Earnings Call Transcript - GGR Q4 2022

Bruce Aitken, CFO

Thanks operator and thanks to everyone for taking the time to join us today. I'm Bruce Aitken, CFO of Gogoro, and I'm pleased to welcome you to our fourth quarter 2022 earnings call. Hopefully, by now you've seen our earnings release. If you haven't, it's available on the Investor Relations tab of our website. We will also be displaying materials on the webcast screen as we go. We're looking forward to sharing our Q4 and full year results, as well as providing some guidance on what we're seeing as the outlook for 2023. Before our CEO, Horace Luke shares, I'd like to introduce Michael Bowen who will share the process for today's call and provide some important disclosures.

Michael Bowen, ICR Representative

Thanks Bruce. I'm sure you're all looking forward to hearing from Horace. But before that, allow me to remind you a few things. You are all currently on mute. If you have a specific question, please use the chat function in the system to submit questions and we'll answer as many as time allows. After Horace has given a brief overview of Gogoro and some of the business highlights from Q4, first we'll go a bit deeper into the Q4 financial results. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements regarding our fourth quarter and fiscal 2022 results. Management's expectations for our future financial and operational performance, the capabilities of our technology, projections of market opportunity and market share, our potential growth, statements relating to the expected impact of the COVID-19 pandemic, supply chain issues, and other headwinds facing the company; the company's business plans including its expansion plans; the company's expectations relating to growth in overseas market; statements relating to the potential of our strategic collaborations, partnerships and joint ventures; statements regarding regulatory developments and our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning these risks is available in our earnings press release distributed prior to the market open today and in our SEC filings. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today's call, we will refer to certain adjusted financial measures. These non-IFRS financial measures should be considered in addition to, not as a substitute for or in isolation from IFRS measures. Additional information about these non-IFRS measures, including reconciliation of non-IFRS to comparable IFRS is included in our press release and investor presentation provided today. Now, over to Horace.

Horace Luke, CEO

Thanks Bruce and Michael. Thanks for joining our call today. We're pleased to have this opportunity to meet with you all and provide an update on both the fourth quarter and full year 2022 results as well as give some guidance for 2023. 2022 was an important year for Gogoro. We transitioned from being a private company to being a public company in April of 2022. We announced new partnerships and pilot programs in India, Singapore, and the Philippines. We continue to grow our total number of subscribers in Taiwan and continue to extend coverage of our industry leading GoStation and smart battery packs. We also launched new Gogoro-branded and partner branded vehicles throughout the year and opened new markets in Israel, continuing to sell into South Korea, and our China business, while impacted by COVID, is now operational in three cities. Given the challenging economic backdrop to the full year, compounded by the COVID pandemic, I'm proud of the work done by our entire Gogoro team in 2022. And I'm looking forward to continuing to bring our battery swapping and vehicle technologies to new markets in 2023. Q4 played out as anticipated in Taiwan. We delivered financial results in line with our guidance for both the quarter and the full year. Our Gogoro network business continued to see predictable accumulation of subscribers who incrementally join existing cohorts of super sticky customers. In addition to continued growth in Taiwan, we saw expanded interest in our technology from consumers, potential partners, and governments in new markets. In Q4, we announced a partnership with Zypp Electric in India. That announcement was complemented recently with the news that Gogoro led Zypp's latest round of funding. It is exciting to see Zypp's growth plan for both fleet expansion and geographic expansion in India. We are also working directly with a variety of B2B players in India, where the value proposition of battery swapping is very clear. Any downtime for charging or refueling equates to the loss of orders, both for the riders and the platform, and an acceptable sacrifice in a fast-paced, ultra-competitive delivery ecosystem. We also recently announced an MOU with the State of Maharashtra, India's leading economy and industrial hub. This MOU is a great example of how public and private sector investments are beneficial to the adoption of electric mobility. In India, our vehicles and stations have passed all required safety and certification requirements. Those GoStations are installed at strategic locations to support our B2B pilot launch in Delhi, and we expect to gain some meaningful customer feedback, which will further drive commercialization in India. In the Philippines, we announced an MOU with market leaders Globe's 917Venture and Ayala Group to launch a pilot for our network and vehicles to be deployed in Manila and elsewhere in the Philippines. Although it will take some time for network and vehicles to be deployed, the first shipment of Gogoro GoStations, battery packs, and vehicles has already been received, and we'll provide updates throughout the year on the progress. In Singapore, in collaboration with Jardine Cycle & Carriage, we have deployed GoStations and vehicles and are excited to see last-mile deliveries using Gogoro Smart Scooters in the near future. Stay tuned for further news and announcements. In Indonesia, we're continuing to capture data from our existing pilot program, still underway with GoTo Electrum and Pertamina. As a result of both our ongoing success in Taiwan, the momentum around our international expansion pilots, and recognition of Gogoro technology leadership and development, Frost & Sullivan has again recognized Gogoro as the Company of the Year in 2022 for the Global Swappable Battery Electric Smart Scooter Industry. We're humbled by this recognition and gratified by the award. We're committing to continue to develop our innovative products and services and introduce them to new markets. Our Gogoro network continues to accumulate users and we now have over 526,000 active monthly subscribers. We continue to deploy those GoStations in Taiwan to grow network capacity, maintain network efficiency, and ensure a positive customer experience. As always, these stations are deployed intelligently using the data we accumulate from over 380,000 battery swaps done every day and the 380 million battery swaps done since we started. The two-wheeler market in Taiwan continues along the trend that began in 2021 as a result of overall economic factors. Total scooter sales in the 12 months of 2022 are down by 9.3% versus 2021. A total of 21,250 Gogoro and our partner-branded vehicles were registered in Q4. While the overall two-wheeled market in Taiwan is slowing, electric two-wheelers penetration continues to grow, with electric vehicle sales representing 12% of all vehicle sales in 2022 versus just 11.6% of all vehicles sold in 2021. Sales of Gogoro and partner vehicles are 10.7% of all vehicles sold in 2022, maintaining 2021 market share. Gogoro and partner-branded vehicle sales represented 89.8% of all electric vehicles sold. In Taipei, our market share and penetration reached 18.7% and 24.3% respectively in 2022. We believe these trends towards the adoption of electric vehicles will continue as consumers choose cleaner, greener mobility solutions. Gogoro continues to lead the market and EV adoption in Taiwan. By the end of 2022, we have accumulated over 380 million battery swaps and over 6.8 billion kilometers ridden. We have more than 526,000 satisfied subscribers in Taiwan, with 12,000 GoStations at 2,300 locations deployed and over 1.1 million batteries in circulation. Consumers continue to choose smart, green solutions for their mobility needs. Our macro strategy for 2023 is to grow our market share in Taiwan, continue to hone the efficiency of our Gogoro network, demonstrate via pilots in international markets that our solution is best-in-class, and set the stage for future growth. As announced in December, the Taiwan government has taken on two initiatives to speed the transition to electric two-wheelers. The first initiative is a national goal for electric penetration rates. The government has mandated that by 2040, all new passenger vehicles sold in Taiwan will be electric. Further, interim goals for the adoption of electric vehicles include that by 2030, 35% of all new vehicles should be electric, and by 2035, 70% of new vehicles should be electric. Goals such as these are important in driving the necessary transition from traditional vehicles to electric-powered vehicles. Not satisfied with just goals, the Taiwan government has extended its Electric Scooter Industry Environmental Value-Added Subsidy Program from 2023 to now 2026, and has committed over $191 million over the next two-year horizon. This includes a continuation of direct-to-consumer subsidies for the purchase of new electric vehicles; subsidies for the installation of battery swapping and charging facilities; and financial assistance provided to shop owners for transforming traditional scooter repair shops into servicing electric vehicles. This model of government leadership in the transition to clean sustainable urban mobility has resulted in approximately 12% of vehicles sold in 2022 being electric. Clearly, there's a lot of room for further growth, and the pace of penetration will need to increase for the government to meet its transitional goals. We encourage other governments to learn from and emulate the Taiwan experience and make both real commitments to electrification and create a variety of incentive structures that will speed the transition. The social costs of using traditional gas scooters—pollution, health complications, noise pollution, and others—should be better quantified and taken into consideration by both policymakers and individual consumers as they buy new vehicles. We encourage all two-wheel riders to join us on this journey toward cleaner transportation. It took time for Taiwanese consumers to overcome their concerns about transitioning to electric vehicles. Gogoro delivered a Smart Scooter that exceeded the performance of gas-powered vehicles in terms of torque, speed, safety, and cost. Gogoro addressed these concerns and paved the way. But it also required a great deal of capital deployed in our battery swapping infrastructure and a great deal of consumer education. In 2016, electric vehicles as a percentage of total market in Taiwan were only 2.5%. Now fast-forward to 2022, and electric accounts for about 12% of all two-wheelers sold. In the same way, the transitioning Taiwan was not instant; it will take time for the public in countries like India, Indonesia, and other parts of Southeast Asia, where gas vehicles make up more than 99% of all vehicles on the road to feel comfortable adopting an electric solution. The positive news is that we have a model for transition in Taiwan and expect the transition to occur in other markets. Given the general trend toward electrification, this could happen even more quickly than we've seen in Taiwan. In those countries, we pursue a phased approach to market entry. We begin with a relatively small pilot deployment and limited geographic distribution of GoStations. This is how we started in Taiwan. We launched Taipei with approximately 30 stations, and in six years since launch, we now have over 12,000 GoStations at 2,300 locations, and over 1.1 million batteries now in circulation, servicing over 526,000 riders. In any city, approximately 10 to 20 GoStations can provide ample swapping locations and ample batteries to launch a pilot service. This pilot deployment is used to collect data, customize vehicle hardware if required, test road conditions, and provide a level of comfort to both B2B and B2C riders that a vehicle powered by the Gogoro battery swapping ecosystem can meet the needs of any market segment. As the proof point increases, we scale our network, growing with just-in-time CapEx deployment. In overseas markets, we intend to finance this network expansion with local partners so that Gogoro is asset-light, unlike in Taiwan, where our investment is more than $500 million. We'll accumulate revenue through hardware sales and via software as a service license fee for using our battery swapping solution. This model and growth in these countries will not be immediate, so we still expect revenue from Taiwan to make up the lion's share of our revenue in 2023. We expect to see reasonable revenue from international operations in 2024 and beyond. The big concern for the planet is pollution reduction, and the clear needs for cleaner urban mobility is why Gogoro exists. We are today publishing our first-ever Impact Report. The report is full of many details regarding our contribution to a cleaner planet, product safety and system resilience, responsible business and social impact. Since the first Gogoro rider hit the road in 2015, Gogoro riders have offset 287 million liters of gasoline and avoided 603 million kilograms of CO2 emissions. That is equivalent to the amount of carbon dioxide removed by 1,330 New York Central parks each year. In the report, we show, for example, the total carbon benefits of buying a Gogoro vehicle as well as the total pollution reduction contribution by Gogoro riders. Each kilometer driven makes a difference, and we welcome both governments, business owners, and individual consumers to join us on this journey and make the world a better place, one vehicle and one battery swap at a time. While this transformation, especially in countries with a 50-year history of gas vehicle dominance, will not happen immediately, it will happen. We believe it will happen best with Gogoro's sustainability technology. I encourage you to download the report from our website and learn more. We also continue to increase the quantity of green energy that we're using in both our manufacturing and retail environments, and we'll continue to do so throughout 2023 and into the future. I'm proud of the work the team has put in to continue to make progress towards these goals, which will allow us to penetrate the Taiwan market without vehicle partners and begin to build momentum for overseas growth. I'd like to invite Bruce to update some key business highlights and review our financial results in greater detail.

Bruce Aitken, CFO

Thanks Horace. Q4 2022 was in line with expectations despite the challenging external market conditions. We delivered our provided guidance on quarterly revenue, continued to generate positive EBITDA, and maintain a healthy margin of 17.2%, slightly above our full year 2022 margin. Our results exhibit both continued progress in difficult circumstances and that the shift to electric mobility continues to gain momentum. Specifically, I'll provide color into our revenue, gross margin, EBITDA, and net loss results as well as providing guidance for 2023. According to statistics published by Taiwan's Department of Motor Vehicles, the total Taiwan two-wheeler scooter market volume of approximately 734,000 units for the full year 2022 is the lowest total since 2016. Despite this low volume, there are positive indicators for both the transition to electric two-wheelers, as well as for Gogoro and our partners powered by the Gogoro network. We extended our Taiwan channel, and now Gogoro vehicles are being sold in 604 traditional scooter sales locations. Making Gogoro vehicles broadly available and increasing customer touchpoints is important. Our market share in the six biggest cities in Taiwan remains strong, with Taipei continuing to be the largest single market share city with an 18.7% share in 2022. Our Gogoro network business continues to demonstrate strong revenue and subscriber growth. We also continue to invest in partners for international expansion with multiple related announcements in Q4. Before I go into the details of the financial results, let me say a few words about exchange rates. We booked the vast majority of our revenue in Taiwan dollars but reported it in US dollars. This year, the change in exchange rate has been substantial, with the US dollar strengthening against the Taiwan dollar by 12.7% versus the average exchange rate of last year. Given our revenue concentration in Taiwan dollars, this is not an operational issue, but purely a foreign exchange translation issue. This exchange rate resulted in a US dollar reporting difference of almost $26 million in revenue for 2022. For the fourth quarter, revenue was $95.5 million, down 20.8% year-over-year and down 10.5% year-over-year on a constant currency basis. Our foreign exchange rates remained constant, and with the average rate of the same quarter last year, revenue would have been up by an additional $12.4 million. Sales of hardware and other revenue for the quarter was $64.1 million, down 32.1% year-over-year, and down 23.1% year-over-year on a constant currency basis. For the entire two-wheeler market, sales in Taiwan in the fourth quarter were down 25.6% year-over-year, and electric scooter sales were down 30.4% compared to the same quarter last year. These declines both in the broad market and Gogoro hardware revenue were primarily attributable to a larger than normal quantity of two-wheeler sales in the same quarter last year as a result of various government and market incentives. Gogoro network revenue for the quarter was $31.4 million, up 19.5% year-over-year and up 34.6% year-over-year on a constant currency basis. Total subscribers at the end of the fourth quarter were more than 526,000, up to 16.8% from 450,000 subscribers at the end of the same quarter last year. The increase in Gogoro network revenue was primarily due to our increasing subscriber base and the high retention rate of all of our existing subscribers. For the full year 2022, revenue was $382.8 million, up 4.6% year-over-year and up 11.7% year-over-year on a constant currency basis. Had foreign exchange rates remained constant with the average rate in each of the comparable quarters of last year, revenue would have been up by an additional $26 million. Sales of hardware and other revenue for the full year was $261.2 million, down 2.0% year-over-year and up 4.7% year-over-year on a constant currency basis. We saw an increase due to continued growth in the Gogoro network revenue and revenue from selling Gogoro branded scooters, component kits to OEMs, batteries, and swapping stations to our overseas business partners. The increase was offset by a still weak Taiwan scooter market associated with uncertainties derived from macroeconomic volatility and the COVID pandemic. Total scooter sales in Taiwan for the full year 2022 were down 9.3% year-over-year, while electric scooter sales declined by a smaller 6.7% compared to 2021. Gogoro network revenue was $121.6 million, up 22.2% year-over-year and up 30.3% year-over-year on a constant currency basis. Gross margin for the fourth quarter was 15%, down from 21% in the same quarter last year. Quarterly non-IFRS gross margin was 17.2%, down from 21.5% in the same quarter last year. The non-IFRS gross margin decrease was driven by the higher production cost per vehicle as a result of raw material cost increases and decreases in sales volumes. For the full year 2022, gross margin was 15.1%, down from 16.7% last year. The full year non-IFRS gross margin was effectively flat at 16.8% compared to 16.9% last year. For the fourth quarter, net loss was $12.5 million, down $1.7 million from $14.2 million in the same quarter last year. The decrease was primarily due to a favorable change in the fair market value of financial liabilities of $18.4 million offset by a total of $17.2 million from both a decrease in gross profit and an increase in share-based compensation. For the full year 2022, net loss was $98.9 million, up $31.5 million from $67.4 million last year. The increase was primarily due to a $32.9 million increase in share-based compensation offset by an approximate $3 million net decrease with the mix of increases in listing expenses, spending associated with being a public company, exit activities, and R&D expenses, and a favorable change in the fair value of financial liabilities. The full year non-IFRS net loss was $63.3 million, up $12.9 million from $50.4 million last year. The increase was primarily due to $6.9 million in expenditures associated with being a public company and a $4.1 million increase in R&D expenses. For the fourth quarter, adjusted EBITDA was $9.2 million, down from $25.5 million in the same quarter last year. The decrease was primarily due to a $9.5 million decrease in non-IFRS gross profit, $2.6 million in expenditures associated with being a public company, and a $1.4 million increase in R&D expenses mainly due to increased spending on materials and prototype smart scooter models, as well as the negative foreign exchange impact. For the full year 2022, adjusted EBITDA was $41.2 million, down from $54.9 million last year. The decrease was primarily due to $6.9 million in expenditures associated with being a public company and an investment of $4.1 million in R&D expenses. We successfully amended and extended an existing $200 million credit facility for an additional three years to December 2025. With $236.1 million in cash balance at the end of 2022 and the available additional credit facilities, we are well positioned for our short- and longer-term capital needs. For the full year 2023, we expect revenue of between $400 million to $450 million, which represents an anticipated increase of 4.5% to 17.6% compared to 2022. We estimate that we will generate 90% to 95% of 2023 full-year revenue from the Taiwan market. As described in our Q3 earnings release, we remain cautious regarding the 2023 forecasts for China. While the network is operational, and while both B2B and B2C designed vehicles are for sale in the market, we are not expecting significant revenue contribution from China in 2023. We focused on improving our operating efficiency in the fourth quarter, and will continue to drive efficiency in the coming year, while investing in our growth in Taiwan and internationally. 2022 was a year of financial results in line with our expectations. 2023 is a year of growth both in Taiwan and internationally. While most of our revenue in 2023 is Taiwan-based, we are paving the way for substantial international revenue contributions in 2024 and beyond.

Michael Bowen, ICR Representative

Thanks, Horace and Bruce for that update and details on financial results and forward guidance. As attendees are formulating the questions, I will go ahead and ask two questions, which I think are likely on everybody's mind, given what you've just heard. Question number one, the topic would be international markets and operational. There seems to be many announcements and partnerships in the Indian market. Do you anticipate the India market to be the main focus for Gogoro in 2023? And can you elaborate and provide additional information regarding announcements with the Indian State of Maharashtra and Zypp Electric?

Horace Luke, CEO

Thanks, Michael. Gogoro in 2023 is all about reaching velocity to go beyond the initial deployment in Taiwan. Our target is to launch in India in the later part of this year. Although the Taiwan market is meaningful for Gogoro, the size of the market is limited; there are only about two-wheeler riders on the road. India, on the contrary, has over 290 million vehicles on the road and is aggressively promoting electric adoption. There are also policies to limit the use of internal combustion vehicles, especially around delivery and logistics, and via providing incentives to both consumers and manufacturers of electric vehicles. More than 80% of registered vehicles in India are two or three-wheelers. So people depend heavily on their scooters and motorcycles. As e-commerce grows in India, the need for delivery riders will increase. As state or city level governments mandate the use of electric vehicles and increase awareness of the safety and convenience of battery swapping and how it can benefit the user, our solution can fulfill that need. We now have over a million batteries safely deployed, which validates our subscription-based business model in Taiwan and several other countries. We have a broad portfolio of products with more product launches planned later this year to continue to capture the largest share of the third-parties Taiwan market as well as the next significant entry into selected markets in India. The announcements that we made in India demonstrate our commitment to growth there; we are expanding our presence, collaborating with new partners, and are committed to making a difference by helping them increase rider uptime with our battery swapping capabilities. With the government of Maharashtra, we're working on a number of initiatives to create increased demand for battery swapping and the associated infrastructure. We're excited about the market opportunity in India and other countries. Again, the plan for 2023 is to lay the groundwork for and demonstrate success in international markets.

Michael Bowen, ICR Representative

All right. Thank you, Horace. Question number two is in the realm of finance. There are many partnerships and pilots launched in 2022. If you had to choose to prioritize one over the other between top line growth versus profitability, which would you pick for the next two years? Given the current macro environment with layoffs, Fed actions, and inflation, is the company comfortable with the current cash flow projections? Is the company planning any future financing in 2023? Can you also provide any guidance on your expenses for 2023? Will there be any plans such as a ramp-up in R&D that could improve battery technology or new models of scooters in your future?

Bruce Aitken, CFO

Thanks, Michael. Growth is important for us at Gogoro. We are a technology company, so we've invested heavily in R&D, and we will continue to do so for both hardware improvements and software improvements. These could take several forms, including new scooters or battery packs with more density, which would provide a longer range for our customers; software improvements that result in better network efficiency or a better user experience. In terms of cash at the end of 2022, we had $236 million in cash, sufficient to meet our current growth plans. If the need for financing arises, we feel confident that we could raise additional equity, although as mentioned, we have no immediate plans. We finance our Gogoro network expansion in Taiwan through debt, and we've recently received a large syndicated loan debt facility, which allows for growth in Taiwan. We feel well-positioned for growth. There are clear market needs, and we have great technology. We're working hard to launch pilots and then subsequently transition to operational and commercialized networks. As we've mentioned previously, when we expand internationally, we plan to do so in an asset-light manner, such that all the CapEx required to build out large networks is not 100% owned by Gogoro now.

Horace Luke, CEO

Thanks, Michael and Bruce. Both Q4 and 2022 financial results were in line with our expectations. We continue to lead the Taiwan electric two-wheeler markets, and our Gogoro network business continues to accumulate subscribers and demonstrate revenue growth, reinforcing our recurring revenue business model. A great example is that Gogoro network revenue grew by 30% in 2022. The world is transitioning to electric mobility. The only question is how quickly will it happen? We're excited to continue to work with partners, policymakers, and consumers to lead the electrification of cities around the world. We're launching pilots and products throughout 2023 and will see that transition. Thanks again everyone for attending today's call.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Have a nice day.