Eguana Technologies Inc. (TSX.V:EGT) (OTCMKTS:STGYF) (FRA:S2K1) CEO Justin Holland discusses partnership with battery manufacturer LG Chem Ltd.(KRX:051910), and how that relationship is key to the company’s anticipated profitability in H2 2016.
Listen to the interview with Justin Holland:
Audio Player
James West: Justin, thanks for joining us today.
Justin Holland: Good to be with you, James.
James West: Justin, last time we talked, Eguana was making headway through sales of your units in Germany. That arrangement has come to an end, and you’ve basically pivoted in another direction. Give us an update on what is happening withEguana Technologies.
Justin Holland: So what we wanted to do is, we wanted to broaden out our customer base, and we knew for quite some time that the US market was going to be the big market. There were competitive issues unfolding in Europe with our AC battery, and the Sonnenbatterie Eco which was our primary customer then, and we had some decisions to make going forward as to, do you stick with the one, or do you go to the many? And given the customer profiles and the pipeline we had to capture the US, we’ve gone with the many.
We’ve divided that marketplace in the US into four primary verticals, those verticals being the equipment aggregators, the solar installers, the utilities, and the electrical distributors. We have put primary customers in each one of those verticals already, and it’s that positioning that’s got us excited right now as to when the US market expands, we’re perfectly positioned to move more product than anybody else.
So we had those decisions to make, and we feel we made the right one.
James West: Okay. So that’s kind of reflected in your share price, which seems to be recovering quite nicely. So geographically, where does that put most of your product sales going out in the future?
Justin Holland: Very interesting question, James. We do see product going back into Europe by the end of 2016; we’re working with a couple of players over there through the integration process, so we do expect recovery. But in the short term, between now and second half of calendar 2016, primary targets will be moving into Hawaii and California, with a little bit of product moving into the northeast. Again, what you’ll see is, you’ll see new customer names coming out of the company, and those new customers will start moving higher volumes of product. I think everyone realizes the early mover will be Hawaii; they have just changed their net metering policies, or abolished might be a better word. That should kick-start the energy storage movement. We’re partnered today with E-Gear Energy Solutions, the number one solar installer on the islands, quite happy with that relationship, and we expect them to do big things this year.
James West: Okay. So you’ve made several announcements in regards to partnerships, where you’re selling product through other vendors. What kind of numbers are we looking at for the year?
Justin Holland: The numbers throughout the year, it’s really a wide range right now. We’re looking at customer forecasts that would triple current year; we’ve cut that back somewhat. It’s really dependent on what happens starting in Hawaii in the spring. If they roll out through the utility RFP that’s out there, you could be moving anywhere between 3,000 and 5,000 systems. There’s a solar installation backlog in Hawaii right now, 3,000 to 4,000 systems. If all of those went in, you would be looking at somewhere upwards of 20 million in revenue. It really becomes a discount exercise from that point to say what’s your best guess as to what will happen.
The growth opportunity is very, very significant right now. The actual guidance that we would give, we kind of keep close to our chest, because the answer is, you don’t know how many systems will go in. we see numbers ranging anywhere from 3,000 systems all the way up into the 12,000 and 13,000 system range.
James West: Wow, okay. So the top 10 states in the United States are California, North Carolina, Nevada, Massachusetts, Arizona, New Jersey, New York, Texas, Hawaii and New Mexico. Do you have presence in all of those states?
Justin Holland: Let’s see. You went through them pretty quick, but I would say most of them. Certainly California, Arizona, New York, New Jersey, again in through Maryland, Arizona we’re looking at, Colorado…I don’t believe we’re doing anything yet in North Carolina. I think that might be the only one I heard there, James, that we’re not in.
James West: Okay, well, that’s comforting. So then in terms of growing your market share, is the model going forward through partnerships with existing installers?
Justin Holland: Keep in mind, I’ll take you back to the verticals that we designed, and we’re looking to grow 3 to 5, 5 to 7 percent market share with each one of the customers in each vertical. Our target market share is significantly higher, because we want the accumulation or the sum of the market share that each partner gets. So if you look at the system aggregator vertical that we put together, and working with and shipping product to Sun Edison / Vivint if you will, in today’s world, we expect them to take a pretty significant share of the market. That will give us a significant share of that vertical.
When we look at the solar installer vertical, we talked the hottest market out there in the US is going to be Hawaii. We’re partnered with the number one solar installer in Hawaii. We expect them to take a large chunk of that market, which then gives us a large chunk of it. Combine the equipment aggregator plus the solar installer, where the company takes the benefit through the model that we’ve put together, and we start looking at the major player in the power controls for the storage market in 2016.
James West: okay. So then in terms of residential power versus industrial or community sort of base load power plants, what kind of penetration will you see into those larger scale applications?
Justin Holland: So we’re not targeting large scale applications at all; it’s not really the sweet spot of our technology. Our technology is really geared towards residential and small commercial. If you look at the Navigant Research, where they’re talking 16 billion by 2024, the large slice of that 16 billion, and the fastest-growing slice of that 16 billion, is the residential and small commercial space. That’s where you’ll see the explosion. The utility scale installations, we don’t expect to see a lot happening there. We expect it to be in the smaller system sizes. So from a penetration standpoint, the fastest-growing part of the market is in our wheelhouse.
James West: Interesting. All right, so then, you mentioned that you’re going to be making headway in Europe, and what’s the timeline on that?
Justin Holland: So right now, we’re looking at integration projects with a number of players. All three players have indicated the magical June InterSolar in Munichtimeline. Our expectation is to complete integration at that timeline with a product launch with increasing volumes throughout the summer of 2016.
James West: And what about Canada?
Justin Holland: Canada, we’re working with a couple of different partners in Canada. We’re doing a commercial product in Alberta; it was part of the Alberta Innovates global competition to see which companies could develop technologies to have the biggest impact on the Alberta grid. We won that competition. They were one of five to get that grant. It’s a 15 kilowatt, 30-kilowatt hour demand shaving product. That will also be available commercially next year for the small commercial markets in the United States, and further into Japan. So we will be doing some stuff in Canada; we do have a partner called Sunwave in Ontario that is linked in with our LG Chem AC battery. We’ll do some product with them, and we’re just recently working with a couple of utilities in Ontario who are looking to get into storage.
We didn’t really have Canada on the map, albeit the home country, but there are some early developments now, and we’re very much engaged with them.
James West: Okay. Making reference to that research report by Navigant, they say that 2015 is going to be the year of solar. How much of that is driven by government subsidies?
Justin Holland: On the solar side?
James West: Yeah, on residential solar adoption.
Justin Holland: Right. So if you look at what’s happening with the adoption, it was certainly started with subsidies in mind. It was kind of a German model; the Germany model started with the tariffs, and those tariffs were reduced each year until the market was driving itself. We’re going to see the same thing here in North America. They are talking about the reduction of the ITC [Solar Investment Tax Credit –ed]coming up next year; the general thought out there is, you might see a small dip in the number of installations, which will rebound within a year. So from a grand scheme of things, on the storage side, we don’t see that that’s going to have much of an impact, because the growth of storage will just be hitting that apex when the solar installations ramp right back up after the ITC removal or reduction.
James West: Okay. So Justin, tell me: when does Eguana become a profitable company?
Justin Holland: What we’re looking at right now is, the base model plan, or kind of our discounted customer plan, we would be looking at profitability in June, in the June quarter. We’re pretty comfortable with that. We do believe we’ve positioned the company properly for that, we do have the right partners to move equipment, and as they move equipment, of course our revenues will climb accordingly.
We are moving the AC battery to most of those players, which is a very good product for us. So when I look at all of those things combined, James, we’re looking at the June timeframe for profitability.
James West: Great. Well, that’s good news. So finally, Justin, has anything new emerged in your competitive landscape where you feel you’ve got somebody breathing down your back?
Justin Holland: We have not, and interestingly enough, it is something that we discuss. We brought the full team into the headquarter office in Calgary two weeks ago to have a brainstorming session amongst our engineers and development guys, our sales and marketing guys, ops and finance, and we brainstormed that exact subject: what’s out there, what are we missing, what are we not thinking about, what’s going to come out of the woodwork that we’re not ready for, and we’re still feeling very, very comfortable with where we’re sitting. We’re happy with the technology, we do have cost reduction and development activities underway which should help us maintain that leadership. But the competitive landscape is still a small handful of players that can manage low-voltage power at high efficiency, and we certainly have a development pathway that we feel will keep us at the forefront and the cutting edge.
I can’t say enough about the development guys. I’m fortunate enough that I get to see what they’re working on every day, and there’s some real ground-breaking stuff happening there. We’re going to be happy to start rolling that out in 2016.
James West: Justin, than you for your time today.
Justin Holland: James, I really appreciate it. Anytime.