Earnings Call: Q2 2021

Aug 10, 2021

Quarterly report

Hello, and welcome to the Profoto Audiocast with Teleconference Q2 2021. Throughout the call, all participants will be in listen only mode And afterwards, there will be a question and answer session. I'll now hand the floor to CEO, Anders Heddeberg. Please begin your meeting. Thank you. Welcome to Profoto. We're very happy today to present our 1st official quarter report as a quoted company. My name is Anders Gerdwark. And with me today, I have Peter Sylvain, CFO and I am Investor Relations, Gunilla Hermann. We have a very strong sales Following the opening societies in the Q2, and we were happy for this. This is demonstrated with the sales of SEK 172,000,000, which is an up from 2020 with 113%. Currency adjusted, the growth is 131%. And last 12 month sales is growing to 624,000,000. And we can see the curve is turning up. EBIT is good. It's reaching CHF53 million, which corresponds to an EBIT margin of 31%. And this is adjusted EBIT, Adjusted mainly for IPO costs. And as I said, the opening of the Sight is really what is affecting the sales in the second quarter, but also the continuing sales of our Pro 11, which was launched during the Q1, is also positively affecting the sales. During the quarter, we also launched the Pro Camera, Pro Photo Camera, the only smartphone based camera app that works with professional flash. The iPhone is a very good consumer camera And ProPhoto is making it into a professional camera. Professional photographers need light to create fantastic images. And in addition to this, we worked very hard with IPO, and it was obviously a very important event for the company. But let me start with giving you a short overview of what Profoto is all about. We are active in the attractive and growing image And we hold the premium position in the segment photography lighting solutions. And we provide the market with a broad system of lighting products That enables professional photographers to focus on their creativity. This is why the world's best Photographers are using ProFoto when they are creating their fantastic images. We sell all over the world. We're focusing mainly Organic growth and high product margins. This means that we have 2, and we also love to invest heavily In product development, and our target is to invest around 10% of sales back into product development and new products. But we're also very detailed on what we do and what we do not do. So, prioritization is key for us. That is why we outsource A lot. And for instance, we have all the production outsourced. And this helps us to have a very asset light balance sheet. And this is also why we're trying to only hire the very best people. So I'm very proud of all our staff. And it is basically staff that is delivering this good result during Q2. We have a long history, and we have focused on taking the premium position already from the start. And you see that this is an image already from 6 to 8 by the 2 founders. I came into the company already 97, and I have focused a lot on growth through high sales And also launching a lot of new product. Peter, you will meet him very soon. He started as CFO in 2,009 and has focused a lot on efficiency and profitability. And in our market, we are active, as I said, in the image and content creation market. This means all kind of content produced, Including TV, film, etcetera, and all marketing material produced all around the world. This market is showing a very, very strong growth. The Profoto holds the premium position within the black bulb here, which is the segment lighting solutions market. This market is growing 3% to 5%. It's planned to grow 3% to 5%, according to our EUI studies that we commissioned in conjunction with the IPO in the beginning of the year. And this is based this growth is based On the exponential growth that we see a number of still images published all over the world. Anyway, we have we are focusing on this black part of this image on we have a very Strong core, which we are planning to continue to grow in order to reach our financial targets. We're going to sell more, launch new products to still professional still photographers. In addition to this and going Forward, we have identified 3 attractive possible high growth areas. Number 1 is within Professional smartphone photographer, where we see a rapid change in the market. Profoto has already launched our own camera, as I just mentioned. And it's the only existing solution for professional photographers today. We see further growth opportunities, both organically and through acquisition. Number 2 is light for video film etcetera. And we already have products in this area, And we are continuing to invest product development activities into this area. We are offering products for professional Still photographers that want to shoot video as well on the same shoot. However, if we want to reach a pure film Maker or TV maker, a light for this purpose. Probably, we need to go through Number 3 is within the industrial and e commerce segment. Also here, we are offering products into this segment, primarily a product called D2I or D2. But there is a potential higher growth possibility into offering a much broader solution, a complete solution for volume photography. We are constantly developing our offer in these areas, and we are also evaluating bigger moves. But Our main focus is to grow in the black area, in the professional still photography area. During Q2, we worked very hard with IPO. And in that process, the investment Highlights were that we are a leading brand in a global niche, and we are working in an attractive segment in the growing content creation markets. We are though focusing on the core operations and innovation to expand the addressable market. Organic growth is super duper important, but we have a possibility to grow in different areas. This is based On that, we have a very competent and dedicated management team with a greater track record. And we also, and Peter will show this, that we have a long term Organic growth with very good profitability. So the IPO, the first Trading day was the 1st July, and the start was very successful. And in July, the share price went up 26%. We are listed on the Nasdaq midcapital marketplace, and we are very happy and also Proud that we have partnered up with really high quality cornerstone investors, which are Landebufonder, Swander, Hirenco And Strand Kapital for Welting. Initial share price was $66,000,000 and the IPO was heavily oversubscribed. And as normally, there were green shoe agreements and stabilization measured That were supposed to be put in place by Carnegie, they were never used. And they were finished earlier than planned. And we welcome many new shareholders into owning Profoto. Thank you very much. I will leave the word to Petter, and he will give you a more better presentation of all the figures. Thank you. Hello. As Anders has mentioned, Prufotter has a long history of profitable growth. And if we look at the chart here, in the period between 20102014, We've grown year on year 10% with an EBIT of 15%. In the years The 5 years prior to the pandemic, 2019, we increased the growth to 16% year on year and we significantly increased the profitability in the range between 25% to 30%. This is what we aim to continue to do, And this is what we are delivering this quarter. As Anders has mentioned, We are now trending upwards in our last 12 month sales. This is what we see or believe that we see in the market. Every month, every quarter is typically better and better for us, in the line with that the societies open up. Of course, this is a mixed experience, how societies are open up, but what we see in the quarter is that America is leading this. Europe is slightly behind. In Asia, we have a more mixed experience. We didn't have that downturn due in the pandemic as we see so in the rest of the world. However, now we have some local outbursts in India, in Thailand, in China that put further restrictions back. But Overall, not the least in America, we see more weddings that are important for us, fashion events and other kind of events. This lead to that we deliver a stronger EBIT, Adjusted EBIT margin, as a consequence of the higher sales and the high increased efficiency and low cost. And I just would like to emphasize that the only adjustment we are doing for the first half year are for the IPO cost. There are nothing else Sales started to rebound for us in Q4 last year. And there, we also started to deliver A better profitability where we want to be, and that was a consequence of that by the full effect of the cost savings and the operational increased efficiency. And now for the Q2, we are delivering an EBIT exceeding our target range that is between 25% 30% and we're delivering 30 Looking at the financial targets, For the net sales, we are by far exceeding our financial targets, not that surprising. However, we can also see that, As Anders has mentioned, the sales growth in constant currency is a bit higher than the reported, 131% instead of 130%. So the unit growth is good. And that makes us feel confident that we are on the right track to achieve our target to be back on our pre COVID level, exceeding SEK 800,000,000 revenues by 2023, if not earlier. EBIT margin, as I mentioned, we are delivering the 31% exceeding our range of 25% to 30 We have said that we have an absolute requirement that we year by year should deliver higher EBIT in absolute term. We typically focus on growth when we deliver a very high debit margin as we're doing now. So typically, then we are trying to do our utmost to find more growth initiatives that we can invest in. Having said that, for the nearest quarters, with the high efficiency we have and the underlying growth in the market when societies open up, I believe that we will be in the high range for the near term. That's my financial information. I'll leave the word to Camilla. So hello. I just want to give you the latest update On our shareholders end of July, there are not many changes from the IPO, but We were happy to note that our Farfetchakring has been buying during July, otherwise not that many So with that, I would like to open up for questions. Thank Once your name has been announced, you can ask your question. If you find it answered before it's your turn to speak, you can dial 2 to cancel. Our first question comes from the line of Kari Lunta of Handelsbanken. Please go ahead. Your line is open. Yes. Thank you very much. Carter from Handelsbanken. A few questions from me, if I may. Firstly, a few details and then more Few more broader questions. You mentioned that you did have an impact from component shortages and delays during the quarter and it had a Sort of it had an impact on sales. So do you could you in any way quantify that impact and then maybe Comment whether it had any impact on your margins? That's my It hasn't had a significant impact. It had perhaps 1 digit impact In terms of share of sales, I would guess. It's an unknown territory. We receive new information every day. On the margin side, it may have an impact of 1, 2 percentage points or something like that in the range of that. So far, we are, as to the large degree, supplying pretty much of what we expect to sell, what our expectations is and in line with our path to our financial targets. And where we have More challenges are when we for a certain product group, so significantly increase our have a demand that increased our expectations. Okay. And then a follow-up on that. I should have checked this, but I haven't. So What about your inventories during the quarter? Did you build inventories? Or do you have low inventories? Or how do you feel about your ability to add Supply during the coming months? We haven't built inventory. It was fairly low when we started as well. I don't top of head the exact change, but it continued to be on the low level Since we are short on supply on some of the products. But typically everything that jumps out in goes up. Okay. And how should we think about this in terms of seasonality because we don't have that much Historical information available and if we look at, for example, 2019, that was a pretty unusual year. But how should we think about The 3rd quarter seasonality in this kind of in this environment where you on one hand you have the seasonality And on the other hand, you have this reopening going on in many parts of the world. So but I guess we should still sort of and fill in some seasonality. Yes. It's pretty much the guidance that we gave in the prospectus that Q3 is normally if you look at it and if you look back in your analysis of prospectus, We have a fairly even distribution of seasonality sales in the quarters. However, Q4 is typically a bit stronger historically, and Q3 is typically the weaker. And we have said that the good description of distribution is 2018. But in addition to that, we have said that we expect that the Q3 now will be better than typically 2018 As a consequence, so that societies are open up. So, that's what we said in the prospectus. Nothing has changed due to the component situation. We mainly see in the near term that This can change, but we'll mainly see it now in the near term that it's delivering further on the upside that is the main challenge From a component situation perspective. All right. And the component situation and some of these uncertainties related to the pandemic, has that had any impact On your plans when it comes to new product launches in 6 to 12 months? No. And have you said anything about should we expect something already this year? Or how does it how does the pipeline look for the next 6 to 12 months? We don't we have said that we don't disclose When we do our launches, so we haven't given any public information. And we don't have any Typical launch dates, if we look at our historic patterns, we have said that typically we have 1 to 2 More significant launches over year, the way we plan right now, and then a number of minor launches or updates up to 10 or so. But we haven't guided anything of specifically what is going to happen in the water. But I mean, If you based on that information, you perhaps can guess. Sure. And related to that and related to your comments that you made in the report about Pro 11 and D2i or e commerce photography. Can you give us a sense of any ballpark number of how much of your 1st half sales or second quarter sales came from Pro 11 and D2i? No. So we're not talking about specific. What we can see though is That sales is better than usual for these two products. Do you want to add something on that? No. And we can also say that We see a general increase in demand and delivery more or less on all our product lines, including the product lines that has had the weakest development during the pandemic has been the on camera flashes that, for instance, are popular among wedding photographers. And we have seen during the quarter That as one of the lagging groups also has significantly picked up in demand. So we don't see any specific group that is All right. And on that note, on camera flashes, do you because I think in the market study that you commissioned, I think on camera flash Our clock was rather dull going forward, I. E. That it would not really Grow beyond the pre pandemic levels in the coming years. Do you still believe that or do you think That conclusion still stands? Or are you maybe a bit more optimistic about the on camera flashes going forward? Or is it still too early to say? We are pretty confident on camera flash. This is the study that was commissioned is basing for the total market of on camera flash. And As you see, our product is working for the photographers that want to create great light images in the images, Light patterns. And that's why our head is round, it's not Squared, whereas Canon, Nikon and other flashes like that, they have a rectangular head, which means that they are providing sufficient light Creating beautiful natural light for everyone that want to create beautiful images. So we are doing our own thing In that respect. And that is why it is not one to one comparable. Having said that, that market is declining and especially For Canon and Nikon flashes. All right. And then my final question is about the It's about video lighting. You mentioned that you have products for professional photographers that also want to shoot Yes. So can you tell a bit more about which products are those? And then Why aren't they sufficient for them for the pure filmmakers? It is B10, and it's a combination of Continuous light, which is good for video and flashlight, which gives a lot of light during a very short period of time for still photography. And this is offered mainly to still photographers that want to shoot both. But it is for large Sets or large filmmakers, they want to have all continuous light only, number 1. Number 2, they want more light, More light than we are providing. So this is good for certain smaller productions that you do both, but it's not Sufficient for larger production and that's why my comment. And do you feel confident that the professional photographer that wants to shoot that needs to or wants to shoot film as well that he gets he or she gets what he or she needs from B10? No, it's different for different applications and different projects that is made, or different sets. And so this is only catering for a small part of the needs, even for still photographers that are shooting. If they shoot, Still photographers only shoot video, they will use something else. So this is our first tiny step into this market. So we have a lot to do in the last market, if you want to take a large share. Fair enough. Okay. That's very helpful. Thank you very much. Those were my questions. Thank you. We have one further question on the phone. That's from the line of Victor Linde Bey of Carnegie Investment Bank. Congratulations to a good start as a listed company. I think some of my questions were answered, But I have a few nitty gritty follow ups. And one of them being the FX impact in the quarter, it's quite severe. It's Minus 18%, if I read it correctly. And just looking at my FX model, it doesn't really add up to that level. So can you help me out here on Maybe your methodology or if there was a country that was way off compared to the big countries being, I guess, euro denominated and also the Japanese and U. S. Dollar Related exposure you have, but any flavor there could help. I must be honest that I don't have that Broken down analysis myself. If we can follow it up separately, but I cannot answer right now. All right. On supply chain then, maybe if you can elaborate on how it has Changed during the quarter and if it is at present in a better or worse situation And if you have any ideas on how to trend from here onwards? We believe that it's more uncertain than perhaps a quarter when we started. At one hand, the effects on delivery and on margin effect, We saw an improvement during the quarter. So it was less and less increased costs and better and better delivery at one hand. At the other hand, we, for instance, had an outbreak of COVID In the factory where we manufacture in Thailand, our contract manufacturer, which had an impact on Their efficiency and how much we can get in the short term of the factory. So that was typically a surprise by the end and during July now. And at the other hand, we also saw just Recently, a new increased announcement of longer lead time to components, higher costs and so forth. So Perhaps the uncertainty has increased financially here and now, not necessarily that much change here and now as we see for the Coming quarter compared to Q2, but we are very humble that it's very hard to predict. There are, as I said, a number of reasons why we think at least in the midterm, short term coming 1, 2 quarters or so, that it will perhaps have most effect on our sales potential upside, higher growth than we have anticipated. And one of that reason is that very much of the current supply of components for the production For the coming 1 to 2 quarters are already secured for quite some time. So but in the longer term, Uncertainty has increased, but I don't necessarily think that is a significant difference for us or other manufacturing companies. Okay. And also on you had some IPO related costs in this quarter. Should we expect any more Costs coming now in Q3 that are of any nonrecurring character? No. Okay. We have the ambition to deliver To fulfill a reported target and then reported EBIT margin. And that's what we have said. And So we don't in our normal business, we don't expect that we have nonrecurring items. Okay. And on your capitalized development expenses and also looking at the depreciation you have, it's Fairly in balance today. You capitalized it for €5,000,000 and you had some depreciation of slightly more than that. How do you see that Balance going forward in maybe the coming 12 to 18 months, do you see any meaningful change and a direction in the balance and also if you will either start to capitalize more or less? We have an ambition to if I start there, to capitalize more. And we hope And the reason the underlying reason for that is to better capture in line with the requirement of IFRS what should be capitalized. We capitalized too little in relation to with the framework guide as we see it. So we are a bit too prudent. And we believe that, that will improve or increase within this Q3, Q4 or some pipeline. On the other The typical drivers for increase of balance sheets are for us the Accounts receivable and inventory. And accounts receivable typically is a factor of growth of sales for us. We don't expect longer payment times or so. So we expect it to grow with sales. And for inventory, It is probably likely that it's going to grow with a higher pace than sales, not at least the coming half year as a consequence of trying to fulfill demand and trying to secure components and so forth. Yes, makes sense. Okay. Thanks, Branchet. Back in line. Thank you. Thank you. Thank you. Okay. Currently, there are no further questions on the phones. I'll hand back for any questions on the web. No. There are no questions on the web or on my email either. So I thank you all very much. And I want to remind you that our Q3 report, we will present on November 4. So very welcome back And get in contact with us if you have more questions. Thank you.