FlexQube: Leaves a challenging 2023 for a potentially prosperous 2024
Research Update
2024-02-22
15:10
Redeye thinks FlexQube’s Q4 report was better than expected due to the high gross margin and the cost savings program progressing ahead of plan. Order intake grew 7% sequentially but left more to be desired from our side, indicating that the market is still somewhat cautious. However, with the first commercial order for the AMR Navigator in December 2023, we think 2024 could be an exciting year for FlexQube if additional orders are booked, given its high-margin profile.
ME
Mattias Ehrenborg
Contents
Q4 wrap-up: Stronger margins than expected
Deviation table
Operational highlights
Estimate changes
Sales
Gross margin and OPEX
Profitability and cash flow
Valuation
Investment thesis
Quality Rating
Financials
Rating definitions
The team
Download article
FlexQube reported Q4 2023 sales of SEK31.5m, down 35% y-o-y, which was completely in line with our estimates. The order intake amounted to SEK31.3m, growing 7% sequentially. We had hoped for a higher order intake but are pleased to see that it is moving in the right direction. The gross margin came in at an ATH of 63%, which we believe is primarily due to a favourable product mix. OPEX came in at SEK-25.7m relative to our estimate of SEK-29.0m – which we were very pleased with. This seems to be due to the cost savings program progressing ahead of plan. All in all, Q4 2023 EBITDA amounted to SEK-5.2m (SEK-2.2m), clearly beating our estimate of SEK-17.1m.
FlexQube received its first commercial order for its AMR Navigator in December 2023. We understand deliveries are underway, and the installation will be fully implemented in Q2 2024. Hopefully, this can be the start of many additional orders from this particular customer and new customers, which will drive sales and profitability. We understand that the market conditions for FlexQube’s offering are still cautious, especially in Europe, but North America and Mexico are more prosperous. FlexQube targets 2024 sales above SEK200m (and positive cash flow in Q4), representing >74% y-o-y growth.
We consider the report solid and ahead of our estimates on a P&L level, but we had expected a higher order intake. Given that more than 50% of Q1 2023 has progressed, and no orders have been press released, we believe that H1 2023 will show modest sales growth, whereas our previous estimates reflected a steeper sales curve. As a result, we push our near- and long-term sales estimates, which negatively affects our valuation. However, we increase our margin assumptions following the high gross margin and lower OPEX, which has a muting effect on our negative estimate revisions. All in all, our updated fair value range sits at SEK7(15)-SEK50(60) with a base case of SEK25(32) per share.
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Revenues | 209.5 | 118.4 | 180.9 | 258.3 | 348.6 |
Revenue Growth | 83.7% | -43.5% | 52.8% | 42.8% | 440% |
EBITDA | -1.5 | -52.1 | -8.9 | 12.9 | 41.8 |
EBIT | -6.4 | -58.1 | -15.7 | 6.3 | 35.3 |
EBIT Margin | -3.1% | -50.6% | -8.8% | 2.4% | 10.1% |
Net Income | -69.6 | -60.5 | -16.5 | 5.4 | 34.7 |
EV/Sales | 2.2 | 1.5 | 0.8 | 0.6 | 0.3 |
EV/EBIT | -70.6 | -2.9 | -9.0 | 23.4 | 3.3 |
FlexQube reported Q4 2023sales of SEK31.5m (SEK48.6m in Q4 2022), which was completely in line with our estimate of SEK31.6m. The gross margin amounted to 63% (50%), relative to our estimate of 40%. This was a very positive surprise, and we believe it was primarily due to a favourable product mix. Order intake came in at SEK31.3m relative to SEK38.m in Q4 2022, representing a 19% decline y-o-y-. However, order intake grew 7% sequentially.
OPEX amounted to SEK-25.7m (SEK-28.1m), relative to our estimate of SEK-29.0m. This seems to be primarily driven by lower external production costs and lower freight costs than expected, but the cost savings program has also started to make an impact and is progressing ahead of plan. CEO Mårten Frostne highlights that the full effect will come in Q1 2024.
All in all, Q4 2023 EBITDA amounted to SEK-5.2m (SEK-2.2m), clearly beating our estimate of SEK-17.1m, which we are happy to see.
The first commercial order for the Navigator took place in Q4 2023 and is expected to be fully delivered in Q2 2024. The customer is still unannounced, but if we had to guess, we would say Scania.
Additional work has taken place in the quarter regarding pricing and packaging of the product concept, which improves the chances of a further successful launch for the Navigator. We think the concept holds great selling points from many aspects, including the economics, utilisation rate, flexibility, and safety perspectives. The key is getting the message out in the market and processing potential customers.
North America and Mexico's market conditions seem to have improved in the quarter. Europe is still somewhat soft. However, we argue that while this might result in some near-term challenges for the order intake, the long-term structural trend is still intact. And even if investments in material handling products and/or automation do not occur now, we argue that pent-up demand could be building, which could result in either a gradual improvement in demand or a ketchup effect down the line.
FlexQube’s internal focus ison sales while balancing costs. New sales processes have been implemented, and shifting focus from development to sales is central for both the AGV and AMR systems. New integrators and partners have been signed to help the practical roll-out of the concepts, which we consider very important for a “small global company” like FlexQube. The Cost savings program will come into full effect in Q1 2024, which will save SEK17m pa in OPEX and investments.
Lead pipeline/RFQs are still high, but the conversion rate is low. This indicates that there is a strong underlying interest in FlexQube’s offering, which increases our belief in FlexQube’s prospects going forward, although it looks like it postpones the sales curve that we have previously anticipated.
CEO Mårten Frostne states, “Our goal is to reach profitability and a positive cash flow by the end of 2024 with the implemented cost savings, as well as surpass or be in line with the sales volumes we had in 2022, meaning over SEK 200 million in sales. In order to realise the latter, we have a continued need for a strong sales organisation. A well-adapted product and development organisation and an efficient supply chain.”
This SEK200m target would imply >74% sales growth y-o-y, combined with profitability in Q4, which we believe would not disappoint anyone following the company. In order to get there, we believe that the market needs to pick up again and that the Navigator will receive additional orders.
We take a cautious stance going into H1 2024, as the Q4 2023 order intake gives a strong hint of what Q1 will look like. In addition, with more than 50% of Q1 having passed and no orders being press released, we believe that Q2 should be relatively in line with Q1 in terms of sales, with a gradual improvement. We expect higher sales growth in H2, however, where we believe FlexQube has good grounds for harvesting fruits from its sales efforts and converting its big pipeline of RFQs (price quotations).
Should order intake pick up and bigger orders be press released, we see good reason to increase our sales estimates. Our 2024 sales estimate currently reflects SEK178m in sales, representing 55% y-o-y growth, but is still around 10% lower than the “sales above SEK200m” that FlexQube aims for in 2024.
All in all, our estimated sales curve is pushed somewhat, which affects our long-term sales estimates.
FlexQube’s gross margin caught us by surprise in the quarter, coming in at 63% - which is the highest margin ever – by a six percentage point distance. It compares to the very low margin of 23% in Q3 2023. We believe that some accounting effects might come into play here (which was the main reason for the low margin in Q3). We also believe there was a favourable product mix in the quarter, and there might have been a positive contribution from the AMR order booked in Q4 (which is a high-margin product).
We don’t extrapolate the Q4 margin going forward but expect a higher margin than what we have seen historically. As such, we estimate quarterly gross margins to be in the range of 53%-55% during 2024, totalling 54% for the full year. We expect 57% in 2025 and 60% in 2026.
We were also very positively surprised by the low personnel costs in the quarter of SEK-11.0m, relative to SEK-18.3m in Q3 (which we believe was affected by some one-offs related to the cost savings program). This was the lowest level since Q1 2022. We understand the main reason for this is the cost savings program being somewhat ahead of its curve, but we believe there could be further improvement in Q1 2024.
We argue that FlexQube’s business model is very scalable and that FlexQube can be rather flexible with costs. Combined with our expected sales curve and improving gross margin, we expect FlexQube to be EBITDA positive in Q4 2024 and generate a 5% EBITDA margin for the full year 2025 and 12% in 2026.
We also believe that the current cash position of SEK49m should be able to bring FlexQube to cash flow-positive territory if it manages to reach cash flow-positive status in Q4 2024. We understand that FlexQube’s main target is to reach profitability rather than “boosting sales at all costs”.
Operating cash flow (including changes in WC) amounted to SEK-11.5m in Q4, and CAPEX amounted to SEK-4.1m. Financing cash flow amounted to SEK21.6m, driven by FlexQube receiving the full amount from its share issues earlier in H2 2023.
The free cash flow in the quarter was SEK-15.6m. If we were to extrapolate this figure, it would take three quarters until the cash runs out, and additional financing would be required (loan or share issue). However, we think the cost savings program has also helped to reduce this risk.
In a pessimistic scenario, where the market remains soft and FlexQube’s order intake does not pick up, there is a risk that FlexQube will not reach positive cash flow in 2024. If that were to be the case, we believe that FlexQube might need additional financing in the form of a share issue.
We have not incorporated this in any of our scenarios, but it is a risk that could play out in the worst-case scenario. We believe that the key factors affecting this are the market conditions as well as the order intake of the Navigator.
Taking all our estimate changes into consideration; our updated fair value range sits at SEK7(15)-SEK50(60) with a base case of SEK25(32) per share. We argue that there is upside potential for our fair value range if FlexQube manages to increase the order intake going forward, coupled with additional Navigator orders, which would put further belief in that growth story, which would gradually recognise FlexQube as a robotics company. If that story plays out, we would not consider it unlikely that FlexQube will be approached by external parties interested in acquiring FlexQube.
Case
The landgrab has started
Evidence
Agile and owner-operated
Supportive Analysis
Challenge
Cash strapped
Challenge
Small R&D team
Valuation
Transformation is starting to get recognized
People: 3
The management team is relatively newly composed, as FlexQube’s new CEO, Mårten Frostne, took office in June 2023. At the same point, former CEO Anders Fogelberg left the management team to focus on FlexQube’s sales and business development.
The three founders, Anders Fogelberg (sales), Per Augustsson (CTO), and Christian Thiel (chairman of the board), have however worked together for more than a decade and still have significant skin in the game. When RoosGruppen (IT billionaire- and tech investor Håkan Roos’ investment company) became an active owner with board representation, that strengthened the team behind the company even more. The founders still own more than 50% of the shares, which we argue creates strong incentives for long-term value creation.
The corporate culture is based on decentralization, where the people closest to the customer are allowed to decide. FlexQube has a visionary goal to make their clients world leaders within intralogistics, and behind the goal stands four core values: trust, creativity, courage, and evolution. They demonstrate trust by going the extra mile to help customers in tricky situations.
The CTO, who invented the product that led to FlexQube, is a symbol for creativity and, despite the low R&D budget compared to the giant competitors, have managed to come up with multiple new products where the eQart stands out. Courage is symbolized by that FlexQube had a global vision from the start instead of focusing on the local market, which would have been the safe choice. Lastly, the company has evolved from being a provider of mechanical carts to making the carts autonomous. All are signals that FlexQube walks the talk.
Business: 3
FlexQube benefits from significant industry tailwinds with a market that is expected to grow at healthy double digits for the foreseeable future. FlexQube is a small player with lots of room to grow and has grown faster than the market historically. The market is highly competitive, with both incumbents and new entrants striving to gain shares. FlexQube has positioned itself with a portfolio of modular and integrated products which differ from its competitors. They have a fragmented customer base with many prominent customers on the list. It is still early days, and time will tell if FlexQube will benefit from significant barriers to entry.
Financials: 2
FlexQube still has some time until reaching stable profits and cash flows. The focus is on growth, and with higher revenues, the company will benefit from operating leverage. An increase in the sales of eQarts and Navigators will support higher gross margins in the mid to long term. The financial situation is relatively strong after the SEK75m capital raise (post fees) in Q3 2023.
Income statement | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Revenues | 209.5 | 118.4 | 180.9 | 258.3 | 348.6 |
Cost of Revenue | -103.0 | -61.3 | -84.8 | -111.0 | -139.5 |
Operating Expenses | -113.0 | -112.7 | -107.8 | -134.3 | -167.3 |
EBITDA | -1.5 | -52.1 | -8.9 | 12.9 | 41.8 |
Depreciation | -0.97 | -1.4 | -1.7 | -1.4 | -1.4 |
Amortizations | -3.9 | -4.6 | -5.1 | -5.2 | -5.2 |
EBIT | -6.4 | -58.1 | -15.7 | 6.3 | 35.3 |
Shares in Associates | - | - | - | - | - |
Interest Expenses | -0.66 | -2.9 | -0.86 | -0.86 | -0.57 |
Net Financial Items | -0.68 | -3.4 | -0.86 | -0.86 | -0.57 |
EBT | -69.6 | -60.5 | -16.5 | 5.4 | 34.7 |
Income Tax Expenses | -0.07 | 0.00 | 0.00 | 0.00 | 0.00 |
Net Income | -69.6 | -60.5 | -16.5 | 5.4 | 34.7 |
Balance sheet | |||||
Assets | |||||
Non-current assets | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Property, Plant and Equipment (Net) | 4.6 | 5.2 | 4.3 | 4.2 | 4.5 |
Goodwill | - | - | - | - | - |
Intangible Assets | 17.5 | 25.4 | 25.9 | 25.9 | 27.0 |
Right-of-Use Assets | - | - | - | - | - |
Other Non-Current Assets | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Total Non-Current Assets | 22.1 | 30.6 | 30.2 | 30.1 | 31.5 |
Current assets | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Inventories | 51.4 | 53.5 | 45.6 | 49.4 | 50.4 |
Accounts Receivable | 43.6 | 33.4 | 32.2 | 43.0 | 48.4 |
Other Current Assets | 6.1 | 5.4 | 7.4 | 7.2 | 4.8 |
Cash Equivalents | 30.5 | 48.6 | 31.3 | 26.2 | 56.3 |
Total Current Assets | 131.6 | 140.8 | 116.5 | 125.8 | 159.9 |
Total Assets | 153.7 | 171.4 | 146.7 | 155.8 | 191.4 |
Equity and Liabilities | |||||
Equity | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Non Controlling Interest | - | - | - | - | - |
Shareholder's Equity | 69.3 | 83.4 | 66.8 | 72.2 | 106.9 |
Non-current liabilities | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Long Term Debt | 4.3 | 4.4 | 4.4 | 4.4 | 4.4 |
Long Term Lease Liabilities | - | - | - | - | - |
Other Non-Current Lease Liabilities | 1.5 | 1.5 | 1.5 | 1.5 | 1.5 |
Total Non-Current Liabilities | 5.9 | 5.9 | 5.9 | 5.9 | 5.9 |
Current liabilities | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Short Term Debt | 24.3 | 38.6 | 38.6 | 38.6 | 38.6 |
Short Term Lease Liabilities | - | - | - | - | - |
Accounts Payable | 21.9 | 23.0 | 14.8 | 18.5 | 19.4 |
Other Current Liabilities | 32.3 | 20.6 | 20.6 | 20.6 | 20.6 |
Total Current Liabilities | 78.5 | 82.2 | 74.0 | 77.7 | 78.6 |
Total Liabilities and Equity | 153.7 | 171.4 | 146.7 | 155.8 | 191.4 |
Cash flow | |||||
SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
Operating Cash Flow | -22.0 | -57.3 | -10.8 | 1.3 | 38.1 |
Investing Cash Flow | -8.1 | -14.4 | -6.5 | -6.5 | -8.0 |
Financing Cash Flow | 24.5 | 91.5 | 0.00 | 0.00 | 0.00 |
Disclosures and disclaimers
Contents
Q4 wrap-up: Stronger margins than expected
Deviation table
Operational highlights
Estimate changes
Sales
Gross margin and OPEX
Profitability and cash flow
Valuation
Investment thesis
Quality Rating
Financials
Rating definitions
The team
Download article