Kontrol Technologies Corp

Good afternoon and welcome to the Control Technologies year-end and fourth quarter 2022 earnings conference call. I am joined by the CEO of Control Technologies, Paul Gassi, and CFO, Claudio Del Vasto. Before we begin, please be reminded that certain statements and information included in the management discussion and analysis and financial statements and presentations, including information related to future financial or operating performance, and other statements that express expectations of management or estimates of future performance constitute forward-looking statements. For more information on the company's forward-looking statements and risk factors, please reference the management discussion and analysis in our financial statements. For all public information filings, please visit the www.cdar.com. Thank you. I would now like to turn the conference call over to Mr. Paul Gazi, CEO of Control Technologies. Mr. Gazi, you may begin.

Thank you. Hello, everyone, and welcome to the Control Technologies year-end 2022 earnings conference call. I'm joined on the call today by our CFO, Claudio Del Vasto. 2022 was a challenging and disappointing year for Control with the underperformance of operating subsidiary global HVAC and Automation. While our commercial and industrial service and solutions business performed in line with expectations, the poor performance of Global HVAC led to the non-compliance of a covenant with our secured lender in Q3, which placed the overall company in the short-term position of financial strain. We were faced with a choice of operating Global HVAC with continued losses in the current environment or attempting to limit those losses by discontinuing operations. After careful consideration and in the context of managing our debt and covenants, Global HVAC was assigned to voluntary bankruptcy in February 2023. The impact of the loss of global is taken into consideration in Q4, with the accounting policies requiring a write-down of certain global assets, which include accounts receivable, as well as impairment of goodwill and intangibles. However, since Global did not enter bankruptcy until Q1 2023, there will be a significant gain in Q1 related to certain global liabilities, which remain on the books in Q4 2022. I'll provide an update on our business initiative shortly, but first I will turn the call over to Claudio for a review of the impact of Global on Q4 2022 and Q1 2023. Thanks, Paul.

Due to global discontinued operations and bankruptcy, the company suffered a net loss of 42.1 million for the year ended December 31, 2022. That loss includes the following items. Global credit provisions of 28.8 million related to accounts receivable, unbilled revenue, and deferred revenue. Global impairment of goodwill and intangibles of 5.5 million. Global provision for loss on contracts of $727,000. As the company had not filed for voluntary bankruptcy as of December 31, 2022, the company has not deconsolidated global, and therefore the liabilities of the subsidiary remain on the consolidated statement of financial position. As such, the company is expected to record a significant gain in earnings in Q1 2023 on liabilities that will be credited to income as part of discontinued accounting treatment. The company will remove $24.6 million of Global's liability in the first quarter of 2023. Subsequent to the year end, the company completed an equity private placement for gross proceeds of $5 million as we seek to grow our higher margin revenues and scale into new growth markets following the discontinuance of Global. The company generated positive adjusted EBITDA in 2022 when excluding global HVAC and automation. The company is projecting positive EBITDA for the 2023 fiscal year. In terms of our corporate financial outlook, we believe the worst of the global disappointment is behind us, and we are focused on driving a profitable 2023. Our commercial and industrial service solutions performed in line with expectations and the company will focus its operations on higher gross margin service and technology solutions. Eliminating loss-making operations directly benefits the gross margins and earnings. We have been able to reduce debt levels by approximately $3.5 million in the first quarter of 2023 while building up our cash position. We remain current on debt obligations with our secured lender as the company continues to deleverage the business. I will now turn the call over to Paul to discuss further company updates and the outlook for the 2023 year. Paul?