Eguana Technologies Inc.

Thank you for standing by. This is the conference operator. Welcome to the Iguana Technologies, Inc. 3rd Quarter 2023 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity for analysts to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. If you are participating through the webcast, you can submit a question in writing by using the form in the lower section of the webcast frame. I would now like to turn the conference over to Justin Holland, CEO of Iguana Technologies. Please go ahead.

Thank you. Thank you and good morning for joining the Iguana third quarter 2023 earnings call. On the call today, we also have Brent Harris, COO, Ancine Olbert, CFO, and Madison Duncan, our corporate controller. Before we begin, please note that certain remarks may constitute forward-looking statements. Although we believe these statements reflect our best judgment based on factors currently known to us, actual results may differ materially and adversely. Please refer to the company's filings on CDAR Plus for a more inclusive discussion of risks and more details relating to the uncertainty of forward-looking statements. Please also note that these statements are being made as of today, and we disclaim any obligation to update or revise them. All financial data is represented in Canadian dollars and on an unnoticed consolidated basis, unless otherwise noted. We will talk about the general market conditions and provide some additional details on the strategic direction and positioning of the business. The financial results for the third quarter ended September 30, 2023, who reflect the continued slowdown in consumer spending, which has driven lower than expected sales through our residential and distribution channels. A quick economic downturn in the solar industry globally, which started in early 2023, was not widely anticipated by the market or the company, and we have been since managing through very cautiously. Overall macroeconomic factors. continued constrained demand in the industry for almost all renewables and consumer spending due to inflation, high interest rates, and changing policy framework and incentives. Until the industry recovers, consumer spending rebounds and or solar energy incentives increase. Management believes residential solar and energy storage sales, particularly through North American distribution channels, will remain under market forecasts. For iguana, this situation has exacerbated slower than expected collection of prior accounts receivable from our primary U.S. customer, which has constrained liquidity and our financial position. On the positive, Australian and European markets do appear to be recovering at a faster rate than North America. Additionally, virtual power plant rollouts where utilities have financial options for consumers, including upfront rebate, bill credit, and financing appear to be less impacted by the macroeconomic factors mentioned. General market sentiment remains cautious, with some reports of sluggish growth in the U.S. into mid-2024. The overall market stall in demand had a follow-on effect for the company and its Duracell Power Center partner, as each party was holding receivables and or inventories, which has also impacted near-term liquidity flexibility. The last few quarters have been challenging. We've identified key lessons and modified our execution with respect to adding additional revenue channels, particularly channels that reduce upfront consumer costs to limit the impact of the macroeconomic constraints, as well as continuing to find additional operational efficiencies. We believe these changes and having the executed partnerships now in place in each key market, the company has a direct path to its long-term success. Strategically, The company continues to make very good progress in the virtual power plant space with acceptance into seven VPPs and engagement with over 20 individual utilities. Installer training enrollment numbers continue to exceed our expectation with over 1,200 in the program and with our product development and lab certification initiatives. To expedite VPP channel execution, the company is parted partnered with leading DERMS software platform providers, Virtual Peeker, and recently with AutoGrid. In addition to these announced DERMS partnership, the company has ongoing software integration projects with four additional DERMS providers. These software platforms have been fully integrated with the Iguana Cloud, which also creates our recurring revenue opportunities. Management believes the near-term outlook in the virtual power plant space is positive, And we are seeing engagement with major utility companies within the energy storage sector at a very fast rate. In addition, consumer rebates from the utilities as part of the VPP programs, coupled with the ITCs and energy bill reduction, will have a positive impact on consumer purchasing, bringing the return on investment time in most regions to below five years. Iguana's mission is to become a global leader in residential and small commercial grid-connected energy storage solutions, which are expected to be an essential contributor to electrification and migration to a distributed power grid, sometimes referred to as distributed energy resources, or DERs, or distributed energy management, DEM. In short, to be a leader in power grid modernization globally. Modernization will require decarbonization, decentralization, and digitization. All of these factors come into play with the concept of virtual power plant. A VPP is a cloud-based distributed power plant that aggregates the capacities of various DERs for the purpose of sharing power generation, trading, or selling power, and the demand side optimization for load reduction and demand management. Assets in a VPP can include solar, energy storage, EV chargers, and demand responsive devices, such as water heaters, thermostats, and other smart appliances. Iguana participated in its first VPP in 2014-2015 in Fontana, California, and our platform was designed for control and accuracy specifically for these VPP environments. We have now signed partnerships with major utility companies, such as Simply Energy, Portland General Electric, and the Massachusetts Municipal Wholesale Electric Company. and are engaged with more than a dozen additional utilities across the United States and Canada. The company's advanced power electronics platform has key advancements in accuracy, measurement, and efficiency that are all attractive to drones and utility partners alike. In Australia, the strategic step to deliver recurring or to deliver revenue throughout the value chain from roof to grid has begun delivering positive growth and larger opportunities. Australia has a broad market opportunity for ESS and VPPs, as approximately one in three homes already has rooftop solar. With company headquarters in South Australia, the business is expanding into other regions to support national business objectives, including home-builder and more VPP strategy. Key relationships in both channels expressed a strong interest in Iguana providing installation and support services alongside our solar and storage product lines. The FCAT's VPP partnership with Simply Energy, a major electricity retailer in Australia, will also kick off in January of 2024. Brent will touch on some of the specifics of this program shortly. In Europe, due to previous supply chain availability challenges with a former battery partner, The development team recently recertified our Enduro product line with a new battery module. During the quarter, we announced a new partnership with Dusseldorf-based Finansdesk, an initial 20-unit bulk order ship post-quarter end, and we anticipate seeing accelerating growth through 2024. Finansdesk has a simplified sales process selling to pre-vetted customers who are already with rooftop solar lease agreements. as well as new customers looking for both rooftop solar and energy storage. Based on this new partnership and additional European market opportunities identified, the development team has begun work on a 3.7 kilowatt cascading tower for Europe, which will also be sent into the Australian market. The company continues to focus on dealer installer partner training through Iguana University. Our online training program launched last December. Specific modules have been designed to reduce customer acquisition costs, train product sales and installation best practices, reduce installation error risk, and provide a best-in-class consumer experience. Enrollment has surpassed our stretch targets for the year with more than 1,200, representing more than 200 individual installation companies. Product gross margins were as expected and in line with lower sales volumes. The company continues to experience higher-than-normal warranty costs that are related to battery modules and module required firmware updates. However, we do anticipate recovery of these costs from the battery partner in the fourth quarter. Currently, each unit sold also has a higher freight cost allocation as materials being consumed are from pandemic price freight. This is alongside high price battery modules from the same time period. Certain materials and subassembly procurement activities have already been transitioned outside of China, which will have a positive impact on margins by reducing or removing import tariff costs on these components. Additional cost reduction initiatives have begun and are anticipated to deliver a 12% to 16% margin gain through 2024. In response to the slower than expected market conditions, the company made the difficult decision to proceed with staff rationalization across all geographies and reduced our headcount by approximately 22% subsequent to quarter end. With the restructuring of functional areas and the focus put on near-term priorities, the management team does not see additional risk to near or mid-term operational objectives. At this point, I'll turn it over to Brent to walk through some of the development and operations.

Thanks, Justin. Thanks, everyone, for joining today. I'll start on the product developments. Q3 was filled with important key new launches and new initiatives. Some of the highlights are We completed the necessary work and steps for self-certification development and compliance testing and have been awarded ISO IEC standard 17-025 accreditation, which requires a rigorous assessment process to meet very stringent guidelines and minimum standards. This achievement underlines Iguana's ability to conduct grid compliance and safety tests independently. By having the ability to conduct self-testing processes, Iguana gains a significant advantage to not only certify new products for AC grid interconnection compliance, but also introduce alternate components quickly, while saving time and cost through the certification process. Self-certification accreditation enables the company to be in control of our certification schedules and timing, removing risk and improving speed to market. We also certified North American Evolve LFB product for the latest North American grid standard, UL1741SB. We, at the same time, developed and certified a variant Iguana Evolve LFP 5 kilowatt whole home ESS, specifically designed for Puerto Rico, however, certified across North America to the same standard. We completed VPP integrations with Virtual Peeker and AutoGrid, These are the DERMS suppliers Justin was talking about to support VPP programs for PGE, MMWEC member utilities, and a Canadian utility. Developed and demonstrated a new ESS cascading feature, which will simplify product certification, sales, and installation. Incorporated controls and verification for the most lucrative ancillary service in Australia called Very Fast FCAS. kicked off a feature loaded new hub that matches tower aesthetics and supports cascading installations for the North American market. We kicked off our all-in-one ESS and tower format for the EU and kicked off a higher power North American tower format ESS solution with cascading controls in new enclosure aesthetics. We also enhanced our backend cloud infrastructure so we have broader remote software update capabilities. On top of those key features, we also updated the AC interface for our Australian Volve LFP product, conducted a market analysis of battery module formats and cost projections so we can plan our next product development cycle, and completed bulk battery module updates in Hawaii, and improved cloud diagnostics to support enhanced fleet management. Business development. We continued integration with additional DERMS providers to continue pursuing BPP opportunities spanning US and Canadian markets. We continue to remain focused on the company's strategic initiatives and our efforts have resulted in the following achievements. In Australia, we signed the multi-year BPP referral and promotion partnership Justin mentioned to deploy iguanas ESS to Australian electricity customers. The initial rollout includes South Australia, Victoria, Queensland, and New South Wales, and will engage the Utility Partners retail network of approximately 750,000 customers with direct marketing campaigns outlining upfront rebates and monthly on-bill credits. In addition, the partner has incentivized referrals for new customers. In the USA, we announced a partnership along with Virtual Peeker to join the Massachusetts Municipal Wholesale Electric Company, MMWC Next Zero Connected Homes Program. This partnership is the newest addition to our rapidly growing roster of U.S. utility operator partners. Connected Homes Program offers customers of participating member utilities technology to better utilize smart appliances and devices, such as Iguana's home energy storage battery systems, to better manage their electric load. This generates cost savings and reduces the carbon footprint of both the utility and its customers. Homeowners benefit from upfront rebates on iguana systems and monthly rewards for participating in the program. Iguana's fleet control can be tailored for participation in a variety of grid solutions depending on the utility and grid requirement. iguana's energy management system works in conjunction with its fleet control to provide one of the industry's best fully integrated distributed storage solutions for residential environments we also announced a new partnership with autogrid an industry leader in harnessing distributed energy resources for vpps to open additional vpp opportunities for power providers across the globe the companies have integrated iguana's residential energy storage systems into the autogrid flex platform to support utility companies in promoting rapid residential storage adoption and consumer participation in the energy transition. AutoGrid Flex supports Iguana's technology by enabling automated demand response during periods of peak demand, directing the energy storage services to offset home energy loads, discharge energy back to 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, Iguana joins AutoGrid's growing network of device makers aggregated and orchestrated into multi-asset VPP. In combination, the two companies' solutions, along with the utility rebate programs, help consumers reduce the initial cost of energy storage, cut their ongoing energy costs, and support the integration of clean, renewable energy into the grid. In Europe, we signed a multi-year exclusive partnership with Finansdesk to bring the Iguana Enduro and future next generation Iguana products to its residential rooftop solar customer base of over 8,000. The Enduro is a complete all-in-one custom engineered energy storage platform, which was developed specifically for European markets. The Enduro provides the simplest and fastest installation process, dashboard control of all storage and consumption data, and customizable battery management alerts to give customers the flexibility to make better decisions on their energy consumption, optimize their power bill savings, and deliver energy security. We launched the Iguana Essential Whole Home Energy Storage System, specifically designed for North American midsize homes as an economical option for homes with existing 100 amp service panels. Initial deliveries to Puerto Rico started in September 2023, spurred by US 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 is simplified installation and remote commissioning processes delivering installer efficiency and improved homeowner experience in terms of both cost and installation times. Unfortunately, the quarter did see a downward trend in financial results tied to the overall industry slowdown. We expect to see margin improvement from some supply chain optimization decisions, such as moving certain materials out of tariff countries, but the lower revenue volumes have delayed the pull-through to our financial results. The positive impacts will likely not be seen until mid-2024. The overall negative macroeconomic factors that Justin outlined have also impacted our Q3 results, which Hansine will lead us through now.