TH1NG is actively ramping up its operations in the Jönköping region. Following the thorough acceptance testing phase that encompassed over 500 requirements, Jönköping municipality has provided its approval for the delivery of the IoT-Open platform. This significant project is now progressing to the next phase, which involves conducting operational testing. As part of this phase, the 55 organizations included in the contract can now initiate the implementation of sensors and applications to optimize their operations and streamline efficiency.

Similarly, TH1NG is continuing to advance its software development, incorporating vertical solutions, and enhancing its offerings through collaborative efforts with partners. Furthermore, the company is actively expanding its partner network and has, as the first Internet of Things (IoT) provider achieved to secure an agreement with the Swedish City Network Association (SSNF). As a result, TH1NG has received certification as a supplier to the association's approximately 200 members.

We are also encouraged by the positive trend in margin expansion, which reflects the success of the company's strategic focus on the B2B segment. This trend is maintained in this quarter's financial results, demonstrating the effectiveness of the company's approach.

In the first quarter of 2023, TH1NG reported net sales of SEK4.5m which translates to a growth rate of 17% y/y but a decline of 15% compared to the last quarter. We had anticipated sales of SEK5.8m, resulting in a deviation of SEK1.3m or -23%.

In Q4 2022 TH1NG received payment for the initial delivery of from GARO Group, comprising of 10,000 M2M-sims, accounting for 6.7% of the total order volume. The total order volume comprises 150,000 units and is expected to generate an estimated revenue of SEK30m over the next three years. While the received amount of the initial payment hasn’t been disclosed, we estimate it to be around cSEK2m. This can help explain the sequential sales decline observed from Q4 2022.

TH1NG’s operating costs for the quarter amounted to SEK9.1m, with personnel costs comprising the largest share at SEK4.6m, followed by cost of goods sold (COGS) at SEK2.7m, and other external costs at SEK2.2m. The gross margin for the quarter improved to 38.7%, surpassing both the figures for Q4 2022 (37.5%) and Q1 2022 (36.1%).

EBITDA amounted to -SEK3.7m, resulting in an EBITDA margin of -83%. Comparatively, in Q4, the EBITDA margin was -79%, while in Q1 2022, it stood at -144% (adjusted for divestment). The margin expansion is attributed to the increased sales of IoT-Open, coupled with the divestment of the private customer stock.

In our Q4 2022 update, we previously reported that TH1NG had initiated its operations in the Jönköping region. During the initial phase, the company conducted comprehensive training sessions on the IoT-Open platform, catering to approximately 100 individuals representing various organizations encompassed by the agreement. In May, further follow-up activities took place, wherein the company provided supplementary training to approximately 60 individuals from the region, focusing on optimizing platform utilization within their respective work environments and organizations.

Since the agreement was formalized in Q4 2022, IoT-Open underwent rigorous acceptance testing, encompassing more than 500 requirements. Following this meticulous testing phase, the company announced that Jönköping municipality granted its approval for delivery of the IoT-Open platform.

The project is now proceeding with operational testing, including customization and delivery of services and sensors, while TH1NG will continue to provide training for individuals within the different organizations and businesses. As part of this phase, the fifty-five regional organizations, including thirteen municipalities and one airport can now initiate the implementation of sensors and applications to optimize and streamline their operations.

We believe the fact that the company now is moving into operational testing marks a significant step towards TH1NG's ultimate goal of becoming an enabler for smart societies. As we have stated before, we believe that the procurement win in Jönköping is in part attributed to the success in Skellefteå. This is entirely in line with TH1NG’s employed strategy of developing the smart city reference in Skellefteå and expanding operations to other areas. Additionally, we argue that the delivery of the IoT Open platform to Jönköping has the potential to generate additional business prospects, as it can serve as an additional use case that can be replicated in other regions.

The company's dedicated efforts to establish a smart reference city have proven to be fruitful, as evident from the positive outcomes achieved thus far. This is indeed a positive development, and we are encouraged that the company is starting to capitalise on its investments. Furthermore, this advancement indicates the management group strategic focus to achieve its goals and showcases its ability to leverage resources effectively to position the company for future growth.

On 22 February, Thing announced it had signed a partnership with the tech consultancy company HiQ regarding TH1NG’s IoT- platform.  HiQ is a one-stop shop for digitalization and has a broad experience in connected products in many industries and the public sector. Through this agreement, thing gains a strong partner and extends its reach with IoT Open.  

On 3 Mars, TH1NG and Wittra announced a collaboration relating to TH1NG’s platform, IoT Open. Wittra offers wireless network technologies for various applications within IoT. With Wittra's range of wireless network technologies and open standard-based solutions, TH1NG can increase its ability to create additional services within IoT.

On 13 Mars, Thing announced it recently entered into a supply agreement with the Swedish City Network Association (SSNF), making TH1NG the first certified IoT supplier to nearly 200 city networks under the association. City networks and energy companies play a crucial role in driving smart and sustainable initiatives in municipalities. Through this supply agreement, TH1NG and the city networks can collaborate to develop services and opportunities for residents, industries, properties, and other stakeholders.

Moreover, TH1NG signed additional agreements with Semcon and Transtema during the quarter which we brought up in our recent update.

At the annual general meeting on 16 May, TH1NG announced two newly appointed board members, Johan Ekberg, and Erik Jonnson

Johan Ekberg Holds a master's degree in business administration from Linköping University. He is currently the Chairman of the Board at Twin Mountain Group AB, a company focused on investing in unlisted growth companies. Johan is a former founder and CEO of the broadband operator Ownit and has also served as the Sales Director for Telia's consumer business in Sweden.

Erik Jonsson holds a master's degree from the Umeå School of Business and will represent Skellefteå Kraft AB - TH1NG’s largest shareholder. Currently, Erik serves as the Head of M&A at Skellefteå Kraft AB and holds the position of Chairman of the Board at Skellefteå Kraft Denmark A/S. Moreover, he serves as a board member for Emulate Energy AB and holds the role of board deputy at Exeri AB.

While the share price has been fluctuating during the first quarter, with a volume-weighted average daily price (VWAP) of SEK1.69, the share price declined from SEK1.82 on 31 December 2022 to 1.45 on 31 Mars 2023. Since then, the share price development has grown flat, closing at SEK1.40 on 17 May 2023. However, the share's overall performance has been depressing, as it has plummeted by -c84% from its listing price.

Based on the Q1 2023 report, we have only made slight adjustments to our short-term estimates as presented below.

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 Q1 2023 report, we have only made slight adjustments to our short-term sales and cost projections. While we have revised our estimates, the impact on our fair value range is negligible. As a result, we are maintaining our fair value range and base case. Accelerating sales growth and indications of near-term scalability are key metrics and we will likely adjust for these going forward.