Ads-Tec Energy Public Ltd Co Q4 FY2021 Earnings Call

Welcome to ADS-TEC Energy's Full-Year 2021 earnings call. My name is Cary Segall and I head Investor Relations for the company. A recording of today's call and a presentation can be accessed shortly after it concludes from the Investors section of our website. Joining me on today's call are Thomas Speidel, Founder and CEO of ADS-TEC Energy, and Robert Vogt, the CFO of ADS-TEC Energy. Today, we will be discussing ADS-TEC's latest financial results for full-year 2021, guidance for 2022, and conclude with a Q&A session. Please enter questions through the questions option in go-to webinar and they will be addressed in the order they are received as a conclusion of our prepared remarks. During the call, management will be making forward-looking statements regarding full-year 2022 and our outlook for expected growth in investment initiatives. These forward-looking statements involve risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from our expectations, including, among other risks and uncertainties, the severity and duration of the COVID-19 pandemic, supply chain issues, and geopolitical challenges. These forward-looking statements apply as of today and we undertake no obligation to update these statements after the call. For a more detailed description of factors that could cause actual results to differ, please refer to the Risk Factors section of our annual report on Form 20-F previously filed with the SEC and posted to the Investors section of our website. Also, please note that financial measures presented on this call adhere to IFRS and non-IFRS. We use non-IFRS measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the IFRS measures that we provide. A reconciliation of these non-IFRS measures to comparable IFRS measures is included in the earnings release and investor presentation. With that, I will turn the call over to Thomas Speidel, ADS-TEC's Founder and CEO. Thomas, it's yours.

Thanks, Cary. And a very warm welcome from my side, dear ladies, gentlemen and ADS-TEC Energy investors. Today we would like to report to you where our company stands and why we are on the right track in terms of strategy and corporate development. The transformation to an intelligent and decentralized energy supply is still at its infancy. First of all, it is of great importance that we are perceived correctly as a company. We are not a components supplier, nor are we just a charging company or just a battery company. ADS-TEC Energy develops and produces decentralized, smart storage-based platforms that are a crucial basis for the transformation of the entire energy system. Please allow me to reiterate the following message once again, because it is vital that ADS-TEC and our vision be correctly communicated. In recent weeks and months, I noticed the misunderstanding that we are just a charging company, or a component manufacturer for batteries or chargers, power supplies. This is incorrect. As we manufacture the complete system, the software and services are also provided by ADS-TEC to charge plant operators, but also to power companies to assist the transition to the all-electric world. The decentralization of renewable energy supply and the associated sector coupling can and will only succeed if future energy providers can optimize decentralized business models individually and as a whole. This is only possible if centralized structures can be broken up and divided into decentralized and intelligent units. This is what we see happening in the energy market and it's the vision of ADS-TEC Energy. We want to provide the smart eco platforms and services for all of the future power companies, complete with features, interfaces, and services that enable our customers and partners to run the best and most economical business models and then bill the end customer. The advent of electromobility and its exponential development is the trigger point in this coming energy system. Millions of electric vehicles will appear on our roads in the coming years. Of course, the required quantity of electricity must be available, especially the local and temporary provision for power, and the coverage of peak demand loads will be essential. To make the charging of electric vehicles at least as convenient as, or similar to, what we knew from the refueling of our cars, ADS-TEC Energy developed the battery-buffered ultra-fast charging platforms, which includes the ChargeBox, the ChargeTrailer and soon this year the ChargePost. All of these provide charging in minutes instead of hours, and this even on a low-powered and power-limited grid. After supplying a major partner with more than 400 of our ChargeBoxes, we began marketing and selling to other customers and partners. Our manufacturing plant in Europe has an annual capacity of thousands of systems and can be replicated and scaled easily. In 2021, global EV sales were 6.6 million, more than doubled the 3 million sold in 2020 and more than tripled the 2.2 million sold in 2019. This growth is at the very early stages as OEMs are expected to introduce approximately 15 new EV models over the next two years, including the arrival of EVs in segments like SUVs and pickup trucks, which will unlock new demographic franchises and EV adoption. By 2025, many more models will be introduced that create an abundance of EV choices for every type of driver. Hybrids won't play a significant role anymore as pure EVs with greater battery life, higher capacity and charging power rates are expected to be the standard. We expect these trends to be further accelerated by tailwinds created in the macro-environment related to decarbonization. Investors' continued interest in ESG-oriented investments, as the electrification of transportation has never been more widely accepted and anticipated. The improving cost and breadth of offerings comes at a time when rising commodity prices make EV ownership more economically attractive than ever. Furthermore, with escalating geopolitical issues affecting supply, we're seeing very high oil and gas prices that make drivers more eager to make the switch to EVs. Correspondingly, we expect the demand for ultra-fast charging capabilities to match or likely exceed this already rapid market growth. Furthermore, as the biggest hesitancy on the part of drivers to purchase an EV is range anxiety, our battery buffer technology allows us to deploy ultra-fast charging stations today, even on a low power electrical grid, where previously only standard DC chargers have been installed and those charging times are much longer. Without a doubt, there will be a large fast charging network with direct connections to the high-capacity power grid along highways and in high-traffic locations. That's what we see and that's what we know. For this purpose, power supplies and chargers will be connected directly to the grid as a component. Transformers and distribution systems provide the necessary power. Providers of these supercharger facilities must earn their money by selling electricity to motorists. Pretty high investments and significant running costs must be circulated and lead to corresponding costs per kilowatt hours. Location and capacity utilization are crucial for profitability. However, since electricity is available everywhere and people will generally choose to charge where it is most convenient and lowest cost, decentralized fast chargers will also be necessary. They will become part of the general infrastructure. In fact, chargers might even become a standard feature like an elevator or air conditioning unit in our modern buildings. It will be an expected amenity and not just a luxury option. With the ADS-TEC Energy technologies platform, fast charging will be possible everywhere, and that's important. It will become important to offer, for example, employees, guests, customers, residents, homeowners, etc., a convenient fast-charging service directly on site. Why make a detour or pay more at a supercharge park if you can do it more conveniently and potentially even for free or by using your own generated electricity maybe by photovoltaics? ADS-TEC platforms do not require expensive grid upgrades or expansions. The units are small and they are quiet. Additionally, they offer more technical possibilities than just charging cars, and that's important. So it's not only that you have revenues out of selling electricity. The integrated storage capability can increase flexibility, and flexibility will be key for the future decentralized and very volatile energy system. They can store electricity when it's cheap. We can cut the peak loads, regulate frequency, or even be used as a billboard, for example, our ChargePost, which includes a huge advertising screen. Our platform offers our partners and customers lower installation costs because you don't have to expand the grid, long-term availability, which is our service, and many interfaces provide the possibility to use these platforms and the data intelligently for their business model on a regional basis and according to local regulations. As a result, the business to own the units can be optimized and digitally managed. Just imagine if hundreds or thousands of these flexible platforms are connected; a virtual power plant is created that can do much more than just charge a car and deploy electricity. We have identified vertical market segments for our platforms and for our services. And it's always important that we understand platform and services go together like twins. We see the ChargePoint operators because they need the best, most cost-effective, and reliable platforms. We see retail condominiums, apartments, hotels, offices, industrial sites, OEM auto dealerships, rental car companies, fleets, municipalities, utilities, oil and gas companies, gas stations with convenience and fueling services decentralized. Wherever we are, we don't want to take a detour, we don't want to spend time heading to a charger and waiting. The common thread across these segments is the need for fast charging on likely a low-power electrical grid. We are always in the position as a technology and service partner, not as a charging operator or a competitor in the energy or utility business, so they are our partners, potential customers, and not competition. Based on our internal research, we estimate that the total addressable market for these segments in the U.S. is about $54 billion and it is about $62 billion in Europe so far. Clearly, this is not a small opportunity and it has the potential to be even larger. And here we are only talking about the platforms for charging from ADS-TEC and not the ones for commercial, industrial, and, in the future, residential uses. From a mid-size German company spending now more than 10 years on development and a few brand name customers with limited funding available, the SPAC process provided the necessary capital to emerge as a public company free of debt and the resources to launch and expand our international business, especially also to North America. Our launch in North America took only a few months during the first steps. Our international sales team is led by our very experienced chief of sales, John Neville. And in the U.S. we have already achieved initial success with channel partnerships established and world orders received, focusing on the automarket segments. We will continue to expand the sales team and target the identified vertical market segments that represent a huge market opportunity as pointed out. Due to our business model of supporting and empowering future power companies with our platforms and services, we are addressing the market with key accounts and with channel management structures. The same approach we do in Europe as well as in the U.S. As my colleague Robert will point out next in his presentation of our financial results, you will see that after our initial partnership with Porsche, we have significantly expanded our business outside of Germany. Additionally, the service component of our business will play an important role as we offer our customers service on the products they purchase and operate. This starts with the supply of spare parts, over-the-air updates, and security purchase, and continues with platform-specific adaptations that extend to service level availability models up to remote monitoring so that the units are completely served to be operated and run by our customers and partners. In addition, there may be an opportunity for some provision of the data and also database services, which can be used by ourselves for prediction and for better operation, as well as for our customers and partners in their own business model. The platforms we sell will not only be sold, but we also want to ensure that they are operated optimally over a long time period. The operation of our hardware is up to our customers and partners, but ADS-TEC Energy ensures that the distributed platforms, the functions, the reliability, and that they are used in the most optimal way. In the U.S. we hired highly experienced people who know models coming from other businesses and structures, for example, telecommunications and other decentralized computing systems and installations. We expect to have the first service contracts executed in 2022, so this year, and we anticipate that this will lead to recurring services and revenues over the coming years if the eco-platforms are used and operated. And they are not operated for three or five years. They will be operated for a longer time, and the better and longer they can do it, the better the total cost of ownership will be. Due to changes in the regulatory environment and how the immobility market will be managed over the next years, we see new technologies like plug and charge and many other things coming up. We expect that service orders will follow so that we have additional revenue streams by adopting and customizing the platforms for our partners and customers and supporting the platforms over years or even decades. As I said, these complex platforms, hardware-software services are not just components, like a power supply, which you buy and use. A good example would be, for example, an earpiece system that requires constant maintenance and expansion to be able to implement beyond individual business model. We are executing on our expansion plans in the U.S. faster than originally planned, and the search is already ongoing to determine the location for our manufacturing plant in the U.S. So it's not only manufacturing, it's service, warehouse, and manufacturing. We expect to open this location this year to handle services, warehousing, and then also, assembly and testing. ADS-TEC is pleased to announce that we have added highly experienced managers because of our longstanding collaboration with Porsche. These hirings were in the areas of product marketing, quality assurance, development, and also a C-level position, which is the Chief of Purchasing and Logistics. So far, despite all the challenges, we have managed the supply chain well and we remain confident that we will be able to continue to do so. Our weekly task forces help in this regard, as well as our ability to act in a highly technical manner. As an example, we are well on the way to releasing a compatible second source for a very critical component, which is the silicon carbide semiconductor. In general, however, it remains to be said that the procurement market is unpredictable, as we all know, and that even all the confirmations from large international groups have become unstable in terms of delivery or even committed prices. It is very good that we will now have further management reinforcement in international logistics and procurement in the form of an experienced specialist from the automotive industry as of May 1st, which is next week. The risks presented by lockdowns in China, interruptions of supply chains, logistics cost, resources inflation, the war in Europe, and the overall geopolitical situation are still present. The all-clear sign cannot be given at this time, but we are confident that we can find alternative solutions as we have done before, even for unseen events. As Robert will discuss and point out, we have a good order backlog, year-to-date having just completed Q1 at more than $60 million. This is a good number to achieve so early in the year. However, it should also be noted that our customers and partners are not immune to the same uncertainties, and we are aware of potential variability. Some examples of the variability include open permits on the customer side, delays can create a lack of capacity and they're waiting for approval to install the unit. So this is also something we see, and which might lead to delays. As previously announced, we will launch new products in 2022. In the charging area, the launch of the CME mobile battery-based solution that we call the ChargePost is particularly worthy of mention. We announced that already on the Investors Day that the ChargePost complements the ChargeBox with an all-in-one solution that also features a large advertising display to allow for additional sales revenue independent of charging. The ChargePost is by no means a replacement for the ChargeBox. That's important to understand. It's rather a strategic complement for different use cases with its respective advantages. The ChargeBox will continue to make sense especially where the footprint for the dispenser is small and where remote installation of batteries and power supplies makes sense. We already have a first contract signed for the ChargePost with a strategic customer who does not wish to be named at this time. The initial order is for about 50 units and it will be supplied in Europe as early as 2022, so already this year. The customer has plans to purchase more than 10,000 units over the next few years. In the U.S., we expect to launch the ChargePost next year after the certifications for the U.S. are done, and we are seeing strong interest. I want to point out that large customers initially want to test samples in their own labs before volume procurement can be negotiated, so that's something we have to know. They first put that in their labs and then the next step of ordering and negotiating volumes will come. Let me just spend some words about the commercial and industrial products side and the business. We also see new introductions and products in 2022. In the summer and fall, we expect to launch complete outdoor storage systems that can be operated in parallel and can be scaled. The residential product, MyPowerPlant, as I mentioned already on the Investor Day, is still under development and will be delayed from 2023 to 2024. To keep on schedule with the important market launch of ChargePost, we must dedicate the necessary resources here, and that's what we did. The launch of the ChargePost also means that the company's proprietary charge controller is being used for the first time. That's a very important message, so this means that our dependency on third-parties has been strategically lifted and there is now full capacity for action in hardware and software also on the side of the charge controller. In a further step, the company's own charge controller can now be used in the ChargeBox as well, which will continue the company's own ability to act and to optimize for the future. With this overview, I would like to hand it over to Robert, who will report about the financials and provide more details around the financials and explain it. Afterwards, I will be happy to answer any questions you may have.

Thanks so much. And good day everyone. After covering our financial year 2021 results, including the revenue results before tax, gross profit, order book, cash on hand, and charging unit sales, I will provide some guidance for 2022 with respect to revenue, order book, and charging unit sales. Financial year 2021 revenue was €33 million down €40 million from financial year 2020 revenue of €47 million. This was €3 million below our previously announced guidance of €36 million in August 2021 and €1 million above our announced guidance during our investor call last month. The €3 million drop is due to a shipment logistics issue which delayed the revenue recognition into 2022. Our contract with Porsche accounted for around €40 million in 2020, and completion of that order provided €70 million in revenue in 2021. We had revenue of about €6 million related to charging units sold to new customers. In total, about 186 charging units were sold in 2021. The commercial industrial business had about €6 million in revenue and equates to a 16% year-over-year increase. The service segment contributed about €2 million, which represents an increase of 82% year-over-year, and upper sources accounted for €700 thousand. We are pleased to have diversified our revenue stream, which we believe lays the foundation for a strong financial year 2022. From a geographic perspective, financial year 2022 revenue was close to being exclusive from Germany. However, the expansion of our sales effort in 2021 resulted in 28% of our FY21 revenue coming from outside of Germany, including new business from Spain, Ireland, and our European economic area. Our international sales expansion continued with the launch of our U.S. business in late 2021. Now, turning to the results before tax. Our financial year 2021 came in at minus €87.2 million down from minus €10.3 million in 2020. Important is to acknowledge that this decrease was mainly driven by a shell listing expense of about €65.8 million and a special item of €62 million. Some words to the €65.8 million shell listing expense. A portion of it is cash-related, and a lot is non-cash related. It is a little complicated from an accounting standpoint, and we provide detailed explanation in our 20-F. Turning to gross profit/loss. Our financial year 2021 came in at minus €2.3 million down from €1.8 million in financial year 2020. This is a result of our commitment to invest in our future through research and development and adding personnel. As a result, we were able to keep our high-quality staff and continued to invest in our business. The non-IFRS gross profit, deducting depreciation and amortization expenses, was at €0.8 million, still positive despite the challenges mentioned by Thomas previously. We had a significant increase in orders for the financial year 2021, which came in at €34.5 million representing an increase of 386% year-over-year. This translates into a current backlog of more than €60 million. Finally, our business combination with EUSG in December 2021 provided us with a significant amount of cash for future growth and allowed us to launch our U.S. business. At the end of 2021, we had cash-on-hand of about €102 million, and as of today, no debt. Now, I would like to turn to the guidance for 2022. We have been a public company for just over one quarter and our business is really growing. We booked orders of more than €60 million, an increase of almost 100% year-over-year from our financial '21 revenue. We are very excited by the reception in the U.S. for our battery-buffered charging technology and we are having very constructive conversations with many customers in all our target segments that Thomas highlighted earlier. As a result, we expect revenue for the financial year 2022 to come into the range of €80 million to €100 million, and we anticipate that this revenue would be backloaded to the second half of the year based on the confirmed order backlog. Additionally, we would like to provide guidance on charging unit sales for the financial year 2022 in the range of 400 to 500 units. Outside of our continuing supply of units to Porsche, we expect to grow our non-Porsche charge units from 61 units shipped in 2021 to at least 400 units shipped in 2022. We expect that our positive adjusted gross margin in 2021 will improve in 2022. Finally, we expect our current cash on hand to support us through positive cash flow. That said, we will continuously monitor our capital structure and growth opportunities for the future.

Thank you, Robert and Thomas. It looks like we have one question. If you have any questions from the audience, please submit them through the questions option in the GoTo Meeting, so we can address them. Actually, let me ask this question for Robert. The question is, how much money do we expect to raise through the warrant exercise? Robert, can you address that question? How much money will we raise through the warrant exercise?

May I can better understand the question? What is meant by warrant exercise? We have currently one outstanding, of course.

I'm sorry. I don't have any additional background; that was just the question regarding the warrant exercise. I suppose the one you are referring to is the outstanding one.

Can the person who questioned give us a little bit more background so that we can answer? What does it mean? Is it how many warrants we expect to be exercised or what was the question? On what value or what number?

Let's move onto the next question.

Okay. So but if we have more information, please let us know.

Yes, I will.

So because to execute or exercise the warrants, that's up to the people owning the warrants and not up to us.

Thank you, Thomas. Another question for you. You mentioned storing energy in your ultrafast chargers, how do you avoid draining the storage to meet the needs of the electric vehicle?

That's a very good question. I spent time at the beginning to explain our business model and operations, which are influenced by our partners and customers. For example, if you visit a car dealer in the U.S., Germany, Sweden, or elsewhere, they may have photovoltaic systems on their rooftops or they may not. They could earn money from peak shaving by receiving payments from their local utility for reducing peak demand. However, ADS-TEC is not involved in regulated planning and operations; we provide the platform necessary for physical operations. To clearly answer your question about battery use, whether it's stored for future vehicle charging or utilized for peak shaving, that decision ultimately lies with the local operator, and that's where they generate revenue. If you only ever charged for selling electricity then you have only one business case. You are pulling electricity from the grid. You're transforming them from AC to DC, and you are delivering these electrons to the car. With our platforms, you have thousands of different opportunities, time-wise, frequency regulation. You can use the buffer for storing excess electricity, whatever, as in these business models they are the core business models and the secret they stay that way of our partners because they know the individual site location regulation. They are building the end customer, and they can make the best out of. That's exactly the business model of ADS-TEC, that we provide the system, including services so that they have availability guarantees, for example, that they know these assets out there are available, and they can operate and use them in the best way to make money out of it. So it's not us deciding whether the capacity in the battery is being used for only charging a car or cutting a peak. This is done by our partners. We call them the future power companies now. And this is, by the way, also something you see in the charging operating segments. If you look at the companies and then you see that they are adding, they call it demand-side management or additional services. And that's, for example, the company which does not want to be named, where we sold the first 50 units of the ChargePost. They exactly have our own software, which is operating our ChargePost, and they are optimizing the usage on different locations to make at the end the best profit and operating them as economically as possible.

Great. Thank you very much, Thomas. That's a really good explanation. Robert, this question is for you. Of the 400,000 to 500,000 unit sales guidance, what portion is already secured in the backlog?

In our backlog, we have secured about over 200 units already.

Okay. About over 200?

It's over 200, yes.

Okay. Thank you, Robert.

And if you look at the euro amount, it's €60 million. We have an order backlog, and the revenue forecast is €80 million. For the first quarter, having €60 million available is quite good. However, we need to consider that deliveries may be delayed not just on our end but also on the customer's side, and they might not be able to take it this year, possibly moving it from 2022 to 2023.

Great. Thank you, Thomas. I have another question for you. What differentiates ADS from the systems that are offered by Tritium?

Tritium is just a power supply. So that is an AC-DC converter. If you want to charge with 300K, then the grid must provide 300K and it's only transforming AC from the grid to DC to the car. And this kind of power supplies you can find from many suppliers. Now, you can buy that in China, from Siemens, ABB, and others. So these, I call them the standard chargers, so they have no battery, no buffer, no flexibility, no advertisement. So no billboard function. These chargers, and this is what I mentioned before, they can draw electricity from the grid transforming from AC to DC and load it into the car's battery. And we have, on a very small footprint, integrated that flexibility. So we don't need the 300K provided by the grid, which saves a lot of costs for our customer. Because if they want to charge with 300K, you have to expand the grid. Grid expansion is very expensive. That's the core difference. So I can go in detail, but I think that will be too much now for this call on the technical side.

I got it. Robert, do you want to address the warrant question?

Yes. In the end of the day, I think that is quite a theoretical question. But let's assume they would all exercise as soon as the stock price is over $11.50 in the next four years. We currently have outstanding warrants, both private and public, together around €11.5 million, and if they were to execute then we would receive $133 million. I hope this addresses it.

Great. Thank you very much, Robert. One more question for Thomas. What impacts are supply chain and inflation difficulties having on the business in 2022, including your supply of battery cells?

Inflation for the entire year is unpredictable, and we are just at the beginning stages. Regarding the delivery of battery cells, we already mentioned last year that we have two significant supply contracts. If we receive order confirmations, we anticipate getting everything we ordered. While nothing is guaranteed, the suppliers are reputable and have confirmed our orders. Therefore, we believe we will receive the batteries we ordered. It is also public knowledge that we ordered more than we expected due to the high demand for batteries. Commodity prices are rising; we notice significant increases in the prices of lithium, nickel, and manganese, among others. The positive aspect is that the market is accommodating these price hikes. When we speak with customers or potential clients, they are aware that prices are rising and that they are experiencing higher expenses. Electricity costs have also significantly increased and are expected to rise further, which makes our business model more appealing. If we can save on electricity or utilize our own photovoltaic systems for generation, it is much cheaper than purchasing from utility providers. Ultimately, we cannot predict the extent of inflation for the current year. And so how big the inflation will be over the current full-year? I cannot say that.

Thank you very much, Thomas and Robert. With that, I just want to thank everybody for taking your time to attend the ADS-TEC earnings call. We appreciate your interest. If you have any follow-up questions, feel free to reach out to me. Otherwise, I wish you all good health and look forward to speaking to you again in the near future. Thanks very much. Have a nice rest of your day.

Thank you.