Wallbox - Q2 2024

Transcript

Operator (participant)

Good morning or good afternoon all, and welcome to the Wallbox Second Quarter 2024 earnings call. My name is Adam, and I'll be your operator for today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing Star followed by one on your telephone keypad. I will now hand the floor to Michael Wilhelm to begin. Michael, please go ahead when you're ready.

Michael Wilhelm (VP of Investor Relations)

Thank you, Adam, and good morning and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's Second Quarter 2024 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 am joined today by Enric Asunción, Wallbox CEO, and Luis Boada, Wallbox CFO. Earlier today, we issued a press release announcing results from the second quarter ended June 30, 2024, which can also be found on our website. Before we begin, I would like to remind everyone that certain statements made on today's call are forward-looking that may be subjected 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, 2023, filed March 21, 2024. We will be presenting unaltered 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 investor 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 will turn it over to Enric.

Enric Asunción (CEO)

Thank you, Michael, and thanks everyone for joining us today. Before we go into the highlights of Q2 2024, as announced yesterday, I would like to comment on the $45 million strategic investment from a number of current shareholders, including $35 million from Generac as the main investor in this round. This capital raising was needed to ensure the company's balance sheet strength and support our strong growth. We are extremely pleased with the continued trust and follow-up investment, allowing us to continue building a leading company in EV charging and energy management solutions. Out of the competition, Generac chose Wallbox award-winning products and solutions to lead their efforts in the EV charging space. In conjunction with this investment, we have also finalized the Warrant Agreement, which was an undertaking of Generac's initial minority investment in December 2023.

Through this agreement, Generac has the right to buy an additional 5% of the company at $3.05 per share price set during their initial investment. In Q2, we saw the excellent initial results of our 10-year worldwide agreement with the sale of several thousand Pulsar Plus to Generac in North America and the first order of Supernova to Pramac in Europe. Customers can purchase the chargers through Generac-certified dealers online and through a growing number of retail and wholesale distributors nationwide. We expect plentiful growth from these strategic moves, which will now be strengthened with additional products including Supernova 180 North America, Pulsar Pro, and the portfolio of AC commercial products globally. At the same time, we have signed a strategic battery storage system initiative whereby Wallbox will buy batteries from Generac.

Battery-integrated charging solutions will open up a vast array of opportunities towards smart energy management and added reliability to circumvent grid limitations. For example, to expand power capacity for our DC fast chargers when integrated with batteries, yielding power load management to satisfy peaks of high-power charging demand. These integrated solutions also fall seamlessly with our software, like our energy management system called SEI. We are so excited about working together with a leading partner that has the same vision and ambition to keep growing at an unparalleled pace in the U.S. Now, similar to the preliminary results announced in early July, Q2 2024 has been a solid quarter with $48.8 million in revenue, up 48% year-over-year, but driven by higher sales across the board, but especially strong AC and DC sales in North America.

The AC sales in North America picked up at a noteworthy pace, and the growth was further accelerated by DC with strong demand for the Supernova 180 after the initial deliveries in the first quarter of this year. This resulted in an impressive 65% year-over-year growth for the region. In Europe, our wide presence and unique diversification with AC, DC, and ABL allow us to achieve overall growth of 44% compared to the same period last year in a softer-than-expected environment. ABL continues to steadily contribute to the top line, and we see the initial results of our cross-selling initiative. One impressive highlight this quarter for ABL is the installation of 424 eM4 charging points in a car park in Wiesbaden, Germany, making it one of the biggest EV charging parking sites in Europe.

We see this as a great testament to both the quality of our products and our ability to evolve to support growing customers and industry needs. The eM4 is a smart EV charger specifically designed for this type of sites, positioning it to reap the benefits of the future growth of similar public charging installations. The DC product portfolio continues to show tremendous progress with the announcement of our highest power-to-footprint ratio DC fast charger today, the Supernova 220. DC revenue showed remarkable growth of more than 60% compared to the same quarter last year, mainly driven by sales in the U.S. market. In total, we delivered almost 48,500 AC units globally, including sales by ABL, and approximately 380 units of DC during the period.

Gross margins stood at 39.1% in the second quarter, remaining steady compared to the previous quarter and improved 936 basis points compared to the same period last year. We believe this is a great proof point that the cost engineering and strategic sourcing actions taken in the previous quarters show consistency. We believe we can continue to hold the 38%-40% range in the year to go, with opportunities for improvement in the future. Luis will provide more detail on gross margins shortly. On a consolidated group level, in Q2 2024, we saw an 11% year-over-year reduction in labor cost and OPEX. It is important to remember that we were able to achieve these cost reductions despite ABL's contribution to our cost base. As we continue to optimize operations across the group and leverage synergies, we see additional opportunities to reduce our cost base.

We are excited that in the second quarter, we continued to reduce the Adjusted EBITDA loss, now landing at EUR 11.2 million, which represents a year-over-year improvement of 47% and more than EUR 2 million improvement as compared to Q1 2024. As mentioned during our last earnings call, we believe that top-line revenue is the main catalyst to future profitability. Despite the current EV market slowdown holding back the acceleration of our top line, we remain very committed to our path to profitability. So, we are fully focusing our attention on what we can control and will continue doing to achieve Adjusted EBITDA break-even this year. For the second quarter 2024, Europe contributed EUR 34.5 million of consolidated sales, or 71% of total revenue, and grew by 44% from the year-ago period.

We saw strength in Benelux, DACH, and the U.K., while in southern and northern European countries, we experienced some softness in line with the EV market. North America showed a strong quarter and contributed 23%, or EUR 11.4 million, a 65% growth compared to last year and more than 140% compared to Q1 2024. We were delighted to see the strong performance of the AC product portfolio, as well as the very successful launch of the Supernova 180 sales. Congratulations to the U.S. team for their effort in scaling the DC sales and boosting AC sales growth. The progress of both APAC and LATAM showed the advantages of being a global player and how this geographical diversification can help us capture pockets of additional growth. AC sales of EUR 32.2 million represented 66% of our global consolidated revenue, a 55% year-over-year improvement.

We see traction for both the newly introduced Pulsar Pro and ABL's eM4, strengthening our position in the commercial AC segment and accelerated by cross-selling activities. We're also seeing continued interest in our dedicated Pulsar residential chargers. In total, we have now sold over 500,000 Pulsar residential chargers since its launch and entered into fruitful commercial relationships with the likes of Generac, Free2move, Lucid, and more recently, Luminus, setting us up for further acceleration. Free2move, as an example, has now launched its charging offering across the U.S. in support of the rollout of Stellantis EV vehicles. When customers purchase an EV, they can choose to get a Free2move Charge home charging station provided by Wallbox or credits to charge in the public network.

In the case of Lucid, we announced early this year that Wallbox has become their official home EV charging partner in Europe, and we are now expanding this partnership to the UAE market. Luminus is a Belgian utility part of the EDF Group and will distribute Wallbox solutions to local partners, providing a solid start to what we expect to become a long-term commercial relationship. DC contributed 22% of the revenue in the second quarter, a 64% increase from the prior year period, which shows the continued strength and diversification of our business. After the introduction to the U.S. market last quarter, the Supernova 180 has been very well received, resulting in recurring orders from existing customers and the signing up of new ones. We are seeing the same trend in Europe.

Software, services, and others contributed nicely to our quarter-over-quarter growth, with EUR 6 million for the second quarter representing 12% of our total revenue. In parallel to our commercial expansion, we continue to develop the Supernova product line. We are introducing the Supernova 220, which is Wallbox's highest power-to-footprint ratio DC fast charger yet. The newest addition to the product family is designed to charge up to 220 kW, meaning that it can fully charge a passenger EV up to 100 mi in as little as 8 minutes. The introduction of the Supernova 220 meets our customers' expectations for more powerful systems and a broader range of power options. This new version has the same award-winning compact design as other Supernova models, increasing the power while maintaining the installation efficiency, maintenance, and space, improving the return of investment for charge point operators, especially in high-volume locations.

Supernova 220 services 1 EV at up to 220 kW or two EVs simultaneously at up to 110 kW each. It is fully compliant with the latest AFI Regulations without the need for any accessories. Currently, we have an early order program in place, and we expect the first shipments in September. We believe that our product improvements and focus on cost engineering have resulted in continued strong gross margins, close to 40% for the quarter. In particular, the Pulsar and Supernova product lines experienced strong improvements, which contributed significantly to the consolidated gross margins. We are already moving to the new and more mature generation of Supernovas, which are more efficient to manufacture, especially the Supernova 180 North America. Now, let's talk about the market. We remain very positive about the long-term growth and future potential.

EVs are on an irreversible path, and we believe that we play a larger role than most competitors in that transition with our wide range of EV charging solutions and geographical footprint. We are seeing much softer growth for the residential charging market and a shift in customer preferences in DC. As reported by Rho Motion, in the second quarter, there were close to 1.5 million EVs sold in our core markets, representing a 19% increase in the rest of the world, an 11% increase in North America, and a 3% decrease in Europe, all year-over-year growth rate. This is very similar to the double-digit growth everyone expected, and as shown in the graph, there are differences over the quarters instead of consistent growth.

However, the stage is slowly being put in place for massive adoption, as more affordable models are being introduced, inflation and interest rates normalize, and more expansive public charging infrastructure is being set up. These solid fundamentals are irreversible, despite any uncertainty on the policy front. Luis, I'll turn it over to you to comment further on our financial details.

Luis Boada (CFO)

Thank you, Enric. Good morning and good afternoon to everyone. Our second quarter results showed significant 48% year-over-year growth that came in lighter than expected, with EUR 48.8 million. This was driven by a strong performance in AC sales in the U.S. and global DC fast charger sales, offset by softer market growth in other regions. With 39.1% for the quarter, gross margin showed a phenomenal year-over-year 936 basis points increase, continuing with Q1 strength thanks to our margin improvement programs.

Product-quality improvements in AC and the transition to the new generation of the Supernova product were the biggest contributors. Our reported gross margin was impacted by an excess inventory provision. When we exclude this impact, the margin is almost 200 basis points higher. So, we are pleased with how we're tracking on gross margin, and we see significant momentum for future improvement. We continue to make progress in managing our cost base. Q2 labor costs and OPEX were down quarter-over-quarter and decreased 11% year-on-year. Consolidated adjusted EBITDA loss for the quarter was EUR 11.2 million, representing a 47% year-over-year improvement. The path to profitability remains our main priority as an initial milestone to generating net cash, and with it, long-term capital appreciation. June was the strongest month in the quarter and our strongest month ever.

In June, we were already Adjusted EBITDA positive, so our financials show solid proof points towards achieving our profitability and cash generation goals. This slide shows our three main focus metrics: revenue, cash cost, and Adjusted EBITDA. We present cash costs in this slide, which is the EUR 32.3 million of labor costs and other operating expenditures, plus capitalized R&D minus one-offs and non-cash items. Overall, we have seen flat cash costs compared to last quarter, despite the significant revenue growth and a 3% decrease compared to the same period last year, which did not include ABL yet.

When looking at the contribution of the different components, OPEX readings for Q4 2023 and Q1 of this year benefited from warranty freight and VAT debt provision releases, creating a tougher comparable for Q2. But the underlying operating expenditures are being managed down and should read through in the year to go. Cash personnel costs have continued to decrease from EUR 24 million to EUR 21 million. With the continuous reduction efforts, we are confident this trend will remain throughout 2024. We ended the quarter with EUR 65.2 million of cash, cash equivalents, and financial instruments. This predates the strategic investment led by Generac, as announced yesterday.

This EUR 45 million investment strengthens Wallbox balance sheet and provides capital to accelerate the company's ability to manufacture and sell more chargers throughout the world. Considering the expected revenue growth, continued cost management initiatives, and the new investment, we believe we have a comfortable balance sheet position to get to future cash generation. Long-term debt was approximately EUR 91 million at the end of the quarter, approximately EUR 5 million decreased to the previous quarter.

CAPEX, excluding capitalized R&D, was again purposely light, with less than EUR 3 million invested in the second quarter, of which approximately EUR 450,000 on property, plant, and equipment. To reiterate what was shared last quarter, our CAPEX will focus on the development and production of higher power charging products. We expect to invest less than EUR 10 million for the full year 2024, as we have ample factory capacity to scale already in place.

We ended the quarter with EUR 84.9 million in inventory for the consolidated group, a 5% sequential reduction or close to EUR 5 million in value. Optimizing our inventory is central to free up cash, and this is another key objective of improvement delivered. The goal is to keep bringing the total inventory down in the year to go, and we are on the right track to do so Enric, I'll turn it back to you to provide some closing commentary.

Enric Asunción (CEO)

Thank you, Luis. As I look back at the first half of the year, we have been executing well in a difficult market. In this environment, we achieved milestones on all fronts, ranging from revenue growth, award-winning product introductions, securing strategic partnerships and other growth, margin improvement, as well as cost and inventory reduction. I think all of this improves our competitive position as the entire industry is trying to navigate the current cycle towards mass adoption. We have the products, we have the technology, we have the production facilities, we have the funding, we have the best people, and we have the competitive position to benefit long-term. With that, we're ready to take questions from our analysts.

Michael Wilhelm (VP of Investor Relations)

Welcome back, everyone. To our analysts, we ask that you pose one question with a follow-up if needed. Then re-enter the queue if there are more. This will allow each of you to ask your questions upfront, and we'll get to as many additional questions as time will allow. Adam, I think you have some instructions for our analyst.

Operator (participant)

Indeed. If you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now to the queue. When prompted ask a question, please ensure you are unmuted locally.

Michael Wilhelm (VP of Investor Relations)

Thank you, Adam.

Operator (participant)

The question comes from Leanne Hayden from Canaccord Genuity. Leanne, please go ahead. Your line is open.

Leanne Hayden (VP of Equity Research)

Hi, everyone. Thanks so much for taking my question and congrats on the progress this quarter. First, I just want to ask, do you still plan to be positive EBITDA in the fourth quarter of this year? And if not, then when do you expect to reach that milestone?

Luis Boada (CFO)

Hi there. Thanks for the question. I couldn't hear it all that clear, but I think you were referring us to being positive EBITDA in the year to go.

Leanne Hayden (VP of Equity Research)

Yes.

Luis Boada (CFO)

All right. Thank you so much. We are continuing to improve as we presented, and it remains our top priority, as we were saying, to turn profitable and generating cash. What we said is that in June alone, with higher levels of shipments, we were already positive. Our financials already show those proof points towards that profitability. Meanwhile, we are bringing our cost base down, and we are expanding our margin. The reality is that we've experienced a market that, as we all know, has been slower than anticipated. That is kind of bringing that challenge to the profitability.

But we will continue to aim for that positive Adjusted EBITDA in this year, as I said, as we continue to manage our margins and our costs. So we're going to do our best to achieve that by the year end.

Leanne Hayden (VP of Equity Research)

Understood. Okay. Thanks so much. Just one more from me. You raised $45 million yesterday. Can you please discuss any additional capital needs or provide us a bridge to free cash flow positive, please?

Enric Asunción (CEO)

Hi, Leanne. Thank you for the question. So we decided to strengthen our balance sheet to make sure we were able to, one, continue financing our growth. Although the growth was not as we expected, it's a great growth level. We are growing almost 50% year-over-year. And also to be able to navigate the current cycle towards mass adoption. So this funding, as Luis was saying, does not impact or slow down our efforts to reach profitability. We're actually committed to, by this year, be profitable. And at the end, we believe that we have a very comfortable balance sheet position, as Luis commented, until we start generating cash. So we don't expect additional funding until the company generates positive cash flow.

Leanne Hayden (VP of Equity Research)

That's great. Thanks so much. I'll jump back in queue.

Operator (participant)

Our next question comes from Alec Scheibelhoffer from Stifel. Alec, please go ahead. Your line is open.

Alec Scheibelhoffer (Equity Research Associate)

Great. Hi, everyone. Thanks for taking my questions here. So just to kick us off here, you alluded to during the call some of the softness in terms of the pace of EV sales growth in North America as well as all your core markets. However, your AC unit sales, they posted a solid quarter.

So I was just wondering if you could kind of just break out some of the takes of the drivers of that and how you're thinking about volumes for the back half of the year.

Enric Asunción (CEO)

Thank you, Alec. So I understand the question is regarding the growth and which are the main drivers for our growth in AC. So in the U.S., obviously, we have all these great strategic agreements we have been announcing and now are starting to create lots of value. We spoke about the Free2move deal, which is part of the Stellantis group. This is, as car manufacturers continue growing, we get advantage through these programs because at the end, there's a huge attachment between EV sales with car manufacturers and these programs we have. We have this program with Stellantis. We have this program with Nissan. Also, the Generac agreement, we expanded yesterday.

So we closed a deal with them early this year and already brought several thousands of AC units in North America as an initial and second recurring order. And at the end, Generac is a great partner to have, they have almost 9,000 installers nationwide. And the idea is that many of them take advantage of our products and our products become part of their ecosystem. So right now in North America, the huge expansion in our AC sales comes from strategic agreements. Also, there's an additional thing, which is the expansion of our product portfolio. We used to have Pulsar Plus in North America, but now also, additionally, we have Pulsar Pro. And this is a commercial product. It's more focused on parking companies. So we have a product that attacks a different segment in the North American market.

Finally, we are very happy with our team and how well everyone is performing. If we go to Europe, ABL, when we acquired the company last year, apart from bringing strength in a key market, which is Germany, to give you an idea, now Germany is our second biggest country in the world after North America. More important than that, it brought a new product, which is the eM4, that now we are selling in all Wallbox channels in Europe. At the end, we have done this integration. It's going very well, the integration, and we can sell all these products everywhere. At the end, additional products we can sell in the European market.

Alec Scheibelhoffer (Equity Research Associate)

Great. Thank you. Then just as a follow-up to that, you made some reference to the solid margin progression you made. I'm just curious, from a mixed standpoint, how you're thinking about how margins on the DC side kind of shape up in the back half of the year with the integration of the 180 and the new 220 Supernova.

Enric Asunción (CEO)

We see a lot of potential of improvement. We are very comfortable the way our DC margin is improving. We are already in the third generation of our Supernova products, and they are very cost-optimized. And we are still seeing lots of opportunities to improve the margin. So our goal is to get them closer to the 50s, the DC fast charging margins from the close to high 40s it is today. When we look at AC, there's a mix here because, as you've seen, we are reducing our inventory. So our focus for AC products, where we have EUR 84 million in total of inventory, is to reduce the inventory.

So we cannot really, in some of those models, optimize the margin as we would like. But for the new models like Pulsar Pro, Pulsar Max, margins are also quite high. So taking advantage of the reduction of the inventory and in the products where we don't have inventory, we already have strong margins. We also see an improvement above the 40% as we go into the next year. And finally, ABL, there's a lot of synergies and taking advantage of the vertical integration of Wallbox. We have the Ares in our group, which is an electronics PCB manufacturer in our group. So these are things that we are sharing, our vertical integration. We are sharing strategic sourcing. So all these synergies, these are programs that are in place, and we expect to start seeing them as we start the next year.

Alec Scheibelhoffer (Equity Research Associate)

Great. Thanks for the call, and I'll turn it back.

Michael Wilhelm (VP of Investor Relations)

Hi, Adam. Do we have any additional questions?

Operator (participant)

Just a quick reminder that starts at 11:00. Not at this time, but as a final reminder, start at 11:00. No further questions.

Michael Wilhelm (VP of Investor Relations)

Okay. I would like to thank you all for joining us today. We hope you found today's call good use of your time. Let us know if we can help you in any way.

Operator (participant)

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.