Earnings Call Transcript - SKYX Q3 2023

Operator, Operator

Good day, and welcome to the SKYX Platforms Corporation Third Quarter 2023 Investor Update Call. Today's webinar is being recorded. Before we begin the formal presentation, I would like to remind everyone that statements made on the call and webcasts, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the company's SEC filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. At this time, I would like to turn the webinar over to Rani Kohen, Founder and Executive Chairman of SKYX Platforms Corp. Sir, please go ahead.

Rani Kohen, Founder and Executive Chairman

Thank you, everyone, for joining us for our third quarter call. Today, we will go over highlights of Q3 business development and financial. We will start today with our President, Steve Schmidt. Steve Schmidt is the former President of Office Depot International and former CEO of ACNielsen Data Corporation that joined us several years ago, invested with us and is serving as our President. So, with that being said, we will start with Steve, please.

Steve Schmidt, President

Hey, Rani, thank you very much. As Rani said, I invested and I joined this company over four years ago after a 40-year corporate career and just over a year ago agreed to take on the role as President. And as I've said in the past, there were really six or seven key reasons that I became really excited about SKYX, and it started with Rani for both his strategic vision, his leadership, and the way that he understands how to run a company. Second, the management team. Third, the Board. Fourth, when you look at the number of patents and proprietary products that we have, both from a technology and service perspective, one gets excited. The global opportunity that exists for this company as well as the fact that we have filed for mandatory within the code with the National Electric Code. And when you combine those things, they were the reasons that I decided to join as President of the company. So, with that, let me jump into the Q3 2023 results. First of all, we generated a record $21.6 million in revenue in the third quarter of 2023, including sales of our advanced and smart plug and play products. Cash, cash equivalents, restricted cash, available cash, and investments available for sale totaled $24.4 million as of September 30, 2023 as compared to $16.8 million as of December 31, 2022. We continue to enhance our market penetration of our advanced and smart platform technology products to both retail and commercial segments through our e-commerce platform of over 60 websites for lighting and home decor. We have filed for mandatory safety standardization with the National Electric Code for ceiling outlet receptacle for ceilings in homes and buildings with SKYX's code team, which is led by Mark Earley, the former Head of the National Electric Code, and Eric Jacobson, former President and CEO of the American Lighting Association. Mr. Earley and Mr. Jacobson were instrumental in numerous code and safety changes in both the electrical and lighting industries. Eight additional patents have now been issued, resulting in us now having 77 pending and issued patents in the U.S. and globally, including the issuance of five new utility patents in the U.S. and international markets, including Canada, Mexico, and Hong Kong, for its related smart plug and play platform technology products. We announced the collaboration with QUOIZEL, a leading U.S. lighting manufacturer for nearly 100 years, which will include SKYX's advanced smart and standard products for online, retail, and professional channels. We have entered into an agreement with a real estate developer to supply approximately 1,000 homes with our advanced smart home platform technologies, and this is expected to deliver approximately 30,000 units, representing a variety of our advanced and smart platform technology products to the developer's upcoming projects. We signed an agreement with a world-leading product material and sample supply company to architects, builders, and designers, Material Bank, with over 100,000 customers. We signed an agreement to include a variety of our advanced and smart home technologies in all homes of the future exhibits at the upcoming International Builders' Show in Las Vegas, Nevada from February 27 through the 29. SKYX will be a main event in this conference. The third quarter of 2023 was highlighted by our first significant full quarter of revenue that included sales and rollout of our advanced ceiling smart and standard plug and play platform products that are now on many leading U.S. and Canadian websites. We believe we have accelerated our cadence of sales with a robust gross margin profile, notably managing the cash burn of SKYX on a sequential basis. Our e-commerce platform with over 60 websites is expected to provide additional cash flow to the company, which, when combined with our existing cash, we anticipate will be sufficient for at least 18 months of operation. We are encouraged with our path to the builder/commercial segments that we believe will assist in paving the way for our standardization efforts. Additionally, our e-commerce website platform enhances the acceleration of marketing, distribution channels, collaborations, and sales to both professional and retail segments. Some of our 60 websites that include companies advanced ceiling smart and standard plug and play products are: 1stoplighting.com, Lightingdesignexperts.com, Canadalightingexperts.com, Americanlightingstore.com, Homeclick.com, and Lunawarehouse.com among others. The websites include banners, videos, and educational materials regarding the simplicity, cost savings, time-saving, and life-saving aspects of the company's patented technologies.

Len Sokolow, Co-CEO

Thank you very much, Steve, and I appreciate that. And before I get into an overview of our financial results, I'd like to pass it over to Rani to do a three-minute video. So, if we could go ahead and do that, it's only three minutes. Thank you.

Rani Kohen, Founder and Executive Chairman

And now, Len Sokolow will elaborate. After Lenny talks in more detail on our recent builder activity with those products you saw, and Lenny Sokolow will provide some financial updates, please.

Len Sokolow, Co-CEO

Thank you once again for that video. I believe it was essential for those who are new to our company and its narrative. I was introduced to SKYX over 12 years ago, and throughout this time, I have invested in the company and became a Board member in 2015. I recently took on the role of Co-CEO and joined this talented management team. I chose to receive a significant part of my compensation in SKYX equity because I firmly believe that SKYX is at a pivotal moment, well-positioned to become a leader in both U.S. and global markets for smart plug and play platform technology products. I also have strong faith in the safety features of SKYX products. My previous experience as an Executive and General Counsel at Windmere Corporation, which was listed on the New York Stock Exchange and manufactured personal care electrical appliances like hairdryers, has shaped this belief. As I have witnessed, the industry mandated the inclusion of GFCI safety plugs on electrical cords for these appliances, reinforcing my confidence in SKYX’s commitment to safety and standardization. Regarding our financial performance, I am pleased to report that our revenue for the third quarter of 2023 reached a record $21.6 million, driven by e-commerce sales and our smart and standard plug and play products. Our gross profit for this quarter grew to $6.7 million, representing 31% of our revenue, positively influenced by the acquisition of our e-commerce platform, which includes over 60 websites focused on lighting and home decor. As of September 30, 2023, our total cash resources, including cash equivalents and investments, stood at $24.4 million, up from $16.8 million on December 31, 2022. Our current liabilities consist of a 2024 non-cash liability of $5.6 million to be paid in shares to Belami shareholders as part of the acquisition deal. Sales and marketing expenses were $5.7 million during the third quarter, compared to $1 million in the same quarter last year. Our adjusted EBITDA, which accounts for share-based payments, resulted in a net cash loss before interest, taxes, depreciation, and amortization of $2.5 million. Additionally, we had a non-cash basis loss of $4.7 million, resulting in a total net loss of $7.2 million, or $0.08 per share, in this quarter, compared to a net cash loss of $1.9 million plus a non-cash basis loss of $2.8 million, leading to a net loss of $5.7 million, or $0.07 per share, in the third quarter of 2022. Cash used in operating activities for the quarter ending September 30, 2023, was $3.4 million, similar to $3.5 million from the same period last year. Now, I would like to turn it over to Marc Boisseau, our Chief Financial Officer, for further details.

Operator, Operator

Ladies and gentlemen, please bear with us. We are experiencing technical issues. Thank you. Ladies and gentlemen, you are back in.

Len Sokolow, Co-CEO

Okay. So, this is Lenny Sokolow again. I'm sorry, we had an actual disconnection from the internet. I'm not sure where we dropped off, but if I could again reintroduce Marc Boisseau, our CFO, who could discuss some of the further financial information. Marc, please.

Marc Boisseau, CFO

Okay. So, for the next few minutes, we'll cover certain elements of the company's financial condition and results of operation for the quarter ending September 30, 2023 compared to Q2 2023. The cash, cash equivalent, restricted cash, and available cash increased by $700,000 from $23.7 million as of June 30, 2023, to $24.4 million as of September 30. The working capital increased also by $700,000 from $1.9 million as of June 30t to $2.6 million as of September 30. The revenues increased from Q2 to Q3 2023 from $15 million to $21.6 million. That's an increase of $6.6 million. The gross profit increased from $4.7 million to $6.7 million. The net loss declined from $12.3 million in Q2 2023 to $7.2 million in Q3. And the loss before interest tax, depreciation and amortization and share-based payment declined from $2.7 million in Q2 2023 to $2.5 million in Q3.

Steve Schmidt, President

Okay. Marc, thank you. I believe you can clearly see that we're advancing our builder and commercial strategy. To conclude our formal remarks, let me kick it back to Rani to explain in more detail our continuing market penetration growth. Rani?

Rani Kohen, Founder and Executive Chairman

Thank you, Steve. As you can see on the slides, we are fortunate to have important members who have joined us as investors. We started with Steve Schmidt, our President and former CEO of Nielsen and Office Depot. We also have Bob Nardelli, former CEO of Home Depot, Chrysler, and GE Power Systems. Additionally, Al Weiss, the former President of Disney Worldwide Parks, Hotels, Resorts, Cruise Ships, and Products is with us. Mark Earley, leading our code team, was the former Head of the National Electrical Code. Eric Jacobson, the former Head of the American Lighting Association, is also part of our team. Recently, Khadija Mustafa joined us as the former Head of AI at Microsoft, focused on AI Global and Sales. Now, touching on our builder activity, let me share this slide, which may take a moment to come up. Here it is. As you can see, our ceiling receptacle is positioned on the ceiling, making it easier to view. We have several packages designed for builders. As Steve mentioned, we signed an agreement with a developer to supply approximately 1,000 homes, with about 30 units per home. We will begin supplying the first project for them next year. The project involves packages for different types of homes, including one-bedroom, two-bedroom, three-bedroom, larger homes, apartment buildings, hotels, and commercial spaces. These packages include smart and regular light fixtures, smart and regular ceiling fans, and our all-in-one smart platform. With this package, as the builder installs 30 ceiling outlet receptacles while constructing the home, they will also install our ceiling outlet receptacle. When the building is ready for the consumer, our team will come in and connect a package that contains the smart and standard fixtures and fans, along with our all-in-one smart platform. This installation can take just a few minutes, effectively simplifying the process for builders. Our approach is reminiscent of the razor and blade model; we provide the receptacles, and builders choose from various packages that can range from five to tens of thousands of dollars, depending on the size of the unit and the fixtures selected. This solution has received positive feedback as it significantly reduces time, costs, and complexities while saving effort for builders. They only need to install the ceiling outlet receptacle, while we handle all fixture installations and IT connections efficiently. In the upcoming slide, you will see our all-in-one platform previously shared and its applicability to various home types, such as large homes and high-rises. Notably, achieving smart home readiness traditionally takes days for a one-bedroom unit, whereas our device reduces this time to less than a minute. For larger homes, standard implementations can take weeks, but our solution accomplishes this in approximately an hour. Even in the case of a large hotel with 500 rooms, a project might take a year and cost millions of dollars under traditional methods, while we can complete the installation in just a day or two, often at a fraction of the cost. Most of our products are already in production, with active sales leading to enhanced market penetration. As Steve noted earlier, aside from the all-in-one platform, which we plan to start producing very soon next year, the other products are actively being sold and distributed. We have a total of eight packages available for our outlet receptacles and similar items. This positions us well to capture a significant share of the market. With a large market opportunity, even a minor percentage can yield substantial impact for us. As previously mentioned, we filed for mandatory safety applications in September. Current home installations globally involve billions of instances where individuals work with hazardous wires, often while on ladders, which poses significant risks. We firmly believe our solution can save many lives while also conserving time, costs, and making processes simpler. The last significant safety innovation in U.S. homes occurred around 40 years ago with the introduction of the GFCI, which is now typically found in bathrooms and kitchens due to safety mandates. We are following a similar path, confident that our product meets essential safety requirements. While we cannot predict the exact timeline, we hope for prompt approval of our safety application, keeping in mind that the schedule is under the control of the voting panel members. Our goal aligns with a historical precedent in safety standards, like the transition from traditional Edison bulbs to the modern, safer designs. We are working to introduce similar innovations and are optimistic about our prospects for success. We are also proud to have received endorsements from key building organizations, confirming our commitment to safety standards in construction. Our code team, led by experts like Mark Earley and Eric Jacobson, brings a wealth of knowledge and experience to our initiative. We started selling products online last quarter and have improved our integration of many items to support plug-and-play capabilities. Our range has expanded from a couple of hundred fixtures to nearly 10,000 that are now compatible with our smart devices. By the end of the year, we aim to reach tens of thousands of fixtures, with projections to grow to hundreds of thousands by next year. As we work with builders, increasing our product variety and capabilities is crucial for a successful partnership. Our sales approach online comprises three options, making it easier for customers to purchase products that incorporate our devices. We are seeing significant improvements in our conversion rates from one quarter to the next as we enhance our offerings. In summary, we are enthusiastic about our opportunities with builders. The time and cost savings provided by our device are remarkable. Where traditional smart home setups could take days, our solution can reduce that to one minute, along with considerable savings on installation costs. Additionally, our offerings can serve a variety of applications such as hotels, cruise ships, elder living facilities, hospitals, and many more commercial segments. With that, we are now ready to move into the Q&A session and welcome your questions.

Operator, Operator

Thank you. Our first question comes from Michael Legg with The Benchmark Company. Please proceed.

Michael Legg, Analyst

Thanks. Good afternoon, everyone. I want to start with a couple of financial questions. We had $21 million of revenue. We bought Belami. They had $80 million of annual revenues. Can you talk a little bit about what's going on with the traditional sales at Belami and what we're seeing with the economic environment there? And then, what part of the sales did we see that was the smart products if you could just give us a little breakout on that? Thanks.

Rani Kohen, Founder and Executive Chairman

Sure. So, as everyone knows, the home decor is in decline for the past few years. It started when the peak of the home decor and you can see Wayfair, for example, was in 2020 and 2021 as people were home and didn't have too many choices to renovate their homes and a lot of people got the SBA loans and renovated their homes. So, the peak was 2020 and 2021. But as you can see, the numbers of Wayfair and many others in home decor were sliding and every year going down. In addition to the slowdown in the builders market, that is not helping the high interest and slowdown in new construction. So, the home decor market and lighting market in general are in decline. We are actually very pleased where we are with those numbers and the number of this quarter proves to us that we're on the right path and the conversion rate towards our products we're selling. I think our goal is to have around for now two-thirds to be the plug and play and one-third to be the smart, and I think we're very close to those goals. And again, that's our anticipation towards growing our variety of fixtures. And that's our goal is more people will learn about our smart features. We have a nice conversion ratio for them now. Percentages actually look good and we hope to enhance to get much more smarts, but a lot of people want the standard. Again, the smart cost a bit more or more than double than the standard, probably triple. So, we're very encouraged with this.

Michael Legg, Analyst

Okay. Yeah, I have a couple more. Can we talk about your 30,000 units and what that means from a revenue perspective? And then, some of the other agreements you have and can kind of put some numbers on them with like Material Bank and some of the other agreements you just announced over the past quarter?

Rani Kohen, Founder and Executive Chairman

Yes, absolutely. As per our agreement with the developer in South Florida, we are looking at around 1,000 units. We expect to provide about 30 units per home, as indicated in our presentation. Each unit will receive approximately 30 receptacles, although this can vary based on unit size. The builder and homeowner will choose from a selection of packages, which typically start around $5,000 and can include smart lighting, ceiling fans, standard lighting, ceiling fans, and a comprehensive smart platform that enhances home automation, as illustrated in our video and slides. The costs can rise to tens of thousands depending on the unit's size. What builders appreciate is the ease of using a single app for all the fixtures. Historically, builders did not promote smart homes as standard because of the complexity involved with various companies and technologies. We are offering an all-in-one solution that simplifies this process: during construction, we install our receptacles alongside regular wall outlets, and when the builder is ready for delivery, our team quickly comes in to set everything up. We are thrilled about this opportunity, and as we just started engaging with the builder segment, we have received positive feedback. We encourage everyone to stay tuned for further updates on this front. Regarding Material Bank, it is the largest global supplier of architect samples. We expect to launch our product with them next year and become part of the projects they will recommend. This partnership will likely open more opportunities to collaborate with architects and additional builders. We also have around 60 websites ready to support builders, who can log in to a professional segment to purchase wholesale from us. We will direct a significant portion of our builder and architect business through our e-commerce platform while maintaining direct relationships with them. Did you mention the QUOIZEL deal as well? That was one of your questions?

Michael Legg, Analyst

Yeah, the QUOIZEL deal also, yeah.

Rani Kohen, Founder and Executive Chairman

So, QUOIZEL is a nearly 100-year company, one of the top U.S. companies supplying to all the major players in the market. And we're very happy to have this collaboration with them that's going to go also majorly online in the building segment. And they bring a lot of additional business to the table. And it's a world-leading company and we hope you'll hear about additional companies that are collaborating with us down the road.

Michael Legg, Analyst

Okay. So the QUOIZEL, the Material Bank, those are kind of open-ended. When you look at the 1,000 homes, you mentioned $5,000 minimum per package, that puts $5 million floor on the possible revenues. Do we have timing on when you expect this to start coming in?

Rani Kohen, Founder and Executive Chairman

Yeah, we expect to start deliver early next year and either Q1 or Q2 of next year. It depends on when the construction level is ready for us.

Michael Legg, Analyst

Okay. And then I'll just ask one more question and get back in the queue. The cash increase, it looks like you used your line of credit for a $4 million. Can you just talk about how the cash was increased and where it came from? Thanks.

Marc Boisseau, CFO

We need to refer to the statement of cash flows because there are many line items. Essentially, we received some proceeds from a bank line of credit, which is secured by inventory and accounts receivable, totaling around $4 million.

Michael Legg, Analyst

Right.

Marc Boisseau, CFO

Now, we repaid...

Michael Legg, Analyst

No, so that's the bulk of where the increase came from. That's what I was just trying to confirm. Is there a reason you used a line of credit instead of using the cash balance?

Marc Boisseau, CFO

We reduced the utilization of the line of credit as of September 30, with $2.3 million still available under it at that time. As of June 30, the amount was unclear.

Michael Legg, Analyst

Okay, thanks. I'll go back in queue, too. Thank you.

Operator, Operator

Our next question comes from the line of Leo Carpio with Joseph Gunnar. Please proceed.

Leo Carpio, Analyst

Good afternoon. I have two quick questions. First, now that you've acquired Belami and have an understanding of your sales flow, will you provide any revenue guidance for this year or the next? Secondly, with the contracted deals in place, how will you work to increase consumer demand and awareness for your products at this point? Thank you.

Rani Kohen, Founder and Executive Chairman

Thank you, Leo. We're not providing financial guidance at this time. Our focus is on improving our market penetration. To remind everyone, the more receptacles we introduce into the market, the more recurring revenues we will generate for several reasons. This can lead to interchangeable fixtures, seasonal replacements, and other opportunities, as well as open doors for smart products to support monitoring subscription models in the future. We're concentrating on enhancing market penetration and increasing the availability and variety of products compatible with ours. As I mentioned earlier in response to Michael's question, we started with hundreds of products and are now close to 10,000. We anticipate reaching tens of thousands by the end of the year. Soon, there will be tens of thousands of products compatible with our offerings, both smart and standard, with hundreds of thousands expected next year. Our focus is on growth and improving our market penetration. We are not disclosing financial expectations yet as we are in the process of growing. However, we are seeing significant quarter-to-quarter growth, and as we enhance our products' compatibility, we expect our numbers to continue to rise.

Leo Carpio, Analyst

Okay, a quick follow-up question. On the mandate, any sense on the timing of when you may receive an answer?

Rani Kohen, Founder and Executive Chairman

We expect it to be next year, hopefully sooner rather than later. However, we know that regulators tend to be slow, which is the downside. The positive aspect is that we've been in this process for 12 years already. Some believe we could hear back early, while others think it might take longer. Ultimately, the decision rests with the panel members of the NEC.

Leo Carpio, Analyst

Okay, thank you.

Rani Kohen, Founder and Executive Chairman

Any other questions, Leo? Maybe I missed one of your questions or we're good?

Operator, Operator

Well, there are no further questions at this time.

Rani Kohen, Founder and Executive Chairman

Okay, if there are no further questions, we thank you very much for joining us. We are pleased, as Steve mentioned, with our progress and are focused on enhancing our market penetration. We firmly believe that our disruptive technology can transform one or more industries, and the feedback we’ve received from both consumers and builders has been very encouraging. We encourage everyone to stay tuned for more updates. We also announced that we will be a main feature at the Builders' Show in Las Vegas in February 2024, where we will be showcased in the Homes of the Future segment of the event, which could be significant for us. Thank you once again, and we look forward to updating you in our next call. Thank you very much.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.