Crown Electrokinetics Corp.

Good morning, everyone, and welcome to the Crown Electrokinetics Corporation earnings call for the fourth quarter and year-end 2022. At this time, participants are on 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 over the call to Jason Hassan for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Crown's earnings call for the fourth quarter and year-end 2022. With us today on the call are Doug Croxall, 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 our management made within the section, 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 in 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 factor section of the company's quarterly report on Form 10-Q for the quarter ended, for the quarter 2022, first quarter 2022, 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 Doug Croxall, CEO and Chairman of Crown. Doug, please go ahead.

Thanks, Jason. I'd like to thank everyone for joining us this morning for our fourth quarter and year-end 2022 earnings conference call. I'm going to talk about four primary topics today. First will be our listing on NASDAQ. Second will be the capitalization of the company. Third, we will discuss the business of our new fiber optics division. And finally, I will give an update on our electrokinetic film business. After my prepared remarks, Joel's going to give some financial highlights. And at the end, we will open up to questions. All right. Let's start with the – and we get phone calls, emails from our investors on a daily basis. Obviously, two of the primary concerns that we hear about are do you have enough capital and are we going to stay on NASDAQ? So let me address the NASDAQ issue first. It's a process going through the delisting. And so we knew back in September – when we failed to meet what's called the bid rule in which we had to keep our share price above a dollar for 30 consecutive days. So we received a letter saying we were not in compliance. We got a 180-day period in which we could regain compliance. Got closed a couple times, but not quite. And we're in the process with NASDAQ to present a plan. The meeting is scheduled for late April. We've retained a professional services firm that is comprised of former NASDAQ executives to help us navigate these waters. And we've been working with this group of professionals for a couple of years now. Everything we do with NASDAQ, we work with this group And they're obviously very skilled, very knowledgeable, and we have a ton of confidence that we're going to get through this process and maintain our listing. At the very least, we believe that we're going to have another six months with which to regain compliance. But we also are a very different company today than we were back in September when we got the initial notice. And we'll talk about some of those reasons here later in our discussion. Moving to the capitalization. So I know that this is really our Q4 and our fiscal year 2022, but we've had a lot of things that have happened in Q1. And we've actually been able to generate over $7 million of new capital through either debt or equity offerings. So while we wish we had more capital, we are stable and we have a plan to continue to gradually add capital as we move forward. We clearly announced that we had signed a $100 million letter of credit. That letter of credit will help us expand our fiber optics division, both in buying new equipment and hiring new personnel to take advantage of some of the new customers. And I'm going to get to those details here in a minute. So we're confident with what we've acquired, with what we've raised. We know that we will have to raise more money in the future to take advantage of our growth. And we have some options that are available to us. So two of the primary concerns that we hear from shareholders are, do you have enough money and will you stay on NASDAQ? We do have capital and we have a plan to raise more if we need it. And number two, we have a great plan to regain and stay compliant on NASDAQ. And a lot of that has to do with, frankly, the business that we bought in January. That business is generating revenue today. That revenue number will grow throughout this calendar year. And by the end of the year, we think we will have positive earnings. So we're in a very good position. We're in a very different position than what we were when our bid price fell below $1. Speaking of the fiber optics, for those of you who are new to this company, in early January, we announced that we had entered into an asset purchase agreement with a private company called Amerigen 7. They are a leader in the fields of distributed antenna systems, or what's called DAS, D-A-S, and the construction of fiber optics. And it's not obvious as to why a company who makes electrokinetic film technology would acquire a fiber optics construction company. Let me give you the story as to how this happened. So we're in constant conversation with the customers of our EK film. And those customers are US office REITs. One of the customers we were in discussions with mid last year had asked us a question if our inserts could deliver a cell signal from the outside of the building to the inside of a building. And it's not designed, obviously, to do that. And we asked, well, why would we do that? And this executive of this REIT and this manager of this building had explained to us that one of the biggest concerns they had was to allow a 5G cell signal to be distributed within their building. For those of you who are familiar, 5G signals, true 5G cannot penetrate glass, walls, floors very well, which means if you're in a building and you have a 5G cell phone, you're not going to get a signal or not a very strong signal. So one of the things that buildings are doing, and if they haven't already, they will need to do, is to develop technology or implement technology that allows for that cell signal to be delivered internally. The most common solution in the market is what's called a digital, I'm sorry, a distributed antenna system or a DAS. That is the exact product and the exact capabilities that Amerigen 7 had. So through a lot of introductions and searching we finally got to a company that could help us deliver and sell a distributed antenna system into our existing smart window insert customer base as joel and i went through the diligence with the marriage in seven it became obvious that not only do they have capabilities in building dash systems but they are already have a contract with a very large company called charter communications which delivers spectrum to your home, and we started looking into that part of their business. Very, very interesting revenue growth opportunity, very interesting margins, and a massive opportunity in the United States in which not only the federal government, but also state governments are providing capital for cable companies, ISPs, and telcos to build and deliver fiber to businesses in the home. And so as we went through our diligence, it became obvious that this was a great opportunity for Crown. We could add immediate revenue, eventually have profitability, which we were planning for by the end of this year. and have skill sets to offer distributed antenna system, which will be necessary in all of the same customers that we're talking to about buying our smart window insert. So on the outside, when you see these two businesses, it doesn't appear that they fit together, but our customer, of our smart window insert is the reason that we started down this path. And we believe we'll be buying not only our smart window insert, but implementing a distributed antenna system within their building as well. So hopefully that clears up any confusion in the market. And continuing with the fiber optics business. So we bought the business. We knew we had this great contract with Charter, which we continue to work on in the Great Lakes region. Immediately what I wanted to do was to not be reliant upon a single customer, that being Charter. So in the last two months, we've announced two new customers, one in the Northwest, one in the Southwest. And one of those customers, we believe, will help generate $30 million of revenue. We're gonna try to get that done in this calendar year. It may bleed into 2024. And we're gonna continue to expand our customer base. We have a very robust pipeline. There are a lot of ISPs, there are a lot of telcos, and a lot of cable companies that are looking for fiber construction services. So we're going to continue to grow that business, not only within the regions that we currently have customers, but into new regions as well. The effort to deploy high-capacity fiber networks continues to be meaningful. It broadens the set of opportunities for our industry as major industry participants are constructing or upgrading significant wireline networks across broad sections of the country. High capacity fiber networks are increasingly viewed as the most efficient and effective technology, enabling multiple revenue streams from a single investment. Fiber optic deployment opportunities are increasing in rural America through federal and state programs. and for the construction of communication networks in underserved and unserved areas across the country. There's significant public investment plan for communications, excuse me, infrastructure, including the bipartisan infrastructure law, which provides $65 billion in funding, $65 billion in funding to expand high-speed Internet access. That's just the federal funding. That's not state funding, and that's not funding from the actual companies, the balance sheet of the companies themselves. So we have a huge market demand, and there's a lack of suppliers in this market. It presents a great opportunity for our fiber optics division. Okay, so I want to turn the call back to why we're all invested in this company in the first place, which is our electrokinetic film technology. So obviously, we talk a lot about fiber, and you've seen a lot of updates and press releases around our fiber optics division. That's because they've been very active. But we clearly are still very focused on our electrokinetic technology. So the question that we hear often is, you know, why haven't you delivered any inserts? Great question. Believe me, I wish we could. There is a component of our production line. It's a tooling component that is being built by two different vendors overseas. They have struggled to finalize this component to the quality level that we need in order to deliver our first inserts. We have been working with them. We've made great progress in the last couple of months. Earlier this week, we received a version of that tooling component. We installed it on Wednesday night, and we ran film all day yesterday, and the film looks pretty darn good. It's not there. It's not 100%, but we definitely moved the ball closer to the goal line. In April, I'm going to send a shareholder letter that will, among other updates, will give an update as to the progress on the film side. But we're looking good. We're not quite there. Customers clearly are being very patient. We're in constant communication with them. And we do believe that when we have this final tooling component fixed, that we will be up and running and producing film. for our first product, smart window insert, for our first customer's U.S. office buildings. We expect that to happen still within this calendar year.

Okay, so I'm going to turn it over to Joel, and then he'll come back to me for final comments. Joel? Thanks, Doug.

Good morning, everyone. Today I'll walk through Crown's year-end 2022 financials. And firstly, just a note to investors and the public that the audited financial statements will compare a full year of 2022 with the nine-month stub period of 2021, which followed our change in fiscal year last year. For today's call, though, and consistent with the MD&A section of our 10-K, I'll be comparing a full year of 2022 results to a like-for-like but unaudited full year of 2021. For the year ended December 31, 2022, Crown's net loss was approximately $14.3 million. This included non-cash compensation expenses of $2.4 million. Compared to 2021's $37.2 million net loss, this was $22.8 million lower, driven by stock-based compensation reducing $9.8 million and other income expenses down year on year by $15.8 million, which stemmed from the balance sheet restructure we affected in early 2021. Excluding these non-cash elements, the underlying net loss increased $2.7 million due to higher operating expenses. Total operating expenses for the year ended 2022 were $15.1 million, which consisted of $2.4 million of non-cash stock-based comp, $7 million of payroll and related expense, $2.6 million in consulting and professional fees, and $3.1 million of operating overheads. Excluding stock comp expense, operating expenses were higher by $2.7 million due to increased payroll costs of $1.5 million, rent utilities of $0.6 million, and other overheads of $0.6 million. The year ended December 31, 2022. Net cash decreased $5.3 million, with the company deploying $11.1 million of cash for operations and $0.8 million to investments. Crown raised $6.6 million from financing activities in 2022 with $3.1 million of equity issuance and $3.5 million of debt notes that we issued in Q4. As of December 31, cash and cash equivalents were $0.8 million. As Doug mentioned, subsequent to December 31, there have been a number of Q1 liquidity events worth highlighting. Most notably, Crown raising $7.1 million of fresh capital and securing a $100 million line of credit, which will support the customer expansion in our new fiber optics business. In terms of the capital raised, we've drawn $2 million down from the line of credit, and then we raised another million of debt from a new node. A further $4.1 million was raised through equity, with $2 million coming from cash exerciser warrants and $2.1 million from ATM activity. as we're continuing to see strong volume in crown trading. That concludes our prepared remarks. Now I'd like to open the call for questions, operator.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

One moment while we poll for questions. There are no questions in the queue at this time.

I'd like to hand Nicole back to Doug Crosswell for closing remarks.

All right. Thank you, operator. Just want to point out where we were a year ago this day.

We have, this company has been through a lot. And had we not made the pivot that we did in January, quite honestly, I'm not sure how we would, I'm not sure how we would get our film to the finish line. So while the stock price is frustrating to everybody, including myself, management team, and the board of directors, we do feel that we put this company in a position to grow, not just with revenue, but with earnings. And while we grow on the fiber side, we will continue to develop the film on the electrokinetic side. I do know that we will have product in the market this year. I have confidence that we will. I have confidence that we will also get through the NASDAQ D or relisting process, as I like to call it. And I know that we will have the proper capitalization to build this business going forward. I thank you for your support, and we look forward to talking to you in mid-May on our Q1 earnings call.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.