Sophic Capital is pleased to introduce you to our new client Kontrol Energy (KNR-CSE; KNRLF-OTC).
Kontrol Energy makes buildings smarter in real-time. Smarter buildings are more profitable, valuable, and sustainable. Led by a management team with 60 years of experience, a previous exit, and about 45% insider ownership, we believe this is a company that will appeal to investors interested in SaaS, Cloud, IOT and ESG.
We recently chatted with CEO Paul Ghezzi; this is a brief summary of what he had to say:
Q. Paul, tell us more about the problem that Kontrol Energy solves?
A. Ask people what the biggest emitter of greenhouse gases (“GHG”) is, and they’ll likely say “cars”. Actually, buildings generate approximately 40% of these gases. Buildings also waste about 30% of the energy they consume. Combined, these wastes costs building owners about $100 billion annually. The reason is that most buildings have no intelligence to monitor and manage energy consumption or greenhouse gases. We provide that intelligence in real-time.
Q. How do you provide that intelligence?
A. We are primarily software-as-a-service / cloud provider. Our solution collects and analyzes real-time data collected from a building’s mechanical, electrical, utilities, and environmental systems to increase their operational efficiencies and reduce energy waste while optimizing operating efficiencies. Our software includes learning algorithms that make our solutions smarter over time.
Q. Do you provide the hardware to collect that data?
A. Yes. We have our SmartMax Gateway and smart learning automation devices that collect, analyze, and optimize building operations in real-time. Our solution is non-invasive to buildings and data is collected wirelessly.
Q. So, tell us about your revenue model.
A. We have three revenue streams: SaaS revenue is predictable recurring revenue that each customer pays regularly. Service revenue is also recurring revenue. And we have retrofit revenue where we define a project and sometimes install hardware and the software. Of the $14.5 million of revenue we reported in 2019, about $4 Million was recurring, $7 Million was repeat business and $3 million was new projects that we didn’t have at the beginning of the year.
Q. And Kontrol Energy was also EBITDA positive in 2019.
A. Yes. We reported $0.5 million of adjusted EBITDA for 2019 and $240,000 in our first quarter of 2020. Part of the reason is that SaaS and service revenues have high margins. Another reason is that existing customers typically expand their deployments after our solutions demonstrate their cost savings. For them, paybacks are usually under three years. For us, customer expansion requires far less expense than landing new customers.
Q. Your “land and expand” seems to be working with Toyota. Tell us about that customer.
A. I’ll start by saying we have a great customer base overall. We met Toyota Tsuho Canada while on a different deployment. They have a long-term initiative to reduce energy consumption and greenhouse gas emissions globally. We signed a major deal with Toyota in March 2019 to form a joint venture providing technology solutions and services to OEMs in the automotive sector to optimize production and manage energy in real-time. We received our first order with Toyota Tsusho last September and have since expanded to 5 facilities and growing.
Q. What is the size of your Toyota opportunity?
A. Right now, we have about 200 facilities in our Toyota pipeline. We believe that each facility has the potential to generate $150K in annual recurring revenue and are targeting to go from 8 facilities today to 100 by the end of 2023.
Q. Toyota is a big validation of Kontrol Solutions. You have real products that are being used by a major global brand (Toyota). Can you tell us who some of your other customers are?
A. We have a broad customer base but some of our more well-known customers are Beyond Meat, Suncor Energy, Oxford, Greenwin, and Brookfield.
Q. How has the coronavirus pandemic affected your pipeline?
A. We were still busy. Obviously, some of our automation projects were delayed but we continued to issue several proposals. And many customers have praised our solution because many jurisdictions issued closure orders that closed a lot of buildings. Yet because we provide data and analytics via SaaS, our clients could still monitor their buildings across their portfolios. While revenues are slightly lower we have been able to adjust expenses to maintain profitability.
Q. Let’s move to your balance sheet. You have a clean cap table and tight share structure.
A. Yes. As of March 31, 2020, the end of our first quarter of 2020, we had 29.8 million shares, 3.0 million options at a $0.74 weighted average price, and 2.7 million warrants priced at $0.80 that mature April 25, 2021.
Q. And you’re refinancing some debentures?
A. Yes. We have a non-brokered private placement for up to $5.8 million, unsecured debentures that pay 8% and will be first offered to existing debenture holders. Each unit comes with 50 common shares. This represents a re-financing and extension of existing debentures and we are anticipating the closing in October 2020. As the debentures move from current to long term obligation it will provide a significant balance sheet improvement.
Q. How can investors get more info on Kontrol Energy?
A. Investors interested in learning more can go to our website www.KontrolEnergy.com where we have a lot more material about the business, management and our solutions and/or contact Sophic Capital if you would like more information.
Learn more about Kontrol Energy by watching the following video:
The information and recommendations made available through our emails, newsletters, website and press releases (collectively referred to as the “Material”) by Sophic Capital Inc. (“Sophic” or “Company”) is for informational purposes only and shall not be used or construed as an offer to sell or be used as a solicitation of an offer to buy any services or securities. In accessing or consuming the Materials, you hereby acknowledge that any reliance upon any Materials shall be at your sole risk. In particular, none of the information provided in our monthly newsletter and emails or any other Material should be viewed as an invite, and/or induce or encourage any person to make any kind of investment decision. The recommendations and information provided in our Material are not tailored to the needs of particular persons and may not be appropriate for you depending on your financial position or investment goals or needs. You should apply your own judgment in making any use of the information provided in the Company’s Material, especially as the basis for any investment decisions. Securities or other investments referred to in the Materials may not be suitable for you and you should not make any kind of investment decision in relation to them without first obtaining independent investment advice from a qualified and registered investment advisor. You further agree that neither Sophic, its, directors, officers, shareholders, employees, affiliates consultants, and/or clients will be liable for any losses or liabilities that may be occasioned as a result of the information provided in any of the Material. By accessing Sophic’s website and signing up to receive the Company’s monthly newsletter or any other Material, you accept and agree to be bound by and comply with the terms and conditions set out herein. If you do not accept and agree to the terms, you should not use the Company’s website or accept the terms and conditions associated to the newsletter signup. Sophic is not registered as an adviser or dealer under the securities legislation of any jurisdiction of Canada or elsewhere and provides Material on behalf of its clients pursuant to an exemption from the registration requirements that is available in respect of generic advice. In no event will Sophic be responsible or liable to you or any other party for any damages of any kind arising out of or relating to the use of, misuse of and/or inability to use the Company’s website or Material. The information is directed only at persons resident in Canada. The Company’s Material or the information provided in the Material shall not in any form constitute as an offer or solicitation to anyone in the United States of America or any jurisdiction where such offer or solicitation is not authorized or to any person to whom it is unlawful to make such a solicitation. If you choose to access Sophic’s website and/or have signed up to receive the Company’s monthly newsletter or any other Material, you acknowledge that the information in the Material is intended for use by persons resident in Canada only. Sophic is not an investment advisor nor does it maintain any registrations as such, and Material provided by Sophic shall not be used to make investment decisions. Information provided in the Company’s Material is often opinionated and should be considered for information purposes only. No stock exchange or securities regulatory authority anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. Sophic and/or its principals and employees may have positions in the stocks mentioned in the Company’s Material and may trade in the stocks mentioned in the Material. Do not consider buying or selling any stock without conducting your own due diligence and/or without obtaining independent investment advice from a qualified and registered investment advisor. The Company has not independently verified any of the data from third party sources referred to in the Material, including information provided by Sophic clients that are the subject of the report, or ascertained the underlying assumptions relied upon by such sources. The Company does not assume any responsibility for the accuracy or completeness of this information or for any failure by any such other persons to disclose events which may have occurred or may affect the significance or accuracy of any such information.
The Material may contain forward looking information. Forward-looking statements are frequently, but not always, identified by words such as “expects,” “anticipates,” “believes,” “intends,” “estimates,” “potential,” “possible,” “projects,” “plans,” and similar expressions, or statements that events, conditions or results “will,” “may,” “could,” or “should” occur or be achieved or their negatives or other comparable words and include, without limitation, statements regarding, projected revenue, income or earnings or other results of operations, strategy, plans, objectives, goals and targets, plans to increase market share or with respect to anticipated performance compared to competitors, product development and adoption by potential customers. These statements relate to future events and future performance. Forward-looking statements are based on opinions and assumptions as of the date made, and are subject to a variety of risks and other factors that could cause actual events/results to differ materially from these forward looking statements. There can be no assurance that such expectations will prove to be correct; these statements are no guarantee of future performance and involve known and unknown risks, uncertainties and other factors. Sophic provides no assurance as to future results, performance, or achievements and no representations are made that actual results achieved will be as indicated in the forward looking information. Nothing herein can be assumed or predicted, and you are strongly encouraged to learn more and seek independent advice before relying on any information presented.