Eguana Announces Second Quarter 2023 Financial Results and Business Update - Seite 2

Fiscal Q2 2023 Financial Highlights

• As a general reference note, the Company changed its fiscal year-end from September 30 to December 31, with December 31, 2022 being the first financial year-end with the new date and comprised of five quarters. As a result, the comparative period for the second quarter of 2023 is technically the third quarter of 2022, both at June 30th, in the respective years.
• Q2 2023 revenue of $2.1 million, a slight decline from the comparative quarter in June 2022 with revenue of approximately $2.3 million. This is related to macro-economic factors in the industry, and in general, with respect to consumer spending, which has slowed sell-through within renewable distribution networks. Generally, the rate of change related to 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 in near-term market growth, however, we anticipate that the second half of 2023 will be stronger, driven by the early success of our partner training programs and in line with cyclical year-end demand. Currently, we are seeing increased inventory movement and some easing of these negative factors, which may take into early 2024 to see a return to normal.
• Q2 2023 gross margin is eroded at these low levels of activity and was approximately 0%, the same as the prior comparative quarter for June 2022. Management anticipates 4%- 6% margin growth 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 sub-assemblies 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 drive an additional 12%-14% margin in 2024.
• Q2 2023 operating loss of $4.2 million, an increase from a $2.6 million operating loss for the comparative June quarter in 2022. This increase is largely due to higher expenses in product development of approximately $0.8 million and for sales, marketing, and business development of approximately $0.6 million, both expenditures are expected to support strategic growth objectives.
• Working capital at June 30, 2023 was $22.6 million, a decrease from $33.7 million at December 31, 2022. The decrease relates to ongoing cash used in operations, and the inventory loss from the product theft, which is detailed below.
• At June 30, 2023, the Company has a large accounts receivable balance from one customer of which approximately $14.5 million is over 90 days, The customer continues to be delayed in making payments however, progress payments have been increasing steadily as the market gradually opens up. The Company originally recognized an expected credit loss provision at year-end December 31, 2022 and adjusts the estimate on a quarterly basis, in line with generally accepted accounting principles. For the three months ended June 30, 2023, an additional estimated credit loss was recognized of $503,516. 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.
• 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 $2.1M 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 sent to insurers. The Company is insured and is anticipating full recovery, however at period end, it had not received any proceeds. Subsequent to June 30, 2023, the Company received partial insurance proceeds of $623,913 USD and further proceeds are expected and being pursued with the insurer for the balance of the loss.

The Condensed Unaudited Consolidated Financial Statements and the Management Discussion and Analysis thereof, for the three and the six months ended June 30, 2023, are available on SEDAR at www.sedarplus.ca.