Zaptec ASA (ZAP) Earnings Call Transcript

Good morning, and welcome to this first or rather fourth quarter financial results for Zaptec. Today, myself, Peter Bardenfleth-Hansen, CEO of Zaptec as well as our CFO, Kurt Ostrem will be presenting our financial results for Q4. It's been a fantastic year for us here at Zaptec. 2022, of course, had its ups and downs. But for us, it was a fantastic year where we have shaped ourselves up for an even more fantastic journey as we go into the new years of '23 and '24. It's also -- this is the first quarter report as a ASA means that we have now uplisted to the main exchange, which we did in December, and this has been a huge milestone for Zaptec as well. Also by -- also in order to ensure that we are continuing to stay at the very forefront of technology. We have some exciting news to be sharing with you this morning on, I would call it, a game changer when it comes to IP and patents. But without further ado, we will jump straight into it. So we -- our agenda for this morning is a summary of Q4, we'll do an operational update of the 2023 strategy, and then we'll be looking at the financial performances and outlook as we go into Q4 and beyond that. Again, exceedingly excited this morning, we have some fantastic news to share with you guys. So firstly, we'll do a very quick outlook on this. I'm not going to dwell too much on these numbers because Kurt will be taking you a little bit meticulously through them later on in the presentation. But sufficed to say that our revenue is increasing by 29% year-on-year. It has to be said here that the Q4 2021 was an extremely extraordinary strong one. So the fact that we are growing on top of that is in itself a milestone. Our order intake 85% on last Q4 '21 and our international share remains high, again, 11% higher than last year. Our gross margins could have been stronger, but they're still very strong. We are pretty confident that you're going to see even better numbers as we go into the full year, but these numbers we will be sending out in April for the year on -- the full year of 2022 numbers. So our story is one of continued growth. Our trajectory well, speaks for itself goes only one way, 55% year-on-year growth in our revenue, and this will continue. This is just warming up for 2023. And we are pretty bullish that those numbers are even going to be higher as we go into the next year. But Q4 of '22, again, plays straight into our growth story, and this will continue. Now most of the growth, and as we could see in the numbers before, is within our international growth. We have been investing a lot of money. And of course, that has also been mirrored in the numbers today, but a lot of money has been invested into our new markets, specifically U.K., Germany and France and Benelux are more established countries such as, of course, Norway, home market, but Sweden, Denmark as well as Switzerland, has also been meeting -- or seeing a lot of growth in our team sizes. We have placed further distributors across Europe, here on the Spain and Italy, and we are continuing our potential -- look for strategic partners as we go into the U.S. This is something that we are very, very focused on and specifically ensuring that our international sales will continue to follow this trajectory that we're on. Other highlights. Now this is probably the most exciting slide of everything that we are showing you guys this morning, and this is the fact that we have now been informed by the European patent office that our patent for phase balancing technology will be approved for the European continent. We've had it as a pending for a number of years. It's been granted in China and Japan. But we have, of course, been crossing our fingers to ensure that we could get the phase balancing approved for the European continent as well. This was granted in December, and we just cannot get our arms down because this is a major achievement. This sets Zaptec completely apart from everybody else out there who are working on AC charging. This puts us into a league of our own and again, underlines the fact that Zaptec is at the very forefront of technology. We have further in relation to the Q4 and this plays into all the other parts of this phase balancing information we're sharing with you, but it plays into the momentum we have in the U.K., for instance, where we are signing many big contracts. We've now signed 6 of the largest homebuilders which basically ensures that we have a very strong foothold on the U.K. market. This is, of course, been one of the big issues in 2022 to ensure that we could finalize all the compliance requirements for the U.K. market. They were changing them almost as quickly as they were changing their prime ministers. So it was a very big result that we could report that in Q4 '22, that now we were fully compliant with all the U.K. requirements and production started at the end of the year with also the first deliveries taking place in the beginning of 2023. And then, of course, as I alluded earlier, the fact that we did our uplisting, which is a fantastic thing. Of course, this also comes at a price, and I'm sure Kurt will tell you guys a little bit later when we do the financials that has an impact on the OpEx for that quarter. But nonetheless, the overall story of uplisting is one of positive one. It really sets us on to a different stage and broadens our potential for new investors. So in summary, I mean, growth story, 55% up, I basically cannot get my arms down, I'm very happy about this. But I'm more -- and as you guys can hear in my voice, so happy about our European patent, something that we've been working on for a number of years, and this is finally being granted to us. We've been doing a lot of front-loading in relation to investments into our subsidiaries, ensuring that we're getting compliant, ensuring that we are making our MID compliances ready for the European markets here under and specifically the German market, the French market and also Benelux area to ensure that we are ready to take on 2023. This, of course, is something that has been a cost in the year, but it's -- again, I have to underline it's front-loading, it's getting the whole company ready to rocket ship into the future. So we have a very positive outlook also. And with that, of course, a positive outlook in our gross margins increased. We have set increased pricing for our products which were set to be effectuated on February 1, 2023. Now that I cannot -- I can say that now that we're in the middle of February 2023, I can say that this has been effectuated, but this is, of course, a Q4 report. Now in relation to our EBITDA margins, we are also looking to ensure that this will increase considerably as we go into the new year. Now for an operational update and our strategy. This, again, is very, very important for us. This is a strategic look at where we are when it comes to safety. I have to underline that we are safety without compromise is our -- is everything that we do for Zaptec basically. We are fully compliant in IEC standards. I think it's important to note that this is important. There's been a lot of focus on this. It's the elephant in the room, if you'd like, specifically because the Swedish authorities have been looking into this recently. I'd like to underline that Zaptec Go is a NAF approved test winner. This means that we have gone through all the safety aspects and came out best in test in relation to this. Our Swedish safety authorities have successfully completed technical review and testing of Zaptec Go and I can thankfully and happily report not that, that was a surprise to me that we went through this with flying colors as 1 of only 2 that went through that eye of the needle. But again, it doesn't surprise me because we use the TUV SUD to test all our products. It is one of the most precious certification agencies. We also, on top of that, ensure that we do another 2 years of guarantee on our products because we feel safe in the knowledge that everything that we make has a high quality. And again, it works with our unique patented dynamic phase balancing technology. And I'm, again, so happy that this is no longer pending but actually being granted. Now in relation to our 2023 focus, again, wide-scale international expansion, we spent the first couple of years 2017 to 2020, developing our products ensuring that it was calibrated to what our customers wanted. We built this in collaboration with electricians to ensure that this was something that worked and was market compliant. In '21, '22, we had enormous growth. We also launched the Zaptec Go for the home markets, and we started our expansion internationally started to the closer ones such as the Scandinavian Nordic markets and also Switzerland. Here in '23, as we go forward, we're doing almost a full on European rollout. And of course, this is also going to be a significant impact on to our revenue as we go into that new year. Now these slides are quite important because, again, in relation to the maps that we just looked at before, the pool of which we're fishing in has suddenly become a lot bigger. As you guys can see, in 2020, we were fishing in something that was below 0.25 million EV vehicles registrations that in '22 was 287. Now that we're going into bigger markets where we include -- where we include Sweden, Switzerland, Denmark and Iceland, it's almost twice that. We're going up to 413,000 and then, quadrupling this, as we go into France, U.K. and Germany with 1.8 million EVs being registered in last year alone. And this number, of course, will increase significantly. Our numbers tell us that this will grow by at least 25% into 2023, and we definitely expect to be getting a slice of this as we move into new markets. More importantly, when we look at the sort of grandeur effects of these mega trends that are going on that we're playing into, it's important to note that the number of registered vehicles on the whole European market in which we are now going to be addressing here in '23 is over 7 million cars. And you can say, well, these are not all EVs, but they will be soon. And that's the whole point of this slide. Anybody who is on here, and I'm sure you guys are all aware of what's going on in the European Association as well. And yesterday, the European market -- sorry, parliament actually formally made a new law to ensure that all ICE vehicles will be banned by 2023 -- 2035, sorry. But already by 2030, 55% have to -- reductions have to be met in relation to CO2 emissions on 2021 numbers. So this is old pushing into the need to have even more EVs on the road. And of course, more EVs mean a lot stronger and harder focus on infrastructure build-out, which is exactly where Zaptec fits in. So these are exciting numbers. These are the numbers that are the foundation for our company, and they are growing significantly, just like we are as a company. And so when we look at these observations, we can say that when we look at the way that we have been developing in our home market, Norway, where we can see where we are as a market leader. We could say that in the beginning, and this is only a few years ago, the adoption was maybe 3% or 4%, which is similar to where many of the European markets are right now, but very, very quickly, this has grown. So over 20% of new vehicles or -- sorry, vehicles in total are already EVs in Norway with all new car sales somewhere between 85% and 90% EV or plug-in vehicles. So we are expecting the same thing to happen here in the rest of the European markets, and again, playing into the numbers that we looked at before. On top of this, all automakers are being even more aggressive in relation to putting on new models into the markets again, growing the infrastructure to ensure that this is happening. And we can see that with the recent price reductions here under, for instance, Tesla, this has even more pressure on these OEMs to put out even cheaper and more vehicles on the road. And it's also becoming quite apparent that EVs are becoming quite price competitive comparatively to ICE vehicles on the road. And although 2021, 2022 and specifically '22 has seen some bumps on the road in relation to purchase and the numbers that have been coming out. There is no doubt that this is exactly what I just know, I use the word for, bumps, and we are expecting that this will continue at a very strong high trajectory as we move into 2023 and 2024 and again, playing into the megatrend that we described earlier. Then I'll pass this over to Kurt.

Yes. And when we look at the OpEx for 2022, you will see that in 2022, we have invested heavily in new subsidiaries and technical development to get compliance in new markets. Our headcount almost doubled in 2022 and now 20% of our staff is in early-stage target markets. Tech development often take more time than expected to ensure safety and high quality. Therefore, we have got this front-loading of OpEx in new markets in 2022. However, this has given us a technology that ensures compliance in each market. And we have also got an organization with skills, employees and other infrastructure so we can handle the growth. So we are, therefore, well prepared to handle high sales in sales growth in 2023 and do that with limited increase in costs, and that's very important.

So now I'll just spend some minutes going over some of our main up-and-coming markets. I'd like to talk about U.K. to begin with. Again, as I mentioned earlier, this has been one of the markets with a lot of compliance regulations that we needed to meet. And I'm happy to announce, as I did earlier, that we're now fully compliant. There are not that many of our competitors that are fully compliant to this market yet. And this has become quite apparent with the number of contracts that we have been able to sign specifically in relation to the homebuilder market, where we've now signed 6 of the 10 largest homebuilders with significant volume contracts over the next 2 to 3 years. On top of this, we're also continuing strategic partnership opportunities, which are ongoing. These are discussions that we've started in Q4 and where we are definitely looking at even higher potential for this market. I'd like to say that we have, along with the fact that we now launched our products in the U.K. We've also launched our U.K. payment solution, which is the Zaptec Park solution. And our team is extremely strong. Again, we front-loaded the whole team throughout 2022, with 16 full-time employees, all very, very focused on delivering our numbers. And we can definitely tell that with our production that started end of Q4, that these products that have been produced for the U.K. market are already being torn off the shelves. Next is Germany. We are still working on our MID certification. We're expecting this to be finished by end of Q1 2023. But we have, in the meantime, ensures that we have a very strong organization in place by 20 -- by Q4 '22, we had 7 full-time employees. And on top of that, we're leveraging our Swiss organization, which, again, is one of our most successful parts of Zaptec and therefore, of course, being able to leverage their knowledge into the market is also very, very helpful. And again, our distributions in Germany will be through wholesalers as well, and we are getting a full focus on ensuring that we get contracts similar to what we've done in the U.K. as we go into the new year. Benelux, again, at the end of second half of 2022 and also in Q4, we recruited a very, very strong organization. We are already present with over 2,000 charges being sold already in 2022 in this market. So we are definitely not starting from scratch, but now we are getting ready for significant numbers as we go into the new year. Again, the need for MID certification for the more B2B market is one of the requirements. And again, as mentioned before, this is something that we're expecting to have in place by the end of Q1 2023. But the potential in Benelux area is enormous as well as it is in Germany, as mentioned earlier. And specifically, now that we're talking MID certification, this is also very much the foundation for the French market. But on top of the French market, we also need some technical compliances, which I'm happy to announce that we have now finalized, and we are ready to go into production once our MID certification is ready. We also have an organization in place right now. We have 3 full-time employees, but we're getting ready to further ramp up the numbers as the compliances fall into place for this market. Over the years, and we have now installed a cumulative of 120,000 new charges. And this, of course, tells a very clear story that is similar to the rest of what we've been looking at, i.e., a very steep upward going trajectory. We are, again, playing very much into this megatrend. We also are and will continue to focus on reoccurring revenue, specifically from our payment solutions in Charge365, which we use in Norway and Zaptec Park, which we use in all our other subsidiaries across Europe. As we go further into the new year, but also I'd like to say some of the significant investments that we made in 2022 and not least in the second half is very focused on solar integration, Plug & Charge and vehicles to grid. This is an area that we, as a company, will also excel in. We have a specific task force set to ensure that we will continue to be at the very forefront of technology, specifically with these parts. Also, although these are often being mentioned as being unanimous with DC charging, we also have a solution where we can use AC charging, which again is first-in-class. We have recently shown Plug & Charge abilities on AC charges, both in -- at an event in Berlin in 2022 and also here in 2023 in Stockholm. So without further ado, we will now go into financial performance and outlook, which Kurt will be taking.

Yes. Look at the gross margin in Q4, it was 38%. This ensures a gross margin of 41% as we expected for the whole 2022. And this is due to a stable production cost despite an unstable market when it comes to supply and supply chain, but also due to strong sales of Zaptec Pro, which held a strong gross margin. The development of the gross margin in 2023 looks even better, since we have increased our price in all our markets from 1st of February and at the same time, managed to reduce component costs in our production. So we expect to maintain our prices in the coming year, and it should, therefore, be possible to increase the gross margin in 2023. I would say that the OpEx in 2022 reflects Zaptec business as a growth company. We have spent NOK 44 million on building the organization and done marketing in new markets without significant sales in these markets in 2022. We have also spent NOK 14 million in one-off costs related to the uplifting to Oslo Stock Exchange main list in the fourth quarter. So in our opinion, everything is now in place for us to increase the EBITDA in 2023 with entry into these new markets with a strong margin and at the current OpEx.

So concluding remarks here, we are continuing our growth story, and this is backed by the EV transition megatrend. And this megatrend, as discussed earlier, is being even more enforced by the likes of the EU parliament's new regulatories that were placed just yesterday. But again, these are mega trends that have been going on for a number of years and are definitely not looking to, in any way, to be slowing down quite the opposite. The same can be said for Zaptec and our growth story. Of course, the investments into our subsidiaries and front-loading, as just described by court, will help us to grow even quicker into Europe, and we will be doing this with large scale. And again, one of my most exciting things today are European patents for dynamic phase balancing will set and has set a significant milestone for our company and specifically setting us apart from all of our competitors out there. And positive momentum in U.K., we're seeing huge numbers coming in, and we are very bullish on the positive market uplift that we're going to be seeing from this market and not least from the other European major markets as our mid compliances will unlock these markets and segments in major of these markets that we're going into. And as mentioned by Kurt and I will mention this again, with this increase with this rocket ship, we will expect that our positive outlook for the gross margin will hold through. And our EBITDA, of course, will follow this as we focus on cost. And also, as mentioned earlier, even more focus on ensuring that we are going forward and being very precise on our pricing and ensuring that we will keep this in place. So all in all, a fantastic end of 2022 and even more fantastic view into the future and specifically with our phase balancing, specifically with fully compliances in all markets that we're touching into. And of course, MID to come for the German, French and Benelux will be a significant secondary milestone as we look into new markets that we are opening up. So a growth story with full trajectory and again, very excited both for Q4 and specifically for 2023 and '24 as we go on. So thank you very much. We're now getting ready to take questions that you may have.

I'll be reading these questions out and then Kurt and I will be sharing these either whether it's me or who will be answering these. So the first question is, could you give us some color on the OpEx, more specifically on non-payroll related expenditure with reference to investments in the international markets?

Yes. Of course, our biggest OpEx is the payroll, of course, and especially on building up the organization in these new markets. But another major increase in OpEx is the marketing. We have spent a lot more on marketing in a bigger area, of course, than earlier. And when the revenue is postponed due to the lack of compliance, we get this picture that the upfront and get the OpEx too high compared to the sales in the Q4.

Right. Your order backlog and inventory increased in Q4. Can you comment on the production capacity and conversion from inventory to sales?

Yes. That's right. We have -- we are planning to increase the inventory for both of our products because that has been a huge challenge for us earlier. And in Q4, when the market was a bit slow, we thought that this may be a challenge. Now we see that we are very happy that we have built this inventory. And we hope that we can keep the order backlog as low as possible, so we can be able to deliver quickly to our customers. So we are very pleased with our inventory ever now. And when it comes to production capacity, as mentioned earlier quarters, we have doubled the production capacity with our supply and Westcontrol in Norway as they have built a new plant and invested in new production line. And we have started up in Germany with Sanmina, and they are in full production now as planned. So the production capacity is huge, and we hope to proceed as we have started in 2023 with high volume on production, but also sales of the inventory is in a decent level.

Yes. And just to add a last comment to that is, of course, one of the major reasons for ensuring that we have inventory in place is also to help to alleviate such challenges as we had in April 2022 when component shortages stop production and thereby also stopped our ability to do deliveries to customers. Of course, we don't want to get into that kind of situation again, and therefore, also one of the reasons why we are being quite focused on building up some inventory to sustain such problems if they should arise again any time in the future. So and then we have a question, could you also add some more color on the supply capacity situation and your thoughts on availability in 2023? Well, I can definitely say that for the time being, it all looks extremely good. We have all our contracts in place well into '23, and we do not foresee any problems in relation to our supply chain in any way. Of course, curveballs can be thrown. So you never know in relation to geopolitical situations and so forth, but we remain bullish, and we certainly, on a contractual level have ensured that we are in a good place. Please talk about competition. Do you see other players going Europe? And which ones would this be? And which one would be those? Well, I think it's -- I think most of our competition out there are European players in one way or another. I don't think we, in any way, align ourselves when it comes to a competitive, let's say, alignment without them also being European players. So we often align ourselves with the likes of Easee or Alfen, ABB or it could be a Wallbox. And these, of course, are all European players who are very present in most of the European markets. And again, we feel that we, to date, have been very competitive, specifically because of our focus on safety, on quality. And we've also been very, very competitive on pricing. But now with our new patent that's been -- that's coming through, of course, this gives us an even stronger USP specifically when it comes to the load balancing a phase balancing that ensures and gives us the ability to play into the need for building out infrastructure quicker, even in locations where there is not much electricity available, and that's exactly what our phase balancing technology can alleviate and thereby, of course, being a very strong USP. Can you give some details about the ongoing German charger approval process? My understanding is that both the charger and the production process need to approve. What is the status here? Do you want to say something on this Kurt?

Yes. This has taken a longer time than we expected and had dragged out in time. But now we are happy to say that we are way in there to complete this approval. We expect the product, the charger to be approved in a few days. We are finished and then we are waiting for the certificate and the production process will also be finished in a few weeks. So within the end of Q1, we will have this in place. That's for certain.

Can you comment on your financial situation and financial needs? Do you need to raise new equity?

Yes. This is an ongoing test that we are working with all the time, and we have a different ways to solve this need. New equity is one of the authority. Of course, we are also working with the bank, and we are also working with other way through finance or receivables and our debt. So this is an ongoing process, and we will make sure to raise the capital or the loans that needed to continue our growth.