Hello, everyone, and welcome to Wallbox's Third Quarter 2023 Earnings Conference Call and Webcast. My name is Charlie and I'll be your operator for today's call. At this time, all participants’ lines have been placed in a listen-only mode to prevent background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Matt Tractenberg, Wallbox's Vice President, Investor Relations, to begin. Matt, please go ahead.

Thank you, Charlie, and good morning and good afternoon to everyone listening in today. Thank you for joining today's webcast to discuss Wallbox's third quarter 2023 results. This event is being broadcasted over the web and can be accessed from the Investors section of our website at investors.wallbox.com. I'm joined today by Enric Asuncion, Wallbox's CEO; and Jordi Lainz, our CFO. Earlier today, we issued our press release announcing results from the third quarter period ending September 30, 2023, which can also be found on our website. Before we begin, I'd like to remind everyone that certain statements made on today's call are forward-looking that may be subject to risks and uncertainties relating to future events and/or the future financial performance of the Company. Actual results could differ materially from those anticipated. Risk factors that may affect results are detailed in the Company's most recent public filings with the SEC, including in the annual report, Form 20-F for the fiscal year ended December 31, 2022, filed on March 31, 2023. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results. Also, please note that we use certain non-IFRS financial measures on this call and reconciliations of these measures are included in the presentation posted on the Investors section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I'll turn it over to Enric.

Thank you, Matt, and thanks, everyone, for joining us today. In addition to renewing highlights from the third quarter 2023, we will spend some time discussing how the current market environment is evolving and how our strategy fits within. We will also dig into the ABL transaction and why it has the opportunities to transform our competitive position in the years to come. And then we will review some recent partnerships and commercial wins. Jordi will then offer some color on our cost reduction efforts, provide additional detail on our quarterly performance and share some thoughts on our balance sheet as we close out the year. And finally, I will return to discuss our view of the market and what we are focused on for the remainder of the year and into the next. We will end by taking questions from our covering research analysts. So let's get started. While the third quarter revenue finished below our expected range at €32.5 million, down on a year-over-year basis, driven by continued channel destocking, we made great progress on a number of critical initiatives that were improving profitability, partnerships, balance sheet management and strategic M&A. As we said this year, a large inventory build occurred within our distribution partners in both Q2 and Q3 last year in anticipation of stronger EV deliveries in 2022, which ultimately did not play out as planned. This created digital comps, both in revenue and unit volumes on a year-over-year basis for both Q2 and Q3 this year. The trend that we discussed last quarter has continued and as a result, sell-through via our distributors exceeded the unit sold into those channels. That fell through unit growth on a global basis amounts to approximately 30% year-over-year, a reasonable growth rate in our opinion. On a regional basis,…

Thank you, Enric Good morning and good afternoon to everyone. Our third quarter results came in lighter than expected, driven by additional channel inventory adjustments and some regional variability from residential applications. I'll provide more detail on these results discuss some financing activities we've announced and shared some puts on the remainder of the year. For the third quarter of 2023, revenue was €32.5 million, flat from the previous quarter. On a year-over-year basis, revenue declined in both the U.S. and Europe driven largely by continued destocking. On a sell-through basis, unit volumes increased by 30% driven by strength in the U.S. The inventory build that occurred last year continued in the quarter, and while it's difficult to say for sometime based on the pattern we saw last year, we expect less of impact going forward. Gross margin for the quarter was 35% at a 130 basis point improvement over the last quarter. Mix shifts from new products continue to impact our margins, but progress is being made. DC margins are now above 30%, up from 10% last year. As we continue to transition from Gen 1 to Gen 2, we believe we will see gradual improvement, enabling consolidated gross margins back in the mid- to high series in the fourth quarter. We were able to further reduce both employee-related cash expenses and OpEx, which amounted to €33.2 million in the period. If you recall, our intention was to reduce 2023 expenses by €50 million using the fourth quarter 2022 as our [indiscernible]. Through the third quarter, we have removed €38.8 million from our 2023 costs. The most recent quarterly cash expenses are €16.8 million lower than Q4 2022. This implies that we will exceed our planned reduction something we are proud to share with you today. We see additional…

Thanks, Jordi. As we exit 2023 and prepared for 2024 is an extremely important time for Wallbox. We have set up to achieve scale on the business that will allow us to live profitability very soon. The multiple new products we are bringing to market today provides access to applications and geographies that we have not seen before. DC public charging in North America, DC and commercial charging in Germany, recharging in Europe or either in the U.S. for apartments and office lots, bidirectional around the world. These revenue opportunities are real. They will contribute meaningfully and ABL is an important part of that. We expect revenue growth to resume in the fourth quarter. Managing our cost base is equally critical as we enter 2024. While we've taken huge steps to rightsize the business given the environment, we see more opportunity ahead. We will be leaner, more efficient and more flexible in the coming year. Breaking even then generating positive adjusted EBITDA is now expected just a quarter later than originally planned. We believe that our operating leverage will be greater than previously sold given ABL's potential. It's an exciting time and one that we are very proud of. We believe we are doing the right things and we measure our progress against our strategic plan by speaking with customers and staying close to the market transitions driving our business. Today, we are fully focused on what we can control. This includes taking market share, controlling costs and ensuring we [indiscernible] to profitability in 2024. Each variable Wallbox is focused on this initiative, and we are willing to do whatever it takes to [indiscernible]. While we cannot control the markets, we can control how we compete within that. We are adding diversification across products, markets and geographies that rely less [indiscernible]. We will be largely profitable with a more efficient operational footprint and a more complete offer. We appreciate your trust, I look forward to turning the corner to profitability in the upcoming year. That, we believe, will set us apart from the competition and help [indiscernible] on where it should be. the massive wave of [indiscernible] and channel infrastructure that we see coming over the next decade, and we are ready for it. With that, we are ready to take questions from our analysts.

[Operator Instructions] Charlie, I think you have some instructions for our analysts and how to get into the queue.

[Operator Instructions] Our first question comes from George Gianarikas of Canaccord Genuity.

So I'd like to ask about your expectations around reaching EBITDA positive for next year. You said in 2024. I was wondering whether that means that you expect to reach profitability for the full year? And also your previous expectation about being EBITDA flat in the fourth quarter of '23?

Thank you, George. This is Enric. We are seeing great traction on cost reduction, and we expect by 2024 as a full year to be a profitable year in adjusted EBITDA basis. And what we are doing right now, and as I said during the call, we are reducing cost and adapting to the environment. Therefore, we expect that breakeven or actually profitability to be in Q1 2024. And we've been able to improve EBITDA 22% for this quarter. We believe we will make great progress in Q4 being in very small negative numbers, but actual positive numbers, we won't see them until Q1 2024.

And as a follow-up, I'd just like to switch gears a little bit and ask about the inventory destocking. I know last quarter, you mentioned that you thought it was -- you basically had a sort of an equilibrium, but you continue to see inventory in the channel. Can you just talk about the measures that you've put in place to understand where inventory currently stands and when you now expect to be through that flush?

Yes. So actually, if we look at the difference between sell-out and sell-in, so the chargers that were sold by our board partners, we see a €10 million difference. And that's something that we have not seen materialize this quarter. When talking with partners and looking at the data, what we see is that they are carrying less inventory that they normally would. They used to have at least 1/4 of inventory and some of them are being more lean and having a couple of orders a quarter. That's happening for some partners, big partners, especially that want to manage in a more smart way, they're working capital. And this is the gap that we've seen in Europe, mostly for AC charging, which was this €10 million. As we look forward, we are seeing that it's getting better, and we expect Q4 and Q1 to be clean in terms of inventory.

George, the only other thing I would add, it's Matt, by the way, is that this is now four quarters of channel destocking. So the inventory build at our channel partners ended in the third quarter of last year. So while we don't want to tell you that it's complete, the data that we're looking at suggests that we're nearing the end of that cycle. And so that's what Jordi was talking about, the impact being less going forward. That's what we believe, and we're getting that both from the data and from conversations with customers. So hopefully, that's helpful.

Our next question comes from Abhi Sinha of Northland Capital.

So I just want to understand on the ABL acquisition. I understand Germany was an import area where you were underrepresented. The first thing is, is that enough for you to make a breakthrough in Germany? Or would you require more similar acquisitions there? And second, is there any other import area in Europe where you are underrepresented and something more like this kind of acquisition might be a possibility?

Thank you, Abhi, this is Enric. So ABL is the market share leader in Germany. So when it comes to AC charging, yes, it's more than enough. And the commercial network they have established after 100 years of a company, it's massive in Germany. They have presence in municipalities, in distribution channels, with installers. They even have a training center for installers all across Germany. So we're bringing Supernova and Pulsar products through their commercial network is going to be obviously a huge synergy. So yes, it's an up for AC and for DC charging. The ABL team is super excited to start selling Supernovas actually. And they bring a product that for us was Orion. Orion is our commercial charger focus to sell energy in commercial applications. The eM4 fulfills exactly what Orion should have fulfill. It's a product that is tested, that is being sold. So as we speak now, what we are doing, we are offering it to other geographies where ABL is underrepresented. Obviously, they are strong in Germany, but not in the rest of Europe. And we also see a lot of synergies coming from there. When you ask about other countries that you think -- we think we're underrepresented, I think we -- after this acquisition, we are a powerhouse in Europe. We are the number one manufacturer of EV charging in the European continent with offering in all segments from home commercial and fast charging and even bidirectional charging. So Immediately, I say no. I say we don't need any other acquisition like this in Europe. But we also recognize there's going to be more consolidation in the European space. And we continue to look for opportunities. But by right now, our focus is making sure we can grow the ABL business together with the Wallbox business.

Our next question comes from Stephen Gengaro of Stifel.

I think two for me. Just ABL contributed, I don't know, about €13.5 million in the quarter. Is that -- and I know you gave some guidance on 2024 as well. Is that a reasonable run rate? And is there any seasonality we should be thinking about in the ABL business? Did I lose you?

Sorry about that.

I believe we've lost connection with the speaker team. There we go.

We're good. Okay. My apologies. So Stephen, just to clear that up, ABL did not contribute anything in the third quarter. The number that we gave you, which was approximately €46 million was a data point to give you a sense of the size or the scale of the combined business. But remember, we closed the transaction on November 2. So we will include two months of Q4 in our Q4 numbers, but they didn't contribute today to the numbers that we reported here today. Your question was about linearity, seasonality or sort of the path forward. And I think what we want to leave you with is that we expect somewhere between €60 million and €75 million during the 2024 period. We've set very aggressive targets for them and we'll continue to report on how their performance is. But how that shakes out over the next couple of quarters I think give us a quarter or two just to get our hands around the business and spend time with the team, and we'll share more with you on the next call. Okay?

And then just as a follow-up, you mentioned how strong that business was in 2022. I understand Germany is a more mature market. But I'm just sort of trying to understand the drop in revenue. I mean if you cut half in 2022, what's behind that? Are they sold businesses? Is it just evolution of the German market? And is that €150 million the kind of potential they could get back to?

Stephen, this is Enric. So that's something that happened to all German companies and companies that participate in the market. We also saw this drop on sales in the German market. That was driven by the KfW incentive. There was -- the German bank was subsidizing commercial and home chargers in Germany, almost for free, basically, including installation. And when that stopped last year, at the end had an impact in the whole market. We are seeing -- as you can see, the €13 million, €15 million revenue quarterly right now. And we obviously believe that they can go back there to these numbers as the German market becomes more normalized after this year. You have to think that it was a very subsidized time in 2022, 2023 after the subsidies were finished, obviously, the market dropped, because there has been a lot of people that have bought charges in that period. But now in the Q3 and Q4, we are starting to see exciting opportunities. And we also saw new incentives coming from KfW in the German market. So it's not only that the market is improving, also the same entity is adding smarter and less [disruptive] rates incentive, but still that support the growth of the charging business.

So Stephen, yes, we -- I just want to be clear, we do believe it. Stephen, over time, we do believe that, that team can get back to those numbers. Okay.

Our next question comes from Ben Kallo of Baird.

All right. Just sticking to the acquisition there, can you give us any details about the process? Was it competitive? And then just because of that fluctuation in revenue from '22 to '23 and the thoughts about getting back to that. Can you talk how you guys looked at valuation when you made the acquisition?

Yes. Ben, it's Jordi Lainz. Well, it has been a very special process, because it was a private owned company by a family, it's a very old company. And they were doing significant efforts in 2022 in terms of investments to achieve higher growth on 2023, that finally, as Enric mentioned, did not come. This financing of these big investments and increase in headcount were expected for a market growth that didn't happen. And since first quarter 2023, this company show how their sales were not growing them on 15%, their sales were decreasing by 50%. It creates a distressed situation that became on a bankruptcy process in June 2023, where the business was managed by administrator and self-administration process. In that process, it's a third party, which is assisting to the existing owners to a selling process as quick as possible. In that situation, we were in front of a process with at least two competitors to European competitors and a couple of private venture companies and selected company that was the most excited and complementary in terms of achievement common goals, in terms of market share and complementary in products was Wallbox. And this is why Wallbox presented an offer in competition with other three offers that was best elected because it was considered as the best option for the future growth of the business. And this is why it has been, as you can -- and the market has seen a very competitive and attractive pricing for the business -- for the whole business.

Ben, to add to that, this is Enric. So the owners of ABL at the time the family owner, they had part of the decision on who was the best offer. And the fact that there was no overlap between Wallbox and ABL, and they are very complementary companies. And that obviously keeps forward the thesis that was an important part of the decision. But yes, it was a very competitive process.

As we think about gross margin and any kind of seasonality into next year, can you talk about if there is any seasonality impacts gross margin? And any kind of -- there's a bunch of factors that you talked about in the prepared remarks impacting gross margin, but how we should think about levers increasing it and kind of timing for the increases in gross margin?

Yes. So we don't expect any seasonality. We expect constant improvement as the Generation 2 Supernova is becoming a bigger part of the product mix of our CFC sales. You have to see that Supernova has very high -- Supernova Gen-2 has higher gross margin than Supernova 1, which was much lower, and that's the biggest driver in gross margin. When next -- at the end of this year, this current quarter, we are also launching Supernova in the U.S., and it's coming with a very great gross margin closer to the 40%, which is the target of the Company. And therefore, also this will support building margin. Additionally, as we keep producing our own inventory, the one we have in our warehouses, that give us opportunities to improve the design to cost of our products. As we've been cleaning inventories from many products, we didn't have an opportunity to implement design to cost improvements that have not been seen, because we were eating through inventory. But already this quarter also, there's new initiatives that are coming and reduce cost and impact obviously gross margin. So I think we should expect to see in general, an improvement on gross margin, getting close to the 40% target of the Company. There might be some quarters where we have an extra sale of Supernova and less AC or more AC and less Supernova, that's going to be what will create a little bit of noise. But in general, we expect improvement and no seasonability.

[Operator Instructions] Our next question comes from Robert Jamieson of UBS.

Just one, just to go back to ABL real quick, just two-part question here. One, what's the level of EBITDA that they experienced in 2022? I know you said it was profitable and they generated €150 million in revenue. And then, I guess, second to that, related to gross margin. I mean, look, it looks like you have a lot of opportunities here. You've got additional capacity for other components that you might have been buying from a third party, whether that's the socket manufacturing, injection molding. Can you maybe talk about how to think about that next year in terms of gross margin and benefits there? And then as well as any kind of benefits to reduction in CapEx or OpEx that you'll also receive from ABL?

Robert, it's Jordi Lainz. As we mentioned in the script, company reported positive adjusted EBITDA in 2022 with single digits, positive single digit on 2022. And last three years ago were constantly net profit. And this lower positive EBITDA, which do just that begin to decrease sales in the last quarter, but for year-end, was a positive adjusted EBITDA. And another point that we believe is really interesting is significant gross margins at the Company has been reported historically in older portfolio that is around 40% and some months above.

Yes. Robert, going to the gross margin potential improvements, you're right. There's a lot of upside for gross margin. So we are not including in our target of 40% for next year these potential upsides, but there's many things. So one thing that's very interesting is for our commercial products, for example, Pulsar socket or Copper SB, we use a device that a socket, that's important part of the cost of the charger actually is where all the power goes, so it's plastic with a lot of copper inside. And normally, we buy this from suppliers, but now ABL being an expert on the subject, they manufacture them. They manufacture them for all the different markets, because every market has a special socket designs. So this immediately brings an improvement on gross margins for these kind of products. Obviously, we don't expect to hit our P&L until the second half of the year as we are working on that right now. Or for example, ARES, we make our PCBs, we assemble our own PCBs. And in this case, ABL has to buy PCBs from third parties. So in that case, also that's something we will work with ABL to provide to them. So there's a lot of opportunities here. Again, no overlap -- and that's why was so exciting to find out this about ABL and looking forward to this upside.

Excellent. Congrats on the settings exciting for next year. And then I guess just kind of more stepping back to a higher level question in U.S. and nevi deployments. Just curious with your conversations that you might be having and obviously, it's a very competitive landscape given everyone is trying to get their chargers in the ground. But just curious, what are some of the most important attributes that customers are looking for in terms of the charging equipment itself? I mean, is there anything that you've seen through your conversations that's consistently a topic of conversation? Just curious any insight there?

Yes, Robert, it's Matt. Thanks for the question. So I think that there's three things. One is the ability to effectively deploy OCPP. So what you're finding is that customers want to control the driver experience, we enable that. We're agnostic to it. And if that's something that they want, we're all for that. And that's not something that you see across the competitive landscape. Sometimes it's spoken about, but it's not particularly embraced. So that's the first thing that they're asking for. The second thing is modularity or scalability, right? I think that they want to scale into the higher power chargers eventually. There's not a lot of cars on the road today that can charge at 300 or more kilowatt speeds. And so what you're seeing is that they want to gradually layer themselves into that infrastructure and spend when it's needed. So that's 2. And then I think the third thing is reliability. It's really the most important factor that everybody is asking about. And so high quality, making sure the uptime is impeccable Christine. That is something that we've been focused on since the beginning. We have a lot of good data and a lot of great experience here in Europe, delivering very, very high-quality DC fast chargers, and that's something that's top of mind for customers as well. Does that answer your question?

Yes, very helpful.

Charlie, I think that that's going to be our last question. So I want to thank everybody for joining us today. We hope you found today's call a good use of your time. Please watch our website for details if you're interested in meeting with us. Let us know if we can help you in any way. Have a great day, everyone.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.