Crown ElectroKinetics Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

There are 3 speakers on the call.

Operator

Afternoon, everyone, and welcome to Crown Electrokinetics Corporation First Quarter 2023 Conference Call. At this time, participants are in listen only mode. A question and answer session will follow management's remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of Crown's website.

Operator

I will now hand the call over to Jason Asad for introductions and the reading of the Safe Harbor statement. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to Crown's Q1 2023 call. With us on today's call are Doug Croxall, Crown's Chief Executive Officer and Chairman and Joel Pruetz, Chief Financial Officer. 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 On Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, Estimates and 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 10Q for the Q1 of 2023 filed with the SEC.

Speaker 1

Copies of these documents are available on the SEC's website At www.sec.gov, actual results may differ materially from those expressed or implied by such forward looking statements. The company undertakes no obligation to update these statements for 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. I'd like to thank everyone for joining us today for our Q1 2023 conference call. The Q1 of 2023 was extremely busy for Crown, with our fiber optics M and A activity, numerous transactions associated with $7,000,000 finance that was raised, the $100,000,000 line of credit and the $100,000,000 line of credit that we secured. While our financials are in good shape, we've elected to file an extension on filing our Q, so that the company and our auditors can have a thorough review We'll be filing our Q before next Monday, May 22. So I want to turn To the Electrokinetic business to start, we Announced in our shareholder letter a couple of weeks ago that we were able to produce our very first prototype that measures 7 feet by 2 feet, A huge announcement.

Speaker 2

It's a big accomplishment frankly for our team in Corvallis, Oregon. It allows us now the path to get the 1st generation smart window insert built and out the door. We're targeting Somewhere in the next 3 to 4 months to be able to achieve that, we will give you an update, as we get closer to those dates. We continue to have discussions with our customers. Again, to remind everybody, our primary focus is to create a Smart Window insert, which will be installed in U.

Speaker 2

S. Office buildings, and our intent is to be able to do that, like I said, in the next 3 to 4 months. As we continue to talk not only to our customers, we're continuing to have discussions with strategic partners who can assist And if necessary, assist in the manufacturing of our film and potentially assist in the assembly of smart window inserts. So we'll continue to push forward. We still have a very active process with our customers.

Speaker 2

There's definitely a need. This is an energy savings product for them and it's also a cost reduction product for their buildings and we look forward to getting that first product out the door in the next 3 to 4 months. Turning our attention to our newly created Fiber Optics division. For those of you who may be new to the company, in January of this year, we announced an asset purchase agreement in which we picked up some contracts, some equipment and some other assets to allow us to move into A new area and that's fiber optic construction. How we got to the fiber optic construction is really Christine story.

Speaker 2

While we were meeting with a U. S. Office building owner in New York, they had mentioned that They would like to talk to Crown about potentially buying a distributed antenna system from Crown. Our Smart Window Insert has the capability of taking data, weather data, sunlight, position of the sun And it takes that data through a communication system that we put in the building and it allows us to help the building run that smart window insert smarter, allowing them to save more money. That telecommunications system that we put into the building, led to a conversation with 1 of our prospective customers about building a distributed antenna system, which is really just fiber optic cables and antennas put throughout a building in order to propagate a sell signal more deeply and more clearly within a building.

Speaker 2

That conversation led us into this entire world of fiber construction,

Speaker 1

which has

Speaker 2

led us to where we are today. And I'd like to announce at this moment that we signed our 4th MSA In the Northwest region, this is now the 3rd new customer that we have acquired since we announced the acquisition of our assets in January of this year. It's a 3 year contract. We should have a purchase order coming from this Hopefully within a week or so and we'll obviously make that announcement as to what that will mean to our revenue generation Once that once we have that in hand and again we're hopeful to have that sometime in the next week or so. In our shareholder letter that we announced a few weeks back, we had talked and actually in our earnings call that we had at the end of March, We had discussed what we believe we're going to do in revenue and what we think we will generate in EBITDA, all coming primarily from the Fiber Optic division.

Speaker 2

In light of this new contract that we've just signed and in light of the fact that we should have a pretty significant purchase order that comes from that contract, We're going to hold off on recasting any of our projections. At this point, we will have another shareholder letter that we will draft and have out sometime in the next 2 to 3 weeks, which will give the investing public guidance on what we think we'll be doing in revised revenue and EBITDA For calendar 2020 3. The macro tailwinds for the fiber optic division remain very strong. There's a lot of efforts around the country to deploy fiber optic network, in order to get not just fiber optic To the home, to the business, but also to get 5 gs signals, rolled out across the country. So we're the benefactor, frankly, of Pretty strong demand from the consuming public in voice, data and video.

Speaker 2

And we're We have a very robust pipeline that we're building not just with our own efforts, but also efforts that we have with other individuals And other companies that we're working within the fiber optic network. Frankly, from a business standpoint, we've never seen opportunities of this size, Greatly outsized what we thought we would do within the Smart Window Insert business, and it's pretty exciting, frankly. So we're going to continue to update the shareholders as we have updates. But obviously, the big takeaway from this call is the 4th contract that we've signed, 3 year contract, And we will announce the purchase order once we have that executed and in hand. Literally 45 about an hour ago, we received an email notifying us that NASDAQ Has accepted our proposal and that we are have been granted an extension through to August 28.

Speaker 2

For those just to review, there were 2 issues that we had to deal with in order to maintain our NASDAQ listing. The first issue is the bid price. We have to trade above $1 in order to satisfy that ongoing listing requirement for NASDAQ. And the second issue was the equity rule. We have to maintain a $2,500,000 balance in our equity account in order for ongoing NASDAQ listing.

Speaker 2

We believe that Once we file the Q this week, we will have resolved the equity issue with NASDAQ and we already have the shareholders permission To do a 1 up to a 1 for 15 reverse, if needed in order to achieve the $1 minimum bid price. And in all respects, we have until August 28 to accomplish both of those goals. Really good news, frankly, and We had always thought that they would grant us the extension, but it's nice to officially get it. And we will have an 8 ks filed sometime in the next day or 2 that outlines this in more detail. We also are actively trying to clean up Our balance sheet, both in repaying and retiring and exchanging debt, so that we have a clean cap structure going forward.

Speaker 2

We're very optimistic obviously about the future of the company, specifically as it relates to the fiber optic division, But also as it relates to the Smart Window Insert, we've had some great breakthroughs with that and we're really excited to get the first product out and in our customer hands later this year. We don't have any analysts that cover the company right now. We have engaged in conversations with analysts that are on the telecommunications Infrastructure side of the business and so hopefully we'll pick up coverage from 1 of the analysts over the next 3 to 6 months. And so it's hard to set up analyst calls for our earnings call, but what we've decided to do Is that we get questions on a daily basis, typically through our infocrownek.comemail. And so Jason has taken a lot of those questions and kind of categorized them into one of about looks like 5 different questions.

Speaker 2

So I'm going to read the question and then provide the answer that hopefully will help keep everybody informed about the company. Question number 1, can you please talk about the delay in the GEN-one inserts delivery? So we've addressed this a little bit in some of our previous earnings calls and press releases. In order to deliver a GEN-1 insert, we need to be able to produce our Film at a wider width than what we've been able to in the past. The breakthrough that we announced, the 7 by 2 foot insert obviously has allowed us to manufacture film at a greater width than what the standard width was, which was about 6 inches And so this will open up our delivery schedule.

Speaker 2

We're trying to get first product out sometime in the next 3 to 4 months. We won't be shipping a lot of The smart window inserts, but enough to sprinkle into some of our customers building so that we can start getting good feedback, for our Gen 2 insert. The next question. Has the technical issue been resolved and when will the first units be received by the customer? So to To some extent, the technical issue has been resolved.

Speaker 2

There are many paths that we were approaching the issue of film with. And so obviously one of those paths has worked. That's why we're able to build the 7 by 2, the 7 foot by 2 foot insert. We still have other challenges that we will constantly have to overcome moving from proto production to production. There's a lot of other issues that you have to deal with.

Speaker 2

You don't know what they are necessarily, but you know that they come up. And we still have other paths that we're still pursuing for web A wide web film, because you never know which path will provide the greatest opportunity for the company. So yes, we have resolved some of the issues. There are obviously other issues that we don't know of that always come up, but we're pretty confident that we'll be able to resolve those as well. And again, reiterating, we think that we'll have our first product out the door sometime in the next 3 to 4 months.

Speaker 2

3rd question, it almost seems like The volume of opportunities for Crown Fiber Optics is so big that it may be too much for a smaller company to handle. How do you intend to scale business to keep up? That's an incredibly legitimate concern and question. It's a question and a concern that definitely keeps us up. When I look at our pipeline and the dollar volume of the potential revenue In the pipeline, it's measured in the billions, frankly.

Speaker 2

And so part of the way you handle it is you pick and choose Which projects you can handle and you grow the company through kind of the old traditional means, have a good infrastructure, Have a good management team, find good customers that you're working with. We believe that we can do a considerable amount of Funding off of our purchase orders, and not necessarily through the sale of equity. And so we'll look to kind of grow the business One customer at a time and one purchase order at a time. As far as how do we find the equipment To work on the projects, how do we find the field technicians to work on the product? There are a lot of A smaller contractors out there that we can work with, the equipment is a little bit more challenging, frankly, But we have learned pretty quickly and if you work with the right partners on this, they also have equipment of their own.

Speaker 2

So there's no Silver bullet to that question. It's just good management, good funding to fund your growth and a disciplined approach On which customers to take on. Question number 4. Can you please discuss the next steps with respect to your NASDAQ listing? Yes, we actually we just went through that, but we're in really good shape.

Speaker 2

We'll be able to meet the equity guideline, we believe once we file our Q, and we'll be able to meet the bid price guideline either On our own because we start trading above $1 or with the already approved shareholder up to 1 for 15 split That we got in our proxy contest in December of last year. And in either regard, we have until August 28 to accomplish both of those. Question number 5, do you have any best guess on when the company may achieve Cash flow positive. So kind of going back to what we talked about earlier about providing guidance on revenue and EBITDA, We will update that guidance. I don't want to do it now.

Speaker 2

I want to do it once we have the purchase order from this 4th contract in hand. That will give us a lot of ability to be as accurate as we can. So again, I will provide that update likely through a shareholder letter or Possibly through a press release. And at that point, we'll provide that guidance. That Actually, is all of the questions, the category of the questions that have been submitted.

Speaker 2

So I just want to say, When you look back at where this company was 1 year ago, we didn't know anything about the fiber optic industry. We didn't know anything about the Distributed Antenna Industry, we thought we were a lot closer to getting a first product out back then than we clearly were. So, but we've come a long way. We think we've positioned the company in a tremendous Industry for growth, for revenue production, for earnings production, we think we have a very unique way to help fund that growth This will not require endless amounts of equity raising, which I think is important to do clearly. And we're going to get the balance sheet cleaned up and get delever the company so that the equity holders can hopefully realize Some equity growth in the stock price.

Speaker 2

And we will provide updates in a shareholder letter once we have those or a press release once we have those. But the future looks really bright. Getting NASDAQ put behind us, hopefully, getting some more contracts and more purchase orders, Generating pretty significant revenue in the second half of this year, going to really help position the company to be very successful down the road. I'd like to thank everyone for their patience in sticking with Crown, and we look forward to communicating with all of you in the very near future. Operator, I'll hand the call back to you.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a pleasant day.

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