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H1/24 Results: Incremental Progress, Solid Outlook

Addressable Market - A Taste of Things to Come. Ondo reports that its addressable market is has dramatically increased since September 2022 from 0.5M households with a 10% penetration rate to an estimated 2.5M households as of September 2023 with an approximately 3% penetration rate. Including its recently announced partnership with US Top 10 Insurer Nationwide, its total addressable market is upwards of 5M households, suggesting a current penetration rate of 1.5%. If Ondo can deliver significant increase in penetration with these existing customers over the next 12 months we envisions a double benefit: a) major increases in unit sales and revenue, in addition to b) improved momentum to grow its customer base and addressable market, in particular in the US with other Top 10 Insurers, but also in Europe and elsewhere.

Financial Results: Revenue, Units Sold, Balance Sheet Trending In Right Direction. Ondo reported revenue of £1.2M for H1/24 ending September 30, 2023, up 24% yoy and up 6% vs last half year. We are inclined to view this as an incremental positive. The company shipped or sold 18,927 LeakBot units, up 61% yoy while registered customers on the platform were at 84,000, up 77% yoy and 20% since March 2023. Operating cash flows of -£1.7M compared with -£2.2M in the prior year demonstrate a solid cash flow management despite the company's growing footprint in our view. The key takeaway in our view here is the main metrics in terms of revenues and units sold continue to grow steadily albeit at a incremental rather than transformational rate in the past 6 months. In the period there were no new launches that impacted results, whereas the company did announce several new major customers during and after the period which gives us confidence of significant growth expected in the coming months. We continue to view the company's upcoming US expansion, and delivery of its existing rollouts to customers in Europe as potential game-changers that should see units sold into the hundreds of thousands of units corresponding major revenue growth over the coming 12-24 months.

Shifting to Service Revenue, Transition Period. As the company has previously noted, it is aiming to shift to a monthly service revenue model for LeakBots, rather than upfront purchase + service. The company reported upfront revenue from unit sales was flat over the prior period at £0.5M while recurring service revenue grew 50%. The company reports its recent service deals have been consistent with its pricing strategy at $5/month per unit installed. Over time we think these service revenue model deals could improve the company's consistency/stability as well as generate a potential premium valuation if contracts prove reliable.

Balance Sheet Stable, Continues to Be a Focus. The company ended the half year with £492k in cash, up from £376k in the March 2023 period owing to a total of about £1.8M in cash raised from equity financing and warrant exercise, offsetting the negative operating cash flow in the period. We expect the balance sheet strength as an ongoing focus for the company, balancing the need for cash resources with limiting dilution to shareholders.

Case Study: Ting Fire detection. Ondo's CEO Craig Foster highlighted in his comments the Ting self-install electrical fire sensor produced by Whisker Labs. Ting has signed deals with Nationwide and State Farm, another Top 10 US Insurer, and currently has approximately 500k live devices, expanding at a rate of 40-50k devices a month. This is an indication of the potential scalability of LeakBot in the US subject to its successful rollout with Nationwide and others, in our view.

Outlook - Still Early Days, But Signs Pointing in Right Direction. Ondo reports its September 2023 monthly revenue suggested a half year run rate of £1.7M, eg +40% higher than the full period. We continue to view the US rollout, along with delivery on its 5-year, £30M deal with Lansforsakringar of Sweden (still in early stages of deployment), as well as non-insurance partner business development as the key success factors over the next 12-24 months.

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