Wallbox N.V.

Hello everyone and welcome to Warbox's third quarter 2023 earnings conference call and webcast. My name is Charlie and I'll be your 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. Analysts who wish to ask a question can place themselves into the queue by pressing star followed by one. I'll now turn the call over to Matt Trachtenberg, Warbox's Vice President, Investor Relations, to begin. Matt, please go ahead.

thank you charlie and good morning and good afternoon to everyone listening in today thank you for joining today's webcast to discuss wallbox's third 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'm joined today by enrique asuncion wallbox's ceo and jordy lines our cfo earlier today we issued our press release announcing results from the third quarter period ending September 30, 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 and 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. Risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including in the annual report Form 20F for the fiscal year ended December 31st, 2022, filed on March 31st, 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 investor section of our website. Also, a copy of these prepared remarks can be obtained from the investor relations website under 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 third quarter of 2023, we will spend some time discussing how the current EV market environment is evolving and how our strategy fits within it. We will also dig into the AVL transaction and why it has the opportunity to transform our competitive position in the years to come. And then we will review some recent partnerships and commercial wins. Jordi will then offer some color on our cost reduction efforts, provide additional detail on our quarterly performance, and share some thoughts on our balance sheet as we close out the year. And finally, I will return to discuss our view of the market and what we are focused on for the remainder of the year and into the next. We will end by taking questions from our covering research analysts, so let's get started. When the third quarter revenue finished below our expected range at 32.5 million euros, down on a year-over-year basis, driven by continued channel destocking, we made great progress on a number of critical initiatives at WOCOS, including profitability, partnerships, balance sheet management, and strategic M&A. As we said this year, a large inventory build occurred within our distribution partners in both Q2 and Q3 last year, in anticipation of stronger e-delivers in 2022, which ultimately did not play out as planned. This created difficult comps, both in revenue and unit volumes, on a year-over-year basis for both Q2 and Q3 this year. The trend that we discussed last quarter has continued, and as a result, sell-through wire distributors exceeded the unit sold into those channels. That fell through unit growth on a global basis amongst approximately 30% year-over-year, a reasonable growth rate in our opinion. On a regional basis, that fell through. Growth was 22% in Europe and APAC combined, and 16% in North America. We continue to work with our distributors to put in place systems and processes to provide better visibility and more closely align their inventory with end market demand. We also continue to believe that we are approaching the end of this adjustment and will provide more information as we have. It was another solid quarter for our DC business, driving 285% unit growth and 350% revenue growth, both on a year-over-year basis. While we've spoken at length about the balance and diversification the DC offering brings to our portfolio, it's worth mentioning it again. DC demand is less correlated to EV deliveries than residential AC installations. It is a public infrastructure build-up, and often driven by governments and utilities. The robustness of the network is expected to thrive in the adoption, not the other way around. For this reason, we continue to allocate resources to this opportunity globally and believe we are extremely well positioned. We expect there will be times that one portion of the portfolio outperforms the other. The fact that we have a comprehensive solution across a global footprint should leave investors confident we are working to guide the energy transition from a number of fronts. We believe this is within our control and we expect to win in the marketplace. The balance that we discussed with you in the past continues to evolve and in some cases accelerate. AVL provides access to applications and geographies that we were underrepresented in. What you see from us as we enter 2024 is a business that plays across regions, product categories, applications, customer segments and economic drivers. The purchasing decisions across residential, commercial and public charging are as different as those who make them. It's equally so on a geographical level based on government initiatives and consumer preferences. This reduction of correlation to European individual deliveries is intentional and something shareholders will benefit from in the coming years in the form of consistency and stability. It's a bill overnight, but slowly through organic and inorganic means, and we are at a meaningful point in that transformation. As AVL in Europe, DC globally, bi-directional charging with Quasar, commercial properties with Orion, and many other RIVO products hit the market and continue materially, you will see big changes from us. Continuing on with the performance, gross margins were 35% in the third quarter, a 530 basis points sequential improvement driven largely by product needs. Our cost reduction program is front and center and allows us to reduce cash expenses by an additional 4.5 million euros sequentially. We expect to seek the 50 million euro reduction target previously discussed. Jordan will spend more time on that in a minute. Adjusted credit loss was 16.6 million euros, a 4.6 million euros improvement over the second quarter loss of 21.2 million euros. This brings us to the subject of EV demand in general. We have often comments made by large OEMs regarding challenges they are experiencing as they engage in the competitive environment and we've seen pricing actions taken. There will be quarters or even years where consumer behavior is volatile. that should be expected. But over the long term, replacing hundreds of millions of ICE vehicles and putting in place infrastructure to keep it discharged and moving is one of the largest investment undertakings we may ever see. The current variability we've seen is not unexpected, nor does it change our thesis. In fact, EV demand relative to ICE appears to be relatively healthy, and while they might not match the OEM initial forecast, we believe EV adoption continues its growth fast forward. I can tell you this. The energy transition from fossil fuels to alternative sources is occurring and will continue for decades. The management of that energy will take center stage. Intelligent systems to optimize over generation, storage, and use will be critical. We continue to build that offering and this is resonating with customers. Through financial incentives, governments are expected to continue to encourage consumers to shift from ICE to EV. It will not be smooth and may continue to occur in pizza and snacks, but we believe that this will accelerate as we make our way through the next three to five years. EV prices need to reach parity with ICE vehicles. EV prices will continue to decline as competition from Asian OEMs verifies improvements from North American and European manufacturers. Low-cost producers will disrupt incumbents, forcing productivity gains. Lower prices will bring consumers to the market that would otherwise be less tough. A market consolidation within the EV charging space will continue. Scale, a global footprint, and a comprehensive portfolio will be critical to winning in this marketplace. Given the size and scope of the disruption we see ahead, we believe small local companies with narrow hardware offerings will be left out, and agile companies with complete software and hardware portfolios will prevail. For the third quarter of 2023, Europe contributed €22.7 million, or 70% of the total revenue. North America contributed €6.7 million, or 21%. APAC was 2 million euros or 6%, and LATAM was 1 million euros or 3%. Variability in AC demand as a result of continued restocking was partially offset by strength in public DC charging. Supernova 150, our second generation DC fast charger, continues to see strong reception from customers. DC represented 25% of our revenue in the third quarter, with AC 59% and software services and accessories the remaining 16%. 2023 has brought with it large DC orders from big strategic customers, including Iberdrola, Atlante, Huawei, Osprey, Bcharge and others. In some cases, these orders are in the tens of millions of euros over several years. We see enormous opportunity here and will ramp up production in a controlled fashion, keeping quality and reliability in focus. This is a critical time for both Wallbox and the market, one which requires relentless pursuit of perfect quality. We see great traction and customers have responded with repeat orders. It's encouraging to see, and we remain committed to staying true to those standards. Prof margins were 35%. an increase from last quarter, but lower than our long-term target. Margins were impacted by product needs, which we expect to ease as we make our way through 2024. To provide color, approximately 50% of DC units sold in the quarter were Supernova 150, up from 40% in the prior quarter. And while there will be a higher gross margin profile in Supernova 60, our first generation product is still lower than AC. So in time, as that niche shift continues and the cost profile of the new product declines, we anticipate that impact to lessen. We also make progress on our cost saving initiatives. Employee benefits and OPEX on a combined basis total 33.2 million euros. 4.5 million euros better than the last quarter and 16.8 million better than Q42032, our point of measurement. We have removed 38.8 million euros of expenses so far this year. The right sizing of our business, given the demand environment, has put us in a position of strength, and one that gives us line of sight to profitability in the coming year. The processes and policies we have put in place will provide the structure for the next phase of growth, while allowing for the flexibility we'll need to navigate dynamic market conditions. The ABL transaction, which was closed on November 2nd, is one of the most important events in our company's history. It has the opportunity to drastically change our financial profile and provide meaningful commercial, operational and financial synergies. They are the market share leader in Germany, one of the most important geographies in the world. The commercial market they operate in is less correlated with EV deliveries than residential installations. This is even more true of the demand drivers of DC public charging infrastructure. This transaction further diversifies our portfolio, provides balance and expands our product, and serves addressable markets. While the EV demand curve might see variability, this transaction offers further cushion against those near-term impacts. The size of the German EU market is second only to China and North America. There are almost 2.7 billion EVs on the roads there today. It's massive, and as I just discussed, sees variability based on government incentives. Additionally, Germany requires a unit certification called I-TRADE. This ensures that the amount of electricity delivered to the vehicle is measured accurately, so payment can occur. Any commercial and public application where energy is being sold requires it. as well as many residential use cases where company cars are provided, a common occurrence in Germany. AVL has a long history of offering innovative technologies. The management team has established itself as a trusted partner to leading brands, including Daimler, and they have sold more than 600,000 chargers today. Their product offering has been focused on these commercial applications, and the AV chargers are ISO-certified, something Wallbox did not have. Because of this, the product overlap is minimal. This transaction provides us immediate access to a market where we were underrepresented and provides opportunity to expand our offering into established sales channels. Bringing Wallbox products like Supernova, Pulsar and Quasar into Germany and ABL products to the rest of the world is something that will drive exciting value for both companies. As a reminder, Worldbox pays 10 million euros in cash already and will pay another 5 million euros in 2024 to acquire the operations and assets of APM. This was structured as an asset deal, which negates the need to assume the liabilities. Instead, we bring the intellectual property, inventory, facilities and equipment, employee contracts, customer relationships and talented management team to Worldbox. Together, the company will be the largest European EV charging name with the most comprehensive offering and broadest geographical footprint. We anticipate ABL adding between 60 and 75 million euros of revenue and positive adjusted EBITDA in 2024. This will be immediately accretive to WorldWalks in the upcoming year. As background, in 2022, ABL generated approximately 150 million euros in sales with positive EBITDA. In 2021, the company began investing in new facilities to bring its new products to market, the EM4. That investment occurred just before government subsidies were turned off late last year. That unfortunate timing in turn created the opportunity that brought Wallbox and ADL together. Incentivizing and aligning objectives between ADL and Wallbox shareholders is extremely important. For this purpose, earnouts are utilized. In summary, AVL management has a minority ownership stake in the business entity we created. While the sales and margin targets are ambitious, higher than those shared with you here, both the AVL team and Volvo shareholders will be rewarded if they are achieved. We are excited to see the team hit the ground running. Now, I want to spend a few minutes on the benefits we expect to capture as a result of this transaction. The commercial synergies are the first I'd like to discuss. An ISOC-certified product portfolio is the most visible and tangible commercial benefit we see. The certification, while something we were working on, is not easy to obtain. The experience the AVL team has in navigating the standards and requirements will accelerate the process with Supernova, ultimately providing faster access to the market in 2024. For other applications, In addition to DCM commercial, we now can bring the full wallbox offering to established channels in Germany. We are two, our bidirectional charger, and the industry's first will benefit from the strong relationship the ABL team has built. Given the size and focus of the general market on intelligent energy management solutions, we are optimistic about the opportunity. And finally, there will be other markets within Europe where the ABL offering is better aligned with the market needs. For example, ADL's newest charger, the EM4, meets the needs of customers looking for a robust solution for fleets, apartments, and office parking lots today. That market segment is growing faster than others and puts us immediately in a leadership position. The ability to quickly leverage that solution in countries that ADL currently does not operate in offers a unique opportunity that we will quickly go after. Putting the EM4 in our static sense channels only accelerates our ability to participate in those projects. The operational synergies are equally competitive. AVL brings with it two manufacturing facilities. The location in Germany is nearly 100% automated, and the location in Morocco is cost optimized. The facilities also bring capabilities that don't currently reside at Volvo, including injection molding and socket manufacturing. By leveraging these from ABL and those that Wallboard frees, like PCBs from ARIES, the combined entity can further increase vertical integration and do more in-house. The savings could be millions a year. The scale and scope of our combined offering and footprint also allows for both vendor and sourcing consolidation and leverage. Simply put, given our size, we are a major force in EV charging and expect to realize volume discounts that will immediately benefit gross margins. Optimizing R&D and capex is another operational benefit we see ahead. Combining two product roadmaps into one will allow us to, in some cases, do more and others to spend less. A great example of this is how it will impact Orion, WorldWalk's upcoming answer to commercial applications. ABL's EM4 satisfies the European market need immediately and can be sold throughout our channels today. But this also allows us to ship Orion, R&D, and CapEx, which is no longer needed in Europe, to North America. Customers there have been eagerly awaiting a robust commercial solution, and Orion will meet their needs perfectly. This refocusing of investment and resources while expanding our service and product addressable markets is a function of a complementary offering and footprint. And there's more examples to share. And the financial synergies provide for enormous shareholder value creation. As I mentioned, ABL generated substantial revenue and positive adjusted EBITDA in 2022. As the new products hit their stride, we anticipate them achieving their targets and generating positive adjusted EBITDA next year. This only increases our confidence in our ability to deliver positive adjusted EBITDA at the consolidated level in 2024. To give additional context, AVL and Wallbox on a combined basis deliver revenue of approximately 46 million euros in the third quarter. ABL growth margins are within the rates that Goalbox targets as well, approximately 40%. And we see opportunities to improve them further. And finally, regarding operating costs at ABL, prior to the transaction, the company completed a cost improvement program to right-size the business relative to market demand. This allows a more targeted approach to identifying potential savings that can arise from the business combination. We will evaluate those on a case-by-case basis and ensure we are optimizing the combined operations in order to get value for all stakeholders. In summary, this transaction has the ability to accelerate our strategic plan. It will provide a level of scale that does not exist today. With that scale, we expect to be profitable in 2064. It will offer unique opportunities to focus investments and bring new products to new markets. It's transformational for Wallbox, and I'm excited to see where it leads us. The first partnership we announced in the quarter was Kia. Kia selected Wallbox as its partner in the launch of its beautiful new electric SUV, the EV9. Kia will offer U.S. customers a solution that includes Quasar 2, our bidirectional charger. This next generation 11.5-kilowatt bidirectional charger will enable EV owners to charge and discharge their electric vehicle to power their phone or send energy back to the grid. KAB9 can hold up to 100 kilowatt hours of energy, over five times the amount of energy of a standard 13.5 kilowatt hours home storage system. And power a typical household energy consumption for up to four days, removing the need for expensive home energy storage systems. In case of a power outage, Quasar 2's power recovery mode automatically switches the user's power source from the grid to the vehicle to allow a homeowner to use the EV battery as an emergency generator. This type of backup service is becoming not only increasingly important, but crucial, given the sheer volume and duration of power outages in the U.S. Last year, California alone witnessed 39 power outages and more than 414 hours of total outage time. across the U.S., and forcing power outages cost the U.S. economy $150 billion annually. We are excited to work with Key America to our shared vision for accelerating electrification and transforming how we can interact with energy. The next announcement we made was with TriptoMulti Solutions, which is a joint venture including Stellantis. We alluded to this collaboration on past calls, and we are proud to finally discuss who is The opportunity will involve both Pulsar AC chargers for their customers and Supernova 180 for dealerships. We will begin shipping Supernova in the current quarter and expect to accelerate as we make our way to 2034. I'd like to point out how big of an opportunity dealerships really are. Remember, in dealerships we need both AC and DC as well as bi-directional capabilities. You cannot service a fully charged EV, so capturing that energy through bi-directional charging, which today is wasted, and moving it to other vehicles or selling it back to the Greek is a compelling value proposition for dealerships, and there are more than 21,000 of them in North America alone. Each one will need to invest between $100,000 and $1 million to be ready. It's a massive market, and we are uniquely positioned. We look forward to bringing a complete energy management architecture to them. And finally, we've announced a strategic partnership with Osprey, one of the UK's largest and leading rapid EV charging networks. The collaboration will begin by expanding the Osprey network with 125 units of Wallbox Supernova DC charger, coupled with Wallbox Care Program, offering preventative and corrective maintenance for the Supernova kit. Charge point availability and reliability are both crucial for consumer confidence in making the switch to active vehicles. Wallbox Supernova uses a modular design with a simple user-centric experience and payment process. This ensures that EV drivers get ease of use and a high standard of reliability, whilst charge point operators can scale the units easily to improve availability. Jordi, I'll turn it over to you to comment further on our financial details.