Otovo ASA (OTOVO) Earnings Call Transcript

Welcome to Otovo's Second Quarter 2026 Results Presentation. I'm Rodney McMahan, Head of Investor Relations. Joining me today are John Berger, Chief Executive Officer; and Jennifer Santoscoy, Chief Financial Officer. Before we begin, please review the disclaimer on Slide 2. Today's presentation contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. With that, I'll hand over to John.

Thank you, and good morning, everyone. I'll start with the headline numbers for the quarter, then walk you through Otovo 2.0, what this company is now and why the model works. Jennifer will take you through the financials. I'll come back from the business highlights, and we'll close with outlook and guidance before opening for questions. Q2 and specifically the month of June marked a point of transition. Total revenue was $10 million, up 8% quarter-on-quarter at constant currency, and that's despite deliberately winding down the Legacy Newbuild Business. The engine that increased that number is Field Services Revenue, which grew approximately 200% sequentially at constant currency on the ramp-up of the service businesses and the consolidation of EnergyAid. Adjusted group gross profit moved up 28% quarter-on-quarter on improved revenue mix consisting of an increase in field services revenue. Adjusted OpEx was down 9% quarter-on-quarter at constant currency even while absorbing EnergyAid, thanks to cost reductions. Adjusted EBITDA improved $1.1 million sequentially at constant currency and $1.5 million year-on-year. But the story for the second quarter was our execution, especially in the month of June as during the month, we integrated EnergyAid quickly, saw additional significant Endurance-driven cost cuts and U.S. sales moved materially higher. U.S. sales towards the end of July were materially higher and continue to grow at a torrid pace. Equally important, the steps we took in the second quarter are poised to drive a strong second half for Otovo when the financial benefits take hold, leading to the increase in guidance I'll discuss later in the call. It is possible that the combination of rapidly increasing sales in the United States and cost cuts due to Endurance being deployed in the global areas of sales, customer support, procurement, scheduling and dispatch and marketing have moved us into adjusted EBITDA positive over the last few days. With new acquisitions soon being added to the mix, we expect to see similar success in Europe in the coming weeks, thereby cementing our profitability and unlocking operating leverage resulting in significant cash flow potential. In addition, we are hiring additional technicians in the U.S. and Europe to handle the increase in growth without having to add support staff, thanks to Endurance. These strong tailwinds have continued into Q3 and are expected to grow even stronger in Q4. On the business side, approximately 55,000 customers as of 31 July, up over 80% from Q1 and up over 200% from the end of 2025, and the Endurance rollout remains on track for company-wide completion in Q3. We identified more than $1 million of cost avoidance from Endurance this quarter, taking the total well above USD 5 million. And we recently closed the SST acquisition, announced the Green Panel acquisition and have 3 additional acquisitions, 1 in the U.S. and 2 in Europe expected to be announced in the coming days and weeks. Let me frame what this company is now because it is a different business than the one many of you first knew. Otovo is an AI-native behind-the-meter energy services company servicing homes and businesses in Europe and United States. We combine equipment monitoring, rapid repairs, dependable power supply and grid participation into one service. Endurance, Otovo's AI platform monitors installed equipment, optimizes service from problem detection to resolution and coordinates repairs around the clock. For 2026, we're guiding to $105 million to $115 million of revenue, an increase of $25 million from our last guide last quarter. And $15 million to $20 million of adjusted EBITDA, an increase of $12.5 million, both on a Q4 annualized run rate basis. Three things make this work. First, a large orphaned installed base, over 37 million behind-the-meter power asset installations across Europe and the United States, of which more than 13 million have no service partner to call because roughly half of installers have gone bankrupt or exited. Second, Endurance, our margin engine, which automates intake, diagnosis, dispatch and scheduling and which we expect to lift EBIT margins from a 10% to 20% industry average into the 20% to 30% range. Third, we are a proven consolidator. 7 deals have been closed and integrated since the December 2025 merger with 4 additional transactions, including the announced Green Panel deal, expected to close this year. Step back and there are 3 secular waves converging here, and they reinforce each other. Power, a long-term global bull market in behind-the-meter energy driven by AI, electrification, data centers and reshoring. Service, U.S. home services, HVAC, pool, pest, plumbing are consolidating for scale. In our category, the installer collapse has left an orphan gap of over 13 million customers. And AI, applied AI is the next phase of the megatrend, and it drives real productivity gains in service businesses. Otovo converts that into margin through Endurance. You rarely get the sit at the intersection of 3 tailwinds at once. We do. To size it, 37 million-plus installations across the U.S. and Europe, more than 13 million orphaned customers and annual service TAM north of $55 billion, and the supply side is fragmented and distressed. In the U.S. alone, there are an estimated 300 service-only companies and over 10,000 installers with some service operations, most running expensive SaaS software stacks and serving one local market. Roughly half of the residential solar installers operating in 2020 have gone bankrupt or exited. Depressed valuations plus stranded customers are close to an ideal M&A environment, and we are moving through it deliberately. The unit economics are straightforward. 5 revenue streams per customer, targeting roughly $1,400 of annual average revenue per user in residential at a 45% blended gross margin. The Otovo Care membership monitoring plus fast response access is about $250 of that. Repairs and Field Service, billed per job with priority response for members is the largest piece at roughly $650. Equipment upgrades, batteries, EV chargers, load management is around $400. Then retail power and VPP/grid services is on top. On the commercial side, average revenue per user is closer to $4,900. One clarification we always make. Otovo Care is not a warranty and not insurance. It's monitoring, priority response and repair discounts. The bundle exists because service earns loyalty and loyalty is what makes upgrades, retail and VPP land at high margin. Endurance is one proprietary tech stack with AI agents running across every part of the business. Marketing, sales, operations and supply chain. For security control, we utilize our own servers with continuous internal audits and full lockdown capability. What that means in practice is one record per customer, work orders, appointments, membership, territory and billing on a single screen, on one proprietary data layer. And the AI does the work. Every call, e-mail and text on one thread with Endurance confirming the inspection appointment with the customer itself unprompted. Our vision is that the technician becomes the only human touch point for our customers. The cost impact identified to date is over $5 million annualized and growing. These are distinct and nonoverlapping. We expect the number to keep rising with both organic and inorganic growth. One more point, Endurance now improves its own software. System issues and feature requests are picked up, investigated, fixed and merged by the platform itself. 1,113 of 1,362 actionable engineering tickets resolved and 696 code changes merged in the last 30 days. The team sets the direction, the system does the work. Three growth channels ranked by impact. First, M&A, rolling up service companies and customer books. We acquire local service companies and get vans, technicians and customer contracts in one stroke. We buy customer books from failed installers at cents on the dollar, and we deploy Endurance post close to strip out SaaS, dispatch and call center costs. Second, OEM and asset owner deals, multi-geography contracts with OEMs, solar funds, utilities and leasing platforms. Each new geography compounds the value of the relationships we already have. Third, direct organic acquisition into our 1.9 million legacy customers inherited from predecessor brands and companies. Slide 16 sets out our strategic transactions. Green Panel is our latest announced transaction that will greatly bolster our European operations with a purchase price of $11 million against 2026 expected revenue of approximately $12.8 million and EBIT of approximately $2.9 million. While it is Israel's #1 solar O&M provider, Green Panel reaches well beyond Asia into the attractive European markets of Austria, Italy and Hungary with around 280 megawatts under management and roughly 100 commercial and industrial customers. Its O&M playbook is directly transferable to our U.S. and European markets and is expected to close in Q3. With that, I'll hand the call over to Jennifer for the financials.

Thank you, John, and good morning, everyone. Revenue in Q2 was $10 million, up 8% versus the first quarter at constant currency. Field services contributed $3.3 million, up approximately 200%. Recurring services was $600,000, up 20% at constant currency, driven by subscription growth. We continue to shift our focus from Newbuilds to Service and the migration of the continuing new build business from installation to upgrades. Looking forward, we expect service revenues to accelerate into the third quarter with SST now closed and 4 other M&A transactions expected later this year. Recurring services will continue to grow alongside the subscriber base. Adjusted gross profit for the group was up 28% quarter-on-quarter on improved revenue mix and the trajectory throughout the quarter was positive. Adjusted OpEx was $6.8 million, down 9% quarter-on-quarter at constant currency as cost reductions more than offset the consolidation of EnergyAid. Onetime costs included $1.1 million of severance and M&A plus $900,000 of noncash expenses. Adjusted EBITDA was negative $4.5 million, an improvement of $1.1 million sequentially at constant currency and an improvement of $1.5 million year-on-year. For me, I think this is one of the most interesting slides in the deck. Field Services gross margin was 18% in the second quarter versus negative 12% in the first quarter. This is a 30-point swing in a single quarter. The June margin was 34%, and our model forecasts gross margin approaching 45% at the end of 2026. Operating cost per customer is being reset structurally. For the second half of 2026, we expect OpEx per customer of approximately $402. That's a significant decline from the $1,268 we saw in the first half of 2025. Cash was $3.9 million at the end of the second quarter, down $15.6 million at the end of the first quarter after funding the cash portion of EnergyAid and onetime M&A and severance payments and operating losses. Since quarter end, the July raise added approximately $7 million. The numbers have been converted from NOK to U.S. dollars at the fixed rate of NOK 9.424 per USD. On the same fixed rate basis, total equity rose 11% quarter-on-quarter to $36.4 million, reflecting shares issued as consideration for EnergyAid, partially offset by period losses. Total assets were $56.9 million and total liabilities were $20.5 million, of which other current liabilities of $7.2 million included $5.9 million of trade payables. I'll hand back to John for the business highlights.

Thank you, Jennifer. We ended 2025 with 18,000 customers. As of 31 July, we're at approximately 55,000 customers, driven by acquisitions and organic growth in existing markets. We're targeting 90,000 by year-end 2026, raised from 60,000, then 170,000 by year-end 2027 and 275,000 by year-end 2028, all net of churn. The logic is density, cover the top solar markets in the U.S. and Europe, build density in each and every incremental customer costs less to serve than the last. The rollout is on schedule. Platform build and migrations completed across Q4 '25 and first half '26. Rollout is underway across all organizations and acquisitions to date. Company-wide completion and Legacy SaaS retirement in Q3 with savings landed visibly in the P&L in Q4. Identified savings are now well over $5 million annualized, up from about $4 million in Q1, and we regard that as subject to upward revision. Technicians are the revenue engine, so we track the ratio closely. Since the start of the year, the technician share of our workforce has risen sharply. And by year-end, we modeled technicians to become more than half of all FTEs. That shift from overhead heavy to technician heavy is the whole thesis in one metric. The transformation is well underway, cutting costs while accelerating an already profitable service business. Slide 27 bridges where we are today to the Q4 annualized run rate we're guiding to. What breaks the cost curve is AI. The traditional relationship between field and office labor has been severed by aggressive Endurance deployment delivered by a 6-person core AI team with an M&A integration cadence of roughly 3 weeks. Revenue, excluding Newbuild, is expected to rise to $27.5 million in Q4, more than 7x what was reported in Q2, while core G&A slightly declined over the same period of time. As I noted earlier, it's the steps we have taken to date that gives us confidence in such strong financial growth in such a short period of time. It is expected to materialize in our numbers once severance is paid out and reductions from SaaS terminations and office terminations take hold. Accordingly, we are raising guidance. Revenue, $105 million to $115 million, up from $80 million to $90 million. Adjusted EBITDA $15 million to $20 million, up from $2.5 million to $7.5 million. Year-end customers, 90,000 net of churn, raised from $60,000. These are Q4 annualized run rate figures include Green Panel full effect from Q4, 3 additional smaller acquisitions in 2026 that are near LOI, more B2B potential, incremental Endurance savings and a faster legacy business wind down. On the pipeline, we are in active definitive discussions with 5 companies representing over $118 million of revenue potential and over $18 million of EBIT potential, with a further short list of 4 companies representing more than $17 million of revenue potential. Front and center of this pipeline are 3 companies I just mentioned, 2 European and 1 American that are expected to have letters of intent in the coming days at attractive multiples. These 3 additions plus Green Panel as well as our organic growth further increase our number of techs in the field, thus increasing our operating capacity both in the United States and Europe. In addition, this additional M&A and organic growth is expected to be highly accretive to both our adjusted EBITDA and net income, well positioning Otovo for 2027. And we expect the M&A landscape to remain robust beyond 2026 and based on what we have closed to date, will generate more cost savings than expected. To recap, Otovo is a leader in using AI to break the cost curve by ending the age-old practice of having to add significant office personnel when the in-the-field labor skyrockets to meet the surging demand. We're capturing the addressable market through aggressive acquisitions at attractive multiples. Costs continue to come down, driven by our Endurance platform, and we look forward to connecting with you on future earnings calls when the benefits of the changes made earlier this year comes to fruition as made clear in the financial statements. Now we'll take questions. If you'd like to ask a question, please use the chat feature.

Okay, John, our first question comes from Philip Shen of ROTH Capital. Can you expand on your approach to acquisitions and how your Endurance platform is one of the fundamental drivers of value creation of your strategy?

Yes. Thank you for the question. When you look at Endurance, what it can do is essentially take the SaaS or what we call Software-as-a-Service cost and the associated staffing of that software out of the equation. But also what it goes to is we can create agents and have created agents to take the cost out of the office staff for more efficiency in customer support, scheduling and dispatch, marketing, et cetera. What this has enabled us to do is take out quite a bit of cost structure, but also we have begun to be able to sell to customers directly as well. And that has an additional reduction in our customer acquisition cost and improved customer service. And indeed, this week, we started to automate our scheduling and dispatch in a way that no human could do just because of the complexity of it, and our customers were able to be better served by being able to pick the time and date that they wanted to be served.

Thanks, John. Can you elaborate on what you're doing and how it compares with what some private equity firms are trying to do? AI is the great equalizer, enabling anyone from developing world-class code. If it is so easy to code the Endurance software, why can't anyone simply replicate your strategy? What is and will be your enduring competitive advantage?

Good question. Never said it was easy to do. It's certainly a lot of work that goes into putting the software together in the first place. But Endurance is more than just software. Endurance is, again, creating agents and using the Agentic AI to go and do tasks that were formally done by humans, people, staffing, but also be able to serve the customers better. We have a lot of room to go and to serve our customers better. And the industry as a whole has been very deficient in service. So we're quite a bit focused on and very focused on serving the customer. If. You look at what other private equity or private equity companies have done, implementing AI is tough. It's very tough. It's not just developing software. It's not just developing agents. It's restructuring the entire company and organization around AI. That's very, very difficult to do as a large-scale company. So what you've seen some private equity firms do is start to roll up certain service industries and then look at how they take a small AI team, just like Otovo has done and inject them into the company as they're acquiring these other companies to essentially create just as we have done at Otovo, an AI-enabled company from the ground up. This is very difficult to perform, execute. There is obviously an ability to do it with other competitors, and we expect to do that. But we are far ahead of the competition at this point in time. When you look at our footprint, geographic footprint and the size, nobody is bigger and behind-the-meter power services than Otovo and globally. This gives us a huge benefit with acquiring customers and partners such as large manufacturers of equipment, large asset owners of solar generator and other assets behind-the-meter for both residential and commercial. So we have a huge competitive lead at this point in time.

Thank you, John. Next question. You recently highlighted how you're taking out as many as 60 SaaS packages, including Salesforce and DocuSign. Can you provide some additional color on what happens when you acquire a new service company in a new region? How do you integrate? How long does it take to wean the target company off its software systems? And how long does it take to make a full transition to the Endurance platform? What are some of the problems that can arise from the transition? And how do you deal with them?

Thank you. That's a lot of questions, Rodney. Let me take each one of those. When we acquire a company, we've been able to take the acquisition from the signing into almost complete, if not complete, integration within about 3 weeks. So right away, we transfer and rip out all of the SaaS and software and we put Endurance in its place. That puts all of the data in one repository for the company and then have everybody working on the same system. So this immediately provides quite a bit of integration with regards to the staffing of the new company in with Otovo, but it also brings everybody together on one single platform as well as our new customers onto one single platform. So when you look at weaning, there's not much weaning that goes on. It's pretty rapid, and that pushes us ahead very, very quickly. What that also does is the relationships that come with these new members of the Otovo family, we're able to take those relationships and spread them over the wide geography that now Otovo has. And as we continue to increase our geography -- geographic footprint rather, then we're able to take those relationships and further grow our sales. That's a lot of what you've seen in July and so far in August, which is taking relationships, multiplying those relationships over wider geographies and then continue to increase the growth of that base by further -- when you have Otovo as being a brand name, further marketing the company, building that brand up, and we're seeing a lot of traction in a growing number of our geographies with business to customer directly -- to consumer directly, sorry. What are some of the problems that can arise in the transition? Any time you do integration, there's always going to be issues. And what we have to do is just work with those issues very quickly. We are very fortunate that all of our acquisitions come with some good leaders, and we're able to take those leaders and integrate them into the management team. And of course, our technicians, every acquisition is coming with more fantastic technicians that will add to our base. Having that welcomed new great leadership and great technicians and other people into the company really helps us smooth over any sort of issues that are inevitably going to come by doing acquisitions and in such a rapid fashion as we're doing now.

Thank you, John. Next question. Do you foresee further capital increases in the coming 12 months? If yes, which are the approximate amounts and the planned use of the proceeds?

Well, I can't answer legally the questions, the approximate amounts or plans to use of proceeds, of course. But what I will say is we've had a very consistent strategy of searching out and finding very low multiple or very value-oriented acquisitions accretive -- highly accretive, especially in the near term. And when you are doing that, we've also been very clear that we would be very disciplined in our capital. So we are not going to take on a whole lot of debt to do that. And we have been able to use a lot of our stock as currency in these acquisitions. We continue to see more and more of the availability of doing that in these acquisitions. But we will continue to make sure that we have the appropriate amount of equity and again, avoid certainly a large-scale amount of debt -- any debt in these acquisitions. So I think the capital discipline strategy is in place and has been working quite well, and we're going to continue to follow that.