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
unaudited condensed consolidated financial statements and related notes thereto
for the three or nine months ended
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, this "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
Business
The Company, formed in 1999 and incorporated under the laws of the state of
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.
Critical Accounting Policies and Estimates and New Accounting Pronouncements
Please refer to Notes A & B under Item 1 - Financial Statements.
26
Revenues
The table below outlines product versus recurring revenues for comparable
periods:
Three Months Ended
September 30, 2022 September 30, 2021 Variance
Product $ 1,828,954 91% $ 1,290,389 89% $ 538,565 42%
Recurring 188,380 9% 163,679 11% 24,701 15%
Total $ 2,017,334 100% $ 1,454,068 100% $ 563,265 39%
Nine Months Ended
September 30, 2022 September 30, 2021 Variance
Product $ 5,570,775 91% $ 4,071,159 88% $ 1,499,616 37%
Recurring 535,634 9% 532,607 12% 3,027 1%
Total $ 6,106,409 100% $ 4,603,766 100% 4 1,502,643 33%
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 nine months ended
Hospitality revenues increased 13% to
Backlogs were approximately
27 Recurring Revenue
Recurring revenue consists of
For the three and nine 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
September 30, 2022 September 30, 2021 Variance
Product$ 1,371,312 75%$ 851,873 66%$ 519,439 61% Recurring 32,952 17% 13,646 8% 19,306 141% Total$ 1,404,264 70%$ 865,519 60%$ 538,745 62% Nine Months Ended September 30, 2022 September 30, 2021 Variance Product$ 3,049,048 55%$ 2,164,586 53%$ 884,462 41% Recurring 94,027 18% 36,868 7% 57,159 155% Total$ 3,143,075 51%$ 2,201,454 48%$ 941,621 43% Costs of Product Revenue
Costs of product revenue include materials and installation labor related to
The quarterly variance was primarily attributable to increases in material costs
of
The quarterly variance was primarily attributable to increases in material costs
of
For the nine month comparison, the variance was primarily attributable to
increases in material costs of
28 Costs of Recurring Revenue
Recurring revenue costs are comprised primarily of call center support labor.
For both the three and nine 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
September 30, 2022 September 30, 2021 Variance
Product $ 457,642 25%$ 438,516 34%$ 19,126 4% Recurring 155,428 83% 150,033 92% 5,395 4% Total $ 613,070 30%$ 588,549 40%$ 24,521 4% Nine Months Ended September 30, 2022 September 30, 2021 Variance Product$ 2,521,727 45%$ 1,906,573 47%$ 615,154 32% Recurring 441,607 82% 495,739 93% (54,132 -11% Total$ 2,963,334 49%$ 2,402,312 52%$ 561,022 23%
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
Gross profit on product revenue for the nine months ended
29
Gross Profit on Recurring Revenue
Gross profit on recurring revenue for the three and nine months ended
Operating Expenses
The tables below outline operating expenses for the comparable periods, along with percentage change:
Three Months Ended
September 30, September 30,
2022 2021 Variance
$ 1,306,869 $ 1,479,832 $ (172,963 ) -12%
Nine Months Ended
September 30, September 30,
2022 2021 Variance
$ 4,140,169 $ 4,273,474 $ (133,305 ) -3%
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 nine months ended
Research and Development
Three Months Ended
September 30, September 30,
2022 2021 Variance
$ 272,144 $ 268,917 $ 3,227 1%
Nine Months Ended
September 30, September 30,
2022 2021 Variance
$ 798,913 $ 876,778 $ (77,865 ) -9%
Research and development costs are related to both present and future product
development and integration and are expensed in the period incurred. During the
three and nine months ended
30
Selling, General and Administrative Expenses
Three Months Ended
September 30, September 30,
2022 2021 Variance
$ 1,026,023 $ 1,200,569 (174,546 ) -15%
Nine Months Ended
September 30, September 30,
2022 2021 Variance
$ 3,310,127 $ 3,362,761 (52,634 ) -2%
During the three and nine months ended
For the three month comparison, the variance is primarily attributable to
decreases in a trade show expenses of
For the nine month comparison, the variance is primarily attributable to
decreases in legal fees of
Operating Income (Loss)
During the three and nine months ended
The three month operating loss improvement is primarily due to the increase in gross profit and reduction in SG&A expenses. The nine month operating loss improvement is again primarily due to the increase in gross profit and a reduction in operating expenses as discussed above.
Net Income (Loss)
During the three and nine months ended
The three month decrease in net income is primarily due to a
The nine month increase in net losses is primarily due to a
31 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
RECONCILIATION OF NET LOSS
TO ADJUSTED EBITDA
Three Months Ended Nine Months Ended
September 30 September 30
2022 2021 2022 2021
Net Income (loss) $ (697,572 ) $ 17,240 $ (1,206,654 ) $ (55,616 )
Gain on debt extinguishment - (916,107 ) - (1,836,780 )
Gain / (Loss on sale of asset 70 - 526 -
Interest expense, net 2,735 7,584 21,940 19,286
Income tax provision 968 - 7,353 1,948
Depreciation and amortization 8,702 10,346 31,129 33,935
EBITDA (685,097 ) (880,937 ) (1,145,706 ) (1,837,227 )
Adjustments:
Stock-based compensation 1,815 1,815 5,445 5,446
Adjusted EBITDA $ (683,282 ) $ (879,122 ) $ (1,140,261 ) $ (1,831,781 )
32
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 included 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 expense reductions 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 (
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 (
33
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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