Otovo ASA (OTOVO) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Otovo's Market Update. My name is Anders Rønold, responsible for Investor Relations. Today's presenters are Andreas Thorsheim, Founder and CEO; Cecilie Weltz, CEO of EDEA; Lars Ekeland, CFO; and Christian Rahn, General Manager in Germany. Today's agenda is a strategic update before we will give an update on our launch in Germany, the October 1 EDEA transaction, our new reporting metrics as well as value creation from our leasing business. If you have any questions during the presentation, please share them in the chat, and we will answer them towards the end. Andreas?

So let's start with the strategic update. For new listeners, Otovo is a marketplace for solar and battery installations. And our aim is to put solar panels and batteries into every home in Europe. Solar energy in the domestic sector has several benefits. For society, it's a conflict-free low-impact energy form that increases access to affordable power. It's also an energy type that is very fast in deployment and can help on grid stabilization and resilience. For the consumer individually, solar power is valuable behind the meter electricity. It's electricity that is produced is worth the most. It's electricity that not only competes against the wholesale price of electricity but also has the benefit of being tax-free and free of grid charges. It's an energy form that can avoid expensive peaks in grid electricity. And it's a way for consumers to save money as well as introducing a 30-year hedge on the volatility of electricity prices. And the lifetime cost of energy on the PV system generally beats the retail price of electricity all across Europe. Now the way we address this market is through an online marketplace. And the clicker isn't working here for a little while. Don't mind hanging on. We want to be the easiest way for homeowners to go solar. The way that works is that consumers will enter our web page on otovo.no, .se, .es or any of the other country sites that we have. They will input their address and the software will automatically design the perfect system on that particular address. Now where we have an edge is that we will have, before this happens, recruited several hundred installers who have imputed their cost of hardware, labor, driving, scaffolding, et cetera. And we will combine the attributes of the home with the cost of the installers to do an instant bidding. That auction generates one winning bid, and based on that cost that we create the price that is visible to the consumer on the web page. And so that means by going into a Otovo, entering your address, you'll get the price of your system out automatically. It's as easy as buying a shirt or a pair of shoes online. When we say that we're a marketplace is because we combine buyers and sellers. On the buy side, we have consumers in search of a project with an installer that they can trust. They want solar panels on their roof. They want batteries in their garage, and they want to find out who can provide that for them. Otovo does that by having recruited several hundred installers from the north of Europe to the south of Spain from the east of Poland to the west of France that are good workmen, who respect HSEQ requirements, who offer competitive prices at high quality. And what these guys want is good business from a serious counterpart, and that's us. So we combined these 2 things in the Otovo marketplace platform. For consumers, there's 2 ways to buy solar panels. You can buy them instantly by paying upfront and about 80% -- 75% to 80% of consumers choose to do so or you could enter into a subscription. That's a lease or service agreement in which you commit yourself to buying -- to paying for the service and lease over a 20-year period. Otovo will own the system, and the consumer will avoid upfront cost because he doesn't want to or can't prioritize the upfront cost, and we contract a 20-year series of monthly payments. 20% to 25% of consumers choose to do so. And our ambition for 2022 and going forward is, of course, to increase that share of business coming from subscriptions. Now I've set the scene on what Otovo is. Now I'm going to go a bit into the present moment. And we feel that the time for solar really is now. We are flying with very strong tailwinds in the shape of strong megatrends that facilitate the transition to residential clean energy. First among those is the price of hardware. That, over the last 30, 40 years, has kept coming down. And even with bumps in the road, the trend is very clear. The cost of solar power and the cost of solar equipment, the cost of battery equipment is just coming down. At the same time, the energy that consumers are kind of competing against is getting more expensive and more volatile. We're seeing that across Europe this autumn and winter. And the combination of these two things means that consumers are seeing increased savings, and we're seeing increased demand for solar energy. In addition to these 2 trends, we see that households in Europe are increasingly electrifying their consumption of energy. EV penetration is going up, houses are moving from gas heating to -- and gas cooking to electric heating and cooking. And overall, we're seeing the demand for electric installations increasing. A fourth trend is the move from online or big-ticket purchases. This is a market that is essentially offline. 10 years ago, all cars and all major home improvement services were sold offline. But we're now seeing that a new generation of consumers trust online outlets to do their big-ticket purchases. In fact, they'd rather trust a new national or pan-European brand than a handyman that they don't know. So these 4 trends combine tremendous tailwinds for Otovo. The way we plan to capture that opportunity is threefold. First, our platform is exceptionally good at scaling. We can enter new markets at relatively low capital cost with a relatively low risk and can go extremely fast in capturing increased demand in European markets. Over the span over the last 12 months, we've entered 3 major European markets, Poland, Italy and Germany. And that has given us appetite and self-confidence in our ability to enter new markets. On the product side, batteries is a product that really is our darling of 2022. Coming from almost nowhere, the cost of hardware in the battery space has put batteries at the front of the energy transition stage in Europe. Residential energy storage is a big topic that will enable grid services and offer energy management opportunities to households in coming years. And just as important, the move to subscriptions, is tremendously important. It's leasing and servicing agreements with consumers that expand the total addressable markets from only the households that can afford the upfront cost of solar energy to all those who meet the barrier in the initial investments going solar. And we believe this is a tremendous opportunity in providing affordable energy to European households [indiscernible] energy prices. So let's zoom in on these 3 one at a time. First, our ability to enter new markets. Otovo is now a pan-European market place. We can do installations in Norway in the south of Italy, in France, in Germany and in Poland. The market that we're in is one where there's 600,000 installations this year alone, and all those markets are growing quite strongly. They make up about half of the European residential market, and we believe there's still a few attractive markets left in the European space to compete for. Now a product that we're really enthusiastic about in 2022 is batteries. We included batteries as part of the lineup when entering Italy in Q2, and it gave us tremendous appetite for more. In Q3, we included batteries in Spain. And now in Q4, Germany will launch with batteries as part of the lineup. In fact, we passed the 50% mark of attachment rates in Italy during this quarter. In Spain, we've passed 10% and growing. And in Germany, the initial sales are at 80% of sales are being done with a battery attached. When we did our Q3 reporting, we're just below the 50% mark in the number of systems that had a battery attached in Italy. But we already saw how that impacted our ticket size. A system sold without batteries commended a ticket price of EUR 8,000. But when consumers added a battery to their basket when buying online, the price doubled. And we're seeing the same effect pretty much a doubling of ticket sizes when going from stand-alone PV systems to batteries in all markets. And that's why we will add also Sweden, France and Poland to the battery line up over the next few months. This is a product that we're very excited about. And to our consumers. The case for consumers is that the battery can really do 3 jobs for you. One is it can extend the usefulness of your solar system. It can provide energy for more hours of the day, than the sun is up in that way, increasing the self-sufficiency of consumers who have solar and battery. The second useful use of a battery is to create emergency power. It means you can keep operating the electric system in your house in the case of an outage. And the third use is to increase our savings either by arbitraging fluctuations intraday in the wholesale price of electricity by avoiding grid -- or avoiding grid tariffs or creating a higher value of the electricity of your solar system. Put together, batteries can help you remove grid power prices by 90%. In a way, we're approaching the end of the beginning of distributed energy in the residential sector. Up until now, it's been mostly about solar PV stand-alone. Solar PV has reached about a 3% market penetration in Europe and very few of those systems have been installed with batteries. But increasingly now in major European countries, we're seeing batteries being attached. It's a response to increased energy prices in combination with the decline in solar and battery costs. But also as a part of the move to electrification of vehicles with EV penetration coming up fast at the end of 2021 in most European markets. And what happens when you bring a battery into the home is that you're adding an intelligent piece of equipment into a system that creates energy. And that provides the groundwork for tremendously powerful individual services making the home consume less expensive energy, optimizing the energy flows inside the home, and that's a service that can be monetized. In the close future, these type of individual services can be expanded into grid services, collective services where multiple homes combine to arbitrage the market or to provide grid stabilization services that are worth more than the sum of the parts. So when we look into the future, we not only see batteries adding ticket size in the immediate now because people buy a more valuable system on the Otovo platform, but we also see this as an opportunity to add both individual services in this shape of optimization, predictive maintenance, energy management, smart charging, et cetera and grid services in the shape of grid balancing and trading services, in totality increasing the lifetime value of our customer.

Now to another product that we're excited about, subscription. Our subscription offers a strong value proposition to our customers. And we'd like to highlight 4 key elements of this product. The first being zero money down. Customers can get solar panels on their roof without any upfront investments. Secondly, it saves your money day 1, meaning our customers will have a monthly solar subscription that is cheaper than electricity from the grid in most of our markets. It's convenient, you get green power with Otovo guarantee for 20 years. It's very free because Otovo will make sure that the installation is working as intended. And of course, in a market with increasing volatility in electricity prices, predictability in your electricity bill becomes even more attractive. We have launched subscription in 5 European markets, and we're seeing strong customer testimonials. When we look at the customer business case, it's actually not that difficult to understand why this product has become a success. So on the right-hand side of this slide, we're showing a Spanish customer. He used to pay EUR 132 a month with solar subscription. That electricity bill is reduced to EUR 50 a month. Then you add the subscription cost, but still you free up EUR 34 a month with solar subscription. And this is why it's a product we really want to introduce in all of Otovo's markets. We're building a strong, solid subscription business. There are strong features there, practically no churn. You get -- we get inflation-protected cash flows from customers on 20-year contracts. And once we have this long-term customer relationship locked in, we are in a pole position for upsell. We can add batteries, services, renewals, other types of hardware. And all of these strong features combined result in a great subscription business, generating low-risk, high yielding cash flows.

Can you hear me? Perfect. So let's zoom on Germany. Sorry, there was a technical delay here, which is a large and highly attractive market for Otovo. It's the seventh market, and we're seeing already 250,000 to 300,000 installations in our residential core market in Germany, which represents about EUR 3 billion and plus. We've also seen a big growth here. So year-on-year growth from 2019 to 2020 was around 65%. And just to give you an order of magnitude, compared to the Norwegian market, for example, it's 150x size. So what's the timing for Otovo entering the German market? I think it's a perfect timing. The climate has never been better in this regard. Market conditions are extraordinarily positive for the type of business that we're in. So starting with certain electricity prices. So Germany is the leading European country for consumer energy prices. And that makes obviously our proposition for German customers, kind of a no-brainer going solar. And that's, let's say, a great starting point here for us. And then as some of you may be aware, we have a new government here in Germany. And one of the key topics also before that was pushing strong on the very needed and necessary energy transition in Germany. You may know that Germany is quite carbon intense still when it comes to the energy production. And this is, let's say, on top of the political agenda. And that also leads to a very ambitious ramp-up plan where solar will play an important role. So the plan is to install 200 gigawatts PV by 2030. So to give you also, again, an order of magnitude, I think this year, we will end up somewhere between 6 to 7 gigawatts annually. So, that gives you a flavor on how ambitious also the German government is. And there are a few initiatives in the making -- in the planning. One of them is, for example, that the VAT will be reduced to 0% and some other initiatives that will ease the administrative hurdles that are still out there for German customers. So how are we doing in Germany? Well, I started as GM, which is, by the way, my fourth GM role in such a platform business in 1st of September. So since then, we've been working on adapting and localizing our centralized platform. We've been working on marketing strategies and obviously also hired a team here. So we are more than 12 people now in the German office, and obviously, we have quite ambitious growth plans in that area. We are starting to acquire customers as of December 2. So a little more than just 3 months, which is an Otovo record. We are able to close sales and gathering our first data points, which are very encouraging throughout the funnel. So in what we see the KPIs whether it's in marketing acquisition costs or sales conversion rates is very encouraging. And we have to remind ourselves, we are very, very early in the game. We've just launched with the direct purchase for PV and batteries only. And there's what you've heard many, many more in the pipeline. And obviously, our salespeople after a few weeks are not on the level that we would expect them to be in some months in the future. Yes, Germany is also definitely a big-ticket size country driven by a high battery attachment rate, which is around 80-plus percent. And yes, so a very encouraging start. And our, let's say, short-term targets or the short-term milestone is that we want to have 1,000 customers, 1,000 sales, 1,000 installations. So for me, it's really just a milestone and a question how fast we will achieve that and not, if at all, because we are running on a fast pace, and what we see right now is very promising. And our more long-term goal is around EUR 100 million in revenue or NOK 1 billion, respectively, that we see to achieve in 2025.

Okay. So we just completed the EDEA transaction last week, and we're now going to zoom in a little bit on EDEA in the implications of that transaction. So EDEA is an asset owning -- a company that finances Otovo's subscription product. At the end of third quarter, EDEA had 780 customers across 5 countries, and had deployed a total of NOK 49 million in capital. With the cash available in the EDEA and the 50% debt ratio, we have another NOK 245 million available, and this could be increased by increasing the debt ratio. The setup between Otovo and EDEA will continue to be the same after the transaction. So EDEA buys assets in the form of PV systems and batteries from Otovo, and receives cash flow from the customer over the contract lifetime. Otovo is the originator of subscription contracts and thus also the installation of the systems through its installed network on the platform. In addition, Otovo provides services to EDEA that consists of billing collection, customer contact and maintenance and services post installation. The customer only sees Otovo, although the subscription contract is a direct contract with EDEA. The customer also has a running relationship to Otovo and benefits from the same products as direct purchase customers like the Otovo app. Looking at the time line, EDEA was established by Otovo in February in 2020. During the summer last year, we launched leasing products in Norway, Spain and Sweden. In the fall in September and October, EDEA was spun out of Otovo through an equity raise of a total of NOK 155 million. After that spin-off, October kept 19% of the shares in EDEA. Then in November this year, Otovo launched an all-share offer for EDEA where EDEA shareholders were offered a 1.7 Otovo shares for each EDEA share, implying an acuity valuation of EDEA of NOK 270 million. And the transaction was completed last week, as I said. And after the transaction Otovo has approximately 88.5% of the shares in EDEA. So the rationale behind the transaction and the two companies joining forces is first to remove existing misalignment of interest between Otovo and EDEA. This is to make sure that we make the right decisions on marketing and product. In addition, Otovo increases its ownership in EDEA and is now able to fully capture the value creation from leasing. On the EDEA side, having Otovo as a major shareholder, improves the access to debt financing. And altogether, this setup makes us able to create the European leader in the residential solar market. This transaction also has implications for our reporting. So the dynamics of a subscription contract is that, as I said, EDEA buys the system from Otovo with a cost -- cash outflow on day 1. Revenue is recognized over a 20-year period. And the same goes for operations and maintenance costs. Those are recognized over 20 years. The cost of the system is activated on the balance sheet of EDEA and is amortized over its useful life. On the accounting side, the accounting will reflect the same. So a subscription contract for solar is defined as a service agreement under IFRS 15. A subscription contract for batteries is defined as an operating lease under IFRS 16. In both cases, revenues are recognized over the contract period, which is 20 years for solar and 10 years for batteries. The implication of this is, first, that, the cash flow and the subscription contract cannot be recognized at fair value in the balance sheet of EDEA. And then in addition, when Otovo has now a majority stake in EDEA, through the consolidation, sales from Otovo to EDEA will no longer appear in the top line and in the profits.

Okay. So how do we visualize and show you that the contracts that we create and that consumers commit to over 20 years, provides value to the company and to U.S. shareholders? Well, we're going to do that through a set of new metrics. And if you sit back and enjoy the ride for a little while, we're going to go through those one by one. So the new metrics for value creation are actually quite straightforward. On the revenue -- rather, there's 2 ways of buying the system. And those 2 will be reflected in segment notes. One, as Otovo as an originator and marketplace and the other as EDEA, a subscription and lease business that has recurring revenue. So able to reconcile numbers on the segment side. Now each one of those segments will have its own dynamic. On the revenue side, revenues represent systems that have been completed in -- during the period, installed on people's homes and where consumers then have paid, very straightforward, the same as we've always done. On the subscription side, we will introduce a revenue metric called contracted subscription revenue. And that is the present value of all leasing payments that the consumer has committed to over the next 20 years, discounted down to 5%. It's the market value, the fair value of the subscription cash flows associated with the assets on EDEA's balance sheet created during that period. And when you sum these 2 up, you get revenue generated, the sum of direct revenue and contracted subscription revenue. The same logic applies to the profit side. The gross profit are revenue less upfront cost of goods sold, a straightforward gross profit metric. And on the subscription side, the gross subscription profit is a contracted subscription revenue, less the upfront cost of goods sold but also deducted the present value of the operation and maintenance cost associated with maintaining the system and servicing the customer over the lifetime that generates the contracted subscription revenue. That leaves us with a gross subscription profit. And when summing those two, you get the profit generated in the period. Now for completeness, there will also be an effect that keeps accumulating because at the beginning of every period, you will have the accumulated contracted subscription revenue coming in. You will consume some of that, and you will add new contracted subscription revenue. That is the present value of the remaining cash flows from leasing contracts discounted at a 5% discount rate. And that is kind of the locked in balance sheet of contracted future cash flows that consumers have committed to. Okay. So now I'm going to take each one of these lines, the A line of revenue and the B line of profits, the C line of accumulations one by one. To exemplify that, we're going to start very simple with 1 single customer because that's an atomic unit of any accounting, right? So how does that work? Well, we're going to start with a single customer that buys a solar system from Otovo. The way that works in our system is that we calculate the cost of goods sold by having an auction between multiple installers who can install in that area. If that winning bid comes in at 100. We will add a markup and sell that system for NOK 125 million in revenue. That means our gross profit is NOK 125 million in revenue, less the COGS, leaves us with NOK 25 million in gross profit. That's how it has been. That's how it's always going to be, and that's how it's done in all businesses across the world. And let's move to a subscription contract. So now the consumer does not pay for this upfront, but he signs a piece of paper. To keep paying for the system, piecemeal over 240 monthly installments. That is a 20-year contract. So the way that works is we'll have the same NOK 100 million as cost of goods sold, the construction cost of the system doesn't change. Associated with that system, there will be a set of monthly payments that will, over 12 months, accumulate to a yearly set of payments, and that way up to 20 years. So for NOK 100 million in COGS, we get 12 in yearly annuities that is the cash flow we receive from the customers that have committed to the subscription. If we sum 20x, you get to NOK 240 million. But in addition to that, the contract is set up such that we adjust for inflation. So taking a CPI of 2% as the basis, those NOK 240 million will inflate to NOK 290 million in nominal value over 20 periods. Now you've learned in business school that NOK 290 million over 20 years isn't the same as 290 today. So we need to discount that back to find the present value of those subscription revenues. We're going to do that with a conservative 5% discount rate. If you take NOK 290 million through 20 inflated yearly payments, discounted at 5%, you get to NOK 175 million in contracted subscription revenue, right? Now we're going to look at the direct customer and the subscription customer and how they add up at first, the gross profit. So I had NOK 290 million in nondiscounted subscription cash flows. I discounted it down by 5% discount rate to NOK 175 million in subscription revenue. Then I deduct the COGS. I deduct the present value of the operation and maintenance cost of the system over 20 years. That leaves me with NOK 63 million in gross subscription profit. It's NOK 175 million, less the COGS of NOK 100 million, less the O&M cost, present value of NOK 12 million brings us to 63 in subscription profit when using the 5% discount rate throughout. So now we're going to add this customer to a direct sales customer and see how that adds up. So the upfront payment was NOK 125 million. We took out NOK 100 million in the cost of goods sold to pay for the installation, and we were left with a gross profit of NOK 25 million. For the subscription customer, the value of -- the present value of the cash flows that the consumer had committed to over 20 years was NOK 175 million. We subtract the COGS of NOK 100 million, the O&M of NOK 12 million and we're left with a gross subscription profit of EUR 63 million. Now let's assume we had only 2 customers. The revenue generated would be NOK 175 million from the subscription customer, NOK 125 million from the direct customer, summing up to NOK 300 million. We built 2 systems. So that would be NOK 200 million in COGS, 12 million in operation and maintenance costs discounted down to its present value, and we'll be left with a profit generated of NOK 88 million, of which NOK 25 million were from the direct customer and 63% from the subscription customer. So those were 2 single contract examples. Now let's put this in a real-life mode and see how that affects our Q3 numbers, right? So what we're going to do now is to pretend that we had EDEA consolidated from July 1 to September 30 of this year, and we'll look at the numbers we reported and how they would have changed under this assumption and using the new metrics. Going to use the same metrics as before. Revenue from direct purchases, contracted subscription revenues on subscriptions combining to revenue generated. Gross profit on direct sales, gross subscription profit on subscriptions combining to profits generated and then the accumulation of contracted subscription revenue at the end, representing the fair value of contracts associated with assets on Otovo -- on EDEA's balance sheet that have been committed from customers. So in the reporting that you will see going forward, you'll have the reported financials that consists of an Otovo origination and marketplace segment and an EDEA leasing and subscription segment. Because we are a group, there will be intercompany eliminations on transactions that move between these 2 companies. And you'll also see the consolidated Otovo Group numbers. That's the sum of the 2 minus the eliminations gives us the Otovo Group. And then we'll make adjustments for the market value of subscriptions created and committed to from consumers and show how those combine with the Otovo Group reported financials to create the Otovo Group metrics. So on the reported financials of Q3 to be specific, Otovo's revenue was NOK 88 million. EDEA's revenue from subscription was NOK 1 million -- just going to wait until the slides come back. Okay, here we are. So in Q3, specifically, the revenue from Otovo was NOK 88 million, and the subscription revenues for EDEA were NOK 1 million. As of those NOK 88 million, EUR 21.8 million, almost NOK 22 million were sales from Otovo to EDEA to pay for systems where EDEA would be the holder of subscription contracts for the next 20 years. So when eliminating those intercompany transactions, Otovo Group would have reported NOK 66 million in revenues, plus NOK 1 million in subscription revenues for a total of NOK 67 million in revenues. On the cost side, the NOK 72 million -- NOK 72.5 million cost of goods sold reported. We would have to deduct the cost of goods sold from Otovo to EDEA were at NOK 17 million for total cost of goods sold on the group level of NOK 55.4 million and a gross profit of NOK 11.6 million. Now let's look at the subscription adjustments intergroup to present the Otovo Group metrics. Our revenues from direct sales remain unchanged because their sales out of the group to direct customers very straightforward. Then we're going to talk about the subscription revenues. And as in the single contract example, we will calculate the present value using a 5% discount rate of all the commitments made by customers associated with installations that have been completed during the quarter, and we'll present that as a contracted subscription revenue. So that's worth NOK 30 million in Q3 and can be compared to the elimination of NOK 21.8 million. For the sake of consistency, we also need to remove the subscription revenues of NOK 1 million or else will double count those in future periods. That will bring the revenue generated to NOK 96.1 million in Q3. On the cost side, we will add back the cost of goods sold from the subscription systems. So the COGS will go back to NOK 72.5 million, we need to add the O&M cost present value of the subscription contracts over 20 years, adding 2.1. And that will leave us with a gross subscription profit of NOK 10.8 million in Q3 and profit generated in Q3 of NOK 21.4 million. So let's bridge this one by one. So on the revenue generated side, we start with the NOK 88 million in reported revenues in Q3, consisting of NOK 66 million in direct sales and NOK 22 million in leasing sales. To those NOK 88 million, we add NOK 1 million that are Otovo -- rather EDEA revenues from previous subscription contracts. And then we consolidate. So we remove revenue that is intercompany, bringing the reported revenues to NOK 67 million, as shown in the previous table. Then we add the 30 from the previous table in contracted subscription revenue. And we removed the reported revenues that are incompatible with the contracted subscription revenues because they include the future cash flows with these assets for the remaining of their lifetime, so we can't count them twice. That brings us to a total of NOK 96 million in revenue generated, an uptick of 9% from the NOK 88 million previously reported. And all of that is explained by an uptick of almost 40% in the value of leasing contracts that now all fully on Otovo and will not be shared with the EDEA shareholders as before. On the profit side, we start with the NOK 15 million in reported combined gross profit in Q3, of which NOK 10 million emanated from direct sales and NOK 5 million came from leasing sales. We add the profits from EDEA contracts, NOK 1 million. We eliminate the intercompany profit, bringing us to a pro forma reported gross profit in Q3 of NOK12 million. When we add the gross subscription profits, that's the gross subscription revenues less COGS and OEM brings us to NOK 11 million in gross subscription profit. Once again, we deduct the gross profit from EDEA and then we get the profit generated, which is NOK 21 million in Q3 using this line of thinking. And that's an uptick of 40% compared to where we were in Q3. Now to round off this line of thinking, we need to look at how the accumulation of commitments that come from customers who have subscribed to a 20-year period and are included in the EDEA balance sheet create the accumulation of contracted subscription revenues. So we start the period with NOK 40 million in contracted subscription revenues coming from previous quarters. Of those, we consume NOK 1 million in revenues that we received in the quarter. So their value increases to NOK 39 million. But we install projects and create new customer commitments with NOK 30 million in present value during the period. So we come out of the period with NOK 69 million in contracted subscription revenue accumulated. And this will repeat every quarter going forward. So in Q4, we come in with NOK 69 million in accumulated contracted subscription revenue. We will consume some of that, and then we will add new customer commitments that our new contracted subscription revenue coming out of the quarter with ever bigger accumulated contracted subscription revenues as long as we grow more than we consume. And this is to visualize the cash flows associated with contracts that are linked to the assets on the EDEA's balance sheet. So to sum up this section. The general idea is that the EDEA transaction increases revenues and profits. After all, that's why we did the transaction. So the revenue generation increases because we add subscribers who over their lifetime pay bigger sums into us, even discounted than when you buy a direct purchase. Customers commit to 20 years contracted revenues with us. On the profit side, a subscription customer is -- that is 2 to 3x higher than the gross margin on the direct purchase. And that increases Otovo's value per customer. We introduced new metrics to reflect this value accretion, both on the top line and on the profit line. Segment reporting will show Otovo and EDEA separately. And then the new metrics will show the joint total value creation from the Otovo ecosystem as a whole.

We will look to further improve the subscription product. And well, let's take a closer look on how we will create more value. So one of the key value drivers for the subscription product is the fact that we enter into a 20-year relationship with our customers, and we intend to leverage that relationship. One obvious thing to create more value is to add more products. We will add batteries. We will add EV chargers. We will add heat pumps to the subscription contract. This will increase ticket size, and it will increase the profit per subscription contract. We will also look to promote renewals. We will offer customers the option to extend their contract beyond the initial contract term. So for a solar subscriber, that will be a contract term of 20 years. The expected lifetime of the solar installation is 30 years. And during that additional 10-year period, we can offer additional renewal of the contract. Another example that will offer more value is the subscription of batteries. So solar subscribers will have a 20-year contract. The battery subscription will be 10 years. After the initial 10-year term, we expect that customers would like to have a renewal of their battery subscription to match that of the solar subscription of the 20 years, and that will also add additional value. Lastly, we will add individual services such as energy management, and the sum of all of these initiatives will increase the contracted value for each subscriber. Another upside is the cost of capital. We are observing low funding costs in the U.S. market. Looking to peers such as Sunnova, Sunrun, GoodLeap. These are companies that are financing their energy assets portfolios at a cost of debt of around 2%. And if you have about 90-plus percent debt in your capital structure, the cost of debt becomes fairly close to what the overall cost of capital would be. We think that this slide illustrates the huge potential in obtaining a lower funding cost as the size of the portfolio increases. And we've already been through that. We will report using a 5% discount rate. Lowering that discount rate will create significant value. Let's take a closer look at what value creation we're looking at. So going back to the single contract that Andreas has previously presented, we have contracted subscription revenue discounted at 5% at NOK 175 million. Now if we reduced the discount rate by just 1 percentage point to 4%, that translates into 10% increase in the contracted subscription revenue. And looking at the right-hand side of the slide, it will actually translate into a total of 25% increase in the gross subscription profits. So it's evident that just by reducing the discount rate somewhat, we create significant value. And as the portfolio increase, and we increase diversification, it is highly likely that the cost of capital will be lower and that we will be able to capture this additional value created.

Thank you for listening to this update on our strategy, on our product vision for the year upcoming and for our entry into new markets. Thank you also for sitting through the changes in visualization of our activity in metrics and in reporting going forward. So to sum up what we've seen today on the financial side, what we've done is to acquire EDEA, to move into a business form that includes subscription contracts that will create value over a long period of time. That translates into increased revenue generation for the Otovo Group. It translates into increased profit generation because each contract we create is worth more than a direct sale customer is. The acquisition of EDEA also provides increased financial flexibility through the cash and debt facilities that exist within the EDEA structure. And we will create the new metrics to reflect this increased value creation both on the segment side and on the additional metrics. With regards to our strategy, we remain on course. We are increasingly becoming a solar and battery company. We introduced batteries in Italy in Q2. We introduced batteries in Spain in Q3. We're introducing batteries in Germany in Q4, and we're seeing the attachment rates pick up in all those markets. Within months, we'll add batteries to the lineup in Sweden, France and Poland. This is a product we're very excited about. We're also now a subscription company. That means we will be exposed to the recurring revenue that comes from customers who commit to buying solar energy from their roof -- from their battery over the next 10 to 20 years going forward. That changes the nature of our business in a positive way. We're also self-confident and positive about our ability to increase our pan-European presence. We've entered 3 European markets, Poland, Italy and Germany over the last 12 months. All of those are growing. And we believe we're in a unique position in Europe from the north of Norway to the south of Spain, from the west of France to the east of Poland to be addressing the tectonic shift that is happening in European consumer markets for electricity. So to finalize, we are in a fantastic position to become Europe's #1 company for residential solar and batteries. Thank you for listening. We'll now move to the Q&A.

Thank you. First question. EDEA was spun out and merged back in within a year. What changed during that time period that made you essentially reverse the decision?

When we started thinking about creating EDEA back in 2019, the opportunity space for subscriptions and leasing was very, very different from what we see now. At that point, leasing and PPA contracts was a dominant product in the U.S., but it hasn't been proven in Europe. We hadn't proven we could sell that type of contracts. No one else in Europe had proven they can sell that type of contracts. The interest from equity to fund this type of activity was low, and the access to debt for this type of activity was none. So that was a very different situation than what we're seeing now. What we're seeing now is that we find consumer interest in Otovo for this product. We see that this way of getting solar panels really is going to address a large part of the transition for homeowners to distributed energy. So the demand really is there, and the numbers are starting to add up both on the equity side who can see and trust what they're seeing, but also because there's a lot more equity that wants to fund this type of activity. And on the debt side, where banks now find this to be a standard practice where it's almost like you can enter a German or the Dutch back and say, we're selling this, okay, we'll have -- we have the regular forum for you to fill out. Not exactly that simple, but it's very, very different from where we were 2 years ago. So I'd say everything has changed since 2019, 2020. We've also seen that we can shoulder his responsibility. We want to be exposed to this revenue and profit generation fully. It is time to take that activity fully back in-house.

Next question. You mentioned the goal of increasing leasing share from the current 20% to 25% from 2022 and onwards. Do you have any guidance on leasing share going forward?

It's a bit hard to guide because as you saw in the presentation, the leasing product is now present in 5 markets, Norway, Sweden, Poland, France and Spain. It will be launched shortly in Germany. And we're awaiting some regulatory clarifications in Italy before we can be able to launch this in a way that allows consumers to be exposed to the generous subsidies that exist in the Italian market. And that means that the country mix of our sales is going to influence the percentage of leasing contracts that we create. So while we are very confident about creating more leasing contracts and having an acceleration in the deployment of capital dedicated to the subscription contracts, I think it's quite hard to guess on the leasing percentages. So I think we will want these new markets to come a bit more up into regular speed before we indicate leasing percentages. So if you can just be patient with us for a quarter or 2, we see how leasing rates stabilize in the different markets, we can get back to that, but now we're quite exposed to mix effects.

Yes. Next question. Is it 5% discount rate, the one that you will use in valuation of the subscription contracts between Otovo and EDEA going forward? Or is it just an example right for this presentation?

The 5% rate is what we will use in the contracted subscription revenue calculation on the group level. Between Otovo and EDEA, we will use the intercompany transfer pricing rules that were set in place before the transaction, and we will adjust that as facts on the ground change. That is something we will generally look into but isn't of an enormous importance what we use in calculating the contract value there, that's where we'll use the 5% rate.

What percentage of battery revenue do you forecast will come from existing solar installations?

Well, right now, all the battery revenue we have is with the new customers coming in. So that's why we're talking about this as an attachment rate. That is the ratio of consumers who buy solar and battery as a proportion of total customers created in the period. Right now, those ratios start out at about 80% in Germany. That's very encouraging. It started at 10% and is growing in Spain. And in Italy, it was, I guess, about 1/4 of systems in Q3, 50% of systems in Q3 and now has passed the 50% and it keeps growing in Q4. We will introduce batteries as a stand-alone product to be sold to existing customers or people who just want the battery from us and nothing else. But that's a product development that will come a bit further into 2022. Currently, we're just selling the batteries, coupled with the installation and the solar system all at once for new customers.

Going back to the discount rate, what will happen if interest rates increase in response to inflation? What are the effects on the discount rate?

Yes. So just to make sure I understood the question, inflation rates go up, and interest rates remain low.

So I think the question was interest rates increase as the response to the inflation. So interest is going up, what will happen then to the discount rate?

I'm not a very good interest rate calculator. I guess you can model that in an Excel sheet. So in a way, the interest rate -- the way the protection of the interest rate works for us is that we adjust the consumer contract upwards every 12 months as the CPI changes. So if there's a 4% increase in consumer prices, the payments increase by 4% the following year. And that insulates us towards the effect of interest rates when they correlate with inflation. Just also note that Cecilie said earlier on in the presentation that those inflation protections work only upwards, there's a floor of zero. So if you see a situation where there's deflation, the payment remains.

Thank you. Now some questions for the CEO of EDEA, Cecilie. Do you have any plans on offering solar loans in addition to leasing to further capitalize on yield compression that you can comment on?

We have one goal now, and that is to build volume in the leasing portfolio. Any product expansion beyond that is not on the table right now.

Great. As you show today, we often see securitizations of both residential PV and batteries in the U.S. Are you aware of any similar transactions in Europe yet?

I think what they're doing in the U.S. is quite extraordinary. And I hope Europe, I think, Europe will follow, and we'll see large asset deals and securitizations in the years to come. For EDEA and Otovo right now, we will focus on building volume. We have a large room for increasing our debt facility from banks at this moment. And I think we welcome opportunities in the securitization space in Europe, but it's not something that we are looking at right now.

A related question to securitizations, will you be able to securitize portfolios consisting of cross-border customer/assets?

Time will show.

Next question, instead of offering an extended contract upsell post year 20, why not increase the leasing contracts from 20 to 25 years, such as Sunnova offers in the U.S. The yield compression on subscription contracts would obviously be even greater.

I think that's a very good question. We have classified our subscription service as an operational lease. And that means some restrictions in terms of how long the contract length can be relative to the economic lifetime of the underlying assets. So for regulatory and finance accounting purposes, we believe that 20-year contract length is what is most attractive also for investors in the leasing portfolio.

Thank you. What happens if a customer defaults on the payment after, let's say, 5 years?

If the customer defaults on the payment after we have, of course, then try to obtain the payments following both standard dunning collection procedures and a legal procedure, we will dismantle the installation and cancel the contract. We believe, however, that, that scenario is highly unlikely. Having some experience now looking at the U.S. market with the peers having default rates at about 0.3% to 0.5%. At present, we have 0 default so far. And so we remain quite optimistic in that this will not become a huge problem or an issue that we need to face any time soon.

Final question goes to Andreas. In the initial part of your presentations, it seems that grid services is not something you will provide before towards the latter end of this decade by 2030. Why are you not planning to do this earlier?

I think that was more talking about the paradigms. Solar has been a theme for quite a while. I think it will continue to be so. I think what you see now in the consumer space is an addition of a lot of technology in people's homes to address electrification and to respond to an increasingly complex tariff structure for consumers. People want to leverage the opportunity. So that's kind of the individual services being added there, and there won't be a switch where collective services come in. That will happen gradually. In the U.K. and the German markets that are probably the most advanced in this regard right now, there's a possibility to aggregate services and create virtual power plants that could prove feasible with, let's say, a moderate amount of deployment of assets that you coordinate. And I think we're eager to get into this game. But -- and we certainly preserve the options to be in this space. For example, all our systems are always online and make sure to make that small additional investment to keep that optionality open for the future but we want to also remain very disciplined on what we're doing. We want to be the winning marketplace in deploying solar and batteries. We view that as the quarter finals, right? We need to win the quarter finals in order to progress to the semifinals where you can add more services to these assets, where we can leverage the value of having created these assets. And then that's the semifinals that brings you to the volume games, where the aggregation of your multitude of assets in the grid really start to play. And whereas you can start preparing somewhat for that, you really need to win every game. And ours is a company where we're very much head down in order to leverage the solar opportunity that exists in the sort of mayhem over European electricity markets right now. We want to sell as hell. We want to install this hell. We want to keep building the product that has batteries and subscriptions in it to address this opportunity. So definitely eager to think about that on our free time. But on our, when we're on the clock, it's all about growth.

A couple of new questions coming in here at the end quickly. How do you see subsidies in Europe develop in the coming years? And how will changes of these impact Otovo?

So I'll say the overall picture is that the political momentum in Europe is favorable. The basis of that is e-regulation that treats home energy, the consumers right to produce manage and export energy from his home pretty much the same way as EU regulators treated mobile phones back when they sort of help deregulate and create competition on -- in the phone space 2 decades ago. So that's kind of the -- that's the baseline that remains and it's an enormous protection for anyone who wants to go in the type of activity that we're doing. On top of that, you have the European Green Deal, which is a NOK 1 trillion investment scheme that goes into all things electrification, all things decarbonization. And we're seeing that trickling through into the member states in generous national or regional programs that encourage homeowners, farm owners, communities to do decarbonization decisions, right? And so the Green Deal finance is a multitude of the programs that consumers can benefit from in Europe. And we're just at the starting point of the green deal. In addition, governments are in a race to comply with The Paris Agreement, where there's competition between parties and politicians to be the ones that are spearheading this energy transition. And they're also seeing both national security interest, resilient interest and purchasing power, more populous interest, pushing them to do things that in general, benefit consumers alternatives to high electricity prices. So overall, very, very positive. That's that -- you need to think that's 90% of my answer. The remaining 10% is that is going to be volatile. I think many of the listeners today are probably from Norway. You've seen crazy electricity prices this autumn, and you've seen crazy proposals on how to address them from our politicians. And you're seeing that all across Europe, and that means there can be lots of ups and downs. We think that's a positive for us because we're a platform approach with few capital commitments, with small teams, and we're buoying on top of this volatile landscape. And we are not exposed to one single country. We have a portfolio of approach. So we see sort of a positive momentum with volatility. We find that's ideal for our approach to these markets.

Thank you. Question regarding the leasing portfolio. What is the criticalness in Norwegian kroner of leasing you need in order to securitize it?

I think as Cecilie said, time will show a bit on that. But it's not worthwhile doing things unless you get to a certain size. Our view is that right now, what we need to be focusing on is head down, create contracts, start accumulating the subscription contracts. And then all paths lead to good outcomes by focusing on that. Securitization, where does that happen? Maybe around NOK 500 million. But if anything, is happened over the last 2 years is that capital has been more plentiful in smaller ticket sizes because there is this hunt for yield, this hunt for returns. And who knows where the bar will lie 2 years from now.

Thank you. Question to Christian. How many installers do you have at launch in Germany? And how many do you expect to sign in the next 3 months.

[Audio Gap]

We cannot hear you Christian.