QleanAir AB (publ) (QAIR.ST) Earnings Call Transcript & Summary

Welcome to the QleanAir Q2 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to speaker CEO, Sebastian Lindstrom, and CFO, Fredrik Sandelin. Please go ahead.

Thank you. So welcome to the QleanAir investor presentation for Q2 2025. I'm Sebastian Lindstrom, I'm the CEO of QleanAir, and joining me in today's call is Fredrik Sandelin, CFO at QleanAir since the 1st of April this year. Fredrik and I will go through the presentation and then open up for Q&A towards the end. Let's dive straight into the numbers for Q2. The newly launched products are a success, and it's clear that our focus on critical application areas for our customers is giving a mitigation in the overall tougher market conditions. We also see the result of our systematic approach to sales efficiency and cost control through increased margins in the quarter. We delivered SEK 117.9 million in sales in the quarter, which is 2.8% growth versus last year. And currency adjusted, we grew 6.2% in the quarter, a great achievement of our sales teams in tough market environment. The main reasons for growth were, of course, a stronger renewal base to finance companies in Japan, but also a very strong quarter in the Nordics. Our recurring revenues remained stable at SEK 68 million, amounting to about SEK 278 million on a rolling 12-month basis by the end of June. The decline in the rolling 12 months is mainly due to the cancellation of school orders that we had and we reported on in 2024. Our gross margin was strong, thanks to the stronger base of renewals to finance companies in Japan and that we are now getting the full benefit of COGS, installation and cost improvements we made over the past 18 months in the U.S. Our EBIT margin of 9.2% was a big improvement over last year's 1.4%. Our EBIT for Q2 was SEK 10.8 million versus SEK 1.6 million last year. Cash flow has been improved. We've been able to reduce inventory levels and outstanding accounts receivables through focused targets and follow-up. Summing up the quarter, we still have work to do, and we'll keep our focus on the 3 objectives towards the long-term profitable growth, cost control, sales efficiency and customer focus. Recurring revenues remain stable, and our churn is getting back into normal levels. Our setback over the past year was mainly related to the school orders from COVID times that I previously mentioned. We have, in the quarter, made some adjustments to the recurring revenue definition to improve accuracy. We have a positive view of our ability to deliver, but remain cautious, as it relates to the economic environment, especially in Europe. Now let's look at the regional review, and starting off with EMEA. It is an important region for us, accounting for 46% of our sales in Q2. The economic environment is weak. Sales cycles are longer, especially in Germany. Our figures show that our strategy to focus on more critical application areas for our clients help mitigate in this environment. We continue to build our team in France in Q2, adding specialist competence in targeted fields. Moving on to Japan in the middle of the slide. Renewal base is back on track, but, more importantly, we see year-on-year increase in new cabin and air cleaner sales. And to finish off the regional review, we have the U.S. The team in the U.S. has done a strong recovery from last year and the absence of the Curexa project. They have, over the last 2 years, worked through COGS, installation cost, organization. And now given a more stable and increased volumes, we start seeing the benefit of this hard work. Margins are up, backlog and pipeline is building, and now all the focus in the coming quarter is on delivering on projects. In quarter 2, we landed yet another key health system, or IDN as we call them, this time in Florida at the value of $454,000. Every new IDN is important as we know that the value when we land the new IDN is much more than the initial project. Remember that 30% of our customer base have multiple rooms from us. To help understand what solutions we provide out there in the market, I continue bringing examples of cases across our regions. So starting off with EMEA on the left-hand side, I picked the cost sales case from Belgium this time. Hitachi Energy, a global leader in the area of electrification, it started off with the request on the cabin side to improve productivity and production by offering solution for smokers within the facilities rather than having people go out of the building for the smoking break. When they learned that we as well were experts in industrial air cleaning solutions, they immediately consulted us for solutions in their production. Their main issue was heavy dust on manufacturing process, and we quickly came up with the solution. So a customer call for 1 cabin in the end resulted in 2 cabins and 5 air cleaners. This is a great example of cross-sales that we want to continue at further clients across all regions. If we then move with an example in Japan, I'd like to take the example of oil mist. We were contacted by a company in the precision machining industry that makes parts for the automotive and electronics industry in Saitama prefecture outside Tokyo. In their manufacturing process, they struggled with oil mist. With the implementation of our FS 70 Oil Mist, we -- they saw immediate improvement to workers health and safety. The oil mist fog was practically gone in 30 minutes. And to finish up our customer cases for the past quarter and move to the U.S. on the right-hand side. I choose an example that shows that we've been able to broaden our reach in sales in the U.S. The U.S. team has built a CE platform, that's continuous education program, often something that is mandatory for professional in different fields. And we made that CE platform on clean rooms for architects, facility managers, general contractors and equipment planners. Over 400 professionals have taken the course since the start less than a year ago. The target is, of course, to be more well known, but to be consulted pre-RFP in projects. In Q2, we landed the first such contract. The contract value was for $75,000. We're working with the client through the pre-study phase, and we already have several additional projects in our part. Anyone familiar with the project business knows that getting in early is key in driving sales in a project business. So then over to new products launch. So we continue our journey of launching new solutions to the market in Q2, the FS 70 targeting logistics and warehouse in Europe and the new monitoring solution for clean rooms, QleanGuard. FS 60 complements our range for sealing or rack mounting. The product is spot on in current market environment when customers are looking for more affordable lightweight solutions. It includes smart features, like WiFi control and scheduling capabilities to optimize energy and filter usage. QleanGuard launched in the U.S. targets multi-room sites and allow significant efficiency gains for our customers to be able to monitor and control multiple rooms in one system. This really simplifies their monitoring and reporting and adherence to regulatory compliance. This now -- this product now allows us to go back to our customer base and offer a new solution. Around 30% of our cleanroom customers have bought multiple rooms, and over 50% of our revenues in the U.S. is selling additional room to existing IDNs. This is to show that we have a great cleanroom product and customers that begun using our product want to expand that use to multiple sites. I've alluded to it several times. The market out there is tough, but we maintain a high activity level. And as seen on this slide shows a sample of where we have been pushing our solutions to gain new clients and grow our business in the past quarter. The high activity level cuts across all regions from Japan in the East to U.S. in the West. When it comes to our focus, we stick to our 3 prioritized objectives: cost control, sales efficiency and customer focus. Starting off with cost control, I think in this quarter, we clearly see the benefits across all cost categories from COGS to cost, especially in EMEA and the U.S. And we're continuing to drive value engineering projects, both within cabin solutions and air cleaners. And we have, in the past quarter, started to look at the supply chain on the cabin solutions side to significantly improve our cost base for Europe. Moving over to sales efficiency. Our more focused approach within air cleaners on industrial air cleaner, in particular, is showing promising results. The products introduced in the last 18 months accounted for over 30% of our new unit sales in the first half of 2025. We -- also in the past quarter, we consolidated France, Belgium and Netherlands into 1 region in Q1. In Q2, we follow on with further expansion of the team with expert resources. Our target is clear, to build France as the third pillar in Europe. When it comes to customer focus, we launched in Q2 2 new exploration areas with significant future potential. Exploration means that we have identified through our systematic workshops in the regions serious problems -- problem areas related to indoor air experienced by our existing customers. We picked a few sites that have clear challenges. We then deploy our expert exploration team that go into depth of the problem and the understanding of the customer pains, and then start testing different solutions, all the way until they've solved the problem. It's a serious, structured and systematic approach that takes several months. Also in the quarter, we launched -- well, really in Q1, we started launching our SEO and SEM work. We are now through the first phase and will soon be ready to launch our new digital approach to the market. And before handing over to Fredrik and the financial section, let me summarize the key takeaways from my perspective of the quarter. We have had great success from our product launches. Our structured approach with annual workshops with sales and service teams really delivers. Product launches made in the last 18 months made up over 30% of unit sales in air cleaners during the first 6 months of this year. We continue our journey of really understanding customer pains and have launched 2 new exploration areas with significant future potential. And we kept at it when it comes to sales efficiency and cost control in the tough year of 2024, and now it shows in our figures. And APAC is back on track. Renewal base is back to good levels, and new sales of both cabins and air cleaners is increasing. Europe is a tough market, but we keep a high activity level throughout the regions, and we're back to positive in the Americas. With that said, I hand over to Fredrik, please.

Thank you, Sebastian. As mentioned before, we have operations spread over the world in 3 major areas: EMEA, APAC and the Americas. We have a large number of customers, and the customer base is well spread geographically. EMEA accounts for 46% of total sales. And there, we have all of our 3 product categories. Focus today is on air cleaners and cabin solutions. APAC stands for 45% of total sales, and also their focus is on cabin solutions and air cleaners. Americas account for close to 10% of total sales. And there, we are focused on cleanrooms. APAC and EMEA are our largest regions. And together, they stand for 91% of total sales. All in all, we have a good balance between the 3 regions. EMEA is facing a weak economic environment with longer sales cycles, especially in Germany. Revenues are down with 2% compared to second quarter in 2024. At the same time, we have improved our gross margin. Regarding the financial model, we have a combination of all our 3 possible options: rental contracts, sales to finance companies and product sales. APAC, on the other hand, is facing a stable demand and continued high margin. Sales are up by 13%. In this quarter, we've had a slight positive currency effects from the Japanese yen compared to the negative effect during the last years. The yen is also balancing the effects of the euro and the U.S. dollar for us. For the euro and U.S. dollar, we see a negative currency effect during this quarter. The financial model is sales of rental contracts finance companies, and renewals to finance companies are now back to normal levels. We also see a continued strong demand for cabin solutions. The Americas is showing a reduction in sales this quarter, mainly due to a weaker U.S. dollar, improved gross margin with lower cost level and a good order backlog. The financial model is project delivery with service and maintenance contracts. We have continued to work on partnerships, and several good dialogues are underway. If we start with having a look at sales to the left, we see that this quarter is better than both last quarter and the corresponding quarter last year. Recurring revenues are on the same level as last quarter, but lower than the same quarter last year. The decrease is mainly attributable to the withdrawal of units at German schools that started in the beginning of last year. Profitability wise, we see that gross profit and gross margin are stable. We are back at the same level for gross profit and gross margin as we had in the first quarter of 2024. Despite the decline in sales, EBIT is back to previous levels in late '23 and early '24, mainly due to increased efficiency and lower costs. On the left-hand side, we see the split between recurring revenue sales to finance companies and product sales and to the right, the corresponding split for units that we hold on our balance sheet sold through finance companies and sold units. The installed base is stable over time, and the revenue split is primarily affected by the decline of recurring revenues because of the calculations for German schools. Looking at the installed base to the right, we see at the bottom the units we have on our own books. Book value is only SEK 44 million, and that generates revenues of around SEK 300 million every year. We have an asset-light business model with low CapEx. I would like to again highlight that our base for renewals have come back in Japan to more normal levels. The renewals typically follow a 3-year cyclical patterns. So to understand how this affect the present, you must go back 3 years and look at the sales to finance companies at that time. If we look at the point in Q1 2022 of SEK 27 million, it moved up to SEK 30 million in the second quarter 2022, see circle to the left, which allow us to renew more contracts in the second quarter of 2025 than in the first quarter the same year, see the circle to the right. Still, we do not get the full benefit that the Japanese yen has lost the value towards the Swedish krona during this 3-year period. The financial position is stable. Equity ratio and net debt has improved compared to last quarters. Operating cash flow is stronger, impacted by the -- that we managed to reduce inventory and accounts receivables. And with that, I hand it back over to you, Sebastian.

Thank you, Fredrik. And to close off the session in front of the Q&A, what we do at QleanAir is important. We dedicate our work to improve the health of people, the quality of products and the performance and processes, and we do so throughout our 3 product categories: cabin solutions, air cleaners and cleanrooms. Looking at the amount of QleanAir that is delivered through our solutions, we estimate that we clean over 8.2 billion cubic meters of indoor air per month by end of Q2. And it matters as air pollution is a key challenge for human health. People die prematurely from exposure to polluted air. We spend an important part of our lives in indoor environment, and indoor air can often be more polluted than outdoor air. Before going into the Q&A, let me reiterate, we're sticking to our plan. Our approach to operational and strategic development is very systematic. We have 3 clear operational priorities: sales efficiency, customer focus and cost control. We have a focused product development that has given us 9 successful products in the last 18 months. And we have a targeted go-to-market approach. With that, I hand over to questions.

[Operator Instructions] The first question comes from Anders Roslund from Pareto Securities.

I have a couple of questions. I might start off with cabin solutions. How should we see this recovery in Japan? Is it sort of a peak now of the renewal? Or will it stabilize? Or you also talked about new business.

Well, so I think most -- of course, we have the cyclical effect that Fredrik was alluding to, like looking at the 3-year sort of pattern. And with that pattern, of course, the entire 2025 is at a different level than we were at 2024. So in that sense, you can say that we sort of stabilized on the new level. But I think more importantly for us is that we're also increasing the new sales of cabins. So new sales, new customers in Japan. So the work that the team has been doing, going more into small and medium business and into HORECA is really starting to give results.

Okay. So we should rather see sort of -- sequentially, we could look at some sort of increase even if this was a better situation. Due to that you also have...

So overall, the year of 2025 is at the real elevated level versus 2024. We had -- I don't want to go into JPY 1 million, but Q2 is particularly strong. But I think when we look -- we don't make forward-looking statements, but the overall year is strong as such.

Excellent. And then in Europe, how is the situation for cabin solutions there?

Yes. So I think when you -- when we look at the quarter, the cabin solutions was quite flat, but I think that's in a positive way because you have to weigh into that, that we have a pretty tough economic environment in Germany. And that's -- it's harder to renew in Germany at the moment with a much more cost focus in the larger corporations, right? So I think that we're quite -- when I look across the European countries, we have a few countries with growth in the cabins. And I think we've been very clear that when it comes to air cleaners, we focused on, on industrial air cleaning, right? But on cabins, we really try to take the benefit from where we have success in the different countries within the region and move that approach to the other regions, right? So I think there is still quite an opportunity. And as I said, under our cost control and so forth, that we're also looking into how we can become even more competitive on the cabin side for Europe through supply chain project.

Okay. Good. Is France one of those markets where you are making some sort of better market penetration?

So I think when we look at Q2, we had a good growth in France of about close to 10%. And I think there, even though, of course, the market in France is just like in Germany, tougher, but we are striking from a smaller precision, right? So I think that we have good opportunities to continue to grow that market. And we're also, as I said, strengthening the team with expert resources. I think, overall, in this market environment, we're trying to go much more for critical application areas where the solution is more must have, the nice to have. And that is why we're adding expertise resources in France to particular areas where we think we can have a must-have solution.

Good. If we then move to air cleaners. For me, it was an impressive outcome given that you still have these effects of German school rental contracts being lost. But it means that your underlying growth of industrial air cleaners must progress quite strongly now. At least if you compare to the first quarter, you had SEK 21.4 million, and now suddenly, you have SEK 24.4 million. So it's quite a strong sequential growth here. And I assume that we don't have very much of those German air cleaners from the schools in the present sales figures, which means that, I mean, given the very tough conditions, I assume that we could probably see a continued sequential growth even if year-on-year growth is still -- yes, but you now come from the easier comparison month also in the second -- how do you see from -- this air cleaner development seems very promising.

Yes. And as I alluded to in the presentation, right, I think our focus, which is really over the past 2 years, right, on driving towards more critical application areas. And I think it's really evident when you look at 30 -- over 30%, I should say, of our unit sales in the first half is some products launched in less than 18 months, right? So I think that move is what is allowing us to actually go -- grow the industrial air cleaner. We still have some schools left. And I think I alluded to it in Q1 that it's roughly 100 units or something that are expiring towards the end of the year. But as you rightfully said, we have much less of that in our mix today. So the underlying growth in industrial air cleaner is probably pretty good.

Very interesting. And that despite tough market conditions, you saw a decline in Japan. Was that due to that you had some high deliveries last year? Or how does -- the air cleaner development has been very strong in Japan from the beginning, but what do you see going forward?

So when you look on the year-to-date, right, you have a decrease on air cleaners in Japan. But as I mentioned under the Q1 report, we have some extraordinary air cleaner projects to finance companies back in Q1 2024. So that sort of skews the comparison a little bit. When we come into the quarter 2, we've closed that gap significantly, and we're much more in line with last year. And we are now getting to the point -- remembering that we launched air cleaners back in 2022, so we're soon coming to that point where we start renewing air cleaner project, so to say. So that's going to be really important factor. But we are increasing the new sales to new customers, both within cabins and air cleaners in Japan. And we do not intend to slow that down.

And the contracts there are not as long as in the cabin solutions. When you talk about -- or are the 3-year contracts also in Japan in air cleaners?

For sure. There can be -- of course, we have the mix of -- from 1 year, but I think the predominantly is 3 years, and there is even cases of 6-year contracts, right? So -- and I think this is something we're going to learn, of course, in air cleaners that is in a very tough industrial environment, how many times PAUSE can we renew that and how do we manage to renew the service and maybe exchange the product or something. It's really in air cleaners, it's a much more particular environment, so to say.

The stronger development in Europe of air cleaners, which markets are we talking about? Is it still Germany or also other markets?

Yes. So I -- what's been really positive in Q2 and also for the year-to-date is the performance of the Nordic team that has clearly come through.

Okay. Is it Nordic? Is it mainly Sweden? Or is it a spread all over?

So it's a little bit here and there. But of course, Sweden marks is the main part of our Nordic region. But we have good development in Finland, in Denmark and Sweden. So it's a little bit here and there.

So then you talk about the Nordics and Germany. How about air cleaners in other countries? You mentioned this case in Belgium.

Yes. So our base in Europe is really centered around Germany and the Nordics today. And we are identified -- I think it's about 18 months ago, we decided to really go for the U.S. and go from having had more of a market, a partner approach to have our own organization. So our focus when it comes to further countries is France first. And then if we expand into further countries, it will be more on the back of key account development.

Yes. I just missed something here. Why the U.S.? You don't market air cleaners there. I was still...