Earnings call transcript: Otovo AS sees stock surge despite Q4 2024 challenges

Otovo AS’s stock price surged by 14.29% following its Q4 2024 earnings call, despite reporting a decrease in total operating income to SEK 155 million. The company highlighted significant cost reductions and a strategic focus on expanding its product offerings in home electrification, which appears to have positively influenced investor sentiment. According to InvestingPro data, the stock has delivered an impressive 125.56% year-to-date return, though current RSI readings suggest the stock is in overbought territory. With a market capitalization of $25.06 million, Otovo operates with a moderate level of debt and maintains liquid assets exceeding short-term obligations.

Key Takeaways

• Otovo AS’s stock increased by 14.29%, closing at 2.32 SEK.
• Operating expenses were reduced by 46% year-over-year.
• The company is focusing on battery and smart home technology expansion.
• European solar market challenges were acknowledged, with growth potential identified in select markets.

Company Performance

Otovo AS reported a decrease in total operating income for Q4 2024, reflecting broader challenges in the European solar market. However, the company has made strides in cost efficiency, reducing operating expenses significantly. The strategic focus on batteries and smart home technologies is seen as a key growth driver, as Otovo positions itself as a lean player in the renewable energy sector.

Financial Highlights

• Total (EPA:TTEF) operating income: SEK 155 million (decreased year-over-year)
• Gross margins: Increased by 6 percentage points year-over-year
• Operating expenses: Reduced to SEK 97 million from SEK 180 million
• EBITDA: Negative SEK 34 million (best in recent history)
• Cash position: SEK 183 million, down from SEK 270 million
• Negative operational cash flow: SEK 79 million

Outlook & Guidance

Otovo AS is targeting significant EBITDA improvements in the medium term, with plans to increase its leasing share and reduce marketing costs. The company aims to expand its product offerings by adding more panels, batteries, and related equipment, anticipating improved consumer confidence in the coming years.

Executive Commentary

CEO Andreas Satusham emphasized the company’s strategic direction, stating, "We’re solving the defining problems of our generation." He highlighted the growing importance of batteries, noting, "Batteries are turning into the main character in the renewable transition." Satusham also expressed confidence in the company’s ability to scale without increasing headcount, stating, "We can grow volumes both in sales and installations without growing the number of employees."

Risks and Challenges

• Market Saturation: The European solar market is experiencing a synchronized decline, posing challenges for growth.
• Cash Flow: With a negative operational cash flow of SEK 79 million, managing liquidity remains a concern.
• Geographic Challenges: Otovo faces difficulties in Scandinavian, French, and Spanish markets, with operations paused in the Netherlands, Belgium, and the UK.
• Economic Conditions: Broader macroeconomic pressures could impact consumer spending and investment in renewable technologies.

Otovo AS’s strategic focus on cost reduction and product expansion, coupled with a clear vision for growth, has resonated with investors, as evidenced by the recent surge in its stock price. However, the company must navigate ongoing market challenges to sustain this momentum. InvestingPro analysis reveals that while the company maintains a healthy current ratio of 1.94, it’s currently burning through cash rapidly. Discover comprehensive insights and access the detailed Pro Research Report, available for Otovo and 1,400+ other stocks, helping investors make more informed decisions in this volatile market.

Full transcript - Otovo AS (OTOVO) Q4 2024:

Andreas Satusham, Founder and CEO, Otobo: Gentlemen, welcome to this presentation of Otobo’s Fourth Quarter Results for 2024. Today’s presenters are, my friend, Petter Irvset, CFO, and myself, Andreas Satusham, I’m founder and CEO. On today’s agenda, we have, the financial results, the business highlights, a summary and outlook before we open up for your questions and our answers at the end. So let’s turn to the financial results and look first at the installation numbers. In the fourth quarter, we installed approximately 1,200 installations.

That led to a revenue generated number just above SEK160 million, split roughly two thirds on direct sales and one third on contracted subscription revenues. When including the purchase of an Austrian leasing portfolio that we did in the quarter containing 400, systems that are similar both in content and in profitability of what we create organically, the installation numbers are, about 1,600 and you can add more than 60,000,000 kroner to contracted subscription revenue created in the quarter. Looking at the quality metrics, this was another strong quarter for battery installations came coming in at 59%, and that’s not the end of that. We’ll, double click on battery sales later in the presentation. Ticket size is holding up well and even increasing a bit.

We’re positive about the ability to influence this in 2025 to our advantage. The subscription share is down a bit in Q4, but with the transaction that we announced on Friday and the strong profitability and cash flow effects that we see in this segment, we’ll definitely lean into it. And we believe we can increase that share to 50% and, beyond in the medium term. In terms of profitability, gross margin keeps expanding. It’s another record quarter for us.

We’re proud of that and, also feel capable of expanding gross margins, on the trends going forward. Looking at the sales numbers, the organic sales came in at just above 1,000. Here we should also add the about 400 systems acquired through the Austrian transaction, bringing the total to about 1,400. What is going to trigger future sales growth in 2025? Well, let’s look at this a bit country group by country group.

We have the solid performers that we’ve seen strong throughout 2024, even as the European market was in turmoil and decline. That’s Portugal, Poland, and Italy. We believe in our ability and these market strengths in 2025. We also see potential in German speaking Europe markets in which we traditionally have had quite low market share, but where we can gain market share in a, even a difficult market. And we have strong belief in this market now in 2025.

Then there are markets where we have strong market shares, but where the macro environment is disadvantageous. That’s Scandinavia, France, and Spain. Here, we believe that here triggers can really boost sales and, and the stronger consumer environment or boosts in electricity prices can be positives that lift our sales. Then we have three paused markets where we’re not currently investing. That’s Netherlands, Belgium, and The UK.

We maintain the presence and are able to go back quickly to these markets when we see that as a, advantageous for us. And then lastly, batteries is a increasing growth vector for us. We’ll also double click on that later in the presentation, but lower battery costs, stronger battery capabilities are boosting consumer demand, and we can sell to our own existing customers, to new customer segments, to, solar buyers, and to the about what, 10,000,000 homes in Europe that have solar panels, but don’t have a battery and should have one. Those are the growth vectors. Now over to my, no, I have one more slide and that’s the, products, that we sell to customers.

In the quarter, we sold, just above 1,800 products and you can see the share of, products that are batteries or, smart content is increasing, showing that we are helping consumers doing more in their home in terms of electrifying, heating, cooking or their transport. And this is something that we will expand also in the year ahead. Now over to you, Petit.

Petter Irvset, CFO, Otobo: Then looking at income statement. Total operating income decreased to SEK 155,000,000 year over year. The decrease is in line with insulation activity, while sequentially quarter over quarter, it’s flat as we get the benefit from the acquisition of the Austrian subscription portfolio. COGS is down more than installations or revenue, and the reason for that is that we keep expanding our gross margins. Gross margins are up six percentage points year over year, three percentage points quarter over quarter.

But please note that roughly two percentage points of this increase is due to onetime effects. OpEx reduced significantly as the impact of the cost program materialized. And we see that the costs have come down from $180,000,000 1 year ago to $97,000,000 in this quarter, a reduction of 46%. Payroll is driving the majority of the decrease, but we also see marketing decreasing. And we expect that the trend in cost declines in payroll will continue into the first quarter, and we will focus on also driving down other cost elements.

That results in a EBITDA of negative 34,000,000, which is record best in recent auto history, and we are working on plugging the hole to get EBITDA to be positive. Then turning over to the balance sheet. Their noncurrent assets came in at SEK $825,000,000. That increase is due to more subscription customers and also the acquisition of the Austrian subscription portfolio. Working capital, both on the asset and liability side, contracted.

That had an adverse effect and tied up 24,000,000 in cash. And cash stood at 183,000,000 at the end of the quarter. It started at $270,000,000. The negative operational cash flow was NOK 79,000,000. Investments in SPV had a positive effect of NOK 2,000,000 as we drew more on the credit facility than we invested.

The acquisition of the Austrian subscription assets was also financed with debt, so neutral on cash. And we had other items, reducing cash with NOK 10,000,000, leading to a exit cash of NOK 183,000,000. Then last Friday, we also announced that we have entered into a definitive agreement to sell our portfolio of Continental subscription assets, and that will free up around SEK 155,000,000 in cash in the first quarter. Then turning over to Andreas for a business update about the new Atovo.

Andreas Satusham, Founder and CEO, Otobo: Yes. And as we dive into the new Atovo, let’s look at how we came to where we are now. Atovo’s history has been through three phases, and we’re now starting a fourth. The first phase was about inventing the product, making sure it worked, and that our hypothesis that solar panels and batteries should be sold online could work. We proved that in Norway, in 2016 to 2018, And then we took the show on the road expanding to 13 countries across Europe in rapid scaling into multiple geographies.

That period peaked at the high of the energy crisis, after which we saw all markets in Europe going into a synchronized decline in 2023 and 2024. That led to a period of consolidation, bankruptcies and cost cutting, affecting the whole industry. And we had to adapt to a new environment. And what does that new Atovo look like in a new environment? Well, this is an Atovo that is, the leanest pan European originator of solar and battery assets for the home.

We’ve reduced costs by about 200,000,000, taking down the, cost of operating in a new environment. We’ve, monetized our leasing portfolio, moving from an investment phase to an harvest phase in terms of the, subscription, assets. And we now work on growing sales, both in volumes, number of customers, and the value per customer, the ticket size. And those things combined to becoming profitable on the running basis. Now let’s have a look at the individual components here.

First, what do we do in terms of adjusting, the organization? Well, first of all, we reduced the number of offices, from 13 to eight. We co located our marketing operations and accounting staff in Madrid, creating a stronger, environment, a good talent pool and a more efficient, operating base. We cut approximately 200 positions, and rehired in the desired locations. And, since the offices we, withdrew from were in locations with higher taxes and higher payroll, this also helped to reduce average cost per FTE.

Today, we have approximately 40% of Atovo’s employees located in Madrid on Spanish taxation and Spanish terms. And we’re working with this group and the other offices across Europe, to improve efficiency. And that means that we can grow volumes both in sales and installations without growing the number of employees. And that will be a focus of ours in 2025. Now Petri, if you could take us through the transaction that we announced on Friday, what happened?

Happy to

Petter Irvset, CFO, Otobo: do that. So on Friday, we announced a definitive agreement to sell our portfolio of Continental subscription customers to Swiss Life (SIX:SLHN) Asset Managers. That is the same buyer who also bought our subscription portfolios in Norway and Sweden in 2023. We, of course, see that as a testament to the quality of the portfolios that we have built that we are able to sell again to the same buyer. The portfolio has, the transaction has two components.

It is a first clause that will happen now, which is a sale of the vintages built between 2020 and 2024. That has a transaction value of around 50,000,000. We will repay debt of 31,000,000. We will have a retained equity component to align interests with the buyer, leading to a net cash effect of 30,000,000. Then they will continue to sell new subscription customers as we have done in the last couple of years, and we will sell them to Swiss Life.

The volume expected until third quarter twenty twenty six is around 55,000,000. Those customers will have a average gross margin today of 32%. And what is new from before is that revenue recognition will be instant as we sell Devon recognize Devon instead of recognizing over the lifetime of the customer’s contracts.

Andreas Satusham, Founder and CEO, Otobo: So basically, it’s a cash release and profit taking from the leasing portfolio here and now, and it’s a continuous positive cash flow on sales of leasing assets to Swiss Life in 2025 and 2026. This leaves Atovo with essentially two customer segments. It’s the, the simple direct sales customer, where the customer pays us and we pay the installer taking a margin in between. And that represents about, 76% of our sales in the fourth quarter, percentage that we see declining and going into, 2025. It’s a segment that has a margin of about 23% in this quarter.

And then it’s the subscription segment, essentially a b to b to c segment where Swiss Life sits at the ultimate end of contracts that we, create towards consumers across Europe, homeowners across Europe. It has two components, a Scandinavian component that we transacted on in 2023, and then the European assets that are, part of this new agreement that Petr just described. And as you can see, these new contracts have now the strongest margin of all our segments at 32%. And obviously, as a management, we’ll lean into that and make the share of sales happening in that segment grow in the year ahead. You’ll hear us talk a lot about being able to sell more to existing customers.

And one strong driver of that is the fantastic development that’s happening with batteries currently. Now, almost every month we see costs coming down on, batteries. It’s a tremendous trend. That’s probably stronger than what we’ve seen on solar and on wind until now. And that puts batteries into, a profitable state to do more interesting things for the customer.

It can power their home through outages. It can move their solar production daytime to the evening time, or it can help them arbitrage on fluctuations in the in the grid, day ahead prices, etcetera. Although this boosts consumer demand and that is a powerful force that drives our ability to sell batteries to more consumers. In the fourth quarter, ’60 ’5 percent of customers chose to add the battery to their purchase. It’s a number we see increasing towards a hundred in in the medium term.

And as a CEO, sometimes you need to push the KPIs. Other times they come, by themselves. And these battery numbers really have very, very strong momentum. And it’s a it’s a segment that is turning into the main character in the renewable transition. Very, very positive about that.

We’re all batteries. We do love batteries. Now, let’s close the bag and look at how these things combine. Now, as a management, we’ve been focused on improving the financial health of Otobo and its profitability. We’ve created a plan with multiple tracks.

The first parts of that was to reduce costs and to transact the portfolio, through this portfolio, sale with, with a forward flow. If you look at the top part of this slide, you’ll see that initiatives from these two elements combined to almost 200 millions in EBITDA improvements compared to, the full year 2024. We’ll carry that with us into 2025, but we’re not done. We will work on increasing the leasing share, a segment that is now more profitable than the direct sales, that has potential for further improvements. We’ll work on reducing our marketing cost per sale through more cheap sources of marketing and converting those in a better way.

We also know that we can influence the ticket size. That’s the revenue per user by adding more panels, more batteries, more equipment to each consumer. And you can see our excitement about that. And then finally, and there is certainly room for improvement in, sales, volumes. We see a set of markets that are becoming more healthy.

We see growth potential in markets where we’ve had, weaker market shares in the past. And overall, we see consumer confidence increasing in our category as, as people see interest rates coming down and their mortgages being more affordable, they can again invest in electrifying their homes. These things combined to a plan that can yield between 300 and almost 500,000,000 kronor in EBITDA improvements in the medium term, and we’ll be rolling up our sleeves to do that. What will you be left with as shareholders and investors? Well, it’s exposure to really the mega trends in the huge markets.

Otobo is still solving the defining problems of our generation. We’re doing it in, on the basis of the best online infrastructure combined with a really lean cost structure. And we have a unique ability, to create pan European leasing assets, for solar, for battery, for Evie chargers and for, for heat pumps. We’re really one of a kind, that are able to do that. That creates a positive asymmetric risk into really transformative years in the European energy transition.

And with that, our prepared remarks are done and we’ll open up for your questions in the chat. Okay. So looking at the chat here, looks like you’re letting us off the hook early and then I guess, Petri, it’s just for us to to roll up our sleeves and get into the business of growing this shop in 2025. Thank you for listening.

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