Crown ElectroKinetics Q3 2023 Earnings Results & Report

Crown ElectroKinetics EPS Results

• Actual EPS: -$21,150.00
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Crown ElectroKinetics Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Crown ElectroKinetics (NASDAQ:CRKN) is a technology and infrastructure company focused on electrokinetic smart-glass products and fiber-optic network construction. Its flagship technology is an electrokinetic film designed to change the tint of glass when an electrical current is applied, allowing windows to transition between clear and tinted states. The technology is intended for applications such as commercial buildings, automobiles and other settings where controlling light and solar heat may be beneficial.

Through its fiber-optic operations, the company provides construction services for underground telecommunications networks. These services have included microtrenching and related installation work used to deploy fiber-optic cable, primarily for telecommunications and broadband infrastructure projects in the United States.

The company was previously associated with the Crown Fiber Optics name and later adopted the Crown ElectroKinetics name to reflect its emphasis on electrokinetic smart-window technology. Crown ElectroKinetics is headquartered in the United States. Doug Croxall has served as the company’s chief executive officer and has been associated with its development and corporate strategy.

Crown ElectroKinetics Q3 2023 Earnings Call Transcript

Key Takeaways

• Crown has signed three MSAs and launched two active fiber projects in the Phoenix area, working with Google Fiber, Verizon, and Gigafiber through prime contractors like Tilson and MasTec.
• The company’s EK Film division achieved successful film mastering in Europe, with 12-inch masters expected by year-end and production slated for Q1 or early Q2 next year.
• In Q3, Crown recorded $0 revenue and a pre-tax loss of $2.9M, reflecting continued investment in build-out ahead of Q4 project ramp-up.
• A net cash increase of $2M, driven by $6.3M from financing activities, lifted shareholder equity to $9.3M and supports NASDAQ listing compliance.
• Deployment of infrastructure continues with 3 directional drills, 2 microtrenders (expanding to 5), vac units, cement trucks and five established crews to meet growing telecom demand.

Presentation

[Operator]

Good morning, everyone, and welcome to the Crown Electrokinetics Corporation Third Quarter 2023 Conference Call. At this time, participants are in a listen-only mode. The question and answer will not be following the management's remarks. This conference call is being recorded. A replay of today's call will be available on the investor relations sections of the Crown's website. I will now hand the conference 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 Communications at Crown Electrokinetics]

Thank you, operator. Good morning, everyone, and welcome to Crown's Third Quarter 2023 Conference Call. With us today on the call are Doug Croxall, Crown's Chief Executive Officer and Chairman, and Joel Krutz, Chief Financial Officer, in addition to Mike Sullivan, David Martinez, and Jeremy Hubbard from our Fiber Optics division. 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 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.

[Jason Assad, Director of Corporate Communications at Crown Electrokinetics]

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 third quarter ended 2023, filed with the SEC. Copies of these documents are available on the SEC 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 or 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, Founder, CEO and Chairman at Crown Electrokinetics]

Thank you, Jason, and welcome everybody to our third quarter earnings call. We're gonna do things a little bit different than our traditional earnings call, which typically is just myself and Joel Krutz speaking. We had an investor call a little about a month or two months ago, I guess, and you got to hear from Dave Martinez and Mike Sullivan. So today I'm gonna give a general corporate update, putting on a couple of highlights, and then I'm gonna hand the call over to Dave Martinez, who will go through a customer update, Mike Sullivan, who will go over a construction update, and newest to our team is Jeremy Hubbard, who runs recruiting for us, and he will go through a recruiting and personnel update.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

So as you saw from our recent announcement, we've added our third MSA, our third customer, and we started work on customer number two. So we have two active projects now in the field. Both of these are in Arizona, in the Phoenix area. One is micro trenching and one is traditional directional drilling. We, as we had mentioned before, we're gonna continue to focus on the Arizona market. I spent time with our customers last week, and there is significant work for us to do. We will continue to add customers, and we'll continue to add more and more projects with the customers that we've already announced.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

We do think that there will be some opportunities to move out of the state of Arizona, and when those arise, we'll look at those as long as they're within the general vicinity of Arizona or, you know, the Southwest, West Coast area. We also expect, and we should be adding another, hopefully two-three MSAs before the end of the calendar year. I know that we get a lot of requests as to who the customer actually is, and while we are precluded from putting our customer's name in press release, I do wanna give some insight as to whose fiber optic network we're building and who the prime contractors are that we're working with.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

So the work that we're doing in Arizona currently is for fiber optic networks that are going to be owned by Google Fiber, Verizon, and Gigapower. Some of the prime contractors that we're working with are Tilson, Mas Tec, Mears, and Blue Edge. So while we can't go into specifics, at least not today, as to what each of those customers are gonna represent, those are the type of customers that we're working with. Some of the best construction companies in the country, and obviously some of the best fiber optic networks in the country as well. So I wanna move quickly on to the EK film side, because the rest of the team's gonna bring you up to speed on the rest of the fiber optic side.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

On the film side, we actually just got word yesterday that some of our mastering that was being done with our vendor in Europe has come back positive. So we're looking to go to the next step in our mastering, in our mastering phase. We expect that we should have 12-inch masters done sometime before the end of the calendar year and be able to cycle that into our production, with product coming hopefully towards the end of Q1 next year or early Q2. We will continue to provide updates on the film business and the film mastering as those occur. One of the things that we also wanna do this year, which we've not done in the past, is that after today's earnings call, you don't typically hear from our company until our 10-K earnings call, which isn't until typically the end of March.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

And so that's, you know, that's obviously four months, four and a half months. So what we're going to do sometime in mid-January is another investor call, like the one that we did in mid-September, where you're gonna get to hear from the team. We're gonna give you an update on customers, revenue, EBITDA, and all the things that you're gonna hear about today. So with that said, I'd like to turn the call over to Dave Martinez, who's gonna walk through some of our customers.

[David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics]

Hey, Doug. Hello, good morning, everyone. It's my pleasure to be here again today. I want to share with you a few of our new opportunities that we have been able to secure with three of our key customers since our last update. The first customer is a Houston-based company focused on developing fiber network infrastructure solutions and is a premier provider of engineering, design, construction services to the pipeline and utility industries. It is a subsidiary of a much larger parent company, consisting of over 200 companies that service North America. With this customer, we have been able to secure three HDD, horizontal directional drilling projects in the Phoenix, Arizona market, but more projects are expected to be awarded as the permits and work is available. In this market, it seems to be an almost weekly basis.

[David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics]

Just this last week, we met with this customer to discuss a partnership for a project in northern Arizona that is over 1.2 million ft of directional drilling and another 600 ft of aerial. Although this is still in the early stages, we are working diligently with the customer to secure this award. The second customer has been involved in some of the largest and most complex infrastructure construction projects across the country. With offices across North America, 80+ years of experience, and nearly 32,000 employees, this customer has become a leader in the infrastructure construction. We recently secured an MSA, master service agreement, with this customer. During a recent meeting we had with them in their Phoenix office, they shared with us some of their projects, timelines, and their need for partners with micro trenching capabilities.

[David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics]

They were very excited to hear that we have those micro trenchers, and we can place them on their projects immediately. We'll be following up with this team this week to further discuss the logistics and the timing of the projects and awards. They have also shared with us that this project is expected to run seven-10 years. The third customer that I would like to share with you today is an established networking communications infrastructure company, providing network infrastructure, design, engineering, development solutions to the leading communication firms throughout the United States. Just this past week, we have signed an MSA with this customer, and through this customer, we have secured a project that includes work from micro trenching, fiber placement, and fiber splicing for a global internet service provider that's providing the services to a local municipality through this customer.

[David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics]

This project is expected to run five-seven years. They say we are excited about this customer relationship as they are to have our crews, skill set, and equipment as part of the development offering. So much so that we will be discussing future local projects and multi-state projects with this customer. For our future pipeline, our team has been working diligently to expand our customer base and grow our teams to meet and exceed the current and future needs of our customers. Over the next month, we will be speaking with three nationwide companies and one international company about their needs and how Crown Fiber offers can be part of their solution in building better communications. We look forward to everything that's coming down the pipeline. It's gonna be an exciting adventure. I'm glad that we're here.

[David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics]

With this, I would like to go ahead and pass the call over to Mike for our construction update.

[Mike Sullivan, SVP of Construction at Crown Electrokinetics]

Thank you, Dave, and hello. Good morning. It's a pleasure to meet with you today and provide an update on our status. Currently, we have established a yard, office, and shop facilities in Arizona. This location is close to our workload in Mesa and Chandler, as Dave described with the current contracts we have. This eliminates a lot of windshield time and gets us on the job efficiently and effectively. Additionally, we'll be adding fuel storage to our yard, which again increases our efficiency and cement silos, and I'll go over that later as we discuss volumetric trucks. For production equipment, we have three directional drills ready to go. We have the crews established to manage those machines. Total production between all three machines is around 2,200 ft per day.

[Mike Sullivan, SVP of Construction at Crown Electrokinetics]

We have micro trenchers in market. Two units are here right now, capable of producing 4,400 ft per day, and we have three additional units ordered. As I said, volumetric cement trucks, we've ordered two. One is on its way here. Second one is in the manufacturer right now. The reason we're going with that is that increases our effectiveness and efficiency in the field. Rather than ordering ready-mix, we can produce our own grade of concrete or slurry and clean up our job site. This allows us to continue production because our cleanup is done, and that puts more permits and more work in front of us. Additionally, we have three vac units and three additional units coming in.

[Mike Sullivan, SVP of Construction at Crown Electrokinetics]

A Vac unit is a piece of support equipment that is required with both the directional boring and micro trenching. We've established direct relationships with the manufacturers of this equipment, and have a projected pipeline and production reserve as we increase contracts and production goals. As Dave described, the pipeline of work is ongoing and increasing as we move along here. The market is huge right now for telecommunications infrastructure, and we anticipate five-eight years of growth in this market. Therefore, we've coordinated the efforts of equipment procurement and staffing such that we can address the needs of our clients. With that, I'm going to introduce Jeremy Hubbard, Director of Recruiting.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

Thanks, Mike. Thanks, Dave. It's a pleasure to be a part of this team. As the Director of Recruiting here at Crown, I lead the talent acquisition strategy and execution for our growing and dynamic organization. Behind me, I have over 15 years of experience in the staffing and recruiting industry, working with clients across various sectors, disciplines, and geographies. I'm born and raised here in Arizona. I hold a great market behind me, and I hold core competencies in business planning, sales, consultation, as well as employee benefits and new business development. I hold two degrees in international business and marketing from the University of North Florida, as well as studied abroad in three different countries to gain a global perspective of cultural awareness in our market and a variety of other industries.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

I'm very passionate about finding and retaining the best talent for Crown Fiber and empowering them to succeed and thrive in their roles. So what I'd love to share with you today is just our current status, where we're moving, where we're grooving, and where we're growing here in the near future. So, currently, we have five crews established. In just one month, I was able to design five crews comprised of skilled labor, general labor, equipment operators, foremen, and leadership, of course. This has been instrumental in breaking ground on our first project, which we did break ground on time and is currently in process. So very excited about that. In addition to my recruiting efforts, I've also brought on three subcontractors to help us with the added business that we'll be bringing on board.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

So that way, as I build out this squad and multiple other teams, we can also grab other business that may come upon us. I do have additional subcontractors in process as well to tap into whenever we need, so very good on that side. I also want to foreshadow some expected growth due to these new clients that Dave and Mike shared with you. I'll be building out teams for our fiber splicing divisions, engineering teams, micro trench teams, and then continuing to build out our directional drill teams. Part of my recruiting processes is working hand-in-hand with Dave and Mike, is identifying the needs in regards to the equipment that Mike has gotten for us, as well as what talent do I need to bring in charge with that equipment to achieve Dave's projects.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

So it's posting, recruiting, interviewing, hiring, onboarding, then training these individuals with our different clients and then getting them on the ground. I also have enlisted virtual HR partner, as well as standard industry recruiting tools, and I'm utilizing a variety of referrals from our current workforce, as well as through my own network to build out these squads. Building a culture is extremely important to me as we build out these teams. How we're defining that culture, of course, is finding individuals that are self-thinking, motivated, that wanna work as a team, and developing a sense of teamwork and family within this workforce is really what we're after. And then showing these employees that we genuinely care about them.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

We want this to be a job, we want this to be a career, and I'm making that evident on day one and following it through the interview process so that Dave and Mike can, can keep that flow and culture rolling as they hit the ground. So outside of that, I am doing a variety of team-building events, family-building events. Our benefits are top-notch as far as a competitive wage, health benefits, 401(k), ESPP, and really just branding us outside of that is another option we're going into, which is community events. Networking through local councils and business executives, as well as getting our faces out to conferences throughout the nation, primarily in the Southwest region. We've already identified four conferences that will be in attendance in the following year. So very, very bullish on the employment market.

[Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics]

While it does remain highly competitive here in Arizona in regards to a ton of business, I feel very confident in our market that I will be able to provide and deliver every person we need to get every one of these projects moving, and on the go.

[Mike Sullivan, SVP of Construction at Crown Electrokinetics]

Thank you, Dave, Mike, and Jeremy, for those updates. And good morning, everyone. Today, I'll be discussing Crown's third quarter financial results. But just ahead of that, though, I wanted to address the minimum bid price notification, which we received from Nasdaq on October 19. We have 180 days from that date to again trade above $1 for 10 consecutive days to regain compliance. We're confident that the progress we're making, as you've just heard, against our strategic plans, will mean that we again meet the compliance standards, but we will also prepare alternate options to ensure that we retain our Nasdaq listing.

[Joel Krutz, CFO & COO at Crown Electrokinetics]

...Onto the financials. Crown's pretax loss for the third quarter of 2023 was $2.9 million. This loss was $0.3 million lower than the same quarter, ended September 30th, 2022. We did not record any revenue or cost of revenue in Q3 as we focused on building out our organization and equipment in preparation for the Q4 projects, which are now underway. And as you've heard, there's a huge amount of work that's gone into that and a huge amount of progress that's been made. Operating expenses for the third quarter were $3.4 million. Of that, research and development expenses were $0.5 million, a decrease of $0.5 million compared to the three months ended September 30th, 2022, primarily due to a decrease in salaries and benefits. SG&A expenses were $2.9 million for the quarter.

[Joel Krutz, CFO & COO at Crown Electrokinetics]

This represents a $0.7 million increase versus Q3 of last year. This was primarily due to an increase of $0.5 million in professional fees related to Crown's significant transactional levels. Other income was $0.6 million for the three months ended September 30th, and that was compared to $0 in the prior year's quarter. Other income consisted of a $3 million change in the fair value of our warrants, notes, and derivative liabilities, which was related to remeasurement. This other income was offset by interest expense of $2.4 million, primarily consisting of amortization expense from our lines of credit. Crown's net cash increased by $2 million in Q3. $5.5 million was provided from financing activities, with $4.5 million from the equity line of credit and $1.8 million from our ATM.

[Joel Krutz, CFO & COO at Crown Electrokinetics]

This was offset by $0.7 million of debt repayment as we eliminated debt from our balance sheet. Net cash used in operations for the three months ended September 30th, was $2.8 million, $0.7 million higher than the same quarter in 2022, driven primarily again by the increase in professional fees. Net cash used in investing activities was $0.7 million. This was dedicated to fiber optics equipment acquisition. Overall, this infusion of equity-driven capital has been very important for Crown's shareholder equity levels, which increased by $4.7 million in Q3 to $9.3 million, leaving Crown comfortably above the $2.5 million Nasdaq compliance threshold. That concludes the financial section. I'll now throw it back to Doug.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

Thank you, Joel. Again, thank you, Mike, Dave, and Jeremy, for all your contributions, both to this call and to the efforts behind Crown Fiber Optics. I just want to remind people that if you look back one year from this day, we had no business in the fiber optics industry. We had no customers, we had no equipment, we had no personnel. Today, we have three very large customers with lots of work for us to do. We'll have more customers as well. Those customers will provide us revenue. We have equipment to handle the current customer need, and we will have more equipment as the customer needs grow. We have personnel to handle the customers today, and we'll have more personnel as we grow our customer base.

[Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics]

I want to thank everyone for their patience, and we will have some communication in the next month, indicating which day in January we'll do our next investors call, and we look forward to talking to everyone at that time. Thank you.

[Operator]

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

Participants

Analysts

• David Martinez, VP of Operations for Fiber Optic Division at Crown Electrokinetics
• Doug Croxall, Founder, CEO and Chairman at Crown Electrokinetics
• Jason Assad, Director of Corporate Communications at Crown Electrokinetics
• Jeremy Hubbard, Director of Recruiting at Crown Electrokinetics
• Joel Krutz, CFO & COO at Crown Electrokinetics
• Mike Sullivan, SVP of Construction at Crown Electrokinetics