Welcome everyone. It's 9:00 A.M., and we are live. We are super excited to present our Q4 and overall 2021 result for you this morning. As you all know, Q4 is by far the most important quarter of the year. My name is Sten Kirkbak, CEO of Xplora, and with me, I have our CFO, Mikael Clement, and we will split this presentation into three section today. First, I will give you a high level numbers and operational highlights overview, then Mikael will take you through some of the key financial detail, a little bit more in detail. I will then end with an outlook and post-quarter news. I'm very excited to walk you through the highlights. The company have continued strong organic sales growth, accomplishing the highest revenue in the company history.
We have completed the merger of Xplora Mobile and continue to make progress on our global service rollouts. We have redefined our product strategy, which I will come back to, and we have ended the year strong with positive EBITDA and positive cash flow. It's the first full year with positive EBITDA, giving us a strong financial position into 2022. Group revenues are up 62% year-on-year in Q4. Annual recurring revenues are NOK 33.6 million, and EBITDA is NOK 28.6 million for a margin of 16.2%. Q4 is not the quarter where we introduce new services or testing new proposition. It's all about our ability to deliver, and I would like to take you through some key highlight on our key accomplishment.
From product side, we have initiated the most extensive new program for product to be rolled out and launched in 2022. I will also come back to more details on this in the outlook. On the service side, we have continued to grow our service base and develop new services that we also will implement in 2022. On the distribution side, we have several new wins, and I would like to highlight in particular 2 new eSIM wins, one with Telefónica and one with Telia. On our business side, we have continued a focus on operational efficiency to prepare how we further can gain benefit of scaling and further drive cost efficiency. We have also used Q4 to refine our product and service strategy.
On the product side, we will make one of our biggest move and transition from ODM to OEM, launching three new products to take even more ownership on our IP. I will talk more about these new products in the outlook. On the service side, we are starting to gain great insight. With more than 120,000 SIM subscriptions activated and more than 100,000 Goplay campaign users from both Xplora watches and third parties and roughly 15,000 Arcade accounts activated, we have learned a lot. How to sell, how to onboard, and also how to engage our users. Going forward, we will therefore make a change. We will follow a trend that we are seeing from the broader telco and service industry. Instead of separating connectivity and other value-added services, instead we will merge them into one service proposition but with multiple price offering.
The foundation of our service pack will always be connectivity as default. You can increase the level of services you would like to add on top. Our objective as a company will make to ensure that we always try to increase the contract value of each user and drive highest possible recurring service revenue value. Going forward, we'll only report one number, being recurring service revenue. I would like to introduce Mikael to take us through more in detail the financials.
Thank you, Sten. Let's start by taking an overall look at where Xplora is on a financial basis. Growth is in our DNA at Xplora. We are a leading player in a rapidly growing industry. In the last year, we're proud to announce another year of strong growth with sales up 115%. Over the last four years, we have a CAGR in our revenues of 188%, from NOK 18 million in revenues in 2018 to NOK 431 million in 2021. We also have a very strong continuous focus on underlying profitability and have continuously worked on improving gross margins on products and also services. Gross earnings in 2021 was up by more than 200%, NOK 296 million.
We have seen a fifty-fivefold increase in gross earnings over the last two years. We increased our gross margins last year to 45% from 30% in 2020. This trickles down to the EBITDA line. Following heavy investments in markets and organization, products and services, and resulting negative earnings in the years 2018 to 2020, we exit 2021 as the first year of positive EBITDA of NOK 19 million . We entered 2021 with a very solid financing following the IPO in October 2020. We raised additional funds in the early parts of the year last year, enabling the acquisition of our MVNO partner Xplora Mobile in Q2 with effect from Q2.
We're very proud to show positive cash flows exiting 2022 with a very strong cash balance of NOK 140 million, giving very strong backing for another year of strong growth ahead. Xplora Mobile was acquired, as I mentioned in Q2, with very strong growth ambitions. One target was at least NOK 100 million in recurring service revenues, and we're happy to post a business exceeding that at NOK 108 million in recurring service revenues. Part of the payment for Xplora Mobile was in an earn-out, and also were based on some EBITDA and free cash flow targets. We're also happy to announce that these have been exceeded, so this earn-out will be paid in the first quarter of 2022.
The recurring business has shown very strong growth also over the last few years. Last year, recurring service revenues up by 84% to NOK 108 million on an annual basis, and we're exiting the year with a run rate based on Q4 service revenues of more than NOK 134 million. This growth is driven by a continuous growth in the subscriber base and a subscriber base of highly profitable subscribers. Looking at the lifetime value of our subscribers over the customer acquisition cost, we see a very positive trend and very attractive returns on the investments in the subscribers. This is a business model that we will continue to develop as we move ahead. The subscriber base up from 77 ,000- 23,000 subscribers through 2021.
75,000 of these subscribers are from the Norwegian market, the market that we've been in the longest. That represents 17% of all children in our current target market of 4 to 10 years of age. In Sweden, we have 31,000 mobile subscribers, representing a penetration of close to 4%, followed by Finland with 3% penetration and 12,000 subscribers. We're also very happy to announce close to 1,000 subscribers in the U.S. market following our release of our connectivity solutions in Q4. As mentioned, we've been in Norway the longest, and have reached a very strong penetration of 17%, and you can see the growth trends have been very strong over a long period of time.
Looking at the other markets that we're in, we have seen very similar growth trends in penetration as we have applied the same go-to-market strategies as we did initially in Norway, further developing those. Of course, we will build on this knowledge as we continue to extend these services to new markets in the times ahead. As mentioned, the subscriber base is up from 77,000 mobile subscribers at the beginning of the year to 123,000 subscribers at the year end of 2021. We added 75,000 subscribers through the year. This is a growth of more than 50% from the additions that we had in 2020. We have a natural churn of 28,000 mobile subscribers.
We have an underlying churn of roughly 2.5% per month, a churn rate that has been fairly stable over time and between different markets. Moving on to our regional sales breakdown in Q4. Device sales, Germany is our clearly the largest market in the fourth quarter of 2021, followed by Norway. On the services side, Norway is our clearly largest market, followed by Sweden and Finland. On a group level, Germany, our largest market in Q4 with 43% of sales, followed by Norway with 34% of sales, and Sweden at 8% of revenues. From that, let's take a closer look at the P&L for Q4. Group sales up 62% to NOK 176 million .
Recurring service sales represent 19% of group sales at NOK 33.6 million, up 73% on a pro forma basis year-over-year. Gross margins in the quarter ended at 47.7%, up sharply from the same quarter last year. Gross earnings as a result are more than double the same quarter last year at NOK 84 million. Operating costs in the quarter at NOK 55.4 million, which includes NOK 15 million in marketing costs. We have the same number of employees exiting the quarter as we enter the quarter, 90. We present a record EBITDA for the company at NOK 28.6 million for a margin of 16.2%.
EBIT ends at NOK 18.2 million in Q4 following amortization of NOK 10.4 million from intangibles from the acquisition last year. Moving on to the full year 2021 P&L. Group sales for the year up 115% to NOK 431 million. Recurring service sales last year stood at NOK 90.7 million, representing 21% of group sales. Gross margins for the year at 45.4%, up from 29.9% last year, with gross profits up more than twofold at NOK 296 million. Group OPEX for the year NOK 176.8 million, up from NOK 70.8 million.
Payroll expenses stood at NOK 72.4 million, and we had other OPEX of NOK 104 million, of which marketing was NOK 47.5 million last year. We increased our employee base from 40 at the beginning of last year to 90 at the end of 2021. As mentioned, we reported our first full year positive EBITDA at NOK 19.2 million for a margin of 4.4%. Our operating profit stood at -NOK 11.5 million, and we report a profit before tax of -NOK 13.5 million. The balance sheet. Total assets increased slightly in the quarter to NOK 576 million from NOK 543 million at Q3. Financial fixed assets, goodwill, and customer contracts stood at NOK 250 million.
Accounts receivable up sharply to NOK 78.3 million on strong year-end sales. Correspondingly, inventories slightly down from Q3 to NOK 83.5 million, from NOK 93.8 million at Q3. Cash balance at the end of the year stood at NOK 39.8 million. Other short-term liabilities, NOK 109.6 million, including the earn-out of NOK 20 million. The remainder is made up of prepayments from a rising subscriber base and prepayments from factory orders. We had NOK 29.9 million in interest-bearing loans at the end of the year, slightly down from Q3, and equity stood at NOK 401 million for an equity ratio of 70%. Finally, cash flows.
Cash from operating activities in Q4 stood at NOK 30.9 million, of which cash earnings were NOK 27.9 million, and we had a positive working capital items change of NOK 3 million. Cash from investments is negative NOK 4.4 million from capitalized development costs. Cash from financing is a negative NOK 0.5 million on debt repayments. This results in a net change in cash of NOK 26 million in the quarter, with cash balances standing at NOK 139.8 million. With that, let's move on to the road ahead.
All right. Thank you so much, Mikael. Before going into the post-quarter events, I would like to summarize our commercial strategy, as we often get questions to review this one. High level, we have 3 key strategies. First one is our go-to-market strategy. It's 5 crucial steps we have learned to follow. To put it into a timeline perspective, building a product takes roughly 1 year. We then try to go 4-6 months online while adding retailers. Telco homologation processes takes 6-9 months in a normal market. The COVID situation the last couple of years has made it a lot longer. Having success and good scale or good sales in all channels, then we can start to scale into the fifth and second phase.
Currently, it's the Norwegian market in particular, but also we see an early growth in Germany representing the fifth level of scaling. Secondly, our revenues will primarily be split into two key buckets. First, you have the revenue from device sales and then our recurring service revenue sales. Again, with recurring sales will come from various price point in our service packs. On top, we will also have a smaller portion of non-recurring services and integration revenue. Summarizing our channel strategy, we have two main channels where we can drive sales from both product and services. It's the online and retail channels. Then we have a key channel that drives primarily the highest volume, which is the telco industry. Roughly 50/50 will come from telco and 50% from online and retail.
In the telco channels, we primarily sell devices, but with an objective to always try to include 12 or 24 month pre-installed service access, similar as we did and announced with the Telia agreement. As an upsell strategy, users can also use our Xplora application to upgrade to other services, even if the purchases comes from a telco channel. On February eleventh, we announced a very important win in the U.K. market with EE. EE is the largest telco in the U.K. with more than 26 million subscribers. EE will distribute Xplora in 500 stores nationwide.
As you can see from our go-to-market strategy, it means we now can move into phase four in our growth strategy in this big and very important market in Europe. Building on the momentum that the markets are hopefully returning more back to normal, and as we also saw from the win in the U.K., our top priority in 2022 is the expansion into the North American market. As articulated, we have used our presence during CES in January to continue positive conversation, and we have opened our offices in New York, and recruitment is in progress. In 2022, we are planning to launch our most advanced and leading class products in the company history, starting with a new, entry-level model, Xplora XGO3, a product still being produced in China from our current manufacturer. Next out is the new Xplora X6.
It's our first OEM product where all IP belongs to Xplora, and we have built it from scratch. It's built on the Snapdragon Wear 2500 platform by CK Technology, which is a new manufacturer. Third product out will be Xplora X6 Pro, where we have taken a leap forward in product design and specification, securing our position as a category leader. This product will also be built outside China in South Korea by Infomark. We'll make a joint announcement with Qualcomm during the upcoming Mobile World Congress, as this product is built on latest Snapdragon Wear 4100 platform. Timeline will be announced later. As you can imagine, we are super excited for the rollout of products in 2022. With this strategy, we also de-risk the component and supply issues by having multiple manufacturers on also several different platforms.
Similarly, we are very excited for our product roadmap. We also have some very ambitious software and service roadmap for 2022. We will divert away from a strategy on being 100% reliant on two or three major new software launches. Instead, we'll develop a much broader portfolio of compelling services throughout the year. This will also allow us to constantly offer a variety of content into our various service packs. As you can see on this slide deck, all our current services, as well as our ambition to constantly develop new services, will then be the foundation of our various service pack that we offer into the market. Having a strong focus on driving higher annual recurring revenue service month by month. Over to the outlook.
Xplora aims to reinforce our market lead position through extending our reach, not only to broader reach of distribution, but also to a broader range of new products and services. We aim to establish a MVNO operation in at least one market, one new market in 2022. CapEx is expected at NOK 30 million-NOK 35 million on investment in OEM products, new services, and ERP system. As Mikael also mentioned, growth is within our DNA, and we target a minimum of 50% revenue growth in 2022. Very importantly, Xplora is securely funded to deliver on all these aspirations. Now, let's move into the Q&A session. All right. I see we have quite a lot of questions. That's good. Let's just start. First one here, how important is the EE deal?
Short answer, EE deal is very important as our objective, of course, is to jointly with EE start to develop the U.K. market in a similar way as we have done so far with Deutsche Telekom in the German market. Of course, the U.K. market is one of the biggest one in Europe. The partnership with EE is very, very important for us.
Let's see here. Another question. What's the difference between ODM and OEM? What does that mean?
That's a good question. The quick answer to that is, ODM is a design manufacturer. Primarily they by default build quite a lot of the original design, making it quicker for a company like us to bring a product to the market. While an OEM manufacturer, we as a customer will build and design everything from the product from scratch, meaning we own everything of the IP, and we can optimize the product even more to our design vision. It takes a little bit longer to bring it to the market, but also eventually we'll be able to develop an even better product, own more IP, and also we can focus even more on the profitability and the margin having the volumes we have.
Mm-hmm. Good. Have you ever thought about changing marketplace to a bigger stock exchange, for example, Stockholm or Nasdaq? I guess the short answer to that is yes. Absolutely. This is an issue that has naturally been discussed by the board on a continuous basis. No decision has been made, but I would assume that as a global company, for us, in the next step, to be listed outside Norway is very natural for Xplora. What is your conversion rate from watch sales to mobile subscribers?
Hmm.
Oh.
I think it's important to separate the market for now, slightly two-folded. If we look into the Nordic market, that percentage conversion rate-
Mm
is close to 100, so almost every single watch is sold with a subscription. Now we are gradually rolling out a similar model into selected global markets with objective to do the same thing, particularly in the online and retail channels.
Mm.
Historically, we have had an ambition, a target to get around 20% of that conversion.
Let's see here. You announced on December 30th that you teamed up with United Cities.
Mm.
What's the commercial potential of this agreement?
Oh. Good and very interesting question. I'm glad it's asked, and that's also kind of two-folded. One is that we see as a company, both from selling product and also furthermore to be selected from retailers and distributors, it's important for a company like us to have a very strong and focused ESG strategy. We have selected five of the sustainability goals from United Nations, and during those processes this has also been important, natural for us to engage even more with them. It gives us a lot of fantastic results from marketing and PR perspective. It helps us to open doors and close deals with new retailers and distributors, so the total impact of that is quite significant.
How capital intensive is the international expansion? How likely is it that you will have to raise capital at a later date?
Mm.
We announced in this report that we exit 2021 with a strong financial position, NOK 140 million in cash on the balance sheet, and that we are securely funded for the growth phase ahead. I think the international expansion that we are planning for, we're well-funded for. I think if there are strategic opportunities that may arise, we will certainly value that.
Mm
The funding for that as we move ahead.
Mm.
What's an agile organization?
Yeah. Good question as well since we addressed it as one of the topics in Q4. Agile organization is really a human-centric organization. The key thing is really to empower each of the employees in the organization. Remember, we have grown significantly as a company, and it's been very important for us to make a model allowing us to really have each of the employees to be part of smaller teams and feel that they are really part of the decision-making. Having even more satisfied, happy employees, that is part of building the company. It drives more ownership, and eventually also therefore better results.
Yeah, also allows the employees to grow within the organization and see a career path.
Mm
Within the organization I think is very important.
Yeah.
Benfica. Has the agreement or partnership with Benfica given any payback? What's the value behind that?
Great question. When we announced Benfica, we put that into a bigger context saying that for, first of all, for Xplora, one of our vision is to drive people to be more active, the whole family to be more active, because we really believe in that. Sport is a huge arena for us to build our brand. You have football, baseball, basket, so many sport area. We started with football. We started with Benfica having a huge fan base around the world. What we already can see is our marketing initiatives, our campaigns where we engage with Benfica are definitely being one of our most efficient sales campaigns so far. We are continuing to explore collaboration within sport in general, football, and potentially other area of sport as well.
How do you see full-time employees and OPEX developing in 2022? Clearly we are a growth company. Growth is in our DNA, and we will continue to aim to maximize or grow quickly. That also includes growing our OPEX base and the number of headcounts in the company.
Mm.
We more than doubled last year from 40 - 0 employees. We will clearly increase the number of heads quite significantly also in the current year. As we grow, that goes for development resources based in London, sales resources based in all markets that we're in. Customer success teams, clearly, very important. We haven't disclosed a number on that, but we will continue to grow. Having said that, we are very clear that operating leverage is a key part of our growth path. We have shown that and focused strongly on operating leverage, increasing margins to date. We clearly have that ambition going forward. Last year we had an EBITDA margin of 4%.
We had 16% EBITDA margins in the fourth quarter, and clearly we aim to widen those margins as we move ahead. How do you perceive the competitive environment and Xplora's position?
Mm.
Should I?
Yeah.
Yeah. No, clearly, I mean, we're in a growth industry and that is young, new, and we see and expect to see more competitors enter the space and more players enter the space. Up until through 2021, most competitors have been either smaller local players. There are a few regional players like ourselves. We've seen a few telcos also tap into the space. We expect that trend to continue, and we also expect to see new entrants into the space as we move ahead. We believe that our total offering is unique, and that is both in the sense of what we're doing on devices and our, we believe, a very unique platform and service offering that will be integrated to a larger extent with our devices as we move ahead.
That is clearly a significant part of our OEM strategy that will be leveraged upon in 2022.
Okay.
Is there any reason for Xplora to be publicly listed? Are you looking at M&A? Clearly, being publicly listed has been an entrance for us to get the funding needed to deliver the growth that we have delivered upon over the last couple of years. Clear that it has been a major benefit to Xplora. The other part of the question, M&A, yes. We made a very significant and important strategically and financially important acquisition last year, and clearly have M&A on our growth path also for the future.
There is a CapEx question, NOK 30 million-NOK 35 million CapEx. Clearly, the ERP solution we're implementing, a Microsoft Dynamics solution, is only a smaller part of the total CapEx budget for the year. A larger part of the CapEx budget for the current year is the OEM products that will drive. That is clearly the major driver together with the platform and services. Yeah.
Like we said, we'll build two new products based on the OEM, and again, that allows us to have better scalability and even better financial control of each of the components in the product we are building as well. A good, very important strategy for scaling h as the fusion with the?
Merger
Has the merger with Xplora Mobile been good? Is the management still in the company and organization? Short answer to that is yes, it's been a very good strategic decision for us to make that.
Team up
To team up with Xplora Mobile. As we had mentioned several times during the presentation as well, it's a huge opportunity to bundle product with connectivity and also the revised strategy slightly to even bundle services with connectivity. The beauty is that you buy a product, you need connectivity, and in that point of sale, you can upgrade the connectivity to include more services. All the competence from a strategic level from the acquisition of Xplora Mobile has been important in order to have a better model to scale into more European and global market. The core team from Xplora Mobile, who the management is of course still in the company and are also driving a lot of those processes to roll out those services into the global market.
You're now halfway through Q1. Any guidance on sales development so far? U.S. is especially interesting given what was announced about Amazon sales in Q4. We've not issued any guidance for Q1. We have stated some targets for the year, a minimum 50% revenue growth in 2022 over last year. We are rolling out and positioning in the U.S. As we mentioned, we are online through Amazon and our own web store. We attended CES. We have or are establishing an office and recruiting personnel and are actively targeting new distribution partners. Moving back to kind of our go-to-market strategy. Online is the first part, then, retailers, and then finally telcos. We seek to cover the whole space in the North America market as we are in other markets as well.
SpiderMonkey sent out a report a few minutes ago. The 2022 budget was approximately 800 devices in Norway, about 600. What's your comment? I'm not gonna comment on an independent research report. There's been no budget. We have stated our targets for the year. Let's see. Are there any more that we have here? No, I think we've covered most of the questions.
Leave a couple more seconds if there are some more questions coming in.
What new geographies are planned for 2022?
Two comments on that question. One is that in general in our plan for 2022, primary focus is to launch into the North American market and extend from online retail and eventually telco. That's a key priority for this year. We already have a plan for some of the European market. We mentioned we have already good traction in Germany. With EE, we'll focus a lot on the U.K. market of course. We also see a very efficient strategy, that is to grow alongside our telco partners, like Deutsche Telekom is represented far outside Germany, so it's natural for us to grow alongside a strong telco partner, and we'll also continue to do that once we are onboarding more and more telco partners. We'll continue to have the focus in Norway with our...
in the Nordic market, with a strong delivery on service revenues. We will focus on the U.S. market, and of course, the biggest market in Europe, in Germany and U.K., and grow alongside our telco partners.
Adding to that, I mean, we state that we expect to extend our MVNO business to at least 1, maybe as many as 3 new MVNO operations. It's natural to think that will be rolled out in markets where we have a solid position. Good. No more questions so far. Shall we wrap it up then?
Yeah. As always, information will be available. You can download from myxplora.com/investor Mikael and myself, as always, available for any comments or interviews, conversation, post this event.
If not, please visit our IR site on myxplora.com/investor. Thank you so much for today.
Thanks.