Today we are sitting down with Mr. Paul Ghezzi, the Chief Executive Officer of Kontrol Energy (CSE: KNR), a growing Canadian leader in the energy efficiency and IoT solutions for the global commercial and industrial building market. Kontrol has been actively expanding its operations which is clearly demonstrated through their recent strong earnings report and we’ll take a look at what is driving this growth!
1) Kontrol Energy has announced significant developments lately on a partnership with Toyota Tsusho Canada Inc.
a) Could you explain to our readers what it is exactly Kontrol Energy will be doing for Toyota Tsusho, and how does Toyota stand to benefit?
We have been selected by Toyota to be their Smart factory partner for North America. What this means for Kontrol is external validation for our leading energy management software and internet of things technology.
What we will be doing is taking existing factories and installing software and sensors to manage critical infrastructure in real time which includes, the building, utilities and process manufacturing.
Imagine hundreds of thousands of sensors reporting data in real time, with deep analytics in our cloud platform and reporting back to plant management.
The ultimate goal is to make each factory more efficient by reducing costs, improving operations and improving operations in real time.b) Additionally, in a recent conference call you stated your deal Toyota deal represents a $200 Million new vertical opportunity for Kontrol over the next 5 years. Was that $200million based on Toyota plants only?
We are being introduced by Toyota to their existing plants but also parts of the automotive sector where they may have an interest. We are not limited to Toyota plants, but we are starting off in a very large eco system of existing factories and this represents a significant organic growth opportunity for Kontrol.c) In the PR it states, TTCI will procure customers, conduct engineering and installation and after-sales services with customers. Based off of that it sounds like Toyota plans on acquiring customers outside of just their own facilities?
We can provide our solutions and technology to any factory in North America. However, having Toyota as our partner opens many new doors and many new potential opportunities which we could not open on our own. As a globally recognized brand with a massive factory footprint the partnership with Toyota is an exciting milestone for Kontrol.d) Are there possibilities of expanding the relationship into other global markets?
Our focus currently is North America, but global potential exists. I would say we have enough opportunities for growth in North America to focus on at this time but over the next 3 to 5 years global expansion is on the table.
2) In March, the Company announced a Letter of Intent (LOI) for the acquisition of an electrical efficiency company generating $6.5 million and $700,000 in EBITDA over 3 years for CAD $3 million. Is there anything you can share about this acquisition and when does the company expect to close it?
Typically, we have a 60-day DD period and up to 60 days in closing. As a public company acquisitions can take up to 4 to 6 months to close to meet all the applicable regulatory compliance. We anticipate closing this announced acquisition along those timelines which represents our 3rd quarter.a) Kontrol Energy’s expansion is attributed to its growth by acquisition strategy which is proving to be quite accretive. What are the metrics which management look for when searching for the perfect company to acquire?
The key metrics and attributes we look for are
- Strong fit with our existing service and technology offerings
- Experienced and committed operating team
- Reasonable EBITDA multiple
- Growth synergies
- Established customer base
- Cost savings through removal of duplication
- Technology/IP integration into our existing platform
3) Kontrol Energy is also expanding its growth verticals to include the lucrative cannabis market and is already engaged with three cannabis companies in Canada. In your opinion, what are the key opportunities that Kontrol sees as a growing segment in cannabis the industry? Additionally, are there any plans in expanding this vertical in the United States or is there a primary focus on Canadian licensed cultivators?
The Cannabis industry is a high energy user and energy costs can account for up to 50% of a grow operations overall cost. In addition, Odors and Emissions are becoming a bigger problem as municipalities and states enforce new compliance rules.a) If possible, without breaching any NDA’s could you share how much money Kontrol can save a typical cannabis operation on operating costs?
We are able to reduce energy costs by up to 50%.b) How much money can Kontrol charge for services?
A typical integration solution can be up to $1 Million over 3 years.c) Are revenues recurring?
Our software revenues are recurring by site, but installation services are one time.d) Are the odor services separate from the energy efficiency services?
Correct.e) Are the odor services a one time cost or recurring?
Mainly one time but annual compliance regulations required an annual report depending on where the grow operation is located and how its regulated.
4) The company previously announced a private placement of up to $6 Million unsecured debentures and an exchange of debentures. Could you inform us on the progress of this announcement and furthermore, what does the Company intend to do with the proceeds?
To continue to add accretive growth through a focus on expanding our smart factory platform with Toyota and to make strategic acquisitions which will add more revenue and earnings to our bottom line.
5) 2018 was a very active year for Kontrol as the company secured multiple acquisitions which added to its strong growth with annual revenues of $10.7 million, up 56% over the same time the prior year. What sort of annualized revenues does Kontrol anticipate to generate for the full year of 2019 and what is the vision for 2020?
We enter 2019 on an annualized revenue run rate of $16 Million and our internal target is to end the year on a run rate of approximately $30 Million. This is subject to completing our next acquisition and adding organic growth and there is no assurance we can achieve that but we are focused on growth, profits and cash flows.
6) In a previous interview, you spoke about $100 million in revenue and software as a service being a potential growth engine for Kontrol and its market cap. What do you see happening in the future for Kontrol?
We have diversified revenues which include software as a service, installation, equipment and consulting. We view our energy software technology as a key growth engine as part of overall diversified revenue growth. As our software as a service (SaaS) revenues grow, we should see a higher premium on those revenues based on comparable in the market. SaaS growth would have a positive impact on our market cap and valuation and would make us an attractive take out target for a larger competitor or strategic industry investor.
7) A shareholder sent us a question and they would like to know if you could provide an update on the US expansion and also DTC eligibility for the OTC ticker (OTCQB: KNRLF)
We have been advised by legal counsel that our application is being processed and we should have it completed in May 2019. but the exact timing is not in our control.
8) Another investor asked, recently the company embarked on a roadshow in Europe and they would like to know if Kontrol Energy is planning on expanding its operations in Europe and or is looking for acquisitions in Europe.
We see many opportunities in the US and Europe for our solutions, technology and potential acquisitions however, at this time Canada and the United States remain a key focus for growth.
9) It’s been stated that you would like to become an attractive take out target or a mid-cap that pays a healthy dividend and continues to grow. A shareholder would like to know, what are the objectives the company needs to obtain these plans and when could a dividend be expected?
We see a dividend as an attractive opportunity at the right time. As we are currently in the expansion of a new attractive vertical revenue opportunity with Toyota, we see the potential for growth being more important to our success than a dividend. However, we will review the value of a dividend on a quarterly basis and inform shareholders at the appropriate time.
10) As we wrap up the interview, what are a few things shareholders could expect to see during the second half of 2019.
We have been delivering on our growth plans by increasing our footprint in the cannabis space, adding strategic acquisitions and targeting new scaling opportunities with the Toyota partnership. Investors can expect that Kontrol Energy will continue to deliver on its strategic growth plans.
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