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Update: Ondo FY'23 Results Webinar Review

Ondo delivered a solid FY'23 results webinar. Key highlights as follows:

Reiterating key strategy shift to Service model:

  • Historically, insurance partner deals incorporate a sale of the LeakBot unit, plus ongoing service revenue ( the 'Upfront & Service Model' tends to result in higher immediate revenue, but lower long-term margins and lower life of customer Net Present Value)

  • The company is now focusing on shifting to a packaged monthly subscription model, the 'Service Only Model', where the unit is provided free of charge, but insurance partners pay a monthly service fee including a prepayment. This results in lower upfront revenue but higher long-term margins and higher life of customer Net Present Value

  • We estimate a pre-tax NPV at 8% of £124 per unit in the Service Only Model, vs £69 in the Upfront & Service Model. Details in our full initiation report HERE

Key Near-term drivers we will be following:

  • The rollout of Länsförsäkringar, targeting up to 2M customers in Sweden during FY 2024 and beyond

  • The rollout of of LB Forsikring, with 120-140k customers (minimum contract of 10k units, of which 7k units have already been installed)

  • US Rollout - Few details released on the call but we expect Ondo to focus on America as its key growth market this year. The US insurance market is by far largest in scale (about $130B total, and we estimate over 80M households in America are potential customers). The insurance cost in America, at an average of nearly $13,000 per annum premiums, also presents a significant margin opportunity per customer for Ondo

  • Potential to monetize APIs from device data. This is early days and we will wait to hear more information on this possible revenue stream

Understanding the Moat:

  • The company has 29 patents protecting its product and strategy, but also highlights the know-how on how to optimize the product, installation and fine-tuning are also barriers to entry for competitors

  • Existing competitor products tend to be expensive (requiring plumber to install), as well as inconvenient (installation on pipes behind walls in numerous places)

  • LeakBot is self-installed, and repairs are included in the customer subscription, an attractive deal relative to competitors

Near-term constraints:

  • The company believes its manufacturing capacity, plus the option to bring on additional contract manufacturing should be sufficient to supply its medium-term growth plans. Existing capacity is up to 20k units per month (ie more than 4x its FY2023 unit sales), with potential ability to more than double that

  • Balance sheet and working capital - little discussion on the call, but we estimate the company has a current cash balance of £700-800k post the recent equity financing and warrant conversions. The company has an additional nearly £6M of unexercised warrants well in-the-money with exercise prices averaging £0.21/sh (current share price ~£0.35/sh). We think the company's growth efforts will include requiring new insurance partners prepayments for its expansion, which should be a major alleviator on the working capital burden. In the near-term we view the balance sheet strength as a key focus

This is not investment advice, please read our terms of service HERE

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