Earnings call transcript: Impact Coatings Q4 2024 sees sales growth

Impact Coatings reported a 12% increase in full-year net sales, reaching SEK 110 million, with Q4 sales showing significant growth compared to the same period last year. Despite a net loss of SEK 29.6 million, the company improved from the previous year's loss of SEK 32 million. The stock experienced a modest rise of 1.44% following these announcements, reflecting a positive market reaction to the company's performance and strategic initiatives. According to InvestingPro data, the company has demonstrated impressive revenue growth of 45% over the last twelve months, though analysis suggests the stock is currently fairly valued.

Key Takeaways

• Full-year net sales grew by 12% to SEK 110 million.
• The company reduced its net loss to SEK 29.6 million from SEK 32 million.
• Stock price increased by 1.44% following the earnings announcement.
• Successful delivery of IC2000 systems and expansion in the Chinese market.
• Strategic focus on hydrogen market leadership and cost control.

Company Performance

Impact Coatings demonstrated resilience in Q4 2024, with sales hitting SEK 42.4 million, surpassing the previous year's Q4 results. The company is making strides in the hydrogen market, particularly in China, as it shifts focus from North America. The strategic relocation to a new facility in Linkoping and investments in new equipment have bolstered its production capabilities. InvestingPro analysis reveals the company maintains a strong financial position with a current ratio of 2.51, indicating robust short-term liquidity. However, InvestingPro Tips warn that the company is quickly burning through cash, which investors should monitor closely.

Financial Highlights

• Revenue: SEK 110 million for the full year, a 12% increase YoY.
• Gross margin: 57% for the year, down from 59% in 2023.
• Net loss: SEK 29.6 million, an improvement from SEK 32 million in 2023.
• Cash balance: SEK 32.5 million at year-end.
• Negative cash flow: SEK 89.7 million for the year.

Outlook & Guidance

Impact Coatings aims for profitable growth by increasing sales and expanding customer base. The company plans to continue its expansion in the metallization vertical and explore horizontal application opportunities, maintaining a strong focus on cost discipline. With a market capitalization of $34.53 million and a beta of 1.6, the stock shows higher volatility than the broader market. Discover more insights about Impact Coatings' growth potential and 8 additional exclusive ProTips with an InvestingPro subscription, including detailed analysis of the company's financial health and future prospects.

Executive Commentary

CEO Jonas Nilsson emphasized the company's ambition to lead the hydrogen market, stating, "We are striving to become the market leader across the board in the hydrogen market." CFO Liana Ober highlighted the importance of sales growth, noting, "Continued sales growth is vital to scale up the business."

Risks and Challenges

• Hydrogen market setbacks could impact growth prospects.
• Dependence on the Chinese market may expose the company to geopolitical risks.
• Maintaining cost control while expanding production capabilities.
• Potential delays in customer adoption of new technologies.
• Economic fluctuations affecting customer demand and investment.

Impact Coatings' strategic initiatives and focus on innovation are poised to drive future growth, despite potential challenges in the evolving hydrogen market landscape.

Full transcript - Impact Coatings publ AB (IMPC) Q4 2024:

Webcast Moderator: Hello, and welcome to today's webcast with Impact Coatings, where CEO Jonas Nilsson and CFO Liana Ober will present the year end report for 2024. After the presentation, there will be a Q and A. So if you're calling in and want to would like to ask a question, please press to raise your hand and then to unmute yourself when you're handed a word. You can also send any questions to the form to the right. And with that said, I hand over the word to you, Jonas.

Jonas Nilsson, CEO, Impact Coatings: Thank you. So welcome to this presentation of the Q4 and year end report. I am Jonas Nielsen, and I would like to take the opportunity to welcome our new CFO, Lina Orbari, who stands here beside me in our brand new facility in Linkoping. So this is the agenda, Q4 highlights, financial update, summary outlook, and we will round off with a short Q and A. So Q for highlights.

Let's start to talk about the market situation. Several major players face significant setbacks in 2024. For example, some of the big electrolyzer companies announced layoffs and delayed forecasts. But here at Impact Coatings, we have continued to strengthen our position, especially in China. In hindsight, we can see that several market players and some of our customers probably accelerated too aggressively during 2023.

And maybe also we got a bit carried away. So we had to switch focus from the North American market to the Chinese market. This was, of course, a challenge, but we made it. So '24 is actually better than '23. So a small crisis can be what you actually need to push yourself.

Today, we have multiple systems in commercial operation in China and a local coating service center where we have seen increasing volumes during the year. We also see signs of recovery in North America and increased interest from new customers. Also, we see the sampling orders from some customers starts to reach production quantities and we are in the process to to get qualified for volume production at those customers. Looking at Europe, Europe is not as volatile as North America and China. And in Europe, we have ongoing coating services business for other things than hydrogen.

In the past, Europe has been slower in hydrogen, but we see also increased interest in hydrogen in Europe. And we also see interest from potential machine customers in Europe. So let's talk about our business approach to this market situation. We have a strategic sales focus. System sales remain steady throughout the year and we see a strong growth in China.

We measure the number of new paying customers ordering the first sample. A total of 29 new customers were welcomed during the year, including eight in Q4. The new customers are well distributed across the radios. So I would say that we do have an increased sales momentum. And ordering this first sample is, of course, the start of the customer journey.

And it's the start for the customer journey, both for machine customers and coating services customers. This is typically followed by more samples until we are qualified, that is selected as approved supplier, and then it continues with either coating services orders or a machine order. We have increased our delivery capacity. In Q4, we made a successful delivery of yet another IC2000 system. And all the way during 2024, we have delivered with short delivery times.

At previous webcast, I have said that our goal is to be able to sign an order and deliver that order within the same quarter. And we have once again proven that. The shift towards standardized product production of systems, which were based on forecasts, has improved delivery times. It will reduce costs and will enhance operational efficiency. Proactive management we are in a path to profitability and the focus has been on increasing sales and deliveries while maintaining cost control.

We're looking at internal efficiency and in the end of twenty twenty four and now beginning 2025, we made a slight reduction of headcount to improve cost control and internal efficiency. The reduction affects both contractors and permanent staff and is combined with other actions to increase efficiency. So it will not impact our ability to deliver. Already last quarter, we passed 100,000,000 in rolling 12 net sales and now we also show it for the year. Net sales for the quarter amounts to 42,400,000.0, which is higher than Q4 twenty three.

And to make a fair compassion in '23, we pushed very hard to deliver everything we could at the end of the year. We also did that this year. We deliver machine to China, and we also see growth in coating services in Q4, also mainly driven by China. Aftermarket is comparable to previous year, but we see a small increase compared to last year Q4 twenty twenty three and compared to the previous quarters in 2024. So all in all, this sums up to almost 110,000,000 for the year.

So let's switch to rolling 12. As you can see, after a temporary dip in Q1, we are witnessing an increase in rolling twelve month sales during Q3 and Q4. Sales growth is the cornerstone in our journey towards profitability. When looking at sales over the past quarters, it is clear that we have now established ourselves on a new level. While Q1 twenty four was a bit slow, the quarters both before and after have been the best we've seen in the past six years and we had an all time high this quarter Q4 twenty four.

As I said, we are on a path towards profitability, but we're not really there yet. For the quarter, we have a loss of $3,600,000 The main focus is to sell and deliver more, but we're also looking at costs and improve efficiency. So at the end of Q4 and beginning Q1, we made a small reduction of staff. When it comes to cash flow, it has been a deliberate strategy to standardize and build a forecast to enable shorter delivery times, which enables increased sales. And this strategy has been successful.

Today, we have the level of inventory needed for fast delivers, so there's no need to further increase the inventory. It can also be noted that there are substantial payments that will come this year, I. E. '25, that originates from the sales and deliveries in 2024. If you look at the picture on the slide, the picture shows our assembly hall here in our new factory in Linkoping.

And as you can see, there is one IC2000 in the front of the picture and one IC 500 in the back of the picture. Both are in the assembly stage but can be delivered to customers with fairly short delivery time. Previously, I've been talking about the IC2000 as our workhorse. Before December 23, we only had one ICT thousand, the first prototype in commercial production. Now we have multiple machines running 20 fourseven at customer sites.

So if we look at the bullets on the slide, proven delivery efficiency. The successful delivery of one more IC 2,000 system within the same quarter as order was received, demonstrates the effectiveness of our forecast driven production strategy. Market acceptance. The IC 2,000 is about to establish itself as a key solution to the industry and to be recognized for its reliability and also ability to meet demands. Optimized for large scale production, the IC2000 is designed for high volume throughput, but it's also a design you can grow with.

Multiple systems in full speed production, which drives system and product refinement So, real world operational experience enable us to continuously fine tune the IC2000 for high performance series production applications. To have multiple systems running in real production at customers is a technical asset. Those customers, they test our machines in a way we could never test them here in house. And when something goes wrong, they send us error reports, we fix it, and we improve the machines. In this way we get our machines battle proven.

We believe that this will be a very strong competitive advantage when the hydrogen market expands. Although this is a Q4 year end report webcast, I want to mention some some technical things. Compared to our competitors, we have very few moving parts in our machines, and we only have one turbo pump in the center of the machine. Having customers that run the machines 20 fourseven can be a challenge, but with fewer moving parts, it's also less of a challenge and with fewer moving parts, you can get battle proven faster because you have an intrinsic robust design. So here are the press releases since the last report.

We have one machine order of yet another ICT see 2,000 and we have one collaboration with FineTill C Tech. The collaboration is nonexclusive, where we promote where we together promote stamping, welding, coating and sealing. And that is the complete value chain to a plate that is ready to be mounted into a fuel cell stack. So with that, I hand over to Lina, who will guide us through the numbers.

Liana Ober, CFO, Impact Coatings: Thank you, Jonas. Yes, as we have concluded, we had a strong quarter in all revenue streams. We delivered one coating system to Fine Tool in China, and we also delivered some upgrading. It was a very strong quarter in Coating Services with increase in Sweden, but especially in China. And this quarter reduced the gap compared to last year.

The sales in the quarter was CHF 10,400,000.0 compared to CHF 4,400,000.0 last year. Also aftermarket increased compared to previous year CHF 5,100,000.0 compared to CHF 3.9 with a good level in Sweden, but the increase was in China. Gross margin at 61% for the quarter was lower than last year, but an improvement compared to Q3 twenty twenty four and contains a product mix including one coating system. And we continue to work with improving efficiency of course and lowering COGS. Personal costs and other external costs were SEK 27,800,000.0 compared to SEK 22,700,000.0 last year.

And the increase mainly pertains to increased costs of hired consultants and also higher rental costs since we had rents for both the old facility and the new one in Q4. And we also have some extra costs for moving to the new facility. Currency exposure resulted in a foreign exchange loss of $300,000 Interest income amounted to $200,000 compared to $1,800,000 last year. In total, this adds up to a negative net income for the quarter of SEK 3,100,000.0 compared to plus SEK 600,000.0 last year in Q4, but where last year's Q4 included a one time gain of $4,100,000 4 point 0 million dollars As for full year, we had a strong growth in sales, 12%, supported by increased activities in customer acquisitions and investments in our Coating Service Centers. So full year net sales were close to SEK110 million as Jonas has mentioned with the strong sales increase in coating systems, SEK74 million in total compared to SEK51.9 million last year.

And aftermarket increased as well to 14,300,000.0 compared to 11,400,000.0 last year. Coating services didn't really increase, but made a good progress in the last quarter and ended at $21,600,000 compared to $35,100,000 last year. Gross margin for the full year was 57% compared to 59% in 2023 percent and '20 '4 percent contains a product mix including more coating systems and less coating services. As mentioned before, personal costs and other external costs increased in Q4 especially and ended at $88,800,000 compared to 83,600,000.0 million dollars in 2023. And the main explanations are the increases in Q4.

That is increase in hired consultants and extra facility costs an increase in facility costs as mentioned earlier. The increase in depreciation, SEK 6,400,000.0 compared to SEK 4,800,000.0 last year is mainly from the Chinese facility. There was an exchange gain of DKK1.0 million in 2024, and the interest income for the full year was DKK1.2 million compared to DKK1.8 million last year. And in total, this led to a negative net income of SEK $29,600,000 for the full year compared to SEK $32,000,000 last year, negative. And we move to the balance sheet and conclude that we have continued to invest in coating systems through our coating service centers.

And we have also continued our work to produce systems based on forecast. And of course, there are a lot of figures on this slide and I will explain the most important changes compared to the end of last year. So starting at fixed assets, intangible assets have increased in capitalized development costs. If we go down a couple of lines, it's also assets under construction have increased. The closing balance is $18,000,000 and that is to support future growth in sales.

We have been working with one ICE 2,000 system to the coating service center in China, which was delivered in Q4. And we have also been working on one IC 500 system for Sweden as well as made investments of other equipment to the new facility in Linkoping. We also have long term accounts receivables in the balance sheet of $16,300,000 And in total, this means an addition of SEK 26,000,000 in fixed assets compared to the end of twenty twenty three. The next major change compared to last year is related to our continued work to manufacture systems based on forecast to shorten lead times and generate an increase in sales. For these systems, we have purchased components, which can be seen in the increase in raw materials, which have increased to $94,000,000 from $8,000,000 in 2023.

We also see an increase in work in progress by $7,700,000 Other short term receivables have increased by SEK 26,000,000 and consists mainly of customer receivables and also prepaid expenses and accrued income. As for cash, we will come back to that in the cash flow statement. For short term liabilities, they have increased $9,000,000 and is a mix of increased accounts payables and increased accrued expenses and prepaid revenues. So the cash flow statement. We can conclude that the end of the year we ended with a cash balance at $32,500,000 Continued sales growth is vital to scale up the business and we are working according to our plan to get in new paying customers and we are well prepared for fast delivers to increase sales.

The cash flow was negatively affected, of course, by the operating result for the year, which was minus $31,300,000 The increase in working capital of more than $50,000,000 is driven by a large increase in receivables, mainly due to high sales, especially in Q4 and also driven by the new strategy in 2024 to produce systems based on forecasts. So we are well prepared for fast deliveries. And as we have mentioned before, investments during the year almost SEK 17,000,000 is mainly related to one coating system to our coating service center in Shanghai and one system to the new facility in Linkoping, but also capitalized development and investments of equipment to the new facility. In total, this resulted in a negative cash flow of 89,700,000.0 in the year and a closing balance of SEK 32,500,000.0. This was a financial update, which means that we now move on to the summary and the outlook.

Jonas Nilsson, CEO, Impact Coatings: Thank you. So summary, net sales exceeded SEK100 million. This is a key milestone demonstrating a strong growth and strategic execution. Continued system sales momentum. We have successfully delivered multiple ICT thousand systems, reinforcing our market position and customer trust.

Growing traction in Coating Services, increasing demand, particularly in China, will support long term recurring revenue. And if we look at operational improvements, Standardization gives result an increased delivery capacity. Proactive management and stricter cost control measures. This includes adjustments in staffing and operational expenses with the aim to strengthen long term profitability. So looking at the future, maintaining leadership and explore new opportunities within the hydrogen business area.

We are striving to become the market leader across the board in the hydrogen market. This means maintain leadership where we are leaders and explore new opportunities within the hydrogen business area. We want to expand further within the metallization vertical while being open to horizontal application opportunities. We use active sales activities in the metallization vertical and we continue to be open to horizontal application opportunities that sort of comes our way. We target profitable growth through increased sales with cost discipline.

Continued momentum in adding new customers. Last year, we added more than two per month. We will continue to add more new customers in parallel with developing the ones we got last year into big ones this year. We have reduced coating system lead times by production to forecast and we will continue to decrease costs by producing to forecast. So with that, thank you everyone.

Webcast Moderator: Thank you so much for the presentation here. And we'll now carry on with the Q and A. And the first caller in that has a question is Laura Motali from ABG. You have the word.

Laura Motali, Analyst, ABG: Hi. Laura here from ABG. My first one is on your gross margins. You obviously managed to increase in this quarter, both of year over year, but also quarter over quarter. Could you maybe tell us how you've been working on improving your gross margin?

Is it mainly from your new forecasting based systems? And what levels can we expect moving forward?

Jonas Nilsson, CEO, Impact Coatings: Yeah. Mainly, we are working with reducing COGS. And when producing to forecast and standardizing our machines, you can reduce the production cost of the machines. And you do that in in two ways. One is if you have standardized machines, you buy more of the same from your suppliers.

And if you buy more of the same, then you can lower the cost for for the parts. Also, when producing to forecast, you can plan your production in a way that you can be more efficient in your production. And what we see in sort of the future that will also come, we have moved to our new facility here in Linkoping. We have invested in some new equipment to make the assembly much faster and more efficient. So we do have a good potential to further reduce COGS.

Laura Motali, Analyst, ABG: Okay, great. Thank you. And during the quarter, you had some elevated costs, which were partly due to the expenses associated to relocating your offices. Have all these costs been accounted for? Or should we anticipate additional costs related to this in the upcoming quarters?

Liana Ober, CFO, Impact Coatings: Yes. I can answer that. Yes. We have already caught these costs, I would say. There could be some investment inside the facility, but that's not connected to the move.

So that's that's now an improvement. Yeah.

Jonas Nilsson, CEO, Impact Coatings: Yeah. And and I can also say that that we we are up and running in the new facility. So we have delivered our first machine from from the new facility. So it's it's working, and we see shorter assembly times already now.

Laura Motali, Analyst, ABG: Very clear. Thank you. And could you if we talk a little about pricing, could you talk about the latest pricing trends you've seen? How is the pricing trends of the in line codes has changed in recent years? And maybe if you could just elaborate a little on this?

Jonas Nilsson, CEO, Impact Coatings: Yes. In general, we have raised our prices a lot. If we look sort of over a bit longer term, this is mainly driven by the fact that our machine is getting bigger and bigger. The IC2000 was released in released to the public in 'twenty two. We made our first delivery to customer in late 'twenty three.

Now during '24, the focus has been on the 2,000, and the 2,000 is is much bigger than the 500. So we can charge more for it. We also have have improved our we also have have improved our machines in in terms of capacity. Also the small machines have have been improved in in terms of capacity so so we can we can raise the price. So if you just look at sort of the price the customer pay for a machine that is going up.

If we look at the trend on the market, we see that we are sort of pushed downwards and we see that competitors, they sometimes, what we think at least, underprice their machines to try to get orders. And especially when we win and they lose, they have sort of nothing to lose on sending in quotations that are quite low. So we see a sort of push to lower the prices, but we try to mitigate that by adding sort of more functionality and more capacity to our machines so we can keep the the prices or even even increase the prices. And in parallel with that, we are working with lowering the cogs to maintain and increase our gross margin.

Laura Motali, Analyst, ABG: Very clear. Thank you. And could we just please talk a little about the market momentum in The U. S? You mentioned briefly this earlier, but like, what's the current status of your US coating center?

Jonas Nilsson, CEO, Impact Coatings: Yeah. So so we we still have the plan for a US coating service center. We have not stopped that. We're just holding our finger on the pause button, but we are ready to start. So as soon as we see volumes, increase in volumes, we will go for a U.

S. Coating Service Center. And one of the drivers to have a Coating Service Center in The U. S. Is to be present in different parts of the world.

So we are not that dependent on sort of tariffs and trade wars and so on. Whatever happens, we will be have a production where we have our customers. And we see this will probably be more and more important, especially for U. S. To be able to produce on U.

S. Soil. And then we're talking U. S, not only North America, but U. S.

Now I sort of lost your it was a long answer, but I maybe lost your question. Was it an answer to your question?

Laura Motali, Analyst, ABG: It was an answer. Thank you. That was all from my end. Thank you very much.

Webcast Moderator: Thank you so much for the questions. We will now carry on with some questions that have been sent in to us. And the first one is, analysts and financial media predict need for a capital raise in the near future. Can you comment on that or can you avoid it?

Jonas Nilsson, CEO, Impact Coatings: Well, we we have a business plan, and we have enough liquidity to execute on that plan. I'll try to give you a bit more details. Our strategy has been and is to standardize and build a forecast, and this requires inventory. Now we have the inventory needed to execute on on that plan. We don't need to build any more inventory.

We also have a brand new factory here in Linkoping and we have the capacity to produce one machine per month. And we don't need to take any more investments to to get to that capacity. We have that capacity. So we already have what is needed to execute on a plan. And we have shown during '24 that we can get orders and we can deliver.

But, of course, we have to get the orders. And to do that, we do have the right sales team in place with designated focused salespersons on the right places around the world. So we are well prepared for 2025 and we have everything in place to execute on our business plan.

Webcast Moderator: Thank you. And you mentioned inventory here in the last answer. How many systems can you deliver based on the year end inventory?

Jonas Nilsson, CEO, Impact Coatings: Yeah. We we sort of have the inventory level we need to deliver, so so there's no need to further increase the inventory level. For example, you saw from the picture of the factory, where you could see that we have different sizes of machines in different stages of assembly. So so today, we can deliver any of our standard sizes with any configuration at at a decent delivery time. And this is important for the sales process.

I mean, the ability to deliver is important to be able to sell. So so this gives us a competitive advantage.

Webcast Moderator: Thank you. You exclude only 300,000.0 SEK from metals from Electrolysis twenty twenty four. Don't you deliver Electrolysis coatings in volume any longer or are there metals included in the coating service revenue? If so, how much?

Jonas Nilsson, CEO, Impact Coatings: Yes. We we we do we do, deliver such such coating services for for electrolysis. We we have customers who prepay the metals, and we charge them in a cost neutral way, And we show that in in our reports. Today, this is, however, not the preferred model, because that's that model is good if you have, like, one or two customers. But with many customers, it's a much more efficient model to include the metals in the price and also charge a margin on on the metals.

You cannot charge that much margin, but you can charge margin also on the metals. So we use the new model for our all new customers, where we sort of have one price which includes everything. And we are also working on transferring the old customers to this new model.

Webcast Moderator: Thank you. How big is the accounts receivable balance?

Liana Ober, CFO, Impact Coatings: Yeah. This is a very good question. And maybe we didn't mention that in the question before, but I think I kind of talked about it when presenting the balance sheet. But we have a lot of receivables, both short term and also some long term. So I would say we have about 45,000,000 in receivables coming from sales and the receivables we are awaiting payment for, of course.

So that will contribute well to the future cash.

Jonas Nilsson, CEO, Impact Coatings: Yeah. And maybe I should have mentioned that on the question about our liquidity. That this is sort of incoming cash where we have already done the sales job. So there's no sales job needed to be done to get those payments.

Webcast Moderator: Thank you so much. Moving on to the last question here. How big is the potential in the Faintool's Citec partnership announced in January?

Jonas Nilsson, CEO, Impact Coatings: It is a I can first tell you a little bit what it is. So it is a nonexclusive collaboration where we promote each other. And for us, this is an opportunity to create a whole product. And this is important for the push pull strategy, because we become much more relevant to the customer's customer. I'll give you an example.

A stack manufacturer, which is one of our customers customer, a stack manufacturer typically buys ready to mount bipolar plates, buy membranes and other stuff and assemble that into a stack. If we look at the bipolar plate, it consists of two sheets of formed stainless steel and it's welded together and then coated by a PVD coating. Fine Tool, they do the forming and sell machines for forming of those metal sheets. Citec focuses on the laser welding and we do the coating. So together, we have a complete offering.

So we can go to our customers' customers and be relevant for the customer's customer. Then they can sort of choose either the complete offering or they can share a pic and take a coating from us and the rest from someone else. So so this is this is, important for us to to be able to, be more relevant for for our customer's customer. And it's also good to have this collaboration because we can do joint activities. For example, we went to a trade fair in in Paris, and we shared a booth, which means that we can be an exhibitor at at a very low cost and we can sort of ride on each other's customer base.

Webcast Moderator: Thank you so much. Those are all the questions we had. So thank you, Jonas and Liana, for presenting here today and answering all our questions. And thank you all for watching. I wish you a pleasant weekend.

Jonas Nilsson, CEO, Impact Coatings: Thank you, everyone.

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