Zaptec ASA (ZAP) Earnings Call Transcript & Summary

Thank you all for logging in to the fourth quarter presentation of Zaptec. We are going to present the quarter. We have published the material on NewsWeb, so you can access all information on NewsWeb. So my name is Anders Thingbo, I'm the CEO of Zaptec. And I have with me my colleague.

Hi. My name is Kurt Ostrem. I'm the CFO in Zaptec.

So first, an overall view of the company. We are -- we have sold about 100,000 charging stations altogether in the last 4 years. Altogether, we have 6 sales companies. The annual growth rate for 2021 was 123%. For the multifamily home market in Norway, we have a 50% market share due to our phase balancing and load balancing technology, which gives the users more charging points and faster charging than the competition. So it's an obvious economic saving for the end users with using our systems. We have prepared about 400,000 parking bays altogether. So most of these parking bays, they represent the future revenue for the company since we have prepared it with the Zaptec infrastructure. So it's a recurring model for equipping all these buildings with our infrastructure. So altogether, we are 80 employees in the company. So getting into the fourth quarter, the revenue growth, which is already published, was quite high. The gross margin is strong. We present an EBITDA level which is record high, and it gives a glimpse of our scaling business model. Looking into the electric vehicle markets, we -- they continue to grow quite good in all of the markets where we operate. We also delivered the backlog from the third quarter to the customers. So by the end of the year, we didn't have any backlog in our balance sheet. For getting the Zaptec Go, which is the single-family home charging system we have, we have entered into retail agreements and we'll continue to do that. But some of these will be presented a little bit later in this presentation. And as always, we increased the export share as the markets for electric vehicles is growing very fast outside of Norway. So we will go through the numbers.

Yes. The fourth quarter was all-time high for Zaptec. So the revenue ended at NOK 193 million, up from NOK 79 million in the fourth quarter last year. This is revenue growth of 144%. When we look at the whole 2021, the revenue ended at NOK 489 million, up from NOK 220 million in 2020. This is a revenue growth of 123%. When we look at the export share, it was 49% in the fourth quarter, up from 31% last year. And for the whole 2021, the export share was 45%. This is up from only 26% in 2020. The gross margin in the fourth quarter was also very strong, and this was 51%, up from 39% the third quarter last year. And 1 reason for this is a very high share of sales of Zaptec Pro in the fourth quarter. This is due to that in addition to the sales in the fourth quarter, we also managed to deliver the backlog from the third quarter. In -- for the whole 2021, the gross margin was 44%, and this is 6% higher than the gross margin in 2020. The operating expenses was NOK 52 million in the fourth quarter, up from NOK 19 million last year and NOK 128 million for the whole 2021, up from NOK 53 million. This is an increase in operating expenses. And one of the reasons for this is that we have recruited and built up 5 new subsidiaries outside Norway in 2021, [ rigged ] up the sales organization to be ready for sales, and we didn't have any sales in 2021. So this is an investment in future revenue [ what ] will come from 2022. But if you look at the operating expenses as a share of revenue, you will see that the share is almost the same as in 2020. Adjusted EBITDA was NOK 47 million in the fourth quarter. This is up from NOK 11 million last year. For 2021, the adjusted EBITDA was NOK 87 million, up from NOK 30 million in 2020. This gave us an EBITDA margin of 24% in the fourth quarter, up from NOK 11 million last year. And for 2021, the adjusted EBITDA was NOK 87 million, up from NOK 30 million last year. Now I repeat myself. The EBITDA margin was 24% in the fourth quarter and 18% for the whole 2021. This is up from 14% last year. The available liquidity was NOK 309 million at the end of 2021. And we have a very positive cash flow from the operating activities in 2021 of NOK 51 million. When we look into the EV markets in Scandinavia and Switzerland, who is our main market in 2021, the EV markets continued to grow in the fourth quarter. The EV registration in Norway, Denmark, Sweden and Switzerland increased by 16% in the fourth quarter compared to last year. If you look at the whole 2021 in these countries, the increase was 53% of new EV registration compared to last year.

Yes. And when we look at the drivers behind the rise in electric vehicles in Scandinavia and Switzerland, it's still driven by subsidies. Either it's subsidization of the car or the energy that you charge the car with. So it's a very push from the government, but we also see that the range of models is improving month by month, and it will kind of be a more market-driven kind of momentum in these markets. So -- but still, it's subsidy-driven and important to note that the governments are putting a lot of efforts behind getting this electrification in place. When we look into new markets for Zaptec in countries like U.K. and Germany, there were 300,000 EVs sold in the fourth quarter 2021. This is an increase of 16% compared to the fourth quarter of 2020. When we look at the new registration for the whole 2021 in U.K. and Germany, the increase is 73% compared to the last year in these 2 countries. Yes. So with going into these 2 markets, which are the 2 most interesting EV markets in the world, we kind of multiply the market where we operate by 3x compared to just operating in Scandinavia and Switzerland. So this is a future very important markets for Zaptec. The drivers behind the rise of electric vehicles in these 2 markets is also subsidies but also more subsidies of a company car more than the, kind of the overall car. So it's a slightly different approach from the governments, but our systems will cover both or all of the market segments for home charging and workplace charging. So we will talk a little bit more about how we adapt to these 2 markets a little bit later. So -- but it's a very huge markets, both the U.K. and Germany. So the export share of the total revenues was about 49% in the fourth quarter, which is higher than the fourth quarter last year. Just a fun fact is that the first charger we installed in Germany was installed in Dieselstrasse. So we will continue to install chargers in Germany until they change their names on the streets. So it's just a fun fact. We have about 6 sales companies at the moment. In addition to Norway, of course, we have Sweden, Denmark, Germany, Switzerland, France and the U.K. We are able to recruit top industry professionals to these subsidiaries, and we believe that 60% to 70% of the revenues for the company will come from outside of Norway in 2022. So it's an internationalization strategy going on in this company where we attract people, attract customers who are building the network of clients and build the brand in these markets. We pick the markets based on how mature they are when it comes to adoption of electric vehicles, and also that our systems will add value to the users in these countries. And on this slide, you can see that the Zaptec Pro, which is the higher 1 of the 2 chargers and you have the Zaptec Go in the lower part, which is the single-family home charging system we have. So the electrons is, as you understand, the same in all countries, but how we kind of install it, the requirements from the government differ a little bit from country to country. So in Germany, we have to adapt to the calibration loss, which require a very specific way of monitoring and how you measure the energy used in the charger. In the U.K., we have some customizations regarding earth fault detection. So it's kind of this first half of 2022, we will be able to adapt and customize all these local requirements to our charging systems so that we can sell both charging system in all countries. So for instance, today, we can only sell the Zaptec Pro in the U.K., but not the Zaptec Go. And in Germany, we sell the Zaptec Go but not the Zaptec Pro due to these kind of adaptations we need to do for the local requirements. But it's a road map we have, and we are on track, and we will be able to launch all products during the first half of this year. And for Zaptec Go, which is a new product line for us, we are going into a mass distribution model for the Zaptec Pro, which is a more professional distribution and partners. We see that for the Zaptec Go, it's more like retail. It's wholesalers. It's energy companies. We entered into an agreement with Tibber, which also bundled the Zaptec Go with their energy services to save on the energy bill for the end users and in a 100% digital experience. So it's a more mass distribution for Zaptec Go and we show our success in achieving this distribution in Norway and especially Norway and Sweden. And going forward, we will have a kind of dual distribution model with the Pro and the Go with some overlaps, but it's also differences between those 2. Yes. We installed about 1,485 new Pro installation. That means that we have equipped about 1,500 new large buildings like multifamily homes and office buildings with the Zaptec Pro system. And normally, we install about 15% of the parking bays with a charger. So the rest of the 85% of the parking bays will be a future revenue for the company. and the system will add more value, the more chargers we put into it. So it's a beautiful business model when it comes to the Zaptec Pro, where we are the leading player in this niche, which is the multifamily home. But if you look at Germany, for instance, half of the people in Germany live in apartments, rented apartments. So it's more like the main market in Germany than a niche. So the single-family home will be a niche in Germany.

Yes. The production uptime decent in the fourth quarter '21, but not satisfactory. So we managed the order backlog from the third quarter was delivered in the fourth quarter. We have bottlenecks in the supply chain, especially low delivery of a single-source microprocessor for energy metering in both our chargers. The microprocessor supplier has now opened a new factory in February 2022, and that will increase the production volume of this microprocessor for us. We expect that the Chinese lockdown policy to be softer this year. And in January this year, this month, our production partner Westcontrol opened its new production facility with this new production line. And that means that the production capacity will almost double from last year. Zaptec has signed an additional production contract with Sanmina Corporation, starting deliveries in Q3 or Q4 this year, and this production will take place in Germany.

Very good. So the last picture we plan to show you, the outlook for this year. So we expect the EV market to continue to be strong. The growth will be double digits. The access to components for our production will also improve gradually as we go into the first quarter, second quarter and so forth. But we see bottlenecks that may postpone deliveries. So it's a risk that we will build up a backlog, order backlog, but the sales will, of course, continue. But we see that there are some more suppliers. So they put up new factories and coming out of COVID, especially when China is softening the approach because they have been -- they tend to kind of close down whole areas if they find infected people with the COVID. So it's a very tough way of doing it when you're going to transport components and so forth out of China. So in total, we have contracted more than NOK 1 billion in revenues for Zaptec for this year. So we will sell all these products when we receive them. And for 2023, we have also put in very large orders to be able to fulfill demand, and it's really a positive hard work we have put into onboarding both a new producer, but also Westcontrol, which is our current producer. They have invested in facilities, and they have opened a new factory mainly to produce chargers for Zaptec. And we continue with our EBITDA margin target, which is 15% to 20% of the revenues going forward. So this was the outlook for 2022 and the quarter presentation, and we would be happy to answer questions.

And a question. Costs are moving up NOK 50 million from the third quarter to NOK 50 million in the fourth. Do you feel that the clean OpEx of NOK 50 million in the fourth quarter is a good estimate for costs in the first and second quarter? Or will costs continue to move on?

Well, it's a good estimate. We do not open any new subsidiary this first quarter, that will come later this spring. We will use a lot of expenses on marketing in 2022. We will go up from 2021 as we open in U.K. and Germany. But the sales will also go up, so it will be within the percentage as we expected.

You're recruiting a country manager for the United States of America. Can you comment on the plans to enter U.S. markets? Yes. We are recruiting a country manager for the U.S. market. The comments for the plans is that we are targeting the California market, which makes up the -- most of the car sales and also electric vehicle car sales in the U.S. So the San Francisco Bay Area will be the market where we would like to have a subsidiary. The administration in the U.S. has put forward a plan to subsidize, invest in charging infrastructure and make owning an electric vehicle easier than it is today. They also -- you also see that the producers of cars or American cars like Ford, for instance, they are able to launch models that is adopted by the consumers. And especially, the truck market is important in the U.S., and we have several models being launched from Ford, Tesla and Rivian in the next 2 years. So we feel that the timing is right to go into the U.S. market. And during this year, we will do all the testing and approvals, get approvals from the U.S. government for our charging system. We know that the electricity system is -- it's formed and designed so that we can add a lot of value with our phase balancing. So home charging will be important in the U.S. markets, and we have the products and the systems. So -- but looking into timing of this, I think that we will use most of 2022 to prepare. The country manager will, of course, be on board during the mid of this year, but I think we will see revenues from 2023 from the U.S. market. And it's still -- it's a very kind of early phase. If you visit the U.S. market, you hardly see -- you see some Teslas, and you see some other cars. But we feel that it's not in the same level as we see in Europe. But it's a huge market. And since our systems add value, we feel that 2023 will be an important launching year for Zaptec in the U.S. market. So sales development in '22? So this is a fourth quarter presentation. What we can say is that the sales growth continues. So the profitable sales growth continues into this year. And that's the kind of what we would like to say about 2022. So it's, yes. Could you say a few words about how much OpEx you spend on building up operations in new countries?

Yes. We have a very light CapEx model when we come to expand in new countries, because we're just hiring people. So we, of course, have a cost with recruitment and then we have a salary for new people. And in the last year, we have not so much other expenses because we have the corona situation. People are at the home office. And of course, we have to do some marketing, but it's mostly salary when we open in new countries. And we have plans for 4 new subsidiaries as we speak.

Could you update us about the service IT side of your business and what your long-term thoughts are in that area? Yes. So we offer a lot of services for the end users. They get access to a portal where they can do all administration and management of the charging system. So this comes for free. It's a tool where you can do a lot of things and recreate information about charging your own system. So this is a very important part of our system today. The Charge365, which is a separate company owned by Zaptec, is offering automatic payment services. This is a company with a high growth, so about 15% to 20% of all new Zaptec Pro systems will be a customer of Charge365. So from this company, it's about, say, from EUR 1 million to EUR 2 million in recurring revenues in 2022 from this payment service. And this is only for Norway. So we are adapting and programming this Charge365 platform to be internationalized. So Sweden and Switzerland will be important markets for this service going forward. So we will kind of be more competitive with our system when we add also this service. We also look into a new range of services, like selling capacity to grid owners and also just management services, how to -- that we take a service level agreement on the system so that the end users can feel more safe, and we can fix problems remotely. And before they know that they have a problem, if there are some operational stuff that we need to see. Off-line chargers, for instance, we can do a lot of things remotely. So it's a range of services that we will launch. But today, the paid services is the automatic payment. And the software part of the whole offering and how we develop the company is very, very important so that we are able to recruit embedded software engineers, cloud software people, user experience kind of experts. It's kind of a very important part of how we develop the company, is the services and the software part. So it's going to kind of happen and be launched a lot of new services going forward. Yes. Can you give some info from [ Norway ], how big is its contribution to revenue?

Yes. For the second half, it's 9% of the total revenue was from [ Norway wards ]. So -- and they also contribute with NOK 70 million of the EBITDA 2021.

Yes, status of the process to move to Oslo Bors main list? Yes, this is a Board decision taken in 2021 that the company will be uplisted to the main list, and it will take place in the second half of 2022. We are preparing the accounts for 2021 with the IFRS standards, and we are preparing the company with all the stuff that we need to do to be able to get through an application for the main listing. And the decision on a kind of a step-up plan is not taken in the Board, but it's a more of a general decision that we are going in that direction. And we believe it will happen in the second half or most probably the fourth quarter of 2022. Do you see potential partnerships with EV manufacturers? So we work with EV companies, at least the car sales part of a, kind of the OEMs. So in Switzerland and certain parts of Norway and Sweden, you will be able to buy a separate charger when you buy the car. Regarding our systems, they charge all cars. So we do not see any big importance in partnering up with specific brands. In the beginning of -- when we launched the company in -- or launched the electric vehicle charging system in 2017 and 2018, the partnership with Tesla was very important. So they could sell more cars when we equipped homes with charging and vice versa. We could sell the chargers when they succeeded with selling cars. So we are open to discuss, especially getting access to information from the car so that we can use this information in our algorithms when doing the charging algorithms. So the car manufacturers, they are keeping the information in the car quite tight to themselves, because they are probably building up a business model based on the information. But we can give more value to the end users if we can have the kind of the state of charge on the battery, how much this car is driven in kilometers per week, for instance. So I see that a partnership when -- to exchange information and add value to the electrification, that's the more way we would like to go. But for selling chargers, we have -- feel that we have a strong distribution today. Yes. Do you make any kind of MQ pulse service regarding your employees? What is the temperature inside the Zaptec team? Yes, we do. We have employee satisfaction surveys. And it's -- the feedback is people would like to work here. On the kind of improvement side, we -- to kind of talk -- provide information internally is a challenge when people work from home and work from different countries. So getting information efficiently out in both ways, it's kind of the biggest kind of challenge we see and the employees giving us feedback. So I feel that we have an understanding, but growing from, say, 35 people in the beginning of 2021 to 80, it's a very low average time in the company. So that's -- it's a pain for when you're growing, but using technology like digital meetings and meeting up is a priority going forward. And yes, so it's very important for us. The people is the main asset in the company. Yes. The gross margins for the chargers, have they stabilized? Will Sanmina produce chargers on the same level as [ Westcontrol ]? Well, the gross margins in 2021 was influenced a lot by Zaptec reducing cost -- production costs. So we did that in the second quarter. So it was lower in the first half of 2021 and then the gross margins increased in the second half. So in that matter, it's not stabilized because we are taking down the cost. Regarding the prices, it's -- the pricing is more premium in the Zaptec Pro market than in the single-family home market. So the competition is strong and more strong in the single-family home segment of the market. And of course, when we go into a new production facility and a new supplier of chargers, it's on competitive terms. And what I can say is that 80% -- 70% to 80% of the charger is components. So the components, they are both on the world price on the world market. So if you have efficient product production processes and kind of robotics assisting in the manufacturing, we see that the Westcontrol and Sanmina is competitive when it comes to production costs.

But what we can say is that we are targeting for the low 40s when it comes to gross margin as a total. So the 51% gross margin in the fourth quarter, we are not aiming for such a high number in the future. So the low 40s is the target for Zaptec.

Yes, question. How many employees will you grow the team with in 2022? So yes, maybe you can comment on this.

Yes. We are aiming for double the revenues. As we said, we are aiming for 1 million.

billion.

Billion, of course. And that means also we have to grow more people. So we will grow with at least 50 new employees in 2022. But of course, a lot of them is coming in the sales team outside Norway.

Yes. How is your sales team working in Germany? Are you targeting electricians [ land roads ] companies? Is it the same in the U.K.? Yes. The sales team in Germany is -- we are targeting the main cities in Germany. That's important to say. The recruitment of installers is very important for the Zaptec Pro system, and we recruit and train these installers as we speak. So we are -- we have onboarded about 25 to 30 installers, midsized installers that will be able to sell and to build a business model for Zaptec Pro on top of Zaptec Germany. So they are also working with retail and getting this master distribution for Zaptec Go. And touching a little bit upon the formal question about staff, we will have to add more staff in Germany to build those 2 different distribution models. It's a big country. It's a lot of customers, which is positive because then we don't have to rely on a few customers, but it's a big job to build this network and to kind of onboard these installers. But it started well, and we see that the average orders we have from Germany is on a totally different level, a higher level than we see in all other countries. So it's a huge market. And in November, it was 70,000 new electric vehicles on the road in Germany. So we believe that it's more like 1 million electric vehicles on the road in Germany in 2022. So it's a huge, huge market, and all of these cars will be charged at home where people live, in addition to fast charging. So in the U.K., it's the same with Zaptec Go, because we -- now Zaptec Pro, I mean, we need installers and electricians to adapt and to understand the system. And so it's the same way. But they have not yet targeted, there's so many kind of other distribution channels than electricians in the U.K. And the reason for this is that we are kind of working technically with the Zaptec Go. So that it's in compliance with the U.K. laws when it comes to earth fault detection. So this will be ready in the second quarter of 2022, so that they will be able to kind of onboard more distribution channels for the Zaptec Go. So that's the answer to these questions. Yes. Can you talk about salary benefit and social costs on share option program? Is it elevated now due to hiring of new employees?

This is the -- [ salary has been ] the social cost to us under the accounts so we are just [ falling there in the ] EBITDA. It's related to the share option program who was started when we went on the stock exchange in 2020. So this is not elevated to new employees. It's the program who is announced earlier, so that will be finished in October 2022.

Yes. 50 new employees are many. Are your company ready to manage such a growth in employees and still hold onto the good spirit of being a Zaptec employee in a company which such grow? This is definitely a good question. We look for people that fits in with our culture. So we have some values working in the company, and we are -- we have used the same kind of hiring agency for 5 years. So this -- we have -- they are -- we have 2 people working in the company for this hiring agency, recruitment company. So they are physically in our company full-time. So they know our people, they know the company. So that's a very important part of getting the right people into Zaptec. And regarding -- the turnover is very low. But as I said earlier, it's important to make everybody busy fast, and so that they can also work together with colleagues to understand the best way of working. So we don't have a lot of written stuff to give to new employees. We take care of them by -- we spend time with them and make them kind of -- so that there are individuals that find the best way to an efficient way of solving the tasks. So it's the only way of growing a company fast, is to use a lot of trust and to give responsibilities, but also be there when they need kind of more information and training. So it's definitely a -- since it's the biggest assets of the company, it's really a management task. And we also -- we have a small HR department, but the managers in the company, it's one of the main responsibilities and kind of goals for all managers to succeed with their employees and to provide them with very attractive careers, so this is high on the agenda. Yes. That was the last question. Thank you all for joining in, and we wish you a pleasant day. Bye-bye.

Bye.