16:59:42 EDT Thu 02 May 2024
Enter Symbol
or Name
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Eguana Technologies Inc
Symbol EGT
Shares Issued 437,656,022
Close 2023-11-29 C$ 0.03
Market Cap C$ 13,129,681
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Eguana has operating loss of $3.5-million in Q3

2023-11-29 18:12 ET - News Release

Mr. Justin Holland reports

EGUANA ANNOUNCES THIRD QUARTER 2023 FINANCIAL RESULTS, FINANCIAL, AND BUSINESS UPDATE

Eguana Technologies Inc. has released results for its third quarter ended Sept. 30, 2023.

The financial results for the third quarter ended Sept. 30, 2023, continue to reflect the impact of soft consumer spending due to inflation and high interest rates and the resulting high channel inventory position. These factors constrain Eguana's sales into residential solar markets. The economic downturn in the solar industry globally, in early 2023, was not widely anticipated, and the company has been managing through 2023 cautiously. Slow collection of the accounts receivable from the company's primary customer has constrained liquidity and is expected to continue to impact the company's short-term liquidity. As a result of the slow industry recovery, many renewables stock prices, including Eguana, remain under significant pressure. Until the industry recovers, consumer spending rebounds and/or solar energy incentives increase, management believes residential solar sales, particularly in North American markets, will remain under forecast. Australian and European markets, along with virtual power plant channels, however, appear to be recovering at a faster pace than direct North American consumer sales. Additionally, Eguana expects that the company's initiatives in VPPs should be significantly less exposed to the above limiting factors given their rebate and financing structures.

On Nov. 23, 2023, the company announced a private placement, targeted at $2.0-million, to be closed in multiple tranches. This financing is aimed to ease the current cash flow constraints of the company. The first tranche of the offering is expected to close on or about Nov. 30, 2023. Through the end of 2023 and into 2024, management anticipates financing the cash flow needs of the business by continuing to collect historical receivables from its primary customer, by creating liquidity from the company's current assets, by increasing sales and with the proceeds from the offering. In addition to examining operational restructuring, management, along with the board of directors, continues to pursue a number of additional options to ease liquidity by increasing cash inflows and reducing cash requirements.

Strategically, the company continues its progress in the VPP space with the acceptance into seven VPP programs, with installer training enrolment numbers surpassing 1,200, and with product development and lab certifications.

The company has made positive progress pursuing utility and distributed energy resource management partnerships, bringing the company's participation in VPPs to seven across North America and Australia. The Eguana solution is positioned to work with distributed energy resource provider platforms that are fully integrated with the Eguana cloud platform and Eguana's existing product line of energy storage solutions. The Eguana energy storage platform has been developed to support all grid-related VPP functions.

The company believes increased adoption of ESS in the VPP space will drive sales growth in 2024 as utilities reduce the upfront cost for consumers through rebate, credit and financing programs. The recent announcement of the multiyear VPP referral and promotion partnership with a long-time major utility partner in Australia is just one example. The announced exclusive multiyear partnership with Duesseldorf-based FinanzDesk, a modern financial service provider, with a specialty in renewables, is expected to promote and finance the sale of the Eguana Enduro, to its existing residential rooftop solar customers. Further, the company anticipates that its existing partnerships and additional VPP or strategic partnerships will provide sales momentum and product demand.

Alongside VPP partnerships, Eguana's installer training, through Eguana University, continues to exceed expectations, with over 1,200 enrolments year to date, representing more than 200 installation companies. Trained installers are key to the consumer interface and experience, through both distribution and VPP channels.

Offsetting these positive strategic successes is the overall lagging industry tied to macro industry factors. Increased inventory levels from a year ago, coupled with high interest rates impacting consumer access to capital, slowed consumer spending and sell-through in the distribution network, and negatively impacted the industry globally.

Business highlights during the quarter:

  • Continued integration with additional Derms providers, in various markets, to pursue VPP opportunities, spanning the U.S. and Canadian markets;
  • Signed a multiyear VPP referral and promotion partnership with a long-time utility partner to deploy Eguana's ESS to Australian electricity customers; the initial rollout across South Australia, Victoria, Queensland and New South Wales will engage the utility partner's retail network of approximately 750,000 customers with direct marketing campaigns outlining upfront rebates and monthly on-bill credits; in addition, the partner has also incentivized referrals for new customers;
  • Completed the necessary work and steps for self-certification development and compliance testing, and was awarded ISO/IEC 17025 accreditation; the ISO/IEC 17025 accreditation requires a rigorous assessment process to meet very stringent guidelines and minimum standards; this achievement underlines Eguana's ability to conduct grid compliance and safety tests independently; by having the ability to conduct self-testing processes, Eguana gains a significant advantage to not only certify new products for AC grid interconnection compliance but also introduce alternative components quickly, while saving time and money through the certification process; self-certification accreditation enables the company to be in control of its certification schedules and timing, improving speed to market;
  • Entered into a new partnership with AutoGrid, an industry leader in harnessing DERs for VPPs, to open additional VPP opportunities for power providers around the globe; companies are expected to integrate Eguana's residential ESS into the AutoGrid Flex platform to support utility companies in promoting rapid residential storage adoption and consumer participation in energy transition; AutoGrid Flex supports Eguana's technology by enabling automated demand response during periods of peak demand, directing the energy storage devices to offset home energy loads, discharge energy back into the grid, and charge up when energy cost is low or from renewable sources; as a result, VPP operators can overcome shortfalls in supply, eliminate outages, avoid additional transmission infrastructure and bypass the need for heavily polluting peaker power plants; further, Eguana joins AutoGrid's growing network of device makers aggregated and orchestrated into multiasset VPPs by AutoGrid's artificial-intelligence-driven Flex platform; in combination, the two companies' solutions, along with utility rebate programs, are expected to help consumers reduce the initial cost of energy storage, cut their continuing energy costs and support the integration of clean, renewable energy into the grid;
  • Signed a multiyear exclusive partnership with Duesseldorf-based FinanzDesk, to bring the Eguana Enduro and future Eguana products, to its residential rooftop solar customer base of over 8,000; the Eguana Enduro, which was developed specifically for European markets, is a complete all-in-one custom-engineered energy storage platform; the Enduro provides a simple and fast installation process, dashboard control of all storage and consumption data, and customizable battery management alerts to allow consumers to make better decisions on their energy consumption, optimize power bill savings and support energy security;
  • Launched the Eguana essential whole home ESS, specifically designed for North American mid-sized homes, as an economical option for homes with existing 100-amp service panels; initial deliveries to Puerto Rico, started in September, 2023, spurred by the U.S. Department of Energy's Puerto Rico energy resilience funding, announced in July, 2023, that anticipates 30,000 to 40,000 residential installations; the essential whole home ESS has simplified installation and remote commissioning processes, delivering installer efficiency and improved homeowner experience, in terms of both cost and installation times;
  • Entered into a partnership, along with Virtual Peaker, a cloud-based distributed energy company, to join the Massachusetts Municipal Wholesale Electric Company NextZero connected homes program; this partnership is the newest addition to its rapidly growing roster of U.S. utility operator partners, as VPPs continue to expand across the U.S. energy storage market; the connected homes program offers customers of participating member utilities technology to better utilize smart appliances and devices, such as Eguana's home energy storage battery systems, to better manage their electric load; this is expected to generate cost savings and reduce the carbon footprint of both the utility and its customers; homeowners are expected to benefit from upfront rebates on Eguana's systems and monthly rewards for participating in the program; Eguana's fleet control can be tailored for participation in a variety of grid solutions, depending on the utility and grid requirements; Eguana's energy management system works in conjunction with its fleet control to provide one of the industry's best distributed storage solutions for residential environments;
  • Surpassed 1,200 enrolments year to date, representing more than 200 installation companies in Eguana University, Eguana's comprehensive partner training platform, which includes system design, sales, installation and commissioning;
  • Itochu Corp., a strategic investor in the company, converted $1,164,493.14 of interest owing under the company's 7 per cent unsecured convertible debenture into 13,580,094 common shares of Eguana, in full satisfaction of the interest payment due on Sept. 1, 2023; in connection with the interest conversion, Eguana issued 13,580,094 common shares at a deemed price of 8.575 cents per share on Sept. 28, 2023; all of the common shares are subject to a four-month-and-one-day hold period in accordance with applicable Canadian securities laws.

Private placement

On Nov. 23, 2023, the company announced its intention to complete a non-brokered private placement offering of up to 50 million units of the company at a price of four cents per unit for aggregate gross proceeds of up to $2.0-million. The company has the option, in its sole discretion, to increase the size of the offering to up to $2.5-million. For additional details on the offering, see the company's news release dated Nov. 23, 2023.

The company anticipates using the net proceeds of the offering to finance operations and working capital. Closing of the offering is expected to occur in one or more tranches, with the first tranche expected to close on or about Nov. 30, 2023. The offering remains subject to final approval by the TSX-V.

Fiscal Q3 2023 financial summary:

  • As a general reference note, the company changed its fiscal year-end from Sept. 30 to Dec. 31, with Dec. 31, 2022, being the first financial year-end with the new date and composed of five quarters. As a result, the comparative period for the third quarter of 2023 is technically the fourth quarter of 2022, both at Sept. 30, in the respective years.
  • Overall negative macroeconomic factors continue to constrain the renewable energy industry, and consumer spending is soft, due to inflation and high interest rates. These factors have impacted sales and revenue for the third quarter. Q3 2023 revenue of $2.6-million was consistent with the comparative three months ended Sept. 30, 2022, of $2.6-million. This is related to macro industry factors, in general, and with respect to consumer spending, which has slowed sell-through within renewable distribution networks. Generally, the rapid increases in consumer interest rates quelled consumer spending, and, in the industry, peer companies have been impacted by elevated inventory positions within the distribution network. Management remains cautious as it approaches the Dec. 31, 2023, year-end.
  • Q3 2023 gross margin for the three months ended Sept. 30, 2023, after adjusting for inventory impairment, was 4.1 per cent, as compared with gross margin of negative $249,800 or negative 9.6 per cent in the comparative quarter of 2022. In the comparative quarter of 2022, margin was low due to one-time transactions, which had a negative impact on the margin. Management anticipates improved margin in the coming quarters, as a result of lower freight costs, battery price reductions and the removal of import tariffs, resulting from a prior shift of certain components and subassemblies out of China. The increases in margin are expected to take effect when current inventories procured in 2022 are consumed. Longer-term cost reduction activities are also planned, with battery module and advanced power electronics cost reductions, which are expected to improve margin in 2024.
  • As a response to a lagging market, in October, 2023, the company proceeded with a staff rationalization, across all geographies, and reduced head count by approximately 22 per cent. With restructuring of functional areas and focus on near-term priorities, management believes this reduction will not affect near- or medium-term operations or objectives. The company will continue to explore further prudent staff rationalizations.
  • Q3 2023 operating loss was $3.5-million, an increase from a $3.0-million operating loss for the comparative September quarter in 2022. This increase is largely due to an inventory impairment recorded for certain inventory components for older-generation systems, which have limited future economic value. There were offsetting variances in regular expenses such as increases in general and administration of approximately $300,000, sales, marketing and business development of approximately $200,000, and operations of approximately $200,000. These expense increases are due to overall company growth in geographic regions of the United States and Australia. This was partially offset by saving in product development of $200,000, as less new development or enhancements occurred.
  • Working capital at Sept. 30, 2023, was $17.8-million, a decrease from $33.7-million at Dec. 31, 2022. The decrease relates to continuing cash used in operations and the inventory loss from the product theft.
  • At Sept. 30, 2023, the company has a large accounts receivable balance from one customer, of which approximately $17.2-million is over 90 days. The customer continues to be delayed in making payments; however, progress payments have been received steadily. The company originally recognized an expected credit loss provision at year-end Dec. 31, 2022, and adjusts the estimate on a quarterly basis, in line with generally accepted accounting principles. For the three months ended Sept. 30, 2023, an additional estimated credit loss was recognized of $1.2-million. The expected credit loss is calculated based on customer-specific factors, expected timing of future cash receipts and discount rates to account for time value of money when required, taking into consideration historical default rates and forecasted economic conditions, amongst other factors. As a major customer, the company continues to work with the customer to collect payments and review future sales and ordering. Given the close working relationship between the two parties, management believes the full amount will be collected; however, until the industry recovers, consumer spending rebounds and/or solar energy incentives increase, management believes the slower-than-usual collection on accounts receivable will continue to constrain Eguana's financial position into 2024.
  • In June, 2023, the company experienced a theft of three truckloads of inventory components, when it was being transferred between warehouse locations. Through the initial investigation, it was discovered that additional truckloads, impacting several companies, including Eguana, were redirected to unknown locations. The Eguana inventory items had a cost of $2.1-million and were written off in the company records, resulting in a loss reported in other expense of $2.1-million. The theft was immediately reported to the police, and all pertinent documentation was sent to insurers. In September, 2023, the company received partial insurance proceeds of $623,913 (U.S.), and further proceeds are expected and being pursued with the insurer for the balance of the loss.

The condensed unaudited consolidated financial statements and management's discussion and analysis thereof for the three and the nine months ended Sept. 30, 2023, are available on SEDAR+.

Conference call

Given the first tranche closing of the offering, anticipated on Nov. 30, 2023, management has rescheduled the Eguana conference call from Nov. 29, 2023, at 3 p.m. Eastern Time to Dec. 1, 2023, at 10:30 a.m. Eastern Time. The quarterly call will provide an overview of Q3 results and a business update, and allow for a question-and-answer period.

Canada/United States toll-free:  1-800-319-4610

International toll:  1-604-638-5340

About Eguana Technologies Inc.

Eguana (TSX Venture Exchange: EGT) (OTCQB: EGTYF) designs and manufactures high performance residential and commercial energy storage systems. The company also markets and sells a suite of microinverter products, which are integrated with its energy storage platform, providing consumers with full solar and storage system architecture, for residential and commercial applications. Eguana has over two decades of experience, delivering grid-edge power electronics for fuel cell, photovoltaic and battery applications, and delivers proven, durable, high-quality solutions from its high-capacity manufacturing facilities in Europe, Australia and North America.

With thousands of its proprietary energy storage inverters deployed, Eguana is one of the leading suppliers of power controls for solar self-consumption, grid services and demand charge applications at the grid edge. Focused on distributed energy storage applications located at the point of energy consumption, Eguana provides cost-effective solutions to modernize the power grid from the consumer to the electricity retailer, the distribution utility and the system operator.

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