT Biometrics Taiwan Ltd. (Taipei, Taiwan) and NEXT Biometrics Solutions India Pvt. Ltd. (Bengaluru, India).

The Group provides advanced fingerprint sensor technology that delivers uncompromised security and accuracy for the best possible user experience in the smart card, government ID, access control and notebook markets.

This report contains forward-looking statements that are based on, among other things, the management current expectations, estimates and projections about global economic conditions, the economic conditions of the regions and industries that are major markets for the Group. All such forward-looking statements are subject to inherent risks and uncertainties, and many factors can cause substantial deviations from what has been expressed or implied in such statements.

These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 "Interim financial reporting". The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for 2022 (Annual Report for 2022). The Annual Report for 2022 is available at www.nextbiometrics.com.

The accounting policies applied in the preparation of the interim financial statements are consistent with those applied in the preparation of Annual Report for 2022. There are no new standards and interpretations effective from 1 January 2023 that had a significant impact on the Group's consolidated interim financial statements.

As a result of rounding differences, numbers or percentages may not add up to the total.

The Group's interim financial statements for Q3 2023 have been prepared on the basis of a going concern assumption.

This interim financial report has not been subject to audit.

The Board of Directors approved the report on 31 October 2023.

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