Shelly Group SE (SLYG) Earnings Call Transcript & Summary

[Audio Gap] to today's earnings call of the Shelly Group following the publications of the Q3 figures of 2023. The co-CEO, Dimitar Dimitrov, as well as the co-CEO, Wolfgang Kirsch, will speak in a moment and guide us through the presentation and the results. [Operator Instructions] So with this, I would say, let's jump straight into the presentation. So Wolfgang the stage is yours.

Yes. Good morning, everyone. A very warm welcome on behalf of Dimitar Dimitrov and myself and Shelly Group, of course, to our trading update for the first 9 months of 2023. We have a lot of good news as usual. We published our numbers yesterday evening, and we'll have a lot of explanations. So we make smart building solutions, for those who do not know us that well, and we changed from smart home to, say, more smart building solutions because we are going way beyond the smart home in today's world. And we have a couple of professional customers that we gained that use our product in a completely different environment. So I will -- as usual, I will lead you through the financial highlights and some highlights from the first 9 months. Dimitar will then go a little bit more into product and technical details. And at the end, we have a lot of details about regional development, quarter-by-quarter development so that you are really updated in a very well way. So let me start with some highlights. We are in a very challenging market. Smart home, if you read about smart home, has a negative development. Now smart home counts everything, including televisions and other devices, music streaming devices. Lighting and energy management, that's our domain, are still quite well, but there are huge differences. We see a lot of competitors suffering. We see in a lot of regions as well a negative market. And nevertheless, we have a very positive development. We think that a key for our success is our value for money positioning. We have a very good quality. We are in a very sweet spot of the market. We are not expensive. We are not too cheap. And that's obviously what people like. Something that helps us as well in developing in a positive way is a couple of new devices. We entered the Z-Wave market this year with the first devices and more to come. We entered with Bluetooth devices, and we have more and more access to the professional installation market as well. As well, we launched our premium app. Dimitar will talk a little bit about that later. And what we usually say is that challenging times are Shelly times. So now let's have a quick look at the general data. We grew in the second consecutive year, around 50%. So this year, the first 9 months, 49.3% revenue growth to a level of EUR 11.9 million (sic) [ EUR 44.1 million ]. The year before, we grew as well, 50% in that period. So that shows that our growth is sustainable and it's not just coming from one year to another. On the EBIT side, we have even a better news. We grew the EBIT 68.6% compared to last year, which is a level -- sorry, EBIT is 11.9% (sic) [ EUR 11.9 million ]; revenues, of course, 44.1% (sic) [ EUR 44.1 million ], which is an EBIT margin year-to-date in the first 9 months of 26.9%. I will talk a little bit about that later and the expectations for the year. And a very important number for us as well is the cash flow. End of the year, we had EUR 14.4 million cash on our bank account. End of September, it was EUR 18.1 million. That means all our calculations show the same that we have enough money to finance our growth in the coming years from our own cash flow, and we do not need capital increases or credits. So as well, what is quite positive from our point of view is our capital market activities are seem to pay back. So we have a very positive share price development in the last 6 months or 12 months. We almost doubled -- or more than doubled in the last 12 months, have a very positive development and stable development in the last weeks as well in a very challenging market, especially for small caps. This is not coming from nothing. We had presence on a lot of investor conferences this year, one more to come with the Eigenkapitalforum in Frankfurt. We already made 3 road shows, and we will have 2 more road shows to come. And all this starts to pay back with a lot of attention from more and more investors. We have demand from other regions as well. I have been in Chicago, invited to a micro-cap conference with very positive feedback. And we expect that our positive development continues. As well on the business side, we have onboarded more and more wholesalers that serve especially the professional installers. But 2 highlights from the last quarter. We have published a contract that we signed with Vodafone for energy monitoring in their African subsidiaries because they need to fulfill their ESG goals and their ESG reports, and we help them to do so. And the other important thing is around IFA. We signed a contract with Zendure. Zendure is a Chinese manufacturer for balcony power plants. That's something that is very popular in Germany and in some other Western European countries. What we are doing together with them is they are using our devices for showing the energy flow between the photovoltaic panel, the battery system that they are offering and the consumption in the household. And to do this in the future much better, we are working on integrating our data into their device so that the customer can use the Zendure app for showing the energy -- or seeing the energy flow: when is the battery full, when can I switch on my washing machine. And we will integrate this in the next step that will take a little bit longer directly into their devices. Now, that Zendure contract was an interesting thing, but what came afterwards is much more interesting that a lot of other manufacturers of balcony power plants and of bigger power plants are interested in working together with us using our solutions for monitoring energy flow because it's very solid, it's very accurate and it's relatively cheap. As well, something that is very important for us is usually our community. You know that we have more than 100,000 people in our support community in Germany alone. But the social reach step-by-step increases, and our followers on Facebook and on other platforms are growing constantly. We announced in September -- end of September, beginning of October that we have sold 10 million devices to the market. Don't forget, the first Shelly device has been sold in 2018. So that's a very interesting development. Without disclosing too much, we are quite close to pass the next million already very soon. Our social reach with 2 million is impressive as well. And an important number is that our cloud users grew by 423,000 users in the first 9 months of this month to a number of 1.1 million in total. And now Dimitar, the stage is yours for some products.

Thank you very much. What I can say, this is the new products which we released in 2023. And from what I can say, this is the biggest number of new products which we ever released just for a year. It's not only for the Wi-Fi technology. This is also for the Z-Wave technology together with the Qubino team. But I don't want to go deep in the product presentation. But what you can see, this is the -- in the [ old lines ] which we have, which mean the [ post line ], the Z-Wave [ line ] and the professional line, we have many of the new products. And this development now is still speeding up. [ To end of the year ], there will be a few more products which will be released, which do really the -- our [ R&D ] job and development job quite, let's say, efficient and fast. And also, this year, we launched the complete -- one more new line. This is the Bluetooth line, where we're planning to go also in the part of the security business, in the smart security home and something which will be launched during the Black Friday next week and to release our first bundle, which will be covered the security area of the houses. And something which is very interesting, we also -- Shelly -- the premium application with the subscription is launched in June. At the moment, it's too early to share any results. But from what we've seen, our results is very promising. There is more and more people [ is coming ] every day. There is no high cancellation rate. Almost the cancellation rate is close to 0. And most of the customers, they choose the premium subscription. They choose to pay the annual fee for the subscription, which means for the last -- for the next year, they will use our premium services. And that will deliver us not only additional revenue, but also give us options to extend the premium services and to offer more and more for -- from the cloud. It's something which is really important and good. During the IFA, we're one of the main attractions, and many customers and clients come to work with us, talk with us. There is a growth of [ views, which has kept us ]. And from what you can see, [ there's our booth ]. [Presentation]

And the data, as you see, is very, very interesting, but that's something which [ we will not show ]. Maybe this one will be public in time, but now I can show you something. The [ wall ] which you see on the IFA, this is the live stream from our cloud. And from what you can see also, we present that, if you look on the map, that every dot is a new Shelly device installed in the last few minutes. Even that is a Tuesday, the work time, usually our customers is starting their devices after work or during the weekends and holidays, but during that day, there is a new device which is installed everywhere in the world. Something [ we thought ] which is important. You can see that even that is early morning, at least close to 0.5 million people say to Alexa and Google something. They control something through the Shelly devices, which is a very important number for us and see how the engagement of the customers with the Shelly. You can see that the people, also there is a 20 million [ since it's executed ] from the beginning of the day. Usually, there are over 100 million during the holiday. And the data which we have about [indiscernible] detection, how many [ device is ] on, how many [indiscernible] is on, how many EVs is charging on this moment, this is some data which we collect on the cloud and data which we can [ based off ] this data, we analyze and also think about the next product adoptions. And not only, also something which is really unique, you can see that how many total device at the moment is connected to us. It's close to, as Wolfgang say, close to 11 million devices. Just less than a month ago or a month ago, it's -- we reached 10 million, but now we are reaching nearly 11 million. And there you can see also exact information for what people using their devices for: to control the heating and cooling because the winter is there, for water heating, entertainment, [indiscernible]. We have all of these data. How much data in total at the moment Shelly devices consume more than 100 -- monitoring more than 140 megawatts. And at the same time, for the balcony power center and also for the big solar plants, our customers generate more than 15 megawatts of energy. And this is really interesting data which we're [ working ] for and some data which we give back to our customers to improve their habitats and also to give them the cost-efficient solution. And let's switch back to the presentation. I think this is back to the financial part and now is the time for Wolfgang to continue with our financial update and strategy for the company.

Yes. So thanks a lot. Just 2, 3 words to IFA because we saw that a lot of -- this screen was drawing a lot of attention comparing to booths of our competition that was -- were more or less empty because IFA was not such a huge success this year. We had always our booth very crowded. We got a lot of attention as well from some energy companies. We had a meeting -- first initial meeting with EDF from France. They saw the data, and they had some ideas what to do with the data. We are not monetizing this data at all right now. We are thinking about some options for the future, but we have so many projects that we have enough work to do to continue growing in a very good way. So coming back to the numbers. As I already said, EUR 44.1 million revenue in the first 9 months is a growth rate of 49.3%. The EBIT grew to EUR 11.9 million. That's a growth of the EBIT of 68.6%, and EUR 18.1 million cash on the bank account. That's really impressive numbers. And I do not know a lot of companies or a single company in our business that has numbers like this. If we go a little bit more into details quarter-by-quarter development, you see that over the last years, we had some ups and downs with different growth rates. That's why I added to the revenue development the CAGR, so the average growth rate over the years. Because, of course, if in the third quarter last year we more than doubled our revenue, this year, we will not double again or grow with huge numbers. But in average, you see that this is accelerating quarter-by-quarter. The EBIT is not similar. We had a slight dip in Q2 in 2022. This was coming from some extraordinary topics that we had to digest and some investments -- [ planned overinvestments ] in structures. This is paying back this year. And the EBIT margin in Q3 '22 only is 30.4%. So EBIT margin is growing, is not shrinking. Now I want to reduce a little bit the attention for the end of the year because we promised in our guidance to deliver 23% or above 23% EBIT margin. We think we will be definitely above 23%. But we will as well invest a lot in being aggressive around Black Friday and the Christmas season, and we have some other aggressive campaigns in front of us because we want to conquer the market. We want to continue growing in revenue, and we will invest some of our EBIT margin into that. 30% is great, but we always prefer to grow in revenue and to get the EBIT in euros from revenue growth and not from a pure percentage point of view. This is the only chart that I used to talk about MyKi. MyKi is our second brand. And if you see the development of MyKi and the share that it has in the first 9 months, it's only 2.6% revenue share, EUR 1.1 million. It's still a profitable business for us, but we decided already a year ago that we will not further invest heavily in MyKi because we don't have enough resources to fuel both brands with new products to keep the pipeline alive. That's why we decided to focus 100% on Shelly. And we still keep MyKi alive. As long as it contributes to revenue and especially to EBIT, that's fine. But MyKi revenue in the first 9 months, minus 32%; whereas the Shelly revenue alone grew by 54%. So you see that we are perfectly in line with what we want to do. And this is not a surprise. This is something that was planned. Now a closer look to the regions. The DACH region is with 50% revenue share, our most important region. It's as well the region where we have the longest history because the first Shellys were sold there. What is really positive for us is that all the effects that we started last year, all the changes in channel policies, we delisted our second-biggest distributor in Germany, because she made too much trouble, and concentrated on other channels and all this is paying back in this year. We are growing on a very high level, more than 100% in the DACH region. That's very good. And that's a footprint for as well other countries and other regions where we will implement similar things. It shows as well that having a German organization responsible for the DACH region, German sales team, in addition to a very good functioning Bulgarian team here in Sofia, that is a key formula that will work. And wherever we started this, we see as well first positive results. Southern Europe, with a growth rate of 23%, is nice. It's coming mainly from good development in Italy and in Spain as well. But from France, because we started in France, we hired a local sales team, we see that the pipeline is filling, that we can expect next year a jump in revenue in that region as well and we are investing in this, of course. Northern Europe is one of the regions where I already said, it's affected the most maybe from a negative development in the market. We are growing 14% in the first 9 months. We see a lot of our competitors struggling. We see a lot of competitors that look for investors and that they want to sell. So we gained market share there. And in the sales channels that we have started with, we see that we have very good numbers. We win share. And the market will definitely come back to a normal situation in the next year or the next years, and then we will accelerate growth here as well. And anyhow, with everything we did, we expect next year to grow faster in the northern region as well. Rest of Europe, that's -- Rest of Europe/Rest of the World, that's nonfocused countries for us because we don't have, in all of those regions, local people. But Rest of Europe in the first half of the year was negative. Now it's back to a positive development. We grew 16% in the first 9 months. That's quite nice. We see a lot of potential there. But we need as well to invest here in local people, and we have a plan when to onboard them, when to hire them and which countries should be first. Rest of the World, unfortunately, with minus 3.5% revenue development. This is not coming from the U.S. business. The U.S. business is positive. It's not growing in the speed as we would love to see it growing, but our U.S. business is positive. Some other countries are suffering a little bit. But once again, we are not paying a lot of attention because that's not our [ core ]. We make the core stronger and go step-by-step with a clear strategy when we want to address which country with own people and where we want to see the revenue growth here. But in general, very positive development. If you look to the detailed P&L, I don't want to go into all those numbers. You can download the presentation afterwards. Just if you see that the gross profit is increasing. This is, of course, a very positive development. We do not see a huge change. We will see some pressure on the much higher-than-planned margin in Q4 because of our aggressive campaigns. We can afford them because we have gained enough reserves so far. We have enough reserves. The gross -- the higher gross margin is not coming from increase of prices. We did not increase any selling prices in the last 12 months. We kept our prices stable. But we have a lot of advantages from supply chain where we could reduce the incoming freight costs, outgoing freight costs and some customs duty savings. And of course, with a higher number of chips and of raw material that we are buying, we have some advantages on the buying price side as well, which so far we did not pass to the market, and that's the result that you see here with a 57% gross margin. But we are investing as well heavily in general G&A, mainly in R&D. So half of this -- more than half of this is going into R&D. And we start to invest as well more in sales and marketing, which is mainly trade shows like IFA and CES. We have been at the IOT in Barcelona, and we will go to other and more trade shows in the next year because this is usually a very good access to customers. And especially, the results that we have seen at IFA and the very positive feedback shows that we are on a very good way doing that. Some more words to the cash flow. We have positive returns from our normal operations. We have some effects from paying dividends, from paying some bonuses to our people and as well an effect from the GOAP acquisition that we have seen -- that we have done in January this year. But in general, we are in a very positive way. And as I already mentioned, we can afford financing all our growth from our own -- with our own means, with our own financial power, and we will not need capital increases or other financial measures to further finance our growth. Our equity ratio, 84.6%, is as well outstanding. So if we would need money with this very low -- with this very high equity ratio, we would definitely get some credits from the bank. But you know that these are not the best times with high interest rates to do so, so we prefer to be positive cash-wise. So now let's have a look at the guidance and what we achieved so far. So our guidance for this year is EUR 72 million, was EUR 72 million, is EUR 72 million. We'll stay EUR 72 million. So we are confirming that we will reach our guidance if nothing very bad happens by the end of the year. The growth rate so far, 49.3%. The growth rate that we planned with over achieving the EUR 72 million is 51%, so we are perfectly in the corridor. Last year same time, we had an achievement of our annual goal of 62.2%. This year, we are on 61.3%. So the same corridor. Everything is fine. EBIT, we already talked about our EBIT performance. We plan with above EUR 17 million and an EBIT margin of above 23%. We have achieved EUR 11.9 million with an EBIT margin of 26.9% in average of the first 9 months. So EBIT is absolutely on the safe side, and the revenue, we will achieve as well. In the midterm to 2026, just want to repeat that we are heading for more than EUR 200 million revenue. This is a growth rate compared to 2026 of 320%. So that's really outstanding. That's a CAGR of more than 43%. EBIT in 2026 shall be above EUR 50 million and the EBIT margin above 25%. Once again, even though the last quarter was above 30% in EBIT margin, I think 25% or above 25% is a very healthy number. And I always say I would prefer to get to EUR 50 million out of -- much more than EUR 200 million with a lower EBIT margin instead of increasing the EBIT margin and not making the revenue. So that's a really important number. So that leads to the summary. We are continuing to grow strong with the speed around 50%, and we are very strong on the profitable side. So we are having what everyone dreams of, profitable growth, which is not easy to achieve in those times. We have enough cash with EUR 18.1 million on our bank account to finance our future growth, and we have a very solid financial situation in general with an equity ratio of 86%. We doubled our head count in the last 12 months, mainly in R&D and something in sales. We will increase our head count much slower in the next year or in the coming periods because we have done some basic work to have a good foundation for what we plan to do. We have new sales teams on board in Nordics, in France and in the U.K., quite fresh. And we will have more people. We are looking for someone or we are close to hiring someone in Spain and in Italy, and that also pay back in a similar development that we enjoy in the DACH region in this year. The Qubino acquisition looks quite promising. We have the first products in the market, much more products to come. And this is something that we as well see as a key to the U.S. market because Z-Wave is the technology that is used from a lot of companies in the U.S., and this should give us an acceleration in the U.S. market in the next year. We have implemented a new channel strategy in the DACH region and step-by-step in other regions already. We see that this pays back as well. And with 49% -- 49.3% growth rate in the first 9 months, we are definitely outperforming our competition in basically all the regions. For the end of the year, we are still planning to go for EUR 72 million or above, EUR 17 million EBIT or above in the results. We are very well prepared for Black Friday. We have enough products. We have shipped already enough products to the respective channels. We are expecting as well good sales on our own website. So all this is well prepared and should deliver the EUR 72 million plus. We have started an internal HR development program for our people to make the team stronger. We have a very strong R&D team. Dimitar already said we have never released so many products in such a short time. The new Shelly chip is there. We are still working on the new operating system. This will give us a lot of advantages for the future. We are widening our product range. That's one of the pieces that shall deliver the EUR 72 million and next year, of course, much more revenue. The premium app is there. Dimitar said that we have a very low cancellation rate, a very low churn rate, so most of the people that continued or started paying after the 3-month trial period. Still a very low number, but quite promising. And this challenging market environment has a lot of positive effects for us. Energy saving, energy monitoring is in the key of the private households and more and more in focus for professional users because of their ESG needs. And this is something that really helps us. So the long-term goal is EUR 200 million plus revenue in 2026, EUR 50 million plus EBIT in 2026. New regions, in the next year, we will address with [ own ] people, Italy, Poland, Benelux, Turkey and some other regions. We decided this a long time ago. We are onboarding people step-by-step because otherwise, it would be something that the organization cannot digest. We built very strong structures. We have built strong structures. We are moving to a new ERP system with SAP. That should give us a lot of advantages in the next year. We are in this process right now. And we are moving from a pure hardware company that is very successful with own software to become being a platform for IoT devices. As well with the new solution that we want to sell to other companies, we reported about this already. Production capacities are increased. We have 2 more production lines in our Chinese factory that started already working and that our partner in China invested for because he sees the demand as well and we know what we need for next year. And technically, we will stay ahead of competition. This is one benefit from our R&D department from hardware and software development and as well from the new Shelly chip that offers a lot of benefits. The generation 3 devices are in the pipeline. So we expect to launch them beginning of the year. Maybe at CES will be a good point. Maybe one or the other device is coming a little bit earlier. And then Dimitar is already working with his team on the gen 4 devices that is planned for 2025, so with the next huge step that will then unify a lot of platforms that will give us another advantage to all the competition that will have trouble to follow, my friend. So investor relations, we -- I already said we did a lot. I don't want to go through all that. We will be at Eigenkapitalforum in Frankfurt, Dimitar and myself. If you did not book a slot, there might be 1 or 2 open and we can meet there. And I will be on 2 road shows, one in the Nordics countries and one in Eastern Europe, still in November and in December. And then we are finished with the presentation, and we are ready for your questions.

Thank you very much for all your presentation and the results. Congratulations to them. [Operator Instructions] And we already received the first hand from Mr. Nils Scharwächter.

Can you hear me?

We can hear you very well.

Sounds good. First of all, thanks for your presentation, and congrats to these impressive numbers, I mean, especially EBIT-wise. You mentioned the combination of dynamic growth and increase of profitability is not seen that often these days, so congrats. I still have a couple of questions, and if you don't mind, I would like to go through them one by one.

Of course.

Perfect. Sounds good. Then the first one is capacity-wise. I mean you mentioned that you extended the assembly capacity at the facility in China, which equals to EUR 30 million annual revenue. To what extent are further capacity expansions like this one are possible? And have you all additionally took into consideration opening up an own production facility?

Yes. So it is relatively easy to add more production, and we all know that Chinese manufacturers are very flexible in doing so. So that's [ the miracle ] compared to what happens in Europe, sometimes how fast they can do that. So if we would need more capacity, we could add 1 or 2 or 3 more production lines in the existing factory. If it goes beyond, we would maybe have to look for new building. But in the existing building, we have enough space to put additional capacities. What we look as well at is checking out always what are alternatives outside of China. We discussed a couple of times internally and disclosed as well in this group and to our shareholders that we have a look at Vietnam just in case that something happens in China, to have a plan B. We could do this relatively fast as well. And by the way, our new Shelly chip, as well done by a subcontractor, by our partner, is already produced in Vietnam and Northern China. So that shows that we can make that step and are quite flexible in that. We could even -- and we are checking this -- Dimitar will add something to what I say, but we can even add some factories or open factories here in Bulgaria. We might do this for some part of our production for new things. So we are quite flexible in that, and that gives us a lot of room to grow. Now to your point, shouldn't we open an own factory, I mean, we are not Apple. But Apple and a lot of other big manufacturers are working fabless. They prefer to have subcontractors that are specialized in that and not taking the investments on their side and not taking as well the management of the factories. So our system today works very good. We control the factories with our people in our Shenzhen office. So we definitely know what's going on there and have no bad surprises. So I do not see a reason to open an own factory, but [ never similar ]. Dimitar, want to add something?

Yes, I can add basically that there is not -- all the time [indiscernible] our own factory or to use the third parties. And basically, with partners, it's much better about the flexibility because if we have our own factory and now we need to increase the capacity twice for next year or during the Black Friday, and sometimes we need 4x more capacity, this is completely impossible with our own factory. And anyhow, we need to mix it for the -- at the same time, there is so many changes [indiscernible] we prefer to be concentrated on the innovation side, on the sales side. But because such a factory with such a [indiscernible], this will take additional capacity from [ me and Wolfgang ] for operations from management. And at the moment, we didn't think that is. We're thinking that in future is possible only the chip business and the module business to be moved in Europe in our own factory. And idea behind that is because there is not need so much employees. There is not so many workers. Everything could be automated at such a level of the factory. But at the moment, this is still just ideas [indiscernible] I think it's, as Wolfgang say, similar to many, many biggest manufacturers of the IoT devices and the phones. At the moment, we are feeling much more comfortable to be fabless than to work on a factory.

I see. Maybe a question product-wise. You mentioned 22 products released this year. And how many can we expect for the coming year? And will there be only new generation products or also new product types? And maybe additionally, besides the gen 3 devices, you announced a deeper integration with Alexa due to specific products should be launched in this year Q4. Are you still on track with that? Or maybe an update on that?

Yes, yes, yes. I can update. The first products will be launched at end of this year, in December. We are ready with [ some deployments ], but we don't want to launch anything new just before Black Friday because we are much more concentrated to have enough production of the existing products. And also, we know that such kind of the new products launching just before the Christmas and Black Friday make up -- let's say, customers expect to have discounts from everything. And when [ it's not happens ], they are disappointed. For this one, we prefer to be concentrated, as every year, to have a new product and then to, after the Black Friday, to release the new ones. Also, the CES is so close in United States, and we need new products [ in use ] for CES and we keep part of them. But anyhow, we expect first product based off the gen 3 to be released to end of the year. And yes, for the next year [ that will happen ], we will stop -- slowly stop production for the gen 2 devices and switch everything to gen 3, especially from the [ pro ] series because gen 3 will give us additional options. This is with the new chip which we have, with a new possibility, there will be options that all products to be support, for example, [indiscernible] out-of-the box and many, many additional features which we will be planning for that. And this is for the -- especially for the gen 3. But also there is the new [ which will be ] coming. At the end of the product presentation, I show that we're looking for the -- to go into more products for the security because there is a demand from the market. And somehow, the security and smart home is coming hand-to-hand in the future for us. With the Bluetooth technology which we have and the Z-Wave technology, both of them is absolutely capable to use -- to be used for the battery-operated devices, and to offer customers not only do-it-yourself solution for the smart home, but also do-it-yourself solution for security and how to mix them. This is the first one. The second one which we're planning for, it's modules and the module business. We are going -- we're just finishing the -- our first modules based off our new chip. And these models will be offered for the third parties. In case that if they want their appliances to be connected and smart, they can use our modules. And this is some kind of nondevelopment solutions, some of the new markets which we're coming and already working with some first -- alpha customers, which together with those testing this technology. And how many devices is depend. If you ask [ me, I can tell you 50 ]. If you ask Wolfgang, he can tell...

I'd say 20.

And it will be something between 20 and 50. It depends how it's going and the challenges for the next year.

We will now move on with another person from the audio line. [Operator Instructions]

My name is [indiscernible]. Can you hear me?

We can hear you very well.

Thank you for the exciting results, especially the revenue. I have 2 questions, one [ for Dimitar ], one for Wolfgang. Wolfgang, [ all the time ], you talk about EUR 200 million in 2026, but your contract expires in 2025. Does it mean that you're staying longer with us?

That's a question I have to ask the majority shareholders.

[ Oh, I don't know ]. I'm asking you.

If you ask me, I want to fulfill my promises. And if I promise something for 2026, I expect to do so. I never look at an expiration of a contract. [ I think more to ] can I do something for a company? Do I enjoy working in the team? And I didn't know that. So if you now tell me my contract expires in 2025, I will check that after this call. I don't...

Okay. Fair enough. And second for Mr. Dimitrov. Mr. Dimitrov, thank you for the many new products. One question for you. When we're going to beat [indiscernible] in terms of they have only one division which makes money. These are the chips and operational systems. What is your prediction? Which year we will be stronger in this area?

Yes, I don't think that they have something which makes money because they lost USD 100 million every year. If I calculate, their expense is 1 million per day. Let's say -- I don't think that this is possible somehow to beat them. But to take some market share from them, that will be [ perfect ] for the next year and a good start. This is the main target, yes.

In 2026, we have to take a big share from this cheap and operational system from them, don't you think?

[indiscernible] Yes.

And then we received some questions in our chat box. I will start with the first one from [ Bob Yu ]. It would be quite significant info for the world, especially for the investors, if the gadgets installed counter is public on the web. Are you planning this to do? And where -- if yes, when will it be?

I'm not sure if I understood the question -- ah, the number of sold devices. If you ask me, never, because this is something that -- that's an internal counter that sometimes has some -- we count double [ packs ] as one piece. So there are some things that are not clear. And if we give out numbers, they should be really hard numbers, double-checked and not something that is live data. So I prefer -- and as well, I do not prefer to give too much information to competitors. If they see how many pieces we sell every day, this is something that -- I prefer to disclose the number of sold devices whenever we reach a milestone. A milestone now will not be every million. It will be more like every 5 million or so because we are getting much bigger.

We will now move on with the question of [ Adi ]. Please give us an update with entering the Xetra framework in Frankfurt.

That's a good question. If you ask me, I can only say what I hear from Frankfurt Stock Exchange and from Sofia Stock Exchange. They say it will happen beginning of the year. So beginning of the year for Frankfurt Stock Exchange is most probably not the 1st of January. First quarter, something like that. I'm getting updates every week. The update has not changed. It still says the same. Everything is fine. No showstopper right now. They are working with Sofia Stock Exchange to not make something just for Shelly Group, but to have a special part of Sofia Stock Exchange that can be listed in Frankfurt on Xetra. So I expect this to happen beginning of the year. No changes in the time line. But this is just a verbal -- that's not a contract that we have. That's just a verbal signal we get from Frankfurt Stock Exchange. So knowing that things can change, this is not a guarantee.

I have now a question that is a little bit longer. It's from [ Jim Philip ]. Could you please explain a little bit more about the situation in the U.S.? Have you made any changes? What is the strategy going forward? And you mentioned the Shelly chip is going to be very important for that market. Could you please elaborate on that? Congrats to the impressive results.

So changes we made, we changed more or less the wholesale team. We changed the direction of sales more to do-it-yourself, less to the professional installers. Why did we do that? Because we learned from Europe that our starting point [ are -- it's easy ] to get business is do-it-yourself. And the professional installers, that takes very, very long, and you should do this on a solid basis in do-it-yourself. So that's why we changed the strategy for the U.S., and with the strategy, we changed as well the sales team -- or biggest part of the sales team. We think that -- we were not talking about the chip. We were talking about Z-Wave products, so Qubino Z-Wave products -- Shelly Qubino Z-Wave products for the United States because United States traditionally is a Z-Wave market. All the big players like Alarm.com and Ring are on the Z-Wave standard. That's why we think with having a Z-Wave -- a full Z-wave lineup compatible with U.S. standards, that's a different frequency. So we will have this lineup beginning of next year, and then we think that this is a very good door opener for a lot of channels in the United States. And we see as well a lot of demand. A lot of people are asking us in the Facebook groups, in the chat rooms, when will the Z-Wave devices for the U.S. be there. So we expect that this will be an accelerator of our growth.

So now the next question is from [ Tim ]. I know it's too early to speak about exact premium users numbers, but could you comment if the development compares with your expectations? Are you planning campaigns for increasing the premium users? And when -- what will these look like?

Yes and yes, I don't know.

No, basically, yes. Let's say it's exactly as our expectations. Don't forget that there is not so many smart home platforms which have additional premium subscription for the customers. And there is sometimes, which customers need to understand, the difference between free and premium. We're very careful about this one, how we can offer them [indiscernible] we did not push nobody to switch to. It's more than -- them that they can see the features on top of the free features and to decide do you want to test it and do you want to stay on the premium. And this is something which, let's say, we never say that this is -- will be the main driver for us and the main revenue driver for us. It's more than to cover the -- partially or fully to cover the cost. And probably, in time, when we found the right, let's say, mix between the services, the free service and premium services, we could reach bigger numbers. But this will take a time. Let's say, I didn't -- nothing special to help us to enter the year. Maybe end of the next year, we can reach some significant number of customers, which could be really mean something for our revenue. But this is the beginning, and it's somehow the part of the payment services because now another demand is coming. The people start asking could they have a separate payment for just part of the services. There is a businesses which want to ask is it possible to implement special services for them which will be also on a monthly payment. Let's say, we open the door and now looking what we can do with our partners and for them, our usual customers, which is the household owners.

So now another question in our chat box is could you explain more on why cost of goods sold were lower than expected? Do you believe that the trend is [ sustainable ]?

So first is cost of goods are impacted a little bit by higher quantities, are impacted a little bit by significantly lower income -- logistic costs. And the margin has a very positive effect from the mix because we sell more high-end products where we have a little bit better margin than in the price entry in the [ fighter ] models. So if you take the combination of this, that's the reason why the margin went up so much. We as well have an advantage in custom clearance where we pay less customs because we found a better way of declaring the products. And all this is speeding up supply chain and give us some cost advantages on the cost side. And the second part of increasing the margin is coming from a mix effect.

So this was a question from [ Peter, and Peter ] has a follow-up question. What are the main reasons behind the negative market environment?

I think it's -- there are several reasons. So one is the general negative consumption climate. If you look at smart home, at a pure smart home, the original smart home, that's, for a lot of people, a gadget. And if they do something, if they [ went ] away, if they invest and they don't see a very positive consumption environment, they tend not to invest that much, especially if the product is expensive. So if you go to a professional solution from KNX for a house, it's not available below EUR 10,000. If you take a Shelly solution for the same house, we are on EUR 1,000 or EUR 1,500 depending on the size, of course. So that's 1/10 of the price. If you go to some of our competitors that have 2x or 3x the price, of course, customers think twice if they invest in such a system or not. So then you have a pressure on new constructions, so new houses, because of the high interest rates. And especially if you are a house builder that is -- a private house builder that is still in the period finalizing everything and then the interest rates go up, you start to save. And where do you save? You save for things where you think you don't immediately need them. The positive part of that, and that's something that is a benefit for Shelly, is first of all, our price positioning. I already said compared to KNX, we are 1/10 of the price. Compared to some other brands, we are half of the price or 1/3 of the price. We have a very solid quality. It's all the things that -- if you want to buy such a system, you check the market. You see a lot of recommendations for Shelly. You see that the price is more affordable than other systems. And a big trigger for our revenue development is energy consumption. And one of our #1 -- or one of the top revenue contributor is a pure energy meter. It's a product that you put in the central breaker box that is monitoring energy consumption. That is something that people more and more use to know every day, every hour, every minute how much energy or electricity they are consuming in their household. And the third one is I mentioned the photovoltaic system, and there is a strong photovoltaic trend in Western Europe especially. And for monitoring the energy contribution of your photovoltaic system, a small one like a balcony system or a big one on your roof, Shelly devices are perfect. And with Zendure, this was just the first step. We have a lot of demand. And in Germany, we had a very positive test -- super positive test in [ Computer Bild with ] one of our very cheap mini devices that they used for monitoring energy production of the photovoltaic system. And this is -- this was like super positive, and we see the increasing demand there as well. So there are some negative things in the market that, especially, competitors suffer that have higher price points and that are not that clearly positioned in the energy monitoring. And that's, on the other hand, our advantage.

And then we have another question. It's about the team. How many employees do you have on board in the group?

Well, 200, around about. So maybe 195 or -- most of them are, of course, here in Sofia. We have 8 people in the Munich office. We have some part-timers in support. We have around about 10 in the U.S. We have 10 in China. And the rest is here in Sofia. And from the people here in Sofia, more than half are in R&D. I think close to 100 are in R&D now. And this will grow overproportionately. So if I said last year we doubled, this year, we will -- next year, we will definitely not double. But we will have the biggest increase in employees in R&D because of the huge demands. We have a lot of demand from partners to make our products compatible. We have demands from Amazon to make our products deeper integrated in Alexa. We have demands from the -- our module business from big manufacturers of appliances. We have the normal development of our product. So this is definitely the area we will invest most.

And then we have another question that belongs to the Xetra. Could you give us more details about the plans to list Xetra and details about the idea of an SE company?

Xetra, I think I answered already. So we have to go to Xetra to increase the trading volume because this is, if you want, our weak spot, as it is the weak spot of most of the small cap companies and especially in these tough times. I think we still have an outstanding development of the last months, a stable share price. And if you look to some of -- other small caps, they are suffering much more. So Xetra will increase our visibility, will help to increase our trading volume. And mainly for a couple of Western European potential investors, not being on Xetra is a killer argument for not buying our shares. So they have in their internal rules a clear point that they only invest in companies that are on Xetra. So this will open the door to a lot of investors. That's what we heard. So Xetra is very important for us. An SE company is -- today, we are a Bulgarian stock-listed company. That's AD. That's the official name -- or abbreviation. Now a lot of Western European investors do not understand what this means. It is as simple as that. For us, changing to an SE has no advantages, no disadvantages because the Bulgarian law is quite strict. We have to follow all those rules. And even if we are an SE, we have to follow the Bulgarian law, of course. But for Western European investors, an SE is more understandable. They understand much more how this works, what is their rights, what are the rules for this and that's why we are making this step. No surprise because we announced this already middle of this year -- or beginning of this year. We said we will change the name of the company from Allterco to Shelly to be connected to our main products. And we said we will change the legal form from Bulgarian AD to an SE as soon as we can, and this as soon as we can is now because now our German subsidiary is on the market for 2 years. And after 2 years, you can make this step and change the Bulgarian AD into European SE. Let me just add something. This is all for increasing the trust in the company because we still are suffering a little bit that people say, "Well, the numbers are very good, but are the numbers right because you're a Bulgarian company?" which is stupid. We have Deloitte as an auditor. We follow all the rules. We check all the numbers every day, twice and triple check them. Our balance sheet is very solid. So everything is fine, but still we have this burden being a Bulgarian company. And whatever we can do to be seen as a company that people can trust in, because if you invest in a company, you need to trust the people in the company and the company itself, that's -- one of the steps is this SE move to increase the trust in our company.

So the next question is from [ Stefan ], and it belongs to the cash flow statement. Why is [indiscernible] of [ 548k and 02 ].

Sorry, can you repeat the question? Why is it...

[ Why the cash flow ] is reduced [indiscernible].

It's not reduced. It's increased.

So maybe we can clarify the question at a later point, and we will just move on with the next one.

I think the question came from [ Dr. Howard ]. So we can just have a quick conversation afterwards because maybe there is a misunderstanding, but we have more cash than before. So let's just take this offline.

The next question is from [indiscernible]. He has 2. And the first one is on the next extraordinary general meeting. Can you tell us more about the change in the Board of Directors?

Yes, that's very simple. Gregor Bieler, our current Chairman, has taken a full-time job again. He's working for Cognizant as Head of Europe -- Central Europe, and he informed us already a while ago that he will step back from being member of our Board because he simply has no time. And then we looked around, and I have to say that we are more than happy to have been able to convince Christoph Vilanek to become our new Chairman. Christoph Vilanek is the CEO of freenet in Germany, a very well-known company, very successful company. He is very experienced in the stock exchange market because he is a CEO himself. He is Chairman of the Board, member of the Board of other bigger companies. So that will really help us with a lot of knowledge and of course with as well some reputation because he has power and access to a lot of people. So we are really happy with this change. We are thankful to Gregor that he did the job for 1.5 years, almost 2 years now. But if he has no time, we have to respect this.

And the second question is on the Shelly app. What percentage of the users of the Shelly app are switching to the paid version?

This is a question that we already did not answer before. So we said we -- at a certain point, we will start reporting that, but it's simply too early. I have to say that I am positively surprised with the numbers that we got. Dimitar said that we have a very low churn rate. So only a few people deleted or stopped their premium account after the 3-month free trial period, but it's really too early to say that these are numbers -- we just started. And we just had the first month after the 3-month trial period, and we did not push anything out. So give us a bit more time. Some when during next year, we will start reporting those numbers.

Yes. I think so many numbers can do much more misunderstanding and possible wrong ideas and expectations. Then [ after for this ], let's wait a little bit to have a stable numbers because it's not relevant now. That's -- maybe you can make a calculation and expect so high revenue if you calculate by yourself, maybe not. But it's -- let's not share the information which we do not need to at the moment and don't give us significant important information. As I say, it's nothing based of the idea of what we do. Maybe we can cover some [ cloud costs ]. This is our main idea. That could help us much better, but it's too early.

And the next question is from [ Peter ] again. Should we expect more Vodafone-like deals within the B2B segment?

We hope so. So Vodafone deal was, for us, was more than just one contract. It's a door opener. And yes, we are in contact with other big clients. And with this Vodafone announcement, we could show to a lot of companies that we are relevant in this sector. We have a lot of demand in this, a lot of talks, so let's see what can materialize. But in general, the good news is that a lot of these big companies have to fulfill their ESG goals. And with fulfilling ESG goals, the first step is ESG reports. For ESG reports, you have to monitor your electricity consumption. And our products are perfect for this in different environments and at different price points. And that's -- so this Vodafone deal is [ essential ] deal or [ essential ] announcement. These both were signals to the market, please have a look, and we have a lot of demand coming after this.

[Operator Instructions] So we received another question from [ Philip Hawk ]. Where do you see possible applications for your module business? Would it be possible to use Shelly modules and chips in bigger electronic devices like cars or fridges?

This is, let's say, not cars. But fridges, definitely yes. And there we've seen, and we are still already in negotiation with the first customers, but idea behind the module is to be built in, in the bigger appliances. Could be fridge, could be ovens, could be refrigerators or, I mean, could be some kind of third-party lighting system or sockets. But that's the idea for the modules because the big suppliers, usually, they're suffering with connected their devices to make them compatible with all these platforms, which we already do that and have a connection. And this is something which we can give them, and this is the idea behind the module. But yes, that's -- we already talked with some of the suppliers, and some of them are already testing our solution.

So in the meantime, we received a follow-up questions from Nils.

One final question, because many of them have been already answered. Wolfgang, you mentioned roughly during the presentation the SAP implementation. Just a short one. Will you stick to the 1st of January as a rollout date?

It looks like. I mean whoever implemented SAP knows that this is a nightmare, but we are confident that we will make it. And we don't have that much alternatives because if we missed the 1st of January, we would miss too much time. And we could continue with our existing system, but that's not an option that we see right now. So it's a huge challenge, and it's an enormous burden for the whole team here in Sofia because we're just starting in Sofia [ now in the other ] subsidiaries. So they are working day and night and all this at the same time as we prepare for Black Friday and the year-end business. So that's a huge challenge, but we are still confident that we will make it.

Sounds good. So from my side, fingers crossed for that and the last quarter, especially the Black week.

So as we did not receive any further questions, in the meantime, we will come to the end of today's earnings call. Thank you, everyone, for joining and your shown interest into the Shelly Group. And as well a big thank you to Dimitar and Wolfgang again and as well just for your presentation and the time you took to answer all these questions. Should further questions arise at a later time, please feel free to contact the Investor Relations. And with this, we say thank you, stay safe and healthy due to the autumn season. And with this, yes, bye-bye, and see you the next time.

Thank you. Buh-bye.

Thank you. Buh-bye.