Wallbox N.V.

Hello everyone and welcome to Wallbox's second quarter 2023 earnings conference call and webcast. My name is Nadia and I'll be your operator for today's call. At this time, all participants' lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. Analysts who wish to ask a question can place themselves into the queue by pressing star followed by 1. I would now like to turn the call over to Matt Trachtenberg, Wallbox's Vice President of Investor Relations. Please go ahead.

Thank you, and good morning and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's second quarter 2023 results. This event is being broadcasted over the web and can be accessed from the investor section of our website at investors.wallbox.com. I am joined today by Enrique Asalcion, Wallbox's CEO, and Jordi Lines, our CFO. Earlier today, we issued our press release announcing results from the second quarter period ending June 30th, 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 U.S. Securities and Exchange Commission, including the post-effective amendment number three to our registration statement on Form 20F filed on March 31, 2023, which can be found on our website at investors.wallbox.com. and on the SEC website at www.sec.gov. 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 investor section of our website. 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 Enrique.

Thank you, Matt, and thanks everyone for joining us today. In addition to reviewing highlights from the second quarter of 2023, we'll talk a bit about how the current EB market is evolving and how we are effectively competing I will also provide an update on some key operational initiatives, including our cost reduction program, inventory management, and new product launches. Jordi will then offer additional detail on our quarterly performance and offer some insight on our balance sheet. And finally, I will return to discuss our current market outlook and how it impacts our results for the remainder of the year. We will then by taking questions from our covering research analysts, so let's get started. The first quarter finished below our expected range, at 33 million euros. This includes an adjustment of 1.8 million euros for rebates and returns. When adjusting for those one-time costs, revenue in the quarter was approximately 35 million euros, relatively flat on a sequential basis. As we say this year, a large inventory build occurred within our distribution partners in both Q2 and Q3 last year in anticipation of stronger EV deliveries in 2022, which ultimately did not play out as planned. This creates difficult comps both in revenue and unit volumes on a year-over-year basis for both Q2 and Q3 this year. However, When we dig into the data and examine the number of AC chargers being currently activated by installers or end customers, we see encouraging signs of solid demand and growth in line or in excess of the market, depending on the region. We continue to believe that the inventory within those channels is approaching a healthy level and believe we will see less of a difference between sell-in and sell-out in the second half of the year. As we look at the market more broadly, we see pockets of both strength and softness. This is always the case, but the amount of noise this spring has been noticeable. The US and our DC portfolio are both doing exceptionally well, and both have meaningful new opportunities as we enter the back half of the year. The Energy Star version of Pulsar Plus is shipping, and the team is aggressively going after new projects. However, general macro uncertainty when paired with higher interest rates, which increase the financing cost of a new vehicle, have put downward pressure on EV demand in some parts of the world. While global EV demand remains strong relative to ICE vehicles, in some countries, when combined with the timing of subsidy programs, that growth can appear sporadic, leading to periods of hypergrowth and stalls. We have seen news from OEMs regarding building inventories, or adjustment of production forecasts. But we remain confident that the shift to EVs will continue for the coming years and that we are in an enviable position to enable that transition. One contributing factor for that adoption curve is the availability of public charging infrastructure. You've likely seen mention of both Ford and General Motors adopting the North American Charging Standard, or NACS. You've also likely seen confusion about what it means for network operators or hardware vendors like Wallbox. So I wanted to offer some clarity to everyone. First and foremost, our goal has always been to offer the highest quality innovative EV charging technology and remain compatible to all standards, no matter the make or model, and that includes Tesla and NACs. If our customers, CPOs, utilities, et cetera, want a DC fast charger with a NAC scan on it, we are happy to provide that. but it clearly illustrates how rapidly both the regulatory landscape and consumer preferences are evolving. Our unique vertical integrated manufacturing model positions us well to navigate these changes and adapt. Remember, we operate in most countries around the world, and changes occur regularly, sometimes without much notice. These rapid changes are not new for us, We've been here before and have a proven process in place to pivot quickly. And finally, in the early, if potential EV buyers feel more confident in the charge infrastructure and hence are willing to purchase sooner, then we and the entire industry will benefit. Net-net, we are happy to support any decisions our customers make and are well positioned to interact into our offering. Another encouraging development announced last week is that of North American EV charging network alliance created by BMW, GM, Honda, Hyundai, Kia, Mercedes-Benz, and Stellantis. The purchase, installation, and management of 30,000 ultra-fast chargers by this group highlights the commitment to EV adoption and the need for more robust infrastructure. This is great news for hardware vendors like us who are not a CPO. We don't compete with our customers. We have great relationships with most of these companies and look forward to discuss how well Coil, Supernova, and Hypernova will meet their needs. Our ability to offer open charge point protocol or OCPP products, which allow our customers to deploy custom network management applications, is a differentiation and valuable tool in our conversation. We've also discussed our global footprint and comprehensive portfolio frequently with you. And it is more important today than it ever has been. Air pockets within a region, market segment, or product category always have been an impact on financial performance. But as we continue to grow and expand, that will lessen. Two examples I want to share are the U.S. and DC fast charging. The U.S. grew at 67% year over year, faster than the overall market. Now, representing 20% of our sales, the U.S. balanced out markets that saw more tepid growth, including Benelux and the Nordics. Similarly, VC fast charging delivered strong results in the second quarter, growing at 61% sequentially, now at 20% of our revenue mix. Customer feedback on our Supernova 150 is exceeding our expectations, and that leads us to be more bullish on Supernova 180 in North America. I'm excited to finalize certification and get it into our customer hands. It's going to be a very important product. Our results were driven by solid performance in the U.S., growing revenue by 67% from the year-ago period. We are encouraged by the momentum with large strategic partners, including retailers, OEMs, and utilities. Several of these customers are placing large orders in excess of $10 million worth of products. both EC and AC, some of which has already begun delivery. Pulsar Plus, with Energy Start, has seen very strong uptake and we expect it to allow us into projects that have not been opened historically. We've already been included in utility programs like Sonoma Clean Power, which is deploying demand response technologies to better balance generation with customer needs. Supernova 180 certification is progressing well. and we continue to aim for the first deliveries before year-end. We announced in June the addition of Eric Vogelberg to the Wallbox team. Eric will be responsible for our North American business and brings a wealth of experience and industry relationships from a long, successful career with EV charging, OEM, and the solar space. We are excited to have him on the team. In Europe, When we examined the sell-through performance of our distribution, we saw unique growth of 18% from the year-ago period. On a selling basis, revenue declined by 25%, driven by that large channel inventory bill this time last year. We believe revenue will follow a similar path to distributed or unique growth moving forward. North America contributed 21% of total revenue, a sales mix increase of 8 percentage points over the prior year period. Europe represents 72% of the sales mix. Asia-Pacific provided 6% of consolidated revenues in Q2, and Latin America was approximately 1%. We expect to see fluctuations in geographic mix as regional subsidies are turned on and off. The Navy program continues to move ahead, and we expect more states to approve plans in the second half of the year. accelerating in the first half of 2024. The large construction project managers will then select the hardware and service vendors, which is where we play. We hope to have some visibility into projects later this year. Our Supernova and Hypernova platforms are very well positioned, are achieving very high reliability rates, and qualify for all subsidies. I'm confident we will be a very strong competitor. You may have seen some reports in the media last week regarding new legislation which includes a specific EV charging target that the EU must meet by the end of 2025 and 2030 of 1 million and 3 million units respectively. It requires the building of fast charging stations of at least 150 kilowatts every 60 kilometers along the EU main transport corridors. It looks and feels very similar to the US Navy program. The introduction of these stations will likely have manufacturing provisions that favor local vendors, which Wellbox is. We are encouraged by this commitment and believe it only reinforces our positive long-term outlook of the business opportunities we see ahead. Similar legislation in the UK presents an equal attractive opportunity for our DC offering. DC fast charging is now contributing 20% of total revenue, up from only 2% last year. a very strong performance. Our AC charging portfolio contributed 63% of our total revenue in the period, down from 96% this time last year. That drastic mix shift is an exciting testament to the transformation we are going through, not only in product, but in software and services, which now accounts for 17% of total revenue. We believe this shift will continue, and over the longer term, we'll achieve balance between our AC and DC meet. And finally, we sold almost 40,000 chargers in the quarter. As expected, AC volumes were impacted by the continued channel inventory adjustments within our European distribution network. But that is transitory in nature. For each of the last three quarters, as measured by activations, our partners installed more chargers than ever before. Remember, sell out or sell through provides a more accurate view of end demand by removing the working capital preferences of thousands of distributors and their view of economic noise. Looking at the data, we see that the net result selling less sellout in Q1 of 2022 was a positive 4,400. Say it another way, 4,400 more chargers were sold into the channel than they sold to end customers. they built additional inventory. Q2 was 17,800 and Q3 was 20,100. In Q4 2022, sell-out then exceeded sell-in or a reduction of inventory began to occur. That Q4 2022 figure was negative 12,700. Q1 was negative 9,200 and the more recent quarter was negative 19,000. Essentially, over the past six quarters, our distribution channel has sold almost exactly what we have delivered them on a cumulative basis. 308,000 units sold into the channel versus 306,000 units sold out of the channel. This is why we believe they have reached appropriate levels. For this reason, I'm encouraged by what I see for the second half of the year I look forward to sharing more as we make our way through the quarter. Shifting the discussion to operational metrics. First, with gross margin. The operating leverage our gross margin profile provides, which will ultimately allow us to achieve profitability in the coming quarters, is very important to us and is a critical metric we manage. Gross margin during the quarter came in lower than anticipated, largely driven by higher revenue contribution from DC charging and a component supplier issue that Jordi will discuss later. Excluding these items, gross margins will have ended in the expected range. I'm pleased to see that inventory continued to decline and ended down 11 million euros from the prior quarter. We expect inventories to continue to decline as we move through the second half of 2023. This is a key priority for us this year. Cash operating costs which are broken into employee benefits or personnel-related costs and OPEX, have continued to decline this year as expected. Using the fourth quarter 2022 cash operating costs of €50 million as our jumping-off point, we reduced our cash operating costs by €9.8 million in Q1 and an additional €12.3 million in Q2. This €22.1 million reduction puts us in a good position to achieve the full year €50 million reduction in 2023 that we have committed to. We believe there are additional opportunities to reduce costs and will be proactive in going after it. And we also remain committed to achieving break-even of adjusted EBITDA as we exit the year. This will be done through discipline, cost control, personal cost management and improvement on gross margin through leverage and mix shift. We've spoken this year about large OEMs choosing Wallbox for their AC and DC charging needs. We've discussed our US utility deploying our product and unlocking new subscription business models. We've announced new customers like Costco, Best Buy, and Walmart. We've also announced new products like Pulsar Pro and Orion, our new public AC solution for apartments, businesses, and fleets. Those products are expected later this year and we expect them to contribute materially in 2024. We announced the addition of Costco to our customer list this quarter. Costco has almost 700 locations across the U.S. and Canada and almost 125 million customers worldwide. We are very proud of the trust they place in us and look forward to providing their members with exceptional products at a competitive price. This partnership is meaningful. and will start to hit sales in the current quarter. Another commercial win I'd like to mention is our participation at Intersolar this spring. A very important industry event for our customers and partners, it was used to demonstrate our technological leadership of bidirectional charging. We show how Quasar was able to effectively discharge a shared Cooper IV part of Volkswagen Group. While we've been discussing bidirectional charging for some time now, Putting it into action is not easily done for most competitors. This important milestone shows how truly far out in front we are. For most, discharging a CCS vehicle will take the better part of the day to configure, something we are able to do in a few short minutes. The Head Start will allow us to have a seat at the table with governments, regulators, OEMs, utilities, and major names across the ecosystem. This is why Wallbox was a signatory to the U.S. Department of Energy Vehicle to Everything MOU last month. It's exciting to finally see this technology come to market and believe 2024 will be a major turning point. Jordi, I will turn it over to you to comment further on financial details.