Kontrol Technologies Corp. a leader in smart buildings and cities through IoT, Cloud and SaaS technology, provided financial results for the three months and nine months ended September 30th, 2022. 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 2022 Highlights
• Revenues for the three months ended September 30, 2022, were $19.9 million, down 7.5% over the same quarter in the prior year
• Revenues for the nine months ended September 30, 2022, were $75.6 million, up 161% over the same period in the prior year
• The Company suffered a net loss of $(5.2 million) for the three months ended September 30, 2022
• Net loss for the nine months ended September 30, 2022, was $(2.4 million), compared to net income of $1.4 million for the same period in the prior year
• Adjusted EBITDA* loss for the three months ended September 30, 2022, was $(4.0 million)
• Adjusted EBITDA* for the nine months ended September 30, 2022, was $545,029, compared to adjusted EBITDA* of $5.0 million for the same period in the prior year
• Gross profit for the nine months ended September 30, 2022, was $12.7 million, compared to $10.0 million over the same period in the prior year
“This was a very challenging quarter, and we were impacted by a number of economic factors simultaneously, including tight labor markets, supply chain issues, lack of required materials and ongoing material shortages,” says Paul Ghezzi, CEO of Kontrol Technologies. “While our commercial and industrial service and solutions business performed in line with expectations, our operating subsidiary Global HVAC and Automation was most severely impacted. Adding to the overall market conditions the rapid rise in interest has created volatility for new construction opportunities in the multi-residential sector.”
Corporate Financial Outlook
Kontrol provided guidance for fiscal year 2022 in our press release of November 17, 2021, which included a revenue estimate for the fiscal year 2022 of $95 million to $105 million. Revenue for the nine months ended September 30, 2022 was $75.6 million, and therefore lower than the amount previously estimated. That press release also included an EBITDA estimate for the fiscal year 2022 of $10 million to $12 million, while the actual adjusted EBITDA for the nine months ended September 30, 2022 was $545,029.
We now expect that fiscal year 2022 targets will not be met. The expected miss is primarily related to the acquisition of Global HVAC and Automation (“Global”). Global’s large-scale HVAC operation is focussed primarily on the high growth multi-residential and condominium market. During Q3 2022 Global was significantly impacted by COVID disruptions, material shortages, supply chain disruptions and wage inflation. Collectively, these impacts caused a significant reduction in EBITDA and net income.
A number of factors contributed to a reduction in revenue and earnings:
• As certain key construction projects neared completion, additional labour expenses were required and at higher rates due to overtime and hourly wage increases
• Material shortages, supply chain disruptions, and increases in material costs have impacted overall costs and margins
• The ongoing shutdowns related to COVID in China have added to supply chain disruptions have impacted the delivery of various HVAC equipment
• In prior periods the Company was successful at working with some customers to get extra revenue related to material and labour increases. However, in the third quarter the Company was not able to secure offsetting revenue from every customer
• The unprecedented rise in interest rates due to central bank tightening of monetary policy has impacted the ability to secure new projects in the multi-residential sector. This has caused a delay in the initiation of new projects that were previously anticipated.
As at September 30, 2022, the Company was not in compliance with certain financial covenants in its existing credit facilities, which include the Company’s revolving credit facility and term facility. As a result, the Company’s term loan has been classified as a current liability at September 30, 2022. The Company is in discussions with the relevant financial institution to request a waiver with respect to the breached covenants but has not yet received written confirmation that such waiver will be granted.
