Sign in

You're signed outSign in or to get full access.

TI

TELKONET INC (TKOI)·Q1 2021 Earnings Summary

Executive Summary

  • Q1 2021 revenue fell 28% year over year to $1.29M while gross margin expanded 1,000 bps to 55% on a lower cost structure; operating loss widened to $(0.83)M, but net income was $0.08M due to a $0.92M non‑cash PPP loan forgiveness gain .
  • Management cited record quoting activity (notably in hospitality, MDU, military) and expanding channel/integration wins (Trane, Mitsubishi, LG), positioning for recovery as travel normalizes .
  • Liquidity remains a key watch item: cash was $2.68M with ~$0.31M revolver availability; management warned it is “reasonably likely” to breach a $2M minimum cash covenant in 2021 absent further actions, though discussions with the bank are ongoing .
  • No formal guidance or Street consensus was provided/available; narrative catalysts are margin mix improvement, pipeline momentum, and resolution of covenant risk versus PPP‑driven non‑recurring EPS in Q1 .

What Went Well and What Went Wrong

  • What Went Well

    • Gross margin expanded to 55% (+10 pts YoY) driven by lower material/subcontractor costs and mix; recurring revenue gross margin reached 94% .
    • Strategic/channel momentum: “key relationships, including Trane, Carrier, Johnson Controls…generating market awareness,” plus new native HVAC integrations with Mitsubishi and LG and the Touch Combo thermostat launch .
    • International and non‑hospitality verticals showed strength: international revenue rose 350% to $255K; MDU and government grew YoY; backlog stood at ~$2.6M .

  • What Went Wrong

    • Revenue declined 28% YoY to $1.29M, with hospitality down 36% to $876K; SG&A rose on legal, audit and royalty costs; operating loss widened to $(0.83)M .
    • Tariffs on China‑sourced product remained a headwind (~3% gross margin impact in Q1); COVID continued to suppress hospitality demand, with STR recovery timelines extending to 2023–2024 for key metrics .
    • Liquidity/covenant risk: “reasonably likely” breach of the $2M minimum cash covenant in 2021 without actions; potential cross‑default to the PPP loan if the revolver defaults .

Financial Results

  • P&L summary (oldest → newest):
MetricQ1 2020Q3 2020Q4 2020Q1 2021
Revenue ($USD Millions)$1.803 $2.240 $1.169 (FY $6.494 − 9M $5.325) $1.294
Gross Profit ($USD Millions)$0.814 $1.092 $0.559 (FY $2.885 − 9M $2.326) $0.705
Gross Margin %45.1% 48.8% 47.8% 54.5%
Operating Income (Loss) ($USD Millions)$(0.641) $(0.672) $(0.849) (FY $(3.106) − 9M $(2.256)) $(0.830)
Net Income (Loss) ($USD Millions)$(0.653) $(0.677) $(0.870) (FY $(3.150) − 9M $(2.279)) $0.083 (includes $0.921 gain on PPP forgiveness)
Diluted EPS ($)$(0.01) $(0.01) N/A$0.00
Adjusted EBITDA ($USD Millions)$(0.624) $(0.656) $(1.015) (FY $(3.039) − 9M $(2.025)) $(0.815)
  • Segment/vertical revenue (Q1 2021 vs Q1 2020):
Vertical ($USD Thousands)Q1 2020Q1 2021
Hospitality (Product + Recurring)$1,375.9 $875.7
Education$269.7 $90.5
Multiple Dwelling Units (MDU)$93.4 $179.9
Government$64.4 $118.3
Healthcare$0.0 $29.8
Total$1,803.4 $1,294.2
  • KPIs and balance sheet/lending items:
KPIQ1 2020Q1 2021
Backlog ($USD Millions)$2.8 $2.6
Cash & Equivalents ($USD Millions)$3.085 $2.678
Gross Margin %45% 55%
International Revenue ($USD Millions)~$0.05 (implied) ~$0.25
Credit Facility Availability ($USD Thousands)~$153 ~$311
PPP: Gain on Debt Extinguishment ($USD Millions)—$0.921

Note: Q4 2020 figures are derived from FY 2020 and 9M 2020 disclosures. EPS for Q4 2020 was not disclosed in company materials .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2021NoneNoneMaintained (no formal guidance)
Margins/OpEx/Tax/SegmentsFY 2021NoneNoneMaintained (no formal guidance)

Management discussed trends and pipeline but did not issue quantitative guidance .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2020 and FY 2020)Current Period (Q1 2021)Trend
Demand recovery & quotingQ3: Highest 2020 quarterly revenue, +75% q/q; pandemic pressures persist . FY 2020: pivot to efficiencies and innovation amid COVID .“Record quoting volume” in hospitality, rising activity in MDU/military; confidence in 2H 2021/2022 recovery .Improving
Channel partnershipsChannels drove >90% of sales in Q3; won $1M Resorts World project .Stronger channel motion with Trane/Carrier/JCI; new Mitsubishi & LG native integrations .Expanding
Product innovationTouch Combo launch; cloud/licensing push .Touch Combo (WiFi/Zigbee/Bluetooth) and Rhapsody platform highlighted as differentiation .Ongoing
Supply chain/tariffs~7–8% adverse gross margin impact YTD/Q3 .~3% adverse margin impact in Q1 .Easing modestly
InternationalQ3 international +$380K to $470K .International +350% to $255K in Q1 .Improving
Liquidity/covenantsWaiver discussions; patent settlement accrual .“Reasonably likely” to breach $2M cash covenant in 2021; active lender discussions; PPP second draw obtained .Elevated risk, monitored

Management Commentary

  • Strategy/pipeline: “The start of the year saw Telkonet recognizing record quoting volume…encouraging signs have given rise to hope for our target markets recovery and fueled our activity towards a growing pipeline.”
  • Product/platform: “Touch Combo…integrates WiFi, Zigbee and Bluetooth in a single device…recognized as an incredibly versatile solution.”
  • Channels: “Our key relationships, including Trane, Carrier, Johnson Controls and others, continue to…generate market awareness and improved pipeline coverage.”
  • Recovery outlook: “We expect several of our other target verticals that have not yet accelerated to do so in the coming months…significant tailwinds for us in 2021.”
  • Liquidity acknowledgment: “Based on the company’s…forecast…[it] is reasonably likely that it will breach the covenant to maintain a minimum unrestricted cash balance of $2 million at some time during 2021.”

Q&A Highlights

  • Infrastructure and public funding: Management expects the administration’s programs to catalyze quoting, especially in military and MDU/MTU, but timing/quantification remain uncertain .
  • Covenants and liquidity bridge: Historically supportive lender; exploring waivers/alternatives (e.g., factoring, facility resizing); second PPP adds buffer though dilutionary capital is a “worst‑case” option .
  • Strategic alternatives: Active but undisclosed discussions aimed at “greater shareholder value” (expanding portfolio/geographic coverage/partnership leverage) .
  • Integration wins timing: Revenue realization typically 6–12 months post‑integration given commercial build cycles; Trane channel also supports Mitsubishi opportunities .

Estimates Context

  • No formal guidance was issued, and company materials did not reference Street consensus; we were unable to retrieve S&P Global consensus in this session, so “vs estimates” comparisons are not shown .

Key Takeaways for Investors

  • Gross margin structurally higher (55%) on lower subcontractor/material burden; monitor sustainability as revenue scales and tariffs persist (~3% impact) .
  • Q1 profitability was aided by a non‑recurring $0.92M PPP forgiveness; core operations remain loss‑making (Adj. EBITDA $(0.82)M) pending revenue recovery .
  • Pipeline momentum and channel/integration depth (Trane/Mitsubishi/LG) are credible drivers for a multi‑quarter rebound across hospitality, MDU and military .
  • Liquidity/covenant risk is the central near‑term swing factor; constructive lender history mitigates risk, but breach would be a negative catalyst without a waiver/amendment .
  • Backlog ($2.6M) and international growth provide visibility diversifiers beyond core hospitality .
  • With no formal guidance or consensus estimates, trading may hinge on qualitative updates (order conversion, covenant resolution) rather than beat/miss optics .
  • Near‑term: watch for order conversion, revolver covenant outcomes, and early revenue from integrations; medium‑term: thesis rests on channel‑led share gains and operating leverage as recovery proceeds .