Shape Robotics A/S (SHAPE) Earnings Call Transcript & Summary

Good day, everyone. Thank you for joining us as we present Shape Robotics' interim report for the first 9 months of 2024. I am Mark Abraham, the CEO of Shape Robotics. And today, I will walk you through our quarter 3 results. And I will provide you insights in our performance over the first 9 months of the year, reaffirming our guidance for '24. I also address the factors underlining our confidence in delivering the quarter 4 guidance of at least DKK 125 million in revenue and DKK 27 million in EBITDA. Following this presentation, we'll host a live Q&A session for investors on Monday, 25th of November, at 5:00 p.m. CET. Please submit your questions to the e-mail address that we have provided on Slide 9 by 10 a.m. on Monday morning. Now let's proceed to Slide #2, highlighting the key takeaways from quarter 3. In the third quarter of year '24, we have achieved a robust revenue growth. Our margins expanded significantly. And for the first time, we have recognized services revenue, which provides a very solid support for our future margin growth. We maintain our financial guidance for '24. We are targeting revenues of at least DKK 300 million as guided and an EBITDA of at least DKK 25 million. Additionally, through our announcement of last week, we have secured a financing facility of approximately DKK 140 million from UniCredit bank. This will support our growth initiatives and provide immediate financing for our receivables and as well funding for specific R&D and product development. Now let's move to Slide #3 for an overview of the quarter 3 financial highlights. For the quarter 3 financial highlights, we will start with the revenue that stood at DKK 71.1 million. This is a 146% increase compared to the same period of last year. This growth was primarily driven by our expanding operations in Romania, notably through the SmartLab project, but in the third quarter also, revenue, as expected, was impacted by the holiday season. This consistent performance aligns with our expectations for Q4, traditionally the strongest quarter in the edu tech industry, which is a business to governmental industry. The contribution margin improved. We have reached DKK 25 million or 35%. This is driven by introducing high-margin services and a favorable product mix. Year-to-date, the contribution margin was 28%, but the adjusted EBITDA rose up to DKK 7.4 million, a 414% year-over-year increase underscoring our effective cost management operational efficiency. Let's proceed to Slide #4, which outlines our financial guidance for '24. The financial guidance of '24: We remain confident in achieving our revenue target of at least DKK 300 million. This confidence is bolstered by a strong order backlog and the anticipated delivery of high-margin scheme services in Q4. Our EBITDA guidance of at least DKK 25 million also remains unchanged because we expect a substantial increase in EBITDA in Q4 supported by improved margins due to a favorable product mix and the delivery of services based on the techducator concept. Let me elaborate on the ability to meet these targets. First of all, we have to take in consideration the historical performance. Our growth trajectory over the first 3 quarters demonstrate strong revenue increases and margin improvements, providing a robust foundation for Q4. Also we have to take in consideration the operational readiness. Our streamlined operations and efficient delivery capabilities ensure that we are well prepared to fulfill our current backlog and meet the quarter 4 demands. We continue with strong backlog and commitments. Our secured backlog, especially driven by the large-scale initiatives such as the SmartLab projects, provides visibility and confidence in revenue recognition for the quarter 4. And perhaps the most important aspect, the financial flexibility: By signing recently the approximately DKK 100 million facility with UniCredit, we have enhanced our ability to execute efficiently, covering operational needs with R&D initiatives and also securing steady cash flows. With these pillars in place, we are very confident in achieving our Q4 guidance. On Slide #5, I'll share some business highlights from the year-to-date. Now some business updates: This quarter, we've made significant strides. We have launched Thinken as an official third-party offering across Lenovo channels, opening new avenues for distribution and growth. We have already received an initial order of 50 units through Channel Tools. Very important was the signing of the Sibiu municipality agreement. This is a collaboration with our partner Data Hub. We've secured a public procurement agreement with Sibiu municipality in Romania, contributing approximately EUR 1.5 million to our revenue. And after closing of the reporting period, we have made a major announcement over the last week; and this announcement is the UniCredit agreement. With UniCredit, we have established a comprehensive financing and factoring agreement for approximately DKK 138.75 million, enhancing our financial flexibility. It provides immediate support for financing for receivables and specific R&D and product expensing (sic) [ expenses ], reinsuring that we have the necessary resources to drive innovation and growth. Signing a strategic distribution agreement with Ingram Micro is also an achievement that will enhance our distribution capabilities, creating a dual distribution model together with NOD that ensures business continuity and reduces operational risks. These initiatives underscore our commitment to supporting revenue growth and derisking our operations. And now let's review our revenue composition on Slide #6. In the first 9 months, our revenue composition has steadily evolved. So for instance, taking a look at quarter 1 '24, we had a lower share of Fable robots in the total sales due to delivering specific equipment in tenders that were based on requirements that fill the other category in our report. This contribution margin was around 22%. Now going to quarter 2, we have increased delivery of our equipment in the SmartLab, with a higher share of Fable robots in the total sales well above 10%. And the contribution margin improved to 25%. Arriving at quarter 3 '24. Significant deliveries of SmartLab equipment in Romania and a DKK 6.7 million in services revenue related to the new techducator concept have risen the contribution margin to 35%. This progression highlights our strategic focus on high-margin services and a favorable product mix. Turning to Slide 7, I'll explain our approach to servicing the revenue growth. In order to support the revenue growth, we focus on effective management of accounts payable and trade receivables. Our cash cycle involves customers with timely invoicing and efficient collection processes to ensure steady cash inflow, distribution and suppliers with strategic partnership and favorable payment terms that optimize our cash outflow. As you can observe, we have key movements in the net working capital that include [ an increase of at least DKK 80 million ] as of September 30, 2024. This is reflecting our ability to service expected revenue growth and achieve anticipated revenue of DKK 300 million in '24. The recent financing agreement with UniCredit bank provides the flexibility needed to manage the cash flows efficiently, and it supports our growth objectives. Now let's conclude our presentation in the next slide. As a conclusion of our webcast, I would like to remind you again of the key highlights of Shape Robotics as a potential investment: first, the intelligent classroom solutions, where we become a leader; also, the most famous modular educational robot, Fable. On top of that, we are continuously developing AI solutions. We're having strong partnerships with world-renowned brands like Lenovo, where we have a third-party offering; continuing with our strategic acquisition campaigns, where we already concluded 3 cross-border acquisitions. Maybe the most important element of the investment highlights is the budget available from the European Union and, not only that, for investment of up to EUR 13.4 billion in digitalization of education. This concludes our presentation of the Q3 2024 interim report, and I thank you for your attention. We invite you to join our live streaming Q&A session on Monday, 25th of November, at 5 p.m. CET. In this Q&A session, I will address all your questions about the Q3 performance, but please remember to submit those questions to [email protected] by 10 a.m. on Monday morning. Thank you for your time. And I look forward to our continued journey toward shaping the future of education together.