Xplora Technologies AS
OSE:XPLRA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
11.65
29.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
All right. Welcome to our Q4 report and our first time Capital Markets Day. Hopefully, you will adjust the sound, so it's okay in the audience. And as schedule also mentioned, we will be filming this live, of course, so everyone online can also participate in this presentation. We will present first our Q4 reports. After that, we'll have a short Q&A, and then we will move directly into the Q&A -- or sorry, the Capital Markets Day and have a full Q&A after that as well.
Today, on this Q4 report, it will be, as always, myself, CFO -- CEO, Sten Kirkbak, presenting jointly with our Finance Director, Jonas Ringstad. So we will be taking you through the Q4 report, and then we'll have the full team to present the full Capital Markets Day after that.
All right. So let's just jump straight into the number. Q4 '22 at a glance, and I would like to start by saying that Xplora managed growth in a very challenging and difficult market for the tech consumer industry. And in addition to growing our category and growth, we also made a lot of different improvement we see good benefits of already now into Q1 in 2023, which is one of the key parts we'll come into in the Capital Market Day afterwards. In addition to growth, we also made several improvements for a good foundation. The group revenue, if we look into the number, were up 2% in Q4 to NOK 179 million; recurring service revenue, which is very important for us, up 21% to NOK 41 million; our subscriber base, which also will be a key topic into the Capital Markets Day, up 27% to 157,000 paying subscribers; our gross earnings, 41% were NOK 71 million; and our EBITDA negative with NOK 20 million. We ended the year with a cash balance of NOK 50 million.
I would like -- before Jonas will go more into the details, I would like to take you through some of the key drivers, external condition as well as some strategic decision that drove the number in Q4. Accumulated for the year, our reported EBITDA is negative NOK 33 million. We had some large effect, of which one is the currency effect. We are buying our products in dollar and selling them in euro, in NOK and Swedish kroner. We made a decision not to make hedging or other tools in order to reduce the potential risk, hindsight, we could have done otherwise, it affected us roughly NOK 19 million.
As you also know, it's been a challenging market for components and freight. In our case, it affected us negative NOK 13 million. I would also like to point out, which we'll address in the detail in the next section that both currency as well as freight is something we are addressing for 2023. Also, we strategically made a decision to continue to invest in the U.S. market. And also later today, you will show how that will benefit the company going forward.
From a cash perspective, we had, by far, our biggest investment in R&D, in product and services last year. Even though the market in general declined, we made a firm decision to continue to invest in order to strengthen our position as #1 in the category. We will also spend some time to lay out why that will be a good decision. But as you can see, NOK 32 million in R&D, hardware and software, CapEx also in our finalizing of ERP system. And also, we had the final earnout of the acquisition of Xplora Mobile with NOK 20 million.
So for the management team, during Q4, also into Q1 this year, we have had to make some very important decisions and money allocation and priorities in order to rethink 2023 because of the current market situation, of which, some of the very important driver for our strategy this year will be to secure a strategy to reach breakeven as quickly as possible in 2023, also to focus on achieving a stronger positive unit economics, more important than growth alone. Of course, we would like to grow, but the unit economics is also extremely important for the company going forward.
Like we mentioned, we did continue to invest in R&D in order to make sure that we will have the best product market fit in this category going forward. Again, we'll spend some time to explain why it will be important. And we have really made sure to rethink a lot of topics when it comes to how we can reduce cash burn in '23, everything from rethinking office spaces to our staffing, of course, to marketing spend, warehousing and all of details will come back and show to you afterwards as well.
So I just wanted to paint an overall picture on some key driver, and Jonas will take you through some more of the details. We made some very clear goals and promises to the market last year, of which, the key one was to grow the business. We showcased -- we achieved or would like to achieve a growth 20% to 30%. We did say to the market that we were aiming to introduce and finalize 3 new products, including our first OEM. We should work hard to replicate our very profitable Nordic SIM model in 1-3 markets. We should work hard to increase our ARPU with new services, and we also in the Q3 outlook statement, should work hard to reduce our cost base 10% to 20%.
I also would like just to highlight what did we deliver of what we have articulated so far. On the products side, we're happy to announce, based on a high investment in product, all the 3 new products are completed, a major CapEx investment of NOK 32 million in 2022. The important thing to mention in this regard as well, the way we have built our new product previously, it has been 1 year plus lifetime cycle of that product. With our new product, we are planning to prolong how that product can be in the market more than 1 year, at least 2 year. That also means we have a significantly reduced CapEx investment going into 2023.
On the service side, we said 1 to 3 new markets with MVNO set up. We have already introduced 4 markets, an agreement in the U.S. market with AT&T has already done. Going into this year, we have 5 new markets to replicate our SIM model. And also, as we'll see later in the presentation, we have already started to increase our ARPU, the revenue on the subscriber per month significantly as well. On the organization, we can also report that we are on track to our 10% to 20% cost reduction for 2023.
We did not reach our 20% to 30% growth ambition. But in the declining market, we did manage 16%, and we also break the 1 million mark in number of unit shipped. Before Jonas will guide you through some more details, just wanted to also emphasize why we believe 2023 will be successful. Some key drivers. With our investment, we are clearly #1 in our category, Norwegian tech company, #1 in the category in EU and the U.S. That will give us significant opportunity as we see it in 2023.
We are starting this year already with NOK 150 million of recurring revenue services from higher profit SIM revenue. On the cost side, like I mentioned, we will reduce our cost base, and we do also have improved our currency and freight costs, which will show you in detail. On the cash position, which we acknowledge and appreciate is one of the key momentums or comments from the investment market. We will address that in several ways. First of all, we are revising our whole distribution strategy, which can significantly improve our working capital.
We'll show you a little more in detail later in the presentation, how we are working with that topic. Also, we have less CapEx going into 2023. So we are clearly stating that we do not see any requirement for additional funds. When it comes to our revenue, we do expect to increase our selling price of the product still keeping a similar gross margin. That will be important for the business model. And as mentioned, remember, we start this year with NOK 150 million in annual recurring revenue from 4 Nordic markets. We have made the investment to go into 5 new markets. We are not doing anything new and something we haven't done before. We are doing exactly the same from 4 to 5 markets that are significantly bigger, which we expect to, of course, then drive our service revenue going forward as well.
On top of that, which we'll lay out in details, we are also expecting to increase further the ARPU per user of the service revenue. At the end of the presentation, we will also lay out how we are potentially going to increase new revenue streams from new products and markets as well in a 3- to 5-year perspective. That's some of the key drivers for success in 2023. And now Jonas will guide you through some more details on Q4.
All right. Thank you, everyone. I am Jonas Ringstad. I have been a Finance Director with Xplora for a little more than a year. And I'm happy to take you through the results today.
So first, let's dive into how our quarterly revenue has been. For Q4 2022, we see that the increase year-over-year is 2%. But we also see that we have managed to grow every single quarter this year. Diving further into where this revenue comes from, we see device sales of NOK 137 million. We see service sales of NOK 41 million for a total of NOK 179 million. If we look through where that revenue comes from in terms of countries, for device sales, we see that Germany is still the biggest market, commanding 59% of total device sales. Second place is Norway and Spain is the third largest market. In terms of services, Norway is still the biggest country in terms of revenue with Sweden in second and Finland in third.
Looking at the revenue as a whole, that gives us a fairly diversified revenue stream in terms of countries where we generate our revenue. As Sten also mentioned, we had a solid growth in mobile subscribers, giving us a total of 157,000 mobile subscribers. In terms of market share or, call it, market penetration, if you will, the number is 19% for Norway, 5% for Sweden, 4% for Finland and 2% for Denmark. We also see, for the first time, here in subscribers by market that we have subscribers in the U.S. and Germany.
In terms of the overall comments we wanted to highlight, we see an increased cost of freight and U.S. dollars, as Sten mentioned, and that for the total year, this has reduced our gross profit to -- sorry, for the total year, this has reduced our gross profit to NOK 237 million, with gross profit for the quarter at NOK 71 million. This gives us a gross margin of 40% for the quarter and 47% for the year. Going further below the gross margin, we have had increased -- sorry, restructuring costs in Q4 due to accrual of several severance costs, legal counsel and renegotiations. We had marketing investments to establish Xplora in a league of its own and we've had an increase in global freight cost that has given us an EBITDA of negative NOK 20.5 million for the quarter. This brings the total accumulated EBITDA for the year to negative NOK 33 million.
As a result of these numbers that we started seeing late last year, we initiated an efficiency program that launched in Q4 and is expected to yield savings in order of 10% to 20% of the 2022 OpEx for 2023.
Diving further into the P&L and especially looking at just the quarter, we have revenue up 2%, as mentioned. We have product sales revenue down 2% -- 4% and service sales up 20% year-over-year. The cost is now up -- cost of goods is now up 17% to NOK 108 million for the quarter, in large part due to the aforementioned 17% increase in U.S. dollar exchange rate through 2022, and a transition to a new line of products.
Payroll for the quarter was up 38%, which, in large part, also includes provisions for restructuring. This is baked into the employee payroll expense number for Q4. Other OpEx was up 85%, and it includes NOK 29 million in marketing development and NOK 10 million in freight and handling. As a result, the EBITDA for the year was minus -- sorry, for the quarter was minus 10% with an EBITDA margin of negative 11%. Depreciation was NOK 15 million up 50% from the quarter the year before -- same quarter year before.
Looking at the year as a whole, revenue was up 16%, product sales were up 2% and service sales were up 66% year-over-year. Now if we look at just cost, that was only up 13% over the year and payroll was up 19% as we had 94 full-time equivalents at the beginning of the year and 134 full-time equivalents at the end of the year. This brought EBITDA -- sorry, the gross profit to NOK 237 million over NOK 196 million the year before. Looking at other OpEx, it was up 78% year-over-year with an inclusion of -- or allocation of NOK 84 million to marketing. This again resulted in an EBITDA of negative NOK 34 million, which is down NOK 53 million from last year. Depreciation increased to NOK 51 million in total. And the depreciation also includes things set aside for the Xplora Mobile acquisition and NOK 10 million in CapEx depreciation. The income tax was positive NOK 11 million as the company released the remainder of the deferred tax liability for customer contracts.
Going into the balance, I've brought out some key takeaways that I think would be important to highlight here. First of all, the decrease in total current assets were due to a decline in accounts receivable and cash as well as a buildup of VAT reserves. We also saw a decrease in short-term debt due to accounts payables being cut in half, while we had higher liabilities to credit institutions and other short-term debt. Other current liabilities consist of accruals at NOK 42 million and deferred income at NOK 29 million and is similar to that of Q4 2021.
As a result, we had a net working capital exiting 2022 of NOK 130 million. Going into the cash statement, we saw, as Sten mentioned, a total of NOK 38 million in CapEx for 2022 we had -- which was slightly higher than the signaled NOK 30 million to NOK 35 million and is mainly due to our Xplora platform development which came in at NOK 22 million and product development at NOK 10 million as well as the implementation of a new state-of-the-art global ERP system, which came in at NOK 6 million. The change in debt that you will see is due to the Nordea letter of credit financing and the change in equity was from warrants exercised by Sparebanken Midt Norge as part of their first and initial debt process with us.
So just to bring it out, and I do realize that the waterfall diagram here is a little bit low for those watching in the audience. But we started the year with NOK 140 million in cash. We had NOK 34 million negative EBITDA. We had NOK 23 million negative working capital. We had NOK 38 million negative CapEx, and we had the aforementioned NOK 20 million earnout of Xplora Mobile Invest. We increased debt by 8%, and we increased equity by 16%, which left us with NOK 58 million in cash balance at the end of the year.
Now keep in mind, that we were able to secure NOK 100 million financing solution from Nordea late last year, which means that the NOK 8 million that we have in debt at the moment could potentially bring up as high as NOK 100 million in total, leaving cash at a much better place should that be required.
Just to go back 1 second. In terms of forecast, we do see that for the first quarter of 2023, we forecast an improvement to the cash balance and that we expect a positive cash flow from operations in the second half of 2023. Just to highlight the foreign exchange currency effect. The cost, which we have in dollar is the dark blue line. The revenue that we have in Red is euros. And we have Norwegian kroner at index here, so basically at 0%. Now we saw for 2022 that USD and euro followed closely all the way through May and then deviated. Unfortunately, the majority of our purchase orders were placed in Q3 and Q4, in line with our fluctuations through the year with payments around early October.
For 2023, we see that the currencies track closer, but that there is still an 8 percentage point gap.
Now for the Q&A.
All right. So since we also will have a Q&A session after the Capital Market Day, we wanted to make sure that if there were some question from either the audience or from online directly now just covering some of the financial aspect, we can take some question now. If not, we will move into the full Capital Markets Day. And then you can also send questions during that session as well, and we will cover also more extensive session at the end.
All right. We have -- is there any question from the audience first that we could cover now? Or would you like to wait until end of the session? If not, we have one, maybe you can read that one.
Sure. I think in essence, it says at the Q&A for Q3, you said that you expected a positive EBITDA for the full year 2022. Question was how can we miss such an estimate with just a few weeks left of 2022?
Overall, it's important for us to mention that we -- last year, we guided on our growth, which was 23%. We managed 16%, which also we introduced to the market immediately at our announcement and updates in that regard. Also, as Jonas has been through, we have a huge volume of our units being sold in late Q4 as well and due to the implication of the currency as well as the units, that was the overall result for Q4. And also very important, we will invest more of how we improve that going into '23 in our Capital Market Day as well.
Next question is whether the Silicon Valley Bank crisis in the U.S. is affecting Xplora operations? And to that, we would like to say no. The next question is whether we think Xplora's market value is fairly priced. And I believe we are not commenting on that.
No. We are not communicating on share price.
Next question, am I understanding it correctly that you would be EBITDA positive adjusted for FX and increased freight costs?
We presented the numbers, so I think everyone can do their own calculation in that regard, and that's also why it's important for us to address how we are improving both those elements going forward.
All right. So no more questions coming in. So if no question from the audience either, we will then go into our Capital Market Day to look forward. Also important that everyone can continue to send questions during the next section also, and we can take that at the end.
All right. I will make a quick introduction to the team. And hopefully, they will excite you very much with what we are going to accomplish. Just wanted to mention in brief first, how we are going to structure this next section. We do believe we have a good position in the market. As we said, we expect to continue to grow. We're expecting to generate a positive cash flow and also significantly improve our working capital, that's very important. We'll try to explain some of this in 5 different sections.
First, we'll give you some information about how we can leverage on our #1 position. So that will be a topic throughout the day. Second, we will go a little bit more into the details how we are able to reduce our spend and cash burn to become more profitable or to become profitable. We will also showcase to you how we can take our current 156,000 subscriber base and really accelerate that into 5 new markets. The details will be presented to you as well as how do we plan to increase our ARPU, not just for our 156 existing user, but in all our markets. Lastly, we'll give you a glimpse into the future over the next 3 to 5 years, how we can take all our investment currently made and potentially extend both ARPU as well as lifetime value into new categories.
The team that's going to present it for you are here today. First, we have Roy. He will take you through some of our retail and growth strategies on sale. Roy has extensive experience from retail, working with 1 of our great partner, retail Elkjøp previously. Then our CTO, Sanghyo Kim, that has been with the company, the whole way, the whole journey will take you through some of the R&D strategies for our products. Jason, with extensive experience from the software industry, will then guide you through this very important question, how are you planning to increase the ARPU with all the services, the piloting we have been made in the future and how we will strategize that going forward.
Then Kjetil will take you through some of the very specific details on how we are reducing costs while we are performing the rollout of the 5 new markets for our SIM subscribers. And then Gro at the end will give you a little bit more details in the U.S. market. I know a lot of you have been quite exciting for when will we really see some volumes and some gains in the U.S. market, and Gro will lay out to you how we have been working so far and what we are expecting to come in the future. So with that, Roy, please take everyone through a good update from a market and channel perspective.
Okay. Thank you, Sten. As Sten have already introduced to you, my name is Roy, and I will take you through the product price and channel strategy. I joined the company recently, just in January. So -- but that will be fun. I -- but I know the company quite good because I -- my last job in Elkjøp, I have worked with Xplora for 4 years. And not to be shy, but I think I'm a little part of the success in the Nordics.
And I asked for a challenge, and I think I got a challenge, and I don't think it's necessary to tell all of you about the macroeconomics and the market. But this is how it looks like today and that affects all of us also Xplora. And if you summarize all these things that we meet us challenges, it actually say that the consumer has less money and he has to choose where to use his money. And also the big retailers and Amazon are affected of what's happening in the macroeconomics. But we like challenges. So that's okay. So little maybe selling highlight outperforming, but we are doing better than the market. That's quite for sure.
The variables market in general are declining, and you can use what source you want if you use a GfK or IDC , that's maybe the most famous global numbers, you will see a decline around 10% to 12%. It's difficult to find exact but go through -- but it is declining for the first year. It's really going down. Xplora is up 5% in units. All the other numbers you get from Jonas already and the revenue is up 16%. So that actually means that we also have challenges, but the market for kids are not so much affected like the rest of the market. So we cannot use that as an excuse if we don't deliver this year, okay?
And one more thing. We have the channels. We have all the channels. We have own web. We have the retailers. We have the telcos, and we have Amazon. Here, you see the split, how they're performing. But our job and my job now is to optimize this. What channels should we work with in the different markets to optimize the return on investment, we should invest more to get more money back. And all those channels could be different affected of the macroeconomics. But we don't know. But then we have the possibility to turn around and work more against that channel if that's more profitable for us. But we have the channels. And here, it's even more clear. This is actually the same page, but this is maybe how you know them.
In the Nordic, we have a very good set up. We have more than this, but we have all the big ones. We have Elkjøp. We have Power. We have Verkkokauppa in Finland. We have the telcos, especially in Germany. We have channels in U.S., I think Gro will tell more about them because this whole thing is to have them. Another thing is how good do you have them. To have them online is one thing, to have them with in-store and everything that's another thing. So we have to have them in the right way, so we can get much more the right sales back. We have El Corte Inglés in Spain, we have a good work with Currys in U.K., but we want to have more back from them. And we have Amazon.
And like I said, it's different to how to work with the channels. You have to look good online, not even our own pages, but you have to have some things to ask for the channel that they have to show Xplora the right way on their web pages as well. And when you are in store, you have to work like this, like we do with Elkjøp and Power in the Nordics. We see that the stores that we invest more money in and you can see what Xplora is in, for example, Elkjøp and Power, we sell 25% more units where we have invested in an in-store agreement. But this is a fight with retail. You have to pay for it. You have to defend that you get the space and then you have to have a return on investment. But just to go in a Media Markt store and have a watch on a generic table among all other watches will not work the same way.
So if you pay more and you show what Xplora is, you get more back, that is the way it works. So the first slide you saw about all the channels, we have to find out how we are going to look into that channels if we are going to deliver. So if you should summarize all this in one page, we have the product. And like Sten said, we have done a lot of investment in the products. So we have a product portfolio that's more in good enough 1, 2, maybe 3 years. The kids are not yelling, we need a new product with this function and this function and this function. This is the best products in the market already. We won the price at CES. We have the whole range from EUR 99 and up to EUR 269 with the newest product. And we see those to two EUR 99, EUR 129 products, that's 2 years old products. They're selling very good volumes, Amazon. So we have the range, and we have the best products, and we have the channels. I have no excuses for not delivering sales. I have everything.
And if we summarize all this, it's still a global demand out there. The kids are there. We have 9 markets. It's a lot of kids there. And some of them, we are quite good. We have to keep them and in some of the markets we have so small share from connectivity, we have to start taking shares. We have the product, not only the product, that's the hardware, the subscription and the app. We have actually 3 things we can monetize on. I think Kjetil and Jason and Sanghyo will come back more to that. And we are the only 1 that has all that. The model is scalable, market, channels, everything. So I think I have the tools I need to help Xplora to earn money. Thank you.
Thank you. I'm Sanghyo Kim, CTO of Xplora. I'm the guy who need to supply the tool for Roy. So let me take you through the -- what's happening in our engine room of Xplora. So firstly, we are the team responsible for bringing the vision of Xplora to life and also strategically planning for the future product road map. As such, it is important to find aligned with the business strategy, and also, more importantly, we maintain our leadership position in our category. As such, we defined 3 key objectives here: developing hardware, increasing average revenue per user and extend lifetime value of the product and service.
Let me introduce our strategy how we developed our products. There are 2 more -- 2 methods, on-demand manufacturing as ODM, original equipment manufacturing as OEM. As a simple example, ODM is basically you purchase a car from the car dealer with limited customization options such as choosing a color. While OEM is actually design the car and select all detailed components to build unique car according to your preferences. As you can imagine, ODM usually requires lower investment with limited flexibility, while OEM requires higher investment but have a full flexibility. We have adopted OEM strategy because we can design and build hardware and more importantly software to integrate with our premium service offering. As a result, as you can see, our first OEM product was rewarded by CES innovation in a wearable category, which is a great achievement for Xplora.
However, it is important that we haven't stopped making ODM products because there is a great benefit on both ODM and OEM. So we are making most of advantage on 2 methods, and we continue balancing ODM, OEM to maximize its benefits. And OEM products, it is also important to provide great service and content and also importantly on a robust platform because it is important to encourage users to use our service not only product, but also service daily and the long term by family members. That gives us more opportunity for users to sign up for premium service and leading more engagement and innovations.
Probably you remember last couple of years we have done great job on Goplay with a premium service and content, and we have done a great proof of concept. So Jason, in the next session to present more our plan for the -- how we actually evolved our go-play service into new business model. And then as you already know, the platform and the data is becoming more crucial to the successful future business. That's why we continue evolving our Family IoT platform to connect all different verticals within our Xplora pipelines and processing and linking the data to provide great value and engagement for our customers.
And lastly, we have created highly affordable, adaptable projects, which utilize probably the most advanced chipset from the Qualcomm. What does this mean? Because we have a very adaptable product, we can easily cost effectively extend the lifetime value of the product and meet all the different requirements of different age groups, ranging from children, youth or even senior. So we can effectively define the software and user experience and launching the new verticals by leveraging these robust platforms.
Again, so our R&D team remains committed to maintain our leadership position in wearable category through ongoing, not only investment but effective investment and innovation. Thank you.
Good morning. My Jason Pyne, the SVP, Platform and Service. As [indiscernible] said, not from Norway, I'm from London. I've been with the company for a year today. So what a great way to celebrate that. What I'd like to tell you today is about what I'm responsible for, which is the software in our business, essentially the app and the Goplay platform. Let's start with the app. The app currently has 1.4 million users that have downloaded and used the app so far. It's clearly the central point of everything we do at Goplay. People interact and engage with all of our services through the application itself.
As you can see on screen, we have some really good markets we are still interacting with. Germany is our biggest market, in line with, obviously, the product sales. We're strong across the Nordics, but we're also present very highly in the U.K. and U.S. where people are downloading the app and starting to engage with the Goplay platform, so very encouraging future. As I said already, it's the central point of everything we do.
Within the app itself, there are 14 different features. So when you buy your watch, you download the app, you then are presented with a list of features which you can use to interact with, obviously, both your watch and the app itself. And what we find in there are certain products within the app that are very interesting to people. I'll just give you some examples. Again, right at the bottom of the screen, so I'll try and crouch and see some of those.
But for instance, in the last 30 days, over 0.5 million messages were sent to the app, big number. I'm going to pull the stage. The school mode, let's say 345,000 school modes were set recently. And just -- I won't go through each one because you can see them on screen but at the end one, 30 billion steps was recorded over a 30-day period.
We then segue nicely into the Goplay platform. And the reason I say that -- and the reason I say that is because those 30 billion steps are transferred into what we call Xplora coins. Those Xplora coins are coins that children are rewarded based on the number of steps they achieve. They are then using those Xplora coins to then interact with our Goplay platform. Now our Goplay platform is an activity platform, where kids can play, learn and have fun that securely set behind the parents' login details.
As you can see on screen, [ 274,000 ] users are using the Goplay platform as an example. Now at the back end of last year, we redesigned the Goplay platform and gave it a great new look and feel. It's built for kids with a lot of new content we're introducing. And by doing that, what I did as well is I piloted a premium version of the platform. And what that basically means is you can go into the platform and regular play as anyone else does, but you could also enter premium content by way of subscription. We've been piloting this since December, 7,000 subscribers have upgraded to it already, so I'm quite proud to -- obviously, you see that. And as you can see at the bottom again, we've got some very good numbers of interaction.
So just moving on to where we are and where we're going. All of our customers going forward, both existing and new. On the left-hand screen, as you've seen earlier, when you buy a watch, you sign up to SIM product and you're subscribing already. We have them and work with the Goplay platform to upgrade people as well. What we're going to do going forward for 2023 is bring it together into 1 product. So when someone buys a watch, they then activate their SIM but they have the choice to activate a basic version or a premium version. They can then upgrade that premium version at a later date, of course, and we would obviously continue to marketing to make sure we achieve that. But essentially, 1 product with 2 price points.
And those 2 price points, as you can see as well I, quite simple, buy the basic version or the premium version. As you can see on the left-hand side here, basic and premium. So before we had just Goplay, it's a premium version. We've taken all the value of the app-based products we have and reduced those products as a basic version for users. But the things that people are most interacting with as we continue to grow those products and add new content and have new features where we introduced that as the premium subscription model. And the most important thing with this is we're going to build the ARPU for our customers, both for our existing audience we have and new audience. Thank you very much.
Good morning. My name is Kjetil Fennefoss. I'm the company's COO. I've been with Xplora for 5 years, first in the Nordics and since 2 years with the overall business. Let me take you through an operational update. We started from day 1 in the Nordic operations setting up so-called MVNO operations, meaning building a telco operation on top of the network owners' performance. So what we have done -- did in the first years, we set up from 2016 to 2020, the mobile operations in the Nordic countries. And since this is probably one of the very few last remaining segments of the market which still has growth, we actually captured 49% of the net growth in the Norwegian market in that period and that since our operations started [indiscernible].
Then in 2022, we expanded the -- our telco business into 4 new markets where we built our mobile operations on top of the leading telcos network such as Deutsche Telekom in Germany, EE in the U.K., Orange in Spain and France. And we have also signed a contract with AT&T in the U.S. where we are ready to scale up that operation this year.
When we then introduced Goplay as a premium service, we merged the connectivity and the service side into new price plans, meaning that the customer has the choice of selecting either the telco service or the telco service plus the content in a premium subscription. Actually, our customers have 3 means of payments either like with a monthly direct deduction from their credit or debit card or a 6 or 12 months upfront payment with a small discount, which is very good for our cash flow.
The SIM card is pre-installed in the watch, meaning that the customer has a very smooth onboarding experience. All the usage is included, both data, messaging and voice in the monthly fee that you see here on the screen. The customer also does the onboarding herself in real time. It's a really quick and convenient process for the customer. We don't pay any commissions, unlike other telcos to the dealers. And as I said, the customer selects very often to an upfront payment against that small discount, which also gives us very low or 0 costs related to invoicing and payment collections.
We -- I will show on the next page how our ARPU has developed over the years, but we -- from January this year, we made a -- did a price increase, collecting another NOK 14 million in revenue for the full year '23. So we work on margin improvements also on the connectivity side. On the left-hand side, you see our -- how our price plans have developed over the years with those 3 price plans that I just described. We see that we have been able to move the revenue up during the years, and we also then did this step in 1st of January, where we increased with another NOK 10 across the price plans. And then we added the premium service with another NOK 29 or EUR 3 in the markets outside of Nordic.
And you can see how there we have been able to lift our ARPU by 41% over the period compared to all telco players in the Nordic who're already in Norway, where the ARPU has been very stable. So these are the prices, including VAT. This is the weighted average revenue per subscriber per month. So 41% up over the period.
We are constantly looking for new revenue schemes. Our customers have a lifetime of currently approximately 30 months. We have very little churn related to customers leaving for another telco. The reason for churn is end of life when the child has become 9, 10, 11 years old and wants to have a smartphone. That means that your customer lifetime value is around above NOK 3,000 over that period. Then with the uplift of the premium services, we get another NOK 29 or EUR 3 per subscriber with estimated the same lifetime. We have also then introduced a telco revenue sharing model because in some of our markets, we sell it directly to telcos, as Roy pointed out in his presentation, and we have achieved the first revenue sharing model with a telco. So that's a new revenue stream for us.
The fourth one that we're going to introduce later this year is to start monetizing from the app. And that is in those markets where we sell the smartwatch without any connectivity from our side. We also want to monetize of those -- on those customers, meaning differentiation when it comes to the services in the app. In addition to working on new revenue streams, we also are working on extending the customer lifetime. We have a natural stop when they cross -- the child becomes 10, 11 years old. And so far, that is the segment that we have focused on.
Now by introducing X6 Pro, we address youth aged 10 to 13 years and that's a way of both reducing churn and addressing a larger customer base. And then later, we will introduce the senior model, addressing also elderly with special needs. So we are going both for growing the recurring revenue and also broadening the potential market.
When it comes to very specific operational improvements, we already said that we had a negative effect from very high freight cost, and that's inbound air freight that we had last year that was because of the corona and a lot of China opening up and a lot of new goods being brought to Europe. We see now that the air freight rates have stabilized. So we estimate a NOK 12 million cost reduction compared to past year based on the same volume. And we have also started to place some of the shipments from Southeast Asia to Europe on ships, which gives another NOK 4 million savings. So [ NOK 16 million ] on freights alone.
Then we have also, working very hard on automation. We have a lot of employees in customer service, but we see that a lot of the requests can be automated. We managed last year to reduce 115,000 of 370,000 customer requests into full automation. And that is thanks to the chat bots that we very successfully have built and invested heavily in. And we saw towards the end of 2022 that we actually managed 34% fully automated replies. And on top of that, we have fully automated 1 of the key processes that will take -- give us a further 60,000 reduction in terms of number of customer requests that can be automated.
Then when it comes to organization and other OpEx, we are now focusing on the 9 markets where we have mobile connectivity and services. We have reduced on the HR and consultancy side with 9 plus approximately 20 employees. And in general, we have been streamlining other OpEx, so that means that we go into this year, aiming for achieving a 10% to 20% reduction in our OpEx compared to full year last year.
One of the biggest opportunities we have is related to our distribution setup. We buy the products in -- directly from the manufacturing plants in Southeast Asia. We bring them to Europe, and we have -- we hold on our own balance sheet, the products and physically, they are located in Poland. And then we have the setup with distributors serving all the retailers and telcos that Roy presented in his section.
We're now looking at a European master distribution setup that can serve the entire network of our sales channels and that will free up inventory at others that we want to address that as a specific point because it's, of course free capital that we currently have in our balance sheet, right? Thank you. Then, Gro?
Thank you very much. My name Gro or as I like to say in English, Grow, because that's what it's all about. So I'm very happy to be here to share how we work in the U.S. I joined Xplora back in October. And first of all, I'd like to introduce you to our team. We went into 2023 with a full team covering all must-have functions. Last year was a start-up year for us where we identified and recruited the personnel needed. Everything from sales, marketing, business development, both towards retail and telco and logistics. And we also have 2 customer service agents located in our time zone in order to be able to deliver customer service pretty much across 24/7.
The U.S. market today is rough. Consumers look to spend less. They look for great deals. They look for membership perks and they look for services just as much as new tangible products. It's a noisy market in that there are a lot of potentially or perceived alternative products. Not that they are alternative products, but the smartwatch in the U.S. is not necessarily a connected smartwatch that you can actually call with. And that's the kind of noise that we need to reach through in our marketing and communication. It's a immature market in that even though there are a lot of products out there, the market does not seem to know that a smartwatch that you can actually call with is a product that you can buy instead of a smartphone.
But Xplora's value proposition because of our positioning in Europe is very strong when it comes to particularly our full-fledged product, including hardware and software but also and subscription, not to mention, but also the fact that our total cost of ownership over 2 years is absolute the best in the market. So we do see that our main competitors in the market, meaning the ones that sell the most, they sell actually up to 200,000 units each year, but they have chosen to focus on one channel each. So that's a data point that we bring with us. As an example, Gabb only sells in their own channel, own websites and Gizmo only cells through their telco.
General challenges in this market is GPS accuracy, customer service and onboarding and connectivity. If we look at the market size, obviously, the U.S. is a huge market, but it cannot be considered as 1 market because of many things. But if we look at the consumer base that does not already have a smartphone, we're down to around 22 million kids between 4 and 10 years old. And if we also look at the states that are most populated, we look at approximately 11 million kids.
If we then also look at the purchasing power, we're down to maybe 4.5 million kids who live in households with more than $125,000 in annual income, which is the target base that we concentrate on first. Then we can scale from there. Our proposition to the U.S. market is, as in any other markets, the app, 1 basic product, the XGO and 1 premium product, the X6 Play currently and then with the subscription plan starting at $9.99, a very competitive price in the U.S. markets.
So taking that very competitive price into connectivity, we do see both very high and increasing activation in the U.S. So for those of you who are in the room, I probably need to explain this table at the bottom of the page here, which shows that in Q1 and throughout 2022, we had an average activation of 49%, but ending at 60% activation rate in Q4 last year. We have started the year with almost 100% activation. So by now installing SIM cards in all the watches before they go out and by improving the onboarding process, we expect to see very high activation rates in 2023.
On Monday, we actually increased the price -- monthly price starting at $7.99 to $9.99. And then we also plan to add on Xplora premium as every other market. The current retail footprint. We are live on pretty much every major online marketplace, from Best Buy, Walmart, Target, Amazon, obviously, is our most important channel in the U.S. and the smaller brands as well. 2023, the focus is to get in-store with more than 1 of these to drive sales up. We recently closed our first in-store deal. So I'm happy to share that in back-to-school, we will be in stores. I cannot mention the name yet, but our distributor VLC have secured 6,000 units for back-to-school in store. So that's a milestone for us.
Further growth opportunities is to increase online performance, not only in our own channel, but also in marketplaces listings to emphasize the brand name that we actually have established in Europe. In-store retail, as already talked about, telco collaboration, we are in processes with all the major telcos. These are very long, very capital-intensive processes. So it's too early to say anything about that.
But our goal is obviously to also be able to provide our watches, not only with SIM cards and connectivity and take high margins on that, but also on retail through telco. We are in dialogue with several partners for licensing of our hardware and also strategic partnerships with other kids' brands.
So with that, I appreciate for your time and give the word to Sten.
Thank you, everyone. I hope this was interesting for you online as well as the audience to, first of all, get to know a little bit better, someone from our team and also have them to go a little bit more into the details. I'll try to connect some of the dots but also disclose and explain how we think of our growth going forward and the opportunity in the 3- to 5-year perspective. And hopefully, you got some more details in just emphasizing this first one slide that I ended with last.
I hope you have seen some of the details or some of the actions we are taking in order to reduce our OpEx, also how we already have secured to better balance the currency risk. We have renegotiated deals with our vendors to have a measurement in the contract. So if it deviates too much on the currency, we are in a position to then renegotiate the whole contract. As Kjetil mentioned, we have also already secured a different way to execute our freight. So we feel very comfortable that we are in a position to quite drastically reduce some of these cost elements.
Also as mentioned, and as Kjetil went through a little bit more in detail, we have measurement in order to improve our cash position. One of them is about the strategy on how we're working with our distributors. Also next year, bring less CapEx, which will also be a significant driver. And again, to emphasize, we are not in a position in order to have the requirement for additional funding to operate on our business model, very important to emphasize that. And when it comes to the revenue, you have seen some of the details with the new product, how we can drive increased retail price with the same similar gross margin, how we can extend the business model in order also to increase both ARPU but also volume from our highly profitable subscriber base.
It's always difficult to predict anything in the future but we would like to share with you some of the opportunity we have not only to extend our services, but also potentially increase the lifetime value from our audience and the customer, some of which also Kjetil and Sanghyo explained. And one key takeaway I would like everyone to have is to look into what is actually our current proposition and what we are offering.
Today, we are selling 1 product to kids in the age 4 to 10, like Kjetil mentioned, average lifetime 2 to 3 years. It's the only product we have to sell. And we have historically had watches from $129, roughly $10 per month. That's what we have had until now. Since we made this very clear decision to fight for our #1 position, even though it came with cost last year, being the #1 in a category will always bring opportunity. And what we have seen from CES last year accelerated during Mobile World Congress. Being #1, we are experiencing accelerated interest for our various platforms in order to potentially extend the family IoT category.
Kids were first but now more and more parties are looking into the whole family IoT category. With our #1 opportunity, we can potentially pivot that. As Sanghyo mentioned, and the reason why the tech team tried to think about this opportunity 2 years ago, as Sanghyo said, is it possible for us to develop 1 platform on the software side, on the hardware side to potentially be used for multiple categories. That's why we developed our X6 Pro, as Sanghyo mentioned, it can be utilized for multiple use cases to increase our opportunity in the family IoT sector. Right now, we have a family app that normally the parent use for their peace of mind. It's connected with our kids smartwatch in order for the kids to have a safe onboarding to the digital life. That's our current proposition.
As Kjetil mentioned, the key reason why we have churn is that we have nothing else to sell after 2 or 3 years. However, the kid have gathered a lot of content, images and memories in this proposition. Now we would like to provide opportunity to families for the kids to bring the content with their first smartphone but also for the parent to have a service called the parental control so that the first smartphone can be a little bit more safe for social media, online and so on. So the kid can bring with them some of the content and the parents still have a little bit more peace of mind. With X6 Pro, we even can complement that parental control and that experience here with actually a new product even for the youth. So a product for kids and parents here, and we can extend that a couple more years.
And as Sanghyo mentioned, we can even use the same platform to optimize it for the seniors. In this proposition, the app user here will either be the seniors themselves or the caregivers. Many times, it will be the same parent as here or the same person as here. And the watch, same hardware platform, but optimized with feature and functionality for the senior user here as well. Because what we realize, it's the same buyer, the same distributor, the same retailer and the same user in all these propositions. That's why we think in the future, 3 to 5 years, it's difficult to predict, but we are sure that Xplora's future can heavily impact this family IoT category.
Starting in this age, going all the way potentially to the senior, and we are already, of course, strong here with the parent. So if you would like to analyze the company, we saw this 1 question, what is this company worth? We will never have any opinion in that regard. But 1 thing that you can calculate is that currently, we have a lifetime, 2 to 3 years with roughly a watch from $129, $10 per month, as Gro said, high conversion rate here in Norway, is very high, and we are now replicating that into new markets. I think the same platform and services replicated into 3 new verticals. If we do that successfully, 3 to 5 years from now, we can extend the lifetime from 2 to 3 years to potentially 7 to 10 years with a significantly higher watch price and service price per month.
In my point of view, this is what potentially can tell something about what this company can have a impact and value in the future. That said, it all boils down to focus and execution. So I just would like to reassure everyone listening in, 2023 will have a crystal clear focus about making money, become profitable and have a clear focus on the current proposition in [indiscernible] market.
If we can showcase to our company, to our stakeholders, we will do this with success, we can continue to grow in 2024 with more units growth when we have even more profitable services and assess new market opportunities. Again, if you are successful on that, going forward, our objective will definitely be to have success in the broader family IoT category, higher ARPU and a longer lifetime value.
At the end, we would like to provide you some insights, how we think about guiding. It's been a couple of difficult years. We haven't been the best to provide crystal clear and sharp guiding that we have always meant. It's been a difficult market. We have done our best. We have managed some, some not. For 2023, we would like to provide you the measurement for our category, which to most analytics company provide approximately CAGR of 50% going forward. We think that's a fair assumption for the growth in our category.
We will work hard and invest to continue to be the category leader in all the markets we are in. We will heavily focus on the 10% to 20% cost reduction, as well as, we have a clear measurement or goal to pass 175,000 subscribers with a increased ARPU, that's our guiding for 2023. And hopefully, with all the numbers and details we presented, it should be possible to make some good estimation and calculation on how this can develop.
And with that, we can move into the Q&A session. I will then like to have some help from Kjetil and Jonas, operational and finance.
And if we can start with a question from the audience, we can start there while we get quite a lot of questions coming in.
Sure, at the back.
Yes. So you talk about the Pro as a watch that you can also sell to the age group 10 to 13 years. This is an age group where kids -- you talked about the Pro as a product that you call sell to age group 10 to 13 years. This age group where a lot of kids, they already have a smartphone. What is the value proposition there?
Good question. And like we said as well, for us today, it's important to emphasize our opportunity. And for that particular use case, we have then 2 propositions, like we said. One is for the parent that would like to continue to bring on some of the parental control for the youth's first smartphone, so still have a little more control on the smartphone app, so they will then pay a service fee to have that parental control. But then, as I said, potentially you can have a companion watch also for the kids.
And the reason why we are stating that is that we are getting this feedback already from the market or kids transitioning out or churning that it would actually be quite fun to continue to wear the watch to accumulate steps and coins and integrate even better with our platform but not necessarily buy a Apple Watch.
So like we're saying, we have 2 options for the youth, either the parental control as a service but also now a potential companion product for the kids, which the Apple iWatch (sic) Apple Watch could be too expensive.
Interesting. And also you talk a lot about the new ARPU on the subscription revenue, will that, will it be only for new customers or also for existing customers?
We did a general price increase on the 1st of January for all Nordic customers with an effect of roughly NOK 15 million for the full year. Then Gro emphasized that we have also just recently done a price increase in the U.S. market. And then we have the services on top of it that we also recently have introduced. And Jason emphasized that we have already close to 7,000 customers on those premium services.
And there, of course, there's a lot of watches being sold through other telecom operators. How -- is it possible to monetize those customers by selling just the Goplay subscription to those customers?
Yes, there will be an -- in that purchase opportunity for that. We also see models where we can have revenue sharing. Like I said, with the telcos that we already have set up that model. So we are constantly looking for new business models also with the telcos, not only sell the smartwatch.
Exciting. And last question from me. On the cost guidance, that's a pretty wide range of 10% to 20%. Can you say something about what is the uncertainty there? And can you give an indication of it will be the high or the low end of that range?
I can address that. One of the reasons we gave a guidance is that -- we don't know how the market will develop. Maybe we see an opportunity to accelerate. That's also why we would like to have some flexibility in that regard for our cost base and maybe you can comment additionally?
I really do believe you summed it up. We do give a wide guidance and that's on purpose. And I think for now, all we can say is that we are on track to deliver within the first -- in that interval. However, it is early in the year. So we'll just have to wait and see.
Any more for audience? If not, I can try to start to read some of the questions coming in. How is the outlook for device sales in Q1 2023? And without going into the details, Kjetil, you can estimate some of the traction we are seeing.
Yes. I mean, we gave the guidance that the category is anticipated to grow by 15% this year. Then there is, of course, a certain fluctuation between the different quarters, historically always Q3 and Q4 are the strongest one. But we also said that we are -- have the ambition of -- to continue to be the market leader. So category a little up. We, as a market leader, I think that's the answer.
And also, I think, just to be a little bit more clear even on Q1, as we said, given our cost reduction and given the speed we see in the market in Q1, that was also one of the reason in the presentation, we expected our cash situation to even improve during Q1. And on the track, as we said, positive cash flow going into second half.
Next question. Telco customers have a value. What are they -- what are we doing to keep them from buying an iPhone when they turn 10 years old? And I think...
Yes, we have presented X6 Pro to you today, and I think that's the -- one of the answers in addition to what Sten mentioned about bringing content for the kids, everything they have collected over the years, if it's entertainment, if it's images that they want to bring with them to a smartphone, we have the opportunity through the app as well.
Have Xplora thought about getting into the mobile phone industry? Kjetil?
No. We haven't -- we have it on mobile -- regular mobile subscriptions in Norway. So we have tried it out a little bit, but never mobile phones, no.
The margins are not where we would like them to be in that area. Okay. Any minimum cash covenants in the Nordea credit facility? And what is the fees?
So to give a very high-level information about that. We are not at liberty to discuss much about the financing solution. And the terms are very favorable, we believe, and there is -- there are no covenants that would be on equity for us.
What's the sale goals for U.S. this year, number of customer, I did see Gro have that on the screen and it said roughly 10% of the total volume is our goal coming from the U.S. market this year.
I think that is what we have on questions from the audience here.
Yes. So then I would just like to end with all information, of course, as always, available on our investor site, xplora.com/investor. We will spend some more time here with some coffee and hopefully something to share as well, so we can have a little bit more close conversation to everyone in the audience. Thank you so much for participating. We're quite spot on time. So thank you so much.