...Welcome to today's earnings call of the Shelly Group AD. In today's call, we will delve into the Q1 figures of 2024. Warm welcome to Co-CEO Dimitar Dimitrov, and Co-CEO Wolfgang Kirsch, who will start with the presentation shortly. After the presentation, we will move forward with the Q&A session. With this, let's start. Mr. Kirsch, the stage is yours.
Yeah, thank you very much. Good morning, everyone, and welcome to Shelly Group's Q1 earnings call on behalf of Dimitar Dimitrov and myself. And, yeah, this is the normal agenda that we usually use. So I will show you some highlights, then Dimitar will talk a little bit about our products and innovations, and at the end, we will go a little bit more into the Q1 detailed financials. This is usually, as in the last times, a relatively easy task for us today, because we have good numbers to present.
So just as the typical reminder for those who are not that familiar with Shelly Group, we are making smart building solutions, and we help people to save energy with that, and that makes us unique and helps us as well to drive our business and to reach our numbers. We have sold more than 14 million devices since in 2018, the Shelly was the first Shelly device was sold. In the last 12 months, it was more than 5.5 million devices, so that proves that we are accelerating our growth. We are today in more than 3 million households. That's always a rough estimation because we can make estimations seeing our cloud users, and then we make the calculations, how many products are not in our cloud.
That's a specific Shelly topic because our products work as well completely without cloud. We have increased the number of households in the last 12 months by more than 900,000. And we have cloud users using our application, our cloud, more than 1.35 million, and we have added more than 600,000 in the last 12 months as well. This is accelerating. Now to the financials. Sorry, to some more key highlights. We have reached in the Q1 all our KPIs, revenue and EBIT targets. The revenue growth in all our markets is above the market growth. We are with smart home in a positive market, always a bit complicated to say, is the market growing 10%, 15%, 20%, or even above?
We have some competitors in the market that say the market is not growing, but that's usually the ones that are suffering a little bit more or enjoying less growth than we do. We have successfully enlarged our distribution channels. We have a significant growth of addressable customer ownership, mainly via our cloud users. We have widened our product portfolio, and we have a new tool that is our installer finder, that we will talk in a minute, a little bit more about. Now to the numbers. In the Q1 , we reached a revenue of EUR 20.5 million, which is an increase to last year of 45.5%. With this, as I already said, we grow above the market, whatever is the market growth that the market enjoys right now.
In the last three years, we had an average growth rate of 53%, and we expect that we are continuing to grow over the next quarters and over the next years. Our EBIT reached a level of EUR 5.3 million, growth versus last year, 43.2%. And with this EBIT, we are on an EBIT margin level of 26%. I always say twice EBIT margin, not EBITDA margin of 26%, which is a little bit above our midterm target of 25%. There are always questions, when will we reach 30%?
The answer is always the same: We are not planning to reach 30% because we think that for our business, 25 is an excellent margin, especially compared with a lot of our competitors or most of our competitors, and we prefer to invest whatever we have on top in the market to accelerate our growth. Our cash is on a stable level, although a little bit below the same number on March 31, 2023. We are a little bit below, with a level of EUR 14.9 million, but we have enough money to finance our growth in the coming periods by our own, without the need of bank credits or something else. We have grown our do-it-yourself distribution platform. You all know that we are a mainly do-it-yourself brand.
70%-80% of our business is done with do-it-yourself customers and with do-it-yourself retailers. This might be online retailers. Amazon is the biggest one of them. And it might be physical retailers that usually start the business with Shelly's online, and then take us step by step into their physical stores, and that's on an excellent way. We have, as I mentioned, very good business relation with Amazon. We are in Germany as a vendor. That means we are selling products to Amazon, Amazon selling the products to the end users, and we are not on the marketplace anymore. This accelerated our revenue with Amazon in a very impressive way. We did the same in Europe, in France, Italy, Spain, Benelux in 2023.
We are live now in Australia with Amazon, and we plan to move in the United States from the marketplace to the vendor platform as well during the year 2024, which should give us a nice acceleration in the business there. The physical retails in Germany, Hornbach is a very important partner for us in do-it-yourself business, taking us into the stores now and planning to expand with us as well beyond Germany and Austria. As well with Leroy Merlin, we made very good steps in Spain already last year, and now we are in the physical stores in Italy since the Q1 , 2024. We expect that most of these retailers that are international take us in more and more countries. On the professional side, we are growing as well, the platforms.
We have that takes usually a little bit longer because those guys are not that fast in deciding and changing their habits. But we see a good development in a couple of regions, and as well, here on Amazon business. Amazon B2B part is growing as well, nicely. To push that business a bit more, we are training a lot of installers. We have trained more than 4,000 installers in the DACH region and the Nordics. To train the next generation of installers, we are working closely with technical schools in Germany, Austria, Switzerland, and in the Nordics. We have already onboarded and equipped more than 90 schools with Shelly devices. We are training the teachers so that they can train their people and the pupils and the future electricians.
And if they have learned with Shelly devices to make a house or a building smart, that should help us in the future, as soon as they are really grown-up electricians. Our new tool or our new toy is the Shelly Installer Finder. We launched that around Light and Building in Frankfurt, so only a couple of weeks ago. We have started that in Germany, and the idea is that a customer that is on the Shelly website types his postal code or address, and he gets a recommendation for installers that are trained with Shelly products, that know how to install Shelly products, that are recommended by us. They see how they can contact them, and then they get someone who makes the professional installation if they are not able to do that on their own.
We had a couple of installers, if you, if you go to the Installer Finder, sneaking in from Denmark. This was not planned, but we have already, I think, 20 installers in Denmark live, and we have some in Austria and some in Switzerland as well, but Germany was the main focus. And now we will roll that out as the next region to Nordics, where we have good relations with installers already and with electricians, and then step by step, other countries will follow. So now a couple of information about our product range, and, Dimitar, Dimitar will take that over.
Thank you, Holger. About the products, there is currently, there is no big update until today. But as we say, in 2020 through 2023, we update the 6 products, and 21 products, new products, is released in 3 new product categories. In 2024, is going exactly as we planned. The 8 products is updated, and until now, and 15 new products is released. But something which is very important, our next product release is on 30th May.
Because we've seen that we are, we're so big at the moment, and because we're leading the market, and competitors very closely look what exactly we're releasing about the products in the future, we decided not to show the new products before their official release, which is end of the month. Which mean, until now, there is nothing new compared with the results with the previous investors calls, but this is coming two weeks from now. And I'm sure that's will be amazing because we have a very, very interesting features and new products which will be on the market soon. Yeah. About something which is important also, we visited our new factory.
This is important moment because this factory is completely built from beginning, from scratch. With our partners in China. They build it exactly by our requirements. This factory is exclusively using to manufacturing our only Shelly devices. The factory itself is completely Shelly brand, including also the staff badges and everything, and everything is controlled by us, by processes, to be sure about the quality of the products and to be sure about the quantity which can be produced. Something which is very important, the new factory at the moment still has a much bigger capacity to cover the demand. But also on top of that, there is a opportunity, and very easily we can extend the capacity, twice and triple if this is needed to end of this year.
And very important topic that the TÜV is already checked the factory, and we pass all tests with the positive results. And also from United Kingdom, we have a additional certification which allows to selling devices in United Kingdom, in the big stores, electronic chains, and in the big online markets. Something, yeah. The new factory is open in Q1 2023.
Oh!
Uh, yeah.
Sorry, there's a typo on the chart. It's 24.
Ah, okay. Okay, 24, not 23. Yeah, excuse me. Thank you, Holger. Yeah. And there is that's something which is very important for us because this give us the flexibility and also the trust that we can cover the demand this year, and not only this year, the next years. Something else which is very important, we decide to extend the warranty. But well known that in the United States, the warranty is a year, in Europe, the usual warranty is two years, the standard one.
Because we've seen and we have already numbers from our devices, our new devices, generation two, generation three devices, we decide to extend the warranty for all customers, including the ones which already has the devices, which is by, for example, few months ago, which is generation two and generation three devices, which mean for the retrofit, for the small devices, we extend the warranty to three years. And for the Pro series, which is mainly used for electricians, we extend the warranty for five years. Something which is important also, this mean that we doesn't repair the devices, we just... If there is a problem, this is, this is mandatory directly to replace the device with a new one.
And this is, by this we, we also wanna show the, to give additional trust and reputation to the installers and to the customers that the device is completely safe and secure, and they can work for the long time. Also there's something which is very important. We enter in the, in the business with renewable energy, and there is a very huge partners is start integrating Shelly devices as part of their one equipment. As you can see, and if you could check the Huawei site, you will see that the only devices which is supported is as a add-on to the Huawei system is only Shelly devices.
They integrate them to their one ecosystem and everybody to—for the cost monitoring, for the managing the energy production and also the consumption appliances in the house, depends on the solar production. The other site is Zendure, which working with them very closely more than a year, but the cooperation is coming quarter- and- quarter. And there, this is one of the best solution to have the solar plant, or if you have a solar roof in your houses, with using the Shelly devices, this give to the customers the maximum, not only flexibility, but maximum efficiency of what they do. And now Wolfgang again. Thank you.
Yeah, back to me.
Thank you.
And back to the numbers. I just want to add something to the solar panel thing and to the Huawei cooperation that Dimitar mentioned. This was a surprise for us because they did not ask us. They just put Shelly devices in their presentations to their installers all across Europe and integrated it in their owner's manual and installation manual. So now we are in contact with them, and we will try to work on, on closer and deeper integration, so to make it even easier for customers. But it's for us, some, some very positive signal that the biggest manufacturer of solar panels and solar systems in the world is recommending as the only third-party brand, Shelly. That's something very special for us and shows as well that our products are very well reputed in that business.
So coming back to financial highlights, you have seen that chart. Just to remind you, EUR 20.5 million revenue, five point three million euro EBIT, which is an EBIT margin of 26%, EUR 14.9 million cash on the bank account. And now I go a little bit more into details, like the regional share. It's well known that the DACH region, Germany, Austria, Switzerland, is our strongest region, with round about 50%, revenue share. We expect that in the future, this revenue share will go down because we think that we can grow faster outside of Germany than inside of Germany. On the other hand, there is a lot of room to grow if we compare ourselves to other competitors in the German market. We see that there is enough space to get.
We grew 45% in Germany, so that's more or less exactly on the level of the average growth. So that shows that everything that we did there in the last two years, establishing a local team, local marketing, local support in German language, is paying back. So we continue on a quite high level for our total numbers to grow the revenue. The rest of Europe, 35% growth. We have a very good development, especially in Spain, Italy, and the Nordics, and here as well, we have local people on board. It's a bit complicated to find the right people to onboard them. That takes more time than we expected, but we are quite confident that acceleration is coming in 2024 in the rest of Europe.
This for us is as well a very important signal because we have a lot of competitors that are good in one country in Europe or in the world, but not in more countries. And we think that we have proven already that our business model works and the products work outside of of Germany, in other countries, and that will continue with adding more countries where we, where we can expect a nice growth rate and in the rest of the world as well. Rest of the world grew by 88% on a quite small level. Last year was EUR 1.2 billion revenue, this year it's EUR 2.2 million.
We see a good development in Australia as a relatively new region for us, and as well, the United States is growing, still on a quite low level and still not as fast as we would like to, but we see some positive developments here. If we look into a bit more detailed P&L, I just wanna mention one point, because that's a bit outstanding. You might ask, why is this sales and marketing expenses tripled or quadrupled in the last year? That has a couple of reasons. One is that we have been participating with a very visible booth at CES in Las Vegas and Light & Building, and we have not been on Light & Building with such a big booth before, and Light & Building did not open last year.
And we have invested more money than before in third-party marketing activities in other countries, in new regions. So we give our distributors some budgets so that they can work on sell-out improvement and on more visibility. We go to more local trade shows as well. Yesterday, we have been on a trade show in the Nordics. Our booth has been crowded. This week, we have been on the IoT in Barcelona, so we invested a lot of money in being visible for end users, but as well for professional installers. And we started as well to spend some money in Google Ads and Facebook Ads and Instagram ads, and we see that we are getting a lot of traffic from this for from first-time customers, bringing them to our brand. That's as well something that is very important.
The rest of the GNA is growing under proportionally, although we have a higher headcount than the year before, but that is planned because we cannot add more people and grow all the costs proportionally to the revenue, otherwise we would decrease our EBIT margin. The cash flow, the first chart that you have seen about the cash positions is a comparison with the thirty-first of March, 2023, compared to the thirty-first of March, 2024. This now is the bridge from the thirty-first of December, 2023, so just the Q3 . Just a couple of things to mention, we have increased our inventory from EUR 9.3 million to EUR 10.8 million. We have as well EUR 1.8 million higher prepayments to factories for especially for chips that we have to pay earlier.
With the expectation of selling higher numbers, we have to increase the prepayments to the chip manufacturers. In the investment area, where we see the negative development, we have bought, beginning of the year, the next 16%, as agreed in the contract from the very beginning, of Shelly Tech, formerly known as GOAP in Slovenia in January, and we have some investments in R&D that you see in this -EUR 920,000. Our equity ratio increased a little bit to 89.1%, which is as well an outstanding number. Where are we with the guidance and with the achievements so far?
So first, we are confirming our target for this year of EUR 105 million and EUR 26 million euro EBIT, which should be an EBIT margin of 25%. After three months, EBIT margin is 26%, the EBIT EUR 5.3 million, and the EUR 20.5 million represent 19.6% of the EUR 105 million. That means after three months in the year, we have reached 19.6% of our annual target. In 2023, to compare the numbers, we have reached, at the same time, 18.8%. We are roughly round about on the same level, a little bit better than last year compared, and last year we reached 74.9% finally. Now, why am I talking about that?
Because you have to understand that our Q4 are not equally distributed. The Q4 of the year, with Black Friday, with the Christmas business, is very important for us and is usually representing full Q2, with all the promotional activities that we have around that period. That's why the first Q3 , we will be proportionally a bit lower, and then the Q4 will help us to reach the annual targets, and that happened exactly like this in the years before. So now I'm already with the summary. In Q1, 2024, we reached revenue and EBIT, and we are with both numbers a little bit above our own targets. All regions have grown over the market growth, so we are winning market shares.
We are sure that this growth is sustainable, because we have already proven that it works outside of the DACH region and especially the German region. We have the first countries where we have some very good results. We continue to expand in new countries and new regions. That's one of the drivers for future revenue. We are expanding from the do-it-yourself market, where we are strong and have a very good reputation, more into the professional market, which is the much bigger market than the do-it-yourself market for all categories. We have a wider product range, already launched products in the Q1 .
Dimitar mentioned that there will be some product launched in May, and we have some very important products in the pipeline for the second half of the year, that make us sure that we will reach our EUR 105 million target, as well. We have our cloud business and the premium app as additional potentials for future revenue. For 2024, sorry, for 2024, we have a guidance of EUR 105 million that we confirm, as well as the EUR 26 million EBIT. We confirm as well, our revenue goal for 2026 of +EUR 200 million, and the EBIT goal for 2026 of +EUR 50 million euro. Right now, everything looks fine.
We have enough cash to finance our growth if we are not making jumps via acquisition or via other big investments that we are not seeing currently. So that's all. With this, we come to questions and answers.
Yeah. Thank you so much for the insightful presentation, and congratulations to the numbers. We're now moving forward with the Q&A session. To keep the Q&A session engaging, we would like to ask you if you could pose your question via the audio line. To do so, you can just click on the button: Raise Your Hand. If you dialed in via phone, you can do this with the key combination star nine, followed by star six, or if you can't speak freely today, you can always use our chat. We've got a first question from Bastian Brach. Mr. Brach, you should be able to speak now.
Yeah. Can you hear me?
Yes.
Yeah. Thank you, Wolfgang, and thank you, Dimitar, for your presentation. Quite a couple of questions for me, so I hope you have some time on hand. The first one is on the working capital. So you had slightly positive operating cash flow in Q1. Can you elaborate on your planned working capital development in the next few quarters? So do you expect the working capital ratio to remain stable compared to last year, or is there any increase because of any product launches you w
ill have this year? No, the ratio should stay the same. As I already said, all our cash calculations show that we have enough cash to pay and to finance the growth from our own bank account right now. So we...
It does not look like that we need important bank loans. On the other hand, increasing revenue means that we have increasing outstanding payments from customers, and we have as well with our own Shelly chip, we have to pay the chips in advance. That's what I mentioned during my presentation. That will stress that line a little bit, but right now, all calculations show that we are good during the year. I hope this answers your question somehow without having now all the numbers present.
Yeah.
But we have made these calculations a couple of times, so it looks like we will not need bank loans or capital increases, so there is nothing planned in this regard.
Yeah. Thank you. So second question is on the Amazon vendor business. So you launched that in Germany and in some other European countries in the last 12-18 months. What do you see after the launch of the vendor business? So I would expect, obviously, a significant increase in revenue growth. But do you also see a decrease in gross margin, or was that comparatively stable?
That's an excellent question that I usually refuse to answer, because we are not disclosing individual margins of customers. But what I can tell you is that, first of all, we are, we are happy with the revenue development with Amazon, and this move to the vendor account usually increases the revenue with this channel by three or four times. Simply because customers prefer to buy directly from Amazon and not from a marketplace player. Second, we are controlling as good as possible the revenue level with Amazon because, we do not want to be dependent on one channel. If this is Amazon or another one, it would not be healthy to go full speed with Amazon and, not to develop other channels in the same way.
And the third point is that we are relatively happy with the margin with Amazon. But please understand that if I would tell you now, Amazon margin is not good, other customers would complain and would say, "Why do they get better prices?" If I would tell you Amazon margin is over-proportionately good, I would have Amazon at the telephone in five minutes. So we are not disclosing individual margins by customers, but we can very good live with that.
Okay, thank you. So, last two questions for me. The first one on the marketing spend, it was quite a huge step up, compared to last year. Do you expect that to grow further in the next couple of quarters, or is-
No.
That now okay?
No.
Okay. Thank you. So it stays roughly on the same level, or is it like a one-time peak?
Yeah, that's. I expect that it goes a little bit down.
Yeah.
But we will see that. As I said, we have a lot of activities that we expect as well to pay back into more revenue. That's mainly presence on trade shows, and I mentioned IoT Barcelona, and there are five, six other regional shows that we have not been participating in the last years that will add up. And as well, we are of course in a digital time, you can very good check the investments in digital marketing and what is the payback.
We are monitoring this very closely, and we see right now, if all the numbers are correct, and I don't see any reason why they should not, that we get a lot of first-time customers to our webshop, to our platform, and that's as well something that's worth investing in.
Okay, thank you. And then the last one on your premium subscription service. So it launched, like, Q3 2023, when I remember correctly. What do you see in terms of adoption levels? So are you happy with that? And also, like the first customer reviews and, yeah, also the, the retention. So, are many people, like, leaving the service after the trial period or, yeah, what can you tell us?
Let me answer this question. The real launch is Q4. It's Q3 at the end of the Q3, but the real launch is Q4.
Yeah.
At the moment, we're preparing in the next investors calls to disclose the numbers. We still not want to present them because it's working to develop the service. It's not completely, I mean, the big, huge part of service is ready, but we add more and more feature for our premium clients. But which is important at the moment, the premium clients completely cover our cloud costs at the moment, for whole clients. I mean, for the all connected devices, for the all connected households, only the income from premium subscription completely cover it.
Now we start looking the positive numbers on top of that, which is very, for this, this is very important because for the first six months, because at the beginning, the customers has a this three months free trial period, then they switch on the pay for to the paid subscription. This is a very good result that for the such a shorter time to to cover something which we need to pay every month for the whole infrastructure which we which we manage. This is the first one.
The second one, which is we've seen and is very positive at the moment, that most of the customers prefer to pay the annual subscription, which means that they trust and they believe that this, they want this service from the long time, not by monthly based, and they can cancel every month just to decrease their spends and the costs. This is the second, which is very important. But there is a lot to do in the future, and we're really going very, very careful because there is no other platform which asking customers to pay or if there is, they just make some tries. Maybe even we are very careful and we stay a little bit passive.
At the same time, I think we are much more aggressive than the competitors, especially in this area, to show the customers that okay, the basic service is enough rich and big to control everything. But if you wanna dive in, if you want to have a much more precise information, then it's good to spend some money and to have it in your account. And this, that I can say at the moment, yeah.
... Okay, thank you very much, very much, for your answers, were very helpful, and yeah.
Yeah, thank you so much, Mr. Brach, and also for answering. We have another question from Jean-Philippe Dussault. You should be able to speak now.
Hello, guys. Can you hear me?
Yes, thank you.
Okay, cool. So congratulations on the numbers. I would like to ask if you can please give us an update on the module business. How is it going? As much info as you can. So that's very exciting. Thank you very much.
That's something which we'll present in two weeks from now. Yeah, let's say the official restart is two weeks from now. Yeah, and at the moment, we have a first alpha clients, which testing the technology and give us the feedback before to show to everybody, and this business will be going by steps. First, will be with the special type of the clients, then we will go wider. But yeah, the official launch of the modules, which is named Shelly C, because on the official event, we already name it, is Shelly C. It will be two weeks from now, I think May 30, 7 P.M., Central European Time.
Thank you. Well, I will be looking forward for Shelly C information. Thanks, guys.
Yeah, thank you so much. We have another question from Stefan Pruwald. You should be able to speak now.
Okay, good morning.
Morning.
Yeah, I got two questions. One is, you mentioned the competitors that are closely watching your developments and new products. So has there been any evolution in the competitive landscape, new players, or anyone who you find more, I guess, threatening than previously? And, the U.S. business still very small, so question is, are there competitors or alternatives popping up there? And the other question was really on the cash flow. You mentioned the reasons why cash flow has been burdened somewhat, but, do we have to see this as a sort of one-off during the year, and it will reverse, or, is this somewhat more subdued cash flow development? Is that more structural now? Thank you.
Okay. Let me try to answer one by one. There are no really new visible competitors. There are some competitors that we take serious, and there are some competitors that are small and that we monitor, but we do not take that serious.
Right.
Like in Pledge in Sweden is a competitor only in Sweden or mainly in Sweden. That's why I mentioned earlier that we are proud that we proved that our business works as well outside of Germany, because we know that Plejd is trying to enter other European countries, and they are failing right now. So the feedback from all our sources is that they are not developing in other countries as they expect, but that's a very serious and good company. In the U.S., there are a lot of bigger companies. I was just participating in a smart home conference in Dallas last week. And there are a lot of really big companies, huge companies, mainly in security business like alarm.com, Resideo, or some others.
So that's, that's a different league because that's multi-billion EUR revenue companies. And there are some smaller ones that are struggling, that we are as well looking at, at if we can take over some of the technologies or some of the people to push our U.S. business and make it faster. As I already said, we are growing in the U.S. We are not growing fast enough. We are growing above the market, which is definitely not enough. So we are working on alternative scenarios to bring the U.S. business in line, but I don't see a risk here for our total revenue because it's if U.S. works, it would be a huge push.
If it would not work, it would continue developing like it is today, this would not be a risk to reach our EUR 200 million in 2026. On the other hand, if we move, which has been discussed a couple of times with Amazon on the Amazon Marketplace, this would give us similar push as it did in European countries and would help us to make a jump in the revenue in the US. So that's about the competitive. There are some smaller competitors, I don't want to mention too much names, but our Aeotec is a German company. They are stagnating around EUR 50 million revenue, not developing.
That's one of the guys that always says that, "Oh, the market is so tough," and we grow 45% in the same tough market. So we think that the market is not that tough. And there is no one close to our technology. Maybe you can-
I can add two things. The first one, yes, there is a competitors. We try visually to make devices which is similar to ours. But the benefit is not, we not to make a jewelry, and we don't make gadgets which the people can place on the wall as a picture, to be care about that somebody try, and mean that if somebody tried to copy the how devices looks like physically, is not enough.
The whole technology is the beauty, the community, the philosophy of the company, the procedure with the customers, and so many things together that we've seen, and they just many times we said that our one customer said to another, "Just don't make a wrong to buy the device, which looks like a Shelly, but it's not the Shelly, because this is completely different." And not only I don't talk about the quality or safe, no, I talk about completely how this, the user experience and what exactly the device can do. That we see from the competitors is completely not we doesn't see any. We don't worry about such a try of the copy of how devices looks like.
About United States, all the time we think about, okay, it's a big market. You know, okay, usually United States movies, they're going, if they're blockbusters in United States, then they're blockbusters almost everywhere in the world. Which is not happens in opposite way. And, to do that, we need, to going slower, but let's say, not cheaper, but not spending so much money or to tell, okay, we invest EUR 10-15 million this year for United States just to build a huge team, because the salaries, expectations, there is really, it's completely different than the Europe. Even compared with Germany, it's much, much higher. And all the time we say, okay, but we find now why, why to risk and why, in this case, maybe we need a capital increase or to do something to invest, especially United States.
Why to do that if we're feeling comfortable now? And when we've seen that we can reach the target, and on the top, the business in United States is growing, but just not with the speed as we're looking for. And this is from me.
Yeah.
Yeah.
So the question concerning the cash flow, I think that this year it will be a bit stressed, which does not mean that we don't have enough cash, because we have as well changes in product generations that oblige us to buy a little bit more chips and other things very early and different generations of them. In the midterm, we have possibilities to work on our on a reduction of our physical stock, because we always say that we have four to five months of stock, or we want to have four to five months of stock in our warehouses in Europe. And this is something that we can reduce as soon as we feel comfortable that everything in the supply chain works smooth and is supported by systems. We mentioned already that we are moving to SAP.
The process is not yet finished. The system is not running very smooth and easy. That will give us a lot of advantages with planning and help us to reduce our stock, and that will really help us to reduce the working capital and give us some more cash back. So I see a bit stressed during this year, but not overstressed, and I think that we will have a swing back next year in a more positive direction. In general, of course, with a plan to grow over 40% revenue every year, we will need more cash, and we hope that we can generate the cash from our operational business. Or we think so, all the calculations show that. I hope this answers your question, Mr. Pruwald.
Thank you.
Yeah, thank you so much, Mr. Pruwald, and also for answering the question. We have another question from Viren Kirilov. You should be able to speak now.
Hello, can you hear me?
Yes.
Hello, Mr. Wolfgang and Mr. Mitko. I have two questions for Mr. Wolfgang and one for Mr. Mitko. Mitko, do you keep an eye on the products and strategy of Melissa Klein and the way they go with the, their professional line things?
Yeah, almost every day we work because we're partnering with them, and very soon we will have the devices which we have some cooperation. And let's say we're on the online half of the. Some of developers is online, half of the their working time with them. To work with Miniat, we know, we know everything, and because they're a good company, they have a good specialist, they have a good ideas. And we also help them about their ideas, and they help us to do something, to, to, to have something on the market. And you'll see.
Okay, thank you. And Mr. Wolfgang, is it not a good idea to buy directly small company in America, which is have infrastructure, knowledge, stuff? Is it not an easy way to enter the American market this way?
It's a good idea.
Okay, and second question to Mr. Wolfgang-
Just need to find, just need to find the target which we can buy, because in United States also, the money looks like different. I mean-
Yeah.
-even the small company, they say, "Okay, we're small, we are not profitable. We doesn't make any money. Maybe we make some, just EUR 5-10 million losses a year, but our business is for the EUR 100 million." And then we just... At the moment, we doesn't see the company which we can fit and we can buy for. That's, that's, yeah.
So, let me, let me say like that.
Maybe small market.
We are always open for an-
Yeah
acquisition in Europe and in the United States, but we are not desperate about making an acquisition, and we are not making an acquisition that would be too risky for us... And that's why we are very careful. But of course, we are constantly looking at the market. Is there something that would make sense? If there's something that would really help us, and for the United States especially, that would mean we need to find a company that has access to the right channels where we are not in right now, that brings a team that works in a good way, or that has products that we do not have right now.
And then always the question is: how fast would be the acceleration? Do we win two years, three years, five years? And what is the price for that?
On the technology side, in a lot of cases, we would say we can do this on our own, and we can do it fast and cheaper. On the channel side and people side, that would be a good investment. That's not only for the United States. If we would find a company at a good price level, where it makes sense to—so not crazy multiples for the United Kingdom, England or France, that would help us to bring the country on the same level as the DACH region immediately, and it's an affordable effort, and it's a company that we can integrate, then we would do that.
But again, there's nothing visible on the market that would make sense, that gives us that much advantage that, that this investment would pay back in a, in a reasonable time. But we are, we are always looking at it, of course.
Okay, and second question for Mr. Wolfgang. You didn't mention anything about are we opening offices in Turkey and Poland, and how is selling the chip so far this year?
So we are not opening offices wherever we go. The first move is we hire a person. So we have an office outside of Bulgaria right now, besides China and United States, in Germany, but not in all the countries. So we have hired people for France, for Spain, for Italy, for Nordics, and for the UK now, and we do not have offices everywhere. We only open an office if we need or if we have more people than just one. Because after having a first salesperson or business developer, the next step would be to hire people for local technical support in the country language and marketing support in the country language. And then that might be the timing to open an office. So if we have just one person, it's simply cheaper if this person's-
Yeah, about those two countries, can you, there was-
We are looking for people in. That's on our plan for Turkey, for Poland, for the Netherlands. We did not find someone right now, and at the very beginning of the presentation today, I said that is more complicated than we thought. So now we are happy that we have finalized the countries that I already mentioned. The last country we have now signed with someone is Italy, and we are happy that we found a very good person. That's what we hope. But it's not as easy as we thought. And then we need to onboard the people, we need to train them. That's a big workload for the existing team. That's why it's a bit delayed.
And the—
But there's no change in the plan.
You didn't mention anything, how is selling the chip so far? And the connection with Samsung, there was a news that we are now working with Samsung for plugs or something like that.
So first is the chip. Dimitar mentioned something about the chip. So that, that's Shelly X.
Okay. Okay, yeah, yeah.
We talk about the Shelly chip that that Espressif is producing for us in a special version that is integrated in the Gen 3 devices and will be integrated in devices that come afterwards in new versions. So that's part of the product that we sell. Just makes the product better. And Samsung is we have now got official certifications for the Z-Wave devices for the Samsung SmartThings platform. And that means that they are visible on the Samsung platforms, that Samsung can bundle them with other of their devices. That's something that is now an official statement from their side. The products are working with the Samsung platform anyhow for the last two years already.
Thank you very much for the good results and the answers.
Yeah, thank you so much for your question. We have another question from Guillaume. You should be able to speak now.
Good morning, everyone. Do you hear me well?
Wonderful.
Yes. I have a question related to the new facility you opened, I mean, new capacity. Could you please give us a bit more flavor? I understand, you fully designed this, those new capacities in order to the demand acceleration.
Yeah.
Compared to the actual capacity, could you please give us an idea on how much it increased the potential of Shelly, and what's the, I mean, what would be the ramp-up you expect in term of utilization rate?
Yeah.
Then, what's the potential in terms of revenue generation coming from this new capacity?
Yeah.
Uh-
First, to make that clear, again, that's not our factory, that's the factory-
Yeah, of course.
... of our partner. And we announced end of last year that in the old factory building, our partner has established 2 new production lines to increase the capacity to make sure that we have enough products for the last Christmas season, 2023, and for 2024. So now, this partner opened a complete new or has built a complete new building, and you have seen some pictures. That looks really nice. The working environment for the workers there is very good, and we had a couple of audits already that have proven that. So with this new factory, with the building, we have more space, and we can add more production lines if needed.
Our calculations show right now that within three months, we would be able to double the capacity to what is the capacity today. So this year, we should have enough, I'm looking to Dimitar, enough capacity to produce their 8-10 million devices. So it should be enough, at least until 2025 or 2026, what this factory can produce.
Mm-hmm.
It goes fast. So we can, within a couple of weeks, have another production line and can increase the capacity step by step.
I can tell you something to compare. For example, the end of the last year, this is the old factory, they working 3 shifts every day, including Sunday, just to cover the demand. And this is coming also in beginning of this year. The new one is much bigger, which mean at the moment, just there's just 1.5 shift to cover the our demand, the market, which mean they have a, with a... And they're not so stressed. Mean, that's completely they can increase the production double or triple as we have now, and if we need even more, there is enough of room and space to be extended with additional production lines and additional people which could do that.
Okay, very clear.
Mm.
Thank you so much. That's why. Let me just add something to the factory, because that's something very important. You know that in Europe, we have now a supply chain law that obliges every retailer or enables him to go back to the factory and even beyond, to check if all the working conditions are as they should be. And that's as well something very important. We mentioned that in the presentation, that we have passed the first tests and the first supply chain audits as well. So we are proven that we are ready for this future that will... That is there, that will start now. And we are not sure if all of all the other companies are ready like we are.
Okay. And going back on what you announced with the Huawei and the partnership for renewable energy. Could you please give us a bit more color on maybe what would be the impact for Shelly and how do you see the potential in term of revenue generation coming from this?
Everything is happen because the Shelly is very open infrastructure, open API, which mean everybody, without exclusion, can integrate our device to be compatible with their, their own ecosystem. At the moment, we cannot say that what we think that this is driving the sales, and more and more companies start integrating Shelly a part of their own ecosystems, and customers integrating Shelly on integrators, on installers to integrate Shelly a part of the whole infrastructure of the buildings or the solar plants and everything.
And this is sometimes we are surprised also how fast this is going and that, and that how they do that without, for example, us involving, say, for Huawei, they doesn't ask us to do that, because we allow everybody to integrate our products. Sure, this philosophy of the company, which we have at the moment, this drive us much faster and help us with the sales. But especially how this exactly will reflect in the with the numbers to the revenue, it's not just a single point.
It's not something which we're doing, and we can say, "Okay, with Huawei, we say, with Huawei or with this, or with somebody else, for example, SolaX or somebody, we can reach such a number of the sales." No, this is... Let's say, many times we say that we create a platform, we create a tooling, and after that, not only the, at the beginning, do it yourself, then electricians. Now, manufacturers start using our device as a tool to reach their own targets, and the platform. And this is something which we, we cannot give you the exact numbers, but we know that this philosophy is really moving the company forward.
And this is the reason to be above the market. This is the reason how, why the others is suffering, but we are completely opposite and going very well.
This is part of the how exactly we structure the philosophy of the company and the strategy of the company.
Okay, very clear. And maybe a last question. I remember, the port, I mean, the contract you received for, telecommunication, in, Africa, if I remember, if I remember well. Do you see any, potential, tender or contract in the pipeline, for, I mean, the same kind of infrastructure as you're developing, some new technology, new product, and as you're, getting more and more visibility, you participate to,
... trade show to new exhibition, and I mean, you're gaining more and more visibility. How is it going on that front?
Yeah, I can answer that. So first, the contract that we signed with Vodafone is visible in our current development because we see that, that's a contract for Africa, country by country, the products are now ordered. That will take still a while, and then we see that the country in Africa is popping up in our pop list because they have ordered a couple of hundred or thousand of the devices integrated, and then they go to the next country. There is nothing very concrete in the pipeline. Of course, we have used that to contact some other potential partners, and there are some talks, because every company in the world, more or less, has the same problem.
They have to fulfill their ESG reporting goals and ESG targets, and for this, they need devices that monitor the energy consumption. That is a huge open door. We get some demand from some other companies on a smaller scale, and as I said, there's nothing concrete in the pipeline that we could disclose now. There is a contract that we will sign in a couple of weeks, but there are a lot of demands on that in that level. As well, the solar panel thing is just a door opener, so people recommend that our products are used, and they are bought then in do-it-yourself stores, in Amazon, or from the installer who's installing that.
That's an ongoing process that we think will help us to continue growing in the next years, because more and more, again, from do it yourself, we are growing into the professional market. That's something that is important for us. Professional market can be installed by an installer in the private home of a person or installed by an installer from a huge company in the infrastructure of this huge company.
I can add that every day, okay, not every, but every week, somebody, big one, coming and start talking with us about. We doesn't want to share this information because we don't want to misleading that, okay, everybody to expect that, in a month, we're working with the biggest, for example, German or France operator or something. And this is not happens because usually, first, they are slow. Second, there is a... Now we're competing with the names like Schneider, Siemens, ABB, which is not easy to and take a time. This is the, this is about the such a deals. It's incoming, but we prefer not to share because it is which more just to selling the dreams, not the real situation we doesn't want to do.
The second one about the exhibition, yes, visibility is much higher. This is the reason why we spent much more money. I can tell just the booth in Las Vegas is 300,000 EUR. This is on top, there is the expenses to traveling and the people and everything, but it's huge, but 100 square meters and very visible. We have much more customers than we've ever seen in our booth. It's very similar in Light + Building, and everything means together with the, what we're doing and, increasing interest to the company, also, we need to present ourself as much better in much bigger spaces, which cost more. There, there is no way.
For example, if you have a booth, which is 100-150 square meters, you need at least 10 people on this booth, and you need to cover the whole expensive space for these 10 people. Otherwise, nobody can reach some of our staff to talk about or to ask something. But it's hand-to-hand, the marketing space, especially for the trade shows and the company growing and the booth sizes, which we are renting to present what we do.
Okay, very clear. Thanks a lot for all your answers.
Thank you.
Yeah, thank you so much for the answers. We have a couple of questions in the chat now. So the first question would be: Could you provide some color to the expansion in Australia? What are the specifics of the local market? Is it similar to the U.S. in terms of channels? And what are your assumptions for the long-term sales evolution there?
Yeah. So first, the Australian market needs some Australian certifications. And we have now, with the acquisition, more than a year ago with Qubino and the updating of the product from Qubino on the latest Z-Wave standard, we have now certifications and special products for Z-Wave for Australia. We have our Wi-Fi products that are certified for the Australian markets, and we have a couple of distributors that have a high interest on selling our products and ordered already the first quantities. The second thing is we have been contacted, at IFA last year in September by Amazon Australia, and they want to list our products. They see the success of our products in the Amazon channels in other countries, and that has started in the Q1 .
The combination of the two will deliver additional revenue in Australia. Can I give you now the exact number? No, I cannot. But we expect Australia, as the whole region, to be a source for additional revenue in the next one or two years.
Yeah. Thank you so much, Mr. Kirsch. The next question is: Do you have any plans with inclusion of AI in your products? Usage, which I see most interesting ideas of, for scenarios like automations, interconnection of devices-
Yeah
... made by AI.
Yeah, and there is it. It's working. All premium customers are our premium customers because the AI is very good, but it's something which is expensive, it require a lot of resources. It's available only for premium customers. And already, we have the first one which predict and know if you forget the lights, to tell you that or to switch off, to controlling completely the lights, or to tell that, okay, you forget something, just switch it off. Now, end of the month, the two new features, which is related for the you forget open door or open window in your house, maybe the heating systems doesn't work, and some device failure prediction information which we can send to the customer.
This is all based on some kind of AI, is between the statistics, AI, and warning capacity of the system which we're using now. And it is, yeah. But there is, and this is part of the future of the smart home, that they are much, much more care to see. It's most important to predict exactly if something would happens, not only to tell when this happens, because sometimes this is then it's too late.
Mm. Yeah, thank you so much, Mr. Dimitrov. We have another question regarding the U.S. market. Last year, it launched a partnership with Home Depot and a test period for sales through their online store. How are sales? Can we expect positioning in their physical stores, and are there bigger partners out there?
Yeah. So we started with Home Depot end of last year, so this was really the last days of the quarter. We have now, and that takes very long time, we have now listed 100% of our assortment or close to 100% of the assortment. We see some first sales numbers, but it's too early to say this will be a huge success. And with this, it's as well too early to say they will take us in the physical stores. They gave us signals that they have interest, because as well, they see that the products are selling on Amazon. They see the reviews on Amazon are very positive, that's why they wanna copy that. So they have an own interest to be successful with our products.
But it's too early, and this will take quite some time still. So that's just listing the products, getting all the references is a very slow process. Besides Home Depot, we are as well in the online store of Lowe's, one of their big competitors, and that's what we are concentrating on right now, besides always some B2B connections that we try to open. So Amazon is a strong channel. Our own web shop is a strong channel. Home Depot, Lowe's, and if this would be a success, that's a game changer for us in the United States.
Yeah, thank you so much. We have another question regarding the gross margin-
Mm-hmm.
-which has been steadily increased since 2022, and more robust than the person expected. What is the normalized gross profit margin that we should expect going forward? Is 55% reasonable? Thank you so much.
Yeah. I think, yes. We did not increase our prices. Some of our competitors increased prices in the last 18 months, we did not. We feel comfortable still with this position in the middle. So the cheap Chinese products, half our price. The well-known, bigger European and American brands, twice our price or two and a half times our price. We feel comfortable in this area, and so in the short term, we don't see a price increase coming. And the lower margin, or sorry, the higher margin is coming from optimization of the supply chain. So we ship the products cheaper from China to Europe.
The volumes, that gives us some economies of scale in the factory and with chip manufacturers, that is, something that is driving the price a little bit down. So we don't see a huge pressure on the margin to go below 55. So I would say around 55 is very good. In that corridor, in the long range, between 50% and 60% somewhere. I know it's a wide corridor, but that's a very good position. We see some possibilities for price increases, but again, right now we are deciding not to increase the prices. Maybe we do that with one of the next generations of products coming. That's still an open question.
Yeah. Thank you so much for the answer and also the question. Another question: Could you please tell us a little bit more about the cooperation with Audi? Do you plan to expand this cooperation to other car brands?
Mm-hmm. Yeah. Yeah, so the cooperation with Audi, it's not only Audi, it's the Volkswagen Group. And they have reached out to us via one of their subsidiaries that's called CARIAD. They are doing internal- that's a, that's a Volkswagen subsidiary. They are doing the, the software development for the internal platform, and they have all understood, that's for, for Audi, for Volkswagen, for Skoda, but as well for Porsche. They have all understood that they- if they wanna play a role in the, in the modern car world with e-cars, they have to work on the software, and to be competitive with Tesla and some other Chinese brands. So that's why they are investing in that area. They contacted us because they said they, they wanna launch this new platform. They have an app store now for, for their,
Cars
... for their cars.
For their cars.
And we were more than willing and able to deliver our Shelly app for this car platform, which is as well before, it already worked. So everyone who is using Apple CarPlay or Google Car and that integrates in the car display can use the Shelly application already from the display of the car, and now it's integrated completely into Audi. And it's not only Audi. If someone drives a Porsche and goes to the Porsche app store, he will find the Shelly application there as well. It's just Porsche is not really happy if people communicate about it.
Thank you so much. Just as a reminder for the audience, if you would like to ask a question, you can do this with the audio line and press the button, raise your hand, with the key combination star nine, followed by star six, if you're dialed in via phone, or you can use the chat. And we have another question in the chat. First of all, thank you so much and congratulations to the numbers. Advertising spend is growing from EUR 150,000 to almost EUR 2 million. Could you tell us a little bit more about the activities in this direction? Also, EUR 380,000 return goods expense. Is this defective goods? For what period for this? a one-time effect, or is it a accumulated goods effect, which now shows up on the report, or is it something different?
So first, marketing expense, I thought we have covered that. We have spendings for CES, $300,000 plus travel expenses and some other expenses, similar for Light + Building. And we have invested in percentages of sales that we pay to our wholesalers and retail partners to be more visible in the retail stores and to have some sell-out activities in their stores. That's a normal process that... Not working with these players, you will have to pay the money. As well, advertising on Amazon platform and others is something that is needed to get the sell-out done.
And then we have started to invest our own brand visibility on the digital platforms in paid versions, like Google or Facebook, on a very small level, but that's accumulating to a big number, and especially driven in the Q1 by two big trade shows, CES and Light + Building, is something that increases that number. The second question was? What was the second part? Sorry.
The second question was, also 380,000 returned goods X-
Ah, yeah, okay. Returned goods.
Yeah.
Yes. So we have all the time some returned goods. We have a very low level of return rate. So I think our failure rate of products is below 1%. But if you just take. And that's a very low, in industry standards, a very low failure rate. If you take now 1% out of 100 million, it's EUR 1 million that is coming back every year or is written off every year, and we have to replace that. But it's a very small percentage because industry standard normally is more like 3%. So we are on a very, very good level here. And this is partially returned and broken products, and partially it's as well exchanged products.
So that's where the customer just said, "I have products that I can't sell," we can sell them elsewhere. We take them back and ship him new products.
Yeah. Thank you so much. Are marketing efforts today more B2B or B2C? In addition, do you also apply to hospitals, schools, et cetera? Another question: How do you deal with the way of selling in the United States, where the consumer is less connected to do it yourself like in Europe?
Yeah. So, first question was, marketing is, is... It, it's more we give money to our B2B partners, and they do some marketing activities. Now, it's different if a wholesaler does something to sell products to his, installer or if a HORNBACH store is doing something to sell to end users. And that's something that's why I cannot tell you exactly. That is B2B, and that is B2C. B2C, for us, is more that we spend money on Google and Facebook to bring customers to our website, telling them, "Why should you buy a Shelly?" And if then the first-time customers buys buys a Shelly product on our website, best case, or decides he goes to Amazon, buys it there, or to HORNBACH or to his installer and buys it there, but there we are addressing the direct end user.
Now, we could argue a long time, is IFA, CES, Light + Building, is this a trade show for professionals or a B2B or for B2C? It's usually both. So Light + Building, we had, I think they have two days that are open for the public, so we had a lot of end users in these two days. In the other days, we had a lot of professional installers and wholesalers in our booth, so it's a mix of both. If you ask the total amount of money, does this go more to B2B or to B2C or D2C? It's more B2B. So we give money to our partners, and they spend it for marketing activities.
Yeah.
There was a U.S. question.
Mm-hmm.
I would, as well, here, I would argue a little bit and would say the U.S. customer is not that much, a do-it-yourself customer. Who is then buying in a Home Depot store? And they have 2,200 stores. So the market is proportionally smaller than the European market, but if you see how many, as well, very cheap Chinese products are bought on Amazon, in which quantities, there is a big do-it-yourself market in the United States. And, even though, again, even though the market might be smaller, let it be proportionally 50% of Europe, it's still big enough to get our proportion out of this market. And then to grow into builder market, home constructions, renovations, corporations with the Alarm.coms and other companies.
The last question, if I remember right, was, are we going into hospitals and big building projects?
Yes.
Yes, we do that, but we are not yet there. We are working on a special version of our software, but we have two, three projects together with Amazon, because Amazon, with their Alexa, is going into this business in hotels, in residential business. We have two projects with them currently, one in the UK and one in Spain, where they put an Alexa in every apartment or in every hotel room. And if Alexa shall do something, like switch on the light, open the curtains, then they need a Shelly device or another device that is doing that.
Amazon sees Alexa, the Alexa team sees in the cloud how often our devices are used, how good the quality is, how few times they fail, and that's why they are really eager to push our products with Alexa in these businesses.
But there I can add something because we are manufacturer and creator of the technology, as you said before. At the moment, our devices is using everywhere. It's almost we teaching in stores, how they can use it in the different purposes. For example, we have a publisher video where our products is completely used to control the, in Sweden, the ski tracks, the ski resort, the complete ski resorts lighting. I can tell, for example, that some of the European airports, is the lighting is and monitoring of energy is, is they're using the Shelly devices for this one. But this is not made by us, the final platform.
We give them the devices, we give them the protocol, we teach them how they can integrate them, and they can start do that. A big chains of the restaurants also they're using the our Shelly devices. The BNB- the BMW dealers, they're using Shelly devices to monitoring to monitoring the consumption and to control some big loads and to optimize consumption. And this is happen step by step, but is nothing which we are directly involved. We just Our job is to have partners which we can do that, because the integrator business is completely different to what we are doing. We just need to give them the right platforms and the right devices.
But on top of that, even that, we don't have the platform for everything, our devices is so capable and open to be integrated to any platform, including SCADA systems, KNX systems, everything, and this is widely used right now.
Yeah, thank you so much.
Yeah.
We are coming now to the last question, so this is the chance. If you have another question, please use our chat, the audio line, or if you dialed in via phone, you can use the key combination star nine, followed by star six. If you could summarize again, where do you expect your cash position to be at the end of 2024?
The cash position, 2024?
Yes, at the end of 2024.
EUR 10 million.
Yeah.
Cash position.
Yes.
The cash position right now is a bit above. End of 2024, EUR 10 million, because we want to make EUR 100 million revenue, we want to generate profit with that, and we hope that we will not eat up everything with more stock and more prepayments. But that's what the calculation shows right now.
Wonderful. Thank you so much. As no further question have come in, we are coming now to the end of today's earnings call. If further questions arise, you can always contact us or the investor relations team. Thank you so much, Mr. Kirsch and Mr. Dimitrov, for the presentation, also to you. On behalf of Montega, I wish you a beautiful day, and for some final remarks, I hand over to both of you now. Thank you so much.
Thank you.
You make the finals.
Yeah, what to say? Everything is going well, sometimes going much better than we also expect. Our main, at the moment, our main challenge is how to grow company so fast and still to keep the focused, because from what we've seen, it looks like out is the blue ocean. We can do whatever we want. There is a lot of opportunities. There is many demands for the different services, devices, everything, and we've seen that everything is growing. And really, for us, the big challenge is really to stay focused and to go on the most profitable direction compared with others. But, yeah, that's, I think, that's we are also going, that that's good, that not only we are not exactly the usual device manufacturer.
We are a technology enabler and technology provider, which I think this is the future for the company, and you'll see how we developed that in the years from now.
That's right.
I can say.
Thank you very much.
Thank you.