Earnings Call Transcript - CRKN Q1 2024

Jason Assad, Director of Corporate Communications

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 and 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. A copy 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?

Douglas Croxall, CEO and Chairman

Thanks, Jason, and welcome, everyone, to our first quarter 2024 earnings call. As most of you are aware, Crown consists of two divisions: Film and Fiber. Today, we will begin with the Film division. In late February, we announced that our Electrokinetics Film team successfully addressed the 12-inch mastering challenge for the Gen 1 alpha smart window insert. We are well-positioned to start shipping the first product in limited quantities later this summer. With this technical milestone achieved, we have named Sheldon Davis, a former consultant to the company, as President of our Electrokinetics Film division. Sheldon's background aligns perfectly with Crown's current growth stage. We have known each other since 2016 when he was at Guardian Industries, a Koch Industries company. His expertise in our information and window glass manufacturing, as well as various glazing technologies like electrochromic, SPD, and liquid crystal, makes him the ideal candidate for this role. We are thrilled to have him join us during this crucial time. Looking ahead, we plan to provide further details on product capabilities, timing, customer wins, pricing, expected revenue, and margins. Now, I would like to discuss our rollout plan for what we refer to as Gen 1 alpha, Gen 1 beta, and Gen 1 charlie. Gen 1 alpha is a smart window insert that we expect to launch in small quantities around August-September. Our target is to deploy four to ten inserts per building, across approximately ten to twenty buildings in major U.S. cities, primarily to collect customer feedback. As we gather that feedback, we will simultaneously work on Gen 1 beta, which we anticipate rolling out towards the end of the year. Following that, we intend to launch Gen 1 charlie early next year. Gen 1 alpha, Gen 1 beta, and Gen 1 charlie will contribute to what we expect will be the first fast-produced smart window insert by spring to summer of next year. Moving on to the Fiber Optics division, a little over a year ago, Crown made its initial investment in the fiber optics construction market. The past 19 to 20 months have taught us valuable lessons about the market, operations, and best practices. Crown Fiber is generating revenue across multiple markets under the leadership of Corey Boaz, who we appointed President of Construction in early February. We currently have projects underway in Idaho, Nevada, and soon in California and Mexico. Corey has driven both revenue growth and customer acquisition while helping reshape our operating model to ensure that Crown can maintain cash flow positive projects from day one. Instead of hiring hundreds of employees, we now partner with outside subcontractors. This strategy enables us to manage costs on a project-by-project basis while securing our margins. Corey has established market credibility and connections, allowing him to develop a robust pipeline of revenue-generating projects. This pipeline, alongside our proven business model, will enable Crown to generate revenue and achieve positive net income soon. Recently, we announced securing a significant backbone project in Nevada, which involves horizontal drilling and plowing. This long-haul fiber project has just begun and is expected to be completed by the third quarter. Currently, we have obtained two sections of the project projected to generate around $5.7 million in gross revenue. We anticipate receiving additional stages of the project as it progresses into California. We also secured a horizontal drilling project in Idaho as a prime contractor. This substantial fiber-to-home project is underway and is expected to continue throughout the year, likely leading to further work in California, Arizona, and Oregon with the same customer. On March 6, we announced an agreement with Twin Dolphin Club in Los Cabos, Mexico. This project, involving a 1,400 resort master plan development, will see Crown's Fiber Optic division construct slant wells for a desalination plant that will provide freshwater to the hotel and surrounding residential areas. The project is set to begin later this spring and conclude in early fall, generating an expected revenue of about $3.5 million. Corey managed the opportunity that led to this project. Our new strategy for constructing slant wells could open up additional revenue avenues in Mexico, Central America, and the Caribbean. Importantly, this agreement not only generates upfront cash but is also anticipated to lead to further opportunities. Now, I will pass it over to Joel, and I will return for the closing remarks. Joel?

Joel Krutz, CFO

Thanks, Doug. Good afternoon, everyone. Today, we'll walk through Crown's 2024 first quarter financial results. Ahead of that though, just a quick update on our current NASDAQ bid price on compliance. As you're aware, we received notification from NASDAQ on October 19 which initially gave Crown 180 days traded by $1 for ten consecutive days. We recently met with NASDAQ's hearing panel to request an extension for a further 180 days and are waiting for 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 will also ensure the company has other options necessary to retain our NASDAQ listing. On to the Q1 financials. 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 back-ended. 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 of $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 by $0.8 million as the company deployed $2.7 million of cash operations. Crown raised $2 million from its financing activities, primarily 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 that will support working capital needs in the Fiber business, which is critical as we are looking to 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.

Douglas Croxall, CEO and Chairman

Thank you, Joel. The great Chicago Bears Coach, Mike Ditka, once said that only losers and cowards live in the past. However, I want to highlight that if we compare where this company was a year ago to our current position, we've made significant progress. We have strengthened our leadership in the Film division with Sheldon and in the Fiber division with Corey. We have secured customer contracts in both divisions. Our revenue generation has greatly improved, particularly this quarter compared to the previous quarter and the lack of revenue in the same quarter last year. We are on track to achieve positive net income before the year ends. The company is in a strong position, growing steadily with solid capital sources to support non-dilutive growth in the Fiber division. We are excited about our Q2 results and look forward to updating everyone in mid-August. Thank you, and I'll hand it back to the operator.

Operator, Operator

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