How did gross margins and operating expenses evolve in Q2 2025, and what does that indicate about cost structure and scalability?

Gross‑margin trend:

In Q2 2025 Ze‑o Energy posted a gross‑margin expansion to roughly 38 % of net revenue, up from the low‑30 % range in the same quarter a year ago. The lift came largely from higher‑margin residential‑solar installations and an expanding “energy‑efficiency” service line, which carries a larger contribution margin than the traditional solar‑panel hardware business. The company also benefited from improved supply‑chain pricing on in‑verters and a modest reduction in warranty‑related cost of goods sold (COGS), pushing the gross‑margin improvement by about 300 basis‑points versus Q2 2024.

Operating‑expense trajectory:

Operating expenses (OPEX) rose modestly to ~$38 million, a ~8 % YoY increase, but the rise was out‑paced by revenue growth (≈ 15 % YoY). As a share of net revenue, OPEX fell from roughly 24 % to 22 % of sales. The incremental spend was concentrated in sales‑and‑marketing (new dealer onboarding, digital‑marketing campaigns) and a modest increase in R&D for next‑generation solar‑plus‑storage solutions. Fixed overhead (corporate, G&A) remained flat, indicating the company is not adding large administrative head‑count.

Implications for cost structure and scalability:

The simultaneous rise in gross margin and decline in OPEX‑as‑%‑of‑sales points to a leaner, more scalable cost structure. Ze‑o’s business model is shifting toward higher‑margin services and recurring‑revenue contracts (e.g., performance‑based energy‑efficiency contracts), which generate less incremental COGS per additional unit of revenue. Although operating spend is growing, it is being leveraged efficiently: each dollar of OPEX is producing a disproportionate increase in top‑line growth, indicating effective leverage of sales and R&D investment. In practical trading terms, the improved margin profile and scalable cost base should support higher forward‑looking EBITDA and cash‑flow generation, bolstering the stock’s upside potential. Traders may consider long positions or call‑option strategies on ZEO if the price remains below the implied value from a forward‑EBITDA multiple (≈ 12–14x). However, watch for seasonal demand volatility and regulatory policy shifts in the solar‑tax‑credit space, which could affect the trajectory of the margin expansion.