Q2 2022 Crown Electrokinetics Corp. Earnings Call
Good day, everyone and welcome to Crown Electrokinetics Corporation earnings call for the second quarter 2022.
At this time participants are in a 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 crowds website and will remain posted there for the next 30 days.
I will now hand, the call over to Henrik Dobrowski for introductions and the reading of the Safe Harbor statement. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to Crown its earnings call for the second quarter 2022.
With us today on today's call are dog trucks, all clouds, Chief Executive Officer, and Chairman and Joe clubs Chief Financial Officer.
Before we begin I would like to remind you that today's call contains certain forward looking statements from our management made within the meaning of section 27, a Oh the Securities Act of 1933 as amended and section 20, <unk> of the Securities and Exchange Act of 1934 as amended.
Words, such as May should projects expects.
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 a number of 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 second quarter 2020 to file 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.
Now at this time it is my pleasure to introduce Doug correct cell C on churn might have come in for Craig. So please go ahead.
Thank you Henrik and I'd like to thank everyone for joining us today on our earnings call I'm going to start by giving a business and operational update.
After that Joel our CFO will review the highlights of our financial results and then if there are any questions. We're happy to take those at the end of the presentation.
Just to review crowds mission is to provide an 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 smart window insert powered by dynamic tense and affordable.
<unk> solar powered insert which does not require hard wiring and can be easily installed into the interior side of existing windows in commercial office buildings Brown.
Brown dynamic 10 is a pigment based thin film that is based on our proprietary and patent protected electrokinetic technology.
At Crown, we recognize that windows in commercial buildings are inefficient insulators, causing HVAC systems to use unnecessary amounts of energy leading to increased energy spend and excessive carbon emissions.
Brown smart window answer easily installs in two of buildings existing window frame, leaving the existing window intact. This transforms a building single pane window into an energy efficient dual pane smart window.
Once installed or in search powered by a solar strip, eliminating the need to have each smart window insert hard wired into the existing electrical system of the building.
Brown 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 an insulated benefit by effectively adding a second pain to the building's existing single pane, allowing heat and air conditioning.
Just stay in the building more efficiently.
The commercial building sector is under increased increasing pressure from shareholders tenants and regulators to reduce HVAC energy consumption and reduce carbon emissions as the only smart glass retrofit product in the market Crown smart window Windsor is price comparatively to high end window blinds.
We operate in two manufacturing facilities in Corvallis, and storm Salem, Oregon, and we expect to deliver our product first product in the coming months.
Moving to the customer update.
I am very pleased to announce that we've received two purchase orders for our smart window inserts from Hudson Pacific properties. The smart window answers will be delivered after crowds first generation production line comes into operation in the coming months. The answers will be deployed in two of Hudson's buildings.
Located in the San Francisco Bay area.
The purchase orders from Hudson for our smart window and assert our confirmation of years of hard work by the entire team at Crown and represents a critical milestone in crowds evolution.
As part of the crowds commitment to its vision, we're actively working to become a key ESG supplier to the U S. Based office buildings by helping them retrofit the legacy infrastructure and assets to be environmentally responsible and energy efficient.
This vision continues to be supported by legislative initiatives at both the federal and local levels.
The recently announced inflation reduction act will expand the tax incentives for retrofit and energy improvements and has also now made them available to our REIT customers further enhancing crowds already significant value proposition.
Other legislation such as New York city's local law, 97, which targets a 40% reduction in building energy use levels by 2030 is compelling reach to rapidly upgrade their building envelope or face material annual filings in response rates are seeking to avoid.
Penalties and meet this mandate as cost efficiently and with and with little as little disruption to the tenants as possible.
<unk> smart window and search solves for both of these highly conditions highly effectively.
To this end we are assessing a number of new retrofit locations with other prospective REIT customers and our sales pipeline and hope to have further announcements in the coming quarters.
Financing the last few months have been some of the most difficult in recent memory for our economy and our capital markets I'm pleased to announce that despite these headwinds crown has successfully closed on equity raises which are required for crowds access to debt financing and the execution of our manufacturing plants on <unk>.
Ally 'twenty, we announced an underwritten public offering of $1 million of common stock at <unk> 80 per share.
And I must highlight that this offering did not include any warrants. Additionally.
Additionally, on July 26, we announced a further $1 1 million funding through series D preferred stock round, which was convertible into common stock in an above market price.
As I mentioned these direct equity investments are necessary for crown to have access to the debt financing, which we first discussed in our last earnings call.
As an update.
About a month ago Crown entered into a second term sheet for debt funding and we're now actively pursuing both debt funding opportunities, while we'd hope to have the debt funding close by this earnings call. We can say that we're making good progress on both past ensuring a higher likelihood the crown will have the best possible.
It'll terms sports debt capital.
As communicated in previous earnings calls access to non dilutive debt financing financing is especially important as it will enable us to complete the planned production lines have sufficient working capital through the end of 2023 and allow us to start delivering installation of smart window inserts to our customers.
The value of our intellectual property was instrumental to support the debt financing crowds independent IP valuation in K indicated combined patent and trade secret fair market value of approximately $94 million.
The proceeds from both future debt financing and recent equity financing.
It will allow us to build our new roll to roll lines, enabling crown to produce film at any length and width ranging from 12 inches to 72 inches. Once the new lines are producing at capacity Crown expect smart window insert annualized revenues of approximately $220 million.
And EBITDA up $40 million.
Moving to product development.
In our earnings call, we provided an update on our current product delivery status I'll provide a brief update for the benefit of our new shareholders. This fall will be we will be manufacturing and delivering our first generation smart window insert that insert will be comprised of 12 inch strips of our dynamic tent film Brown Zinser will have the following.
Cities are insert will have a solar strip that's facing the exterior of the building capturing sunlight to charge a lithium ion battery.
The lithium ion battery will be the power source that allows the user to transition to film from cleared the dark on demand.
Each office that has our inserts will have a handheld controller that allows the occupancy of the office to easily control the answer.
Each insert will be gathering performance and usage data.
We will be communicating that to crown for monitoring the performance of our inserts.
Our inserts are easily installed and will not require any fasteners. Each in surge is powered by the solar strip attached to the exterior side of the insert making our product highly sustainable and not requiring any hard wiring to the building's electrical system.
Our second generation product will incorporate a single piece of dynamic tenant, replacing 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 gathering, including but not limited to external weather.
Information amount of sunlight internal temperatures placed under the Sun during the day and product use patterns. The second generation insert will have an accompanying app that will allow the user to control the insert the smart device. In addition to the existing handheld controller.
We expect that we'll be able to produce significantly more generate generally second generation inserts as compared to the limited run of the first generation in Sir.
Production facility status.
I receive requests.
That I, often oftentimes to explain the difference between current production line and the future production lines for the benefit of all shareholders today I'm going to describe the difference between the current and the planned production evolution.
Crowds Crown currently produces dynamic tent film on our <unk> production tool in our Corvallis facility, we will be producing our film in this facility in limited quantities. This method has allowed us to test our production processes as well as develop our generation one dato smart windows in Sir.
Our Corvallis production line will produce six and 12 inch strips of dynamic tenant for application on our Gen. One smart window in Sir.
Initially our smart window inserts are expected to be produced in a limited run to fulfill orders of early customers like Hudson with.
With customer feedback on performance design usage of our first Gen smart window insert we will iterate and develop our second generation smart window answer.
And then expect to transition production to our new roll to roll production lines capable of manufacturing film with the varying west It will allow crown to meet the vast majority of demand from the U S office building retrofit market.
To close I want to reiterate just how excited we are to have crossed another major milestone with the execution of crowds first purchase orders and in the coming weeks and months also expect to have closed our debt capital financing have our first generation production lines up and running and start shipping product to our customers.
I'll now hand, the call over to Joel who will take you through the financials Joel.
Thank you, Doug and good afternoon, everyone.
Today I'll be discussing crown second quarter 2022 financial results.
The company's net loss for the second quarter was $4 5 million, which included $1 5 million of noncash stock based compensation expense.
Net loss was <unk> $9 million lower than the $5 4 million recorded during the quarter ended June 32021.
That quarter included $2 6 million of noncash compensation.
Total operating expenses for the second quarter with $4 5 million, comprising $1 5 million noncash compensation $1 $8 million of payroll and consultant expense like $5 million for professional fees and <unk> 6 million of operating overhead.
As we'd indicated in the Q1 call we undertook substantial organizational restructuring earlier this year.
To optimize crowns organization.
This has materially reduced our operating expenses.
As at the end of June our employee cost base has been reduced by an annualized $2 9 million or 31%.
Yeah.
The impact of these actions is also evident in average used cash burn with Q2 cash deployed for operations and investments $2 $6 million.
This was a $1 million lower than the $3 6 million that we outlaid in Q1 of this year.
Our financing activities in Q2 yielded $1 1 million from our series D preferred stock raise and also from our at the market offerings.
As of June 30th our cash and cash equivalents of $1, one 1.0 or $1 million.
We have access to a 10 million dollar standing letter of credit and also our at the market offering to provide additional funding optionality.
Subsequent to Q2, we also closed a 1 million dollar underwritten offering in July and as Doug mentioned, we're hopeful of completing the debt financing necessary for our second generation production lines shortly.
That concludes our prepared remarks now we'd like to open the call for questions. Operator, if you could go ahead. Please.
Thank you at this time, we'll 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 line is 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 might 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 Shawn Severson with water Tower Research. Please proceed with your question.
Okay. Thanks, Hello, Doug good good progress I do you have a question on the you said there was a second term sheet that was put out. So you have two different lenders that you're working with is that is that correct.
Yeah to be clear.
We do have two different lenders those are competing term sheets and the second term sheet came in just about a month ago.
And so we're working.
Feverishly.
You know to get everyone kind of caught up to speed, but.
Competition is good.
Especially when you have when your peers.
That's what I wanted to clarify so it still be funded from a single lender for the for all the cap for the funding for the Capex that you would need to they're just two different proposals youre working on.
That is correct two separate funding sources to separate.
Term sheets.
I'll pick the will pick the one that we think is the best.
Understood and I think last time, you mentioned they were performing.
Due diligence process correct from the lender that was going on can you kind of can you give an update on what they've done and where they are I know you can't give specifics on the timing, but I know there was a due diligence process and runway that they were they were working on or just an update there would be very helpful.
Yes, no problem, it's pretty standard management presentation.
A discussion with the vendor that will manufacture our production line.
Customer referral calls lots of diligence in the virtual diligence room.
So just kind of a standard going through the standard stuff and at this point, we basically got we think we've got everybody at the same stage.
As far as what is not too far ahead of the other even though one started.
Significantly sooner than the other so we think we've got everyone caught up to the same point.
Okay, and then last question I'll get back in queue is upon funding.
How does it how long do you think it takes to actually get funded and then how did the expenditures sequence from there to maybe through the remainder of the year and into next year.
So funding on the debt side, you mean, yes, yes, the debt side for the for the plant.
I just.
We think we're probably.
Within 30 days of close of the that maybe sooner okay.
And then from there we.
The guidance, we've been giving is anywhere from.
<unk>.
Hum.
Two months of design phase six to eight months of manufacturing the line they.
They actually build the line in their facility.
They actually run our film in their facility to our technical specifications and our quality standards. Once we approve that then the line is disassembled and moved to our facility in Oregon, and reassemble that entire process. We're estimating is anywhere from 10 months to a year.
Okay, and then I just wanted to confirm that's unchanged given some of the supply constrained constraints out there and then also had to ask a question.
And availability as you know as you've been talking with your potential providers.
As it relates to the line, we don't have the new line that we will have built.
We don't see any issues with pricing or inflation or or supply change. This particular vendor.
You know was pretty aggressive in building their own inventory so that they could avoid some of the supply problems that have.
That others have experienced so we don't right now we don't see any issues with pricing.
You know through the diligence process with our two different funding partners, we've gone back to the vendor and double and triple check to make sure. The pricing is not changing because obviously that would have an impact on how much capital we need to raise so we feel pretty comfortable there.
On our first generation production line, though we are delayed as you probably recognize we were hopeful to get first product out. This summer we are still waiting on a material.
<unk> of our first Gen production line, that's coming out of the United Kingdom that has been delayed by anywhere from four to eight weeks, so I'm, assuming that it'll be eight weeks because.
Mhm Murphy's law.
And so that's so the actual delay that we have experienced is not related to our technology not related to our fill not related to our customers, but related to a specific component that we need in order to produce our gen. One film.
In its entirety and so we have some of that in and we're able to use part of what we have but we need another component that we're still waiting on.
Hopefully hope.
Hopefully, we'll have that in the next month or two and then have product out the door.
It answered my next question, Thanks, Todd I'll get back in queue.
No worries.
Our next question is from Gerry Sweeney with Roth Capital. Please proceed with your question.
Hey, Doug control, Thanks for taking my call.
Thanks Jerry.
Just to follow up with.
I was saying was that eight weeks from.
Today or.
On that piece coming in and production.
Yeah Joel.
Pretty much still two months outright yeah, we're about two months out.
Got you Okay. That's fair and then obviously, we saw the Hudson P O.
What about you know you've signed some other Reits out there.
Or purchase orders potential for.
And they're coming.
In the near future or are they still yes, yes, yes.
Everyone is looking at Gen. One and we're working to get other purchase orders executed as well.
Yeah.
And you know.
I'd love to be able to tell you exactly when that's going to happen.
Very good at predicting the future, but we think we will have some other purchase orders from some of our.
MSA customers and new customers that we have yet to announce in the coming months Gotcha and then.
You see here.
One of the things are novel.
Things you solved with with the with stitching technology, but you were also pursuing.
Master drama that would've been a meter meter six just wanted I was curious where that sort of dual pass stance and as you know.
Stitching technology, the way Youre going to go or at least the way Youre going to go now and you feel comfortable with.
Yes, yes.
For those who are not familiar the ability to go wide is not only based on having a production line that can handle.
Wide film greater than six months to 12 inches, but the our ability to emboss a pattern that is wider than six to 12 inches.
So we actually have three different pads, Jerry that we're going down.
And we're pursuing all three at the same time.
For various reasons, one we're not sure which one will be the best.
And so we want to we want to be able to compare the different techniques and see which one produces the best results.
And so we're looking at all possibilities, including.
The stitching that we talked about earlier.
Is there could you use the stitching technology on the Corvallis line today.
No that line is limited to 12 inches.
Okay.
Got it.
Alright, let me, let me actually you know what Gerry Gerry we could actually that's not true we could we could but it would be a very small it would not we would only be stitching to 12 inches as opposed to what we will likely do which is stitch to 60, some inches or 72 inches.
I just wasn't sure is that how what's the with a corvallis sign is that 12 inches.
It's up to 12, correct six or 12.
I wasn't sure if you could do to take $2 12 put it together I mean I'm not sure.
Not all of that Unfortunately, gotcha got it okay great.
Great.
And then any update you sort of alluded to some other reits or potential customers percolating out. There. Obviously you can't name names until you can or if you can at all but.
How is that process going.
Yes.
It's definitely progressing.
And I feel pretty comfortable we'll have a couple of new names that we can announce.
In the coming months certainly before the next earnings call and hopefully some more purchase orders before that as well.
The look.
The demand is real.
Yes.
The tax incentive in the inflation reduction act is real world.
We're real benefit even without that.
This just makes it even more attractive one of the prospective customers that we're talking to they have a lot of property in the New York.
Metropolitan area.
They estimated that local law 97.
On an annual basis, there are penalty alone.
Is approximately $20 million a year.
So they are desperate to find something we have something that works.
Mediately for them.
So.
We're hitting the market at a very unique timing as it is critical right you can't control timing.
You can't I don't control the events that lead up to the passage of bills that happened to benefit our customers and us, but we're hitting the market at what I think is a really opportune time.
We know that there is real pain, we know that there is real value that our technology and our product can deliver and we know we can do it at a price point, that's very attractive without the incentives that are coming from the inflation reduction act or anything else.
Got it okay.
No.
It's a great spot to be in right now.
Thank you recognize that but.
Thanks, Thanks for the time.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
There are no further questions at this time I'd like to turn the call back over to Mr. Doug <unk>, CEO and chairman for closing remarks.
Thank you Rob and thank you everyone for dialing in.
You know if I could snap my fingers and fix our share price I would we can't we control the inputs in our company we control how hard we work in developing our technology and our product we control how how hard we work in developing customers and our marketing materials.
And.
Just ask for your continued patience.
A lot of great things are happening behind the scenes that may not be evident to you we're getting getting someone like a hudson Pacific to sign a purchase order is not it's not a simple task right, they're not going to do something unless they know it's going to benefit them and we're very excited to have them as a partner and we look forward in the coming months to announce some of the other partners that we're going to have.
Getting our debt financing close so we can move to.
Building the second production line and really starting to scale this business.
I look forward to talking to everybody in November and we are around if anyone wants to talk before so thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect and have a great day.
Okay.
Okay.