Xplora Technologies AS
OSE:XPLRA
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Good morning, everyone. Welcome to our Q3 2022 result presentation. My name is Sten Kirkbak, Founder and CEO of Xplora. And with me, we have our CFO, Mikael Clement.
As always, we will divide the presentation into three sections. I will start to give you a highlight from the quarter then Mikael will give you some key financial details, and then I will end with the outlook statement. Of course, we'll also have a Q&A session at the end.
So let's start with Q3 highlights. I think it's important to mention that this quarter has been a key quarter for the company and the company's history actually. We have finalized some of our major investment in new products setup of new mobile service providers set up as well as completing our premium service platform in order to drive future recurring revenues from services. Also it's been a quarter where we have transitioned out our legacy products in order to prepare the ground for introducing new products.
For that reason, we are very pleased to announce that group revenues are up 28% to NOK 138.5 million. Our recurring service revenue is up 41% to NOK 42.9 million, and our subscriber base ended at a very strong 147,400 paying subscribers, up 33% year-on-year. Our gross earning was 41% or NOK 56.7 million, something we have expected slightly higher. But due to the currency, we are buying products in dollars, selling in NOK in euro. The gross earnings has been slightly lower, and our EBITDA came in at NOK negative minus NOK 18.8 million, also slightly lower than we have expected.
Key reason for that is the effect of the gross earnings given the exchange and the currency as well as we have been transitioning out of new products as well as we have also reduced our overall sales volume for this year, and we have not got the effect of the cost optimization in this quarter, which I also will come back to. Our cash balance ended at a strong NOK 70 million.
Before we go into some more details, I would like to start with the 2022 overview for the goals we set out when we started the year. This year, we plan to launch 3 new products into the market, also the first time where we have developed 2 OEM products ourselves. So every single component of the product is built by Xplora with a full IP and the value that comes from building the product from scratch. Naturally, it allows us to better integrate with our software platform.
Also, we set out to replicate the very successful Nordic SIM model into 1 to 3 global markets. And of course, we should also take all the learnings from more than 100,000 users on our Goplay platform, transition this accordingly with our global SIM rollout in order to launch Goplay Version 2, allowing customers to upgrade to a premium subscription, again, accordingly to the global SIM rollout.
Also for this year, very important to establish our U.S. operation also to include partnership both with distributor retails and telco and also to demonstrate to the market the scalability and the profitability in our business case. So it's fair to say a lot of these achievements has actually been executed and launched throughout the third quarter, including year-to-date now of today in November.
The key takeaways from the performance has been to finalize the development of the 3 large projects I mentioned, 3 new watches, SIM connectivity platforms and connectivity or our service premium platform as well. Also, as mentioned, it's been key for us to be able to sell out all our previous models before the introduction of new product in order to avoid building stock in the distribution and retail channels.
And as you can see on the screen as well, every single 5Play and esim product is sold out from the retail perspective. We have kept some volumes of the XGO2 and X5Play in Amazon to continue the sell-out on our digital channel. But all in retail, in our distribution channels, the current product is currently sold out, which was a one key goal going into Q3, preparing the ground for introduction of new products.
Also, as you can see from the U.S. perspective, we have established office, all legal, technical requirement for our operation in U.S. is completed. And also the team of 6 is in place. And also, they have managed to sign the key distribution agreement with a distributor as well as we also have announced the first retail partner in Target, Walmart and Best Buy currently online with the objective to move into physical store performance going into next year.
Also, as you can see, 3 new products to be developed this year, our new entry-level model and 2 premium products. You can see all the development is completed. The XGO3 is already in the market. The new X6Play is being introduced as we speak and X6Pro, which I will come back to as well, is finalized from a development point of view and is now into production for a slightly later launch into the market.
And as we also have announced, we have already not only announced 1 to 3 new MVNO in the global market, but we are already live in the U.K. market with our SIM connectivity program. We are live by November in Germany, and we are also live in France with our subscription model as well.
Currently, the technical implementation of the Spanish mobile setup is also completed, expected with the December launch. And in the U.S., we have already also announced the first agreement with AT&T, expecting to go live in the U.S. market with the same mobile subscription model in next year.
And also, we are very happy to announce that our Goplay Generation 2 meaning that the ability to upgrade to premium content is now also going live as of mid-November. And on the screen, you can also see we are currently still in implementation of our ERP system. And we have also started our efficiency program for 2023, which I will come back to slightly later.
One last thing to mention on key takeaways from performance in Q3, as we mentioned, we have had some hit on our gross earnings related to the currency, buying in dollars and selling in NOK and euro. We have also been using third quarter in order to negotiate key deals from our vendors in order to reduce the risk of the currency fluctuation up and down. We have already accomplished quite a lot in that regard, and we will continue to work on that to improve going into 2023.
To quickly recap our SIM model. We started this year being live in all the Nordic market. We had an objective to launch in 1 to 3 global market. As I just said, we have already announced several of our global SIM subscription models. On the screen, we would just like to give you an example of the value proposition when we're going live in the global market.
And as you can see, we are choosing to 3 or more different models where the customer can either pay as you go. You can have a 12-month prepaid contract or you can commit to a 12-month contract and have a slightly discounted monthly price all accordingly to be competitive in the price in the local market and also drive the same profitable business model. As you have seen, we have done previously in the Nordic market as well.
In parallel of our SIM global rollout, we have now also aligned our Gen 2 of Goplay and being launched this month. You can also see that we have already demonstrated that our Goplay users walked far more than other users, 2,500 steps more each day. We have categorized now all the feedback, all the data we have had from our users so far. And we have launched 10 awesome new categories with content, allowing customers to dig into new watch faces, ring tones, set up a lot of new campaigns. We have e-books. We have a lot of games, e-learning, auction, lot of competition with prices, how to utilize your Xplora coins. And we have built a new section, we have called Gold brands, allowing us to integrate partnership with a third party to provide either more content to our platform.
These are the 10 or some new categories where kids will be able to go in and download new content and really optimize their gold play experience.
As you also can see on the screen, we have divided it into 2 value propositions. Some of the content come for free and will be part of our Connect basic program. So when you buy a SIM connectivity plan from Xplora, you will get access to some of the content from the Goplay. However, we allow the customer also to upgrade our SIM mobile plan in order to get Xplora Connect premium, and then you can really get the most out of your Xplora watch and utilize and use all the content from these 10 categories. You can see some of the reference point on the screen as well. What is the key difference with the free versus the premium version? Again, this will also now go live, and it will be rolled out accordingly to our global SIM rollout plan.
I would now like to take you through some of the updates with our new products. Before doing that, I would also just like to spend some time on our watch history. And as a fun fact, it's interesting to look back when we reported Q3 last year, we could then just report that we now had sold more than 500,000 watches back in Q3 last year. One year approx later, we just also now recently announced that we have achieved more than 1 million watches sold should take us to be the #1 smartwatch for kids in Europe and U.S. combined and with all the experience from taking 7 products into the market when we went into 2022.
Also, as you can see, we have been partnering up with some of the major largest, most recognized brand in the world when it comes to distribution, retailers, content partnership and so on. That's a very strong history. The future is even more exciting for the Xplora team. We have now recently announced and launched a brand-new platform of hardware products. We have divided it into Go, Play and Pro, where we have our XGO3, it's our new entry-level product.
It's a proposition where we really provide value for money. I still would explore experience and quality. That's our goal product. Then for the first time, as mentioned, we have now developed our own OEM product. Every single thing is built from scratch. All IP belongs to Xplora, and we have done this in order to really be able to integrate with our software platform.
Also one key takeaway with the strategy for the Play and the Pro is to extend the lifetime of the hardware platform itself. Previously, we have had a strategy to replace the product roughly every 18 months with a new hardware platform, allowing us to do a lot more upgrade and changes in personalization from a software perspective. We also expect now the lifetime to be substantially longer on the hardware platform itself, allowing us to have slightly more time between when we do the financial investments in producing new hardware products.
Our X6Play, which I will present you slightly more in detail in a second, is our new premium product, playful, powerful and even more personalized, and with the Pro, that should be the flagship product in this whole category, really taking it to the next step. It's all developed and done in production for a slightly later launch.
Going a little bit more into the X6Play, like I said, more powerful, more personal. It's unique because every child is. And with this strategy, we really have emphasized two key differences from everything else you see on the market. Of course, it comes with more power, more storage, better camera, a larger screen, everything you expect from a hardware upgrade, but then we have really been thinking of how can we personalize this to the kids in the best possible way. We have a hardware strategy in order to do that, and we have a software strategy in order to do that. The hardware strategy we have developed a range of accessory, actually providing more than 3,000 combinations in order to personalize your watch with wristband, with vessel, with loops, everything the child can buy from Xplora in order to optimize the watch. That allows us also to sell more accessory with very high profitable margin.
On the software side, it's real when it becomes super excited. Of course, the product is 100% gold compatible. And also now, of course, you can upgrade your premium content, allowing you to access even more content. So you can really play around with watch faces, with ring tones, download new application and really get the most out of your watch and also, again, to personalize and optimize it to the way you best would like it.
And I think it's a fantastic opportunity for us to launch this product with success even from Getgo. As of this presentation is being held, we have also been awarded a very high and prestigious award from CES Innovation Award for 2023, best of innovation. Every year, all the various categories are invited to be part of this innovation from CES. And only the best of the best will be awarded as a winner in each of the categories.
As a reference point last year, it was only one key award in the whole wearable category. With our new product with X6, we already got announced that we are winning this category for 2023, going to Las Vegas CES in January. It will be a physical presentation and award of this price.
And we believe it's the combination of product innovation and integration with our platform in order to make kids walk more and move more as well as our ESG strategy, where kids can help other kids with their activity, combination of that is what made us win this award.
So super excited and a great start for our new product lineup. With that, I would like to have Mikael to come up and take you through the financial details. Thank you.
Thank you, Sten. We will start out with taking a look at our revenues in the third quarter. Group revenues in Q3 amounted to NOK 138.5 million. That's an increase of 28% year-over-year from Q3 last year and a solid sequential increase from NOK 111 million in revenues in the second quarter this year.
Looking at the regional sales and the regional breakdown. Device sales made up NOK 95.4 million in revenues this quarter, up 23% year-over-year. Germany remains our largest market for device sales with around 60% of those revenues, followed by Norway as the second largest market at around 25% of device revenues. Service revenues amounted to NOK 43.2 million in the third quarter, an increase of 41% from Q3 last year. This comprised mostly of Xplora Connect subscription revenues.
Norway is our clearly the largest share of our service revenues at around 60% of revenues. Followed by Sweden as the second largest market with around 25% of the revenues and Finland and then Denmark. Group revenues in Q3, as mentioned, NOK 138.5 million, up 28% year-over-year from last year. Germany commands the largest share of group revenues at 41% of sales, followed by Norway at 37% of group revenues and Sweden at 10% of group revenues.
Recurring service revenues were NOK 42.9 million in the third quarter this year, a growth of 41% year-over-year. Recurring service revenues represented 31% of our overall sales in the third quarter and we're now at an annualized run rate of more than NOK 170 million in annual recurring revenues. We exited the quarter with 147,400 subscribers, with the chart on the left here, showing the growth in subscribers over the last 3 years.
A solid growth in the third quarter as well. Norway continues to command the largest share of subscribers at 82,000 subscribers representing a penetration rate of 19% in the target market, kids aged 4 to 10 in Norway. We have 38,000 subscribers in Sweden, representing an implicit penetration of 5%, 16,000 subscribers in Finland with a penetration of 4% and we're at 2% penetration in Denmark with 8,000 subscribers.
We now have a subscriber base of 3,000 subscribers outside the Nordics, of which the U.S. commands the largest share of those subscribers.
Looking at our growth and penetration in the Nordic markets. Over time, we're at 19% in Norway, but we have clearly the longest track record in the Norwegian market. We see how the other markets are progressing in terms of penetration rates, and they continue to follow a very similar growth path that we've seen historically also in the Norwegian markets.
Gross earnings in the third quarter were NOK 57 million, an increase of 7% from NOK 53 million in the third quarter of last year. Gross margins were 41% this quarter, down from 49% in the same quarter last year. Gross margins were negatively affected by a stronger U.S. dollar from procurement of goods as well as some effects from transitioning of product introductions.
Adjusted for the negative currency effects this quarter, our gross margins would be in the high 40s. The underlying gross margin in our service business remains stable. And as Sten mentioned, we are renegotiating terms with suppliers, and we have secured improved terms and mitigated some FX risk on future product supplies.
Moving into the P&L. Payroll costs -- excuse me, revenues first, NOK 138.5 million, up 28%; gross earnings at NOK 56.7 million for a margin of 41%. Payroll costs were NOK 23.3 million versus cost of NOK 21.6 million in the same quarter last year. We exited Q3 with 136 employees. Other operating costs this quarter were NOK 52.2 million, up from NOK 31.4 million in the same quarter last year.
This includes NOK 28.6 million in marketing costs, where we have 3 key elements driving those costs. One is the transitioning of product generations is prepare new markets for the introduction of Xplora Connect. And three is brand building here under both the U.S. establishments and continued brand building in the German market together with our partners.
As a result, EBITDA this quarter, negative NOK 18.8 million versus a breakeven result in Q3 last year, with EBITDA at minus NOK 19 million. Depreciation and amortization totaled NOK 12.8 million this quarter, of which NOK 12.6 million comes from amortization of intangibles, primarily from the acquisition of Xplora Mobile Holding according to NGAAP. EBIT at minus NOK 31.5 million, pretax ended at NOK 32.6 million, with net profit with a loss of NOK 31.6 million in Q3 2022.
Year-to-date figures, we have revenues of NOK 323 million, up 27% over the same period last year with recurring service revenues up close to double a 96% increase to NOK 111 million and smartwatch sales up 6% year-to-date, which shows that we've seen an accelerating underlying growth in our smart watch sales from Q1 through Q3. Gross earnings show an increase of 41% to NOK 158 million with our margin at 48.8% versus 43.9% in the same period last year.
Payroll costs year-to-date, NOK 56.9 million versus NOK 50.6 million in the same period last year, with other operating costs at NOK 123.1 million, up from NOK 70.7 million. This includes NOK 53 million in marketing costs year-to-date, up from NOK 30 million last year.
EBITDA year-to-date is negative NOK 21.1 million and EBITA -- excuse me, with an EBIT of NOK 57 -- minus NOK 57.6 million year-to-date.
Profit before tax at minus NOK 58.7 million the first 9 months of 2022 versus a loss of NOK 30 million in the same period last year.
Moving on to the balance sheet. Financial fixed assets on our balance sheet amounted to NOK 249.2 million largely goodwill and estimated value on customer contracts from the acquisition of Xplora Mobile Holding. Intangible assets of NOK 37 million is largely capitalized development costs. We had accounts receivables exiting Q3 of NOK 56.5 million as a result of higher sales in the quarter. That's an increase from NOK 46 million at the end of Q2.
Inventories were up by NOK 9.5 million to NOK 109.5 million to prepare for seasonally higher sales in the final months of the year. Other receivables stood at NOK 77.3 million, up quite a bit from NOK 27.4 million on higher prepayments of ordered goods as well as VAT. We had cash balances of NOK 69.7 million at the end of Q3 versus NOK 81.2 million at the end of Q2.
We exit Q3 also with interest-bearing loans of NOK 27.9 million, slightly down from NOK 28.6 million at the end of Q2. Accounts payable were NOK 79.9 million, up from NOK 19.8 million are remaining payments on significantly larger factory orders. Our short-term liabilities were NOK 74.4 million, up from NOK 66.6 million comprising prepayments of our subscriber base as well as accruals.
Then over to the cash flow. Q3 cash from operations is a negative NOK 20.4 million with cash earnings of minus NOK 19.9 million and negative NOK 0.6 million in net working capital changes. Cash from investments is a negative NOK 7 million with NOK 6 million coming from product and service platform development and NOK 1 million from investments in our new ERP systems.
Cash from financing in Q3 was NOK 16 million positive on new equity from exercise of contractual subscription rates. This leaves a net change in cash of negative NOK 11.5 million in the third quarter, and we exited the quarter with NOK 69.7 million in the bank.
In a larger perspective, I'll sum it up with our cash movements so far this year. We entered 2022 with NOK 140 million in cash. Through the year, we have a negative EBITDA of NOK 21 million. We have paid NOK 20 million in earn-out payment for the remaining acquisition price of Xplora Mobile Holding acquired last year.
We have CapEx totaling NOK 29 million year-to-date, and we have a negative working capital movement of NOK 15 million, offset by a positive NOK 15 million in financing, leaving us with NOK 70 million on the balance sheet in cash at the end of Q3.
With that, I will leave the word back to Sten for a few words on our outlook.
Thank you, Mikael. So let's have a look at the road ahead. I would like to really emphasize the importance of this slide. Going forward, we will really focus on our core business and our core value proposition. As we mentioned in the introduction, previously, we have been focusing on up to 20 different markets. Now we have introduced SIM connectivity in 9 of our markets.
That will be defined as our core market, and we will put all our effort into those 9 markets. So we'll focus on the markets where we have SIM connectivity, allowing us to replicate the Nordic SIM model from previously and bundle as many as possible of our watches with SIM connectivity, as well as we also presented, we make it very simple for the customer to potentially upgrade to premium content in order to get even more out of their Xplora watch to personalize it, to optimize it and access even more content and application. That will be our core focus into 2023, 9 market with a very strong value proposition consisting on the watch, bundled with SIM and easy access to upgrade to premium services.
That gives us a unique value proposition from every single competitor out there. It's also a lot more difficult to replicate and copy. And as we have been presented previously as well, it drives 7x to 10x more profitability for every single watch we are selling with that integrated value proposition, and we'll focus on these 9 core markets.
On top of that, as we mentioned initially as well, we are going to introduce and implement an efficiency plan. Key strategies behind our new plan is that we have already now finalized major investment when it comes to 3 new watches, new rollout or SIM connectivity plan in 5 new markets as well as our premium service platform. That allows us to be a lot more efficient when it comes to our marketing spend. Instead of focusing on 20 markets, we are narrowing that down to our 9 core market with a stronger value proposition.
On top of that, as I also mentioned when I introduced a new product, we are extending the lifetime of our hardware platform from 18 months too far longer lifetime before we will start to develop and introduce new products. Instead, we will use software to upgrade and make the product relevant for years to come.
In addition, we will also look into how we can reduce some of our personnel costs related to our new strategy when it comes to number of markets we are focusing on and also the fact that we now have finalized the production of new product platform and services.
All-in-all, we are aiming to reduce our operating cost by 10% to 20% going into 2023. In the same sentence, it's also very important to underline that we will maintain the focus on our software and ability to provide software and content delivery capabilities. Also, it's very important to mention that we are renegotiating supplier agreements in order to have a more balanced currency risk profile going forward. And as I said in the introduction, we have already successfully done that with some of our suppliers and we'll continue to do that with more of our suppliers as well.
So to summarize in the outlook statement, we remain on track to deliver our revised target 20% to 30% revenue growth for 2022. Also, we will exit 2022 with a brand-new hardware platform of 2 new OEM products and a new entry-level products.
Xplora Connect will be available now in 9 markets growing from 4 Nordic market to 9 global markets, including the opportunity to drive further increased annual recurring revenue from both SIM and premium content.
As mentioned, we'll do all focusing on our core market, allowing us to have a stronger, more profitable value proposition. And also will enter into 2023 with a more optimized cost structure and a renegotiation of key agreements. We will then have a target to continue to grow our revenue into 2023 with a target of most of the growth coming from service revenue and also together with a cost reduction of 10% to 20% will generate a more profitable result for the company going forward.
With that, we can move into the Q&A session.
All right. Mikael, why don't you guide us through the question that has come in, and we go one by one.
Sure. Quite a few questions here, I already see here. How quickly are you seeing the effects of now offering mobile subscriptions in Germany, U.K. and France? It seems like Finland has increased. Can we expect the same in other markets?
Yes. So by experience, it will always take some time introducing new product or services into new market. However, as we remember from the Nordic, we saw more or less the same growth pattern, which we hope also to see in different markets. Also I think it depends on the number of channels we have in the various markets, given how quickly we can grow. But I think it's fair to say that we do expect some faster pickup in the German marketing in particular. Since we have a very strong position in the German market with a lot of retail.
Good. How has the profit margin related to the SIM business developed from earlier given that you're now the operating in various markets? Well, as we commented, Xplora Connect has experienced stable margins this quarter and so far this year. And we also expect our new mobile service provider businesses to generate similar margins as in the Nordics.
Let's see here. How large was the negative FX effect on gross margins in percent? And what do you mean by transition of products?
So the negative effect, roughly NOK 8 million. What we mean by the transition of product is basically the sellout of our previous model, XGO2 and X5Play. Very important to make sure that, that is all sold out from a distribution retail perspective, preparing the round for introducing the new product. So we are not left with big volumes in the warehouse from our retailer, but it's sold out, so we can quickly and efficiently start to sell our new products.
Yes. Is there any earnout or negative injections left in the balance sheet?
No, Xplora Mobile Holding is fully paid for. So no more earn-outs.
Can you break down the 10% to 20% cost reduction?
Yes. High level, it's 3 elements. First of all, it's the reduction of third-party consultants, primarily related to all the R&D and development we have done from building new products, new platform and new MVNO implementation.
The second is, in general, the reduction of marketing spend since we are now focusing on 9 core markets instead of 20. Those 9 markets where we have significant better margin selling both products, SIM and services. And also the third element will be a reduction of headcount in the company.
Good. Is the 10% to 20% cost reduction compared to 2022? Or versus the current run rate?
It's compared to 2022.
Is the Q3 CapEx more normalized given the current run rate of the business? Well, moving into 2022, we guided NOK 30 million to NOK 35 million in CapEx. We believe we will likely end up in the high end of that, possibly slightly above as we are rolling out 5 MVNOs versus the guidance of 1 to 3. We've not issued any guidance for 2023 yet. But as we are completing some major projects this year, we would expect CapEx next year to come down from the current year levels.
What margin potential do you see for your international MVNOs?
We hope to see the same margin globally, as we have previously seen in the Nordics, roughly 70% to 80% margin range.
What about price and profits on your new products? We have previously stated that we target gross margins around 30% for our device sales. We do also expect that for our new generation of products. However, they will carry a slightly higher average selling price than our previous generation of products.
Do you expect the gross margin and lower EBITDA margin to continue?
No. First of all, we are renegotiating supplier agreements related to the currency, buying dollars selling NOK and euro. We already have progress on that, as mentioned in the report, and we'll continue to work on that going forward as well. Also, new smartwatches will have, as Mikael just said, the similar percentage margin, but of course, it will have a higher selling price -- and also our core sales will focus more towards selling services on not just the watch but also associated with SIM and premium services. which also will provide significantly higher profitability in our product range going into 2023.
Where did you have the highest growth in Q3?
I assume it means by number of sales and markets. So we do see a big uplift in our German market, in particular, where we have seen a very accelerated growth. Also, it's 1 of the largest market, of course. And as we have stated previous line before as well, it will take some time to develop these position into the large market. However, the benefit is also when it first starts to accelerate. We see this very big growth, and we have experienced that in the German market right now.
Is there a risk that a weaker or a falling U.S. dollar will hurt you going forward as you renegotiate contracts at a potential peak of the U.S. dollar? So a good question. As we mentioned, we have done two things, discussing with our vendors. And one is to renegotiate the price in terms of our products. And second is that we are mitigating the FX risk, balancing the risk better between us. So I would argue no to that answer.
How is your growth in Norway developing?
Well, we have seen a reduced household spend in the Norwegian market as well, in general, the whole category. So of course, Xplora has also been affected of the same reduction of household spend is what we can see in the numbers, also why we mentioned that it's very positive that we see in the bigger markets such as Germany to see this accelerated growth.
What is the update on the competitive landscape? Do you see Apple entering the category next year?
Probably no one knows for sure. The best indication we have is what we see our patents being filed, products being launched in CES, Mobile World Congress. And also the conversation we have with multiple retailers and telcos. So far, we see the same appetite from partnerships from introducing new product services next year. We haven't seen any new patent filings. We haven't seen any new products being launched at the latest Mobile World Congress or CES.
But I think the whole category in general are getting more and more mature. It's growing both in Europe and U.S. And I think that's why it's very positive for Xplora to have this strong position being the category leader once we hit that 1 million mark. We are the biggest in this category. And as the whole category is growing, I think that's a very positive thing for Xplora and our position.
What actions do you take to prevent your watches from being hacked? And will you be able to turn previous watch buyers in Germany into premium subscribers? Two different questions there and one...
Two different questions. Related to the security in general, as we have stated previously, it's one of our biggest competitive advantages while we are being selected from the biggest retailer distributors and telcos because we go through these multiple -- both internal test process as well as external parties to try to both hack or investigate, explore and help us improve our stability, our system, our security all the way.
We do that multiple times every year. For every telco, we are also onboarding, we have to go through extensive humiliation processes, also testing every single security aspect with our product. We will continue to do that. We have always done that as well. It's one of our strength. When it comes to how to upgrade the audience to premium services, we have no data for that yet. However, we do have more than 100,000 users on our platform currently use our services. We have taken all that learning into the Gold Play Generation 2, which we are now launching. And it will be our focus to try to upgrade and convert those subscribers, the same way we'll learn how to sell SIM subscription. We'll apply the same strategy, the same marketing approaches to upgrade all the customer to premium services as well.
Let's see here. A couple of similar questions in regards to the US, how are U.S. sales?
As we stated in the presentation, our core foundation is set up. The team is in place. We have signed a key distribution partner. We have signed 3 major retail partners. -- sales are still on the low end, but we expect that to grow going into 2023 now when all the foundational fundamentals are in place.
Where are the hardware produced? Where are your products produced?
So we have 3 different suppliers in the Asian market, but both inside China and outside of China as well.
Are you seeing softening watch sales due to worsened economic outlook in the primary markets. I think we partly addressed that. We have seen weaker household sentiment. In some markets, such as the Nordic, which has had some effects on growth for us as well.
Where are we now in terms of -- there are some overlapping questions here. Can you elaborate on the mix on growth for hardware and subscriptions next year, 2023?
As we mentioned, one of the key reason why we'll focus on our 9 markets where we have SIM subscription is that our margin is 7x to 10x more if we sell the product with SIM in particular also if we extend to premium services, meaning that our key focus will be on those 9 markets and again, try to convert as many as possible to upgrade with Xplora SIM and also Xplora premium services. The number of the percentage, we do not have data historically from that, but that will be our key focus going into 2023 now in the setup.
Good. I think we're closing in here. Do you still expect to have a positive EBITDA for fiscal year 2022. And the answer to that is, yes, we are with our current sales forecast, still expecting a positive EBITDA for the year.
It seems to be the final question Yes. As always, please reach out if any additional questions following up from this presentation, you will find all the information, as always, on xplora.com/investor. Thank you for participating.