Q1 2022 Crown Electrokinetics Corp. Earnings Call
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Good day, everyone and welcome to the Crown Electrokinetics Corporation earnings call for the first quarter 2022.
At this time participants are in a listen only mode a.
A question and answer session will follow 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 cross website and will remain posted there for the next 30 days.
I'll now hand, the call over to Hungary, Dubrawski introductions, and the reading of the Safe Harbor statement.
Please go ahead.
Thank you operator, and good morning, everyone and welcome to Crown's earnings calls for the first quarter 2022.
With us today on today's call are Doug correct, So crimes, Chief Executive Officer, and Chairman and John <unk>, Chief Financial Officer.
Before we begin I would like to remind you that today's call contains certain looking forward looking statements from our management made with the meaning of section 27 of the Securities Act of 1933 as amended and section 20, <unk> of the Securities and Exchange Act of magnitude 34 as amended.
Words, such as May should projects expects intends plans believes anticipates hopes estimates and.
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.
And those set forth in the risk factors section of the company's quarterly report on Form 10-Q for the first quarter 'twenty two.
Filled with the SEC 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.
At this time it is my pleasure train produce do cross sell CEO and chairman of crime.
Mr. Correct. So please go ahead.
Thank you Henrik I like to thank everyone for joining us. This morning for our Q1 'twenty two earnings conference call.
We were informed the other day of our auditors that our 10-Q will be filed on Monday, the 16th as opposed to today, but we wanted to go ahead with our earnings call anyway.
And the delay in the queue is purely a function of resource allocation and constraints with our auditor and has nothing to do with crown or its financials.
We will begin by providing a business update a crowd after Joel our CFO will review the highlights of our financial results and we expect to take your questions. After the presentation.
Crowds mission is to provide affordable smart glass solution to the commercial real estate market that will enable its customers to reduce energy expenses and in turn lower carbon emissions. Our first product is called the smart window insert powered by dynamic Chin.
And affordable solar powered insert which does not require hard wiring and can be easily installed into the interior side of existing windows and commercial office buildings crowds dynamic 10 pigment based thin film initially developed by HP is based on our proprietary and patent protected electrical cannot.
Technology.
At Crown, we recognized that windows in commercial buildings are inefficient insulators, causing HVAC system to use unnecessary amounts of energy leading to increased energy spend and excessive carbon emissions crown smart window insert easily installed into the buildings existing window frame leading.
The existing window impact this transforms a building single pane window into an energy efficient dual paned smarten.
Once installed the insert is powered by a solar strip, eliminating the need to have each smart window insert hard wired into the existing electrical system of the building crown.
Crown smart window insert absorbs sunlight, thereby reducing the amount of HVAC usage, leading to lower electricity costs and a smaller carbon footprint crowds insert also provides insulate a benefit by effectively adding a second pain to the building's existing single pane, allowing heat and air conditioning to stay in the building more fish.
Sure.
The commercial building sector is under increasing pressure from shareholders tenants and regulators to reduce the HVAC energy consumption and reduce carbon emissions as the only smart glass retrofit product in the marketplace Crown smart window insert as price comparatively to high end window blinds.
The company constantly invest in research and development.
Has contributed two important research and energy conservation through improved efficiency of Windows, including recent collaboration with the Lawrence Berkeley National Lab Brown Crown owns and operates manufacturing facility and expect to deliver its first production in summer of 'twenty two.
On previous earnings call, we announced that we had commenced a capital raised focused on raising sufficient capital to fund the purchase of two purpose built lines to manufacture our electro kinetic film and to fund our growth those efforts are continuing and I am very happy to announce today that we.
We have received terms for debt funding that satisfy our capital requirements. We are expecting additional term sheet soon and will likely decide on which term sheet, we will execute in the coming days well I want to remain transparent with our investors I'm sure that you understand why at this stage I cannot disclose any additional information.
We remain confident in our approach and outcome of this process.
Additionally, the company has secured a term sheet for equity funding at an above market price.
When coupled with our debt funding, we believe will provide working capital until approximately the end of calendar year 'twenty 'twenty three.
Yes.
I shared in our last earnings call and update on our current product delivery status I'll provide a brief update for the benefit of our shareholders. This summer, we will be manufacturing and delivering our first generation smart window insert that insert will be comprised of 12 inch strips of our dynamic tencel crowds insert will have the following capabilities.
Our insert will have a solar strip that is facing the exterior of the building capturing sunlight to charge a lithium ion battery lithium ion battery will be the power source that allows the user to transition the film from clearance of dark on demand.
Each office has that has our inserts will have a handheld controller that allows the occupants of the office to easily control. The insert each insert will be gathering performance and usage data, which will be communicated the crown to monitor the performance of our inserts are inserts are easily install and will not require.
Fasteners for installation.
Gen surge is powered by the solar strip attached to the exterior side of the insert making our product highly sustainable and does not require hard wiring to the building's electrical system. We will have a limited run the first generation insert to be sold and distributed to our three existing customers metro spaces Hudson.
Vic properties, and recently announced Brandywine Realty Trust those three customers have a combined total of approximately 280 buildings.
We will strategically place those inserts and a handful of buildings owned by our customers.
Feedback on performance design and usage, so that we can continue to iterate and develop our second generation window Windsor.
Our second generation product will incorporate a single piece of dynamic.
Placing the 12 inch strips, we expect that new features will be incorporated into the second generation of our smart window insert potentially including the following upgrades increased data gathering, including but not limited to external whether information the amount of sunlight internal temperatures placement of the.
During the day and product use patterns. The second generation insert will have an accompanying app. It will allow the user to control the inserts via smart device. In addition to the existing handheld controller.
We expect that we will be able to produce significantly more second generation insert as compared to the limited one of the first generation.
A year ago, we expected that one of our manufacturing partners would be producing our film as a contract manufacturer. However.
However, due to business disruption from Covid those plans changed for our partners and we started down a path to vertically integrate all previously planned outsource manufacturer.
Hey, Crown can manufacturer its own film and we'll do so in Corvallis and Salem, Oregon facility I have been all my communications with shareholders and potential investors stress the importance of what we have achieved in less than a year.
This single and at that time difficult decision will increase our market our time to market should increase our margins and protect our intellectual property by manufacturing our own film.
We are currently producing our film at a six inch width and defect free in our Corvallis R&D lab, we are working toward producing our film at 12 inch width, which will be the basis of our first gen smart window insert.
We've also developed a technique that we believe will allow us to produce film up to a 72 inch width, which is sufficiently wide enough to satisfy the U S building market called this technique stitching.
And have filed and will continue to file the proper protections on our inventions our team of engineers and one in particular, given crown the opportunity to lead to significantly advance our time to market with wide web itself.
This breakthrough allows us to approach the commercial real estate market with a product that can have an immediate impact on our buildings cost savings and carbon footprint.
Last summer, we embarked upon a process to design a purpose built line. They can in a single line perform all the necessary steps and making our electrokinetics till the conclusion of that process has provided us with a partner that will build our first roll to roll line capable of manufacturing our film at anywhere.
From 12 up to 72 inches.
This new production line once up and running at capacity, we believe will produce annualized revenue of between 110 and $120 million and has the potential to generate EBITDA of approximately $20 million.
As stated earlier, our intent to use any debt capital to purchase two purpose built lines effectively doubling our output in both revenue and EBITDA.
On May 2nd we announced the appointment of Eddie Jordan Vice President of operations. Mr. Gordon has been supporting the company. Since July of 2021 is our senior manufacturing manager. He brings extensive knowledge and experience in scaling manufacturing operation for over 30 years and has gained broad engineering experience quality.
Troll, Mark materials, many maintenance human resources and employee health and safety.
As we transition from research and development to production our operations has been more focused on manufacturing Mr. Gordon strong background in manufacturing and operations make him the perfect executive to lead crowds operation.
All efforts are currently directed towards our generation one dot O smart window insert launch this summer and vice President of operations, Eddie will create an operational and manufacturing environment that will allow crown scale in the future to meet expected product demand.
The first quarter. This first quarter, we announced the addition of a new customer to our growing list.
Randy wine as our largest customer to date with over 170 buildings in its portfolio, primarily in Philadelphia, Washington, D C and Austin, Texas.
We will be delivering our first generation insert so all three current customers. This summer he specific locations as determined by crown and our customers. It should be noted that we're experiencing interest not only from U S. Based building owners, but also from commercial property owners in Europe , Middle East and Asia, We will.
Continue to work together with our prospective customers and our sales pipeline and hope to have further announcements in the coming quarters.
Additionally, other markets such as residential and transportation continue to show interest.
At the right time, we will address those market opportunities, but for the near term we're focused on providing superior products to our current target customer U S commercial office building market.
We're incredibly pleased with the results of the third party IP valuation report received this quarter on April four we released the summary of this report to our shareholders and the market the.
The valuation conclusions and the private report are based on accepted practices using factual analysis I T analysis fair market value and investment value standards. The third party valuation firm utilize data provided by crown along with public information and industry knowledge and Alex are property licensing.
In addition, the IP professional reviewed the historic cost as well as the expected future revenue as it relates to our asset crowds IP valuation indicated combined patent and trade secret fair market value of $94 $4 million. It is necessary to point out that our electric kinetic film technology.
Can be applied to multiple product categories, including applications within the commercial building residential home and transportation industry. This IP valuation, however, specifically analyzed crown technology as deployed only in the U S office building market.
The third party IP evaluation report reaffirms to our shareholders a substantial value of the company's underlying asset and intellectual property rights not reflected in our current market value now.
Now I'll pass the call on to Joel who will review our financial results Joe.
Thank you Doug and good.
Good morning, everybody.
Today I'll be discussing crowds financial results for the first quarter 'twenty to 'twenty two.
As Doug mentioned at the top of the call. Our final 10-Q won't be filed until Monday.
While we don't anticipate any updates at this stage I just want to caveat that the Q1 financials I am presenting today I still dropped and changes are possible.
Now for the Q1 results.
Company's net loss for the first quarter 2022 was $4 $6 million, which included $1 1 million of noncash stock based compensation expense.
This net loss was $16 $1 million lower than the $27 million recorded during the first quarter of 2021, and I think which included $18 9 million of noncash compensation and financing expenses.
Total operating expenses for the first quarter of 2022 with $4 $6 million, comprising $1 1 million of noncash stock comp.
One 9 million of payroll expenses, <unk> 8 million in consulting and professional fees and <unk> 8 million of operating of the head.
Included in the first quarters operating costs for a number of exceptional items, most notably consultancy and professional services associated with our manufacturing process IP evaluation and financing efforts.
Additionally, crowds head count had reached its peak during Q1 as we finalize the design for a vertically integrated processes and then up again scaled back on resources.
To that end and as we indicated in the last call. We have now undertaken a series of restructuring switch while optimizing our organization for the future have also materially reduced the operating day and will yield annualized operating savings of approximately $2 $5 million for the go forward.
Other income was nominal for the quarter as compared to $15 4 million for the same quarter last year, which was primarily due to the full conversion of crowds didn't nuts.
Net cash for the first quarter 2022 was $3 $6 million with $3 5 million deployed for operations in 0.1 for investment.
As of March 31, our cash and cash equivalents of $2 $5 million and Additionally, we have a $10 million standing letter of credit, which we've not yet drawn against but which will provide access to operational financing it for quad through March 24.
Furthermore, we filed a prospectus supplement and April for $5 million at the market offering to provide additional funding optionality.
Looking ahead, we will continue to seek further operating efficiencies and in addition to the debt fundings will continue to pursue the optimal least dilutive financing solutions, which with which to continue strengthening our balance sheet.
That concludes our prepared remarks now we'd like to open the call for questions. Operator. Please go ahead.
Yeah.
And at this time, we will be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your lives in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from the line of Jeffrey Campbell with Alliance Global Partners. Please proceed with your question.
Good morning, Doug.
Hi, Jeff.
Can you remind us of the timeline for shifting from the current film stitching process that you talked about this morning. So the single line production machinery being built by your production partner.
Yeah.
So first Gen product will go out this summer once the order is placed for the purpose built line, it's going to be about 10 months for the line to be completely built you actually build it in their facility and they run the line in their facility to our stack we are we.
We actually are there with them and we do quality control on the film that theyre producing on our line once it's acceptable than they do you assemble and ship the line and reassembled in our facility and go through that same process again, so that the entire process is about 10 months.
So when you sit in the entire process is 10 months that's from frankly, that's being built during all the.
Confirmation work and they're moving it out to Oregon, and I'm repeating the process is that correct yeah.
Yeah from order place until ship until producing film in our facilities about 10 months.
Okay, great. Thanks.
The kind of higher level question is.
Smart window and sort of demand grows do you think it's more likely you'll continue to expand the sale in footprint or perhaps development manufacturing capability elsewhere in Europe .
Yeah. It's a great question will be at capacity in our San Juan facility with these two lines that we intend to have built.
Where we go from there will likely be driven by cut.
Customer location.
So we kicked around you know expanding in Oregon, We've also talked about.
Actually just dedicating one one area to film production and then shipping film to different locations for assembly of the inserts its pretty costly to ship you know large pieces of glass and have framed around them. So we're looking at both solutions, but we haven't put anything in store.
At this point.
Okay.
And then.
Thinking even further out.
What do you think that's a reasonable timeline to begin thinking.
I think he's seriously about foreign markets servicing them and what would you add.
Bill dedicated production facilities overseas someplace, when when the time comes.
Yeah definitely when the time comes I mean, some of the some of the prospective customers. There that we're in discussions with have properties that are not just in the U S.
So we may find ourselves overseas just with some of the U S customers that have properties oversea.
When and where we would build a dedicated facility is going to be largely driven by customer adoption.
Okay, great Yeah that makes sense. Thank you.
Sure.
Yes.
Our next question comes from the line of Shawn Severson with water Tower Research. Please proceed with your question.
Great. Thank you good morning, gentlemen.
Good morning, Doug could you could you clarify you said you have a Ted do you have a $10 million line in hand, but I thought you said you were exploring other term sheets as well is that correct. So you still you have one but you're looking obviously for the past for the best firms are looking at others, but I understand that correctly.
Yeah, where we're we have terms that we negotiated and received that are meet all of our capital requirements, but the process isn't complete because we still have a few others that are working through the diligence process, we expect to be completed.
With the diligence process at least to select which term sheet to go with.
Sometime next week.
Okay, and that's a short in that and in that process. Sean is considerable considerably more funding than what's available on the current L. C.
Got it understood okay. Okay. So a little more flexibility potential if he has additional term sheets.
Yes. My next question is when you talk about are installing these let's call them pilot programs to what is the size of those or do we think that should we think of those in terms of revenue or windows I'm just trying to understand this.
The scope and scale of the install they'll be coming in the summer and then secondly to that question. How long has that feedback period go up you know, they're very specific timelines that you have for making adjustments or feedback because it months or you know obviously not years, but just understanding the linked.
Yeah. So the so generation one the first gen product we will.
We will start delivering that this summer, we'll probably do.
Somewhere around a thousand or so in search.
Kind of hard to predict but roughly around a thousand and well we will have those installed and we will start getting feedback immediately I'm on to look into field performance et cetera, and that iterative process will take roughly six months.
And towards the end of that six to nine month process will start integrating feedback into the gen two product, which you know.
Now again after we placed the order for the purpose built lines is about a 10 month period, So I would expect.
You know I would expect and get new ordering sometime this summer and we received the two purpose built line sometime next spring.
And then we'd have gen two product coming off that.
And so the customers when they see these gen. One products, so they're not really going to they're just gonna be a huge difference obviously using the stitching right with the 12 inch 12 inch width, but to them when it shows up and you do the install this is more of a let's go to look and feel the same as the gen two products well as well correct.
We think so but it's hard to say because we haven't built the gen two product, but yeah. Yeah. My my my assumption is that you know it and by the way. We we don't know a lot of people may say, we like the 12 inch strips you don't know until you get the product in front of the customer, but even if they do our ability to produce 12 inches on our current.
Prudhoe production tool.
Is is minimal compared to what we will be able to produce off of the purpose built line I mean, it's a significant increase in production capacity off of our new line versus our existing so even if the customers like you know what we liked the 12 inch strips great. We can make a lot more of it a lot faster off of our new line.
And I know, it's kind of a hard question to answer but in looking at these three installs I mean, obviously, there theyre serious customers, they're looking at it they're going to run through this I mean, if they committed to anything else or I assume. This is this is giving a green light more orders if it works right and it performs like they expect otherwise they wouldnt.
Running these these programs.
Yeah, I mean their expectation is that you know were limited with what we can build.
Their expectation is that as soon as we can build more they'll put more in their buildings.
Okay, and then okay, and then to some extent they've already publicly announced that so.
We just got to get it done.
And I assume this will help your data set right. Obviously, it's been the feedback so when you when you get feedback and you have these installs and theyre actually in place the ability to go out and pitch additional reach are going to have I would take a much heavier data set to work with is that correct in terms of performance and actual real life data.
Most definitely.
Okay, Okay, I'll step back in the queue.
Our next question comes from the line of Jim Mcgreevy with Dawson James. Please proceed with your question.
Thank you good morning.
As far as the hey, guys as far as to the restructuring or the cost cutting goes did we see any.
Impact of that in the Q1 results or is that all going forward.
It was all perspective.
Jim we are.
Yeah, you'll see that coming through in the end of Q2.
Great. Thanks, and then.
The.
I just wanted to make sure I understand this this first gen versus second Gen.
Products. So the first Gen product goes out this summer and you get feedback on it.
But I'm I'm trying to understand so what changes in the second Gen product is it more of a.
Is it more of the framing is it more of the controllers is it.
Well when you're thinking about first versus second Gen. What's what's the death.
Yeah, there's a there's a couple there's a couple of there's a couple of differences right off the bat, but we won't know until we get the feedback, but our expectation is that the first gen product will have 12 inch strip. The second Gen product does not have to have 12 inch strips. If somebody says hey, I want a single piece of film then they'll have that option.
The first Gen product has a like a handheld controller that controls.
The insert from cleared a dark literally something you hit a button and it changes versus the second Gen product that will have a controller or you're an.
And the ability to download an app on your phone and control the insert that way and then the firsthand will have limited data and performance gathering and SEC.
John will have a much more robust.
Data gathering and performance measurement, so art, where in the first gen products as well as the second Gen, but in the first Gen product, where we're measuring our own performance every hundred 20 milliseconds. So we're getting data back on the battery holding the charge is the film transitioning the way it's supposed.
Two we're getting that data quickly.
And the second Gen, we're going to expand the data set that we're gathering.
Because we think it'll actually help the building owner manage their buildings more efficiently.
Specifically as it relates to the HVAC usage.
Got it that's helpful and then.
I think in your commentary you talked about pricing.
Comparable to high end blinds.
Does that.
Fly to the first gen product or the second drug product both to both products and his firsthand seems that.
It seems that you would have.
Significantly lower costs on the second Gen product, you're not contemplating or are you contemplating.
Uh huh.
Lowering of prices and still keeping a healthy margin.
We haven't we haven't contemplated lowering the prices, we think the pricing is pretty pretty acceptable.
And you know obviously, we build our bill of materials pretty conservatively, we are not factoring in to our bill of materials for our current pricing any reduction based on volume et cetera, but we know where that likely will go in the future and if we need to we would have the ability to potentially.
Really softened on the pricing but.
It's not our expectation to do that unless we have to.
Got it.
Okay, great. That's it for me Thanks, a lot.
Jim.
And as a quick reminder, if anyone has any questions you May press star one on your telephone keypad to join the queue.
Our next question comes from the line of Jeffrey Campbell with Alliance Global Partners. Please proceed with your question.
Doug just a just a quick follow up based on the conversations that we've had today I'm just wondering what's the likely approach to potential horizon customers near term, meaning is there any point in book and future delivery commitments now since you've outlined it in limited production cycle until a very big production lines coming online next spring.
Yeah.
Well, we'll book likely will start to occur after <unk>.
Gen two purchase orders and bookings will likely occur fall timeframe fall winter timeframe.
Just on the feedback we get out of Gen. One, but definitely I mean look we haven't even when we have our two purpose built lines up and running if you just look at the existing 280 ish buildings that we have.
We're gonna be running at full capacity just servicing knows so you know we we do even though we're building two additional line will be at capacity with those lines pretty quickly.
So it's right now where there's limited theres going to be.
It's gonna be limited products based on the demand.
Right you know that that was why I asked but.
That's a good point by the fall it sounds like you should have a pause.
A significant amount of data collected they could begin to.
Enrich those conversations about gen two.
Very much.
Okay, great. Thank you.
Yep.
Yeah.
And I see no further questions in the queue at this time I would like to turn the call back over to Mr. Doug <unk>, CEO and chairman for closing remarks.
Thank you.
So just a few closing remarks before I, let everyone go on with their day I just want to reiterate that you know the process we've been through on the debt capital. It's it's been ongoing we're very excited where it's taken us I know the market's tough its tough for everybody you know some companies are not.
They're not trading at the real value were clearly one of them. We're very excited about what we've accomplished we're very excited about where we're going to go and we're very excited about how we're going to get there and with our potential funding.
I also wanted to share an email with you that was sent by one of our employees company wide on May six.
And so I'm going to read the email hey, all.
Six years ago today, I walked into our building for the first time as a crown employee.
It was just Tim and I.
Until a week later when palette to join sitting in a tiny office sharing a single hood with another tenant.
And building sells in a clean room, so small I could almost but not quite stretch out and touch opposing walls humble beginning indeed weed.
We've come a long way since then both in size and development of the technology, but it route where a group of people passionate about an idea with the potential to change the world for the better.
And we are so close to making this a reality.
Thank you for your part in making this the best job I've ever had by far I'm excited about our future here said the next six years.
That email summarizes the team that works at Crown.
We're very fortunate to have such strong dedicated employees towards our goal.
Look forward to talking to all of you over the course of the next quarter and I look forward to giving you our results in mid August . Thank you for your time.
Okay.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a good day.
Yeah.
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Mhm mhm.
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Hmm.
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Okay.
Yeah.
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