NX Filtration N.V. (NXFIL) Earnings Call Transcript & Summary

Hello, and welcome to the NX Filtration 2024 Full Year Results. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Floris Jan Cuypers, the CEO of NX Filtration to begin today's conference. Thank you.

Thank you very much for your introduction. And welcome to our full year 2024 results webcast. In the call, we also have present my colleagues, CFO, Jan Fei Zwiers; and COO, Michiel Staatsen. I'll go to Slide 2. We will present our key highlights, our strategic progress and the full year 2024 financials and outlook. But before that, I would like to mention that after having joined NX Filtration a little over 4 months ago, I am very impressed about NX Filtration's products, people and the partnerships that we are building with OEMs to successfully deploy our membrane modules across the world to clean water. The business of NX Filtration is to enable delivery of clean water at lower energy footprint and with little to no chemicals. I have seen personally our hollow fiber nanofiltration, ultrafiltration and microfiltration deployed in full-scale projects and sizable pilots when I traveled to Indonesia, Spain, Belgium and the Netherlands the last few months. Also personally meeting with our OEM partners across the world to solidify and deepen these OEM partnerships enabled me to help further sharpen our commercial execution cadence. We are strengthening our sales teams globally, including replacements with good people, with veterans from the industry, an excellent focus and spirit with more fundamentals in place for success, particularly clarity and performance focus. I go now to the next slides, over to the highlights of full year 2024. Our revenues came in at EUR 11.1 million. This is up 38% compared to 2023. This was driven by repeat projects with existing clients and also successful onboarding of various new OEMs. We see that the value of our technology is reflected in a continued strong gross margin of 61.0%. All in all, resulting in a strong ESG impact by enabling clean water while avoiding 4,300 tonnes of CO2 emissions. In 2024, we also put in place further building blocks, setting us up for the growth journey ahead of us. To mention, we secured new funding in March 2024. Second, we have further built out and strengthened our leadership team on the commercial side and across the company. And last but not least, we reached the important milestone of successfully starting up our new large-scale factory in the Netherlands, and we're already benefiting from that, for instance, in delivering at scale our ultrafiltration 55 square meter with a reputable global OEM in India. This enables our teams for 2025 this year to fully focus on further developing our OEM partnerships and converting project opportunities into orders. We expect revenue growth for full year 2025 to be in the range of 50% to 70%. And we keep working on the -- enhancing the pipeline of OEM. I go to the next slide. We grew both our business lines Clean Municipal Water and Sustainable Industrial Water. To start with the Municipal Business line, we are offering water companies a sustainable solution to remove micro pollutants such as PFAS, chemicals and medicine residues from polluted water sources. Not only did we realize a 43% year-on-year growth but also, we showed continued strong progress with global blue-chip OEMs, such as Veolia, Aqualia, Nijhuis Saur and others, working with these OEMs on multiple full pilot projects and full-scale projects which gives us confidence about the traction. We are particularly proud of the water reuse project in SAPAL, Mexico. Not only will this be the largest hollow-fiber nanofiltration system in the world, the application is water reuse for drinking water in a region that suffers from severe droughts during the summer, a very important application in the water transition. In the Industrial business line, we enabled sustainable water treatment for water reuse and process water and showed 38% year-on-year growth. To note, with our OEM partner, Hydroflux in Australia, we secured a large-scale order for hollow fiber nanofiltration wastewater treatment in the building materials industry. And in Food & Beverage, we continued our work with PepsiCo to whom we have now supplied nanofiltration membranes in 3 continents. I hand over to my colleague, Michiel.

Thank you, Floris Jan. And now to a true global footprint. As you can see on the world map, we are now represented in Southeast Asia, the Middle East, Belgium, Germany, France, Spain, and we have our own sales offices in the U.S., China and India. And with the strong global local presence, we can effectively support our customers in their search for sustainable water treatment solutions. In the graph, you can see that we generate revenues in all these major water technology markets. And furthermore, that we started another 207 pilots in 2024, sold modules for 14 full-scale projects, larger in size again and including 7 repeat orders and also received 6 replacement orders related to projects we supplied in the past years. This is an essential part of our rollout and growth strategy. And we see this as a great testimony for the success of our technology and confirmation that the drivers to implement real solutions are getting stronger across the world. That we are successful in demonstrating the power of our technology through our commercial rollout model across markets and geographies. And let me here start by reminding you that NX has a clear mission, and that is to enable the production of clean and affordable water to global markets. With our innovative membrane technology, we help our customers to treat water from alternative sources such as surface water or even wastewater without use of chemicals and with minimal energy consumption, and thus a lower CO2 footprint. As you know, we have committed to the science-based target initiative and we've been rated by Sustainalytics. And in 2024, we became the first listed company in Amsterdam that was B Corp certified further underlining our very strong overall ESG profile. And on the next slide, you see that we are translating these ambitions into making real impact. And in this slide, I'm very proud of the achievements of our team in 2024. Let me give you some numbers. Our membranes enable efficient production of high-quality water from alternative sources from polluted rivers, industrial municipal wastewater across already 38 different countries. And with the membrane modules we sold in 2024 alone, we can produce 475 billion liters of water while saving 98 gigawatts on energy and 8 million kilograms of chemicals with a CO2 equivalent of 4,300 tonnes compared to existing traditional technologies. And now to strategic progress. In this picture, you see the HFNF modules or hollow fiber nanofiltration modules at work in Medang Kampai, our largest running drinking water plant in Indonesia to date. And as you know, the water transition is about water scarcity and water pollution. And those are the key drivers in the water markets. And this is meanwhile on almost all political agendas and is focusing on protecting water bodies for the pollution or SEG -- very as -- for example, very strict regulation for PFAS discharge, but also stimulating and enabling the reuse from, for example, biologically treated municipal or industrial wastewater. And this is, in our opinion, a very important trend and an important instrument to tackle water scarcity and it's an important new source for high-quality water for industrial or agricultural or even drink quarter applications. As you know, we are taking our customers through the technology selection phase by demonstrating the power of our technology to pilots and demonstration projects. And on the left side of the slide, we see the numbers of pilot projects initiated over the years. We started over 200 new pilot trajectories in 2024, planting the seeds for further growth, both in industrial and municipal markets. And we believe that the level of 200 pilots per year that we set out as an objective during the IPO form the basis to add new OEMs and system integrators to our customer base. The basis that we continue to broaden and deepen and build on by converting those pilots into first orders for small and medium full-sized projects and then keep working with these customers on new and larger repeat projects. On the chart on the right, we see the development of our fleet of pilot systems in time. As you know, we have different type of pilot systems, varied from small lab scale, Mexplorer pilots for technology acceptance, to containerized fully automated Mexpert pilots for proof of concept. And these do not only provide water quality parameters, but also provide valuable insights on energy use and chemical consumption, which are important differentiators for our technology. And as such, valuable inputs for the next phase, engineering and design of a full-scale system. And these pilots are being deployed all over the world, and we will remain focused on effective deployment of our pilot fleet together with our customers. As such, we believe we are well equipped with this pilot the fleet to address pilot needs going forward, especially because our repeat customers are slowly taking over piloting from us with their own pilots. And because we expect to benefit more and more from learnings from the past from conducted pilots and from running full scale, and last but not least, we'll also benefit more and more from our advanced online protection tool, which will ultimately result in shorter or even no piloting in sweet spot applications. Switching to Slide 11. We are very proud about successfully starting up a new factory in 2024, where we have added an initial 50,000 module production capacity and created a space and infrastructure to expand to more than 120,000 modules per year in the future. We have finalized the construction in time and within the CapEx budget. And we have successfully started up membranes module production and our own in-house water treatment based on polluted service water. With extensive reuse of energy with heat recovery systems, we have solar panels on the roof and novel heat exchange with a neighboring data center, our advanced setup will lead to significantly improved energy footprint. We have moved our entire module production operations to Hengelo last year as well. And in the coming months, we plan to install and start up our former membrane production lines from the previous location in Enschede, and these original lines will be dedicated to the production of ultrafiltration and microfiltration membranes. And now I hand over to Jan Zwiers.

Thank you, Michiel. In the next 2 slides, I will take you through the financials of '24. I will start with the summary of the profit and loss. Total revenues grew by 38% from EUR 8.1 million in '23 to EUR 11.1 million in '24. This was driven by successful conversion of pilots into large full-scale projects, prepaid projects with existing clients and successful onboarding of various new OEMs across all regions. Gross margin remained strong with 61% in '24 compared to 59.6% in '23, reflecting our strong technology position. EBITDA loss was EUR 15.7 million in '24 compared to a loss of EUR 11.9 million. The increase in EBITDA loss is mainly driven by additional investments in the organization ahead of the curve to facilitate future business as well as specific costs related to the start-up of the new factory and the transfer from our previous facilities to the new factory. Total FTE slightly increased from EUR 166 million to EUR 169 million in December '24. We are able to benefit from efficiencies resulting from our larger scale operations, and we continue shaping our global organization to position us well for the growth ahead of us. And now to the balance sheet. CapEx amounted to EUR 25.9 million compared to EUR 43.9 million in '23. CapEx mostly relates to the construction of our new factory, which was completed in '24. Additionally, NX Filtration capitalized EUR 1.1 million of development costs which demonstrates our continued efforts to invest in innovations for the future. Working capital amounted to EUR 14.5 million versus EUR 9 million, December '23. This was driven by lower trade payables, reflecting the impact of outstanding CapEx payables at the end of '23. Higher inventory levels to support the transfer of the UF and MF production to the new factory in Hengelo in Q1 '25 and to meet anticipated growth in '24 -- anticipated growth in demand for '25, partially offset by a reduction in receivables. Cash position at the end of '24 amounted to EUR 53.4 million compared to a cash position of EUR 49.9 million at December '23. The cash position was positively influenced by NX Filtration newly secured combined equity and debt package of approximately EUR 50 million in March '24. We expect our cash position to be sufficient to fund our growth ambitions well into the future. The final part of the webcast will be presented by Floris Jan.

Thank you, Jan Zwiers. Sustaining and accelerating adoption of our breakthrough technology through our commercial rollout strategy remains top priority. We will further intensify our existing approach in working with OEM partners to roll out pilot projects and convert these pilots into demo and full-scale projects. We focus on realizing more and larger repeat projects with OEMs and therewith expanding our installed base for future replacement sales. Then concerning our new factory, after the successful start-up of our new factory in the Netherlands, we will continue to move all our existing operations into this one new facility to enable further efficiencies. The additional capacity from our new factory will enable us to supply larger projects from our growing overall pipeline of opportunities for the medium term. Together with the Board and our professional and focused colleagues around the world, we are fully committed to keep increasing impact based on our mission, clean and affordable water for all. On April 8, this year, we will host a Capital Markets Day in which we look forward to talk you through the highlights of our industry and updates on our exciting business. And here with, I hand over to the moderator for Q&A.

[Operator Instructions] We will now take our first question from Chase Coughlan of Van Lanschot Kempen.

I just have 2. To start off, regarding the 2025 sales growth guidance, the 50% to 70%. Could you provide a bit more color on sort of the building blocks you see that give you comfort in that range? And for example, what might have to happen for it to be either at the higher or lower end of that range? Any more granularity on that, please?

Yes. Thank you, Chase. So indeed, we confirm our outlook for 2025 growth of 50% to 70%, which is a very decent strong growth. The components underlying that are obviously our viewpoint on the pipeline of our OEM partners. We see OEMs that do repeat projects, such as we mentioned Delco in Canada, EcoAzur in Mexico, and we are confident that we are bringing more of our OEMs to that stage of doing repeat orders and at the same time, onboard new OEMs. That counts both for our breakthrough hollow fiber nanofiltration projects, which are, of course, our breakthrough technology, where we see more adoption knowledge with our OEMs and end customers and the comfort to go to large-scale projects. We will, in due time, see that happening on multiple continents so that the OEMs and end customers are also close to those full skills and conceived with their own eyes. Next to that we also have a very competitive portfolio in ultrafiltration and also in our Food & Beverage microfiltration portfolio. So we see comfort in our pipeline. And we are, of course, working very hard all across the world on executing this in a timely manner.

Okay. Perfect. Very clear. And then just 1 more question on the FTEs. So you expanded the FTEs to 169, up from 166 at the end of last year. I'm curious on what should we expect for 2025? Do you think you have ample employee capacity to, for example, achieve this 50% to 70% growth? Or should we also see an uptick in FTE this year? Any more color on that?

That will remain at the same level. So that is also in the -- what we call the direct labor force. We are able, let's say, to maintain efficiencies with the newer factory. So within, let's say, in the total number, we don't expect, let's say, that we have to increase further.

And maybe to add on that, we as a Board also really drives -- of course, one of our main culture values is about the performance drive and efficiency. So we want to increase productivity, obviously, so both on the operational side to increase the yields. And in one location, that's a lot easier than in multiple locations. And also on other places, among other also in the commercial side, we are upgrading the workforce. So we also get in -- if people leave, we get in new people, particularly industry veterans from big OEMs or big water companies that also bring comfort in the execution of that size. So it's productivity and performance increase on the base.

And we will now take our next question from Usama Tariq of ABN Amro ODDO BHF.

I just have 2 set of questions. Number one, on gross margin. What -- I do understand that you don't provide guidance, but do you think the 61% going forward in terms of modeling, do you think it is sustainable for 2025, 2026 going forward? And second question would be, could you comment a bit on the legislation or on the upcoming regulations in EU and whether you do see that supportive going forward for any potential new orders coming out from Europe? We've had orders from Saudi Arabia, Mexico. Do you think we can expect something from Europe too for this year?

Maybe starting with the first question about -- in terms of looking forward in terms of margin development, that highly depends on the mix. So in which type of products we will be successful. That is one. The other dimension is higher -- that we expect that in terms of size, the projects will become higher and we are highly certain the pricing will be more competitive. But in general, also next to the MF, we expect for the UF and for the MF that's focusing on unique niches that those margins will be at a relatively high level.

Yes. So that's the answer on the first question. And the second question is about the regional. As we learn, we call that our sweet spots in terms of product applications and regions. We, of course, see very good traction across the world, but more notable for the drinking water or hollow fiber nanofiltration project. We've seen that in Asia, in India, in Southeast Asia, but also in Mexico. But also in Europe, we see that more and more. As you know, I've traveled -- well, I've traveled in the last few months to Spain, France, Indonesia and across the globe. And what I see is that in our conversations with our strategic OEMs that does do pilot with us, the global OEMs are there, companies like Acciona, Suez, Aqualia, Veolia and also the local small ones in Asia and in Americas. But I would expect also indeed that in the coming time, we have also large-scale nanofiltration projects across all the big 3 continents, including Europe, yes.

Just 1 little extra question with regards to OpEx. So the sales guidance is from, I believe, 50% to 70% top line growth. Could you comment in general, on the OpEx growth, I assume it would be less than 50% or 70%? And if you could also just add a comment on one-offs, I believe, due to the new factory, there are some one-offs in 2024. Do you expect them to be fully gone in 2025 in terms of OpEx?

In terms of OpEx with regards to the growth for this year, that will be moderate. There will be limited growth in terms of OpEx, that is one. With regards to the one-off elements, what we explained in terms of guidance is that in the first quarter, we have, let's say, the transfer of the membrane production from Enschede to the new factory that has some slight impact, so let's say, on some additional cost for this year. But all in all, let's say, in terms of OpEx, there will be limited growth in terms of OpEx cost.

[Operator Instructions] And we will now move on to our next question from Thomas Martin of BNP Paribas Exane.

Just a couple of clarifications, please. I think inventories were about EUR 80 million at year-end. I think you had some orders delayed into '25 from '24. You obviously have the factory move, maybe that impacted things and you're intending to grow the top line. I was wondering if you could give us some insight as to whether or not that EUR 80 million inventory position is likely to need to grow in absolute terms? Could it follow and still support your growth? Could you give some insight there on the working capital movements? And then second question, just on the CapEx outlook. You've obviously finished construction of the new facility. What are we looking at for 2025 as a sort of sensible CapEx estimate for the business to keep everything, I guess, it's mainly maintenance, keep everything maintained?

Indeed. And I think you already good -- really good describe, let's say, the main reasons why we have this high level of inventory around that EUR 8 million. So Working capital is a focus area for us in '25 as well, next to cost and then delivering sales. And certainly, inventory is one of the elements which we want to optimize going forward. And that means, let's say, for this year that we want to reduce the inventory level.

I guess are you willing to go any further in terms of giving a stage of coverage range or anything like that or amount on which you might be able to use within the growth...

Well, I think, the point is that we as a Board, we, of course, want to have a double-edged sword, both on the growth side, profitable, but also on the OpEx and CapEx, we'll be as lean as mean as we can. So we'll indeed decrease the inventory level in line with where we want the financials to move in the coming years, but we don't give an exact number for 2025.

Fair enough. And then on the CapEx, are you able to give us a bit more refinement as to where you expect to be post the roll off of this -- well, first of all, is there anything else still significant to spend or to come through in 2025 related to the expansion and then ongoing maintenance now?

It's mainly, let's say, the additional CapEx, which we have for '25 is mainly related to the transfer of the membrane production to -- from Enschede to Hengelo. That is the main additional CapEx, which we have for this year.

Okay. I've never moved to membrane facility, but single-digit millions. Is it that absolute level?

Yes.

Low single digits?

Single-digit millions. Single digit million.

We'll now take our next question from Fernand de Boer of Degroof Petercam.

Fernand de Boer from Degroof Petercam. Also on the one on working capital. On payables, is there still an amount included for the plants for the factory, which still have to be paid? Or is that all paid? That's the first one.

At year end?

At year-end, yes.

And here on December '24, there was still an amount related to the investment of the new factory was still included.

Okay. And of the EUR 9 million, could you -- it's EUR 1 million of EUR 2 million? Or is the other liabilities of EUR 3 million? What -- could you give an idea?

It's a significant part of that.

Okay. And then if I look at the breakdown of your sales, and I look at the rest of the world, feels that the rest of the world in the second half has been negative versus the first half. And you made some of the detailed question, but just noticed it. But the sales in the second half and the rest of the world was negative. So what happened there?

In the first half of the year, of course, we had a big order in Mexico where that's a Phase 1 of a project, and we're working on winning the second phase of that project. So in the size where we are as a company that these kind of orders give a fluctuation. So that's, I think, the major explanation for that.

Yes. And we'll get back to you on that.

No, but I understand this actually. But I'd like to come back on the working capital because, on one d1 hand, you also mentioned that your cash position, your liquidity position is sufficient to fund the growth for the -- well into the future. We, of course, don't know what well in the future means, but one of the things is -- for this is okay, your CapEx trends for this year, you already gave some indication. But as a percentage of sales, what would be a kind of normal working capital situation for a company like you? You're now, of course, in a kind of lower sales levels, but normally speaking, if sales increased by 50% to 70% and then maybe the year, thereafter by 30%, et cetera. How do we look at and working capital as a percent of sales because that is also something we can learn how to...

Let me comment on that, Fernand, and you can chip in, Jan Zwiers. So in essence, the double-edged sword here is driving profitable growth through commercial execution cadence, which is quite focused and really on the ball. But the other side of the sword is operational efficiency, 2.0, as we call it. So driving down efficiencies in terms of productivity and OpEx, but also the CapEx levels and working capital. So in that sense, if you have a new factory building here, which we are continuously optimizing our flows, process flows, both here from the factory towards also the distribution OEMs, you will see steps in getting to lower inventory levels as a percentage of sales, of course. But we don't put out exact numbers on that, but you can imagine that if you have a new factory, then in year 1, 2, 3, you will drive down the -- increase efficiencies and drive down the inventory levels.

And percentage of sales.

Yes.

You also have, of course, the receivables and municipalities, governments are not known as being a quick payer in general. So how should we look at that line?

Well, the OEMs are our customers, so the OEMs pay us. And of course, also there, we as a Board are pretty strict to, again, manage the net working capital, which includes also receivables. So it's not that we are very loose on that.

[Operator Instructions] We will now take our next question from Christoph Greulich of Berenberg.

Yes, it's actually just one from my side, I believe. You gave an overview of the supportive regulatory dynamics. I think it was on Slide 9 of your presentation. What would you say is the most powerful regulation to drive additional demand for your products? Which one really creates pressure to act for municipalities or industrial companies?

Yes. Thank you, Christoph. Generally speaking, and this is not new, but I'm going to start there anyway. Of course, water scarcity is the most important driver for action. And the second most important one is then the regulation. And we see now throughout the globe, but let's start from Europe, for instance, there's more and more regulation on water reuse and quality for water reuse. And on the wastewater side, it's more on PFAS discharge or preventing PFAS altogether. So these type of regulations are next to scarcity, very important for our future developments. And you see this around the globe. You see this -- it's a bit different, of course, where you are. And even now, you see that happening, for instance, in the Middle East. It was a region that's completely reliant on desalination where they're also discovering that there are disadvantages to be depending on one source of water. So also water reuse is becoming an agenda point there as well, driven by regulation and driven by water prices. So we see this all over the world, a bit depending where you are in the world, what the emphasis is, if it's drinking water, or wastewater discharge of the environment. But these were some examples of what's happening around us. And we believe that's very important for us to keep developing the water market.

There are no further questions in queue. I will now hand it back to Floris for closing remarks. Thank you.

Well, thank you so much, and thank you for your attention. I must say that we, as a Board, are confident that we are active in a super exciting and growing markets in water. NX Filtration, in my opinion, is positioned to be a leader in the space. I've seen really excellent products and innovations in our hollow fiber nanofiltration but also our ultrafiltration and microfiltration portfolio. We have dedicated people that continuously work better every day for their commercial execution cadence, and we bring focus on delivery of our objectives. So we thank you for your attention and look forward to speaking to you in the future. And I want to remind you that on April 8 this year, we have our Capital Markets Day in the Netherlands, for which you're welcome. Thank you.

Thank you. This concludes today's call. Thank you for your participation. Have a good year ahead. You may now disconnect.