TELKONET, INC. The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the accompanying
condensed consolidated financial statements and related notes thereto for the
three or six months ended
Business
The Company's direct sales effort targets the hospitality, education, commercial, utility and government/military markets. The Company is focusing its sales efforts in areas with available public funding and incentives, such as rebate programs offered by utilities for efficiency upgrades. Through the Company's proprietary platforms, technology and partnerships with energy efficiency providers, the Company's management intends to position the Company as a leading provider of energy management solutions.
Forward-Looking Statements
In accordance with the Private Securities Litigation Reform Act of 1995, the
Company can obtain a "safe-harbor" for forward-looking statements by identifying
those statements and by accompanying those statements with cautionary statements
which identify factors that could cause actual results to differ materially from
those in the forward-looking statements. Accordingly, the following
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" may contain certain forward-looking statements regarding strategic
growth initiatives, growth opportunities and management's expectations regarding
orders and financial results for the remainder of 2022 and future periods. These
forward-looking statements are based on current expectations and current
assumptions which management believes are reasonable. However, these statements
involve risks and uncertainties that could cause actual results to differ
materially from any future results encompassed within the forward-looking
statements. Factors that could cause or contribute to such differences include
those risks as described in the Company's filings with the
Critical Accounting Policies and Estimates and New Accounting Pronouncements
Please refer to Notes A & B under Item 1 - Financial Statements.
Revenues
The table below outlines product versus recurring revenues for comparable
periods:
Three Months Ended
June 30, 2022 June 30, 2021 Variance
Product $ 1,787,391 92% $ 1,672,905 90% $ 114,486 7%
Recurring 150,979 8% 182,584 10% (31,605 ) -17%
Total $ 1,938,370 100% $ 1,855,489 100% $ 82,881 4%
Six Months Ended
June 30, 2022 June 30, 2021 Variance
Product $ 3,741,821 92% $ 2,780,769 88% $ 961,051 35%
Recurring 347,254 8% 368,929 12% (21,675 ) -6%
Total $ 4,089,075 100% $ 3,149,698 100% $ 939,376 30%
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Product Revenue
Product revenue principally arises from the sale and installation of energy management platforms. The suite of products consists of thermostats, sensors, controllers, wireless networking products, switches, outlets and a control platform.
For the three months ended
For the six months ended
Product revenues derived from channel partners increased 23% to
Backlogs were approximately
Recurring Revenue
Recurring revenue consists of
For the three and six months ended
Cost of Sales
The table below outlines product versus recurring cost of sales, along with respective amounts of those costs as a percentage of revenue for the comparable periods:
Three Months Ended
June 30, 2022 June 30, 2021 Variance
Product $ 544,835 30% $ 734,899 44% $ (190,064 ) -26%
Recurring 29,306 19% 12,322 7% 16,984 138%
Total $ 574,141 30% $ 747,221 40% $ (173,080 ) -23%
Six Months Ended
June 30, 2022 June 30, 2021 Variance
Product $ 1,677,735 45% $ 1,312,713 47% $ 365,022 28%
Recurring 61,076 18% 23,222 6% 37,854 163%
Total $ 1,738,811 43% $ 1,335,935 42% $ 402,876 30%
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Costs of Product Revenue
Costs of product revenue include materials and installation labor related to
The variance was primarily attributable to increases in logistical expenses of
For the six month comparison, the variance was primarily attributable to
increases in material costs of
Costs of Recurring Revenue
Recurring revenue costs are comprised primarily of call center support labor.
For both the three and six months ended
Gross Profit
The table below outlines product versus recurring gross profit, along with respective actual gross profit percentages for the comparable periods:
Three Months Ended
June 30, 2022 June 30, 2021 VarianceProduct$ 1,242,556 70%$ 938,006 56%$ 304,550 32% Recurring 121,673 81% 170,262 93% (48,588 ) -29% Total$ 1,364,229 70%$ 1,108,268 60%$ 255,962 23% Six Months Ended June 30, 2022 June 30, 2021 Variance Product$ 2,064,086 55%$ 1,468,056 53%$ 596,029 41% Recurring 286,178 82% 345,707 94% (59,529 ) -17% Total$ 2,350,264 57%$ 1,813,763 58%$ 536,500 30%
Gross Profit on Product Revenue
Gross profit on product revenue is influenced by pricing, revenue volume and the composition of those revenues.
Gross profit on product revenue for the three months ended
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Gross profit on product revenue for the six months ended
Gross Profit on Recurring Revenue
Gross profit on recurring revenue for the three and six months ended
Operating Expenses
The tables below outline operating expenses for the comparable periods, along with percentage change:
Three Months Ended
June 30, 2022 June 30, 2021 Variance
$ 1,341,795 $ 1,257,851 $ 83,944 7%
Six Months Ended
June 30, 2022 June 30, 2021 Variance
$ 2,833,300 $ 2,793,642 $ 39,658 1%
The Company's operating expenses are comprised of research and development,
selling, general and administrative expenses and depreciation and amortization
expense. During the three and six months ended
Research and Development
Three Months Ended
June 30, 2022 June 30, 2021 Variance
$ 257,529 $ 296,413 $ (38,884 ) -13%
Six Months Ended
June 30, 2022 June 30, 2021 Variance
$ 526,769 $ 607,861 $ (81,092 ) -13%
Research and development costs are related to both present and future product
development and integration and are expensed in the period incurred. During both
the three and six months ended
Selling, General and Administrative Expenses
Three Months Ended
June 30, 2022 June 30, 2021 Variance
$ 1,071,292 $ 951,089 $ 120,203 13%
Six Months Ended
June 30, 2022 June 30, 2021 Variance
$ 2,284,104 $ 2,162,192 $ 121,912 6%
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During the three and six months ended
For the three month comparison, the variance is primarily attributable to
increases in a trade show expenses of
For the six month comparison, the variance is primarily attributable to
increases in payroll of
Operating Income (Loss)
During the three and six months ended
The three month operating loss improvement is primarily due to the increase in gross profit. The six month operating loss improvement is primarily due to the increase in gross profit and relatively unchanged operating expenses as discussed above.
Net Income (Loss)
During the three and six months ended
The three month net loss improvement is primarily due to the increase in gross
profit. The six month net loss variance is primarily due to a
Non-GAAP Financial Measures
Management believes that certain non-GAAP financial measures may be useful to
investors in certain instances to provide additional meaningful comparisons
between current results and results in prior operating periods. Adjusted
earnings before interest, taxes, depreciation, amortization and stock-based
compensation ("Adjusted EBITDA") is a metric used by management and frequently
used by the financial community. Adjusted EBITDA provides insight into an
organization's operating trends and facilitates comparisons between peer
companies, since interest, taxes, depreciation, amortization and stock-based
compensation can differ greatly between organizations as a result of differing
capital structures and tax strategies. Adjusted EBITDA is one of the measures
used for determining our debt covenant compliance. Adjusted EBITDA excludes
certain items that are unusual in nature or not comparable from period to
period. While management believes that non-GAAP measurements are useful
supplemental information, such adjusted results are not intended to replace our
GAAP financial results. Adjusted EBITDA is not, and should not be considered, an
alternative to net income (loss), operating income (loss), or any other measure
for determining operating performance or liquidity, as determined under
accounting principles generally accepted in
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RECONCILIATION OF NET LOSS
TO ADJUSTED EBITDA
Three Months Ended Six Months Ended
June 30 June 30
2022 2021 2022 2021
Net Income (loss) $ 8,747 $ (155,595 ) $ (509,081 ) $ (72,856 )
Gain on debt extinguishment - - - (920,673 )
Loss on disposal of fixed asset 456 - 456 -
Interest expense, net 6,848 3,828 19,204 11,702
Income tax provision 6,385 2,184 6,385 1,948
Depreciation and amortization 12,974 10,349 22,427 23,589
EBITDA 35,410 (139,234 ) (460,609 ) (956,290 )
Adjustments:
Stock-based compensation 1,815 1,816 3,630 3,631
Adjusted EBITDA $ 37,225 $ (137,418 ) $ (456,979 ) $ (952,659 ) Liquidity and Capital Resources
For the three-month period ended
Since inception through
The Company took and continues to take a number of actions to preserve cash. These actions ranged from suspending the use of engineering consultants, cancelling all non-essential travel, not filling certain vacancies and for certain periods, furloughing certain employees and pay cuts for certain other employees and suspension of the Company's 401(k) match. Receipt of PPP monies helped the company reinstate some of cuts made.
In addition, on
Loans under PPP
For a discussion of the PPP Loans the Company received under the Paycheck Protection Program, see Note G under Item 1 - Financial Statements.
Working Capital
Working capital (current assets in excess of current liabilities) from
operations decreased by (
30 Revolving Credit Facility
For a discussion of the terms of the Heritage Bank Loan Agreement and the Credit Facility, see Note G under Item 1 - Financial Statements.
The outstanding balance on the Credit Facility was
Cash Flow Analysis
Cash used in operations was (
Off-Balance Sheet Arrangements
The Company has no material off-balance sheet arrangements.
Acquisition or Disposition of Property and Equipment
The Company does not anticipate significant purchases of property or equipment during the next twelve months.
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