Kempower Oyj (KEMPOWR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Kempower's Q2 2026 Results Presentation. My name is Calle Loikkanen, I'm Director of Investor Relations, and it is my pleasure to introduce today's speakers, CEO, Bhasker Kaushal; and CFO, Jukka Kainulainen. The gentleman will walk us through the highlights and results of the quarter and the first half of the year. And after the presentation, we will, as always, end with a Q&A session. But without any further ado, let's begin. So let me hand over to Bhasker. Bhasker, please, the floor is yours.

Well, thank you, Calle, and good morning, everyone, and thank you for taking the time to be with us today. Starting with the key messages for the second quarter. We delivered double-digit revenue growth, our gross margins improved sequentially, and we ended the third quarter with 18% higher backlog. Revenue was up 10% in Q2, and up 28% for the first half of the year. Now where is this growth coming from? North America, up 54% in the quarter and more than doubled for the first half. Aftermarket, up 35% in Q2 and up 40% in the first half. Next, gross margins, and this is where we -- one that I'm most pleased with. We aim in at 47.2%, up almost 2 percentage points sequentially versus the first quarter. And that's a strong signal that our product cost reduction program is working, it's ramping up and delivering results. We've achieved around EUR 4 million of savings in the first half, which is helping us absorb and offset real price pressure. On profitability, we've improved 40% in the first half year-on-year. Operative EBIT went from minus EUR 9 million in the first half last year to minus EUR 5.4 million this year. Now we're closing the gap to breakeven while continuing to grow our top line. Further, we've launched a fixed cost calibration program to calibrate our cost base to the market conditions and to the new strategic priorities that we announced in May. Now I'll talk a little bit more about this program later today. And lastly, the order backlog is EUR 138 million, up 18% versus same time last year. So that's a solid platform going into the coming quarters. We have refined the top end of our revenue growth guidance. Now it is 10% to 25%, and the EBIT improvement guidance is unchanged. Now let's look at the financial highlights next. Let me walk through the four buckets quickly. First, order intake, EUR 69.8 million, which is down 6% year-on-year in Q2. Now that's partly because of timing, a couple of large deals that have shifted out, and some of it is softness on the CPO side. But we still have strong momentum in adding new customers, 14 new customers acquired in the quarter. So a bit of an order timing story here in the quarter, but for the first half of the year, order intake is still up 4%. Second, revenues, EUR 68.6 million, up 10%. Our growth was broad-based. Strong momentum in APAC in North America and aftermarket up 35%. Third, profitability. Operative EBIT was minus EUR 1.9 million, essentially flat versus last year. Overall, when you look at what we are doing, we grew the top line 28% through the first half. We've absorbed real price pressure, and we've helped our profitability steady in the second quarter while our cost programs are ramping up underneath. So that drives an upward trajectory from here. And finally, cash flow. Operating cash flow was minus EUR 11.7 -- was minus EUR 11.7 million, and working capital was temporarily higher this quarter, mostly due to higher receivables tied to some longer payment terms that we have from some bigger strategic partners. Now it's great that we're driving strong growth with these strategic partners. But in the quarter, this shift in mix drove temporarily higher receivables. Overall, cash management, it's a key focus area for us, and we expect cash flow to improve in the coming quarters. Overall, our liquidity remains solid at EUR 102 million. Next, let's look at the market context as that also explains our guidance move. So let me talk a little bit about the leading indicators and the lading indicator. The main link indicator for our demand is battery electric vehicle registrations and sales. And for passenger cars, the underlying BEV growth is diverging by region. Europe, up 27% in the quarter and for the first half. So that's quite strong fundamental growth in the electric vehicles. North America is going the other way. It's down 24% in the first half. And on commercial vehicles, e-truck and e-bus registrations, the data comes with a 1 quarter lag. But that grew 37% in the first quarter of the year. That means that the heavy-duty market also continues to show quite strong growth. Then the lagging indicator, which is the public DC fast charging new installs. Now this was down 14% in the quarter overall. North America up, but Europe down 19% in Q2. So what's happening in Europe? There is some market consolidation taking place in the CPO segment. We've seen a slew of announcements here in the last quarter, plus the operators are focused a bit more on utilization and profitability in this moment versus accelerating their network expansion. But if you step back, it's a very healthy growth signal on electric vehicle growth, which is the key leading indicator that drives the charging infrastructure market. So that network capacity gets built, driven based on the strong growth in the number of electric vehicles on the road. But in the near term, we're seeing some quarter-to-quarter fluctuation in terms of the new installs. So it's really a question of timing, and there's some lag between when we see registration growth in EVs to the charger installations. So that's why we refined the top end of our revenue guidance based on what we're seeing in the market and how we are responding to that. One, our diversification into Europe outside the Nordics has been strong, and our aftermarket growth partly offset that. And importantly, the cost programs that I will talk about mean that we are holding our EBIT improvement guidance regardless. So next, let me talk about our performance in Europe. So in Europe, we're continuing to execute on strategy. We talked about we want to grow across Continental Europe, and we did a solid job in this quarter. Europe outside Nordics, order intake up 16% and revenues up 9%. We have strong wins in France and Germany. We've added 12 new customers in the quarter. The Nordics came down, but the context is important here. I mean, the Nordics were 32% of revenue this quarter, down from what was 40% a year ago. So the rest of Europe is growing into a much bigger share for us. A couple of customer highlights that I really want to call out. We signed a global framework agreement with APM Terminals to supply charging infrastructure for port terminals, one of the largest port operators in the world. And that's heavy-duty charging. That's global. That's exactly where we want to be, and we're very excited about this partnership. And next, also the first leader in Finland with Kempower charging. It's retail destination charging with the premier retailer. And it's a segment that we are quite bullish about, and we have some real runway for growth, and this win gives us some wind in our sales. Next, let's look at North America. So we've talked about North America as one of our growth engines, and we can see it in our revenue numbers. Revenue was up 54% from EUR 7.7 million to EUR 11.8 million. strong growth across both public charging and fleet. Now order intake was down 37% in the quarter. It's timing, pure and simple demand shifting between quarters, not demand loss. We've added two new customers. Our pipeline is healthy, and we remain optimistic. I mean, the proof of that is that the wins that we're seeing, the North America team put up. A couple of examples, Blinkcharging, expanding 14 sites across the U.S. East Coast through the course of 2026. And EV Realty truck charging hub in California, one that I visited, 74 Kempower satellites and two mega satellites. I mean the second 1 tells you where the puck is going, heavy-duty truck charging at scale in North America. And that's a segment that's our strong suite and that we're very excited about. Next, a quick one on how we're doing on our strategic priorities that we talked about at our Capital Markets Day in Oslo in May. Five priorities, and we've made real progress on all. First, winning with customers. 14 new customers added. APM Terminals, global framework signed. An extended partnership with Circle K across Europe. We're really grateful for the trust these blue chip customers are placing in us. Second, technology leadership. We had two launches in the quarter. Mega Satellite Flex, which is our first dispenser that charges with CCS and MCS, and I'll spend a minute on that next. And ChargEye, we launched an analytics dashboard that helps the operators run their networks more optimally. That directly serves the focus on utilization that I just talked about that CPOs have. Third, Life Cycle Solutions. This is aftermarket for us. Service levels are up. We've got 35% growth in aftermarket in the quarter, 40% up for the first half. These are higher margin, higher recurring revenues, stickier revenues. We talked about that, and we're very excited to see this growth come through. Fourth, operational excellence. Our cost program is on track, around EUR 4 million achieved through the first half of the year, and I'll talk a little bit more about that in a minute. And underneath it all, it's the foundation of building and continue to build a winning culture in a team. And we think about -- we strengthened the leadership team with the hiring of a CIO and a CTO to continue to help scale the organization. And our Kempower 2.0 strategy that we shared in May, it's being rolled out actively across the company. So one minute on the Mega Satellite Flex product because this is a really exciting one. In very simple terms, this product can charge either high-power CCS up to 560 kilowatts or megawatt charging up to 1.2 megawatts. And the beauty is it's one asset, it's one product that addresses both standards for our customers. If you look at fleet operators and charge point operators, they're looking at a mixed future, which is CCS today and MCS coming for heavy trucks in the future. And this product lets them serve both from a single asset. It's a simpler transition for them. It drives higher uptime. It lowers the total cost of ownership for our customers. And for us, it continues to expand our reach into the truck and heavy-duty charging without building a completely separate product line. And that's the beauty of our modular platform. So very excited about that product rolling out. Now next, I do want to pivot and talk a little bit about our cost architecture. We have two programs running. In the first one that we've talked about, it focuses on the cost of the products that we build. And the second one that I'll talk about today, it's what it costs to run the company. And we're addressing both cost structures. So first, the product cost reduction. Our target that we shared is EUR 10 million plus for 2026, and we banked already around EUR 4 million year-to-date, and the program is still ramping up. So we're on track to hit or beat this target? How -- it's coming from procurement, where we have new RFQ rounds to get lower prices on things like PCBs. And this is, by the way, is despite increase in the cost of some raw materials. And then we're driving subcontractor consolidation in our production environments where our R&D teams are constantly redesigning parts that, by the way, help cost, but also help our greenhouse emission. So a lower footprint on that as well. Now the results of these actions and savings, they're already becoming visible in our financials. You can see that in our gross margins. Gross margins up from 45.3% in Q1 to 47.2% in Q2. And we expect more of this impact to come through in the second half of the year. Now second to the right, this is the new program. It's fixed cost streamlining. And we're launching this program to align our overhead cost base with what we see as the current market conditions and also our new priorities that we announced. We're targeting more than EUR 5 million in fixed cost savings, savings begin towards the end of the 2026 and they really ramp up through the first half of 2027. At the bottom of this, this is about creating a leaner, more agile organization. Lean processes, tighter operating model, better spend management to drive all of this. But look together, these two programs are why the EBIT improvement path for us is unchanged even as we trim the top end of our revenue guidance. And with that, I'll hand it over to Jukka to take you through the financials in a bit more detail. Jukka?

Thank you, Bhasker, and let's move on to quarterly finance sales. So overall, I would say we had quite a mixed performance when looking the quarter 2 overall. Of course, some negative areas of development, but some positive highlights as well like always. But starting from order intake, like Bhasker commented, it was down by 6%, not due to demand, but due to timing of orders. But when looking overall in H1, orders grew by 4% year-on-year. When looking revenue, we continued growing revenue, 10% in quarter 2, 28% when looking to H1. So strong results when looking at the revenue progress overall. Also one highlight regarding the revenue was our aftermarket growth 35% growth when looking quarter 2 overall. Positive highlight also, our sequential improvement in gross profit margin. We are now more than 47%, 47.2%. So we were able to improve; thanks to unit cost reduction program. And then when looking the operative EBIT, it was around flat when we look into quarter 2, but we were improving it significantly year-on-year from negative EUR 9 million last year to negative EUR 5.4 million in quarter 2 2026. So overall, like I mentioned, a little bit mixed results, but positive highlights: continued revenue growth, improved margins. And overall, in the profitability wise, even though we are not there where we want to be, we are in the improving trend, which is important above. Then let's move to orders. So orders for the quarter 2 was fast, so down 6%. Of course, our order generation overall is a little bit volatile. It's up to customer decision-making. And it's good to remember that we were actually able to grow our orders 6 quarters in a row before this quarter. So timing of orders, especially in the North America resulted decline in orders of 6% for the quarter. But overall, H1, like you see, we are up in order intake by 4% overall. And highlights of the regions was the Europe outside Nordics, specific countries, big EV countries, Germany and France, where we were able to grow the orders during quarter. And really important one is also order backlog, really strong order backlog, EUR 138 million, 18% up year-on-year, which is really positive in looking our revenue development for H2 2026 overall. Then moving to revenue. A little bit repeating, about the 10% growth in quarter 2, 28% growth in H1. So really strong result in that sense. All the other regions grew the revenue, except the Nordics, what we have been expecting and planning a whole year. Strongest growth, North America more than [indiscernible] growth in revenue, APAC, Middle East, Africa doubling the revenue as well during the quarter 2. And then highlighting again our recurring revenue. So revenue from services growing 35% in quarter 2, 40% in H1. And we have already 6% of our revenue base as the recurring when looking quarter 2 numbers. Then moving to the profitability. It was a good change in our gross margin trend, we were able to now sequentially improve our gross margin. So it's up from 45.3% in quarter 1 to 47.2% in quarter 2; thanks to our successful execution of unit cost savings program, which generated around EUR 4 million savings in our unit cost in H1. Of course, we are still down year-on-year, but this is when looking the progress going forward and our trends overall in the margin really positive results. Operative EBIT flat year-on-year, but this EUR 3.6 million improvement year-over-year when looking H1 operative EBIT is a good development as well. Even though we are not yet there in the profitability, of course, where we want to be. But the direction is good, and that also matters. Then let's look at the cash flow and liquidity. Cash flow, operating cash flow negative by EUR 12 million for the quarter. And main driver for that was increased net working capital. And in the increased net working capital, our accounts receivable increased. And what was the reason for that? Share of our sales in the strategic partners have increased and that customer group was driving up our accounts receivables and causing the temporary negative cash flow, operating cash flow for the company. This is something we also addressed a lot, and we expect the net working capital to come down significantly when looking quarter 3 and quarter 4. Overall, our liquidity remains strong EUR 1 million or EUR 2 million, and we actually just renewed 1 of our RCF, EUR 40 million for next 4 years. Then at the end, I would ask Bhasker.

Thank you, Jukka. So perhaps just a quick summary of Q2. So we've specified our outlook for 2026. We now expect 10% to 25% growth over the course of the year versus the previous range of 10% to 30%. So this is on our 2025 base of EUR 251 million. And we've lowered only the top end because of the [Audio Gap]. Some of our -- actually our long-standing CPO customers, we see them gradually increasing their level of investment. That gives us confidence for the back half. And the outlook for operative EBIT is unchanged. In 2025, it was minus EUR 12.4 million. We still expect to deliver a significant improvement versus last year. And we're committed to the profitability improvement trajectory. And as I stated earlier, the cost programs that we've launched, we're actively ramping those up that supports that. So to summarize the quarter, 3 things to take away. First, we're continuing to grow and our growth is broadening. Revenue up 10% in the quarter, up 28% in the first half. North America, up 54%; APAC and EMEA, up 166% and EUR 138 million backlog going into the third quarter. Second, we're executing the strategy well. 14 new customers acquired, Mega Satellite Flex launched, aftermarket up 35%. The product cost programs delivering as planned. All of these are good proof points of the strong progress that we're making as a company. Third, our margin and cost architecture is improving. Gross margin up sequentially 2 percentage points and the fixed cost program launched to build a leaner, more agile company in business. So broadening growth, strong strategic progress and an improving cost base. That summarizes our quarter. And with that, let us open it up for questions. So I'll invite Calle and Jukka to join me on the stage. Thank you. Calle?

Thank you, Bhaker, and thank you Jukka as well for the presentation. Now let's continue with Q&A. We will first take the questions from the conference call line and then move on to questions through the webcast. So if you have any questions on the webcast, please do type in them already now. But now let me hand over to the operator for the instructions. So operator, please go ahead.

[Operator Instructions] The next question comes from [indiscernible] from Inderes.

You mentioned some shift expected deal closings in the second quarter. And you also mentioned that the increased EV adoption is growing the market going forward. So should we expect the demand to revive in the second half? Or should we expect this kind of new reality where CPO customers are more profitability-oriented and cautious?

Thank you, Paul. Great question, and welcome back from your time off. Good to hear from you. I'd say, look, fundamentally, I mean, the strong electric vehicle growth that we see, it's great. That's the fundamental driver for our business. So Europe up 27%; North America is going the other direction. We know the reasons that we've talked about with the policy, but Europe. 1 in 5 vehicles that are being sold today is an electric vehicle. And in Europe, right? So that's a very positive sign. So I think that gives us confidence. Now we've seen I mean, on the consolidation front, by the way, consolidation, I see some industry consolidation is as healthy. The industry needs very profitable and healthy players to grow in the market. So I think in the near term, we may see some volatility here. I mean that's -- we've seen that already here in the last quarter. So the fundamental underlying drivers point to a growth trajectory. We need to come to -- get through kind of the near-term volatility. So we expect a continued growth trend, notwithstanding some near-term volatility. I mean we've seen this market be volatile quarter-to-quarter, but also bounced back really strong. So that's what we're hoping happens here. But the timing, obviously, varies a little bit. There's a bit of a lag between the electric vehicle growth and then the charging installs.

Then you mentioned in the CMD that you are developing a new satellite. So do you think that with the new like satellites have a negative impact on orders before the rollout, like if the customers are waiting for the new products. Do you expect any of that?

Look, that's a great question. And yes, we're targeting to launch that towards the end of the year. and we're very excited about it. I mean, our customers are very excited about it. So the timing -- pending the timing, I think we'll see how the order book plays out on that. But I'll tell you, I mean, there's a lot of excitement about the product from our customers. So again, without getting caught up in the quarter-to-quarter, that's something that can really help us gain further share in the CPO segment, in the retail segment with some of the things that UC had talked about in the CMD. A lot of the features, functionality, performance, cost of how we built that product is very much targeted towards addressing the needs of our customers around user experience and total cost of ownership. So we're very excited about the product. And now I think, yes, to your question on order book, I mean, we expect the order book to grow as a result of that pending the timing of the exact lease.

Then second question regarding the cost savings. This is EUR 4 million run rate figure in the end of June? Or is it so that you already got that fully reflected in your P&L at EUR 4 million?

Yes.

Yes. It's already in our H1 numbers, and that's visible in the gross margin percent what we reported out in our financials.

The next question Nikko Ruokangas from SEB.

Nikko Ruokangas from SEB. I have 3 questions, and I'd like to go one by one. Starting with orders in North America, which declined clearly from the level where you have shown in the last 4 quarters, and you highlighted there were some order delays. But without these delays, what orders in North America have grown? And if we think about kind of the underlying level of demand you are experiencing in North America, are we currently closer to the EUR 10 million quarter level or closer to EUR 20 million if you think about your market position there?

Thank you, Nikko. Good question. Look, I mean, in North America, if you look at the numbers, I mean, in quarter revenues, we grew 54% for the first half of the year. We're up -- we've more than doubled the revenues in North America. So the trajectory is upwards now. Yes, addressing kind of the order intake point, absolutely. I mean that's the indicator for future growth. And yes, the sales cycle has elongated. Now having said that, what we are pursuing our team, Monil and the team there, Monil talked about in the Capital Markets Day, we're getting to substantially larger sites, larger deals, which also funding tied to those deals needs to be secured by our customers. So it becomes a slightly longer elongated sales cycle. But the pipeline is very healthy. And we haven't had any losses more just demand shift. So we remain very bullish about our North America growth prospects, notwithstanding the market. We still have ample runway for share gain and share growth.

I go with this number question. Yes, actually, it would have grown the orders or less without this timing topic in North America.

All right. Then on the CPO topic already discussed a bit about. So how big share are currently CPOs of your sales and in which geographical areas have you seen this kind of a slower development?

Yes. So of course, it depends on the year and the quarter, but it has been between 20% to 30% of our sales, look in the history. And we had the slowness in the CPO segment, both in North America and Europe. So both key regions were impacted.

Yes. And just building on that, our sales to end CPO customers is higher because we also sell through partners and those partners may be selling to a smaller CPO. So our end customer that may be a bit -- that's actually a bit higher than what you guys just stated.

Yes. Makes sense. Then last one, a bit more technical on order book. So how big share of the current order book are you expecting to deliver after 2026?

More than 2/3 of that is for 2026.

The next question comes from Patrick Campbell from Nordea.

It's Patrick Campbell from Nordea. Just a couple of questions. First, related to the customers and the CPO specifically. So it seems that you've been granting a bit longer payment terms for some customers, which I assume includes CPOs as well. Does this mean that the financing conditions along CPOs is deteriorate?