Kontrol Technologies Corp. (NEO:KNR) (OTCQB:KNRLF) (FSE:1K8) (“Kontrol” or the “Company“) a leader in smart buildings and cities through IoT, Cloud and SaaS technology, announces the release of its financial results for the three- and nine-month periods ended September 30, 2021. A complete set of the Financial Statements and Management’s Discussion & Analysis have been filed on SEDAR (www.sedar.com).

Third Quarter and Year-to-Date 2021 Highlights:

• Record revenues of $21.5 million in the third quarter of 2021, up 614% year-over-year
• Record net income of $2.1 million in the third quarter of 2021, representing second consecutive quarter of positive net income
• Record adjusted EBITDA* of $2.8 million in the third quarter of 2021, up 224% year-over-year
• Cash flows from operating activities of $4.8 million in 2021 year-to-date
• Strengthened balance sheet by eliminating $4.0 million in debt in 2021 year-to-date
• Completed acquisition of Global HVAC & Automation Inc. (“Global”), the largest acquisition in Kontrol’s history
• Raising Fiscal Year 2021 Outlook
  • Revenues of $43 million to $46 million, up from previous $38 million estimate
  • Adjusted EBITDA of $6 million to $7 million, up from previous $3.7 million estimate

Management Commentary.

“This milestone quarter was highlighted by the multiple records we set across several key metrics, driven by the momentum we delivered across our business,” said Paul Ghezzi, CEO of Kontrol. “Our ability to integrate Global into the Kontrol platform while maintaining financial discipline allowed us to not only achieve our highest-ever revenue quarter, but importantly, we also delivered the highest net income quarter in our history. We have clearly demonstrated the ability to add significant growth with profitability. We continue to drive strong organic growth supported by heightened demand from our expanding blue-chip customer base and compounded by Government policy, underscoring the importance of and necessity for enhanced intelligence to operate better, safer, and more sustainable buildings. Kontrol is uniquely positioned to capitalize on the ongoing building modernization super cycle, and I look forward to continued momentum as we execute on our operating strategy throughout the remainder of 2021 and into this next phase of growth ahead as we work to deliver sustainable value for our shareholders.”

Third Quarter and Year-to-Date 2021 Financial Results

Revenues for the three months ended September 30, 2021, were $21.5 million, an increase of 614% from the same quarter in the prior year. For the nine months ended September 30, 2021, revenues were $29.0 million, an increase of 260% from the same period in the prior year. The increase in revenues reflects growth across our verticals, the completed acquisition of Global, and heightened overall business activity during a period of reduced Government-imposed site access restrictions.

Adjusted EBITDA* for the three months ended September 30, 2021, was $2.8 million, an increase of 224% from the same quarter in the prior year. For the nine months ended September 30, 2021, adjusted EBITDA* was $5.0 million, an increase of 234% from the same period in the prior year. Net income for the three months ended September 30, 2021, was $2.1 million, representing the Company’s second consecutive quarter of reporting positive net income. Cash flows from operating activities for the nine months ended September 30, 2021, were $4.8 million. The Company eliminated $4.0 million of debt during the nine months ended September 30, 2021.

Corporate Outlook

Kontrol updated its guidance for the 2021 fiscal year following the strong performance in the third quarter of 2021.

Revenues are estimated to be in the range of $43 million to $46 million, up from its previous $38 million estimate, and compared to $13 million in 2020.

Adjusted EBITDA* is estimated to be in the range of $6 million to $7 million, up from previous $3.7 million estimate, and compared to $2.0 million in 2020.

The Company anticipates seasonality in the month of December around project cut off and revenue recognition and provides its updated outlook as a range to take into account the potential impacts of this seasonality.

Q3 2021 Financial Summary

* Adjusted EBITDA is a non-IFRS financial measure. The Company defines Adjusted EBITDA as net income or loss before interest, income taxes, amortization, and depreciation, share based compensation, acquisition related expenses, and listing expense.

YOU CAN READ THE FULL RELEASE HERE

A report from Marketsandmarkets has the Smart buildings market Projected to grow from $66.3 billion in 2020 to $108.9 billion by 2025. Governments’ focus and emphasis on energy efficient buildings is the catalyst for the Smart Building market growth in the coming years. At the COP26 summit in Glasgow just, we saw many countries make commitments to regulatory action in hopes of reducing energy consumption to meet net-zero targets.

Specifically here in the US, the Biden Administration plans to create more than one million jobs by focusing on replacing outdated energy equipment in buildings. Biden also plans to establish a series of building performance standards for existing buildings, which will make many existing HVAC systems obsolete and intolerable.

The market for commercial buildings in North America is aging and due for modern energy efficiency measures. More than half of the buildings in the US were built between 1960-1999 and they rely on traditional Heating, Ventilation and Air conditioning (HVAC) systems with outdated hardware. These buildings aren’t getting any younger, and as they age, they drift further and further from optimal performance, and require more and more attention to keep them working efficiently. 

KNRLF is coming at this industry from multiple angles. The core of their business model remains helping buildings reduce their energy consumption through tech optimization and IOT.

Their main offering is a Smart Technology SaaS product, offered on a multi-year subscription contract basis. Software as a Service (SaaS) is a licensing model where customer access to the software comes from a subscription payment. Rather than in-house servers, data from the software is stored on external servers, or in the cloud, a saying you’ve probably heard before. The predictable and consistent cash flows from the subscription pricing model is something I’m looking for as an investor, and the benefits are reflected in Kontrols’s impressive gross margins, which we will get into later. 

Within this offering there are two products, SmartSite Software and the SmartSuite Thermostat. SmartSite is designed to assist in the operation and management of HVAC systems for commercial buildings. It can be deployed in any building and can send energy data into Kontrol’s cloud architecture where the data is analyzed in realtime and quickly identifies inefficiencies, savings, and mission critical risk for its customers. This will end up saving a ton of energy in the long run. 

The SmartSuite Thermostat can connect into pre-existing building automation systems and communicate with utilities. Once it is installed, it creates a wireless automation network allowing for HVAC self-optimization.

This smart technology has been adopted in over 400 buildings. Some notable customers include: Brookfield, Beyond Meat, Suncor, Telus and Manulife. Kontrol forecasts that its technology will be in 1000 buildings by 2024, generating $100m in revenue.

They also provide emission verification and air monitoring. Right now, they are working on a very interesting air monitoring system called BioCloud, which is a real-time analyzer designed to detect airborne pathogens. The system promotes air circulation, monitors air quality, and is continuously sampling for viruses and pathogens, Covid-19 as an example. Pretty amazing right? They’ve made some great progress on this project as well, such as an Ontario Government Investment of $2 million, funding from the National Research Council of Canada of approximately $500,000, 4 patents filed and most recently an initial BioCloud order from an international HVAC company. This whole project is actually 50% funded by Government sources.

Carbon Credits

A new revenue stream to the company is the sale of carbon credits, companies that want to reduce their carbon footprint can buy carbon offsets (credits) from projects or companies that reduce GHG emissions like Kontrol. The market for carbon credits is growing exponentially, worth about $300 million in 2018, it’s predicted to be worth $100 billion by 2030 according to Forbes. In Canada, the federal government has set a minimum carbon price that all provinces or territories must meet, they can however, set stricter standards with higher carbon pricing. In the US, 12 states have carbon pricing programs, California and the 11 most northeastern states. called the Regional Greenhouse Gas Initiative (RGGI). RGGI is the first mandatory cap and trade program in the US, and Washington state is beginning a cap and trade program in 2023. The voluntary carbon offset market is growing as companies like Royal Dutch Shell and Google target becoming carbon neutral and as more states and countries mandate carbon pricing, companies will be forced to use the carbon market to offset their unavoidable emissions. 

Kontrol receives carbon credits equivalent to the amount of GHG emissions their technology helps prevent. Kontrol only launched their carbon credit monetization program at the end of September but it offers them a huge secondary revenue stream with rapidly growing demand, evident by Tesla recently becoming the first company to make a profit selling carbon credits..

They just reported a massive Q3, they reported revenue of CAD$21.5 million, up 614% YoY, resulting in record net income of $2.1 million. EBITDA was $2.8 million up 224% YoY, they smashed even their own predictions with this quarter’s earnings and now have two back to pack quarters of positive net income.

They finished the quarter with CAD$5,429,785 in cash, and have now paid off $4 million in debt this year, leaving their balance sheet in a really good place. 

They raised the predicted year end revenue from $38 million to between $43 and $46 million after posting this monster Q3. That’s almost 3x their year end revenue from 2020. They also raised their predicted EBITDA for 2022 from $6 million to $7 million. In 2022 they are projecting revenues of about $65-$70 million which will likely increase too considering their ridiculous growth rate. 

Kontrol has a very low market cap under USD$100 million, trading around USD$2.00. They’re growing incredibly quickly with strong fundamentals and an even better outlook for the end of the year.

Companies in this space are trading at 2.5 to 3x 2022 revenues and Kontrol is only trading at around 1.25 and undervalued here. That could change quickly as they put up their Q3 and the market wakes up to their revenue growth.

Some of their competitors like Legend Power Systems, Xebec and Eguana Technologies are even trading at more than 6 x forward revenue.

Kontrol BioCloud Delivers Multiple Successful Real-Time COVID-19 Detections