Q3 2022 Crown Electrokinetics Corp. Earnings Call
Good morning, everyone and welcome to Crown Electrokinetics Corporation earnings call for the third quarter 'twenty 'twenty. Two at this time participants are in a listen only mode.
<unk> 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.
Sounds website and will remain posted there for the next 30 days I will now hand, the call over to Jason Assad for introductions and the reading of the Safe Harbor statement. Please go ahead.
Thank you operator, good morning, everyone welcome to Crown spawning call for the third quarter 2022 with US today on today's call are Doug Crocs, all crowds, Chief Executive Officer, and Chairman and Joel <unk>, 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 of the section 27 of the Securities Act of 1933 as amended and section 21 E of the Securities and 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 <unk>.
<unk> Factors' section of the company's quarterly report on Form 10-Q for the third quarter 2022 filed with the SEC copies of these documents are available on the SEC's website at Www Dot FCC Dot 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 introduce Doug <unk>, CEO and chairman of Brown.
Please go ahead.
Thanks, Jason and.
And thank you everyone for joining this morning for our Q3 'twenty two earnings call I'd like to start the call by.
Thinking any veterans who might be listening.
Today's veterans day as you all know.
We're going to begin with a business update afterwards after I give the update our CFO , Joe Kreutz will review some financial highlights.
At Crown, we remain committed to our vision actively working to become a key sustainability supplier to the U S. Based office buildings by helping them retrofit their legacy infrastructure to be environmentally responsible and energy efficient through providing an affordable smart glass solution to the commercial real estate market.
That will enable its customers to reduce energy and in turn lower carbon emissions.
Recently, we announced that we closed on $4 million of fresh capital that capital will allow crown to deliver its gen. One product while also providing us the runway to continue negotiating our debt capital, which I'll discuss in a few minutes.
Our customer acquisition strategy with our first generation smart window insert is to have three to four customers purchased in search for three to four different buildings. This initial production can be handled by our existing protocol Duction line in Corvallis, Oregon.
With assembly being completed in our Salem, Oregon facility.
We will place our Gen. One inserts into a limited number of our customers offices with the main goal of achieving detailed customer feedback.
As the overall look and feel how the data gathering is commencing the battery performance and the user interface throughout calendar year 2023, while our full production line is hopefully being built we will continue to broaden the number of customers using our gen. One and search all the while allowing the customer feedback to drive.
The features for our Gen two inserts.
We are successful we should have a dozen different customers by mid to late 'twenty three with the limited number of Gen. One inserts installed into their offices.
Gen one customer base should become the foundation for our revenue growth in 'twenty four and beyond.
Crown and the rest of the smart glass industry was recently given another major boost by the passing of the inflation reduction Act.
IRA has expanded both section 48 of the incentive tax credit and section one to 790, <unk> energy efficiency tax deductions, enabling crowds customers to take advantage of tax deductions on their window retrofit investments other legislation such as New York city's local low 97.
<unk>, which targets a 40% reduction in building energy use levels by 2030 is compelling rights to rapidly upgrade their building envelopes or their window or curtain wall system legislation brings immediate and substantial savings for our current and future customers and has the potential to access.
<unk> rapid adoption of our smart window insert in a similar manner.
That which kickstarted the solar industry.
As previously announced and discussed on earlier earnings calls we've been engaged in discussions for $30 million debt facility for some time, we actually started this process in March of this year.
It's been a very long and comprehensive process as you all know we hope to close this facility by the end of the calendar year. We have line of sight to closing this will afford us the necessary capital to initiate our next phase of manufacturing and expand our production capabilities. Upon successful closing we'd be in a position to bill.
Our new roll to roll line, enabling us to produce film at with ranging between 12% and 72 inches. Once the new lines are producing at capacity, we expect our smart windows insert annualized revenues could reach more than $200 million.
Recently, you saw the announcement that we've begun the application process to dual list our shares on upstream a revolutionary trading App for digital securities in Ftes powered by Horizon syntax and merge exchange limited. It was at the request of some of our largest shareholders that we reached that we research the dual.
Listing on upstream ultimately our board of directors determined that a dual listing on upstream could be an excellent way to reach a worldwide market of potential new investors, who can learn about brown and invest in crown baidu.
By dual listing on upstream we also have a mechanism for us to potentially issue a digital dividend upstream.
Upstream is a revolutionary exchange trading App for digital securities that aims to unlock liquidity for investors of all levels on their intuitive app based market upstream introduces what it believes to be the future of trading featuring some of the highest levels of transparency accessibility and investor protections enforcing.
Enforced using the theory in blockchain technology.
To close I want to reiterate that being an innovator is never easy and current market conditions have only exacerbated difficulty that said there is a lot to be optimistic about our technology is developed improving we now have the capital in hand to deliver the first installations with our marquee partner crowds market potential is significant with few if any.
Comparable solutions and finally, we continue to be engaged in ongoing strategic commercial discussions with other potential partners.
These discussions continue to affirm a high demand for a solution like ours.
I'll now turn the call over to our CFO Joel.
Thank you, Doug and good morning, everyone.
Today I'll be discussing crowds third quarter financial results.
I hated that though I just want to address the minimum bid price notification we received from NASDAQ on September the first we.
We have 180 days from that date to trade above $1 for 10 consecutive days in order to regain compliance.
We're confident that executing against our operating plan will mean that we meet the compliance standards, but are also preparing alternate options to ensure we retain our NASDAQ listing.
Onto the financials.
<unk> net loss for the third quarter 'twenty, two was $3 1 million, which included <unk> 5 million of noncash stock based compensation expense.
This net loss was $2 $6 million lower than the $5 $7 million recorded during the quarter ended September 30 last year, which included $3 1 million of noncash compensation.
Operating expenses, excluding noncash stock based comp for the third quarter with $2 6 million consisted of $1 $7 million of payroll expense was $3 million professional fees and <unk> 6 million of operating overhead.
We continue to review and restructured crowds organization to ensure that our operations and expense base are optimized.
As of September these restructuring efforts have reduced our run rate costs by $3 1 million or 24%.
The benefit of these actions was evident in our reduced cash burn levels with Q3 cash deployed for operations of $2 1 million.
$7 million per month.
This is compared to $1 2 million per month, when we started our restructuring efforts.
In Q1.
With complemented this material reduction without capital raising efforts over the last few months, including the $4 million that Doug mentioned, which we raised subsequent to September 30.
Additionally, we have access to outstanding letter of credit and at the market facility and are hopeful of closing debt financing, but before the end of the year.
That concludes our prepared remarks, we'd now like to open the call for questions. Operator. Please go ahead.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
<unk> tone will indicate your line is in the question queue. You May press star two if he would.
Like to remove your question from the queue and for participants using speaker equipment may be necessary to pick up the handset before pressing the star keys.
Our first question is from Shawn Severson with like a Coward research. Please proceed.
Thanks, and congratulations on getting the short term financing here to get to to get to the debt.
My first one is regarding the the environment when you look at the commercial real estate market.
And obviously interest rates.
No recession risks things like that and I'm trying to understand is this environment when a REIT looks at their business do they think okay, we're going to really slow down on new cars.
It provides opportunities retrofitting trying to figure out how retrofit kits into this.
This type of environment for the commercial real estate industry.
Yes.
Thanks, Sean So couple couple of things to note.
Yeah.
Are the cost of our inserts are pretty equivalent slightly more expensive than the cost of a solar shade. So if you look at it like a standard kind of five by five window in an office like those white solar shades can be priced anywhere from $4 50 to $5.
<unk>.
<unk> is price.
70% of $100 more expensive than that.
So.
While certainly building owners are concerned about.
They are leasing levels in the vacancy levels and inflation and a potential recession.
We're not we're not as expensive as redoing, an entire curtain wall and we're certainly not as expensive as putting a new glass into new a new constructed building.
So our price point kind of moves us out of some of those typical concerns it doesn't mean, we won't be affected.
Selling a product like anyone else's in a recessionary period, but right now the indications have been pretty positive to the extent people are making investments in their building and to the extent they are making investments in.
And making their buildings more sustainable we're still in that conversation as a matter of fact, we.
Got a couple of new customers that were negotiating.
Current deals with so we still we still think that there's pretty good runway for us even if.
And hopefully it doesn't happen, but even if we move into a recessionary period.
Well, let me put a scenario in front of yourself. When you look at if we look at a solar shade right.
Building owner I'm going to have a normal level of maintenance and I'm just going to have to replace those correct.
And if I'm if I'm doing that is there a difference in like the IRA benefit for example of using your solution versus.
A solar shade or I'm, just trying to understand the dynamics between like the incentives and your product and your solution and you know that.
The capital spending at the commercial real estate level.
Yeah. So it's a great question.
There is a definite difference and there is a definite benefit.
To be honest most of the building owners don't do an ROI on their solar shades. Its just you got to do it.
I mean, you can't have a window that has not changed it.
So theyre not looking necessarily at okay. Whats the return on investment if I put these in most of the building owners are cycling those out.
Every seven to 10 years the entire building.
So it's kind of one of those standard things when you are a new tenant and you move it into an office.
Carpet paint and blind typically get replaced as a ti.
As matter of fact, one of our customers that we're dealing with right now.
Theyre looking at replacing blinds and one of their buildings, where they'd rather use our inserts because our inserts does provide an energy reduction which is a carbon reduction which is important to the building owner. There is an automated feature so that you can actually shaved the insert without having to walk stand up walk into the.
Office and pull the change to make the shade move so and when are when are inserted in the dark state you can still see through the the window you can still see what's on the other side, it's like dark like limousine glass start when the solar shade is deployed you can't see anything on the other side you just staring at a white shade. So.
There's a lot of benefit aesthetic and energy benefit to the insert versus the solar shade.
For pretty much the same cost.
And then my last question is obviously.
Right environment has changed and just and I understand you still have line of sight on the on the debt financing, but this must to throw out a little bit of a of a ranch and that has gone through the process nothing to do with you guys, but that but the environment have you had noticed or have any kind of material changes or as you've gone through the process as they have been.
So a major portion call that you had to give more.
Are you like you really had the framework.
Right.
Yes, we're not going to be seriously.
Impacted by the changes.
Yes, it's kind of embarrassing because we thought we were going to close this debt sometime in the summer and then it became sometime in the early fall and now clearly it is going to be some time in the winter.
And the impact on the rising rate environment is not has not affected our term sheet or the business terms of the of the debt.
<unk> taken a lot longer to kind of find that match and we think we found it we think we actually have two.
And so we're going to continue with both and hopefully one gets to the finish line before the other but.
It's just look it's a really tough environment to raise any capital equity or debt.
So, but we're still very confident that what we have from a product and technology perspective is very very interesting to a lot of debt funding sources and so we're going to we'll continue to move forward, but we haven't seen that big of an impact frankly to the terms we've kind of had these terms locked down.
Like August timeframe.
Alright, Thanks, Doug appreciate it.
Our next question is from Gerry Sweeney with Roth Capital. Please proceed.
Hey, good morning, gentlemen, thanks for taking my call.
Okay.
Hi, Jerry.
Just following up on the debt.
Kind of like you had some terms in place.
Curious one.
Some type of terms in place since August .
The two lenders that you had been working with previously and too.
What is the sort of the big hurdle between now and closing.
A potential facility.
Yes. These are the same two that we've been talking about.
And.
The big hurdles, we're kind of getting through their investment in credit committees, which we've done successfully.
Now, it's now it's papering and <unk>.
Closing.
And so we would hope to have something to announce for this earnings call clearly we don't.
But we hope that we will have something to announce before the end of the calendar year.
Got it and.
Switching gears to the customer base how many.
Clients do you have signed up today.
Have you been able to deliver any windows or is it or is it.
Even like sort of.
Prototypes to clients.
Yes, so the delayed and funding is definitely delayed our product delivery. Our first product delivery was supposed to be this quarter, it's been shifted to the neck to Q1 'twenty three.
And that's really a function of it's a function of one thing and one thing only and that is capital resources that we didn't have previously, but we now do have.
So we will have first product delivery in Q1, and we have three.
Three maybe four customers that will be delivering product to them.
In Q1 that we expect to in Q1.
Got it okay. That's it for me thank you.
Thanks Jerry.
As a reminder, the star one on your telephone keypad, if he would like to ask a question.
Our next question is from Jeffrey Campbell with Alliance Global. Please. Please proceed.
Hi, Doug.
I'll just ask one question.
Surrounding.
The new capital that you raised and the deliveries delayed deliveries schedule that you just outlined.
Bearing in mind ongoing inflationary pressures and all that good stuff.
Do you feel secure that.
We have enough capital to deliver the amount of product that.
I think that you intended to deliver at the time that you raised that capital or is there any chance that.
As things get delayed out a couple of quarters.
That cost could come.
Continuing increased whatever you've done to date.
A security or a cost leverage we're going to do.
Thanks.
Sure Yeah. So.
Yeah.
Small companies that are pre revenue that you can never have enough capital on your balance sheet I think I would safe to say, but we think we have sufficient capital to get to the first product delivery.
We haven't seen a tremendous amount of.
Inflationary pressure on our own bill of materials, I mean, slight but not anything outrageous at all and we kind of where we were kind of.
Predicting that this might be happening so we've done a pretty good job in locking down some of our pricing and getting some inventory in place already doesn't mean that we have everything we need.
But we feel comfortable with the amount of capital we have on the balance sheet, we feel comfortable with.
The amount of runway that gives us to get first product in and frankly, we feel really comfortable about the potential of the debt capital coming in or frankly, we have a couple of strategics that we've been talking to and we feel pretty comfortable theyre going to be there for us if we need them as well. So we've got we've got multiple paths.
To finance the company, even beyond what we've already put on the balance sheet and it really all gets back to the strength of the technology and the product and what our partners are seeing in the.
In the product and what that product can do in the market.
Okay, great. Thank you.
I see no further questions in the queue at this time I would like to turn the call over to Mr. Doug <unk> CEO .
Oh and chairman for closing remarks.
So I just want to thank everybody for sticking with us.
Today is not only veterans day, but today is actually the birthday of my one of my grandfather's like ramp approximately who passed about 30 years ago. My grandfather was a prolific inventor.
A named inventor on about 72 chemical patents some of which is still in use today in Alka Seltzer coincidentally.
And he was actually the person that had the most influence on me and in.
My career was going to take me I don't think you ever thought I would be windows salesman for small public company, but he always told me that.
Innovation and invention is really controlled chaos, you cannot you cannot predict when discovery happens.
So I know that it's difficult as a public company to try to provide that guidance to our investors and to those who are looking at potentially investing we're doing everything that we can to get this product ready and get this product out to the market because we know that that impact is pretty important for the environment and for the future generations behind us.
I just want to thank everybody for your patience and we look forward to talking to you again soon.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect and have a good day.
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