Wallbox N.V. (WBX) Q1 2024 Earnings Report, Transcript and Summary

Hello, everyone, and welcome to Wallbox's First Quarter 2024 Earnings Conference Call and Webcast. My name is Charlie and I'll be your operator for today's call. [Operator Instructions] I'd now like to turn the call over to Michael Wilhelm to begin. Michael, please go ahead.

Thank you, Charlie, and good morning and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's First Quarter 2024 results. This event is being broadcast over the web and can be accessed from the Investors section of our website at investors.wallbox.com. I'm joined today by Enric Asuncion, Wallbox's CEO; Jordi Lainz, our current CFO; and Luis Boada, who will join Wallbox as its new Chief Financial Officer effective May 15. Earlier today, we issued our press release announcing results from the first quarter ended March 31, 2024, which can also be found on our website. Before we begin, I would like to remind everyone that certain statements made on today's call are forward-looking that may be subjected to risks and uncertainties relating to future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including the annual report on Form 20-F for the fiscal year ended December 31, 2023 filed on March 21, 2024. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results Also, please note that we use certain non-IFRS financial measures on this call and reconciliations of these measures are included in the presentation posted on the Investor section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under the Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I will turn it over to Enric.

Thank you, Michael, and thanks, everyone, for joining us today. In addition to reviewing highlights from the first quarter 2024, we'll spend some time discussing recent product introductions and commercial wins, including the Washington State project and the Pulsar Pro launch in North America. We will also discuss the integration progress of our recent acquisition, ABL as well as the Generac commercial agreement, and we will touch on how the market is expected to evolve in 2024. Jordi will offer a closer look at our financial results and our key financial metrics. And finally, I'll return to close the conversation and highlight what we are focused on for the remainder of the year as well as welcome Luis Boada, who will formally join us next week as our incoming CFO. We will end by taking questions from our covering research analysts. So let's get started. Q1 revenue was EUR 43.1 million, up 23% year-over-year, driven by EV market seasonality, slightly impacted by softer AC sales in the US and the timing of DC shipments within specific customers and large projects. We do not believe that the latter is a result of overall market weakness, but rather of new European regulations that are being digested by customers and which have impacted the timing of orders and deployments of new installations. ABL results were in-line with expectations and we're excited to accelerate the cross-selling opportunities, especially after the launch of the eM4 across Europe in March. DC revenue increased by more than 100% from the previous year period as customers continued to expand their networks and select Supernova for its high quality and low cost of ownership. We installed the first Supernova 180 in North America in the quarter, a meaningful milestone, and we look forward to ramping up activity quickly in the second quarter. In total, we delivered 37,500 AC units globally, including ABL and approximately 320 units of DC during the period. Gross margins were 39.6% in the first quarter, positively impacted by the aggressive actions we discussed last period, including cost engineering, strategic sourcing, and lower transportation costs. Those efforts saw strong early results and we believe we can continue to hold them in the range of 38% to 40%. This is yet another proof point in our ongoing shift towards operational excellence and we want to thank all Wallboxers for their hard work and focus. Q1 2024 included a full quarter of both revenue and costs from ABL, and on a consolidated group level saw a 21% reduction in labor costs or headcount related costs, and a 30% reduction in OpEx, both on a year-over-year basis. Sequentially, both expense categories are up slightly, as anticipated with the inclusion of a full quarter of ABL. However, we continue to identify opportunities to reduce our cost base and will be flexible given the market volatility. First quarter adjusted EBITDA loss tightened by more than EUR 1 million to EUR 13.5 million from the fourth quarter and represents a year-over-year improvement of 38%. Gross margins and our operating costs have come close to the range that now only leaves scale and topline revenue as a barrier to profitability. With the introduction of new products, current strong traction of Supernova roll-out in North America, and the progress discussed here, we believe we will be close to breakeven adjusted EBITDA in Q2. For the first quarter 2024, Europe contributed EUR 36.5 million of consolidated sales, or 85% of total revenue and grew by almost 30% from the year-ago period. We saw strength in Benelux and the UK, which offset softness elsewhere. North America contributed EUR 4.7 million or 11% and was impacted by an inventory adjustment at a specific retailer. APAC was strong this quarter, contributing EUR 1.3 million or 3%, and LATAM was approximately EUR 600,000 or 1%. These mix shifts were also somewhat driven by the full Impact of ABL, whose sales are entirely AC within the EMEA region. AC sales of EUR 29.9 million, including ABL, represented approximately 69% of our global consolidated revenue, down 1 percentage point from last year. The global rollout of Pulsar Pro continues to go very well. Pro is designed for commercial and multifamily residential use in the North American market and other relevant markets. The charger is equipped with RFID integration and ISO 15118 readiness ensuring secure and future-ready charging capabilities. The Pulsar Pro stands out for its dynamic power-sharing feature, which monitors the building’s power and automatically allocates power to connected EVs, reducing the need for costly upfront electrical infrastructure upgrades. A great example of the overwhelming market reception is the $26 million project we announced on March 7th with the State of Washington. Those funds will be used to deploy hardware, software and services throughout almost 150 Greystar multifamily housing properties across the State of Washington with a strong focus on environmental justice communities. COIL will participate in those installations too. We expect much of this project to occur and be recognized in 2024. DC contributed 19% of the revenue in the first quarter, a 9 percentage point increase from the prior year period. The Supernova product line continues to see strong reception from customers, and is driving growth in our pipeline, which now totals more than 2,000 units. Today, we have more than 10 customers which received more than 50 units for their charging network. We see large customers with broad and expanding footprints are becoming the norm, so the full list of more than 100 unique customers have the opportunity to grow into key accounts as we impress them with our offering. One example of a highly valued customer is Osprey, which is building one of the leading EV charging networks in the UK. The company is growing fast and is using Wallbox as a supplier for both the Supernova 60 and the Supernova 150. Currently, we have sold 180 DC fast charging units to Osprey including the Wallbox Care Program, offering preventive and corrective maintenance, and warranty extensions. At Wallbox, we understand the dynamics of our CPO customers and the importance of open, flexible collaboration. This includes incorporating product development ideas, short lead times, capacity to deliver reliable solutions at scale and aligning with the roll-out speed of our customers. We would also like to provide you with some color on the status of the DC fast charger roll-out with Iberdrola, that we announced in the past. Iberdrola is an important long-term partner of Wallbox, both as a customer and a shareholder, and has a strong commitment to sustainable mobility. Together, Iberdrola and Wallbox have large ambitions in developing reliable charging infrastructure for electric vehicles and we are currently taking the initial steps in delivering Supernova units. As of now, we have sold close to 150 units to Iberdrola and we are expecting to see this number increase steadily as the roll-out of charging infrastructure continues. Supernova 180 is currently shipping to North America and we have begun conversations with a variety of CPOs, beyond Free2Move and Stellantis. We believe we're able to ramp up production and meet the growing demand that's not currently being met by legacy players. And finally, we are seeing strong interest from European customers in more powerful systems including the Supernova 220 announced last call, and beyond. Customers are focused today on ease of deployment, reliability, and protecting their investment. They want the right system in the right location, and they want it to be relevant for 10 years, which is critical given the rapid pace of both EV technology and consumer behavior. We believe we check all the boxes and have established Wallbox as a leading provider of public fast charging equipment and software. We're excited to see such positive traction. Gross margin improvement is something we've been very focused on for the last several quarters, and we believe we've turned the corner. As mentioned before, after the introduction of a new product the gross margins have a ramp-up time and now as the Supernova product line is maturing, we see significant improvements, going from negative gross margins to contributing significantly to the group result. We are pleased with a gross margin in the quarter of almost 40%, but we still see opportunities for improvement going forward. Jordi will talk more about this in a minute, but I'm confident in our strategy and ability to focus on what we can control, and turn our attention to increasing sales growth and the successful rollout of all the new products we introduce this year. I want to take a moment and share some thoughts on ABL, because we're very pleased with the progress we've seen after closing the first full quarter as part of Wallbox. Conversations with current and prospective customers are encouraging, and highlight the need for a comprehensive solution for both AC and DC that together, we now offer. We launched the eM4 across key markets in Europe last month and look forward to capitalizing on strong initial interest. The eM4 is ABL's newest AC level 2 product for commercial applications, given its OCPP capabilities, wired or wireless up to 100 charging points, a single or dual gun configuration, IP55 and IK10 for a robust solution, and advanced load management functions. We believe this product meets the unique needs of apartments, office parking lots, hotels, and retail applications. We're excited to watch the progress of the rollout and we look forward to sharing more with you next quarter. Aside from the integration of the eM4, we have also introduced the ABL Pulsar to the DACH market as part of our product and innovation integration. Educating the market on the benefits of Supernova 150 and 220 is also well underway. In these first six months, we have made great progress on our integration efforts, and I am proud to have ABL as part of the Wallbox group. I would like to take the opportunity to thank everyone involved and a special note to the whole ABL team for their continuous efforts. Both companies recognize the collaborative potential and I appreciate the strong commitment to joint future growth. Today, we would also like to talk about the commercial agreement with Generac in more detail. As discussed during our previous earnings call, the Generac partnership is one of our most exciting and impactful events in our history. We believe that our aligned ambition will bring both companies significant long-term commercial opportunities. This is reflected in our commercial agreement, which has a 10-year term and a worldwide scope. In the long-term, we foresee offering Wallbox's full product portfolio through Generac's extensive 8,700 dealers network, but initially we will launch with the Pulsar Plus UL for North America. The charger will be co-branded and provided with a white-label app allowing for easy integration with Generac's existing home energy management systems and solutions. In the following months, we expect new products will become part of the scope of the commercial agreement which include both AC and DC charging solutions. We will also put our efforts together to co-develop new products relevant for a wide range of customers. We are very excited about these first steps in our journey together and we appreciate the commitment of Generac to Wallbox from both a commercial and shareholders' perspective. We spoke to you in February about our view of the market and how we envision it evolving. There were almost 1.1 million EVs sold in Europe and North America in the first quarter of 2024, representing a 8% year over year growth, as reported by Rho Motion. They expect more than 5.6 million to be sold this year across these two regions, which excludes China, representing year-over-year growth of almost 20%. This also doesn't include the sale of used EVs to new owners, which often require the installation of a new AC charger. What we shared with you is our belief that early adopters are fully bought into the value proposition of EVs and that the market volatility you read about from several OEMs is natural in the adoption of a disruptive technology. It's not different from what we saw from consumers with the PC or cellular phones. At the same time, we do recognize the current economic dynamics with slower economic growth and recent high inflation figures pressuring consumer budgets. But even though the adoption curve and economic slowdown coincide, the long-term potential of the industry remains solid with more affordable EV models being introduced, continuous roll-out of charging infrastructure, and innovative technical improvements in the industry. In the meantime, what we focus on is exiting this period in the strongest competitive position and well ahead of our peers. We have developed a product portfolio for every charging segment, which allows us to capture growth where it takes place. For example, the current demand for DC fast charging infrastructure remains high as the roll-out of this infrastructure is essential to the mass adoption of EVs. This provides us with a great opportunity to leverage our diversified position, both geographically and commercially. Now is the time in which winners and losers are determined, and therefore we will continue to invest in operational excellence, forge strong partnerships, and rationalize our cost base. Jordi, I'll turn it over to you to comment further on our financial details.

Thank you, Enric. Good morning and good afternoon to everyone. Our first quarter results came in lighter than anticipated, driven largely by timing of orders and some continued market softness in key geographies. Gross margin was stronger than expected, as improvement programs took hold faster than originally planned. Cost controls continue to yield solid results, and additional opportunities may present themselves as we continue through the year. For the first quarter 2024, revenue was EUR 43.1 million, approximately flat sequentially and up 23% year over year. Consolidated gross margin for the quarter was 39.6%. The drastic improvement is a result of more favorable pricing, lower component costs, product quality improvements, process engineering, product mix, and the inclusion of ABL. Labor costs and OpEx amounted to EUR 32.6 million in the period, which was modestly higher sequentially as we have now included a full quarter of ABL. Building on our cost reduction results of the past year, we continue to work towards a cost structure which is better suited for the current stage of the company. As anticipated, we are close to our EUR 30 million per quarter costs base for labor costs and OpEx. Even though we are not fully optimized yet, we believe that with this cost base, the gross margin back in the correct range and with the roll-out of new products, we expect to be close to adjusted EBITDA breakeven in the second quarter. Consolidated adjusted EBITDA loss for the quarter, including ABL, was EUR 13.5 million, representing a 38% year-over-year improvement. We remain extremely focused on costs and conserving cash, and have seen tangible benefits of those efforts. This slide shows us again the three main metrics we have been focused on over the last year. Revenue, cash costs, and the adjusted EBITDA. We like to present cash costs in this slide as it reflects the cash out, which is the EUR 32.6 million labor costs and OpEx I just mentioned it, plus R&D costs. As you can see, for Wallbox stand-alone, cash personnel costs have continued to decrease from EUR 19 million to EUR 18 million with other operating expenses remaining stable quarter over quarter. In Q1 2024, we have included a full quarter of ABL, which explains the expected increase in cash costs on the consolidated group level compared to the previous quarter, but it still reflects a 9% decrease from the same period a year ago. The adjusted EBITDA continues to improve and, as stated before, with the continuous cost reduction efforts and expected revenue growth, we believe this trend will remain throughout 2024. The financing events in 2023 paired with the aggressive cost reductions we went after allowed us to end March with approximately EUR 83 million of cash, cash equivalents, and financial instruments. Long-term debt was approximately EUR 96 million at the end of the quarter, with the variation compared to the previous quarter resulting from reclassification of existing short-term debt to long-term debt with approximately EUR 10 million. We did not use the ATM during the first period. No shares were sold. CapEx, excluding capitalized R&D, was very light, with less than EUR 2 million spent in the first quarter, with more than half on Property, Plant and Equipment. Our CapEx will exclusively focus on the development and production of higher power charging products. Therefore, we expect to spend less than EUR 10 million for the full year 2024 as almost all our factory capacity to scale is already in place. Inventory reduction is another initiative we made significant progress on, with Wallbox levels falling by another 5% or almost EUR 5 million from the fourth quarter 2023, and ended the period at EUR 79.4 million. ABL's current inventory levels are 10.1 million, which is an appropriate amount given the ramping up of eM4 sales and cross-selling. The consolidated inventory levels for the group are totaling EUR 89.5 million, which is a 3% reduction sequentially. Our goal is to continue to bring total inventory down by the end of this year. This, together with our sales growth and cost structure reduction, is expected to help us achieve positive operating cash flow. Full-time headcount, including ABL, decreased on a quarter over quarter basis by 8%, as we continue to balance the retention of key personnel and our efficiency efforts. Enric, I'll turn it back to you to provide some closing commentary.

Thanks Jordi, You joined Wallbox six years ago when our revenue was EUR 5 million and we had 60 employees. You've helped shape the company into what it is today, a leading provider of EV charging hardware and energy management solutions around the world, and we're so grateful for your contributions. This is not goodbye, because you will be joining our board soon enough, and so we'll continue to benefit from your long career in the automotive industry. Thank you for your continued time and guidance. As you depart, we would like to welcome Luis Boada. With nearly two decades of experience in corporate development, finance, and investor relations, Luis brings extensive expertise in both North American and European markets. He joins us from Fluidra, a global leader in pool equipment and connected solutions, listed on the Spanish Stock Exchange. During his tenure at Fluidra, Luis held various roles, including M&A, investor relations and as CFO of North America. Throughout his eight years at Fluidra, Luis played a pivotal role in establishing key processes, orchestrating integrations, and spearheading expansion efforts, all contributing to the company's financial success. Notably, the successful Fluidra and Zodiac merger and Fluidra's ascent from being a low-volume and relatively unknown stock to inclusion in the main index of the Spanish stock exchange, he also brings substantial experience in M&A, something we intend on putting to good use as the industry continues to consolidate. Luis, thank you for joining us today.

Many thanks, Enric, Jordi, and the entire team. I am very appreciative of your support and look forward to officially joining the team next week. Joining Wallbox, which is a leading company in a very exciting space, poised for significant growth and expansion, is truly thrilling. I'm excited to dive in, get to know the broader team, shareholders, and other stakeholders, and immerse myself in the world of Wallbox.

We're looking forward to you hitting the ground running. So as we look out over the remainder of 2024, I'm confident about our execution and competitive positioning. We've worked very hard to set-up ourselves well for the upcoming year. Our 2024 strategic initiatives remain very clear to the entire company. First, we are focused on growing sales in key geographies, including North America, Germany, and Western Europe and in attractive market verticals like commercial application, bi-directional charging, and public DC fast charging. Second, depending on the product category, we will endeavor to expand gross margins through the continued use of cost engineering process, continuous quality improvements, and strategic sourcing. Third, we will remain focused on aligning the cost base in reality to the market through thoughtful R&D spend, measured key talent acquisition, and disciplined OpEx allocation. Now, as our product portfolio nears its full breadth, only incremental adjustments are expected to occur to improve and evolve, rather than drastic steps or significant investments. And finally, capital allocation is expected to occur in a thoughtful and disciplined manner to grow the business, both organically and inorganically. So as a result of these areas of focus, I expect there to be significant room for us to grow and evolve for the years to come. The market will recognize the transformation we've undertaken and shareholders will be rewarded. Thank you for your continued trust and patience. With that, we're ready to take questions from our analysts.

Welcome back, everyone. To our analysts, we ask that you pose one question with a follow-up if needed, then reenter the queue if there is more. This will allow each of you to ask your questions upfront and we will get as many additional questions as time allows. Charlie, I think you have some instructions for our analysts?

[Operator Instructions]

Thank you, Charlie. Let's take our questions.

Of course, our first question comes from Ben Kallo of Baird.

My first question, just with the Tesla charging news, does that create an opportunity for you within the U.S. or in Europe? Just I've seen reports there are some sites that were permitted that no longer will be built out and now I see other companies trying to benefit off of that. So any thoughts there? And then I have a follow-up.

This is Enric. So the way we see this environment, we see very positive for our customers, which at the end of the CPOs that are looking for sites and locations -- so one that brings them better size and better opportunities and also brings to the market the possibility to -- for these players to have more volume at the end to install more charges at the end. So them selling more chargers, it means that we will sell them more charges. And I think we are in a unique position because we are one of the few players that today can sell fast chargers from 60 to more than 200 kilowatts in Europe or in the U.S. we have factories in both places, and we're also being having the Asia region. So in this regard, we think it's going to be adding revenue in the midterm for us and for our customers, which are the charge point operators and utilities and car manufacturers. And I also think there's some opportunity in terms of talent acquisition, although it's probably more interesting for charge point operators. There's some technical roles that migrates some opportunities also for companies like us.

In the U.S., have you seen any kind of change in utilities as it pertains to them being a channel partner for you and their willingness to use your bidirectional charging technology? I know that you've had big deals in Europe, but I'm just wondering about the U.S., how you see utilities on this subject?

Yes. So we have some initial programs, we are doing in California with utility there. But right now, the biggest volume for Quasar, it is with OEMs. Actually, we saw some news today that Kia was increasing volumes for the EV9. It's a very successful product. And we announced that we are going to launch the Quasar 2 together with Kia in the U.S. These are most of the opportunities we are discussing with a lot of car manufacturers to do similar launches that the one we are doing with Kia. And we're also seeing a new opportunity for this product, which is with the factories of car manufacturers and car dealerships because factories and car manufacturers need to discharge the car before they ship it, has to be below 30%. So this is creating an initial big volume of this kind of product because at the end car manufacturers need to discharge the product before servicing it and before launching it. So obviously, the typical use case for Quasar, which is to use it for powering the home in case of a blackout and doing energy efficiency. But we're also seeing this additional opportunity for car manufacturers and car dealerships, which we believe in the short term is going to bring a lot of volume, especially in the last quarters of the year, Q3 and Q4.

Your next question comes from Stephen Gengaro of Stifel.

Thanks. Good morning, good afternoon, everybody. I guess 2 for me. But the first is pretty straightforward. On the AC units, if I'm doing the math correctly, the average price per unit jumped significantly sequentially. And I was curious what drove that; if it was mix, if it was geographies or if I'm doing the math wrong, just based on kind of you said units sold divided by revenue? So I'm curious what's behind that.

Stephen. So yes, this is a change of price. We used to have a lot of previous volume for AC before the acquisition of ABL was more in the home charging segment. Home charging average price for a unit is around EUR 600, EUR 700, EUR 500. When we go into commercial charging, there's 2 dynamics here. One, a commercial chargers is normally more expensive because you have a payment terminal. You have certain meters and certifications you need to achieve that make the product more expensive. But there's a second one, which is that the -- most of the commercial chargers we sell from ABL have a double connector. So normally, it's double the price. So we are talking a normal AC commercial charger with a double outlet. It's around $2,000 to EUR 2,000. So we have this impact coming also from higher more connectors in commercial charging. And the last thing, we have another product that we added to our portfolio, also coming from ABL, which we have not commented, but it is the EMC. This is public charger, AC public chargers. So it's a big pedestal with metal that we are -- it's probably very successful, especially in the city of Munich, we are selling it. And the average price of this kind of product can be above EUR 5,000. So these are quite expensive products. And because they have to be ready to withstand crash of a car and it's in a published space, so these things are driving the increase of price of AC units. And well, let me add one more thing. We also reduced discounts, which has been a way we have increased our gross margin during the quarter. Average discount has dropped and that also helped to improve gross margin.

That's helpful. And then the follow-up to that is then when we think about the AC business going forward, I know mix will play a role. But is the first quarter sort of average price per unit, a reasonable gauge versus where it was historically?

Yes. So I expect for the year to be in that range.

[Operator Instructions] Our next question comes from Leanne Hayden of Canaccord Genuity.

Congrats on the progress this quarter. Just to start for me. Could you please provide ABL-specific revenue contribution during the quarter? And if you're not willing or able to provide the specific number, any additional color on this would be great.

So we are not reporting the revenue, but we reported last quarter because it was a first quarter with ABL, we introduced the company, but we expect ABL to be in the range of, as we reported before, EUR 50 million to EUR 65 million for the year. We are a little bit behind in Q1 because the market has been softer in Europe, dropping 50% versus the previous quarter, but we still expect ABL to achieve this range for the full year.

Okay. And then just one more from me. How do you expect DC sales to ramp in 2024 and into 2025?

You mentioned DC sales, right?

Yes.

How do we see that ramping up in 2024 and 2025?

Yes. So the way we see it is 2024 for AC, we see it following the market growth. But for DC, we're still expecting growth ranging from 80% to 120% compared from the previous year and keeping the same growth into 2025. The reason, why, there's 2. One, we are now rolling out Supernova in North America. So that's really fueling the growth in Q2. We have to think in Q1, our sales of Supernova in North America were initial. We sold the first units as we were ramping up production. But already in Q2, we expect to start delivering orders from some of these car manufacturers we discussed about. And that launch, together with contracts we already have on backlog we already have in Europe, that should be able to give us this 80% to 120% growth year-on-year. And when we look at 2025, the contracts we are starting to work with Charge Point operators in North America will translate into these big volumes. You have to think that most of the revenue we will have this year in North America comes from agreements we did last year. So that ramp-up is going to continue in North America, and we expect to be still in the range of 100% year-on-year growth for DC worldwide.

Charlie, do we have any more questions?

No further questions on the line. [Operator Instructions] We do have a follow-up from Stephen Gengaro of Stifel.

Thanks for taking the followup. Just curious, in North America, how the operations are going in Texas and how we should sort of think about the margin profile on the DC side. I guess what I'm getting at, can you help us understand maybe a little more is the DC-AC mix and margin impact? And just maybe tie that into how Arlington has progressed?

Stephen. So right now, most of the chargers -- actually all the home chargers and commercial chargers that are sold in North America are being produced in Arlington. And I think we are very, very efficient right now in Arlington. We have improved a lot of our operations. But what's impacting gross margin right now in North America, it's more the kind of customer we have. Our customers are somewhat of a big utilities, big partnerships like the Generac partnership or Florida Power & Light. So these are big customers, volumes are bigger and obviously, this impacts the average selling price. And as we continue expanding with new customers, new partnerships, we are -- we will continue making the operations more efficient. But what's driving margin right now is pricing for this kind of partnerships. But if you ask me how the operations have gone, I think we are very, very efficient already. And what's impacting gross margin is pricing. In DC, we have to say that gross margins are performing very well in North America. We could say that the product we are delivering in North America, it's almost Generation 3 of Supernova. Generation 1 is the first one we sold. Generation 2 was the cost improvement that we made for Europe. But now Generation 3, it is superoptimized for cost and reliability and we have seen potentials of gross margins above 40%, 45% for the North American market for DC. Right now the product, we are shipping them from Barcelona but at the end of the year we will be producing them in Arlington, Texas.

I think that was our last question. So thank you all for joining us today. We hope you found today's call a good use of your time. Let us know if we can help you in any way.