Crown Electrokinetics - Q1 2024

Transcript

Operator (participant)

Good afternoon, everyone, and welcome to the Crown Electrokinetics first quarter 2024 conference call. At this time, participants are in a listen-only mode. A question and answer session will not be following the management remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of the Crown's website. I'll now hand the call over to Jason Assad, Director of Corporate Communications, for introductions and the reading of the Safe Harbor statement. Please go ahead.

Jason Assad (Director of Corporate Communication)

Thank you, operator. Good afternoon, and welcome to Crown's first quarter 2024 call. With us today on the call are Doug Croxall, Crown's Chief Executive Officer and Chairman, and Joel Krutz, Chief Financial Officer. Before we begin, I'd like to remind you that today's call contains certain forward-looking statements from management made within the meaning of 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 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 10-Q for the first quarter ended 2024. Copies of these documents are available on the SEC's website at 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?

Doug Croxall (CEO and Chairman)

Thanks, Jason, and welcome everybody to our first quarter 2024 earnings call. As most of you know, Crown is comprised of two divisions, a film division and a fiber division. We're gonna start with our discussion of the film division today. In late February of this year, we announced that Crown's Electrokinetic Film team had solved the 12-inch mastering challenge for its Gen 1 Alpha smart window insert. We remain in a great position to start shipping first product in small quantities later this summer. With this technical milestone behind us, Crown recently announced that Sheldon Davis, who was previously a consultant to the company, was named president of our Electrokinetic Film division. Sheldon's work history makes him the ideal person for Crown's exact stage of growth.

Sheldon and I have known each other since 2016 while he was working at Guardian Industries, a Koch Industries company. His knowledge of our ink formulations and window glass manufacturing and different glazing technologies like electrochromic, SPD, and liquid crystal make him the perfect person for the job. We're excited to have him take a leadership role at this important time. Crown feels very fortunate. Going forward, Crown expects to provide more details on product capabilities, timing, customer wins, as well as pricing and expected revenue and margins. Now, what I wanna talk about is how we're gonna roll out what we call our Gen 1 Alpha, Gen 1 Beta, and Gen 1 Charlie. Gen 1 Alpha, as we stated earlier, is a smart window insert, which should be hitting the market in the August, September timeframe, very small quantities.

Our goal is to roll 4-10 inserts per building, approximately 10-20 buildings, covering large cities within the United States. The objective in the Gen 1 Alpha is to get customer feedback. As we gather that feedback back, we'll run a parallel path to creating Gen 1 Beta, which we expect to roll out sometime towards the end of the calendar year. Doing the same thing, generating customer feedback, customer direction, we'll launch Gen 1 Charlie early next year. Gen 1 Alpha, Gen 1 Beta, and Gen 1 Charlie will help us build what we believe will be the first mass-produced smart window insert sometime in the spring to summer of next year. Moving to the fiber optic division. As you know, a little over a year ago, Crown made its first investment in fiber optic construction market.

The last 19-20 months have proved some pretty hard lessons, taught us a great deal about the market, how to operate, and how not to operate within it. Crown Fiber is generating revenue in multiple markets under the leadership of Corey Boaz, who we've named President of Construction in early February. We have current projects in Idaho, Nevada, soon to start in California and Mexico. Corey's not only added revenue and customers to the company, but helped us change our operating model that allows Crown to be cash flow positive on a project from day one. As opposed to hiring hundreds of employees, we now partner with other subcontractors. This allows Crown to control costs on a project-by-project basis, as well as lock in our margin.

Corey has market credibility and connections that has allowed him to build a significant pipeline of revenue-generating projects. The pipeline leverage with this proven business model will allow Crown to generate revenue and soon net positive income. Most recently, Crown announced that it had secured a large backbone project in Nevada that includes horizontal drilling and plowing. The long-haul fiber project recently commenced, with completion slated for the company's third quarter. Currently, Crown has received two clusters of the project, which will generate approximately $5.7 million in gross revenues. We anticipate being awarded additional stages of the project as it continues into the state of California. We also recently announced that we've secured a project in Idaho for horizontal drilling as a prime contractor.

The large fiber-to-home project has commenced, where it is expected to continue throughout the calendar year, likely resulting in additional work in California, Arizona, and Oregon with the same customer. On March sixth, Crown announced that we had executed an agreement with Twin Dolphin Club, located in Los Cabos, Mexico. The Twin Dolphin Club is a 1,400 resort master plan development. Crown's fiber optic division will construct slant wells for the desalination plant that provides fresh water from ocean water to the hotel and surrounding planned residential development. The project is expected to start later this spring and conclude in the early fall time. The project is expected to generate about $3.5 million in revenue. The opportunity was generated and managed by Corey.

The new approach to building slant wells should lead to new revenue opportunities in Mexico, Central America, and the Caribbean. Importantly, the agreement generates upfront cash and is anticipated to lead to other opportunities. Okay, with that, I'm gonna turn it over to Joel, and then I will handle the closing remarks. Joel?

Joel Krutz (CFO)

Thanks, Doug. Good afternoon, everyone. Today I will walk through Crown's 2024 first quarter financial results. Ahead of that, though, just a quick update on our current Nasdaq bid price non-compliance. As you're aware, we received notification from Nasdaq on October 19, which initially gave Crown 180 days to trade above $1 for 10 consecutive days. We recently met with Nasdaq's hearing panel to request an extension for a further 180 days and are awaiting the panel's guidance on next steps. As we discussed with the panel, the company's growing production levels and improving financials and overall fundamentals should contribute to enhancing Crown's market value, but we'll also ensure the company has other options necessary to retain our Nasdaq listing. Onto the Q1 financials, and for the quarter ended March 31, 2024, Crown's net loss was $4.6 million.

This included $0.9 million of non-cash other expense, primarily related to the final amortization of our line of credit, which expired in Q1. Net losses from operations were $3.7 million, compared to Q1 2023's $4.1 million. Crown recorded $0.7 million of revenue in its fiber division for the quarter, with the majority of those backended. The company also booked $1.2 million of deferred revenue for work due to begin in late Q2, primarily Q3. Total operating expenses for the quarter were $4.7 million, with cost of revenue $1.6 million. This was primarily driven by the operations in Arizona, which the company has now fully scaled back. There was $0.8 million of film R&D and $2 million of depreciation, amortization, and SG&A in the quarter.

For the quarter ended March 31, net cash decreased $0.8 million, as the company deployed $2.7 million of cash with operations. Crown raised $2 million from its financing activities, primarily in its ELOC. As of March 31, 2024, cash and cash equivalents were $0.3 million. In terms of access to finance, the company still has $42 million available on its ELOC, and also has access to a revolving line of credit, which will support working capital needs in the fiber business, which is critical as we are looking to you know, operate and scale our production across multiple markets. In terms of looking forward, we still expect second quarter revenues to be in line with guidance, but we're going to provide an update and first look at Q3 in the near future.

Finally, we're all set to file our 10-Q after market today. However, our auditors have advised us of a backlog in their quality control process, which may mean we have to file for a brief non-timely submission today. We're obviously working very closely with our auditors, and we'll do all we can to avoid that situation. That concludes the financial update. Doug, back to you.

Doug Croxall (CEO and Chairman)

All right. Thanks, Joel. So, the great Chicago Bears coach, Mike Ditka, once said, "Only losers and cowards live in the past." But I would like, with all due respect to him, I would like to point out one thing. If you look at where this company was one year ago compared to where we are today, we've added great leadership in the film division with Sheldon. We've added great leadership in the fiber division with Corey. We've got customer contracts, both in the film division and obviously as well in the fiber division. We're generating significant revenue, certainly compared in this quarter, certainly compared to the quarter before and to the non-existent revenue the same quarter last year. We're on track to be net positive, net income positive before the end of the year. So the company is in a great position. We're growing.

We've got good capital sources to allow for non-dilutive growth in the fiber division, and we're really excited for our Q2 results and look forward to talking to everybody in mid-August. Thank you. I'll turn it back to the operator.

Operator (participant)

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