TH1NG reported net sales of SEK5.5m, reflecting a year-over-year (y/y) growth of 5% but a 21% sequential decrease (derived from the divestment of the broadband business on 1 May 2024) and 1% below our estimate. The gross margin improved by six percentage points (pp) from the previous quarter, reaching 59%, which is 14 pp above our estimate.

TH1NG’s largest shareholder, Skellefteå Kraft (holding approximately 19% of shares as of June 2024), has granted a bridge loan of approximately SEK10m, set to be repaid on 1 December 2025. The Board and CEO are currently working on the capitalization issue, and in the meantime, the group’s capital needs are being met through the bridge loan. CEO Klas Westholm states in the report that the target is to achieve positive cash flow by 2025. Suppose TH1NG maintains a c55% gross margin with a slightly lower cost base. In that case, it needs to grow net sales (SEK 4.4 million in Q2, excluding broadband revenues) by at least c270% (to around SEK 12 million on a quarterly basis) to achieve positive operating cash flow before considering working capital effects. We maintain our more modest approach, forecasting positive cash flow by the end of 2026.

Following TH1NG’s Q2 2024 report, we have adjusted our sales estimates for 2024-26e downward by 26%- 38%. At this point, we are not confident that the IoT business will grow quickly enough to offset the loss of revenue from the recently divested broadband segment. On the positive side, we have increased our gross margin assumptions, as TH1NG reported gross margins above 50% in both Q1 and Q2, and we expect this trend of gross margin improvement to continue. Further, we have trimmed our OPEX assumptions in light of the reorganization following the broadband business divestment. As of Q1 2024, TH1NG had 23 employees, a number which has since been reduced to 18. Our new Base and Bear cases are SEK2.2(2.7) and SEK0.6(0.8). Our Bull case comes down from SEK5.0 to SEK4.7.