EGT.V - Uncertainty.


Eguana Technologies Inc. (EGT.V) designs and manufactures power controls for energy storage applications. Coverage was initiated on July 2017 with notes on January 2018, February 2018, June 2018. and December 2018 and July 2019.


Aug. 8 - Closing of $1.215 Million Second Tranche Private Placement. All from DHCT II Luxembourg S.à.r.l. Aug. 9 - Early Warning Report: DHCT II Luxembourg S.à.r.l. Assuming the conversion in full of the Series A Preferred Shares and Debentures, and exercise in full of the warrants held by the Acquiror following the acquisition, the Acquiror would own 90,001,182 Common Shares, representing approximately 34.76% of the Common Shares. Aug. 29 - Fiscal 3rd Quarter 2019 Financial Results and Provides Update. "The supply chain recovery from the global battery module shortage that occurred throughout the 2nd quarter caused further material constraints due to long lead items and we were only able to realize $775 thousand in revenue during fiscal Q3,” said Justin Holland, CEO of Eguana.

“However, the additional capital raised at the end of June has allowed the company to ramp its supply chain and begin volume shipments in August, during which we have already shipped over $800 thousand energy storage systems to our customers.  We expect to recognize all of these shipments as revenue in fiscal Q4.  We further expect shipments to grow during September and October and will provide shareholders additional guidance.” Sep. 3 - Completes Global Master Supply Agreement with Jabil to Manufacture Energy Storage Systems. A multi-year master supply agreement with Jabil (NYSE: JBL), one of the world's largest electronics manufacturing services (EMS) companies, to manufacture Eguana's residential and commercial energy storage systems.

Eguana has also confirmed it has secured working capital support from Export Development Canada (EDC). Sep. 10 - Updates Hawaii Shipments, Receives $1.1 Million in New Orders. Receipt of an additional $1.1 million in new orders from long standing partner Hawaii Energy Connection (HEC). The new purchase orders, which follow a record setting month of shipments to Hawaii for Eguana, are expected to ship within the next 4 - 6 weeks. Sep. 17 - Ag Solar Solutions and Eguana Technologies Bring Solar + Storage to the American Agricultural Industry. Formed a partnership to bring Intelligent Home and Business Energy Storage Systems to Farms across the USA.

The companies expect to bring over 1MWh of energy storage systems to Farmers in the USA over the next 12 months. Sep. 19 - Unitil Energy Pilots Virtual Power Plant in Massachusetts with ReVision Energy. EGT.V and ReVision Energy are pleased to announce that they have successfully launched a small fleet of distributed residential energy storage systems to form an aggregated virtual power plant under a Unitil pilot project.

Unitil has deployed four 5 kW / 13 kWh Evolve residential systems to select customers as part of a pilot program to demonstrate aggregate control of residential distributed energy resources under variable seasonal demands. Sep. 26 - Provides detailed disclosure on 2018 Mercedes Benz Energy engagement and resulting contracts. Following the termination of its supply agreement with Mercedes Benz Energy GmbH (“MBE”), the Company proceeded to secure a master supply agreement with Hanwha Q Cells for Europe, a contract with the South Australian government for early entry into the South Australian Home Battery Scheme, and a distribution agreement with Australian based AC Solar Warehouse to support its entry into the Australian residential energy storage market.

With the assistance of the MBE Endorsement, engineering report, and access to MBE’s sales pipeline, Eguana proceeded to secure a master supply agreement with Hanwha Q Cells and a distribution contract with Australia’s AC Solar Warehouse, for an aggregate amount of $12.6M.

To date, Eguana has received $637,054 in revenue under the foregoing agreements with additional shipments in transit to both customers as well as having units through various stages of the manufacturing cycle. All corresponding revenue is expected to be fulfilled in full by 2021. As a result of the early termination of the MBE Supply Agreement, Eguana did not realize the originally forecasted MBE contract value of $13 Million (January 29, 2018). Oct. 23 - Provides Update on Recent Shipments, Jabil Transition. Confirming gross sales of approximately $1.8M from shipments in August and September, double the value of shipments made in the third fiscal quarter.

The timing with which the Company recognizes product shipments as revenue depends on several factors including the fulfillment mode used, and the defined Incoterms (International Commercial Terms) for each customer

Eguana also updated on its manufacturing transition to partner Jabil Circuit, confirming supply chain information transfer is complete and first units are expected to be tested in the next four to six weeks. Oct. 29 - $1.8M in New Orders, Hawaiian Market Continues to Accelerate. Announce the receipt of $1.8 million in new orders in addition to the $1.1 million announced in September as the Hawaiian market continues to grow. New orders are expected to ship over the next 8-10 weeks.

“We continue to see positive growth from the Hawaii market where HEC remains securely planted as a market leader and innovator” commented Eguana CEO Justin Holland. Oct. 31 - Launches the Enduro in Australia. Enduro has passed all early testing and is expected to be fully certified for the Australian residential energy storage market in November. Eguana is launching the Enduro product in Australia based on demand for a lower price point product to complement the Evolve, under its own brand. Nov. 4 - Expands California Sales Coverage, Increases Dealer Partners. The Company has confirmed 31 new dealer partners in California over the past 4 weeks and has announced a $1,000 rebate program for California homeowners in conjunction with distribution partner CED Greentech.


Rebates will be applied to orders received between November 1st and December 31st, Eguana has confirmed new orders have been received from multiple California CED Greentech outlets in relation to the program. Jan. 6 - Enters Into Short Term Financing Agreements Securing Additional Working Capital. Entered into an amendment dated December 31, 2019 to the loan agreement (and related loan documents) dated December 20, 2017 (the "WTI Loan") with an affiliate of Western Technology Investment.

Lender has agreed to accept reduced monthly payments comprised of interest only for four months commencing November 1, 2019 through February 1, 2020, The WTI Loan will continue to bear interest at a rate of 12.5% per annum and under the Loan Amendment, will be repaid February 1, 2022.

In addition to the Loan Amendment, the Company closed a short-term bridge loan financing (the "Bridge Financing") in the principal amount of $280,000 with certain accredited investors, including the Company's Chief Executive Officer.

The additional funds will allow the Company to execute the new orders over the next 90-120 days," stated Justin Holland, CEO of Eguana. "The amendment and bridge also provide a cushion to execute the North American and Australian inverter manufacturing transition to our contract manufacturer, which is scheduled to take place during the second fiscal quarter, and further reduce upfront working capital requirements for the Company Jan. 20 - Enters into Development Contract for Residential Energy Storage Systems. With a leading renewable energy company, with significant investments throughout the energy storage supply chain, to develop and certify proprietary residential storage systems for distribution through its sales channels across global markets.

“The Company has maintained fleet aggregation and virtual power plants will drive substantial growth in all residential markets, this new initiative will deliver certified products perfectly positioning Eguana into both of those segments. Work has commenced, and we expect to begin prototype testing by the end of March 2020.”

EGT.V has confirmed the contract value of +$1M and has received upfront payments of over $0.75M with balance due upon successful product certification. The partner will distribute and sell the solution through their channels. Jan. 27 - Announces Operational Update and 2019 Annual Results. EGT.V’s operations team expedited the supply chain and by the end of the fiscal year reduced its lead times from 12 to approximately 6 weeks, positioning the Company to increase deliveries into a record and growing order book.

The Company’s Q4 revenue was over $825,000, compared to $119,000 for the fourth quarter 2018, with an additional $800,000 delivered into the Hawaiian market in the first half of October, after the September 30th quarter close.

Manufacturing throughput will continue to increase as the transition to Jabil, of all inverter production, is completed by March, and additional benefits from increased working capital for North American orders are realized at that time. Feb. 26 - Announces Debt Settlement with Doughty Hanson. Agreed to settle C$60,000 of debenture certificate through the issuance of common shares at a deemed price of C$0.11 per share. Mar. 2 - Announces $5.0 Million Strategic Investment by ITOCHU Corporation. In the form of unsecured convertible debentures (the "Debentures") of the Company; $0.15 cents - Warrant $0.20 cents. As part of the arrangement, Itochu will procure for and supply Eguana the required lithium batteries for manufacturing Eguana products.


Use of proceeds will be allocated to fund working capital and general corporate expenditures of the Company. Mar. 2 - Announces 1st Quarter 2020 Financial Results and Provides Update. Revenue was a quarterly record at $2,8M for Q1 2020. The Company will build on its first quarter success by completing its contract manufacturing transition of the Evolve circuit board package during fiscal Q2, furthering cost reduction opportunities through supply chain management and collaboration with its contract manufacturer, Jabil Circuit.

Mar. 16 - Closing of $5.0 Million Strategic Investment by ITOCHU Corporation. “The Moixa GridShare AI integration and testing with our Eguana Evolve is on schedule to complete later this month and will be available for field trials in April. The new product will open additional third-party ownership (TPO) and fleet aggregation channels through our strategic partnership with Itochu,” commented Justin Holland, Eguana CEO.


“We will also begin transitioning the battery supply chain over to Itochu which will further reduce up front working capital requirements and bring consistency to our battery module availability as we continue to ramp up operations and clear back logged orders in Hawaii, California, and South Australia.”

Summary

In the last nine months EGT.V traded between $0.045 cents and $0.16 cents.


Financing

On August 8, EGT.V closed an oversubscribed financing of $4.2M ($3.0M was the initial amount) at $0.15; Warrant $0.20 cents. DHCT participated in the financing and reportedly cumulatively owned 34.76% of total shares. On March 16, EGT.V closed of $5.0 Million Strategic Investment by ITOCHU Corporation also at $0.15; Warrant $0.20 cents.


Overall, more than $9M have been raised in the last nine months.



Earnings

Results for the last five quarter are encouraging with Q1 2020 representing a break with historical top line numbers.

Outlook

On September 26, EGT.V clarified the terms of the Termination of its supply agreement with Mercedes Benz Energy GmbH (“MBE”) along with a transition to the master supply agreement with Hanwha Q Cells for Europe.


"Eguana did not realize the originally forecasted MBE contract value of $13 Million (January 29, 2018). With the assistance of the MBE Endorsement, engineering report, and access to MBE’s sales pipeline, Eguana proceeded to secure a master supply agreement with Hanwha Q Cells and a distribution contract with Australia’s AC Solar Warehouse, for an aggregate amount of $12.6M "


Hence, the transition from MBE to Hanwha Q Cells represent roughly the same value in terms of aggregate amount. However, it appears that valuation was hurt by it as subsequent to the announcement EGT.V's valuation declined.

One key reason is perhaps this clarification: "All corresponding revenue is expected to be fulfilled in full by 2021."


On October 23, EGT.V provided an update confirming gross sales of $1.8M and doubling the value of shipments made in the third fiscal quarter but it also specified.


The timing with which the Company recognizes product shipments as revenue depends on several factors including the fulfillment mode used, and the defined Incoterms (International Commercial Terms) for each customer.


While the news was positive in clarifying progress, it had a negative impact on the price. There was a slide in valuation from $0.10 cents (October 23) to $0.045 cents 0n December 3rd when more than 8M shares were traded. Could this be an indication that a large shareholder decided to exit at this time because of the anticipated 2021 fulfillment date?



ITOCHU, Hanwha Q CELLS, and Jabil

On March 16, ITOCHU has committed to integrate its product (The Moixa GridShare AI) with EGT.V's Evolve, as well as, procure for and supply Eguana the required lithium batteries for manufacturing Eguana products.

The ITOCHU deal is complementary to the Hanwha Q CELLS partnership (an exclusive agreement) to market, sell, and distribute the Eguana Enduro Home storage system throughout the European Union, Switzerland, & Norway.


More importantly, ITOCHU invested in directly in EGT.V which is different from Hanwha Q CELLS distribution deal.


On September 3 EGT.V announced a Master Supply Agreement with Jabil. At the time, it was reported that Jabil will initially focus on QCELLS Enduro production. On October 23, providing an update EGT.V stated: "confirming supply chain information transfer is complete and first units are expected to be tested in the next four to six weeks."


On January 27, As part of an update and earning release, EGT.V reported: "manufacturing throughput will continue to increase as the transition to Jabil, of all inverter production, is completed by March...".


On March 16, closing the financing with ITOCHU: We will also begin transitioning the battery supply chain over to Itochu which will further reduce up front working capital requirements and bring consistency to our battery module availability as we continue to ramp up operations and clear back logged orders in Hawaii, California, and South Australia.

The September 3 and January 27 release indicated an acceleration of the transition to Jabil which could have been impacted by the Pandemic (Jabil is located in Italy) and/or the ITOCHU deal (March 16). It is unclear in the March 16 release to what extent (if any) Jabil "battery supply chain" would be affected. Looking back,the movement of valuation went from $0.13 cents on January 27 to $0.09 cents on March 16 right in the heart of the Covid-19 storm. Unfortunately,

unlike most other companies, EGT.V has not issued any release regarding Covid-19 and the impact on its business.


Hawaii, California and Australia. With regards to Hawaii, EGT.V announced two large orders for the period. A $1.1M from Hawaii Energy Connection (HEC) on September 10 and a $1.8M in order on October 29. It also launched of the Enduro in Australia on October 31.

Finally, it reported on November 4 that it had 31 New dealer partner in California.



Additional Partnership. In addition to the AgSolar (Solar +) to Agricultural Industry (September 17) and Unitil+ Revision Energy Virtual Power Plant (September 19) releases. EGT.V made a significant announcement on January 20 regarding the Development for Residential Energy storage with a Leading Renewable Energy that was unnamed. In the release the following is noted.

The Company has maintained fleet aggregation and virtual power plants will drive substantial growth in all residential markets, this new initiative will deliver certified products perfectly positioning Eguana into both of those segments. Work has commenced, and we expect to begin prototype testing by the end of March 2020.”

EGT.V also confirmed the contract value of +$1M with upfront payments of over $0.75M that were received. However, up to now EGT.V has not indicated the status on prototype testing which was scheduled for March 2020.



Conclusion

Overall, EGT.V has made significant progress on many fronts in the last nine months but it has not been immune to the March 2020 sell off. However, it has not bounced back to previous levels of valuation like many other on the TSXV. The lack of clarity on operational status of multiple initiatives in a Covid-19 storm represents unnecessary uncertainty.

DISCLAIMER: The work included in this article is based on current events, technical charts, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The content of rally is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions - rally cannot take responsibility for your investment decisions.

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