Crown ElectroKinetics Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 7 speakers on the call.

Operator

Morning, everyone, and welcome to the Crown Electrokinetics Corporation Third Quarter 2023 Conference Call. At this time, participants are in a listen only mode. A question and answer will not be following the management's remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of the Crown's website.

Operator

I will now hand the conference over to Jason Assad, Director of Corporate Communications, for introductions and the reading of the Safe Harbor statement. Please go ahead.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to Crown's Q3 20 with us today on the call are Doug Croxell, Crown's Chief Executive Officer and Chairman and Joel Kurz, Chief Financial in addition to Mike Sullivan, David Martinez and Jeremy Hubbard from our Fiber Optics division. Before we begin, I'd like to remind you that today's call contains certain forward looking statements from our management made within the meaning of the Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates variations of such words and similar expressions are intended to identify forward looking statements. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the Risk Factors section of the company's quarterly report on Form 10 Q for the Q3 ended 2023 filed with the SEC. Copies of these documents are available on the SEC website at www.sec.gov.

Speaker 1

Actual results may differ materially from those expressed or implied by such forward looking statements. The company undertakes no obligation to update these statements no revisions or changes after the date of this call except as required by law. Now at this time, it's my pleasure to introduce Doug Croxall, CEO and Chairman of Crown. Doug?

Speaker 2

Thank you, Jason, and welcome everybody to our Q3 earnings call. We're going to do things a little bit different than our traditional earnings call, which typically is just myself and Joel Crude speaking. We had an investor call a little about a month or 2 months ago, I guess, and you got to hear from Dave Martinez and Mike Sullivan. So today, I'm going to give a general corporate update, I'm putting on a couple of highlights and then I'm going to hand the call over to Dave Martinez, who will go through a customer update Mike Sullivan, who will go over a construction update and newest to our team is Jeremy Hubbard, who runs recruiting for us and he will go through a recruiting and personnel update. So as you saw from our recent announcement, we've added our 3rd MSA, our 3rd customer and we started work on customer number 2, so we have 2 active projects now in the field.

Speaker 2

Both of these are in Arizona in the Phoenix area. One is microtrenching and one is traditional directional drilling. We as we had mentioned before, we're going to continue to focus on the Arizona market, I spent time with our customers last week and there are there's significant work for us to do. We will continue to add customers and we'll continue to add more and more projects with the customers that we've already announced. We do think that there will be some opportunities to move out of the state of Arizona.

Speaker 2

And when those arise, we will look at those As long as they're within the general vicinity of Arizona or the Southwest, West Coast area. We also expect and we should be adding another hopefully 2 to 3 MSAs before the end of the calendar year. I know that we get a lot of requests as to who the customer actually is. And while we are precluded from putting our customers' name in press release, I do want to give some insight as to whose fiber optic network we're building and who the prime contractors are that we're working with. So the work we're doing in Arizona currently is for fiber optic networks that are going to be owned by Google Fiber, Verizon and Gigafiber.

Speaker 2

Some of the prime contractors that we're working with are Tilson, MasTec, MiRx and BlueEdge. So while we can't go into specifics, at least not today, as to what each of those customers are going to represent, those are the type of customers that we're working with. Some of the best construction companies in the country and obviously some of the best fiber optic networks And the country as well. So I want to move quickly on to the EK Film side because the rest of the team is going to bring you up to speed on the rest of the fiber optic side, on the film side, we actually just got word yesterday that some of our mastering that was being done with our vendor in Europe, has come back positive. So we're looking to go to the next step in our mastering phase.

Speaker 2

We expect that we should have 12 inches masters done sometime before the end of the calendar year And be able to cycle that into our production with product coming hopefully towards the end of Q1, next year or early Q2. We will continue to provide updates on the film business and the film mastering as those occur. One of the things that we also want to do this year, which we've not done in the past, is that after today's earnings call, you don't typically hear from our company until our 10 ks earnings call, which isn't until typically

Speaker 3

the end

Speaker 2

of March. And so that's obviously 4 months, 4.5 months. So what we're going to do sometime in mid January is another investor call like the one that we did in mid September, where you're going to get to hear from the team. We're going to give you an update on customers, revenue, EBITDA, and all the things that you're going to hear about today. So with that said, I'd like to turn the call over to Dave Martinez,

Speaker 1

who's going to

Speaker 2

walk through some of our customers.

Speaker 3

Hey, Doug. Hello, good morning, everyone. It's my pleasure to be here again today. I want to share with you a few of our new opportunities that we have been able to secure with 3 of our key customers since our last update. The first customer is a Houston based company focused on developing fiber network infrastructure solutions and is a premier provider of engineering, Design and Construction Services to the Pipeline and Utility Industries.

Speaker 3

It is a subsidiary of a much larger parent company consisting of over with this customer, we have been able to secure 3 HDD Horizontal Directional Drill Projects in the Phoenix, Arizona market, more products are expected to be awarded as the permits and work is available. In this market, it seems to be an almost weekly basis. Just this last week, we met with this customer to discuss a partnership for a project in Northern Arizona that is over 1,200,000 feet of directional drilling and another 600 feet of aerial. Although this is still in the early stages, we are working diligently with the customer to secure this award. The second customer has been involved in some of the largest and most complex construction projects across the country.

Speaker 3

With offices across North America, 80 plus years of experience and nearly 32,000 employees, this customer has become a leader in the infrastructure construction. We recently secured an MSA Master Service Agreement with this customer. During a recent meeting we have with them in their Phoenix office, they shared with us some of their projects, timelines and their need for partners with Microtrend capabilities, they were very excited to hear that we have those Microtrenders and we can place them on their projects immediately. We will be following up with this team this week to further discuss the logistics and the timing of the project and awards. They have also shared with us that this project is expected to run 7 to 10 years.

Speaker 3

The 3rd customer that I would like to share with you today is an established networking communications infrastructure company providing network infrastructure design, engineering, development solutions to the leading communication firms throughout the United States. This past week, we have signed an MSA with this customer and through this customer, we have secured a project that includes work from microtensing, fiber placement and fiber splicing or a global internet service provider has provided the services to a local municipality through this customer. This project is expected to run 5 to 7 years. Please state, we are excited about this customer relationship as they are to have our crews, skill set and equipment as part of the development offering. So much so that we will be we are discussing future local projects and multi state projects with this customer.

Speaker 3

For our future pipeline, our team has been working diligently to expand our customer base and grow our teams to meet and exceed the current and future needs of our customers. Over the next month, we will be speaking with 3 nationwide companies and 1 international company about their needs and how Crown Fiber Office can be part of their solution in building better communications. We look forward to everything that's coming down the pipeline. It's going to be an exciting adventure. I'm glad that we're here.

Speaker 3

With this, I would like to go ahead and pass the call over to Mike for construction updates.

Speaker 4

Thank you, Dave, And hello, good morning. It's a pleasure to meet with you today and provide an update on our status. Currently we have established a yard office and shop facilities in Arizona. This location is close to our work workload in Mesa and Chandler, as Dave described with the current contracts we have. This eliminates a lot of windshield time and gets us on the job efficiently and effectively.

Speaker 4

Additionally, we'll be adding fuel storage to our yard, which again increases our efficiency and cement silos and I'll go over that later as we discuss volumetric trucks. For production equipment, we have 3 directional drills we're ready to go. We have the crews established to manage those machines. Total production between all three machines is around 2,200 feet per day. We have microtrenders in market, 2 units are here right now we

Speaker 2

are now capable

Speaker 4

of producing 4,400 feet per day and we have 3 additional units ordered. And as I said, volumetric cement trucks, we've ordered 2. 1 is on its way here. 2nd one is in the manufacturer right now. And the reason we're going with that is that increases our effectiveness and efficiency in the field.

Speaker 4

Rather than ordering ready mix, we can produce our own grade of concrete or slurry and clean up our job sites. This allows us to continued production because our cleanup is done and that puts more permits and more work in front of us. Additionally, we have 3 vac units and 3 additional units coming in, vac unit is a piece of support equipment that is required with both directional boring and Microtrenching. We've established direct relationships with the manufacturers of this equipment we have a projected pipeline and production reserve as we increase contracts and production goals. As Dave described, the pipeline of work is ongoing and increasing as we move along here, the market is huge right now for telecommunications infrastructure, we anticipate 5 to 8 years of growth in this market.

Speaker 4

Therefore, we've coordinated the effort of equipment procurement and staffing such that we can address the needs of our clients. With that, I'm going to introduce Jeremy Hubbard, Director of Recruiting. Thanks, Mike. Thanks, Dave.

Speaker 5

It's a pleasure to be a part of this team. As the Director of Recruiting here at Crown, I lead the talent acquisition strategy and execution for our growing and dynamics organization. Behind me, I have over 15 years of experience in the staffing and recruiting industry, working with clients across various sectors, disciplines and geographies. I'm born and raised here in Arizona. I hold a great market behind me and I hold core competencies in business planning, sales, compensation as well as employee benefits and new business development.

Speaker 5

I hold 2 degrees in international business and marketing from the University of North Florida as well as studied abroad in 3 different countries to gain a global perspective of cultural awareness in our market and a variety of other industries. I'm very passionate about finding and retaining the best talent for Crown Fiber and empowering them to succeed and thrive in their roles. So what I'd love to share with you today is just our current status, where we're moving, where we're grooving and where we're growing here in the near future, so currently we have 5 crews established. In just 1 month, I was able to design 5 crews comprised of skilled labor, general labor, equipment operators, foreman and leadership, of course. This has been instrumental in breaking ground on our first project, which we did break ground on time and is currently in process.

Speaker 5

We're very excited about that. In addition to my recruiting efforts, I've also brought on 3 subcontractors to help us with the added business that we'll be bringing on board. That way we as I build out this squad and multiple other teams, we can also grab other business that may come upon us. I do have additional subcontractors in process as well to tag into whenever we need. So very good on that side.

Speaker 5

I also want to foreshadow some expected growth due to these new clients that David and Mike shared with you. I'll be building out teams for our fiber slicing division, engineering team, microtrench team and then continuing to build out our directional drill teams. Part of my recruiting processes is working hand in hand with Dave and Mike is identifying the needs in regards to the equipment that Mike has gotten for us as well as how what talent do I need to bring in charge with that equipment to achieve Dave's projects. So it's posting, recruiting, interviewing, hiring, onboarding, then training these individuals with our given clients and then getting them on the ground. I also have enlisted virtual HR partner as well as standard industry recruiting tools and I'm utilizing a variety of roles from our current workforce as well as through my own network to build out these squads.

Speaker 5

Building a culture is Extremely important to me as we build out these teams, how we're defining that culture, of course, is finding

Speaker 4

individuals that

Speaker 5

are self thinking, motivated, that are want to work as a team and developing a sense of teamwork and family within this workforce is really what we're after and then showing these employees that we genuinely care about them. We want this to be a job. We want this to be a career and I'm making that evident on day 1 and following it through the interview process so that David and Mike we can keep that flow and culture rolling as they hit the ground. So outside of that, I am doing a variety of team building events, family building events, our benefits are top notch as far as the competitive wage, health benefits, 401ks, ESPP and really just branding us outside of that is another option we're going into, which is community event, networking through local councils and business executives as well as getting our faces out we have 2 conferences throughout the nation, primarily in the Southwest region. We've already identified 4 conferences that will be in attendance In the following year.

Speaker 5

So very, very bullish on the employment market. While it does remain highly competitive here in Arizona in regards to a ton of business, I feel very confident in our market that I will be able to provide and deliver every person we need to get every one of these projects moving.

Speaker 6

Thank you, Dave, Mike and Jeremy for those updates, and good morning, everyone. Today, I'll be discussing Crown's 3rd quarter financial results. But just ahead of that, though, I wanted to address the minimum bid price notification, which we received from NASDAQ on October 19, we have 180 days from that date to again trade above $1 for 10 consecutive days to regain compliance. We are confident that the progress we're making, as you just heard, against our strategic plans will mean that we again we will also prepare alternate options to ensure that we retain our NASDAQ listing. On to the financials, Crown's pre tax loss for the Q3 2023 was $2,900,000 this loss was $300,000 lower than the same quarter ended September 30, 2022.

Speaker 6

We did not record any revenue or the revenue in Q3 as we focused on building out our organization and equipment in preparation for the Q4 projects, which are now underway. And as you heard, there's a huge amount of work that's gone into that and a huge amount of progress that's been made. Operating expenses for the Q3 were $3,400,000 of that research and development expenses were dollars 500,000 a decrease of $500,000 compared to the 3 months ended September 30, 2022, primarily due to a decrease in salaries and benefits. SG and A expenses were $2,900,000 for the quarter, which represents a $700,000 increase versus Q3 of last year. This was primarily due to an increase of $500,000 in professional fees related to Crown's significant transactional levels.

Speaker 6

Other income was $600,000 for the 3 months ended September 30, and that was compared to 0 in the prior year's quarter. Other income consisted of a $3,000,000 change in the fair value of our warrants, notes and derivative liabilities, which was related to remeasurements. This other income was offset by interest expense of $2,400,000 primarily consisting of amortization expense from our lines of credit. Crown's net cash increased by $2,000,000 in Q3, dollars 5,500,000 was provided by from financing activities we're $4,500,000 from the equity line of credit and $1,800,000 from our ATM. This was offset by $700,000 of debt repayment as we eliminated debt from our balance sheet.

Speaker 6

Net cash used in operations for the 3 months ended September 30 was 2,800,000 dollars 700,000 higher than the same quarter in 2022, driven primarily again by the increase in professional fees. Net cash used in investing activities was $700,700,000 this was dedicated to fiber optics equipment acquisition. Overall, this infusion of equity driven capital has been very important Crown's shareholder equity levels, which increased by $4,700,000 in Q3 to $9,300,000 leaving Crown comfortably above the $2,500,000 NASDAQ compliance threshold. That it concludes the financial section. I'll now throw it back to Doug.

Speaker 2

Thank you, Joel. And again, thank you, Mike, Dave and Jeremy, for all your contributions both to this call and to the efforts behind Crown Fiber Optics. I just want to remind people that if you look back 1 year from this day, we had no business in the fiber optic industry. We had no customers, we had no equipment, we had no personnel. Today we have 3 very large customers with lots of work for us to do.

Speaker 2

We'll have more customers as well. Those customers will provide us revenue. We have equipment to handle the current customer need and we will have more equipment as the customer needs grow. And we have personnel to handle the customers today and we'll have more personnel as we grow our customer base. And I want to thank everyone for their patience.

Speaker 2

And we will have some communication in the next month indicating which day in January we'll do our next investors call and we look forward to talking to everyone at that time. Thank you.

Operator

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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