Wallbox N.V. Q4 FY2023 Earnings Call

Hello, everyone. And welcome to Wallbox's Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. My name is Charlie, and I'll be the operator for today's call. At this time, all participants' lines have been placed in listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. I would now like to turn the call over to Matt Tractenberg, Wallbox's Vice President of Investor Relations to begin. Matt, please go ahead.

Thank you, Charlie. And good morning and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's fourth quarter and full year 2023 results. This event is being broadcast over the Web and can be accessed from the Investor Section of our website at investors.wallbox.com. I'm joined today by Enric Asuncion, Wallbox's CEO, and Jordi Lainz, our CFO. Earlier today, we issued our press release announcing results from the fourth quarter and year ended December 31, 2023, which can also be found on our website. Before we begin, I'd like to remind everyone that certain statements made on today's call are forward-looking that may be subject to risks and uncertainties relating to future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including in the annual report on Form 20-F for the fiscal year ended December 31, 2022, filed on March 31, 2023. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results. Also, please note that we use certain non-IFRS financial measures on this call, and reconciliations of these measures are included in the presentation posted on the Investors section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under the Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I'll turn it over to Enric.

Thank you, Matt, and thanks everyone for joining us today. In addition to reviewing highlights from the full year and fourth quarter 2023, we'll spend some time discussing the current EV market and our position in it. We will also dig into the Generac announcement from December and why we are so excited about joining forces. Jordi will review our cost reduction achievements. He will offer some additional color on our quarterly financial performance and share some thoughts on our balance sheet as we prepare for a new year. And finally, we'll return to discuss our view of the market and what we are focused on in 2024. We'll end by taking questions from our covering research analysts. So let's get started. 2023 was a challenging year for us with exciting milestones and some reflection on our actions. Revenue for the full year totaled EUR143.8 million, essentially flat from the prior year. This was a result of a softer demand environment that many anticipated paired with corresponding inventory adjustments by our channel partners. While the EV adoption curve is in the process of crossing the chasm and moving from early adopters to mainstream, these items drove variability in our forecast and results. Although those disruptions made for a challenging year, we focused on executing our long-term strategic plan and achieving several outstanding milestones. We delivered 166,000 AC units and more than 1,400 DC units during the year, a solid outcome. We launched innovative new products to streamline our cost base to accelerate our path to profitability and forged meaningful new partnerships with global brands, including Generac, Costco, Kia, and Free2Move. We acquired an industry leader in ABL, placing us at the forefront of the largest EV market in Europe. And we raised almost EUR143 million in cash through debt and equity financing. It was a year marked by efficiency and innovation, operational improvements, and cost reductions. This has set us up extremely well for success in 2024. Turning to the quarter, revenue came in within our expected range of EUR43.3 million, up almost 34% from the year-ago period, driven by both organic and inorganic growth. ABL contributed EUR6 million of inorganic revenue as anticipated. Organic growth again resulted from strong performance from our DC offering, with sales growth of almost 150% year-over-year. Our AC portfolio saw some moderate destocking in Europe and North America, but AC unit growth was almost 38% quarter-over-quarter in Europe on a selling basis, which we view as a positive sign for the region. Sell-through was healthy as well and points towards continued growth. In total, we delivered almost 44,000 AC units globally, including ABL and almost 500 units of DC during the period. Gross margins were 32.8% in the fourth quarter, impacted by product mix shifts and warranty and obsolescence costs. We continue to believe that through cost engineering, changes to our product mix, and strategic sourcing, gross margins in the midterm can return to the 38% to 40% range. We've already begun implementing actions in 2024 to improve our situation. Our cost reduction program in 2023 has been crucial and allowed us to reduce all of our quarterly cash expenses by an additional EUR4.8 million sequentially. We are proud to announce that we have exceeded the original EUR50 million reduction targets previously discussed and achieved a total production of more than EUR60 million in 2023. Jordi will elaborate more on that shortly. The fourth quarter adjusted EBITDA loss was EUR14.7 million on a consolidated basis, which includes the impact of ABL, representing a year-over-year improvement of 54%. Due to the timing of the transaction and integration, ABL contributed only one month of sales and carried two months of costs. Excluding ABL, Wallbox standalone adjusted EBITDA loss was EUR11.9 million in the quarter, representing a 63% improvement from Q4 of 2022. We continue to focus on achieving positive adjusted EBITDA in the June quarter and look forward to celebrating this important milestone with you on the Q2 call. For the fourth quarter of 2023, Europe contributed EUR34.3 million of consolidated sales or 79% of total revenue; North America contributed EUR6.4 million or 15%; APAC contributed EUR1.5 million or 4%; and LATAM contributed EUR1 million or 2%. These mix shifts were largely driven by the addition of ABL, whose sales are entirely in the EMEA region. AC sales of EUR26.5 million represented approximately 61% of our global consolidated revenue, down 7 percentage points, driven by strength from our DC offering. Supernova 150, our second-generation DC fast charger, continues to see strong reception from customers and drove the DC revenue contribution to 27%, up 12 percentage points. The remaining 11% was generated by services and accessories. 2023 saw numerous new large customers including Iberdrola and Atlante. In November, we announced that Atlante, which recently was selected to receive a EUR49.9 million grant from the EU, aims to install 5,000 fast charging points by 2025 and over 35,000 points by 2030 across Spain, Italy, France, and Portugal. They have chosen Wallbox as a preferred partner in this project due to our production capacity and high-quality innovative offerings. Margins continue to be impacted by product mix, which we expect to ease as we move through 2024. To provide color, approximately 60% of these units sold in the quarter were Supernova 150, similar to last quarter. Recall that while the 150 has a higher gross margin profile than Supernova 60, our first-generation product, it’s still lower than AC. In time, as the mix shift continues and the cost profile of the new product declines, we anticipate that impact to lessen. Generac is one of the most respected names in the energy transition space. The transaction is one of the most exciting and impactful events in our history, and has the power to accelerate our commercial presence in North America at a critical time by opening important global opportunities for both companies. The announcement included a $31.6 million strategic investment led by Generac and an upcoming commercial agreement. The minority investment was completed at a price of $3.05 per share, highlighting the inherent value both companies see and includes a seat on Wallbox's Board of Directors. Through the execution of this commercial relationship, Generac will offer its customers our full suite of EV charging solutions, including Pulsar Plus for residential settings, Pulsar Pro for commercial and multi-tenant applications, our bidirectional charger Quasar 2, and our DC fast charging Supernova, along with installation services through COIL. Generac’s 60 plus years of experience distributing energy resilience devices and its extensive network of over 87,000 dealers will be a strategic addition to Wallbox’s dealer network in the US. The European brand Pramac will offer these fast chargers through their energy storage sales network in selected markets, strengthening the offering for commercial and industrial customers. In turn, our strong relationships with tier one utilities and OEMs will open new doors. Bidirectional charging enabled by Quasar 2 will be extremely important for both companies, providing EV owners independence and security against outages, saving money, and tapping renewable sources. This is quickly becoming a reality and will give utilities access to a vast network of stored energy during peak load times, allowing large populations to balance demand with supply without the need for new investment in power generation. Governments are starting to see the light, and it’s remarkable to watch. This has the unique ability to change the way we store and consume energy. Together, we plan on bringing that solution to market in 2024, so look for it. We're also exploring new architectures to adapt to applications in environments that lack the necessary power. Our Supernova with battery storage from Generac has the potential to reduce reliance on the grid, lowering installation costs and utility requirements and accelerating time to market. That's just one of numerous new configurations given the combined capabilities we have. It's exciting to watch, and I think customers will like what they see. We look forward to collaborating with the leadership team, aligning product roadmaps, and aggressively competing in the global marketplace. The combination will be dynamic. I want to spend a moment discussing the markets in which we operate. As you know, there is a high correlation between sales of our AC products and EV deliveries. Deliveries have varied by geography in 2023, and pricing actions and commentary by large OEMs have created some noise. There were almost 13.6 million EVs sold globally in 2023. We forecast global EV deliveries to reach 18 million units in 2024, representing growth of more than 32% year-over-year. To OEMs spending millions on new factories and developing new models, this growth might seem disappointing. To us, it represents attractive opportunities. There are several key elements driving continued adoption, including the success of new models like Kia’s EV9 and Nissan’s Ariya, innovative technological breakthroughs that improve range and quality, accessible and reliable power recharge infrastructure, which we expect Wallbox to significantly contribute to, and financial incentives for EV buyers to bring price parity with internal combustion vehicles. We believe early adopters are fully embracing the value proposition of EVs. The concerns you read about in the media are a function of where we are in the adoption curve. It's understandable and expected in any large-scale technology adoption, and we are well prepared and positioned to exit the current environment stronger than we entered, and ahead of the competition. Jordi, I'll turn it over to you to comment further on our financial details.

Thank you, Enric. Good morning and good afternoon to everyone. Our fourth quarter results came in as anticipated, driven by strong DC sales, stability within Europe, and AC demand, along with contributions from ABL. Margins were softer than expected, but we have identified a remediation plan and intend to improve through the remainder of the year. Cost controls continue to yield solid results, and additional opportunities may present themselves in 2024. I'll provide further detail on these results and share some thoughts on the upcoming year. For the fourth quarter of 2023, revenue was EUR43.3 million, up 33% sequentially and up 34% year-over-year. On a year-over-year basis, total revenue increased from both DC fast charging and AC, the latter affected by the channel destocking discussed on previous calls. Consolidated gross margin for the quarter was 32.8%, impacted by continued product mix shifts and the timing of warranty and obsolescence charges. We further reduced both employee-related cash expenses and operational expenditures, which amounted to EUR28.4 million in the period, excluding ABL. I want to thank all Wallbox employees for their dedication and commitment to this initiative. It's taken everyone’s effort to reach this target, and we appreciate what you've helped us achieve. Going forward, including ABL, we anticipate both payroll expenses and operational expenditures combined to be approximately EUR30 million per quarter. This, when paired with our gross margin improvement plans, is expected to allow us to achieve positive adjusted EBITDA in the second quarter and for the full year of 2024. We commit to shareholders to keep this initiative in focus as we reaccelerate growth. Consolidated adjusted EBITDA loss for the quarter, including ABL, was EUR14.7 million, representing a 54% improvement over the prior year quarter. On a standalone basis, excluding ABL, we managed to reduce our adjusted EBITDA loss by 28% from the previous quarter and 63% from the prior year period. We remain extremely focused on controlling costs and conserving cash, and have seen tangible benefits from those efforts. Here, you see the three main metrics we have been focusing on over the past year: revenue, costs, and the resulting adjusted EBITDA. As you can see, cash personnel costs have been reduced from EUR23 million to EUR19 million, and cash operational expenditures have decreased from EUR27 million to EUR9 million. Combined, this represents a 44% reduction in Wallbox's cash costs, excluding ABL. We've made exceptional progress against our goals, with all trends moving in the right direction. ABL's inclusion has brought increased revenue at a reasonable cost base, leading us to believe profitability is within reach. The trends you see here should continue in 2024. The financing events in 2023, along with aggressive cost reductions, allowed us to end December with approximately EUR107 million in cash, cash equivalents, and financial instruments. Long-term debt was approximately EUR81 million at the year's end. We did not utilize the ATM during the fourth period as we continue to believe that our current stock price does not reflect the shareholder value we are creating. Capital expenditures, excluding capitalized R&D, were light at EUR4.6 million in the fourth quarter, with EUR3.4 million of that spent on property and plant equipment. For the full year, we spent EUR16.2 million in 2023 compared to EUR46 million in 2022, after opening two new factories. I'm pleased with our ability to quickly adjust spending levels in response to the current demand environment, as indicated by the difference between our GAAP results and our original EUR26 million target for 2023. Inventory reduction is another initiative where we made significant progress, with Wallbox levels falling by 11% or more than EUR10 million from the third quarter, ending the year at EUR83.9 million. ABL brought EUR8.6 million of inventory, which is an appropriate amount given their projections. Our goal is to continue to bring total inventory down by the end of the year. This will also contribute meaningfully to reducing our cash burn rate. Full-time headcount, excluding ABL, decreased by 82 people or 7% on a quarter-over-quarter basis. We are slightly above the level reached in Q1 of 2022 and may see the number decline in specific areas. ABL brought in 281 people. With that, Enric, I'll turn it back to you to provide some closing commentary.

Thanks, Jordi. I'm optimistic as we enter 2024. We worked very hard to position ourselves well for that coming year. Our growth will be fueled by new products like Pulsar Pro, Pulsar Socket, Supernova 240 in Europe, or 108 in the US, by Quasar 2 with Kia and Generac. ABL's strong offerings and our ability to cross-sell both their products to our customers and our products to theirs will contribute meaningfully. It will also be fueled by Wallbox products sold through Generac’s extensive distribution network, and will be supported by new partnerships with leading brands like Atlante, Free2move, Costco, and Kia. Our gross margins will be improved through cost engineering of existing products, better leveraging capabilities, continued vertical integration of key components, and more strategic sourcing and price negotiations. Our personnel and operational costs will continue to be optimized through disciplined controls and headcount management. As a result of this, 2024 will be a year in which Wallbox achieves profitability, an important milestone in our history. While much of our investment in infrastructure is complete, reducing the need for additional capital expenditures, we will explore opportunities to further realize our global footprint, leveraging efficiencies and cost benefits. We will also continue to reduce inventories by utilizing common components across multiple platforms, engaging in strategic vendor management and exploring growth opportunities. For these reasons, positive free cash flow is within reach and will set us apart from competitors, highlighting the resiliency of our business model. We will allocate that capital to higher return projects, including mergers and acquisitions, new product innovation, and capturing market share. In summary, we aim for meaningful revenue growth through both organic and inorganic means, introducing new products and forming significant commercial partnerships while enhancing gross margins, all on a lower operating spend base while conserving cash - this will create substantial value for shareholders this year. That's our plan, and we are aggressively executing it for our shareholders, partners, and employees who have entrusted and believed in us. We thank you and are grateful to have you with us. We will work hard to ensure you are rewarded. With that, we are ready for questions from our analysts.

Welcome back everyone. To our analysts, we ask that you pose one question with a follow-up if needed. Then reenter the queue if you have more questions. This will allow each of you to ask your questions upfront, and we will accommodate as many questions as time allows. Charlie, I think you have some instructions for our analysts.

Operator Instructions.

If you could just share please a little detail on the broad strokes of the Generac relationship? I know you're still working on the commercial agreement. But whose product or whose name plate is going into different channels, what is the relationship going to be when there may be some channel conflict?

So right now, the main focus of the agreement is on the Level 2 chargers for North America. Obviously, this network of 8,700 installers and electricians will immediately allow for significant growth in this channel. The next step, which we are working on in parallel, is fast charging sales, including Supernova sales, as this is something they can sell in the US in their commercial and industrial business, but also in Europe, where they have a strong presence in the commercial and industrial space. They are working on a product they already have that includes a generator, storage, and solar storage that can be paired with Supernovas. We are also collaborating to integrate these products. So, those are our immediate focuses. The third thing will be Quasar, which we're excited about, as we start delivering it with Kia in the US. To ensure we do not face channel conflict, both companies have the same ultimate goal – to make both companies successful. We are creating a product under their brand along with Wallbox branding, and we are connecting with their software platform. We ensure they can take advantage of their ecosystem, and vice versa.

As a follow-up, could you provide some comments on how ABL is performing? Additionally, what financial contribution can we expect from ABL in 2024? You mentioned EUR7 million in Q4, I believe you said it was one month.

We announced that we expect ABL to contribute between EUR60 million and EUR75 million in revenue for 2024; we are still in that range. As we look at the February numbers, it seems the company is heading in that direction. It's noteworthy that the first quarter will only reflect one month of revenue. The integration of systems and moving customers required some time, plus the situation around Christmas, which led to limited sales activity in Germany during late December. Moving forward, we are optimistic as things look positive, particularly around cross-selling opportunities.

With the tough backdrop for some charging companies, can you update us on how you perceive the competitive market has changed, and where you believe Wallbox stands in home and commercial charging?

We must differentiate between AC charging Level 2 and DC fast charging. Generally, if you are a DC fast charging company today that has an acceptable gross margin exceeding 30% and high uptime, the market presents a blue ocean of opportunities. We've experienced growth of 325% in a year and continue to expect import growth, especially with recent launches like Supernova in the US and Supernova with higher power in Europe. In contrast, the AC charging market has faced more challenges in 2023. Channel destocking has impacted many companies, and compared to our public peers in Europe, we have observed an average drop of 25% to 50% in Level 2 sales. Fortunately, our impacts have been lesser due to our established presence in Europe and various markets. Furthermore, we have already seen a EUR5 million improvement derived from organic sales in Q4, indicating that channel inventory issues are easing.

Regarding OEM partnerships, how much are they contributing? I saw that Lucid is starting to offer a Wallbox charger. Which channels are driving the most growth?

OEMs have attempted to create their own products for some time, but it has proven challenging to ensure compliance with all countries and regulations, as well as managing actual installations. To remain competitive, claiming different subsidies in various regions is essential. Companies such as Nissan and Kia, which have long-term market commitments, are essential. We work with them globally, including BYD in some markets. Competing as a global EV charging player requires significant effort, and collaboration with major OEMs, like with Free2move from Stellantis, is a critical component of our strategy to provide competitive products across different brands.

Thanks, Ben. Charlie, I think that’s all the questions we have in our queue. If that’s the case, we will let everybody go. We hope that you found today’s call to be a good use of your time. Please check our website for details if you’re interested in meeting with us, as we will be attending multiple investor events in March. Let us know how we can assist you in any way. Have a great day, everyone.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.