Zaptec ASA

OSE:ZAP

Earnings Call Transcript

[Peter Bardenfleth-Hansen, executive]

Good morning. This is my fourth quarter as CEO in Zaptec, and I am thoroughly enjoying doing these presentations for you guys. Specifically today, I know I said this the previous 3 times, but today is definitely one of those times when I'm very excited about giving out our quarterly reports.

Now it obviously wasn't come as a surprise to anybody that 2022 was an interesting year. And of course, we spent a lot of time there trying to make sure that we were in a good place when it came to 2023. And we tested, we made sure, we front-loaded. We even had CapEx and OpEx that had its impact on our bottom line. However, it is now pretty with confidence in my voice that I can say that those investments have paid off. This has been an amazing first quarter. And I'm excited to take you through these numbers that I have in front of me and not least to tell you guys about what we've been up to since we last spoke.

So we'll start with the financial highlights. Order intake, up 204% year-on-year. Order backlog, up a whopping 702% comparatively to Q1 '22. We've had revenue increase by 105% comparatively. Gross margins, probably the number I'm most excited about, has increased 3% since Q4. So now back in the 40s at a level at 41%. We're in the positive in the EBITDA. And we had a very successful capital increase in February, where we raised NOK 300 million.

So what an exciting way to start this morning, maybe raining here in Stavanger, but it's fully sunshine in here at Zaptec. So we had record-breaking order intake. We, as mentioned, up 204% comparatively. Significant portions of these orders have been taken here in Q1, of course, but will be in a staggered delivery as we move into '23.

Very importantly, and what we'll be talking about a little bit later on in the presentation, is the Zaptec Pro MID-type approval, which we got late in Q1, and we are now ramping up and getting ready for production of the MID-certified Pros as we move into the second half of 2023. And as we look here, we can see that the growth only goes one way, classic hockey stick movement here, very exciting indeed.

I'll pass over the word now to our CFO, Kurt, who will take the next couple of slides.

[Kurt Ostrem, executive]

Yes. Our production level is ramping up according to our plan. We produced 4x as many charger, Zaptec Pro and Zaptec Go combined, in the first quarter compared to last year. We will also start Zaptec Go production at Sanmina in the second half, which is currently now in preparation phase, and we will produce the first prototypes this summer. We are also looking for ways to accelerate the Zaptec Go production further due to the strong demand that Peter mentioned. This includes introducing night shift at our production partner, Westcontrol.

When we look at the revenue for the first quarter, it's up 105% and ended at NOK 271 million. This is a record high revenue in 1 quarter for Zaptec, and this is particularly strong figures considering that Q1 normally is a weak quarter. So we expect even higher quarterly revenue in the quarters ahead of us.

So back to you, Peter.

[Peter Bardenfleth-Hansen, executive]

Yes. So when we look at the statistics for EV adoption here in Europe, it has been an overall increase. However, what's interesting to note is that due to a reduction in incentives in our home market, Norway, there's been a quite dramatic decline in EV sales in the first quarter of the year by 12%.

This has not, and I underline not, manifested itself into Zaptec sales. And we have had the ability to increase our market share, despite a decline in sales of EVs in our home market, to a point that you will -- when we look at the -- deep dive a little bit more in the numbers, we'll see that the sales in Norway has increased in such an amount that it's actually had an effect on the overall balance of international sales versus home sales.

But when we look at Europe as an overall, the macroeconomics and the plug-in sales across Europe has increased by a 21% from Q1 '23 comparatively to '21 (sic) [ '22 ]. And it is very, very interesting to look at how, when we deep dive further into these numbers, that when you look at the battery electric vehicles are actually up by almost 43%. So that's quite a considerable amount. And this really, really does play into the megatrend that Zaptec is in.

Obviously, we've got these -- a lot of points that are helping us move ahead in relation to the adoption in the infrastructure. We've got government incentives, we've got customers focused on environmental solutions. There's not one automaker out there, one OEM out there that's not going fully electric. And of course, the availability of models to all different types of purpose use, whether it be SUVs, whether it be for private use or small businesses, it is now available as an electric option.

The reduced pricing, both in relation to the battery production as well as ranges, obviously, manifests itself in the reduction of total cost of ownership and naturally then puts the pressure into the requirements of building out further charging infrastructure. And this, of course, is where Zaptec excels and we believe that this actually is becoming what could -- one could sort of categorize as a critical infrastructure as we move into the future.

As I just alluded before, export share has decreased in Q1. However, this is specifically because of this extremely strong sales that we've seen in Norway. And of course, when we look at the overall numbers, we still have had, year-on-year, almost 100% growth in the export sales. However, the growth in Norway has been even more exponential.

But we are still seeing, as mentioned, the positive trend in relation to our exports, and we will be expecting those numbers to even go higher as we go into the next 3 quarters, specifically fueled by our MID certifications of the Pro, which does kick open the markets in -- specifically here Germany, also Benelux and later on in the year in France. And then we are looking to do soft entries into Spain and Italy as we move towards the second half of 2023.

I'd like to put a small comment here in relation to one of the export markets that has taken off to such considerable numbers that we had to put a specific note in here about it, and that is, our increased demand on the Swedish market, specifically fueled by the Swedish Electrical Safety Authority that did tests on several charge manufacturers in the summer of 2022. These tests and specifically approvals of these were announced here in Q1.

And of course, the fact that Zaptec Go passed with flying colors really put us apart from very -- quite considerable number of our peers out there. And this has created a very strong demand for the Zaptec Go in the Swedish market, but also spilling into the neighboring markets here, not least our home market, Norway, but also Denmark and other markets in the Nordics.

Now this is something that is really massive for Zaptec. It is something that we've been working on for a very, very long time, to get the MID approvals for specifically the German market. Now this is something that basically ensures the perfect measurement accuracy when charging specifically company cars and the likes where you have the need to ensure that there is a precise measurement, and this is something that needs a specific certification, not only of the product itself but also of the product production. And this is not -- a no easy feat by any means.

And hence, there is quite a considerable number of years that we used on this. So this has been a milestone for Zaptec. We will be focusing all our production on MID from the Norwegian production site for -- to be solely MID-calibrated charges as we move into the second half of 2023 and beyond.

This is another point that -- another enormous milestones, almost in the same time line as the MID certification. We have, right from the very start, been working with technology that we as have patented. It's taken considerable time. We've been granted these patents in Asia for quite some years now here under Japan and in China, but it's taken somewhat longer to get these patents through the European patent certification. This has now been done. We were granted these patents here in March 2023, and this does set Zaptec apart from many of our peers and competitors out there.

And it is a very important piece of technology. This is not just some little tiny part of a technical solution. This is a monumental part of making sure that you can do charging simultaneously with similar charges going on at the same time, thereby enabling your ability to do smart charging, fast charging with AC chargers in places where the availability of electricity can be meager and thereby circumnavigating the requirement to do a lot of investment into the old-fashioned infrastructure to shore when setting up new sites.

And again, I think this -- I'd like to just put an extra note to this because I think it's important for anybody who believes that charge points is something that's just going to be commoditized in the near future. Please spend a little bit time to go in a deep dive in the requirements, into the regulations, and not least, adding technologies such as this because it really does underline the seriousness of what it is that a charge point manufacturer does and not least where Zaptec places itself on that list.

And now I'll pass the words over to our fantastic CFO.

[Kurt Ostrem, executive]

Thank you. I'm pleased to report that the gross margin improvement started in the first quarter. So the gross margin increased from 38% in the fourth quarter up to 41% in this first quarter in 2023. This increase is due to favorable FX development since the Norwegian krone is so weak, and we have 65% of our revenue outside Norway. But we have also a positive effect of the price increase from 1st of February this year.

However, the gross margin was negatively impacted by the increased sales of Zaptec Go versus Zaptec Pro since we have a higher gross margin on the Zaptec Pro. We see a positive outlook for gross margin going forward, backed on the sales start of the MID version of Zaptec Pro later this year, but we were also considering additional price increase later in the year, if that's become necessary.

Looking at the EBITDA. Our EBITDA development still reflects strategic investments in new markets, both product development and OpEx related to building new organization in new markets where we still not have significant sales. We record an increased EBITDA margin during the quarter to 2%, and this is up from the first quarter last year. Going forward, we believe in improved EBITDA margin on the back of our maintained gross margin but also increasing the revenue each quarter, and we will continue to have strong cost focus to secure a higher EBITDA in 2023 as a whole.

[Peter Bardenfleth-Hansen, executive]

So to sum up, and I know this has been a short and sweet presentation. However, the quality versus the quantity is what pays for itself here. And it has been, all in all, a great quarter for Zaptec. We've delivered significant growth, including record-breaking order intakes, over 100% sales increase, strong backlog for delivery throughout the rest of 2023 here and significant ramp-up in production volumes, both in Norway as well as Sanmina in Germany.

As mentioned before, we've achieved key milestones, including the European patent for dynamic phase balancing, plus the MID approval for the Zaptec Pro. Both the gross margin as well as the EBITDA margins have improved in Q1. And I just like to say that we are definitely bullish. We're definitely excited about the future for Zaptec, and we will continue our vision to change the world with this cutting-edge charging solutions as we move forward.

Now we look forward to taking a Q&A session. I'm sure many of you have questions, and we're looking forward to answering them. Thank you.

[Peter Bardenfleth-Hansen, executive]

So we have the first question. To what extent do costs related to the equity issue affects the P&L in Q1?

[Kurt Ostrem, executive]

That had no effect on the P&L since the -- this cost related to equity, it's booked at the equity in the balance. So it's no P&L effect.

[Peter Bardenfleth-Hansen, executive]

Have you seen a pickup in order intake after the Swedish authorities levied sales ban for Easee?

Right. I could say that, in general, as I started out by saying, we spent all of 2022 gearing up, ramping up for a considerable growth in 2023. This is what we are looking at right now. This is what we're experiencing right now. Now there may be some triggers that have been helping us to accelerate that growth that we've been planning for in 2023. Some of those may be because others are having difficulties.

But as mentioned, when we looked at the slide on Sweden, we were going through the Swedish authorities, discussions as well as their checks of our own products, the Zaptec Go, and we passed these with flying colors, and we believe that our uptake in the Swedish market has been because of our ability to have a certified product that the consumers can relate to, specifically, because of the safety aspects of our -- and the quality aspects of our products.

What is the current production rate of Zaptec Go and Zaptec Pro?

[Kurt Ostrem, executive]

Well, we have a production forecast more than double the production volume on the Zaptec Go and more than double the production volume of Zaptec Pro. So in total, we have a production forecast for 2023 up to NOK 2 billion in revenue. But this is, of course, production forecast that we can change along 2023, if necessary, but we have a very high production capacity and have also order components to ramp up.

So we are ramping up every month. We have doubled the production capacity of Go this next month, and we have a very huge volume at the end of 2023 since we also start with Zaptec Go in Sanmina in Germany from the second half.

[Peter Bardenfleth-Hansen, executive]

Excellent. Any comments on component availability and prices?

[Kurt Ostrem, executive]

Well, the availability has been improved. So we have no specific issue with components availability as we speak. So it's looking very good for 2023. When it comes to prices, we have a very, very competent supply chain department in Zaptec. We are working very hard to reduce the prices. So even if the Norwegian krone is very weak, we have not got any price increases so far, and we are working to reduce the critical components price on this. So we don't expect any increase in the production cost as a result of higher component price.

[Peter Bardenfleth-Hansen, executive]

How is sales in the U.K. and Germany developing? And when do you expect these markets to really deliver higher sales?

Well, as we just alluded in the slides we went through, the German market, obviously, has been waiting for these MID-compliant products to come into the market. And we will -- we achieved the MID certifications at the very last day of Q1. We've spent the last month, 2 months getting our production lines ready for production of these MID-certified Pros, and we will be ready to start delivering these towards the very end of Q2.

So we hope and expect to see the sales from Germany to kick in at the end of this quarter, beginning of next. So we should be able to see the effects of the German market in the second half of 2023. We're still very bullish on that. And the same can be said for the other larger markets of Europe, i.e., France and Benelux where we believe that the onset of our MID-certified Pro will have an effect.

When we look at the sales in U.K., we're still -- we've seen quite a considerable uptake comparatively to 2022. We're still in the early phase. We were -- had the first production start ramp-up for the U.K. type Go in the beginning of this year, so beginning of Q1 2023. And sales and deliveries have been ongoing, and we expect that we will be seeing significant numbers and an increase in the U.K. numbers as we go into the next 3 quarters of this year.

What is the -- is your recruitment plan for 2023? Mainly, recruiting in new markets?

Yes. I think our CFO can answer that one.

[Kurt Ostrem, executive]

Yes. We have now built up organization in every market that we have our subsidiaries. So we don't expect to recruit many more people in the existing market in the rest of 2023. However, we will continue to recruit people at the headquarter in the technical division because we speed up for the compliance to get the older product and compliance in new markets. And we have also started our development for the U.S. market.

So most of the new recruitment will be technical division, but we will not recruit in that speed that you see in 2022. So there will be a lower recruitment this year. And this is also due to our cost control, so we will achieve our EBITDA for 2023.

[Peter Bardenfleth-Hansen, executive]

Can you give some flavor on working capital and cash flow going onwards? When will working capital normalize relative to sales?

[Kurt Ostrem, executive]

Well, it has cost to grow so fast that we do. And if you look at the balance sheet now, you see that it's mainly inventory and the receivables who have increased. Of course, we will not continue to increase the inventory every quarter, but the receivables will increase. So they have -- it costs, but we planned and hoped that the sales will be so high as expected, and then we will see a positive cash flow at the end of the year.

[Peter Bardenfleth-Hansen, executive]

Will Zaptec Go also be MID-certified and get ISO 15118?

The answer is yes, that is the plan. We expect that we will continue our MID certification with the Zaptec Go as well as implementing ISO 15118. And for those of you who wonder what ISO 15118 is, it is basically the new protocol for the communication between a charger and the vehicle. And in that lies many aspects here on the vehicle-to-grid, plug in charge and a number of other relevant future-proof services.

Now in relation to the Go and the time line, because that would be the secondary question here, we expect to have Zaptec Go with an OCPP box-level version in a quarter's time, so around summer to beginning of fall, 2023. But the actual MID-certified Go will probably be more in about 12 months' time from today.

Is the order backlog for the remainder of 2023, NOK 489 million, also your sales target for the remainder of the year? If not, could you provide communication how sales should progress in 2023?

[Kurt Ostrem, executive]

Well, we expect a much higher sales of the rest of 2023 than this backlog. So we cannot give you exact numbers, but we should be able to double our revenue for 2023 compared to 2022. So that means above NOK 1.5 billion and even more if we get access in the new markets.

[Peter Bardenfleth-Hansen, executive]

Did I understand -- did undemanding, you corrected that you are targeting 2023 sales of NOK 2 billion? If so, what is the risk of not reaching this target?

[Kurt Ostrem, executive]

We can schedule and we can postpone production in the future. So if we see that we don't have the order intake to reach NOK 2 billion, we can postpone production into the first quarter of 2024. So we will not have any risk if we get below this number. But this is a kind of maximum revenue in 2023. This is our capacity, so to speak. So it's no risk if we got lower, we just adjust the production after the order intake.

[Peter Bardenfleth-Hansen, executive]

Yes. And just a comment to that as well, this is not to be seen as a guidance in relation to revenue.

[Kurt Ostrem, executive]

No.

[Peter Bardenfleth-Hansen, executive]

Excellent. It seems as if those were the last questions. And once again, I'd like to thank you guys for tuning in this morning. It's been an epic quarter and that's something that we are extremely proud of. And on behalf of Zaptec and the fantastic team behind me, I'd like to thank you for listening, and looking forward to joining you guys again in 3 months' time in the hopes that it will be just as exciting as it was today. Thank you very much.

[Kurt Ostrem, executive]

Thank you.