Q4 2023 Crown Electrokinetics Corp. Earnings Call

Participants

Jason Assad; Director of Corporate Communications; Crown Electrokinetics Corp.

Douglas Croxall; Chairman of the Board, Chief Executive Officer, Co-Founder; Crown Electrokinetics Corp.

Joel Krutz; Chief Financial Officer; Crown Electrokinetics Corp.

Presentation

Operator

Good morning, everyone, and welcome to the Crown electro kinetics Corporation Fourth Quarter and Year-end 2023 conference call. At this time, all participants are in a listen-only mode. This conference call is being recorded. A replay of today's call will be available in the Investor Relations section of the Crown's website.
I 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

Thank you, operator, and good morning, everyone, and welcome to Crown for fourth quarter year end 2023 call. With us today on the call are Doug Rock, Salt Grass Chief Executive Officer, and Joe Krotz is Chief Financial Officer. Before we began, I'd like to remind you that today's call contains certain forward-looking statements on management made within the meaning of the Section 27 A. of the Securities Act of 1933 as amended and Section 21 E. of the Securities 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 fourth quarter ended 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's my pleasure to introduce Dr. Axel <unk>, CEO and Chairman of Crown Doug.

Douglas Croxall

Thanks, Jason, and welcome, everybody, to our fourth quarter and year end 2023 earnings call. I'd like to start today's call by talking about our film division first and then I'll talk about our Fiber Optics division. As many of you know, Brown has been working towards achieving a path to develop its embossing master for 12 inch wide film surpassed the Crown embarked on quite some time ago involved combining its internal techniques with the efforts of one of our European vendors, premise of attempting to create something that has never been done before technical discovery can often be inherently unpredictable found is that many factors that delayed our mastering development, but with the delays came critical learning and eventually leading to progress as you may recall, in February 27th of this year, we announced that Crown's UK film team had solved the 12 inch mastering challenge for its Gen one smart window insert also minor refining is required, including some tooling replication. We remain in a great position to start shipping first product in small quantities in July, August timeframe of this summer. With this technical milestone behind us. Crown recently announced Sheldon Davis that John has joined as a Senior Adviser. If you look at Sheldon's work history, you will immediately see that he is well positioned for Crown's exact stage of growth.
Importantly, Sheldon, I have known each other since 2016, while he was working at Guardian Industries for Coke Industries companies, he's knowledgeable of our informations is knowledgeable about Windows glass manufacturing in different glazing technologies like electrochromic SSPD. and liquid crystal panel is excited to have Sheldon working with us at this important time where he will lead our efforts towards launching our Gen one smart window insert brownfields. Very fortunate to have such an experienced proven skilled executive now spearheading the commercialization process. I think it's safe to say that if Crown was it now at this advanced stage in its technical development, it would find it difficult to attract executive talent like shelf going forward. Crown expect to provide more details on product capabilities, timing, customer wins as well as pricing and expected revenue and margins our Gen one product roadmap on we'll start immediately. We will start shipping small quantities in the July August timeframe. The objective is to send approximately four to six inserts to 10 to 20 build and buildings with limited quantities in each. We have buildings already lined up in Los Angeles, San Francisco Bay Area. And we expect to ship Gen one, what we call Gen one alpha products again in the July August time, we'll be expanding the Gen one alpha product to cities, two buildings located in cities like Dallas, Chicago and New York City. Our Gen one AlphaSmart window insert will have limited product features but we will introduce GEN-1 beta towards the end of the summer early fall and Gen one Charlie product towards the end of October, early November timeframe. Each Gen one alpha beta and Charlie will have additional product features added to each of those releases. The Gen one approach allows us to gather feedback from our customers so that we can better design our Gen two smart, Linda insert for scale production. Also during this six to seven month Gen one process, we'll be exploring the best way to not only manufacture our film, but also assemble our smart window inserts, the Gen one phase rollout with Sheldon's guidance, we will be meeting and exploring the possibility of using existing thin film manufacturing lines and existing window manufacturing companies hard to partner with, so we can accelerate the Gen two product rollout.
Moving to the fiber optics division. As you know, a little over a year ago, Crown made its first investment in fiber action construction market. The last 15 months have provided some very hard lessons and talked around a great deal about not only the market, but also how to operate within it. Many of you were curious as to why Crown decided to initially move in this direction. While Crown was always confident that it can solve the mastering issue with the CK. film division proud cannot we could not ultimately predict exactly when that would occur. The decision to buy directional drilling assets in the fiber optics construction market in January of last year has done so in an effort to generate eventual revenue and earnings, benefiting our shareholders. While Crown reach the recent technical milestone zones described earlier, I'm happy to let you know that Crown is generating revenue in both our Arizona market and our recently announced Florida market for Crown start serving Arizona market with its micro trenching and Herzog horizontal directional drilling. Crown has also been given opportunities to grow outside years on the market. The opportunity in Florida is a direct result of the efforts of our recently announced President of Crown fiber CorNova boring is not only positively affected Crown's immediate revenue generation, but has also brought Crown to an operating model that allows Crown to be cash flow positive on a project from day one. Crown is also Crown also has market credibility and connections that has allowed him to build a significant pipeline of revenue generating projects, pipeline leverage within his proven business model is expected to generate positive class cash flow in the very near term.
Analyzing the ResREIT recently announced Florida opportunity found has been awarded 300 miles of horizontal directional drilling as its first phase with an estimated revenue of $11 million. Crown has already begun. The work and promisingly have been meeting and surpassing production and margin targets every day. We don't expect can scale production without the need to significantly higher more people rather carefully selecting and leveraging known subcontractors at a guaranteed rate of production. This outsource model allows Crown's lock in returns based on daily production and by adding more subcontractors, Crown can generate more revenue and earnings with the work on the initial 300 miles underway, there remains an additional 800 miles that Crown expects to be awarded later from will provide an update when appropriate.
On March sixth, we announced it, we announced that we'd expand. We executed an agreement with the twin Dolphin club located in Los Cabos, Mexico twin Dolphin club is a 1,400 acre resort. Master-plan development from fiber optic division, led by Corey will construct slant wells for the desalination plant that provides freshwater 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 timeframe. The agreement calls for a $1.2 million upfront payment, which we've already received with a total value of $3.5 million and is expected to lead to other projects of a similar nature. This opportunity was generated and will be managed by the company's President, Corey. This agreement illustrates Crown's Crown fiberoptics personnel and equipment are able to expand beyond traditional fiber work and into complementary verticals like electrical and irrigation work. The new approach to building slant loans 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. With this agreement closed and more in the pipeline, we anticipate providing financial guidance, which Joel will actually give you the financial guidance here towards the end of this call. And with that, I'm going to turn it over to Joel and and I'll close with some some comments at the end. Joe?

Joel Krutz

Thanks, Doug, and good morning, everyone. Today I'll be walking through Crown's 2023 financial results, but first, I wanted to provide an update on our current NASDAQ bid price noncompliance status, and we received the noncompliance notification from NASDAQ on October 19th, which gave Crown 180 days, trade above $1 for 10 consecutive days. We now have a May meeting scheduled with the NASDAQ hearings panel to extend the process for a further 180 days, which would put us into Q4 of 2024. We're confident with the company's current production, growing pipeline and improving financials that another couple of quarters will see Crown's bid price progressing much closer to the compliance threshold we will, of course, also need to ensure that the company has other options to ensure we retain our NASDAQ listing, and we'll keep the keep you updated now to the financials for the year ended December 31, 2023, from a net loss was $29 million. This included $9.7 million of non-cash other expense related primarily to the balance sheet restructuring, which Crown executed in the first half of 2023, eliminating our debt. Net losses from operations were $19.3 million compared to 2022's $15.1 million net loss. This loss consisted of $5.8 million related to investment in the new fiber optics business and $13.5 million for the film division, which also includes the corporate cost base. Total 2023 revenues were $0.2 million, which were all attributable to the fiber division and the majority of which was booked in the fourth quarter.
Total operating expenses for the year ended 2023 were $19.4 million, with $0.9 million related to five as cost of revenues $1.6 million of depreciation, amortization and impairment and $2.2 million per film research and development, which was $1.9 million lower than 2022.
Finally, there was $14.7 million of SG&A expense, which is $4.1 million higher year on year. This is all due to investment in establishing the fiber division for the year ended December 31, 2023, net cash increased by $0.2 million for the Company, deploying $16.7 million of cash for operations and $2.3 million to capital investment in the fiber business. Crown raised $9.2 million from financing activities was $14.8 million coming from comp common equity issuance, $3.1 million coming from preferred stock issuance, and $1.3 million from debt notes, which was subsequently extinguished. As of December 31, 2023, cash and cash equivalents were $1.1 million.
Just a quick note on Crown's working capital and capitalization structure. So after successfully restructuring the balance sheet, eliminating debt and allowing the company to recapitalize, we have been heavily reliant on equity financing to fund the company. We should soon, however, have access to evolving line of credit with a new lending partner. This will help support the Company's growing work working capital needs as we deploy and scale operations across multiple markets. This will serve to rebalance the cap, the Company's capital structure, reduce our reliance on equity financing, and importantly, lower levels of dilution until we turn cash flow positive, which we project to do in the back half of this year.
Finally, as a reminder, we recently issued guidance indicating Q1 revenues would range between $0.7 million and $0.9 million and net losses would land between $3.3 million and $3.5 million due to improved production levels in our recently established Florida business. I'm pleased to announce that we now expect Q1 2024 revenues of between $0.9 million and $1 million. This would represent a tenfold sequential top line increase compared to Q4 2023 and exemplify the momentum that we now have. We also still expect second quarter revenues to be in line with the recent guidance of between $7 million and $8 million as we further ramp up our Florida operations and mobilize into new markets with new customers. We look forward to providing updates as we continue to make progress against our strategic goals.
And that concludes the financial update. I'll now pass you back to Doug.

Douglas Croxall

Thanks, Joe. So just to comment on guidance. The way that we're going to handle guidance going forward is that we'll provide guidance. What will our next Paul will be in mid May when we provide and when we do our earnings call for Q1. At that time, we'll likely give revised guidance not only for Q2, but we'll provide guidance for Q3 and then we'll do the same in mid-August. We'll provide updated guidance for q three, and we'll provide guidance for Q4 as we build our pipeline. And as we build our fiber construction business, we'll have more predictability towards the end of this year for calendar 2025. But our pipeline is growing, it's growing significantly. And with the new working capital revolver that Joe mentioned, we think we'll be in a great position to take advantage of some of the opportunities in the market.
And with that, I'll hand it back over to the operator.

Operator

Thank you. This concludes today's call. Thank you for attending today's presentation. You may now disconnect your lines.