Xplora Technologies AS
OSE:XPLRA
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All right. Welcome, everyone both live here in the studio as well as online. It's a beautiful day in Oslo. So I'm really happy to see so many people here. Getting more and more every time. That's good.
For today's Q1, we will run a slightly different format than we have normally used before. Reason for that is that we are really excited to invite you all for a Capital Market Day in June 13, where we'll go into many exciting details. I'll come back to that at the end.
So for today's Q1 presentation, we will have 5 main points. We will do a quick introduction because we always get new audience. So we'll take a recap on our business model, which is also evolving. As always, we will run a quarter at a glance with a key number. And then we will have a more detailed financial update, stakeholders that has been following us for a while.
As mentioned, we, of course, always evolve our business model. We [indiscernible] to make it more profitable, even more scalable. So we wanted to just take a couple of minutes to repeat this for you, starting with, of course, the most recognized product in our portfolio, our watches.
Overall, we have 3 revenue streams: 1 from our unit itself and 2 from service revenue. Starting with our product, we have multiple channels, as you all know, meaning that we also have a direct business-to-consumer, but also a business-to-business relationship when we are selling the watches. We do have watches from an average price range of roughly EUR 149. Currently, we have 3 products in our portfolio. And we are targeting to have roughly 30% margin on the units we're selling.
Currently, as we mentioned, we have had a big investment some years ago in our new platform. Therefore, we are planning to have a roughly 36-month life cycle of our product. That's our watches, that our current 1 revenue stream.
Moving forward to our service revenue, which we have 1 targeted toward end consumer and 1 more business-to-business. Starting with the business-to-consumer, the one you already are familiar with. We have our SIM card, which we can sell as a basic service or we can add value-added services, which is packaged as our premium services.
On average, those prices starts from roughly EUR 7. We have those 2 different price points, premium, of course, being slightly higher priced. And we are targeting roughly 80% margin on that service revenue stream. And of course, we are utilizing the investment we've previously been in having 9 global MVNO setups.
I would also like you to just pay attention on the table on this right-hand side because we do have more and more questions related to lifetime value, how long, how can we extend and so on, where is our IP and so on. This is a model we will, of course, go more into detail for our Capital Market Day, also to showcase how this further will be extended.
As of right now, we have our basic. We have roughly so far historic data, saying that's roughly 30-month worth of lifetime on those customers. On the basic, it's the basic connectivity, so no particular IP on top of that. It's reselling our MVNO solution. That is a service that is already launched. Then we have our premium revenue stream also following the same roughly 30-month life cycle. On top of that, we have a lot of our own IP related to the premium service. That is also launched, and we have seen quite good conversion data on that service, even further increase our gross profit.
And as we have explained during previous Capital Market Day and also the previously quarterly report, we will also be launching the same type of services to the senior market, with objective to extend the lifetime, of course, on that. But more details will come in our Capital Market Day. But we will follow the same table.
The very exciting part for us, which we also announced during both Capital Market Day and last Q4 report is that for us, it's been important also to have an even more scalable model that eventually could also be more hardware-agnostic tapping into the business-to-business market with our service revenue. That's 2 large opportunity for us. We can target it directly to telcos, and we can target it directly to everyone basically in the industry that have family IoT products, sensors or hardware, where we can utilize either connectivity or our premium services.
And as you all know, we have already announced 5 agreements related to the service revenue for the telco, and the price point is roughly from EUR 2 a month. And we are targeting north of 90% margin on those services. And of course, utilizing the IP we have from our premium services. More on that to come as well on the Capital Market Day.
But just as a reminder, that's the business model, and that's our 3 core revenue stream, 1 from hardware, 2 from service revenue now, with a very clear focus to continue to grow the lifetime value on our IP services.
Stepping into 2024. Before we go into the queue, 5 key focuses really for this year. And the first point, I would particularly pay attention to. We have grown our business. Now it's time also to grow our profitability and make sure that we have a really sustainable and scalable business model.
Going forward, as we said in Q4 from last year, it is extremely important for us to focus on the right product mix. We are increasing the ASP. It's more important for us to drive the gross profit by having the right product mix, avoid discounts and really make sure that we can maximize unit economics.
It's also really important for us to make sure to sell units in a market or in a channel, where we can associate our own SIM connectivity. Even if that comes sometimes, at least in a transition period to lower volume as long as we can increase our top line revenue and service revenue, we'll be very focused on selling that right product mix to the right price with associated SIM cards. That's more important than volume on units alone.
We will also, into 2024, focus on our 9 core markets. So no plan to extend into further markets, and we'll be working very hard, as we just showcased, to introduce new revenue stream. And we will still focus on cost efficiency, OpEx in percentage of revenue.
We had a good base when we went into this year. We showcased we could almost sell roughly 0.5 million units, and we entered into 2024 with roughly annualized service revenue of NOK 240 million.
So before Knut will take you through the financial details, as all way, we have this format. Just to give you a snapshot, started Q1 with group revenue up 24%, NOK 219 million, of which service revenue was NOK 63 million, which is actually up almost 40%. And we had a subscription, a total of 255, of which 215 from our basic and 40 premium services, which is almost up more than 50% year-on-year. Gross earnings NOK 69 million, up 20%. And we are happy also to report a positive EBITDA improvement of NOK 4.3 million from last year, after we revised the full year number to NOK 1.6 million. And we had a cash balance leaving Q1 at NOK 120 million.
With that, Knut will take you through the details.
Thank you, Sten. I will go through some of the key figures in the Q1 report.
As Sten said, we grew Q1 with 24% year-over-year as a total -- in total revenue. And in the devices, we increased with NOK 6 million from NOK 50 million in Q1 2023 to NOK 56 million in Q1 this year. It's much higher increase in service revenue going from NOK 45 million in Q1 '23 up to NOK 63 million in Q1 '24.
When we look at the gross margins, that is of key importance for us, we have a gross margin in the quarter of 29%. You need to know that in Q1 '23, we did the reversal of a provision in the cost of goods. So we reduced the cost of goods in Q1 '23. So if you use comparable numbers on devices' gross margin, it's 28% in Q1 '23 and 29% in Q1 '24. We have had a gross margin in the last quarters between 29% and 33% on average.
When I look at the gross margin for services, it's the same level as we had in Q1 2023 with 84%, and the gross margin from services have been between 81%, 82%, 83%, 84% for the last 4 to 5 quarters. So that's also quite steady.
Our key focus is the gross profit, what we get from all of this revenue and the gross margin. And we ended NOK 69 million in Q1 '24 compared to NOK 58 million in Q1 2023. That's up NOK 11 million.
As Sten said, we happy to show positive EBITDA also in Q1 2024 with NOK 1.6 million, and that's up NOK 4 million compared to Q1 2023. And that's mainly due to the increased gross profit and reduced OpEx as a percentage of revenue.
If you look at expenses, total operating expenses ended on NOK 67 million in Q1 compared to NOK 60 million in Q1 2023. When you go into the details on the expenses, you see that the payroll expenses are on the same figure as last year. But in this year's quarterly number, Q1 '24 of NOK 27 million, we have also a noncash share-based expense of NOK 1.7 million. And last year, we had just NOK 0.4 million. So that's impacting the payroll expenses.
Another very important item here is that we capitalized last year NOK 4 million from the P&L and this year, only NOK 3 million. And the majority of the capitalization we do for IP is from the payroll expenses.
Other expenses, marketing and other OpEx. It's NOK 40 million in marketing and other operating expenses in this quarter. Marketing expenses is slightly up, up to NOK 13 million. We have a lot of fixed costs during the quarters, but this is according to the plan. In a really tough market, we need to invest at a proper level in order to achieve the correct ASP for the products.
You can also see that we have split as we did last time. We have split the depreciation and amortization of the IP CapEx into online, NOK 5 million in Q1. And we have also specified the amortization of the Xplora Mobile acquisition of NOK 9 million in this quarter.
Last point I would say on this slide is that in Q2 2023, Xplora restated the Q1 number. So this is the restated number. The restate was linked to a change in service revenue. So this is the right comparable number that we also presented in Q2 2023.
Balance sheet. You can see the goodwill and the customer contracts from the Xplora Mobile acquisition. We are writing down the customer contracts faster than the goodwill. So we will be done with the customer contracts after Q1 2025, so another 4 quarters.
What that means is that will impact the amortization going from NOK 9 million to NOK 4.5 million in the quarter, but it's still noncash related to acquisition. We have inventory that is similar to Q1 2023. And it's the level that we should be on in order to provide enough security for our deliveries. And we also are funding part of our purchases of goods through LCs.
So we have, in this quarter, a quite high short-term debt to credit institution of NOK 91 million, and that's purely linked to the prepaid goods and the handling of the LC linked to that. So you will see that the short-term debt to credit institution is 91. And we have also increased in this quarter all the receivables that is mainly -- in that item is mainly good -- prepaid goods not received. And we are then ending the quarter with NOK 120 million in cash and cash equivalents.
The good thing when we came out of 2023 is that we had a very robust cash situation of NOK 137 million. What this means is mainly that we have a good flexibility to do the right operational choices. So it's quite important to have a good cash balance. And a lot of this improvement in the cash balance over 2024 is related to how we have handled the cash situation for the whole flow of purchasing products to selling the product.
But we need to have a good cash situation in order to be flexible for changes in -- that we expect in the operational side. So we are then exiting Q1 '24 with NOK 120 million in cash. Thank you
All right. Before we then go into the Q&A, I guess you have a lot of questions. That's always nice. Just a couple of highlights we would like to do related to post-quarter events. To give you some attention on 2 items we have selected for you.
One -- the first one actually was announced between March and April, but it's a lot of execution and focus being done in Q2, so post quarter. We did publish new agreements with one of the leading German telecom and digital service providers.
What's really exciting with this deal is that it actually is part of 2 elements. One is that, as I mentioned before as well, we did some heavy lifting in '22, '23 on our CapEx for building our 3 new hardware platforms. This is actually the first time we're taking one of those hardware platforms. And actually, almost as an ODM model, we are optimizing to create a unique product SKU for a partner. That's quite compelling to us to leverage the investment we did in the platform in such a way.
The other thing is also its business-to-business service revenue agreement, where we have a deal to provide those products, with an option then to have our premium services, which then will escalate, of course, also our service revenue. We estimate that deal to over 12 months, roughly have a value of NOK 30 million, which is one of our larger single-signed deals. So something really to pay attention to.
The second thing we would like to highlight with you as well is that we have -- since we did the acquisition of Xplora Mobile here in the Nordic, we always said that we would like to replicate that model outside the Nordics. And everyone, of course, has been paying attention. Will that happen?
And basically, just before going on stage or published a number, we are also happy to announce that actually now our largest market in terms of unit sales is also now they have surpassed our previous large market in SIM subscription, such as Finland and Denmark, and is now larger than those market in terms of service subscription, now accounting for 18,000 subscription, which we think is really good and moving in the right way.
Then as I said initially, we are really excited to, also this year, invite everyone for a Capital Market Day. That's why we keep the Q1 short and precise on the number. We would like to use this opportunity again to invite stakeholders to meet the fuller management team, where we really do in-depth into our channels, our marketing, really do some breakdown in what are the channels we are selling in, in the different market, what is the product mix and how this is developing.
We'll also give you an in-depth overview on the product and service strategies going forward. And we start now to have a lot of data related to how people, customers are using our product, not just the hardware, but the services and the development and also trends from the whole category itself. We will present a lot of exciting things for you there, which eventually will lead down to what we think is by far the most exciting opportunity, how we can use our position in the market to really accelerate growth, not just into kids, but in the broader family IoT category. So that will be the focus, and we will shortly send you an invite. So I hope as many as possible can come and join us for that day.
We just restate at the end the outlook as we did in previous quarter. Market is expecting 15% growth this year. We said that sounds reasonable. We do not put any additional comment to that. The way we will use this is that if we see changes, we'll, of course, update this every quarter if we feel that is the right thing to do or if we see changes. We still stand by the overall revenue growth on the top. We will continue to prioritize annualized recurring service revenue and continue our focus on cost OpEx down in percentage of revenue.
I can add 1 detail related to the CapEx. We said it should be lower than previously. Our target is now to keep it below NOK 20 million. And we still stand by. We'll launch our first services from SaaS Senior division throughout the year in second half of the year. Otherwise, no revision on that outlook statement.
And with that, I would welcome my partners to the stage, from operations and finance, and we move into the Q&A section. I will read questions and try to direct them.
While people in the audience consider the question, we can start with someone that is coming online. I will just point and shoot.
First one. Last year '23, Xplora made MDA agreement, if you remember, back in Q2. How will this impact the numbers for this year or Q2? Knut, you go.
So last year, we had a one-off impact from the MDA agreement in Q2 2023. That represented approximately NOK 30 million in additional revenue in that quarter. This was a one-off in the quarter. But for the total year, it will be probably included in the annual number. It was then an impact of NOK 30 million in Q2, with a gross profit from the NOK 30 million around NOK 4 million to NOK 5 million. So that's something that we do not expect to have a similar impact in Q2 this year.
All right. Can you comment on the -- on your development in U.S. and Americas?
Yes, we can. You may remember that we had a very strong Q4 in both U.S.A. -- in Germany when it came to net subscription growth. So we were really enthusiastic and surprised about it. And we see that the very positive development in Germany has continued to accelerate, while we -- in U.S.A., say that we have had a flat development during Q1.
What we see there is that the, let's say, the activation rate of the U.S. subscriptions are very, very high. We are around 80% of the sales actually activate the subscriptions, which is positive. We also learned from the U.S. market that we have very high sales during the festive seasons and back-to-schools and those kind of high events. And we also learned that the churn rate is somewhat higher in the U.S. than we have experienced so far in Europe. So despite stable sales, we haven't seen a net growth in Q1 in U.S.A., but there is a stable business going forward, I think.
I guess you will show a lot of details in the Capital Market Day on markets and trends and...
Yes, we'll go into further details and elaborate on the different markets.
All right. Any questions from the audience?
The license that we're going to get for obtaining at all sort of we've been saying that next quarter, next quarter, you're going to get some sort of license in the U.S. [indiscernible] rights together with AT&T or something? Is that [indiscernible]?
Yes. We have received the license for qualifying the products according to the standard that was some quarters ago. Now we are at the end of the so-called homologation process with AT&T, that's TNT's internal approval process of our products.
So we have just rephrased the MVNO, the mobile operation contract that we have in -- with AT&T. We have just re-signed it because of the delays compared to the initial plans, but we are moving closer then to the launch on MVNO in the U.S.
But it's fair to say that, that process has taken far longer than we have ever planned or hope. But unfortunately, it's not inside our control as it's part of their process.
There's no standard process for wearable certifications in the market. So it depends on AT&Ts, and they're actually doing this for the first time as well. So we -- it has that process has taken far longer than we anticipated.
But can you also just quickly comment on, before we have that agreement, we still have a different agreement, which we are currently selling on?
Yes, yes, we have a partner agreement, where we get our revenues here. So it doesn't impact -- okay, of course, it impacts the gross margin. We will have a much more favorable situation when we are a full MVNO in the U.S.
I would say within 2 to 3 months. or city is also sitting here, not in confirming -- so 2 to 3 months.
Some whether or not we are looking at the new markets now?
Yes, we can. And yes, so the way we framed it last year was that, first, we would showcase that we could have a profitable and demonstrate that before we did anything of any new things. But so far, even though we have demonstrated that. Like we stated, currently, we are still focusing on our 9 core markets.
And I would say unless we get a quantifiable, huge opportunity with a retailer or a telco or similar, we'll probably not extend beyond the 9 markets this year either. We'd like to continue to focus on our gross profit and scale our service revenue within those 9 markets, with the exception of getting a quantifiable, big, specific deal for this year.
[indiscernible] waiting to launch? Or is it still some work [indiscernible] last time [indiscernible] if you get some sort of services for [indiscernible], it could fall.
Exactly.
[indiscernible] focus [indiscernible] how the [indiscernible] finally developed. So you're just working with the launching? Or is there still some...
No. It's still testing. So the product itself is the same platform as our X6 PRO, both for kids and seniors. So the product itself is finalized. However, as we said in our Q4, and that's also why we said without any specific date, we said second half of this year would be the launch because one of the key feature in that watch is the fall detection, which is a combination of both the sensor and the watch itself and the fall algorithm to detect if this is a fall.
That is still being tested. And before we feel we have a good enough level of fall detection, we'll not launch it. But as we said on the presentation, we are still targeting second half of this year, but we're still testing the accuracy of the fall detection.
And just on the senior watch, is there any dynamics with regards to your go-to-market strategy? Or you're kind of used to...
Yes. It's a very good question. And what we have identified and also one of the reasons why we triggered the escalation on the senior watch is that a lot of the same telco, distributors and retailers are also requesting that product in the portfolio. So it will be a lot of the same strategy to senior as for the kids, both in terms of market distribution, et cetera.
And also, we see the opportunity because a lot of our customer for our kids watches will also be the buyer for the senior watches. So at least when we are introducing the product, we'll follow more or less the same template. And that's why the key thing is to get through the testing of the fall detection, and then we'll implement basically within the same line of distribution as we already have.
How are you testing fall detection?
So the whole project with senior, we have quite a big group in that team, starting from PwC. That's associated with the research and developing the core proposition. And then we have a larger portion of real-life people in the field, in the category with their family. That is actually eventually performing the testing of the product, which have been following the project for a while.
One more online. Do you expect device sales units higher in '24 than in '23?
We haven't commented so much on the unit sales. We have been more commenting on the revenue. We see though that, at the beginning of the year, that we have, I would say, very, very strong demand now in the German market, especially our most mature market. Norway is always -- also showing very good developments. I would not a bit too detailed about it, but I think we see quite a stable demand, with light increase for the year.
I see people are doing calculation and notes. If that leads to some questions, we are actually no more online. So if no more question now, us and also the management will stay here for a while, so we also can have some 1 to 1. So happy to join you in a conversation there. If not, we will just say thank you for joining us today, and look forward and hope to see as many of you on our Capital Market Day, and invite will shortly be set. Thank you, guys.