Crown Electrokinetics Corp.

Good morning, everyone, and welcome to the Crown Electrokinetics Corporation fourth quarter and year-end 2023 conference call. At this time, all participants are in 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'll 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.

Thank you, operator. Good morning, everyone, and welcome to Crown's fourth quarter year-end 2023 call. With us today on the call are Doug Croxall, Crown's Chief Executive Officer, and Joel Krutz, its 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 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. 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 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 besides 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?

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. then i'll talk about our fiber optics division as many of you know crown has been working towards achieving a path to develop its embossing master for 12 inch wide film the path that crown embarked on quite some time ago involved combining its internal techniques with the efforts of one of our european vendors crown is attempting to create something that has never been done before technical discovery can often be inherently unpredictable Crown has had many factors that delayed our mastering development, but with the delays came critical learning and eventually leading to progress. As you may recall, on February 27th of this year, we announced that Crown's EK film team had solved the 12-inch mastering challenge for its Gen 1 smart window insert. While some 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 that Sheldon Davis has joined as a senior advisor. If you look at Sheldon's work history, you will immediately see that he's well positioned for Crown's exact stage of growth. Importantly, Sheldon and I have known each other since 2016 while he was working at Guardian Industries, a Coke Industries company. He's knowledgeable of our ink formations, he's knowledgeable about windows, glass manufacturing, and different glazing technologies like electrochromic SPD and liquid crystal. Crown was excited to have Sheldon working with us at this important time where he will lead our efforts towards launching our Gen 1 smart window insert. Crown feels 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 wasn't now at this advanced stage in its technical development, it would find it difficult to attract executive talent like Sheldon. Going forward, Crown expects to provide more details on product capabilities, timing, customer wins, as well as pricing and expected revenue and margins. Our Gen 1 product roadmap will 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 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 1, what we call Gen 1 Alpha products, again, in the July-August timeframe. We'll be expanding the Gen 1 Alpha product to cities, to buildings located in cities like Dallas, Chicago, and New York City. Our Gen 1 Alpha smart window insert will have limited product features, but we will introduce Gen 1 Beta towards the end of the summer, early fall, and Gen 1 Charlie product towards the end of October, early November timeframe. Each Gen 1 Alpha, Beta, and Charlie will have additional product features added to each of those releases. The Gen 1 approach allows us to gather feedback from our customers so that we can better design our Gen 2 smart window insert for scale production. Also, during the sixth to seventh month Gen 1 process, We'll be exploring the best way to not only manufacture our film, but also assemble our smart window inserts. The Gen 1 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 to partner with so we can accelerate the Gen 2 product rollout. Moving to the fiber optics division. As you know, a little over a year ago, Crown made its first investment in the fiber action construction market. The last 15 months have provided some very hard lessons and taught Crown 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 could solve the mastering issue with its EK film division, 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 reached the recent technical milestone 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. While Crown starts serving Arizona market with its microtrenching and horizontal directional drilling, Crown has also been given opportunities to grow outside the Arizona market. The opportunity in Florida is a direct result of the efforts of our recently announced president of Crown Fiber, Cory Boas. Cory has not only positively affected Crown's immediate revenue generation, but has also brought Crown to an operating model that allows Crown to be cashflow positive on a project from day one. Crown also has market credibility and connections that has allowed him to build a significant pipeline of revenue generating projects. The pipeline leveraged within his proven business model is expected to generate positive cash flow in the very near term. Analyzing the recently announced Florida opportunity, Crown 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. Crown expects it can scale production without the need to significantly hire more people, rather carefully selecting and leveraging known subcontractors at a guaranteed rate of production. This outsourced model allows Crown to 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. Crown will provide an update when appropriate. On March 6, we announced that we'd executed an agreement with the Twin Dolphin Club located in Los Cabos, Mexico. The Twin Dolphin Club is a 1,400-acre resort master plan development. Crown's fiber optic division, led by Corey, will construct slant wells for the desalination plant that provides fresh water 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 time frame. 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 Fiber Optics 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 wells 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. Well, Joel will actually give you the financial guidance here towards the end of his call. With that, I'm going to turn it over to Joel, and I'll close with some comments at the end. Joel?

Thanks, Doug. Good morning, everyone. Today I'll be walking through Crown's 2023 financial results. But firstly, I wanted to provide an update on our current NASDAQ bid price noncompliance status. We received our non-compliance notification from NASDAQ on October the 19th, which gave Crown 180 days to 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 we'll 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 you updated. Now to the financials for the year end of December 31, 2023. Crown's 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, which 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 were booked in the fourth quarter. Total operating expenses for the year end of 2023 were 19.4 million, with 0.9 million related to Fiber's cost of revenues, 1.6 million of depreciation, amortization, and impairment, and 2.2 million of 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 with the company deploying $16.7 million of cash for operations and $2.3 million to capital investment in the fiber business. Crown raised $19.2 million from its financing activities, with 14.8 coming from common equity issuance, 3.1 million coming from preferred stock issuance, and 1.3 million from debt notes, which were 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 a revolving line of credit with a new lending partner. This will help support the company's growing working capital needs as we deploy and scale operations across multiple markets. This will serve to rebalance 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 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 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 our second quarter revenues to be in line with the recent guidance of between 7 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. And I'll pass you back to Doug.

Thanks, Joel. So just a comment on guidance. The way that we're going to handle guidance going forward is that we'll provide guidance. Our next call will be mid-May when we provide, 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 Q3, 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 Joel 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.

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