Ads-Tec Energy Public Ltd Co Q4 FY2022 Earnings Call

Hi, everyone. Welcome to ADS-TEC Energy's Full-Year 2022 Earnings Call. A recording of today's call and a presentation can be accessed shortly after the call concludes from the investor section of our website. Joining me on today's call are Thomas Speidel, Founder and CEO of ADS-TEC Energy and Wolfgang Breme, CFO of ADS-TEC Energy. Today we will be discussing ADS-TEC's latest financial results for the full-year 2022, guidance for 2023 and conclude with a Q&A session. Please note to ask a question, you will need to dial-in with the telephone details provided. During the call, management will be making forward-looking statements regarding full-year 2023 and onwards and the outlook for expected growth and 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, supply chain issues, the war in Ukraine 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 investor 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.

Thank you very much. A very warm welcome from my side and from Wolfgang to this call. I'm happy that you take your time and go with us through this earnings call. Let me start with some information about our product portfolio and where we are. As I guess most of you know, the ChargeBox is the product which is already out there in the field and which is our battery-buffered Supercharger being well received and up and operating. We have now, and you will see that later, not only our initial customer from the automotive business, now we have more customers. I want to show you later in the presentation where the ChargeBox meanwhile is operating and serving not only in the EV business but also in related businesses of mobility, such now, the first time also for electric boating. The second product segment also battery-buffered charging. We have announced it and we are proud that we made it on time last year due to all the difficulties in supply chain and shortages. It's the ChargePost, the ChargePost similar technology so we can connect to the existing low power grid. In this case, it is an all-in-one solution, so no separate dispenser and we add it to up to two big advertisement screens which allows us to offer our customers more revenue streams. And this is very important to understand about ADS-TEC's business model. We are not a component supplier. We are providing platforms including hardware, software and services over long-term periods that allow our customers and partners to operate their business to the end customers. ChargePost has been launched as expected in 2022 and we will see later a little bit more information about the ChargePost. It's very well received. We presented it for the first time at the new exhibition in Stuttgart here, Volta-X, and mainly from infrastructure investors and operators, we get very solid feedback. The reason is it's easy to install, it's providing many different revenue streams and, as I said, in this case the advertisement comes on top of it. The PowerBooster, so these two segments PowerBooster and Storage Rack Systems. That's our commercial industrial business which we have been doing for many years. Here we have updated and expanded our portfolio, so new batteries as we have announced it. New cells and modules came in and this year, 2023, we are starting to deploy the new and expanded systems to the market. Don't see it. So what we see here and that is important to understand and to know why is it important that when I speak about, we are not only a component or hardware company, it's a platform business, eco-platform business. And we see that here, the circle, we start with the hardware and that's important because if we don't understand the hardware and if we don't have the ability to act on any level of the hardware, we cannot provide long-term services. And this is what in current discussions with customers, if I may say, I have been in that business now for 12 years and at the beginning people were starting with demonstration units, we had first projects or with very early-stage customers. But now that is changing. We are talking more and more to infrastructure investors which are interested in investing in a larger portfolio. But that portfolio must be managed. And as you know, if you listen to our general business model, we want to be the partner for these operators to run the business not only for years, but for decades. So very long time periods, that request that we can act in hardware, software. It ends up in services we are providing. And we see in these circles here on the slide, we start in the center with the hardware and then we add the software and the operating system, the security stacks and the services. We even provide basic apps, and we compare that so on the right side, you see a mobile phone. Just to give an analogy, how that works, if you have your smartphone, then you also get a platform, including sensors and actuators. You get an operating system including the security, the back-end connection, the ability to store data in the back-end and to analyze it. But also apps are provided on the device. The same is in our business. So we are not only providing the platform, we are providing basic apps. What are basic apps? Basic apps are for example, charging, billing, calibrated, DC metering, connection to back-ends, to SCADA systems from our customers and partners so they can operate our platforms out in the field. And that's the way how they can scale, important will be and we will see that later. Now, after the initial installations have been done, we see that the services are getting more and more important. We have told that when we made the pipe presentations before our DSPEC and we mentioned that the service will come after the initial installation and setting into operation phase. The reason is availability and maintaining the platform and offering services to adapt the platform to all of the changes we see in the, let's say all-electric world out there. That's key to operate your business and to make revenue out of the investment. That is important to understand and that applies for all of our platforms, whether it's the battery-buffered charging, whether it's the battery system, including the controls on that side. This is also the reason, and many people are asking us, why are you not offering non-battery-buffered chargers? There is a market for non-battery-buffered chargers. It is just converting AC to DC on a high power scale. The reason is that we believe we need to have the multi-revenue streams. So not only one business model transferring AC to DC, we want to offer our partners and customers revenue streams coming out of grid services, peak shading, whatever else might be in the future available for grid or flexibility services. And in addition, for sure charging with the battery, we can also offer to use the locally generated electricity, which makes it in total cheaper, more convenient and also better for the end customer. Before we go into the financial detail, let me talk about some operational highlights we communicated last year. I will pick up on that one slide later about the issue in the supply chain, I think that has been a common problem. We got hit by some major components. We have not been able to, for example, assemble some PCBs and then if you don't have a PCB, then a complete inverter or whatever it is cannot be made. So we started then ChargePost, which did a very good job. So finally by the end of the year, many of these issues had been solved and we will see later how that turned out in terms of how many products we have been able to produce and how we overcame the supply chain issue and where we are today. The second thing which was very important for us in 2022, I mentioned it already, for us it was very important that we do not delay or postpone the launch of the ChargePost. We have announced the ChargePost for 2022 for Europe and we delivered the ChargePost and the launch in 2022. We have also shipped the first systems in 2022 to our initial customers. You see here on the picture a real example which is in front of our office, where we also get an impression about the advertisement screens and the opportunities arising out of that additional business. As I mentioned, the ChargePost will besides the ChargeBox have a very significant part in our portfolio and also for the future business and revenue stream. The reason is, and we will come to that later, we see more and more demand for Supercharging in not only on the autobahn or on these ChargePost, but more and more in the city close to the office buildings or industrial sites. We will see that later in the presentation. Strategically, we are focusing on blue chip partners and strategic customers. The business model of ADS-TEC is not to operate the units by ourselves. The business model is not that we are selling electricity to the end customer or managing the local regulation. Our business is providing the platform, the services and to enable these partners so that they can scale their business, saying that, it ends up in the focus on these strategic partners having not only five or 10 sites, so they rather have many, and so we can scale with our customers. And the customers are using the benefits and the opportunities which are provided by these platforms and integrate it in their own software. And that is a reason and we need to understand that it takes time to integrate the units into the business and into the software and into the business model of our partners and customers. We call them internally the future power companies, because we are thinking about the segments. For example, classic established utilities, but also oil and gas companies and ending up with new codes coming out of the digital energy management segment, which know how to, for example, use flexibility in terms of buffers and combine that with photovoltaic or grid services, and then operate and manage these units in a larger scale. So these are our customers. And our focus is going more and more to these bigger and strategic partners. And that is what we did in 2022. And as I mentioned, to get into such a customer, that is nothing. So the sales cycle is not just that you present the unit and they do one or two tests. It's something I always say; it's like pregnancy, which takes nine months, and if you try to shorten it, then it might not end well. So the same is here when we go to a new strategic partner or customer. It takes time. It's not a product that you sell just off the shelf. On the other side, if we are in the business together with our customer, then both sides have a long-term relationship, which is important for both parties in the business. We have our business over long-term, providing the technology, the services and the add-ons and the data, access to the data. And our customer, they have a partner where they can rely on over long-term periods, so their investment is not standard. They can use it even if the conditions and the parameters might change. Let me start before I hand over to Wolfgang, our CFO. Where do we come from? What has been the last communication and where we are now respectively, end of 2022. The press release or the statement in September '22 has been that our revenue projection will be above $80 million for 2023. That was based on a solid order book and on a secured production capacity in our factory. Then out of a sudden, we had the problem with the supply issues. We communicated that immediately in October as soon as it came up and we said that we have to cut the projection, because we needed to get the material or the components and to get that sort of now. What has happened between October and end of the year? As I mentioned, our team has successfully managed the major supply issues and that has been material hunting. So where can we get the missing parts, which ends up in brokerage and other things. But now, and that is a big advantage of ADS-TEC due to our ability to act and to make all changes even down on the PCB level we did, and that was a big challenge for our technical people. We have been able to replace components. And here I think that's a big point also for our customers that just in case, if we hit or come into situations like that, material shortage could be because of a situation like now, which we know from COVID or the war in Ukraine or whatever might be part of the reason. But in many cases over time just components are phasing out and here we see that it is important, and that it is a benefit if companies can then act and change even on the low level PCB site. And that's what we did.

Yes. Thanks, Thomas, and good day to everybody. After covering our full-year result 2022, including revenue, operational expenses, EBITDA and cash, I will provide guidance for this fiscal year full-year 2023 in respect to revenue, order book and profitability. As Thomas already pointed out, we successfully managed the supply chain crisis in the second half of 2022. We were able to produce systems and perform services of €45.6 million out of our factory locations in Europe. This said we were impacted by certain clients not taking products by December 31. This means that our full-year revenue was €26.4 million, down €6.6 million from fiscal year 2021 revenue of €33 million. The decrease in revenue from contracts with customers for last fiscal year, in comparison, is mainly driven by lower than expected sales in the United States and also, of course, the supply chain pressures we faced during the course of last fiscal year. From a product perspective, the majority of our sales, like in previous years, was generated by our charging products, ChargeBox and ChargePost. Also included already, as Thomas pointed out, we sold ChargePosts and revenue ChargePost last year, which accounted in total the charging products for 74% of total revenue. Commercial and industrial product service and others were 26% of our total revenues. From a geographic perspective, 2022 revenue was 74% from Germany, and 26% from other European countries and the United States of America. Turning to gross profit and loss, our full-year 2022 came in at negative €4.5 million, down from negative €2.3 million in full-year fiscal year 2021. The reduced gross profit mainly resulted from higher than expected supply chain costs and lower output. As you remember, because of material shortages, at some of our suppliers we had to revert to brokers to complete our customer orders. Since then, we have redesigned our supply chain and we are comfortable that we will return to gross margins as we have seen in the past. Secondly, the buildout of our manufacturing facilities both in Europe and in the United States led to an increase of payroll-related cost in the costs of goods sold. Coming to operational expenses, we saw a significant increase in sales, general, and administrative expenses. In fiscal year '22 in comparison to '21, SG&A expenses accounted for €31.3 million in 2022, compared to €13.3 million in full-year 2021. Legal and consulting stayed on a higher level because of the merger with USG and being a publicly listed company now. Please don't forget we were in the first year for us being a listed company, the first full-year. Personal expenses were increased because of the buildup of our production facilities in Germany, our U.S. presence in Auburn, Alabama and general growth of the business. Furthermore, the first time recognition of stock option expenses accounted for €2.8 million and insurance expenses, including the necessary D&O insurances as a public company were €2.3 million. Our operating result was minus €36.4 million compared to minus €18.6 million for the full year 2021. After adding back depreciation and amortization of €4.6 million and €4.3 million, we arrived at an EBITDA of €32.1 million for fiscal year 2022. The finance income of positive €20.5 million was mainly due to the remeasurement of warrant liabilities and foreign currency gains resulting from the stronger U.S. dollar against the euro during the last fiscal year. Our net income for the period was minus €18.9 million for the full year 2022. Quickly turning to the balance sheet. Inventories rose to €40.1 million, driven by the reasons mentioned before and higher than expected business volume in the coming quarters. Trade and other receivables increased to €17.7 million, mainly driven by higher trade receivables. Trade and other payables went up on the credit side of the balance sheet because of growing deposits from our customers. Our cash balance is €34.4 million, down from €101.8 million at the end of 2021. This was driven by higher working capital and operating losses as commented on already. Now let me come to the outlook for fiscal year 2023. For this year, we expect revenues to exceed €100 million. This target is underpinned by a strong order book of €90 million in binding orders from quality customers and of course, by the substantial growth we currently see in the market, driven by strong customer dynamics and the general development towards electrification and CO2 reduction initiatives all over the world, especially in the countries we are focusing on, which are the European Union, U.K. and the United States of America and Canada. On those revenue levels exceeding $100 million. As I said, we will be the highest revenues in the company's history. We are expecting also a break-even to positive EBITDA. Before I end, let me report on a very important event and achievement after December 31, which we also published today as a 6-K on the SEC website, which you can access through our website. On May 5, ADS-TEC Energy's entered into an unsecured shareholder loan with multiple shareholders amounting to a total of $12.9 million, thereof $7.1 million maturing on June 30th and $5.6 million of 2024, and $5.8 million due on December 22, 2023. The shareholder loans can be drawn down by ADS-TEC Energy as required. This strengthens our balance sheet and is a strong signal and commitment by our shareholders. Needless to say, we are not intending to raise equity in the next foreseeable future. A quick look at 2024 and beyond before I gave back to Thomas. We anticipate substantial growth driven by very strong customer dynamics and market trend for 2024. So very positive outlook here. And with that, I turn back to you, Thomas.

Thank you, Wolfgang. And I think we can see here on that slide that the strong order backlog of €90 million and what we expect in revenues it's very close. So we want to be on a site where we really see that that's going to happen due to all these things we cannot calculate like we saw last year. Let me go into the details and why we are so positive in terms of what's coming and what's next. It was just announced a few days ago. We are working with our partner JOLT since many years, having the same vision. JOLT is one of these future power companies using our products and running their business case on the platforms. JOLT has now received a lot of funding. They have received €150 million, and they have a pretty significant growth plan over the next years. We received directly a new order, a significant double-digit number of ChargePost. We start with JOLT, the growth now in Europe and also in other countries. Another important aspect is service. We see not only with JOLT but also with other infrastructure investors where we are either in negotiation or have already contracts, that service will play a very big role. We expect more and more service contracts to be signed on long-term service agreements because it is necessary, and it is key that the units are available. We see that in the complete EV business that people are only accepting chargers being always on and providing the electricity or the charging capacity being requested by the car. In the service business, we have three models which can be negotiated in detail about what data shall be offered, what access to our cloud is required. Are you asking just for second-level support or a third-level support? Here, we can tailor our services and offerings to our customers' and partners' needs which allows them to integrate not only the hardware with the interfaces but also the business model and the services in their own business model. And that is slightly different from partner to partner because they are running already infrastructure software packages, back-end systems or trading accounts for electricity. Expanding the business is one of the key things. The infrastructure business, how we call it, is getting more and more important. Infrastructure means, first of all, of course, the ChargeBox which are directly connected to the grid in almost all of today's installations. That's not our business. We see that from these major suppliers. ChargeBox along the highways and autobahns. We are focusing on the decentralized side. And there you need infrastructure partners because this is in park houses, this is as I said, close to the buildings, to the real estate. And it is always linked and combined with infrastructure not only related to the sites but also to the regulations. You may have to apply for it, you may have different local regulations. It can depend on the grid provider or from the electricity company. And all of that has to be taken care of. And that is exactly what our partners are doing. I am proud to announce today that we have one first really relevant and leading rental car company which has now taken the first units for their sites. Rental car companies now will go more and more into the EV and in the electric powered offerings to the end customer and therefore we can imagine how many charging opportunities we need just when we go on vacation and we pick up the car. Another thing which is important for us, and I mentioned it at the beginning, is service. We see not only with JOLT but also with other infrastructure investors where we are either in negotiation or have already contracts, that service will play a very big role. We expect more and more service contracts to be signed on long-term service agreements because it is necessary and it is key that the units are available. We see that in the complete EV business that people are only accepting chargers being always on and providing the electricity or the charging capacity being requested by the car. In the service business, we have three models which can be negotiated in detail about what data shall be offered, what access to our cloud is required. I want to share with you the proof that has been made. Here we see three sites in Hamburg, Stuttgart and Frankfurt where the ChargeBoxes are installed with our partner JOLT and we see that the utilization rates are really going to a high level. If we just take the number, the expected number of EVs in 2030, which is the plan for the U.S. and for the European Union, then we talk about 30 million of pure EVs in 2030. So that's a way to go. But if we just take that number and we say the amount of electricity which is needed to operate and run these 30 million cars and now let's consider this a larger one, a Tesla for example, then that ends up in a demand for electricity which is about 90 terawatt hours a year. Now, if we presume that one third will be charged at home, let's say low power destination at offices is the next third. So the last third is expected to be charged on the go, which we call supercharging or ultra-high power charging where it's relevant that you don't have to wait. In saying that, I want to go a little bit deeper to explain why it is so important and why is it so powerful to have battery-buffered chargers being able to provide this performance? We see something important happening now in our customer base. We see the installation of multiple chargers in a concentrated area. Our partners and customers are ramping up their deployments.

Thank you for taking the questions and appreciate all the details in your comments earlier. Let me first ask about the outlook for 2023. Of the €100 million of revenue that you are expecting, how much was originally supposed to have come in 22?

Hi, Pavel. How are you? Nice talking to you. So it's, of course, hard to assess in the infrastructure business how much is shifting from one year to the other and I'll give it over to Thomas just from some strategic aspects to that.

Yes, Pavel. We made adjustments from last year because we encountered issues at the end of the year with the units we produced that have not yet been delivered to customers. Therefore, we have been very cautious about that.

Can you share how much revenue approximately you had in the March quarter?

Yes. Hi, Pavel. We are currently not sharing any quarter information because we just finished the fiscal year audit. We are now focusing on the numbers of the first and second quarter.

What is the geographic mix that you anticipate in 2023 revenue between Germany, other Europe and U.S.?

Yes. The expectation is that in the U.S. it will be approximately 10% to 15%. The reason for this is that we started in Europe several years earlier than in the U.S. It is important to note that the infrastructure business is not a standard business model. Detailed communication, testing phases, and various approvals are essential. Even if the system receives certification, it still requires time.

In your pathway to sustained free cash flow positivity, how much incremental capital do you foresee needing?

As we said, we do not anticipate any increase in equity in the foreseeable future. So if we achieve our goals and targets, which we have communicated in that call, we are not envisaging to raise additional equity.

Could I get a little bit more color on potentially why customers were not picking up orders from Alabama?

Yes, you can. I mean, as Thomas pointed out, some of the customers in the United States have not picked up some of the products. And as we pointed out, we are an infrastructure business. Of course, we have to be careful because we cannot name our customers. But in infrastructure, we see cases where customers were not successful acquiring sites, were not successful acquiring both public and private funding, and therefore they could not take the systems at that point. Okay. Thank you, operator. Ladies and gentlemen, this ends our ADS-TEC Energy's 2022 earnings call. Thank you very much for joining and for your continued interest in our business. Stay tuned and have a good day wherever you are.