The need for our product is growing in the current macro-economic environment.  The Association of British Insurers ("ABI") reported in September that home insurance average claims costs in the UK have increased by 24%¹ putting pressure on insurers' loss ratios.  A new World Wildlife Fund report in October states that a looming water shortage crisis endangers water resources and freshwater ecosystems valued at $58 trillion annually².  Now, more than ever, there is a pressing need for insurers to reduce claims costs and improve profitability, and for Governments and societies to act to waste less water.

Operational Highlights

In this recent trading period, management has been laying the right foundations to achieve the Company's vision of becoming a world leader in claim prevention technology, and we have remained focused on executing our strategy.

In Europe we were very pleased in July to announce the new rollout contract with Länsförsäkringar ("LF") in Sweden.  As Sweden's largest non-life insurer with 2 million home insurance customers, this partnership is a significant growth opportunity for Ondo.  Länsförsäkringar is taking a strategic approach to the rollout and has decided to use the roll-out to drive mass adoption of a new upgraded Länsförsäkringar app that is designed to deepen and broaden their customer relationships across insurance and banking products.  LF customers will use the LF app to install LeakBot, using LeakBot  to help drive mass adoption of their app, demonstrating the commitment and central role LeakBot is set to play for LF over the coming months and years.  While this technical development work has delayed the immediate ramp in volumes that we expected, it leaves us well placed for 2024.

The big news during the period under review is the significant progress made in the United States. 

The United States represents by far the largest opportunity for Ondo. There are over 90,000,000 homeowners with household insurance in the United States. It is a $133 billion a year insurance market. Water damage is a major peril in the United States with $16 billion of claims on water damage every year. On every policy there is over $200 of underwriting cost allocated to water damage claims. Together, this means that on a unit economic basis, the US is a highly attractive market.

Our first big step was a new partnership announced in June with Mutual of Enumclaw (approx. 100,000 homeowners insured) in the Pacific Northwest, with activity starting in Washington State in September (so having a relatively minor impact on the period results).The campaign has begun well with leaks now being repaired in Washington State.  In August, we signed premium insurer PURE (approx. 100,000 homeowners insured nationally) with a plan to commence in New York State.  The regulator has approved the activity and campaigns are due to go live before the end of the calendar year.

Last week, we announced a new deal with top 10 carrier and Fortune 100 company Nationwide.  The importance of this particular contract for Ondo cannot be overemphasized.  The Top 10 carriers control 64% of the Homeowner insurance market in the United States.  Nationwide has developed a Smart Home Program that is live already in 34 states, offering products such as Ting (a solution designed to prevent house fires caused by electrical arcs). Customers receive a policy premium discount for installing the product.  We are currently working to complete the technical work to integrate LeakBot into Nationwide's Smart Home Platform and expect to launch into the first state in early 2024. We then expect to expand across the wider client book, assuming that we can demonstrate to Nationwide that we are capable of executing in a way that can match their demand and scale.

Looking ahead, a key focus for 2024 will be on maintaining excellence of execution across territories to prove to our valued partners that we can scale as required.

The management team is also pleased with progress on other initiatives. The G4S pilot announced in June has successfully concluded. G4S sell their security systems to homeowners via in home security assessments (with a significant marketing investment to source these leads).  G4S ran a pilot with one of Denmark's largest insurers offering their insurance customers a free LeakBot system installed during an in-home security visit.  Based on the pilot's results, we are discussing terms for a possible rollout in 2024.  We are also partnering with Australia's largest insurer IAG to develop an outdoor version of the LeakBot device suitable for the Australian market, with test units now located on site in Sydney and we signed a new deal with Southern Water to further test whether the UK water industry could use LeakBot to drive water efficiency and reduce consumption.  Given the focus of the UK regulator OFWAT on this area this is a potentially compelling additional route to market for Ondo.  

Financial Highlights

Even though there were no new launches that made any major impact on the numbers in the specific reporting period under review, the registered customer base grew by +77% year-on-year ("YOY") to 84,000.  Unit sales also grew by +61% YOY.

The change in pricing strategy towards prioritising recurring revenues continued to impact the numbers. While unit sales growth was +61%, upfront revenue from unit sales was flat at £0.5m for the 6 months.  Recurring revenue from Software, Services and Repairs grew by +50%.

The prospect of continued growth is held out by the last month annualised run rate of £1.7m in September 2023.  We intend to continue to drive recurring revenue in preference to one-off upfront device fees, and recent US deals announced have been consistent with this pricing strategy at ~$5 per month.

Notable in the accounts is the stock that we have built in the last 6 months with a balance now worth £0.8m (at cost) which relates to the £1m of deferred income where insurance customers have prepaid for these deployments that will rollout in the coming months.  Given the recent contract wins and strong sales pipeline this stoick build leaves us well positioned to deal with near to medium-term demands without being limited by production capacities. 

Given the recent contractual wins with Länsförsäkringar and Nationwide and the huge growth in the Addressable Households under contract (as described below) the business is poised for a period of significant growth and as such we expect that we will want to raise additional capital during the next 12 months to invest to fully pursue this opportunity - continuing our  excellence of execution on these contracts and supporting sales and marketing to drive topline growth.

Outlook

The need for our product is growing, with inflated claims costs for insurers, and increased pressure on water resources driven by climate change and population growth.  Ondo's partnerships are increasingly shifting from small pilots to larger more strategic initiatives that are core to our partners' long term strategies, and the size of our partners is increasing.

In September 2022 the number of Addressable Households (defined as the number of households that could be offered LeakBot via the already signed contracts in place) was around 0.5m and we had penetrated around 10% of those Addressable Households.  As of September 2023 this Addressable Household base was approaching 2.5m driven primarily by the Länsförsäkringar rollout contract.  With the recent addition of Nationwide this would take our Addressable Households to over 5 million - suggesting we have only now penetrated around 1.5% of the opportunity represented by already signed deals.

Ondo recently exhibited at the world's largest InsurTech conference: InsurTech Connect in Las Vegas. I had the pleasure of meeting with the Founder of Whisker Labs who created Ting - a scalable self-install sensor supported by an in-home electrical service that helps prevent fire claims. Ting has signed deals with State Farm and Nationwide and currently has ~500,000 live devices, expanding at a rate of ~40-50,000 units a month.  At this same conference four years ago the Internet of Things ("IOT") was a hot new technology and there were multiple vendors with fresh VC finance offering all manner of IOT sensors, platforms and consultancy services offering to help insurers mitigate claims costs through the power of IOT.  This year there were really only two vendors - Ondo's LeakBot and Whisker Lab's Ting - offering scalable solutions, now proven in market, to home insurers.   While AI has replaced IOT as the "hot new tech", the size of the ITC conference has grown significantly, and we had a very productive conference in terms of the number and quality of leads from new prospects in the United States.

The market is looking for a solution for water damage claims, and because of our proprietary technology and unique value proposition we have the answer for this $16bn problem. Now we need to both (i) execute well on the signed deals and (ii) drive the sales machine to capitalise on this momentum. 

Thanks to all the team at Ondo who have worked so hard over the last period to make these recent gains.  We are all confident in our strategy and in the success that lies ahead for Ondo, and it is great that investors are starting to see it too.

Craig Foster

Chief Executive Officer

Ondo InsurTech PLC