Good morning and welcome, everyone. Today, we will present our Q1 2022 Result Presentation. My name is Sten Kirkbak. I'm Founder and CEO. Together with me today, I have our CFO, Mikael Clement, and we will guide you through this presentation. As always, we will divide it in three sections. First, I will take you through some key high-level information of Q1, then Mikael will take you through the financial highlights, and I will end with an outlook. Let's look into the high-level numbers of Q1. We managed to get an overall group revenue of NOK 74 million. That's up 37%. Of that, recurring revenue represented NOK 33.6 million. That is also up 66% year-on-year pro forma. That means we ended Q1 with 124,300 subscribers, which is up 55% year-on-year.
Also, we can report on a 55% gross margin representing NOK 41 million. That's up 115% year-on-year. Overall, Q1 ended with EBITDA at - NOK 2.9 million and a very strong cash balance of NOK 133.5 million. If you look into some of our key focuses of the first quarter this year, it's a handful of things we have prioritized and delivered on as well. We have continued to build a strong and growing retail footprint into new markets and with new partners. After the acquisition of Xplora Mobile last year, we have also prepared the business, the organization to scale this business model into new markets, and a lot of that preparation have been built upon in Q1.
We have also transitioned the company from a traditional ODM to OEM strategy, meaning that we take more ownership of the IP of our own product. This year we are planning to launch three new product, two of them being OEM product. Also, Q1 has been a quarter of managing challenging supply chain situation across the world. Currently, we have managed that well and have currently not suffered from delivering the product we were supposed to deliver. Again, Q1 has been about preparing our mobile service operation. We have come a long way of doing that, and also we have therefore now gone into a more focus and scale on our software and service tribe, hiring a new SVP for that division and also new hires in our software division.
The business currently have two tribes, two division, one leading our hardware and SIM subscription services, and one leading the service development and the new revenue that will come from premium services. We have also continued to build our overall team and implemented a new ERP system, which will be introduced and launched throughout the year with the company. That was some of the Q1 focus area we have delivered and focused on. Now Mikael will take you through the financial summary, and then I will come back post that with some of the outlook statements.
Thank you, Sten. Let's take you through some of the high-level financials first. Q1 is seasonally the weakest quarter for our industry, as you've seen over the last few years in our financials. The first quarter of 2022, Xplora generated revenues of NOK 74 million, up 37% from Q1 last year. Looking at this on a geographic and segment basis, device revenues in Q1 were NOK 39.9 million, down 22% from Q1 last year. Service revenues amounted to NOK 33.6 million, up 66% pro forma from Q1 last year, with group revenues at NOK 74 million. On a regional basis, Norway was our largest market in the first quarter of 2022, followed by Germany and then Sweden.
Norway makes up the largest portion of our service revenues, whereas Germany was clearly the largest contributor of our device revenues in Q1 2022. Xplora has a relentless focus on trying to drive increased gross profitability. In Q1 2022, we generated gross earnings of NOK 41 million, up 115% from NOK 19 million in the first quarter of last year. That represents a gross margin of 55% in the first quarter. Putting this in perspective, our gross earnings in Q1 this year is actually 10-fold our gross earnings two years back in Q1 2019, and the level, absolute level is actually higher than any quarter through the year we went on Euronext Growth in 2020. Recurring service revenues were NOK 33.6 million in Q1, up 66% pro forma.
They represented 45% of group revenues and an annualized run rate on the Q1 numbers is now in excess of NOK 134.4 million. Over the last four quarters, close to NOK 120 million in recurring service revenues, up 74% on a pro forma basis. We exited the quarter with 124,300 mobile service subscribers. That's up 55%. This is the development of our subscriber base. We have continuously grown our subscriber base. Naturally, Q1 is also a seasonally slower quarter as a result of lower device sales. On a regional basis, we have 74,000 mobile subscribers in the Norwegian market, representing the lion's share of our total subscriber base.
Sweden with 32,000 subscribers, Finland with 12,000 subscribers, and Denmark with 6,000 subscribers are all growing quickly. Overall in the Nordic market now, we have close to 6% penetration of the target age group of four- to 10-year-olds in the region, with the highest penetration rate in Norway at 17%. The other Nordic markets developing very much in line with the same trend we saw in Norway at the same penetration rates. Over to the P&L in the first quarter. As mentioned, group sales NOK 74 million, up 37%. With recurring service revenues at NOK 33.6 million, up 66% pro forma. Whereas smartwatch device sales were down 22% to NOK 39.9 million.
Gross earnings more than doubled to NOK 41 million with a margin at 55.4%, up from 35.4% in the first quarter last year. Operating costs amounted to NOK 43.9 million, up from NOK 30 million the same quarter last year. That includes NOK 9.1 million in marketing costs. Payroll expenses. Last year in the first quarter, we had positive option costs of close to NOK 5 million, whereas, as a result of a rising share price, in the first quarter of 2022, we have a reversal of some option costs in excess of NOK 3 million, explaining the flat development year-over-year. We exited Q1 with 112 employees compared to 51 employees in the first quarter last year.
EBITDA in Q1 -NOK 2.9 million, an improvement from a loss of NOK 10.9 million in the first quarter last year. Depreciation and amortization totaled NOK 11.8 million, and that comes from the amortization of intangibles from the acquisition of Xplora Mobile Holding last year, as in accordance with Norwegian GAAP accounting principles. EBIT -NOK 14.7 million and pre-tax earnings -NOK 15.2 million in the first quarter, versus a profit before tax of -NOK 13.6 million in the first quarter last year. Over to the balance sheets. Total assets, NOK 514 million, down from NOK 576.7 million at Q4. Financial fixed assets amounted to NOK 248 million on goodwill and intangible customer contracts from the acquisition of Xplora Mobile Holding.
Accounts receivable came sharply down from Q4 from NOK 78.3 million to NOK 29.9 million on collection of strong Q4 sales. Inventories also slightly down from Q4 to NOK 77.9 million, from NOK 82.5 million on seasonality. We ended the quarter with NOK 133.5 million in cash. Other short-term liabilities were NOK 62.7 million, down from NOK 96.6 million at Q4. NOK 20 million of that reduction is the earn-out payment for the remaining payment of Xplora Mobile Holding as they exceeded all financial targets for 2021. We exited Q1 with interest-bearing loans of NOK 29.9 million, and we had equity of NOK 387.7 million, equivalent to an equity ratio of 75%. Finally, over to the cash flow. Net cash from operating activities amounted to NOK 21.7 million in Q1.
Cash earnings were -NOK 3.5 million, positively offset by a working capital release of NOK 25.2 million in the quarter, on lower receivables and inventories offset by lower accounts payable. Cash from investments amounted to -NOK 27.5 million, of which the earn out to Xplora Mobile Holding was NOK 20 million. That leaves NOK 7.5 million in CapEx during the quarter, of which capitalized development costs are in excess of NOK 5 million. In addition to that, we have investments in new ERP systems in the quarter. Cash from financing was a draw of NOK 500,000 on debt repayments, resulting in a net change in cash of -NOK 6.3 million and a cash balance of NOK 133.5 million at the end of the quarter.
I think we'll go back to Sten for a quick intro of the road ahead.
Thank you, Mikael. Let's then have a look at the road ahead. Let me emphasize our three key growth strategies for 2022 and how we are planning to make our goals happen. We are focusing overall on three key goals. Number one, we will continue to develop existing and build new markets to drive further revenue growth. Number two, we will replicate our very successful, Nordic MVNO model, which is very successful and profitable, and replicate that into one-three new market outside of the Nordics. Thirdly, we'll introduce new services to support and build new recurring service revenue streams. How will we make this happen a little bit more in detail? We have some very strong and successful markets, such as the Nordic and Germany. We will continue to fuel growth into those markets.
We'll continue to build distribution power with new retailers and new partners into new market as well. Of course, some of those new markets will be particularly important, such as the U.S. market. We'll also, in some selected market, focus more on our online strategies and online launch in our own channels, having better control on price and also allow ourselves to have more marketing tools. Introducing connectivity into new market also allows us to drive more revenue, increased revenue, and will, of course, monetize on the introduction of our three new product this year. We'll also increase the focus on our sales team by adding more team member into that division. Part of this strategy, like mentioned, is part of the launch of our three new products, and we would like to just emphasize the strategy on our new products.
Three products, one entry-level product called XGO3 and two premium product, X6 and X6 Pro. The core difference with X6 and X6 Pro is one eSIM product and one traditional, SIM product. Also, the premium product, X6 Pro, have top-end chipset, best screen on the market today, and will be launched with multiple new features and functionality, all scheduled to be introduced in the market this year. As mentioned, as an important part of our growth strategy, we will grow retail partnership and distribution power into new market, as mentioned, U.S. being one of the core important market. We therefore happily announce our collaboration with Walmart, one of the world's largest retail chain, and our strategy with Walmart is to introduce our full line of smartwatches initially being sold and distributed online.
We are also very happy to recently have announced the partnership with Target, another of the major U.S. retailer and distributors, and Xplora is an approved vendor at Target for the full line of our smartwatches, also initially to be distributed and sold online. Two of the key retail partners in the U.S. market is already secured. As mentioned, as part of our core strategy as well, to extend our successful Nordic subscription model into the global market. As you can see in the Nordic market, we have now achieved 6% market penetration with our business model, selling smartwatches bundled with SIM connectivity, highly profitable SIM connectivity revenue streams.
As you can see from this chart, you see that the Nordic market overall represent roughly 2 million kids, age group four to 10, and look into the opportunity we see in Europe and North America replicating this business model represent a significant opportunity for our company. For that reason, we also were happy to announce our first partnership with IQ Mobile, allowing us to introduce our first service revenue launch outside the Nordic recently being announced. Today, we will also present to you our second agreement outside of the Nordics with Transatel in France, allowing us again to replicate the same business model into the French market as well.
Lastly, of the update related to our subscription model, we're also very happy to announce to the market that Xplora is now teaming up with AT&T, one of the largest telco providers in the market, to launch connectivity in the U.S. and North American market. This new model of what we announced previously this year as a target, one to three new partnerships outside the Nordic to replicate our successful, highly profitable subscription model. That takes us to the outlook for 2022 per today. As mentioned, we will have strong focus on our three key areas for 2022 to drive our announced 50% sales growth ambitious ambition for 2022. Developing the existing and new markets to add new retail, a stronger retail distribution power for the company, replicate our mobile subscription model from the Nordic into now three new global markets.
Accordingly to the roadmap with our subscription model, introduce new products and new services to add on top of that. Introducing the smartwatch, add connectivity from the SIM, and then on top of that, add new products and services on top of that as well. The supply chain, we believe, will continue to be challenging. We'll continue to manage that as we successfully have. We'll also see increased uncertainty to consumer spending and patterns from a macroeconomic situation. That's again, one of the reason why we are continuing to focusing on new partnership, new distribution footprint to increase the depth, of our, distribution, as well as adding new product and services to increase the revenue per customer. Also Xplora is securely funded in order to deliver our growth and our ambition for 2022.
Now, let's go into the Q&A section. All right, Mikael. Yeah, I see there is quite a lot of good questions coming in. Let's start to review them one by one.
Sure. Let's look at the screens here. Are you considering moving to a different stock exchange? In that case, what's your time frame?
Mm.
Well, it's certainly a relevant question in today's market for companies doing fairly well. I guess the short answer to that is that at Xplora, we are always considering our options.
Mm.
Even if Q1 showed a year-over-year total growth, including revenues from Xplora Mobile, watch sales were down year-over-year. Do you expect the same trend in Q2? Could you give an indication?
Mm.
I guess, we've not given any guidance for Q2. Given the insight and information we have at current and so far in the quarter, we do expect a positive organic year-over-year growth in the second quarter of the year.
Mm.
What is the reason for the decline in smartwatch sales in the first quarter this year?
Mm.
Sten.
Yeah. We saw a slightly slower sell-out during Q4 because of a more conservative consumer behavior. Also one of the reason we provided our guidance for this year because of the trend. That also have continued into Q1 with a slightly slower sell-out per retail, per store, per channel. Also hence the reason why we are now increasing the volume out of our distribution footprint in order to have more places to sell the product throughout 2022.
Sure. Why are there no updates on the new devices in the report? When can we expect them with price ranges, et cetera?
Well.
I guess.
Yeah.
Competition is maybe.
Yeah, that's a relevant question, but the reason is that we have communicated we will release three new product this year. One entry level, two premium product. Given the carefully planning with our retailers related to the launch, we will not report any details of that before we are very close to launching the product, but all three product will be launched throughout 2022.
Good. Let's see here. We got more. Thanks, team. Is the plan to get Target and Walmart to sell in-store this year as well?
That's also a very good question. Particularly, we saw a change in the strategy to many retailers throughout the pandemic and also now going into 2022. First of all, a lot of the retailers have seen an increase of volume through their online channels. For that reason, it's very natural for a lot of the big retailers in particular to start online since the channel has been growing, but also then to evaluate the performance on the online sales before then potentially moving the products into the physical retail stores. Of course, our objective with all retail strategy will be to go into the retail store, but normally we'll start online, build good traction, and then based on performance, you can move into the physical retail stores.
Good. Could you elaborate on the mobile service provider deal in North America?
Yeah.
As we have articulated, one of the core part of the growth strategy is to replicate the Nordic MVNO solutions. We said we targeted to have one-three Global MVNO solution throughout 2022. For that reason, we are of course very happy to already have announced three in U.K., France, and U.S. In general, all of these integration, all of these solution will work the same way as in the Nordic market. All product will be bundled with Xplora connectivity solution from an out-of-the-box experience with the same value proposition as we have had in the Nordic. That also goes for the North American solution.
Mm.
Same as in U.K. and France as well.
Your depreciation run rate is around NOK 50 million a year. Isn't that very high?
Well, we report in accordance with the Norwegian GAAP.
Mm.
Which requires us to amortize intangibles. We amortize our goodwill over 10 years.
Mm.
We amortize our intangible values from customer contracts.
Mm.
Over four years. That's, I guess, the answer to that.
Mm.
I guess, there might be a misunderstanding here. That's to clarify.
Mm.
Do you expect the AT&T deal to be like the Deutsche Telekom deal volume-wise?
Oh.
These are two different agreements.
Yes. That's actually very good to be addressed. In Germany with Deutsche Telekom, that was a distribution agreement whereby Deutsche Telekom purchases Xplora product and bundle the product with their own SIM cards from Deutsche Telekom. The business model to Deutsche Telekom is that we provide them product with a margin on our product. Our growth strategy for our connectivity to replicate the Nordic model is for us to have our own SIM, recurring revenue stream, so our own SIM card, Xplora Connect. The agreement in the North American market was for us to enter into MVNO model in the North American market, so we can provide our own SIM card. Hugely profitable, plus they also provide a even better onboarding process because the SIM card is already there from Xplora Connect. Most like.
The key reason is to drive the recurring revenue stream to Xplora, whereby in Germany with Deutsche Telekom, that drives recurring revenue to Deutsche Telekom, but we provide the products.
Good. Good. There are a couple of different questions here in regards to the 50% growth targets.
Mm.
How secure? Do you have any comments around that?
Yeah, fair question. Growth this year will not be easy for any industry relating to the consumer, to the end consumer. I also would say if we had only the same products as we had last year, if we only had the same distribution channels, the same distribution footprint as we had last year, and the same services we had last year, I think it would be fair to say that that kind of growth would be challenging.
Mm.
However, that's the reason why we have emphasized that this year we will launch three new products, and new product always drive additional attention from the retail stores.
Mm.
That always drives additional sales. Plus, we are also dramatically increasing our focus to expand our retail distribution footprint. Whereby the sales per store or per channel might go down, we will compensate that with having a broader distribution footprint, more people, more retailers selling our product, that will increase the overall volume.
Such are some of the retailers that we recently announced.
Yeah. Exactly. We will also then introduce new products and services to additionally increase our revenue.
Mm.
That's the key reason why we can continue to emphasize our target for the growth this year.
Will we see a new mobile application?
We are targeting throughout 2022 to also release a new mobile application. Same strategy really as we have on our product. We normally have an 18- to 24-month life cycle on our product. Same way, we also have a life cycle on our mobile application. Particularly this year, it will be important because we have been introducing multiple new products and multiple new services, so that's also part of our launch of a new mobile application this year.
Good. Do you expect the new products to have a higher margin than the old products? I guess, as you know, there has been a general increase in the price of many components over the last couple of years.
Mm.
This will most likely on many products lead to slightly higher average selling prices in general. We will continue to target an overall percentage margins.
Mm.
On our devices of around 30%, but that implicitly will mean that the NOK contribution will most likely increase.
Mm. Mm.
Competitive situation. Are you gaining or losing market share?
Without having official number on market share, at least the feedback we are getting from our distributors and retailers, it seems that we are growing our market penetration, our market position in our core markets so far.
Let's see here. Last year there were a lot of conversations about the delay in the U.S. What's your view on the U.S.?
Oh, yeah. Good question. Actually, I would like to first of all address the fact that we had ambitions for U.S. last year. As we communicated to the market last year, that it was rather difficult to really have success in the U.S. because we were not allowed to even fly into U.S. For that reason, we are very happy that already now, just a couple of months after we actually could start to travel to U.S., we started to build our office in the U.S. immediately after CES in January this year, and only a couple of months later, we're very happy to start to announce our first partnership as we have recently done. For that reason, we look optimistically for the further growth ambitions in the U.S. market.
Of course, U.S. is a big market. It takes time. It's very big retailers we have conversation with. Even though we have introduced and announced the first partnership now, it will take some time to build the momentum to integrate marketing properly and execution, again, allowing us to expect results of that into the second half of this year. We remain optimistic for U.S., particularly now that when we actually can be on site.
There are a couple of follow-up questions in regards to Q2. I guess, I mean, as we mentioned, we don't have an official guidance for Q2.
Mm-hmm.
We will say that we expect a positive revenue, group revenue, year-over-year growth in the second quarter over the second quarter last year.
Mm-hmm.
Will you try to get more analysts to follow the stock to increase share awareness? This is absolutely on our agenda. We try to approach this proactively. I think you will see more attention from more.
Mm.
Investment banks, and more activities. We have been in a few conferences. We try to get out to communicate and be available.
Mm.
To the investor market, as much as we can do, and we will continue to do that.
Mm.
Attending investor conferences and hopefully also have more analysts following us and writing on us.
Mm.
Yeah. I think we're starting to get out of time. Why the shifting focus towards connectivity this year?
Yeah. That's relevant and actually a very, very important question as well because first of all, for practical reasons, we do see better customer satisfaction when there is a pre-installed SIM card inside the box. Customer open the box, start the product, and basically you are live. A better customer satisfaction. Of course, also it's a very different business model with a much better profitability. If you're selling only a smartwatch versus selling a smartwatch with a connectivity, it's roughly seven times plus the profitability and revenue on that product versus only selling hardware. Also having recurring revenue, we tie the customer to the Xplora for what we see in the Nordic market, roughly for three years.
It's a very important part of our value-added service strategies, which we have currently developed a lot of new services. We have introduced a lot of these services, but we haven't started to monetize on those services yet because we are seeing a very clear link correlation between what is the best time to upgrade to premium services. It's at the point when you're already onboarding a product and activating a SIM subscription with Xplora. At that point, it's the best time to upgrade to additional services, which you also then will pay for. That's why over the last year, we have introduced a lot of software services, although we have not charged for those services, but we have gained a lot of insight. As we also previously have communicated, we have now tied our value-added service strategy toward our Global MVNO solution.
Going into the markets, into three new global markets plus the Nordics, we now have seven markets with connectivity in order to really have a good strategy to introduce our premium value-added services throughout 2022. We have with internal users on the Xplora customer base plus a third party, more than 100,000 customers using our GoPlay services that has allowed us to get a lot of insight into how they onboard, activate, and use the services, which we seem very optimistic for the introduction throughout 2022, jointly with the connectivity.
Are there any plans for an MVNO agreement in especially Germany, since a lot of the sales are from Germany?
Very relevant question. When we said we targeted one-three, of course, Germany would naturally be in the scope where we would like to have such an agreement. We will immediately announce when we enter into an agreement. We have now announced U.K., France, and U.S., and Germany will of course be on our target list to achieve that as well.
Xplora has a story of strong corporate responsibility. What ESG strategies will we see in the near future?
I think first of all, I would like to address on that question that since Xplora have had this strong, ESG strategy that actually has allowed us to enter into some of the retail agreements, some of the partnerships agreement that we now have announced. For that reason, our ESG strategy has been important. We also do see that when we have project on our GoPlay platform, on our services that emphasize kids to help other kids or help the environment, we see that that is the kind of campaigns that performs very well. What you will see and what you should expect of Xplora in the future is for us to strengthen this relationship of having kids to be more active and allow this activity to trigger various sustainability projects. More of that to come.
Yeah. Good. I think we're getting towards the end. There's one more in here now. Aren't device sales the foundation for growth and service revenues? I mean, people don't buy a SIM without buying a watch, correct?
That's correct.
Yeah.
That's the beauty with our model, because since we have a mobile phone in the form factor of a smartwatch, you have to have the SIM card.
Mm-hmm.
There is no option, and that's the reason why we make it as simple as possible for the customer to just out of the box activate our SIM card, because you have to use a SIM card. Again, that's why also at that point, we would like to upgrade to more services at the point where you're activating the service. Still, we believe that the smartwatch itself is a Trojan horse in order to drive connectivity, and connectivity services is the way to drive best possible conversion to additional premium services.
Naturally, that explains why we.
Yeah.
Are now in 2022, expanding, rolling out the connectivity business to more markets.
Mm.
So that we can sell, use the device as a Trojan Horse.
Mm.
To introduce new revenue streams in more markets than we have previously.
Good.
Good. I think
Yeah.
Have covered pretty much.
Yeah.
All the questions.
As always, if you would like to see the presentation from today, or all the documentation, as always.
Mm.
They're available at xplora.com/investor. As always, Mikael and myself will always be available for any additional follow-up question. Thank you so much.