In Q4 2022, TH1NG recorded net sales of SEK5.3m which translates to a growth rate of -72% y/y and 24% q/q, This Fell short of our expectations of SEK5.7m, resulting in a minor deviation of SEK0.4m or -8%. It is worth noting that the divestment of its private customer stock is the primary reason for the significant y/y difference in TH1NG's net sales. On the other hand, TH1NG's sales and margins have consistently shown a sequential increase throughout 2022, with sales growth of 24% in Q4 being partly attributed to the initial delivery of M2M-sims to GARO Group and the expansion of operations in the Jönköping region.

Following the divestment of its private customers, TH1NG's cost base has significantly decreased. The total costs for the full year 2022 amounted to SEK38.6m, a substantial reduction from SEK92.8m in 2021. Moreover, the adjusted EBITDA (proceeds from divestment excluded) for 2021 and 2022 was -SEK39.1m and -SEK22.8m, respectively. This improvement in EBITDA can in part be attributed to reduced network costs, which have also resulted in a substantial gross margin expansion, from 11% in 2021 to 38% in 2022. Additionally, personnel costs have decreased, showing a 28% reduction compared to 2021. Sequentially, the adjusted EBITDA margin has improved each quarter throughout 2022, from -144% in Q1 to -79% in Q4. This improvement is attributed to both reduced spending and increased sales stemming from the many partnerships acquired during 2022, as stated in the report

TH1NG's focus on B2B, and the public sector has resulted in multiple partner agreements, and the company has started to capitalize on its investments, as demonstrated by the initial deliveries of a large order from GARO Group. The delivery of 10,000 M2M-sims accounts for 6.7% of the total order volume, estimated to be worth SEK30m over three years.

TH1NG also carried out its first deliveries to the Jönköping region and conducted training sessions for around 100 individuals on its IoT platform. The platform has been approved by 55 organizations in the region, which we believe is a significant step towards TH1NG's ambitious goal of becoming an enabler for smart societies. We believe that the delivery of the IoT Open platform to Jönköping will create additional business opportunities and increased potential for growth in other regions. Overall, we are encouraged that TH1NG is capitalizing on its investments and that the effort to establish a reference city is beginning to pay off.

In the shareholder letter, TH1NG's CEO, Klas Westholm, announced that the company is entering a more active phase in its M&A efforts to identify potential acquisition candidates that can strengthen TH1NG and expedite its expansion plans. He also emphasized the significance of partnerships, which is evident from the numerous collaboration agreements that the company has signed during the fourth quarter with companies such as Fibra, Karlstad El- and Stadsnät, Nordic Platinum Network, and Attentec.

Moreover, TH1NG continued to pursue partnerships even after the reporting period and signed additional agreements with Semcon, Transtema, and HiQ. This highlights the company's commitment to working with partners to drive and accelerate its growth journey.

The company has categorised its partners into four categories:           

Partnering with other companies can help TH1NG reach customer bases that would have been challenging to access on its own. Partnerships can be particularly useful in expanding geographic presence as the company can use partners' existing networks to expand its reach. In addition, partnerships offer the advantage of tapping into existing agreements and customer relationships. By partnering with companies that already have a strong presence in a specific market, TH1NG can gain access to their established customer base and benefit from existing relationships. This can help establish credibility and trust with potential customers more quickly than starting from scratch. Working closely with partners also provides TH1NG with valuable insights into customer needs, enabling them to tailor their products and services to better meet their requirements. This is crucial in the highly specialized industry TH1NG operate in, where deep expertise is necessary. Finally, partnerships provide access to expertise within a specific domain. By collaborating with companies that have deep expertise in a particular area, TH1NG can leverage their knowledge to build better products and services, stay ahead of the competition and ensure that they always deliver the best possible solutions to their customers.

Conclusion

TH1NG continues its trodden path, intending to become the enabler of smart cities and societies. To further accelerate its growth journey the company looks for and anticipates good opportunities for M&A deals in 2023. TH1NG has been experiencing a notable surge in activity, evidenced by its numerous new partnerships, significant order signings, the successful win of a county-wide IoT contract, and a boost in financial resources. These ongoing collaborations, newly signed agreements, and contract wins have had a positive impact on the company's profit and loss (P&L) statement, reflected by improved sales and margin figures. Additionally, TH1NG's largest shareholder is now Skellefteå Kraft, holding a 19% stake in the company, bolstering the ownership structure. TH1NG is now backed by a company with significant funds that could help with future financing and offer financial muscle in larger transactions. With this solid backing, TH1NG is well-positioned to engage in larger transactions that can accelerate its growth journey towards its goal of becoming the catalyst for smart cities and societies.

Following the capital raise aimed at Skellefteå Kraft, TH1NG’s cash position has strengthened, amounting to SEK13.7m at year-end 2022. In Q1 2023, TH1NG raised an additional SEK16m through a rights issue, which will further strengthen its cash position in 2023.  Considering its current operations and burn rate (operating cash flow before change in working capital) of -SEK3.8m in Q4 2022, we anticipate that TH1NG's cash position will suffice to cover its cash burn throughout 2023.

Based on the Q4 report, we have updated our short-term sales and cost projections. Our sales forecast has been slightly reduced, while our COGS estimates have been adjusted downward due to better-than-expected gross margins. We have also increased our OPEX estimates by a few percent for 2023 and 2024, and anticipate it to grow alongside sales.

See below for our updated estimates:

We derive our fair value range from a fundamental DCF framework for three scenarios, base case (most likely), bear case (pessimistic), and bull case (optimistic), using a WACC of 14% across all scenarios. Our fair value range is SEK1–14, and our base case is SEK3.8. The fair value range is wide, owing to the unpredictable nature of TH1NG’s long-term growth and profitability; this depends on the product mix and expansion plans, to name some. We forecast high long-term gross margins and a terminal EBIT margin of >20%.

Based on the Q4 report, we have updated our short-term sales and cost projections. Our sales forecast has been slightly reduced, while our COGS estimates have been adjusted downward due to better-than-expected gross margins. We have also increased our OPEX estimates by a few percent for 2023 and 2024 and anticipate it to grow alongside sales. While we have revised our estimates, they have not had a significant impact on our fair value range. As a result, we are leaving our fair value range unchanged at SEK1–14, with our base case at SEK3. 8. Sales growth and signs of near-term scalability are key metrics, so we will keep a sharp eye on margins and likely adjust for these going forward.