Ads-Tec Energy Public Ltd Co Q2 FY2024 Earnings Call

Hello and welcome everyone to this event. We will discuss the financial highlights and results of the first half of 2024, which ended on June 30, 2024. Please pay attention to the forward-looking statements that will be included in this presentation. You can find more details on slide number two and will be able to download the presentation afterward from the Company's website. Before I introduce our speakers, I'll walk you through the agenda. We'll begin with a brief summary of the first half of the year, followed by a discussion on market trends and challenges. Next, we will review our strategy and unique selling propositions. After that, we'll go over the financial highlights, and we will finish with a Q&A session where you can submit your questions for us to address. You can send your questions during this event via the web portal of the webcast you are currently viewing. Now, I'll turn it over to our CEO, Mr. Thomas Speidel.

Thank you, Dennis. Welcome dear ladies and gentlemen, investors. Thank you for taking your time, and I'm pleased to walk you through the first part before I hand over to my colleague, the CFO, Wolfgang Breme. A few bullet points at the beginning, the review of the first half of 2024. We have been able to increase our revenues by 107% compared to the same period in 2023, so about 107% more, but the numbers will be explained by Wolfgang later. The adjusted EBITDA is positive in the first half of 2024. We have, and this is important, a significant number of additional customers; I will come to that later. It turns out that our platform strategy and the concept of a multi-revenue business model is the right approach, and I will provide a little more insight on that later on. We have, meanwhile, produced and delivered more than 2,500 high-power charging points. Let me say a few words about the market trends and challenges. I think we all are aware of the news and everything that is circulating regarding e-mobility and renewables, and I want to give a brief overview of the challenges of the volatile energy system. Those who know ADS-TEC know that we are dedicated to the transition from the existing energy system to a decentralized sector-crossing energy system, which includes the mobility sector and transportation. We come from a centralized power supply, and we are in the middle of that transformation to what we term the new world, a decentralized, intelligent, renewable world. And this is exactly where ADS-TEC is dedicated. So, we are not just a charging company; we are not a utility company; we provide intelligent, decentralized flexibility platforms which can also be utilized for supercharging, energy trading, and more, which we will explore later in this presentation. Let me just explain a little about the volatile generation and consumption, which is the heart of the transformation. We know that renewable energy like wind and solar is produced at a specific location and time that does not necessarily align with consumption. If we deduct consumption from generation, we find a difference between these two parameters. On the consumption side, we see new participants such as e-mobility and electric vehicles that want to be charged either slowly or rapidly. The heating sector is also emerging, which is contributing to the generation of new peaks and consumption patterns. On the generation side, volatility is driven by factors such as over generation and under supply. We see that expanding the grid will be a significant part of the transformation, but grid expansion alone will not solve the challenges posed by a volatile and expanding market. Thus, ADS-TEC wants to provide flexibility platforms and we believe flexibility is the twin brother of regenerative generation. In terms of the market demand and trends, we are also seeing that €300 billion is planned for transmission grids over the next few years, while another €150 billion is needed for regional distribution grids. This constitutes a massive investment demand, subsequently prioritizing where resources should be allocated for grid expansion or optimization of existing capacity. With the increase in grid fees we've observed over the past years, the costs are now being passed on to consumers. In the U.S., we are addressing demand charges, while in Europe or Germany, we see the implications on our grid expenses. We believe that with our flexibility and digital solutions, we can reduce these peaks. If we can prevent the need for grid upgrades, we can save significantly in both operational expenses and overall costs. Challenge number two is what we refer to as the Investor's or Innovator's Dilemma in the e-mobility sector. As we open the news each day, we see e-mobility fluctuating, getting attention, and then falling back as combustion engines re-emerge. Innovation cycles play a key role in this area. Initially, we have a startup period where a new technology gains traction followed by early adopters, a ramp-up phase, and eventually, a significant growth period that leads into saturation and decline. Today, in our mobility sector, we see the Internal Combustion Engine (ICE) as being at the latter part of the cycle, while the electric vehicle (EV) curve has just begun. We believe there is no other long-term option than EVs to be the dominant force in the market due to their efficiency. We do acknowledge a dilemma where many companies profit from the ICE while investing in the EV which I believe should not be prolonged to minimize losses. When we assess the state of the EV market, comparing Q1 2023 with Q1 2024, we can observe growth in various markets, including China, the USA, and Europe, with the exception of Germany and Italy where a decrease in EV purchases was noted. This drop in Germany is associated with the reduction of subsidies that were in effect last year. Nevertheless, we are seeing new drivers entering the market, with tax incentives and renewed subsidies influencing EV purchases. Individuals also recognize the lower total cost of ownership for EVs compared to ICEs, further driving adoption. We note that company fleet purchases are increasingly becoming common in Germany and Europe, leading to tax savings and enhanced net income for those who opt for EVs. Moreover, we see that range anxiety around EVs is largely dissipating. People who own EVs now experience that charging is efficient and achievable. As an illustrative anecdote, I recently drove from Venice to Stuttgart in just 25 minutes of charging, leaving plenty of remaining capacity. This evolution shows that more people are embracing the efficacy and cost-effectiveness of EVs. To summarize, we expect rapid growth in the EV market. We refer to a development estimation that suggests European markets are poised for significant increases in EV adoption. Based on the trends, we believe that convenience in charging locations, such as at homes or workplaces, will be critical in driving installations at offices, factories, and residential areas, making it more practical and cost-effective for users. In terms of our strategy and unique selling propositions, we continue to focus on intelligent platform solutions where we manage flexibility. Importantly, this is a collaborative effort with our customers and partners. We must have full control of our hardware and software; this long-term partnership approach maximizes the benefits for our customers. We have our own battery modules, and software stacks including charge controller and inverter technology, which together ensure operational efficiency over many years and reduce the total cost of ownership while enhancing revenue streams. It's not just about the hardware; we are also developing software-based services, encompassing features such as digital payment and real-time data services. This ecosystem is designed to transform simple charging into a multifunctional platform that allows for energy trading, grid services, advertisement opportunities, and more, all depending on local regulations. Our ability to adapt to various regulatory environments positions us as a one-stop resource for our customers. We have seen an exponential growth in our customer base over the past few years, starting from one major customer in 2020, Porsche, to 53 customers today. The sales cycle is inherently long with larger clients, often taking 9 to 12 months from initial discussions to final installation. We are grateful that we have onboarded many blue-chip corporations, which positions us strategically for the growth ahead. As we expand our customer base, we reduce risk by diversifying across many clients rather than relying on a handful of high-revenue customers. This is critical in helping us navigate the volatile nature of the EV market and ensuring sustainability for our investments. We believe that expanding into additional sectors such as electric trucks and boating can also yield substantial opportunities. We are not focused on megawatt charging, however, we see high-potential applications such as garbage trucks and taxi platforms being developed into green transport solutions. Overall, we believe we are at the beginning of unveiling new business models that contribute to a greener future.

Of course, thank you, Thomas, and good day, everyone. Before giving you more insights into the state of our business from a financial perspective, I’m excited to report that ADS-TEC Energy continued its strong financial and operational performance in the first half of 2024, achieving key milestones that reinforce the company’s continued growth trajectory. We are delighted to report that revenue for the first half of 2024 was €79.3 million. For Q2, revenue reached €42.4 million. This reaffirms our confidence in the strength of our business model, robust customer demand, and the overall market opportunity. We remain committed to driving sustainable growth and long-term shareholder value. For H1 2024, our revenue grew more than 107% compared to last year’s period, which was €38.3 million. From a product perspective, most of our sales, as in previous reporting periods, were generated from charging products, namely ChargeBox and ChargePost, which accounted for the majority of our overall revenues. Geographically, Europe is leading in terms of revenue generation, reinforcing that Europe is ahead of the United States in EV adoption at this stage. ADS-TEC Energy, with a robust European footprint in service and production, is well-positioned to take advantage of expected strong growth in this market. Concerning gross profit, we observed improvements quarter-on-quarter. Q2 of 2024 marks the third quarter in a row with positive gross margins. For H1, gross profit was €15.7 million, with a gross margin of 19.8%, rising from a breakeven gross profit in the first half of 2023. Better purchasing environments, optimized production processes, and economies of scale led to these improvements. Operational expenses below the gross margin amounted to €20 million. When compared to H1 of 2023, the increase was only 11.7%, indicating improved efficiency within our sales and administrative functions. These levels support the business’s future; however, geographical expansion and the growing service component may necessitate more investments. Our EBITDA for H1 came in at minus €1.4 million compared to minus €17.6 million in the prior year. Adjusted EBITDA, accounting for share-based payments and inventory adjustments for the first six months, is notably positive at €3.6 million compared to minus €14.3 million in the previous period. Remarkably, Q2 2024 represents the third profitable quarter on an adjusted EBITDA basis since the IPO. Looking ahead, we anticipate continued positive momentum in the second half of the year with expectations for increased sales revenues relative to the first half. The company remains on track to achieve adjusted EBITDA positivity for the full year, thereby reinforcing its position as a leader in the ultra-fast charging market with high revenue levels anticipated for the year.

Yes, thank you Thomas, thank you Wolfgang. Now it's time for our Q&A session. Currently, there are no incoming questions in the chat. I would say we are waiting a few seconds. If you have any further questions, please send them via the web chat. However, one question for Thomas: What will be the biggest challenge for ADS-TEC and the competition in the next one or two years?

As I tried to highlight, we are in the middle of this major transformation, which we are likely to witness once in a century. We might experience a hesitating period for several more months or years, but it will eventually become evident that the future will pivot on decentralized energy sources. The e-mobility sector will undoubtedly progress, and I expect politics to clear up more over time. If it's unmistakable that this is the way forward, we will dismantle obstacles and allow for parallel investments, consequently accelerating our business and those of our competitors.

As indicated in my presentation, the majority of our revenue is derived from Germany, accounting for approximately three-quarters of our revenue in the first half of the year.

In terms of our production capacity, I want to emphasize that we have the ability to produce between 5,000 and 10,000 dispensers a year in our Dresden factory. However, our current sales do not reflect this capacity. Thus, we have spare capacity for the next one to two years, equipped to handle future demands and logistics in North America. We've conveyed this in past presentations, and we are fully prepared to meet future expectations.

On the financing front, we have been actively leveraging capital markets to ensure flexibility. Recent warrants arising from capital raises were utilized to repay certain shareholder loans as we continue to balance our funding mix. We aim to ensure the company becomes bankable by establishing a sound credit foundation in the future.

North America is a crucial market for us. We are certain it will grow. Our strategy has seen us engage in projects in Marina Palms and now with Ford, the first units are being deployed. We are cautious and methodical in our approach, ensuring that investments align with market readiness. We are preparing the required 'Made in America' structure, but it will be conducted in a stepwise manner as has been our approach.

The finance expense observed in H1 was largely influenced by the fair valuation of warrants linked to our stock price performance. This financial item is a reflection of the non-cash valuation adjustments and does not signal any increase in interest-based expenses.

Our business model emphasizes offering more than just charging stations. We are committed to expanding our services beyond simple charging to include energy trading, peak shaving, and other functionalities to offer our customers varied revenue streams. This diversification lessens our dependency on the continuous use of charging components and builds a solid infrastructure for our business.

While we have observed some relative decreases in SG&A costs year-over-year due to improved efficiency, we anticipate an increase aligned with our growth trajectory as we expand our US presence and service capabilities. However, this increase will be significantly lower than the anticipated rise in revenue.

Our focus will remain on the flexibility strategy, refraining from entering the residential market for battery systems as it has been saturated. Our investment strategy for the future will center on higher-capacity, combined systems for commercial and industrial (C&I) applications, ensuring the quality of service while expanding our battery systems over the next few years.

In terms of cash needs, while we are approaching the breakeven line in operational cash flows, the expansion into the U.S. market is likely to necessitate additional funding, which we will seek via our shareholder base or potential market offerings.

Thank you very much, Wolfgang. Thank you, Thomas. Thank you to the audience for your time and attention. As I mentioned earlier, you will be able to download the presentation from the company's website after this event. That concludes our session.

Thank you very much for attending and for listening.