Crown ElectroKinetics Corp. (NASDAQ:CRKN) Q1 2023 Earnings Call Transcript May 15, 2023

Operator: Good afternoon, everyone, and welcome to the Crown ElectroKinetics Corporation First Quarter 2023 Conference Call. At this time, participants are in a listen-only mode. 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 Crown’s website. I will now hand the call over to Jason Assad for introductions, and the reading of the Safe Harbor statement. Please go ahead.

Jason Assad: Thank you, operator. Good afternoon, everyone, and welcome to Crown’s first quarter 2023 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 would like to remind you that today’s call contains certain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E 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 Risk Factors section of the company’s quarterly report on Form 10-Q for the first quarter 2023 filed 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 Croxall, CEO and Chairman of Crown. Doug?

Doug Croxall: Thanks, Jason. I’d like to thank everyone for joining us today for our first quarter ’23 conference call. The first quarter of 2023 was extremely busy for Crown with our fiber optics M&A activity, numerous transactions associated with the $7 million finance that was raised, the $100 million line of credit that we secured. While our financials are in good shape, we have elected to file an extension on filing our queue so that the company and our auditors can have a thorough review process. We’ll be filing our queue before next Monday, May 22. So, I want to turn to the electro-kinetic business to start. We announced in our shareholder letter a couple weeks ago that we were able to produce our very first prototype that measures seven feet by two feet.

Huge announcement, it’s a big accomplishment, frankly, for our team in Corvallis, Oregon. It allows us now, the path to get the first-generation smart window insert built and out the door. We’re targeting somewhere in the next three to four months to be able to achieve that. We will give you an update as we get closer to those dates. We continue to have discussions with our customers. Again, to remind everybody, our primary focus is to create a smart window insert, which will be installed in US office buildings. And our intent is to be able to do that, like I said, in the next three to four months. As we continue to talk not only to our customers, we’re continuing to have discussions with strategic partners who can assist in, if necessary, assist in the manufacturing of our film and potentially assist in the assembly of smart window inserts.

So, we’ll continue to push forward. We still have a very active process with our customers. There’s definitely a need. This is an energy savings product for them, and it’s also a cost reduction product for their buildings. And we look forward to getting that first product out the door in the next three to four months. Turning our attention to our newly created fiber optics division. For those of you who may be new to the company in January of this year, we announced an asset purchase agreement in which we picked up some contracts, some equipment, and some other assets to allow us to move into a new area. And that’s fiber optic construction. How we got to the fiber optic construction is really an interesting story. While we were meeting with a US office building owner in New York, they had mentioned that they would like to talk to Crown about potentially buying a distributed antenna system from Crown.

Our Smart window insert has the capability of taking data, weather data, sunlight, position of the sun, and it takes that data through a communication system that we put in the building, and it allows us to help the building run that smart window to insert smarter, allowing them to save more money. That telecommunication system that we put into the building led to a conversation with one of our prospective customers about building a distributed antenna system, which is really just fiber optic cables, and antennas put throughout a building in order to propagate a cell signal more deeply and more clearly within a building. That conversation led us into this, in this entire world of fiber construction, which has led us to where we are today. And I’d like to announce at this moment that we signed our fourth MSA in the Northwest region.

This is now the third new customer that we have acquired since we announced the acquisition of our assets in January of this year. It’s a three-year contract. We should have a purchase order coming from this contract, hopefully within a week or so, and we’ll obviously make that announcement as to what that will mean to our revenue generation once that, once we have that in hand, and again, we’re hopeful to have that sometime in the next week or so. In our shareholder letter that we announced a few weeks back, we had talked, and actually, in our earnings call that we had at the end of March, we had discussed what we believe we’re gonna do in revenue and what we think we will generate in EBITDA, all coming primarily from the fiber optic division, in light of this new contract that we’ve just signed, and in light of the fact that we should have a pretty significant purchase order that comes from that contract, we’re going to hold off on recasting any of our projections at this point.

We will have another shareholder letter that we will draft and have out sometime in the next two to three weeks, which will give the investing public guidance on what we think we’ll be doing in revised revenue and EBITDA for calendar ‘23. The macro tailwinds for the fiber optic division remain very strong. There’s a lot of efforts around the country to deploy fiber optic network in order to get — not just net — not just fiber optic to the home, to the business, but also to get 5G signals rolled out across the country. So, we’re the benefactor, frankly of pretty strong demand from the consuming public in voice data and video. And we’re — we have a very robust pipeline that we’re building, not just with our own efforts, but also efforts that we have with other individuals and other companies that we’re working with in the fiber optic network.

Frankly from a business standpoint, we’ve never seen opportunities of this size greatly outsize what we thought we would do within the smart window insert business. And it’s pretty exciting, frankly. So, we’re going to continue to update the shareholders as we have updates, but obviously, the big takeaway from this call is the fourth contract that we’ve signed, three-year contract, and we will announce the purchase order once we have that executed and in hand. Literally 45 — about an hour ago, we received an email notifying us that NASDAQ has accepted our proposal and that we are have been granted an extension through to August 28th. For those, just to review, there were two issues that we had to deal with in order to maintain our NASDAQ listing.

The first issue is the bid price, we have to trade above a dollar in order to satisfy that ongoing listing requirement for NASDAQ. And the second issue was the equity rule. We have to maintain a $2.5 million balance in our equity account in order for ongoing NASDAQ listing. We believe that once we file the queue this week, we will have resolved the equity issue with NASDAQ, and we already have the shareholder’s permission to do a one — up to a one for 15 reverse if needed in order to achieve the $1 minimum bid price. And in all respects, we have until August 28th to accomplish both of those goals. Really good news, frankly, and we’re hap — we had always thought that they would grant us the extension, but it’s nice to officially get it, and we will have an 8-K filed sometime in the next day or two that outlines this in more detail.

We also are actively trying to clean up our balance sheet, both in repaying and retiring and exchanging debt so that we have a clean cap structure going forward. We’re very optimistic, obviously, about the future of the company, specifically as it relates to the fiber optic division, but also as it relates to the smart window insert, we’ve had some great breakthroughs with and we are really excited to get the first product out and in our customer’s hands later this year. We don’t have any analysts that cover the company right now. We have engaged in conversations with analysts that are on the telecommunications infrastructure, side of the business. And so hopefully we’ll pick up coverage from one of the analysts over the next three to six months.

And so, it’s hard to set up analyst calls for our earnings call, but what we have decided to do is if we get questions on a daily basis, typically through our info at crownekay.com email. And so, Jason has taken a lot of those questions and kind of categorized them into one of about looks like five different questions. So, I’m going to read the question and then provide the answer that hopefully will help keep everybody informed about the company.

Doug Croxall: So, we have addressed this a little bit in some of our previous earnings calls and press releases in order to deliver a Gen 1 Insert, we need to be able to produce our film at a wider width than what we have been able to in the past. The breakthrough that we announced is seven by two foot insert obviously has allowed us to manufacture film at a greater width than what the standard width was, which was about six inches. And so, this will open up our delivery schedule. We are trying to get first product out sometime in the next three to four months. We won’t be shipping a lot of the smart window inserts, but enough to sprinkle into some of our customers building so that we can start getting good feedback for our Gen 2 Insert.

The next question. Has the technical issue been resolved and when will the first units be received by the customers? So, to some extent, the technical issue has been resolved. There are many paths that we were approaching the issue of film with. And so obviously one of those paths has worked, that’s why we’re able to build the seven by two, the seven foot by two-foot Insert. We still have other challenges that we will constantly have to overcome. Moving from proto to production, there is a lot of other issues that you have to deal with. You don’t know what they are necessarily, but you know that they come up and we still have other paths that we are still pursuing for web a wide web film, because you never know which path will provide the greatest opportunity for the company.

So yes, we have resolved some of the issues. There are obviously other issues that we don’t know of that always come up, but we are pretty confident that we will be able to resolve those as well. And again, reiterating we think that we will have our first product out the door sometime in the next three to four months. Third question. It almost seems like the volume of opportunities for Crown Fiber optics is so big that it may be too much for a smaller company to handle. How do you intend to scale business to keep up? That’s an incredibly legitimate concern and question. One, it’s a question and a concern that definitely keeps us up. When I look at our pipeline and the dollar volume of the potential revenue in the pipeline, it’s measured in the billions, frankly.

And so, part of the way you handle it is you pick and choose, which projects you can handle and you grow the company through kind of the old traditional means, have a good infrastructure, have a good management team, find good customers that you are working with. We believe that, we can do a considerable amount of funding off of our purchase orders and not necessarily through the sale of equity. And so, we will look to kind of grow the business, one customer at a time and one purchase order at a time. As far as how do we find the equipment to work on the projects? How do we find the field technicians to work on the products? There are a lot of a smaller contractors out there that we can work with. The equipment is a little bit more challenging, frankly, but we have learned pretty quickly.

And if you work with the right partners on this, they also have equipment of their own. So, there’s no silver bullet to that question. It’s just good management good funding to fund your growth and a disciplined approach on which customers to take on. Question number four. Can you please discuss the next steps with respect to your NASDAQ listening? Yeah, we actually — we just went through that, but we’re in really good shape. We’ll be able to meet the equity guideline, we believe once we file our queue. And we’ll be able to meet the bid price guideline, either on our own because we start trading above a dollar or with the already approved shareholder up to one for 15 splits that we got in our proxy contest in December of last year. And in either regard, we have until August 28th to accomplish both of those.

Question number five. Do you have any best guess on when the company may achieve cash flow positive? So, kind of going back to what we talked about earlier about providing guidance on revenue and EBITDA, we will update that guidance. I don’t want to do it now. I want to do it once we have the purchase order from this fourth contract in hand. That’ll give us a lot of ability to be as accurate as we can. So again, I will provide that update likely through a shareholder letter or possibly through a press release. And at that point, we’ll provide that guidance. That actually is all of the questions, the category of the questions that have been submitted. So, I just want to say when you look back at where this company was one year ago, we didn’t know anything about the fiber optic industry.

We didn’t know anything about the distributed antenna, um, industry. We thought we were a lot closer to getting a first product out back then we clearly were. But we’ve come a long way. We think we’ve positioned the company in a tremendous industry for growth, for revenue production, for earnings production. We think we have a very unique way to help fund that growth that will not require endless amounts of equity raising, which I think is important to do clearly. And we’re going to get the balance sheet cleaned up and get delivery the company so that the equity holders can hopefully realize some equity growth in the stock price. And we will provide updates in a shareholder letter once we have those, or a press at least once we have those. But the future looks really bright, getting NASDAQ put behind us, hopefully getting some more contracts and more purchase orders generating pretty significant revenue on the second half of this year.

It’s going to really help position the company to be very successful down the road. I’d like to thank everyone for their patience in sticking with Crown, and we look forward to communicating with all of you in the very near future. Operator, I’ll hand the call back to you.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Have a pleasant day.