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Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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Equity Bottom-Up

<h3>KEY POINTS</h3>
<ul>
<li>Operating expense decreased by $2.5 million, from $5.6 million in 3Q21 to $3.1 million in 3Q22. It included $0.5 million in non-cash stock-based compensation, $1.7 million in payroll costs, $0.3 million in consulting and professional fees, and $0.6 million in operating overhead. Access complete results&nbsp;here.</li>
<li>Net loss decreased to $3.1 million from $5.7 million in 3Q21. EPS improved from ($0.39) to ($0.18) Y/Y.</li>
<li>Crown implemented a substantial organizational restructuring to optimize its internal processes from 1Q22. These efforts have reduced the run-rate costs by $3.1 million, or 24%, and cash used for operations has decreased from $1.2 million per month in 1Q22 to $0.7 million per month in 3Q22.</li>
<li>During the quarter, the company spent $2.1 million on operations and received $1.5 million from finance activities on issuing common stocks. The cash balance ended at $0.3 million, a $0.6 million decrease sequentially mainly on account of cash used in operations offset by the equity funds raised.</li>
<li>In October 2022, Crown&nbsp;announced&nbsp;the successful closure of a $4 million equity capital raise that will assist Crown in delivering its Gen 1 product and provide a runway for ongoing negotiations on a debt capital raise.</li>
<li>Management acknowledged the delay in obtaining a ~$30 million debt facility and said higher interest rates did not affect the term sheets. Crown expects to close the debt raise by year-end. This will aid the company in initiating the next production phase and expanding its production capacity.</li>
<li>Crown has applied to dual list its shares on the&nbsp;Upstream&nbsp;trading app, providing the company the opportunity to access a global, digital-first investor base and benefit from a digital dividend mechanism.</li>
<li>NASDAQ has sent a minimum bid price notice to Crown. It has 180 days from September 1, 2022, to trade over $1 for 10 consecutive days to regain compliance.</li>
</ul>
<h2>EARNINGS SNAPSHOT</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/309/587/original/image_34070932121668475816630.png?1668475819" class="editor-image img-responsive" data-smartkarma-image-id="309587"></figure>
<h2>HIGHLIGHTS</h2>
<ul>
<li>Crown expects the first-generation smart window inserts (Gen 1) to be delivered in 1Q23 after facing a delay (original plan before summer 2022). The company acknowledged the unavailability of adequate funding as a major reason for the delay. Management is optimistic about closing a debt facility before year-end after closing a $4 million equity round.</li>
<li>Crown has received its first two customer purchase orders from&nbsp;<a href="https://ir.crownek.com/news-events/press-releases/detail/64/crown-electrokinetics-issues-letter-to-shareholders" target="_blank" rel="noopener">Hudson Pacific Properties</a>, which will install the inserts in two of its San Francisco Bay area buildings. This is an important milestone on the company’s path to commercialization.</li>
<li>The equity and debt funds will be used to finance two purpose-built roll-to-roll lines to produce Crown’s DynamicTint film and support working capital until the 2023 year-end.</li>
<li>Once the new lines are producing at capacity, Crown expects annualized revenues of ~$220 million and EBITDA of ~$40 million from smart window inserts. The company expects to receive both lines by the summer of 2023.</li>
<li>Crown anticipates having a dozen clients with limited Gen 1 inserts installed in their offices within the next year, while enabling customer feedback to dictate the characteristics of Gen 2 inserts. The customer base and feedback on Gen 1 inserts will be the basis for revenue growth in 2024 and beyond.</li>
<li>After receiving feedback from REIT customers, the company will begin developing its second-generation inserts, replacing the 12-inch film, and offering enhanced data collecting and software upgrades. Crown expects to manufacture any width between 12 and 72 inches that would largely satisfy the commercial building market’s requirements.</li>
<li>The recently announced Inflation Reduction Act expands tax incentives for retrofitted energy improvements and extends them to REIT customers. This will support the company in entering and capturing a nascent market. Other legislation, such as New York City’s Local Law 97, which targets a 40% reduction in building energy use levels by 2030, is compelling REITs to upgrade their building envelopes rapidly.</li>
<li>Our prior content on CRKN can be accessed&nbsp;here.</li>
</ul>
<h2>OUR PREVIOUS RESEARCH CONTENT</h2>
<h2>Initiation of Coverage Report</h2>
<p>01/05/22&nbsp;Looking Through the Window Into Smart Glass Solutions For The Commercial Retrofit Market</p>
<p>Extensive coverage on Crown Electrokinetics assessing key opportunities, obstacles, technology, industry, risks, competition, financials, management profiles, etc.</p>
<h2>Recent Management Series</h2>
<p>12/11/21&nbsp;CEO Doug Croxall Discusses Its Smart Glass Technology and Transition to Commercial Scales</p>
<p>CEO Doug Croxall discusses Crown’s unique technology and opportunities in retrofitting commercial buildings.</p>
<h2>Recent Update Notes</h2>
<p>08/18/22&nbsp;2Q22 Results: Net Loss Decreased By $0.9 Million; First-Gen Product Delayed; Achieved a Key Milestone by Registering First Purchase Order</p>
<p>Operating expenses decreased by $0.9 million to $4.5 million, compared with $5.4 million in 2Q21. Net loss decreased to $4.5 million, compared with $5.4 million in 2Q21. EPS improved from ($0.38) to ($0.27).</p>
<p>08/02/22&nbsp;Shareholder Letter: Update on Recently Announced Public Offering, Debt Financing, and Transition to Customer Acquisition</p>
<p>Crown provided an update on the recently announced equity funding, debt financing, and transition to customer acquisition.</p>
<p>07/20/22&nbsp;Company Raises $1 Million to Strengthen the Balance Sheet as it Drives Toward Commercialization</p>
<p>Crown announced the pricing of an underwritten public offering of 1.25 million shares of its common stock at $0.80 per share, yielding $1 million in gross proceeds.</p>
<p>05/31/22&nbsp;Closing In on Debt Financing with Execution of Non-Binding Term Sheet to Fund Two Production Lines</p>
<p>Crown Electrokinetics announced the execution of a non-binding definitive term sheet for debt financing.</p>
<p>05/18/22&nbsp;1Q22 Results: Marching Ahead to Commercialization with Initial Production Expected This Summer</p>
<p>Crown reported its 1Q22 results and laid out key updates on its product development and commercialization targets.</p>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations, and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

Operating expense decreased by $2.5 million, from $5.6 million in 3Q21 to $3.1 million in 3Q22. It included $0.5 million in non-cash stock-based compensation, $1.7 million in payroll costs, $0.3 million in consulting and professional fees, and $0.6 million in operating overhead. Access complete results&nbsp;here.
Net loss decreased to $3.1 million from $5.7 million in 3Q21. EPS improved from ($0.39) to ($0.18) Y/Y.
Crown implemented a substantial organizational restructuring to optimize its internal processes from 1Q22. These efforts have reduced the run-rate costs by $3.1 million, or 24%, and cash used for operations has decreased from $1.2 million per month in 1Q22 to $0.7 million per month in 3Q22.
During the quarter, the company spent $2.1 million on operations and received $1.5 million from finance activities on issuing common stocks. The cash balance ended at $0.3 million, a $0.6 million decrease sequentially mainly on account of cash used in operations offset by the equity funds raised.
In October 2022, Crown&nbsp;announced&nbsp;the successful closure of a $4 million equity capital raise that will assist Crown in delivering its Gen 1 product and provide a runway for ongoing negotiations on a debt capital raise.
Management acknowledged the delay in obtaining a ~$30 million debt facility and said higher interest rates did not affect the term sheets. Crown expects to close the debt raise by year-end. This will aid the company in initiating the next production phase and expanding its production capacity.
Crown has applied to dual list its shares on the&nbsp;Upstream&nbsp;trading app, providing the company the opportunity to access a global, digital-first investor base and benefit from a digital dividend mechanism.
NASDAQ has sent a minimum bid price notice to Crown. It has 180 days from September 1, 2022, to trade over $1 for 10 consecutive days to regain compliance.

EARNINGS SNAPSHOT

HIGHLIGHTS

Crown expects the first-generation smart window inserts (Gen 1) to be delivered in 1Q23 after facing a delay (original plan before summer 2022). The company acknowledged the unavailability of adequate funding as a major reason for the delay. Management is optimistic about closing a debt facility before year-end after closing a $4 million equity round.
Crown has received its first two customer purchase orders from&nbsp;Hudson Pacific Properties, which will install the inserts in two of its San Francisco Bay area buildings. This is an important milestone on the company’s path to commercialization.
The equity and debt funds will be used to finance two purpose-built roll-to-roll lines to produce Crown’s DynamicTint film and support working capital until the 2023 year-end.
Once the new lines are producing at capacity, Crown expects annualized revenues of ~$220 million and EBITDA of ~$40 million from smart window inserts. The company expects to receive both lines by the summer of 2023.
Crown anticipates having a dozen clients with limited Gen 1 inserts installed in their offices within the next year, while enabling customer feedback to dictate the characteristics of Gen 2 inserts. The customer base and feedback on Gen 1 inserts will be the basis for revenue growth in 2024 and beyond.
After receiving feedback from REIT customers, the company will begin developing its second-generation inserts, replacing the 12-inch film, and offering enhanced data collecting and software upgrades. Crown expects to manufacture any width between 12 and 72 inches that would largely satisfy the commercial building market’s requirements.
The recently announced Inflation Reduction Act expands tax incentives for retrofitted energy improvements and extends them to REIT customers. This will support the company in entering and capturing a nascent market. Other legislation, such as New York City’s Local Law 97, which targets a 40% reduction in building energy use levels by 2030, is compelling REITs to upgrade their building envelopes rapidly.
Our prior content on CRKN can be accessed&nbsp;here.

OUR PREVIOUS RESEARCH CONTENT
Initiation of Coverage Report
01/05/22&nbsp;Looking Through the Window Into Smart Glass Solutions For The Commercial Retrofit Market
Extensive coverage on Crown Electrokinetics assessing key opportunities, obstacles, technology, industry, risks, competition, financials, management profiles, etc.
Recent Management Series
12/11/21&nbsp;CEO Doug Croxall Discusses Its Smart Glass Technology and Transition to Commercial Scales
CEO Doug Croxall discusses Crown’s unique technology and opportunities in retrofitting commercial buildings.
Recent Update Notes
08/18/22&nbsp;2Q22 Results: Net Loss Decreased By $0.9 Million; First-Gen Product Delayed; Achieved a Key Milestone by Registering First Purchase Order
Operating expenses decreased by $0.9 million to $4.5 million, compared with $5.4 million in 2Q21. Net loss decreased to $4.5 million, compared with $5.4 million in 2Q21. EPS improved from ($0.38) to ($0.27).
08/02/22&nbsp;Shareholder Letter: Update on Recently Announced Public Offering, Debt Financing, and Transition to Customer Acquisition
Crown provided an update on the recently announced equity funding, debt financing, and transition to customer acquisition.
07/20/22&nbsp;Company Raises $1 Million to Strengthen the Balance Sheet as it Drives Toward Commercialization
Crown announced the pricing of an underwritten public offering of 1.25 million shares of its common stock at $0.80 per share, yielding $1 million in gross proceeds.
05/31/22&nbsp;Closing In on Debt Financing with Execution of Non-Binding Term Sheet to Fund Two Production Lines
Crown Electrokinetics announced the execution of a non-binding definitive term sheet for debt financing.
05/18/22&nbsp;1Q22 Results: Marching Ahead to Commercialization with Initial Production Expected This Summer
Crown reported its 1Q22 results and laid out key updates on its product development and commercialization targets.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations, and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

3Q22 Results: Restructuring Benefits Were Visible As Operating Cost Decreased by $2.5 Million and EPS Improved by $0.20 Y/Y