Zaptec ASA (ZAP) Earnings Call Transcript

Good morning. My name is Peter Bardenfleth-Hansen. I'm the CEO of Zaptec and with me today, I have CFO, Kurt Ostrem. We are happy to talk to you today about our second quarter. Now second quarter was a testing trying quarter, offering everything from production stocks to revenue highs. But overall, I'd say Zaptec has navigated very steadily in these uncertain times, and we continue to show a very strong and unwavering commitment towards our goals. Our accumulated numbers to date show that we've now sold over 130,000 chargers. We've established 6 sales companies and our increase in order to take year-on-year is 84%. Our export share has risen again. We're now at a percentage of 70 and so has our number of employees where we are at 120 at this current stage. We have over 400,000 parking spaces with infrastructure ready to deploy Zaptec Pro chargers.

So the highlights from the second quarter. We have a strong purchase order registration of NOK 208 million in the second quarter, and this is an increase of 84%. Despite of the production stock in the whole of April, we still managed to have a revenue growth of 65% from the sales in May and June. Production going forward is secured and [indiscernible] increase their production of Zaptec charger for us. And our second production partner, Sanmina, is on track and will soon start to production of Zaptec chargers. The export continued to increase and the export share was 70% in the second quarter. We had a gross margin of 42% and adjusted EBITDA was NOK 7.7 million in the second quarter. So next page, let me look into the key numbers more in detail. As Peter said, the second quarter was a special and a special quarter for Zaptec since we had 3 months in the quarter with expenses but only 2 months with deliveries and revenues. So the booked revenues in the second quarter was NOK 151 million. This is up 65% from the second quarter last year. The book revenue for year-to-date was NOK 283 million, this is up 72% from year-to-date last year. The extra share is up from 41% to 70% in the second quarter and year-to-date is up from 40% to 69%. And a strong gross margin for almost 42% in the second quarter, up from 36% last year. And year-to-date, the gross margin was almost 44%, up from 35% a year-to-date last year. The operating expenses was NOK 55 million in the second quarter, up from NOK 21 million. And year-to-date the operating expenses were NOK 107 million, up from NOK 40 million last year. This is also a high increase in operating expenses, but this is as planned. And if you look at the operating expenses as a share of booked revenue, this quarter is, of course, too high. But we like to see the operating expenses as a share of order intake. And if you do so, the share of operating expenses would have been 25% in the second quarter, and that's a number we are pleased with. The adjusted EBITDA was NOK 7.7 million in the second quarter. This is down from NOK 11.7 million last year. And this, of course, is due to a production stop in April. Year-to-date, the EBITDA was NOK 16.8 million. This is slightly down from NOK 17.3 million year-to-date last year. And if you look at the EBITDA margin as a share of revenue. Of course, it's too low in this quarter with 5.1%, down from 12.8% in the last year. And year-to-date is 5.9%, down from 10.4% last year. But again, we have only 2 months of deliveries. If you look at the EBITDA in the light of order intake, we would -- could have an EBITDA margin of 16% in the second quarter and 13% year-to-date, and that is according to our plan. We have still a strong cash balance and had NOK 245 million available at the end of the quarter. This is down from NOK 286 million last year. And the reason for that is that we have invested heavily in inventory of components to secure future collection and revenue stream..

Regarding market developments, our European expansion continues. We've signed a country manager for the Benelux countries. In Zaptec Germany, we've signed ChargeGuru, providing Germany-wide platform of certified installers. Zaptec Denmark has signed 2 larger resale agreements with NRG as well as KW Bruun. And when we look at the EV markets in Scandinavia and Switzerland, some of our largest markets, Q2 showed a decrease compared to last year. However, the overall numbers for first half of '22 show a slight increase of 1%. In markets of U.K. and Germany, there's been a 9% decrease. However, that hasn't touched Zaptec. In regulation to the international expansion, our export share, as mentioned earlier, is now at 70%. That's up from 41% in Q2 '21. Our largest export markets, Sweden, Denmark, Switzerland and Iceland.

Yes. We installed 1,527 car parks ready to go with Zaptec Pro in the second quarter. This is up from 1,470 car park installations last quarter. And with car park's installation we're talking about winning a building or other large parking spaces. So there are several parking possibilities in each car park where typical 20% is equipped with a Zaptec charger. As the EV demand increase, the car park owner can add multiple Zaptec Pro chargers to the same car park several months or maybe years later, which may add to demand. So that means that we have a quite large revenue stream already secured for the future.

Our recurring revenues in subscription now -- subscription for payment services. We have now 2 services: Charge365 which we've had for a couple of years. So our payment service solution for Pro-end customers in Norway is steadily increasing, now with more than 13,000 active unique users. On top of that, we've added this quarter, Zaptec Park, which is our way of expanding quickly into new markets. Zaptec have entered into an agreement with Monta to provide end customers with the best and most flexible payment solutions. Zaptec Park was launched in Sweden here in June and further expansions in other European countries will happen during the autumn 2022.

So the component situation that we had in the spring is now secured. Components are back in stock and production is increasing at Westcontrol. So we expect even higher production in the months to come. So action is taken both technical and also within supply chain to prevent further delays and when it comes to our new production partner, Sanmina, this is on track. They have started production of the first Zaptec Pro. And they are ready for ramp-up production in November and will have mass production in the Q1 next year. So therefore, we expect that the backlog of Zaptec Go will be eliminated by the end of the third quarter. But the Zaptec Pro, we will have a backlog until the first quarter next year.

So all in all, when we look at the outlook, we are still very positive. Shift towards e-mobility remains resolute and unchanged despite the variant fluctuations in the markets. Production has secured to follow Zaptec's growth rate so we will continue to aim at a minimum of 70% growth and long-term EBITDA margins remain in the range of 15% to 20% in our goals. That concludes our report this morning. However, we will now be taking questions.

Yes. As I said, this high increase in OpEx is as expected. We have -- we are aiming for at least 70% yearly growth -- annual growth in Zaptec. We are expanding international so this growth is like we have planned for and in NOK or in value. The OpEx will increase also going forward, but we will keep the percentage versus the sales in line.

So I would say, in overall, despite we see some quarters where we have reduction in the overall sales of electric cars. The year-on-year numbers will definitely show a rise. Each of the markets that we enter into are always based on the uptake of EVs. Of course, the lack of components will have an effect and has an effect, but we do not expect that this is going to hamper our international expansion since many of our customers are based on the Pro chargers, which are in the B2B segment. Yes. So we have currently our product developments are based on developing our 2 existing products, the GO and the Pro. We have an R working very hard towards ensuring that our products have and will remain at the forefront of the technology that's on the market. Specifically, we are focusing on the software elements in order to ensure that our product charges have an R capable of being at the forefront of the technology side, both in relation to future-proofing our charges for our customers' benefit, but also to ensure that our chargers can and will be a technological part of the expansion of the electrification of the grids, not just here in the Nordics but also throughout Europe and potentially globally as well.

We can say that in the last year, we have spent a lot of time to adjust our product and develop our product to fit into the requirements in new markets. And we are ready with the U.K. version of the Zaptec GO that goes into production now in September and fulfill all the requirements from the U.K. And we are also still ready with the MID certification of the Zaptec Pro, and that will go into production in November for the German market. So maybe that is one of the -- yes.

And in relation to our growth, we cannot necessarily say whether we're growing faster than our competitors. But what we can say is that when you do look at the current rise of EVs in the market, our expansion and rise in revenue is somewhat higher. We've seen that in the numbers that we've seen. So obviously, that is a clear indication that we are taking market share across the board. So that's definitely a conclusion that one could arrive to that we are indeed growing faster than the competition. And yes, there is consolidation going on in the market. I would expect this to be a very strong part of what we'll be looking into over the next 24 to 36 months. That consolidation within this market will continue. Specifically with newcomers as well as some of the larger established companies that will see that there will be some price to pay for the growing competition in this field.

Well, we don't see any capacity issues during the second half of 2022. And with that, I mean that we have secure components. We have production capacity, but we have a backlog, and we have a very strong order intake. So as I mentioned, we will not be rid of the backlog and delivery times for Zaptec Pro during second half of 2022. But the production will increase further in the first quarter with Sanmina up and running and also investments are increasing in the first quarter. So when we come to the first quarter, in 2023, we will have full production capacity versus the order intake.

Please repeat the questions before answering.

Okay. So how is the expansion in the U.S. coming along? Well, in relation to the U.S., we are still very committed to going into this market. It's a -- so it's a long-term commitment. And we are currently doing all the testing and validation of our products, specifically the Pro. And of course, are looking into the most efficient and quickest way of going into this market, we have recently hired and this was in Q2, an M&A Director to the team with a specific focus on how we will enter the U.S. market.