Good morning. It's 9 o'clock, and it's time. Welcome to our Q1 result presentation. My name is Sten Kurpack, Founder and CEO of Explora Technologies. With me today, our CFO, Michael Clements, and we will take you through this presentation.
We expect it to take approximately 25 minutes. We'll split it into 3 sections with a general update and a financial update, outlook and we'll end with a Q and A. Before we dive in, let's do a little recap. Explora is really leading the way in a very fast growing industry. More than 100,000,000 products are expected to be shipped.
In Asia, Europe and U. S, we are leading the way And the market is representing some of the world's 1st mobile phone, SIM connection, bank services and digital accounts. In short, we are onboarding the future generation of consumer products. This year, we're representing to be a breakthrough and a pivot in our company history. We used to be known and recognized for our product portfolio and our GDPR compliant IoT platform.
However, over the last couple of years, we have been working with some of the world's most recognized content provider and created a platform that really are representing the future for the wearable industry for Kids Products. Let me take you through some of the key highlights for our Q1 and what we have delivered so far. From 2019 To 2020, we grew from 74,000 sales to 260,000 sales last year with a very strong ambition to reach 500,000 units this year that represent more than 130% growth. And we are very proud to report that we managed 150 percent growth in Q1 to reach more than 60,000 products and NOK 54,000,000 worth of revenue. We also managed to have solid margin to reach 35.4% gross margin and we also had another successful private placement, which secured financing for our growth plan as well as the acquisition of Explora Mobile.
And while Q3 and Q4 Represent the most important quarter for volumes and growth, Q1 and Q2 really laid a foundation on how we will accomplish In Q1, we have managed to do some of our biggest and most important integration from the platform and software side, And we have also defined and concentrated our IP strategy. In this slide, I would like to take you through The key elements of that strategy before I go into some of the operational highlights. Our strategy will be based out of 4 building blocks: our product strategy, our service and software strategy, our telco as a service strategy as well as our new FinTech Strategy. When it comes to our products, our objective will always be to have 3 products In the market, each of them with approximately 18 month lifecycle. 2 of the product will be SIM connected, either via traditional SIM, eSIM or voice over IP.
And the 3rd product will be Bluetooth connected, meaning it cannot make a phone call, it will be a lower price point, it can still measure activity and steps. All those 3 products, I will explain in which market and the timeline a little bit later in this presentation. Our second building block is our software as a service strategy. Again, that will be built based on 3 key elements. Our already recognized IoT t GDPR compliant IoT platform, which basically connect all these wearable product in a safe way to the consumer.
The second element will be our activity platform, our now growing and well recognized Go Play platform. And the 3rd element will be our content platform in the name of Explora Arcade, which will be launched later this year, and I will explain more of the details later. The 3rd building block is our telco as a service strategy. And with the acquisition of Xplora Mobile, Previous to MVNO Pep Call, we are now able to go live in the Nordic, in EU and in U. S.
With our own connectivity program during 2021 to then attract very compelling monthly recurring revenue. Again, I will also come back to more on that in the outlook. And the 4th building block is the FinTech, where we, throughout 2021, will be launching program for how kids can learn to save money and also use the watches to make tap and pay or to make payments. That will basically be our 4 building blocks of the IP strategy. And as you can see, all of these Our Building Block create a lot of strategic value as well as they are very scalable independently of hardware.
Going forward, I would like to summarize before we tap into the financial, three key element related to some of the key operational highlights for the Q1. First, very importantly, we have managed to do a lot of development work, and we have also grew the team from approximately 40 Key members, onboarding 11 new key member, now TMF 51, in order to absorb all this rapid development.
When
it comes to some of the key highlights from Q1, when it comes to product, we have been able to secure the first Successful eSIM onboarding into new market outside of Germany as well as we successfully have launched Product into the U. S. Market, growing that during Q1. We have also prepared our 2nd generation of the Bluetooth connected product, Xmoo, And we have also started already the development of the premium product SKU that will have a goal to reach the market early in 2022. We have also started to ship products by sea, again, one of the tools in order to continue to grow our gross margin under product.
When it comes to distribution, We have also laid a very solid foundation for the growth, as mentioned, into Q3 and Q4 by adding More than 800 new retail stores in the German market as well as secured some very strong distribution both into the UK and the U. S. Market, all of that again to support growth going into Q3 and Q4. I also would like to highlight that during Q1, we have probably done some of the biggest program when it comes Development in the history of the company. We have been able to onboard 3 new integration on our Go Play platform, onboarding new relationship with Warner Bros as well as new programs with Netflix, a lot of new content to the Go Play platform.
We have also managed to secure very strategic important integration and program with United Nations as well as UNICEF, again, to trigger sustainability and an even stronger reason why for kids to be able to move. And we have also Completed the required due diligence processes and all technical assessment, which is required in order to launch our Xplora Pay and Xplora Fluorra Connect Development Program and Launches for Second Half of This Year. And finally, we have also been able to complete and finalize platform module of our Go Play platform. So we can independently move that into a straight B2B and B2B2C strategy as well, which we'll come back to. So that summarizes the key achievements from operational perspective in first quarter.
And with that, let's move into some of the financial highlights.
Thank you, Stan. As Stan mentioned, we experienced a very strong start Q1 with sales of 62,000 units, a growth of 155% from the first Quarter of 2020. Keep in mind that Q1 is seasonally the weakest quarter of the year. It's a major share of our sales are in the 3rd Q4 of the year. So starting out the year on this Strong note is very promising combined with the many operational achievements and new distribution agreements signed through the quarter.
Also keep in mind that this growth has been achieved with a major share of European retail Stores being forced to continue to be closed, which you also then see in our segment sales. A major share of The growth also now in Q1 2021 has been driven by telco customers And online sales, telco customers have also been forced to shift their sales to online sales channels As a result of their retail outlets being forced to be closed, we see that our retail sales continue or sales through retail channels continue to make up a much smaller portion of our total sales than expected. We are, however, experiencing some promising developments with retail partners In several European countries, so it will be interesting to see the development as we move through 2021. On a geographic basis, Germany continues to be a prime driver of sales growth together with the Nordics, Germany comprising in excess of 60% of sales in Q1, with Renewalix in excess of 30%. On a 4 quarter rolling basis, Q1 now represents sales in excess of NOK 233,000,000 And we have seen a continuing increase in the operating profitability over the last 4 to 6 quarters.
Last four quarters, we now have a gross margin of 32% combined, up from 14% in the year earlier period. If we look at Q1 'twenty one over Q1 'twenty 20, Revenues group revenues show a growth of 151 percent to NOK 54,000,000. We improved our underlying gross Margins from 19.9 percent in Q1 last year to 35.4% in Q1 this year, Driving a growth in gross profitability, gross earnings of 3 48%. Underlying operating costs, if we exclude option costs and one off costs are up 113 percent to NOK 23 point NOK 2,000,000 which in sum improves our underlying EBITDA From minus 6.6 percent to minus 4.1 percent in Q1 'twenty one. So the scalability in the business model is showing continuing to show strong improvements.
Moving into the P and L. Q1 highlights. Total sales growth, 151% Year on year to NOK 54,000,000 driven by a 155% growth in smartwatch sales to NOK 51,300,000. Gross margins, as mentioned, NOK 35.4 percent, up from 19.9% in Q1 last year. Total OpEx NOK 30,000,000, which includes NOK 1,900,000 in one off costs And NOK 4,800,000 in option costs in Q1.
Reported EBITDA minus NOK 10,900,000 versus minus NOK 7,200,000 in the Q1 of last year, Adjusted for option cost and one off costs, EBITDA adjusted was minus NOK4.1 million versus a loss of NOK6 NOK600,000 in the comparable quarter last year. Total finance costs were NOK 2,100,000 of which NOK 1,700,000 are unrealized FX losses from translation differences, which puts pretax losses at NOK 13.6 NOK1 1,000,000 versus a loss of NOK8.4 million in the same quarter last year. Moving on to the balance sheet. Total assets increased to NOK 333,500,000 from NOK 192,500,000 at year end 2020. The increase is pretty much driven by net Proceeds of NOK 146,800,000 from the private placement in February, then being the key driver of the increase both in cash as well as equity.
Cash ending in Q1 ended at NOK 245,400,000. That includes NOK 25,000,000 in interest bearing debt in a loan from Innovation Norway. And then we have equity Of working capital items, accounts receivables were down by NOK 5,500,000 to NOK 11,700,000 As customers paid off their payables from the strong sales in Q4, Inventories were slightly up from Q4, up NOK 3,200,000 to NOK 27,600,000 As we start preparing for slightly higher volumes into Q2, other receivables, the same, also up by €25,400,000 in Q1 to NOK 40.8, again preparing for higher volumes as we prepay for new orders. Accounts payable were up by €5,100,000 to €24,800,000 in Q1 On higher order production volumes. Finally, into the cash flows For Q1, cash flows from operations minus NOK 18,300,000 With profit before tax of minus SEK 13.6 billion and then net working capital changes of minus NOK 5,300,000 on the higher sales activity going forward.
Cash from investments minus 1,500,000, which is which in its entirety is capitalized development costs Cash from financing totaled 147,000,000 positive, which is driven by the private placement net proceeds in February. In sum, the change in net cash is a positive NOK 127,200,000 with cash balances A major happening for us in Q1 into Q2 is the acquisition of Explora Mobile Holding. We announced this acquisition on March 25, and the acquisition was closed close to 3 weeks later on April 16. Total purchase price enterprise value of NOK 227,000,000 with a potential earnout based on Some EBITDA and free cash flow targets for 2021 of up to NOK 20,000,000. The initial payment was completed on April 16, NOK 80,300,000 in cash plus Issue of 3,000,000 shares in Xplora to the previous owners.
Xplora Mobile has been Our key partner in the Nordics having been very successful in developing the market for Mobile smartphone subscriptions in Norway, Sweden, Finland and Denmark. They've come the farthest In Norwegian market, but are showing strong growth rates in the other Nordic markets. They had 83 1,000 subscribers as of the end of April. And Briefly on the financials for Q1 of Explora Mobile Holdings. These numbers have actually not been consolidated in Q1.
First LoRa Mobile Holdings Group revenues in Q1 were up by 49% From the same quarter last year to €33,900,000 Key driver is an 87% growth in subscription revenues The $20,300,000 mark. This was driven by a base of Incidentally, the quarter of 80,200 subscribers, up from 76,700 net subscribers at year end 2020 And nearly double the 44,900 subscribers mobile had at the end of Q1 2020. Gross margins widened by 5 percentage points to 49% in Q1 2021, primarily driven by product mix towards subscription revenues. And this drove then a 66% Year over year growth in gross earnings to NOK 16,300,000. EBITDA I reported at NOK4,100,000 up from NOK0.6 million in same period last year, showing The continued operating leverage that Explora Mobile is starting to show.
We saw this towards the end of 2020, Continuing into Q1 2021, we expect this trend to continue going forward. The company had a major Easter marketing campaign, which has driven very strong subscriber growth in both April and continuing into May And the handsome transaction cost also in conjunction with the acquisition. Of total finance Cost of NOK 2,000,000 in Q1, NOK 1,800,000 of which were FX effects from revaluation of assets. So a net profit of NOK 1,600,000 for Q1 in Explora Mobile. So with that, I think I will like to give the word back to Stan For some comments on what we are expecting for the quarters to come.
Thank you, Mikael. So Let's look forward. Explora is currently set up now to continue to grow and launch product and services in almost 20 markets with our 3 products I mentioned, 2 being connected, 1 being non connected. We have also been set up now with some of the world's largest This is your retailers and telecoms to sell
our products.
And also remember that we have managed both our Q4 as well as Q1 growth with most of the retail stores representing actually most of our sales still being locked down. So with that, we are very optimistic to reach our target throughout Q3, Q3 and Q4 with all the markets, with all the distributor, retailers and products set up. For the rest of this outlook, I would like to focus mostly on some of the upcoming new services because as we have mentioned before, second half of this year, it will be important Time in the company history to pivot into more service generating revenue. And 2 of the key elements in our premium services will be our Explora Go Play and Explora Arcade Services. And if we start with Explore Go Play, it's been the current platform where we have been able to work with some of the world's largest entertainment company.
And on the Go Play platform, kids can really be emphasized and encouraged to be active and earn our Explora coins. And already almost 50% of our full user base are already engaging with the Go Play platform on a daily and weekly level. And also as a fun fact, I think it's fair to mention these days that our virtual currency Explora Coin are probably the world's most sustainable and environmental friendly coin because it's only generated by kids actually being physical active. So a very good positive upside in that regard. On the other hand, we will then launch our Explora Arcade Service, which really is a platform where kids having Explora coins can use these coins to Zoom and download kid friendly content.
Basically, you can look at it as Apple app store platform where you can download various application. However, in our case, Explore Arcade, it's very Kid friendly and safe content appropriate for our user group, Kids 4 to 11, both with entertainment contents, minigame as well as educational content. So on the Explore Go Play, You can earn Explora Coins by being active and on Explora Arcade, you can download kid friendly entertainment, mini game and educational content. Explore ARK to be launched in the second half of this year. Moving forward And one of our next breakthrough really is the upcoming Explora Pay service, which also will be a very important part of our premium service proposition.
And we are really touching a very strong pain point parent, which is to learn their children the value of saving money and as well as how to distribute pocket money, since actual physical money no longer really exists to this user group. With the Explora Pay, as you can see on the screen from the Explora application, parents can set up a solution which really is a pocket money solution and you can invite your kids to do various topics. It could be tidy your bedroom, it It could be helping to recycle, it can be to move more, so having 5,000 steps per day or checking into your soccer practice, etcetera. All these elements can be defined in the Explore application. And if The child will reach all these defined and agreed goals.
Your weekly pocket money will be transferred to your account And in relation or in partnership with Mastercard and multiple more partners, Explora will issue the child's first debit card As well as later this year, you will also be able to use the watch to tap and pay. First out will be our biggest market in Norway and Germany, and again, this will be a key part of our premium service. And to put it into context, A kid friendly debit card with a parent friendly application in U. K. By a company called GoHenry already have attracted Quite rapidly more than 1,400,000 paying subscriber per month, and that is only the debit card, So not the combination with the tap and pay from the Explora Watch and our already large user base.
So a huge market and a very clear pain point that we are addressing with this service. And lastly, on new and upcoming services, I would just like to So a little bit more detail into our Explora Connect service, which is also one of the key reasons why we had acquisition of Explora Mobile, meaning that later this year come second half, we will be able to launch our own connectivity program In both the Nordic market with Xplore Mobile already having more than 83,000 subscriber and more than 7,000,000 monthly revenue already, But then also we will be able to launch our connectivity services in Europe as well as in the U. S. Market. And we look into this as a huge opportunity because we are selling a SIM connected Product meaning that the product by default will require a SIM card.
So it's not a matter of the user will have to Choose a SIM card. They have to choose a SIM card because it's a mobile product. And what we would like to accomplish is one out of the box Experian, whereby all watches we are selling not from a telco distributor, but through online and retail sales, We would like all of these to make it very simple for the end consumer to activate with one click and thereby activate a monthly subscription delivered by Explora. So we see a huge opportunity. And already in the Nordic market with Explora Mobile, it's Service with more than 70% margin and in our global platform in Europe and U.
S, we also expect more than 50% margin on these services. And of course, we will introduce this both with traditional SIM, eSIM as well as voice over IP. So to end this presentation and the outlook, given our big growth in new retailer, distributors and telco, Finalizing all our three products for almost 20 market, we are on track on delivering our 500 1,000 unit target goal for 2021. Also with all the new services we have been presenting over the last 6 months, We feel comfortable that we are on schedule for commercial release early in Q3 2021. And also, we are very confident with our financial position, having SEK 245,000,000 cash in the bank.
And we are also very happy to communicate the expectation for the Q2 of this year to See the volumes sold in our Q1 and also with a big contribution from Xplore Mobile, we will also we're looking into a continuous growth in our earning going into Q2 into 2021. So the company is very happy with the progress, both from sales, new market as well as software and service development, on track on basically all dimension and KPIs within the company. So as always, Michael and myself will always be available for 1 to 1 follow-up or questions. And also all these Documents will be published on explore.com/investor. Thank you so much.
We'll now open for Q and A. So please provide all your questions in the chat function on the screen. So this is Stan. What are the key differences For the upcoming next generation products.
Yes. So as mentioned in the presentation, we are Changing products approximately every 18 months for the upcoming 2022 product. I would like to highlight So 3 key changes. 1, we'll be we move in a direction with an even better higher resolution screen, more in the direction with using AMOLED screen. And also the second one to highlight since we are emphasizing even more content creation, we will So introduce even more storage space on the watch, allowing us to develop more content for the watch as well.
But the 3rd and probably the biggest difference will be that we will be targeting to introduce a completely new form factor in the way we design and in the layout of the watch itself. So that would be the 3 key differences I would like to emphasize and highlight.
Good. You have previously targeted high ambitions for value added sales In 2021, up to 20% of sales. Could you please provide an update on this after the acquisition of Xtora Mobile?
Yes. Okay. So that's a very good and highly relevant question. So I think also I would like to address that with 3 comments to make it as clear as possible. And the first comment is, As mentioned in the presentation as well, it's a clear strategic reason why we acquired Explora Mobile CYDAR already large user base.
And as you know, we are onboarding 1st mobile product. We're onboarding the 1st mobile SIM The first saving accounts, the first digital accounts and many more things. And of course, If we can demonstrate that we are able to transition from a smartwatch and use that to Pivot into the 1st smartphone to continue to use our services and even mobile subscription. That will have a Huge strategic value for our platform and the company. So of course, one of the key things will be geared toward Priority to make that happen to make a blueprint and a documentation using the user base in Nordic to make a transition and see if we can onboard those users with the content and our premium subscription and even the SIM subscription over to the mobile phone.
So that will be a key priority to make that happen and potentially even more so prioritized to grow the traditional SIMs in other markets. So that might be one element. The second element, just worth to address as well From a high level perspective is that we also have to accept the fact that there has been a slight Channel change over this year with COVID and lockdowns. So we are seeing now that retailer will start to reopen throughout Summer and into Q3, but potentially slightly later than expected. And of course, our subscription SIM subscription will come from sales from online and retailers.
And now we have had a slightly higher Sales percentage from telco where we do not sell our own SIM subscription. So it might be a slight delay into Q3 before we can start to ramp Our own SIMS, again, that makes us also in a position to emphasize even more on point number 1 I mentioned. But Adding both those two comments, I still think the 3rd point and the most important point to address the question is that with the acquisition of Explora Mobile, We will, of course, increase our overall revenue for 2021. And I feel more optimistic than ever that even with a higher increase Total revenue, we're still able to target our 20% target of revenue coming from services and subscription throughout the year and when the year is done. Even with having a more focus on point number 1 and also the point made about the slight change of our channels.
Good. Let's see here. How You partly addressed this, but how will the reopening of post COVID in retail reflect sales? Do we have any views on that?
Yes. We tried to cover it during the presentation. And also that's One of the reasons I highlighted that our overall ambition this year to target the 500,000, that's approximately 130% growth from last the year. And that's why we were very proud to present 150% growth in Q1, Even with basically all the retail stores being still in a lockdown position, the telcos jointly with us has done a fantastic Job to pivot more of the sales into the online channel, but in reality, we know that the biggest sales driver will still be from all the retail stores that are still closed. And that's why we feel quite optimistic that having 150% growth already in Q1, Still in a lockdown position throughout Europe, we feel quite optimistic that when this will start to ease and everything will go more back to normal throughout summer and into Q3, 3, we should be in a good position to hit our target this year.
Okay. Then there is a question here. I guess I can answer that. Can you give an estimate on the cost synergies when Xtora Mobile is fully integrated? And as we mentioned, There is a key strategic reason for us to acquire Xplar Mobile.
And the drivers behind that are significantly more towards the sales synergies, creating new market opportunities together Than cost synergies. However, naturally, we will turn every stone to look for cost synergies from On the support side from sub suppliers and other services, but the prime driver of Xplore Mobile is driving Sales, new sales opportunities, new market opportunities together in both the Nordic markets as well as outside the Nordics. Let's see here. Accessories, screen protectors, new wristbands, etcetera That is the question short question, but what are our plans?
It's actually a very good question. And the reason for that is, like mentioned before, a lot of sales is done through retail. Retail love accessory because it provides very high margin, so it will do for us on online sale. We are working on some very Siding strategies for introducing even more accessory with partners and we'll come back to that shortly. We are working on it.
It's very high margin on it And we already see quite a good sales adoption on the accessory we have on our online stores, but more to come.
Are you experiencing any supplier problems or cost increases for the watches As it seems to be the problem with many sectors these days, that's also something we tried to address in the presentation and we also did so after Q4. I mean, this has been an ongoing issue for a few quarters now. We've seen longer lead times. We've seen component shortages. And naturally, that has given upward pressure price pressure on some components.
Also for us, We've seen difficulties in global freight markets, very volatile prices on freight And generally higher prices on freight. So this is something that we've been working on for some time. Our gross margin Clearly shows that we have been able to handle that so far. We are still a small player in the big world of components, That gives us a little bit more flexibility. On the other hand, we also need to order products Further out in time, and of course, our financing our stronger financing now clearly gives us an edge in that regards compared to our Possession only a few quarters ago.
Let's see here. Status on IP application, I guess that's maybe patent application?
Yes, once they are getting approved or officially, we will immediately post an update on that. But currently, they are still under filing.
Does the existing watches Watch hardware support potential integration with smart locks like the ones provided by, for example, Verisure Use the watch as a virtual key.
I love the question. Huge opportunity. And we have You received that question before. And that category also represent already like VerySure that has It's a very good question. It's very relevant.
And we are also entering more and more into not only the kid, but into the whole Family sector, which we have addressed a couple of time and synergies partnerships like that open a huge opportunity And not only for us, but also to partners like you are referring to, to add even more premium services and value added services Today, already huge existing user base. So definitely directions that we are looking into.
Then there's a question here on our IP development. Where is your software engineered? And is software and the functionality the property of Explora, the same goes for the physical watches?
Yes. All right. So good question. Like we referred to and as you could see from the strategy as well of those Four building blocks. 1 is related to hardware and the 3 other is basically related to software.
Software is one of our key IP and focuses. We have a fantastic engineering and software team that is led by our very experienced and seasoned CTO, Sun Yeo Kim, working out from our London offices. So our key engineering office is in London, but we also in order to have a close relationship to manufacturing in Asia, we also have a small team in South Korea. So the software engineers, our key team is based in London and we also have one in South Korea. All development is, of course, our own IP and the core IP of the company as well.
And So the lineup of certification and everything done on our Watch Q is also belongs to us, but done in partnership with our Manufacturing 3.60 in Asia.
Almost all sales come from the Nordics and Germany. When will sales from new markets start to show Such as the U. S. And UK, etcetera.
It's a good A slightly difficult question to address very straight on. The reason for that is We are a very data driven and algorithm driven company, meaning that when we see the biggest opportunity to grow sale, That's where we fuel most of our marketing investments, both online and towards retailer. And that's why we have been very Clear during 2020 to really fuel the growth in a couple of very strong markets being Norway and Germany, because it provides us a lot of data insight and documentation on go to market strategy, how we are able to fuel that sale and scale that sale. And then we apply those learnings and strategy into the new markets. And also because we saw the markets such as U.
K. Or Spain Was even more hit by the COVID and lockdown. That was also one of the key drivers for us to focus even more on the Strong progress in the Nordic, particularly in Norway as well as in Germany. As we mentioned in this presentation, We have done some very strong distribution and retail deals now additionally in UK and U. S.
And it seems to be quite optimistic come summer when retailers are opening up. Hence, we then expect to see more of the growth coming from markets such as UK, Spain as well as U. S. But we always keep track on where we see the most bang for the buck when it comes to acquisition cost and invest most in the market where we get the biggest sales growth.
It is fair to say that we are continuously expanding our geographic footprints In both through retail agreements as well as online. So I think we have one more question until we need to wrap up. What about making a Bicycle speedometer that works with watch. I need something for upselling.
I think I would address it In the way that from day 1 and also like we said in our SaaS strategy, software as a service strategy in the presentation, Within that, we had 3 building blocks. 1 was our IoT platform, our activity platform as well as the content platform. And we do know that bicycle as a category is a potentially huge opportunity, allowing us to, for example, leverage on our IoT platform or partner up with someone or, as mentioned in the question, even look into accessory. It's not currently a high priority. However, we have always designed our platform to make it possible to Then particular the IoT platform and services into growing categories.
It could be pets, It could be bicycle, it could be the elderly market or senior market. So the platform, our IP is set up to scale in those direction. And bicycle is one good example of that, either with product, partners, licensing or even accessory. But Currently this year, it's not on the road map.
Good. I think that brings us to the end. I think with that, I would we would like to thank everyone for participating and for your contribution with good questions. We are going to release our Q2 numbers on August 31, and we'll see each other again then. Thank you.