Zaptec ASA (ZAP) Earnings Call Transcript & Summary

[Audio Gap] to Zaptec's presentation of the results for the fourth quarter. My name is Kurt Østrem, and I am the acting CEO in Zaptec. Together with me today, I have Finance Director, Kristian Sæther. I'm happy and proud to share that Zaptec continues to grow significant. We outperformed our competitors and gained market share even when the EV market is temporarily challenging. Our focus on quality and safety make it a difference. During the fourth quarter, we have got better visibility for future revenue with our increasing order intake, and we're entering 2024 with a record high backlog. In the fourth quarter, we also got more financial flexibility when we increased the overdraft facility. We have focused on our core business and divesting noncore assets like the Charge365 in the fourth quarter. We have focused on key product market adoption and investigate future business models. In the fourth quarter, we invest for the future by building competency, next-gen product portfolio, and increased marketing contributed to the strong sales growth. We also have high export increase on the back of market penetration outside Norway. So let's look at the figure for the fourth quarter. The revenue ended on NOK 408 million, which is an increase of 70%. And for the total year, we passed NOK 1.4 billion. The order intake was also increasing and ended at NOK 362 million. This was also increased from the third quarter. As mentioned, the order backlog is record high and have increased 161% versus the fourth quarter last year. Also, the gross margin was increasing from the fourth quarter last year. And together with the EBITDA, Kristian will go more in detail on this later on. The EBITDA was minus NOK 8 million in the quarter, but this is a high increase from last year, where it was minus NOK 39 million. For the whole year, we have a positive EBITDA. The export share was high with 72%, and this is an increase from 68% in the fourth quarter last year. Despite demanding macroeconomic condition, we achieved 70% sales growth versus the fourth quarter in 2022. 2023 [ turnover ] was more than NOK 1.4 billion is a strong growth of 94% compared to 2022. We are very satisfied with this when we take into account the weakening purchase power in the core market last year, and it shows that Zaptec gained market share. Order intake increased compared to the previous quarter. And compared to the fourth quarter in 2022, the growth was 31% from Q4 in 2022. The graph shows a continuous increase, but one must remember that quarter 1 and 2 in 2023 were very special due to the sudden change in competitive situation in the Swedish market. The total order intake in 2023 was more than NOK 1.7 billion. Thanks to strong order intake also in the fourth quarter, we had a total of NOK 451 million in order backlog at the start of 2024. We have record high exports in the fourth quarter with NOK 293 million, and this is an increase of 75% from the fourth quarter in 2022. The export share increased to 72% from 65% in the previous quarter. We believe in our increased export share from entry into new markets in Europe. We have now started deliveries in France. Benelux sales are ramping up. We have refocused the U.K. commercial strategy, and we have added distributors in several new markets across Europe.

Looking at the gross margin in the fourth quarter, we maintained the high level of 37% compared to 36% the same period last year. For 2023 in total, gross margin ended at 38% compared to 39% in 2022. In the fourth quarter, we changed accounting principle on revenue related to connectivity in our chargers after IFRS 15, where the related revenue is spread over 5 years instead of taking a time of sales. The change in principle does not affect cash flow but shows a lower revenue and following margins. Compared to previous financial releases, the change in accounting principle stands for 1.5% lower gross margin in the fourth quarter and 1.7% lower gross margin in 2023 in total. Going forward, we expect to maintain approximately the same level of gross margin. In the fourth quarter, we continued the positive EBITDA trend year-on-year. EBITDA in the fourth quarter was negative 8% -- NOK 8 million or minus 2% compared to negative NOK 39 million or minus 16% in the fourth quarter last year. For 2023, in total, EBITDA was NOK 43 million. This is an improvement of NOK 68 million compared to a negative EBITDA of NOK 25 million for 2022. Results in the fourth quarter are affected by one-offs or termination agreement with the prior CEO of NOK 11 million, increased provision for potential credit loss of NOK 9 million and strategic use of additional marketing expenses leading to the high sales achieved. The impact in change in accounting principle according to IFRS 15 stands for a total of NOK 39 million in 2023. And without this change, EBITDA had been positive in the fourth quarter and ended around 6% for 2023 in total. On liquidity, we increased the overdraft facility from NOK 70 million to NOK 300 million in the fourth quarter. The new facility in DNB is backed by Export Finance Norway, which guarantees for 50% of the credit limit. At the end of December, the credit line remained unused, leaving us with a strong position of NOK 441 million in available liquidity.

So let's look closer on the EV market and the sales figure. First, we look into Norway. And Zaptec had a strong increase in sales in Norway despite the weak EV market. Look at this graph, EV sales are down 56% from the fourth quarter last year while Zaptec increased sales by 51% in Norway in the same period. So I have to say, we are really pleased to have increased our market share so strongly in Norway, and these are impressive figures in the mature markets such as Norway. For the whole 2023, sales in Norway increased by 95% and ended at NOK 449 million in revenue in Norway in 2023. And when you look at the same figure outside Norway, we had a high increase in export in the fourth quarter despite a weak EV market also in Europe in the fourth quarter. Also international, Zaptec can show strong figures in the fourth quarter. With EV sales in Europe were down 7% in the fourth quarter compared to last year, while Zaptec delivered an impressive 75% growth in fourth quarter compared to 2022. It is also worth noting that there is an expected 20% growth in EV sales in Europe in 2024 and a massive 45% increase in EV sales in 2025 in Europe. And then we have to repeat what we had said before. We are well prepared to capitalize on European mass-market EV adoption. If you look at the graph on the right-hand side, you see this huge shift in EV sales who is forecasted from 2025 in Europe. And the Nordic EV sales are just a tiny part of this total sales. And Nordic is the main market for Zaptec so far. So that shows this huge potential we have in new markets, especially in countries like France, U.K. and Germany, who have more than half of the new EV sales in the coming years. The Q4 performance provides both visibility for future revenue and the financial flexibility needed for sustained growth. And as I said, the export revenue is projected to accelerate further. Sales started in France. We have a good momentum in the Benelux. We have refocused our sales strategy in U.K., and we have got a lot of new distributors across European markets, also in many new markets. And maybe the most important of all on this slide, we have several new product releases upcoming, developed for the European mass market. And all these new product releases, either it's software or hardware, will be released during 2024. So in all, strong growth in the addressable market due to improved product market fit and forecasted EV sales [ acceleration ]. So we expect a significant cash flow generation from 2025 and forward. So that was the presentation this morning, and we will now open up for questions.

Your largest listed competitor have -- has many questions at the same time. Your largest listed competitor have recently commented that the negative destocking cycle, and the distributor seems to have ended and that orders have started to increase again from Q4, early 2024. Do you also see this trend in your business? The answer is yes. And you can see our order backlog at the end of the year. That's -- it's a sign of that. So we really see that the destocking is now happening, and we really start to deliver again. Can you share some light on how you are targeting the balance market type of sales channels distributors? Are you doing the same other markets? Yes, we have the same model in the Benelux as in the other European market. So we address [ right ] in many channels, both wholesalers, utilities value-added resellers. So it's the same. And in Benelux, we have the same challenge that we are market fit for the Pro version with MID certification, but in the whole market, we have a smaller market since we are still not ready with MID certification on the Go, but that will come soon. What does the other operating income of NOK 24 million consist of? Maybe you, Kristian, have some detail?

This is related to our divesting of Charge365, our payment service, which is a noncore asset we had previously and see that we -- with profit on maintaining our core business and focus -- we focus only on that.

Yes. Another quarter, the costs higher than we expected. Do you have control on costs for 2024? The answer is yes, because a lot of the cost in fourth quarter is related to both a change in the accounting principle and one-off. So yes, we can control the costs. I'm not concerned about the cost. I'm not concerned about the margin. The most important is that we have top line, the sales because the other factor we can adjust and influence ourselves. So yes, we have control. Could you please elaborate about your expectation for sales level in Norway and Sweden in 2024? Do you believe in a flat level given the slow consumer demand? Or is it realistic to believe in the growth? We have really done a thorough job making the budget for 2024. And from all the income from all the distributors in Norway and Sweden, we have, in our budget, a growth in both country. But of course, the growth will not be 100% as last year, but we have growth in both country. Do you see any price pressure for your charger? How should we think gross margin in 2024? Well, we say that the outperform our competitors. So price -- we don't have this price pressure so far. Of course, there is price pressure. We compete on price all the time, but we have a very low price. So we think that the gross margin should be the same in 2024 as we presented now. Could you comment on expanding inventory, 5x Q4 2022? Yes. This has been our biggest challenge in the previous year. And the reason is that when this shift in competition especially Sweden happened 1 year ago, we have an extremely high demand after our charges. And we ramped up the production both in Norway and in Germany and then really succeed with ramping up the production. And then this autumn, we got this huge and suddenly shift in the demand due to the stocking in all distributors around Europe. And as you know, when we are doing electronic production, we have a long lead time, and we cannot turn around so quickly as we wish. So we will work very hard now to reduce the inventory in 2024, and we have already done action. We have slowed down the production, and we are looking to do even more in that perspective. So you will see a much lower inventory at the end of 2024 than you see today. We expect the inventories to slow down during third and fourth quarter. Sorry, I forgot to read the question, but there was, when do you expect the inventories to decrease? Yes. Any news on the vacant CEO position or can you, Kurt, manage the workload? I can manage the workload. We see no challenge with that. It's a positive challenge. I like what I'm doing. The Board is working now on the process to finding new CEO, and they are expected to have a conclusion on this process within the end of this month. And now Kristian, there is a question about, could you please indicate the IFRS 15 effect on 2022 EBITDA?

So you can look at note 15 and see the details there with comparison for each quarter. But on the top of my head, we have approximately NOK 20 million in 2022 and NOK 38.8 million in 2023.

Could you provide some more details on the planned European product launches? Well, I will not give you all details, but I can say that we have now -- we are now finished with the OCPP box level on our Go charger. We are now doing the business review, and then we will launch out in the market. We will come with a new update load balancing or Sense during the spring. We will also launch a brand-new app during the spring. We are launching a new website. And of course, the biggest launch this year is the new Go charger that I have already said that it will be MID certified, but it will also contain a lot of other stuff. And this is planned to be launched in August and planned for mass production in September. And we are working both with our vehicle-to-grid. There has happen great things there during the year. And we will also have the [indiscernible] for the Pro market in Germany during the year. And we have recently, a couple of days ago, launched and produced and sent out the new Pro charger for U.K. with the security [ right ] in place. So now we are ready for U.K. with our Pro system. And other things I won't to talk about, a secret. Could you elaborate on distribution in France, Benelux and the U.K.? As I said, France was a new market. We haven't had products before now in January, and we started up really good. We are very pleased with the opening in France on the Pro. So it's looking very positive when it comes to the France market, and they will also get the Go charger when we launch the new Go later this year. Benelux is going really well. We are really pleased with the development in the Benelux, especially Netherlands and Belgium. Luxemburg is a small market. And U.K., we had to refocus on the strategy. We was too narrow and look into the homebuilding market. Now we have the same strategy as is the other market, and we have got the first huge contract with wholesalers and distributors. So we see positive development in U.K. How do you expect OpEx to develop in 2024? Will quarterly OpEx roughly be in line with Q3 2023 of NOK 115 million? Kristian, you have the detail?

Yes. Since we had some one-off effects in the fourth quarter, we are looking at approximately above the third quarter OpEx level since we had a couple of more employees coming in this quarter. And there will also be salary increases for 2024 as last year. So approximately above the third quarter as running OpEx level.

I don't see any significant revenue coming from Belgium. What should we think about this? Netherlands seems to have a very large growth in percentage. So why not Belgium? Well, the reason is that we have fewer distributors in Belgium, but we are increasing. And another factor is that we didn't have people in our organization in the Netherlands who speak France -- French. So we have now hired French people also in Belgium because in the Benelux, it's like -- it's a bit like the Nordic. We think that Netherlands salesperson can do the same job in Belgium as the Belgium people, but there is a cultural difference. It's like Norwegian should try to sell in Sweden. So therefore, we have hired people from Belgium. So I think that's some of the reason. Will inventories continued to increase in Q1 and Q2 or should we expect it to be stable versus Q4 '23 before dropping in second half 2024? Of course, it depends on the sales, of course, but we have a reduced production every month this spring, and we'll be down to the goal we had in April. So we don't expect it to drop before in the third quarter. Isn't that right, Kristian?

Yes. Yes, that's correct.

Yes. Will the new product to be launched in 2024 contribute positively or negatively to the gross margin going forward? It will contribute positive. I cannot go any more detail than that, but it will be positive. Can we expect any write-downs of the current inventory when you are launching all those new products? The answer is no. We have a plan and there's different markets. So there will be a different product in different markets. Will there be more buyback of shares from Zaptec? We have no plan at the moment to do that, but we have outstanding option. So in that relation, it may happen, but we have not planned for that. And we hope that the share price will stay at the level that we don't have to do buyback. It seems that was the last question. So if there is any other question, we just want to thank you for listening in, and thank you for following us in this journey, and I just have to say, drive safe. So thank you.