Eguana Technologies Inc.

Thank you for standing by. This is the conference operator. Welcome to the Iguana Technology Think fourth quarter 2023 and first quarter 2024 results and shareholders conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. If you're 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 Dustin Holland, CEO of Iguana Technologies. Please go ahead.

Thank you and good morning. Thanks for joining us on the update call today. With me we have Eguana team members Brent Harris, Chief Operating Officer, Antine Olberg, Chief Financial Officer, and we're happy to introduce Dave Hanlon, our Corporate Controller. Before we begin, please note that certain remarks may constitute forward-looking statements, and although management believes these statements reflect our best judgment based on factors currently known, actual results may differ materially and adversely. Please refer to the company's filings on CDAR for a more inclusive discussion of risks and additional details relating to the uncertainty of forward-looking statements. We also note these statements are being made as of today, and we disclaim any obligation to update or revise. All financial data represented in Canadian dollars, and although the year numbers were audited for reference on this call, we will disclaim that the numbers are as per our financial statement filings, however, will be considered unaudited unless otherwise noted. We will also talk today about general market conditions and provide some additional details on the strategic direction and positioning of the business. In opening, I want to address the combined nature of this call as the company filed its audited financial statements for the year ended December 31st, 2023, a month late. Although not ideal, it was necessary as our finance team worked through staffing turnover and reductions along with delays in the audit itself. In addition to integrating new team members and completing the annual audit, the team worked diligently on the first quarter filing, which has put the company back in line with all required filings. As is standard with delays in audit filings, the ASE or the Alberta Securities Commission implemented a management cease trade order on myself and Hansine as the CEO and CFO of the company. The trade order has since been removed and no further actions taken. As reported in prior quarters and recent market releases with various business and financial updates, the company continues to operate in a very constrained, low demand environment, as the solar industry has not rebounded from significant decline that started at the end of the first quarter of 2023. As most of you know, increasing and remaining high interest rates along with escalating inflation and difficult consumer credit markets has diminished consumer demand for residential rooftop solar applications. which has also severely impacted consumer-driven energy storage solutions, including iguana and iguana white label products. Distribution channels in the USA, including channels managed by our partner Duracell Power Center, continue to have high inventories as a result of slow sell-through into the consumer-driven markets. Initially, industry analysts predicted a short low-demand period that would track and rebound during the second half of 2023. from a seasonality perspective, is generally the highest demand time of the year for residential renewables. This rebound has not happened yet, and the company expects this low to continue for another two to three quarters. Although there are no predictors for the future, the company has adapted the strategy and operating model in several ways. First, here in the end of 2023, we reduced staff and furloughed employees. Furloughed employees have been since recalled minus minor natural attrition, and we stabilized the headcount to approximately 50% of where we were prior to the industry contraction. The company continuously worked with senior lenders to adjust and defer payments, and will continue to operate in this fashion in the near term, and our partners have been and continue to be very accommodating to us. We've just recently made the difficult decision to reduce the scope of our activities in Australia, The deployment of energy storage systems has been slower than anticipated with our Australian utility partner, Simply Energy, and the adoption of their bring your own device virtual power plant rollout, which is also in line with slower overall industry metrics. We adjusted our approach to our US partner Duracell Power Center, realizing that they have also been negatively impacted by lower demand and are managing their financial strategy. We have negotiated returns of various inventory components, along with finished goods as an offset to existing accounts receivable. The outcome of these negotiations have provided immediate product availability and flexibility to deliver units into our utility accelerator program, which Brent will walk you through shortly. Mentions of utility and VPP accelerated programs have been in our recent news releases as well as our MD&As at a high level. Strategically, what we have done is to transition from a B2C business to a B2B business focus, where credit markets and economic uncertainty have much less impact. The value proposition of our ESS technology is now a fully integrated hardware and software platform, delivering grid services to utilities and grid operators. The recent developments, particularly on the software platform Iguana Cloud, has opened recurring revenue streams and includes key features in managing at the edge of the grid, real-time feeder line balancing, demand response and voltage control to accompany other VP features. Utility partnerships are increasing rapidly as there is limited competition for utility-grade ESS solutions that provide both fully integrated hardware and software solutions delivering utility-grade features for efficiency and resiliency. Having the technology fully developed within North America is also proving as a key differentiator for the company and resonates very well with North American utilities, where security, and importantly, cybersecurity, is critical. Initially, the projected consumer solar demand growth, the path to rapid sales, seemed quicker in a B2C space. However, the market became very unpredictable, as you know, and as macroeconomic factors began to overshadow the overall solar industry, we adjusted. And we believe the larger value creation is in working with several mostly North American-based utility companies to deploy grid-connected ESS solutions. Utilities gain massive benefit from residential storage assets through efficiency, rapid response controls, and infrastructure capital deferrals. Brent will review some of the specific features and key differentiators of Iguana and what we've built into the platform, including recently released Iguana Edge, as well as why utilities are moving from bring your own device or BYOD programs to different asset ownership models to speed up grid adoption of utility grade solutions. Before that, however, I'll turn it over to Hansine to give a quick overview of the past year end and Q1 financial results. Hansine, over to you.

Good morning, everyone. I'm going to cover off the year-end audit piece on a calendar basis and then some points on the first quarter. As a reminder, in the year-end, we did a change in year-end a while back now, so the comparative year-end reflects 12 months ended December 31st, 2023, compared to 15 months ended December 31st, 2022. When I get into the quarter, we're just comparing three months over three months and in March. So year end, December 31st, 2023, sales decreased 32.1% to 11.5 million in fiscal 2023 in comparison to 16.8 in fiscal 2022. On a simple 12-month average proration, fiscal 2022 would have worked out to 13.4%. So this reflects a 15% decrease on a normalized basis. In early 2023, the industry was strong, but at the end of that first quarter, 2023, we saw the negative impacts of the macro factors, including high interest rates, consumer credit, degrading and inflation. This caused elevated inventories throughout all the major distribution channels and overall the market contracted. After the first quarter fiscal 2023 sales declined due to this demand shift and low demand consumer markets remain unfortunately. Overall gross margin for fiscal 2023 also remained low because of this low demand environment. Gross margin for the year ended with negative due to inventory impairment charges recorded by the company of about 2.1 million. With year-end audit work and internal review, the net realizable value assessments and some slower markets in the U.S. resulted in impairments or write-offs to align to the current market conditions. Operating costs, which I like to refer of excluding amortization and share-based compensation expense, which are generally non-cash. But in fiscal 2023, these remained high, largely due to the first half of the year where the company was in growth mode. And all categories of those operating expenses increased for headcount and product and business development. Remembering that the start of 2023 was on the heels of the two strongest revenue quarters in the company's history. And after we started to see those declines, we adjusted. Also in 2023, the latter part saw increases in operating expenses from the Australian branch, which added all operational costs and additional headcount. Additional provisions were recorded in fiscal 2023 with respect to our large slow paying customer. Total expected credit loss for the year. Again, IFRS construct under the audit. requires a lot of assumptions and valuations, resulted in a charge of $9.9 million. This essentially decreased the receivable to a net value of future expected consideration. This is in line with the collaboration agreement that we signed with this partner that was previously outlined in our news releases. where Iguana felt that value and kind consideration like inventory, where we could deploy it in the VPP space, had current value. And so we worked on that collaboration agreement. With continual contact with our customer, they are making efforts to improve their business and their financial position, and they do remain committed to paying these amounts. But there is an uncertainty in the amount and the timing that they will eventually deliver to Iguana. The net loss for fiscal 2023 before tax was $35.5 million, which included this large $9.9 million expected credit loss and can also be attributed to lower margins, higher expenses, increase in financing costs, accretion from prior year's debt financings. Moving on to quarter end March 31st, 2024, Q1 revenue for 2024 was $1 million, and this was a significant decrease from the strong comparative quarter at March 2023. Q1 2023 was the last strong industry quarter, and we've since seen significant market contraction overall in global solar markets. Q1 2024 revenues are indicative of the slow market recovery in North America, particularly with microinverter sales, which has previously been a market driver for all residential solar-based products. Q1 2024 gross margin was approximately 7.4%, an improvement from the comparative quarter. Inventory impairment and warranty charges in the first quarter of 2024 were nil and small. Q1 2024 operating loss was $2.0 million, a decrease from $3.2 in the comparative March 2023 quarter. This improvement is largely due to lower expenses in all categories in the first quarter, as the company made efforts to reduce headcount, reduce development spending, and overall spending to align to market conditions. Working capital and cash remain constrained, in this market, as Justin outlined at the start. Both our year-end and our quarter-end financial statements do contain going concern disclosures. And management has been navigating this and working very closely with our senior lenders. Our secured lender has deferred various amounts of monthly payments starting in December 2023 up to and inclusive of June 1, 2024. And our debenture holder has deferred their interest payment or cash or shares in lieu, originally March 1st, 2024, out to August 31st, 2024. The constrained liquidity position has made it imperative that the company focus on near-term strategic opportunities like the utility accelerator and continued cost reductions throughout the company. Thank you, and I'll turn it over to Brent to talk about that accelerator program and some updates on business development.