Earnings Call: Q2 2025

Jul 11, 2025

Summary

Q2 order intake rose 15% QoQ, revenue increased 22%, and backlog grew 13%. Management expects sales momentum to continue into Q3 and Q4, while preparing an autumn launch of recurring service contracts.

Ladies and gentlemen, welcome to Otovo's webcast of the second quarter results for 2025. My name is Andreas Thorsheim. I am founder and CEO of Otovo. I will be joined today by Petter Ulset, our Chief Financial Officer. Today's program is taking you through a business update before zooming in on our financial results. Then we will sum up and give an outlook before answering your questions, so do not hesitate to leave them during the course of this presentation. This quarter marks a continued progress in sales. We now have consecutive quarters of sales growth. Revenues are up more than 20% thanks to strong sales in the preceding quarter. Our cost side remains disciplined, and all of this in a European solar market that still is not particularly helpful. Okay, let's zoom into the business. What have we been doing in the last few quarters? In the fourth quarter, we did a major reset of the business, cutting costs, centralizing resources, prioritizing efficiency. In the first quarter, we transacted our continental leasing portfolio, freeing up cash and improving the cash conversion cycle in quarters ahead. Now, it is all about sales growth. All eyes in the company are on growing the number of customers and the value we create from each customer. Let's also remind you on what Otovo is and how we work. We have two business segments, the direct-to-consumer, where we sell for cash, and the subscription segment, in which we ask the customer to enter into 20-year-long leasing contracts. All of that gets sold to Swiss Life Asset Managers, who put it on their balance sheet and receive the cash flows from those systems. Otovo gets paid immediately. These two sales segments we serve with different types of equipment, solar panels, batteries, home energy management and backup systems, EV chargers, heat pumps, and monitoring and services. We address all key European markets from Norway and Sweden in the north to Portugal and Spain in the south, representing the bulk of residential new energy asset demand in the decade ahead. Let's double-click on our two segments. The direct segment represented about three-quarters of our business in this period and had a margin of 23%, while the subscription business was the remaining quarter and came in at just about 30% margin, a number that is determined by where these subscription contracts get created. This is a quarter in which we see order intake increase 15% to EUR 178 million. Revenue is up more than 20% to EUR 152 million, thanks to a stronger order intake in Q1 and in the preceding quarter. Our backlog grew 13% to EUR 221 million, and that is, of course, revenue to come in following quarters. Gross profit came in at EUR 36 million. Also, there, continued progress, up 18% from Q1, and the margin percentage coming in just shy of 24%, so preserving margin while growing at this rate. Let's zoom in on the sales or order intake. We saw growth both in the number of customers and their value. A healthy increase of 15% quarter-over-quarter from Q1, and also now ahead of the same quarter last year, somewhat helped by a weaker kroner, as much of our sales happen in, of course, euro and zloty currencies. Revenue follows the previous quarter's sales, so you can see Q2 revenue coming in roughly where Q1 order intake was, and that's how we expect progress to come in the following quarters as well. Follow the order intake. That's the key metric for us. In terms of number of customers created, we're up 9% quarter-over-quarter. Number of installations or customer homes installed is up 29%. In terms of what customers are buying, it's increasingly a story about batteries. You can see the size of solar systems relatively flat at 7 kW peak per customer, and taking a small step up thanks to a bit more customers coming in in this quarter. But the big story is, of course, batteries. Batteries are increasing in size, and they're increasing in demand frequency. Customers need more and more powerful batteries in order to adapt to a market that is more volatile, unpredictable, and batteries provide the answer to that market. Otovo is extracting this progress in a market that isn't helpful on its own. The European market has been struggling over several quarters. It seems to be stabilizing now, and Otovo is doing well and taking market share. I'll remind you that we're up 50% in sales since the beginning of the year, and that's not where the rest of the market is, so we're gaining market share. Poland, Portugal, Italy represent key markets for us. Those are healthy markets overall, and we're growing faster than market in those. We're also showing that we can be resilient and even grow in markets that are not as strong. That's Scandinavia and the DACH region, where we're holding fast in a market that may be receding. France and Spain are a shame for us. It's markets that are struggling, and we're not able to extract growth right now. But those are markets where we have strong market positions and traditionally strong market share, and we want to also there lead the charge as markets recover. Do we think markets will recover? Yes. We're close to bottoming out, I think, in the residential solar and battery market. Solar demand is expected to grow in 2025 relative to 2024 and keep on growing until at least halfway through the second half of this decade. And batteries, even a stronger trend that I personally think will be surpassed as people are underestimating the usefulness and the technological progress that batteries are representing. How are we extracting this sales growth? Otovo is now increasingly a sophisticated sales machine that extracts demand through brand traffic, partnerships, and performance marketing, leads that traffic into our prequalification call center in Madrid, and then routes traffic to the most useful, immediate sources of advisory and sales to the customer, so we get as much conversion to signed contracts as possible. Then we close the sale with leasing contracts, PV, battery, different types of hardware, and add services if and when possible. Otovo's sales engine is one in which we receive more than 50,000 leads every month. Those get sorted and triaged through a sophisticated software system and an excellent sales team that is focusing on immediate high-quality feedback to customers, designing the right sales process for them, routing traffic to the most cost-efficient way to convert. Obviously, our customers, who are typically in their 50s and 60s, will want a home visit, someone face-to-face in their living room to explain the benefits of solar batteries, EV chargers, et cetera. But not everywhere is that the cost-efficient way to sell, so we'll also route them to video or phone calls, depending on the density and frequency of demand in that area. The hybrid sales approach that converts the majority of our leads is four times as strong as the traditional sales method in solar, and this is essential for us in growing our customer base and adding more value per customer. This is really what we care about right now. For Otovo, 2025 is about growing the order intake. We've optimized around hybrid sales, making sure that we squeeze as many sales as possible out of the demand that hits our webpage and get as much web traffic to our webpage as possible from the European homeowners. Then, once they're in, expand the ticket size by selling more equipment, more powerful equipment, and even introducing new and recurring revenue streams, and do all of this while staying ahead of cost growth. You want to keep your cost base and your FTE count low, so that doesn't catch up with your progress on sales and value per customer. We think we're doing quite well on that. Now we see an increased opportunity in a service market. Why is that? Well, in 2015, 10 years ago, all systems in Europe were brand new. Now, many systems have been installed in those years. They're increasingly aging with more malfunctions. At the same time, the new systems that get sold are increasingly sophisticated, so consumers demand more uptime. They want their battery to be ready and working to address heat waves, blackouts, or arbitrage opportunities 24/7. And all of this while the European solar installer ecosystem has been completely reset. Lots of companies going out of business, leaving more than 3 million homeowners across Europe without the original installer of their equipment. Their systems are orphaned. That represents a tremendous opportunity for Otovo that has proven resilience and longevity and can offer a brand that can service systems all across Europe. We already monitor close to 100% of our assets online and can expand the monetization of this product. We propose to do that through different service plans that create recurring revenue for us, and by growing this first through our own more than 30,000 installed systems, then proposing this product for our hundreds of installers across Europe to throw into their networks, thereby expanding the addressable market from EUR 10 million per year to EUR 100 million per year. Then we'll tap into the orphan ecosystem of Europe, more than 3 million solar systems and batteries without the original installer alive, representing a EUR 1 billion per year service market. That's exciting to us. Now with that, I'll leave the floor to Petter Ulset, our CFO. Thank you, Andreas. I will then take you through the financial update for the second quarter. As Andreas emphasized, we now, after the portfolio transaction, have two segments also for financial reporting. We have the B2C segment, where we sell to homeowners across Europe, and then we have the B2B2C segment, where we sell to Swiss Life, who have entered into contracts with customers who pay over 20 years. These customers were previously on our balance sheet, but after the transaction, the SPVs where they resided have been deconsolidated from our financial statements. Starting with the P&L, we had revenues in the second quarter of NOK 152 million. That is up sequentially on higher installation activity in the first half. We have gross profit, which is also sequentially up in line with installation activity. Going further down in the P&L, we have payroll, which is up NOK 1.5 million sequentially. That is explained by share-based compensation, leaving us with the EBITDA of negative NOK 58 million, which is a sequential improvement from the first quarter. Zooming in on the two segments, we have the B2C segment and the B2B2C segment. The profitability in the B2B2C segment is higher, as we can extract more of the consumer surplus through the subscription contracts that we sell to Swiss Life. The profitability in the B2C segment is sequentially somewhat down 0.7 percentage points, and that is entirely due to the geographical mix or country mix that we had in the first quarter was more advantageous than what we had in the second quarter of this year. If we had the same country mix as we had in the first quarter, the gross margin would be flat. Going over to order intake, we started with a backlog going into the quarter of NOK 195 million. We had installations in the quarter of NOK 152 million. We had order intake of NOK 178 million, leading to a backlog out of the quarter of NOK 221 million. That is a 13% increase quarter-to-quarter. Turning over to the cost side, we saw that payroll is flat from the first quarter. The small increase that we have is due to share-based compensation, which is non-cash. Marketing spend is down year-over-year, although a small increase from the first quarter, and that is due to activations in paid media being more expensive in the second quarter compared to the first quarter. As Andreas explained in his section, our conversion of those leads to actual sales is improved from last year. On other OPEX, it is down sequentially, while it is slightly up from Q4, and this is due to spend on recruiting and consultants to support sales activities. As you will see in our financial statements, we have quite significant currency effects. That is due to the fact that we finance the group subsidiaries in a combination of equity and shareholder loans, where the loans are denominated in euros. When the euro appreciates towards the NOK, there is a gain in our P&L. This effect is quite noticeable in the second quarter, as the NOK weakened quite significantly against the euro, leading to a NOK 24 million improvement in that effect. This is purely a reporting effect. It has no cash effect, and it also has no impact on the subsidiaries' financials, as they operate in euros. Then going over to the balance sheet, we see that it is significantly reduced following the divestment of the continental subscription portfolio. What is noticeable is also that our 11% ownership stake in EDEA Europe is accounted for as an ownership in an associated company, and as such, in our financial assets. We see that the cash came in at NOK 131 million, and in addition to that, we had receivables towards Swiss Life of NOK 22 million, which is to be paid in July. Then zooming in on the cash position, we started the quarter with a cash balance of NOK 75 million. Then we received payments from SLAM of NOK 116 million in the quarter, and as I mentioned, we have a NOK 22 million receivable that is due in July. Then operational cash flow was negative NOK 54 million, working capital negative NOK 6 million, and following the portfolio sale, financing and investment items are very limited, bringing us to an end cash balance of NOK 131 million. On top of that, we have the receivable of NOK 22 million. Then I leave the floor to Andreas to take us through the summary and outlook. Where does that leave us? To sum up, it is a strong quarter of sales growth. Following the growth in Q1, we now have Q2 growth with a 15% increase in sold value. Revenue is up 22% as we keep installing fast and well. We maintain a disciplined cost base on FTEs, other OPEX, and marketing, and intend, of course, to do so going forward. The European market has been struggling. We are leading the charge in regrowth, and we are optimistic about the midterm outlook. For Otovo, it is a quarter of double growth, both in sales and in installations. We are disciplined on cost. We are eager to attack this market in quarters ahead. Now let us have a look at your questions. Okay, so first one is, can you sustain these sales improvement numbers? We are certainly doing everything we can to do that. All eyes in the company are in squeezing more sales value and more margin out of this market. We are making sure to put our marketing euros to work where they are the most effective, to direct our sales troops to the markets that are responding, and the customer types that are eager to get batteries and solar, using the most converting way of selling relative to cost. And I think we have been doing well on that progress in the last two quarters, and we see no indicators that it will not hold up into the Q3 and Q4. So, all eyes are on sales. Let us see. Have you seen any effects of the blackout in Spain on demand? Yes, as a consequence of the blackout in Portugal and Spain, we saw a massive surge in interest to our webpage and requests for information from customers. It's part of a broader trend where blackouts, heat waves, and these other extreme events in the grid and in people's home environments happen, and that drives demand for particularly batteries and storage, because I think people are more and more realizing that they need to add resilience to their home to defend against erratic power prices, erratic politicians maybe, and erratic climate and weather. Those things put together are helping the baseline of demand, and I think has been something that has helped the European market stabilize after several quarters of decline. Now, of course, we want to be leading the charge on the growing back of this market, as we've proven in two quarters, and I think we can sustain into the autumn. Please don't hesitate to submit questions to ir@investorweb.no. That's ir@investorweb.no. Feel free to do that. Any more questions? Here it is. How is a strong revenue number going to come about beyond being better and smarter at selling? Maybe we can answer this together, Petter. We need to sell more. We expect to sell more, and both in numbers of customers, the value of those customers, the margin of those customers. How will we do that? Well, we've talked a bit about our sales methodology, and that's also in our report, our views on how we're going to develop that. We also think we can add more batteries to the solar systems sold. This is the first time that the ratio of kilowatt hours to kilowatt peak of overall in Europe is above one, meaning that we're selling in a way more storage than we're selling power production, and indicate that people are adding new devices. We think also we can sell a service product on top of this. As I said in the presentation, customers have older systems, more demanding systems, operating in a more demanding grid, and having uptime on your system is important. We think we can add a recurring service revenue on that, representing added top line for us going forward. That will come with incurring limited investments, as we will use our already established sales force to sell these service contracts, and we will use our already established footprint of servicing leasing customers across Europe to also service them, these service customers. When will we see service revenue in the P&L? We are going to start selling service contracts in the autumn, so there is pretty much no delay. Once they are sold, they turn into revenue. There is no installation time on monitoring. We already monitor our systems, and we have the infrastructure to be able to roll this out relatively quickly. So, the revenues will ramp up as we are able to convert existing customers, the ecosystem of installers, customers, and the broader orphan markets to sign contracts the way we have with other sales. Your cost level seems higher than anticipated in Q2. I am sure it is higher than anticipated by me, but maybe you can comment on that, Petter. No, I think we can go through the items, right? On payroll, it is a few million NOK higher than it was in Q1. The increase is explained by share-based compensation, where we restructured our share-based program in Q1, and that has an accounting effect in Q2. If you think of just cash payroll that we paid out, that is reduced in Q2 compared to Q1. On marketing, we are better at converting marketing leads. Those leads were more expensive in Q2 compared to Q1. As Andreas said, we are continuously working through our established marketing team in Madrid to be disciplined on that cost and also to bring it down by focusing on lower-cost sources of leads. On the other OPEX, that was down from Q1, and we expect that we can push it further down by being cost-disciplined and focusing on only spending the money that we should spend. Exactly. I think for us, it is a story about growing sales, growing revenue, while maintaining very tight discipline, tight screws on the FTE count and expenses, for sure. How long can current cash reserves sustain operations? That is a function of sales, right? So, the more we sell, the more we install in the subsequent quarter, the more revenue, the more gross margin, the more cash we generate from the installation activity, and that is, of course, key. Let me reiterate the plan that we did lay out last year. It contains three things. Cut cost massively, so we are down 40% year-over-year thanks to that. Fewer employees concentrated in more efficient hubs. The second element was to flip the portfolio of leasing assets, so we converted it to cash and created a faster cash cycle on the leasing assets. We have done that. The third was to grow sales, and we are in the progress of doing that after two consecutive quarters of sales progress. The order intake keeps increasing, programming a stronger Q3 in revenues than Q2 was, and that is, of course, closing the gap. That is what we are focusing on. Anything you want to add? I think that was good. Okay, thanks for that. Unless there are some questions that have come in on other sources? No? Then I think we will allow you to return to your trading desks or emails or summer holidays. Thank you for tuning in. Buy solar panels, buy batteries, and eventually also buy our service product. Thank you for tuning in, and have a nice end to July. Enjoy the beach.