C-Bond Systems, Inc. (PNK:CBNT) Q4 2023 Earnings Call Transcript

C-Bond Systems, Inc. (PNK:CBNT) Q4 2023 Earnings Call Transcript April 3, 2024

C-Bond Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here). and.

Allison Tomek: Good morning, everyone. I would like to welcome you to the C-Bond Systems Conference Call. This is Allison Tomek, President of C-Bond Systems. Thank you for joining us. Today, we will hear a short presentation from C-Bond Systems’ Chief Executive Officer, Scott Silverman; followed by a question-and-answer session, which will also include C-Bond Patriot Glass Solutions President, Michael Wanke. First, I will read the safe harbor statement, and then we will get started. I ask that everyone please mute their lines during the presentation. Statements on today’s call, about the company’s future expectations constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and as that term is defined in the Private Litigation Reform Act of 1995.

Such forward-looking statements involve risks and uncertainties and are subject to change at any time, and our actual results could differ materially from expected results. These risks and uncertainties include, without limitation, the company’s ability to successfully commercialize its products, the company’s and its customers’ ability to source materials, construction delays, film delays, the company’s ability to raise capital, regulatory risks as well as other risks. Additional information about these and other factors as may be described in our earnings filings with the Securities and Exchange Commission, including its Form 10-K filed on April 1, 2024, its Form 10-Q filed on November 14, 2023, and August 14, 2023 and May 15, 2023, and in future filings with the SEC.

The company undertakes no obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this statement or to reflect the occurrence of unanticipated events, except as required by law. I will now turn the call over to Scott Silverman, Chief Executive Officer of C-Bond Systems.

Scott Silverman: Good morning, everyone. Allison, do you hear me okay?

Allison Tomek: Good morning, Scott. Yes, I hear you.

See also 20 Fastest Growing Economies in Asia in 2024 and 15 Fastest Growing African Economies in 2024.​

Q&A Session

Scott Silverman: Well, good morning, everybody, and thanks for joining us. We had a great year at C-Bond. Record revenue, positive earnings, a stronger balance sheet, and a significant backlog and pipeline for 2024; net income in 2023 was almost $1.9 million, which is over $7 million in improvement, when compared to 2022. This was due in part to a lower expense structure. Expenses in 2023 were $1.2 million less than in 2022. It’s also due to the sale of our automotive business, C-Bond Nano Shield, and the related patent back in May of 2023. From that transaction, we brought in over $4 million, which allowed us to pay off over $2 million in debt, thereby strengthening our balance sheet. The remainder of the capital was used to grow and support our subsidiary, now renamed and incorporated as Patriot Glass Solutions, Inc.

or PGS. The majority of our revenue for 2023 came from PGS. As many of our main product lines at PGS are C-Bond Secure and C-Bond BRS, our Bullet Resistant Solution. C-Bond Secure is our proprietary chemical solution that is typically used with one layer of 8-mil or thicker security window film on a typical piece of one-quarter-inch yield glass, such as on a retail storefront. This deters and delays break-ins or smashing grabs by strengthening the underlying glass, as well as the adhesive bond between the glass and film, thereby creating a security film solution that secures storefronts and other facilities, and delays break-ins by delaying the ability of the perpetrator to be able to get into the facility and it can take up to two minutes rather than seconds for the perpetrator to get in, which allows law enforcement to arrive at typical architectural scenarios with the C-Bond BRS solution.

[Technical difficulty] I hear a lot of background noise. Allison, you got the… Yes? By applying three layers of 15-mil film on a half-inch piece of a yield glass with the C-Bond BRS solution between each layer of film and then between the inside layer of film and the glass itself, we are certified to NIJ Standards, National Institute of Justice Standards, to stop five rounds at 15 feet from any handgun. With nine layers of 15-mil film on a three-quarter-inch piece of glass, similar application, C-Bond solution between each layer of film and then between the inside layer of film and the glass itself, we stop five rounds at 50 feet from an assault rifle, such as an AR-15 or an AK-47. In addition, our technology has one-way capabilities, meaning that a bad guy shooting from the outside will not be able to shoot into the facility, but a good guy such as a security guard that may be in the vestibule of a school, as an example, can shoot out because of the way the solution is put together and allows him to take out the perpetrator.

What’s extremely important to recognize is that these products, C-Bond Secure and C-Bond BRS, are unique with patent and intellectual property protection. Our IP portfolio was valued a few years back at $33.7 million by a well-respected third-party IP valuation firm. Last year, we informed you all about the opportunity for our products in the school sector, the commercial sector, and the government sector. In our home markets of Texas, we’ve done well and continue to grow. In fact, the majority of our sales and installations are from Texas. We’ve installed our product, our BRS and C-Bond Secure product, in 170 schools – more than 170 schools, and we’ve done many high-profile commercial and government projects with large oil companies, police departments, airports, federal buildings, and more, all of whom are now our customers and are using C-Bond technology to protect their facilities.

Through our dealer network, which is now over 35 dealers, we are working to spread our products beyond Texas to many other states to meet the growing demand of customers for security window film and bullet-resistant solutions technologies. Today, I’m glad to tell you that in the last month, we have received orders through our dealer networks in Tennessee, Arkansas, Nevada, and Pennsylvania. The latter contract from Pennsylvania is for the Beaver County School District, and it’s for more than $100,000 placed literally this week, and we do expect that opportunity to grow and more business to come from Pennsylvania. The reason I tell you about this is that our opportunity in these segments, schools, commercial, and government, is significant. Our products are best of breed with well-protected intellectual property behind us.

In order to expand our reach, our dealer network must be stronger and broader than it is today. They must be trained well to sell and install our products. This is what we’ve been working on. This is what we’ve been building. This is why we expect 2024 to show even more growth. We expect First Quarter alone to produce over $1 million in revenue, which would be by far the best quarter we’ve ever had, and we expect continued growth thereafter. Our backlog headed into 2024 was over $3 million, the first time in history – in C-Bond history, that we’ve had that large of backlog. Interest in our products are increasing organically through our dealer network, through a few top-tier distributors. The Texas Legislature Initiative, mandating security film or fencing, will hopefully expand to other states and ultimately to a federal mandate with the funding source behind it, so that security window film, such as ours, will be used to protect our students, faculty, and administrators at every school in the United States.

So with all this opportunity, with this technology, with these unique products, with the good performance in 2023, and great prospects for 2024, why are we undervalued? Why is our price per share where it’s at? Many people ask me this question. It’s hard to respond to, but my job as your CEO and the job of the C-Bond team, is to deliver operational performance. We’ve done that and continue to do that every day, every month, and every year. We’ve shown steady growth and have significant upside opportunity. So my answer to that question that I posed is simple. Just as our products need to be more visible in the architectural space, the general contracting space, the glass space, the security window film space, for schools, commercial, and government jobs, our company is whole, [Technical difficulty] much more important than both in the investor community.

And that is why we have endeavored to interview several investor relations firms, and we expect to announce within a couple weeks the firm that we have hired to move forward with on these initiatives. I’m a large shareholder of C-Bond. Allison and Mike on this call are large shareholders of C-Bond. Our future and our family’s future depends on the success of this company. Rest assured we work tirelessly to make this a better, stronger company so that you and I and our team as shareholders can enjoy the value recognition that I believe will occur as 2024 goes by and we were all into 2025. Thank you for joining us today, and Allison, I’ll now open it up for questions.

Allison Tomek: Thank you, Scott. I have time for a few questions. [Operator instructions] Good morning. It looks like our first question, and forgive me if I don’t pronounce the name properly, is Mr. Shallow.

Unidentified analyst: Yes, Scott. Bob Shallow here out of Michigan. You and I have spoken several times. I’ve been continually investing with Stock[indiscernible]. Also, I’ve kept my investment group. I told you I was an investment club, and I’ve kept all those from putting their shares on the market. But my question is, if we can maintain $1million plus, a quarter, should we see profitability throughout the year 2024?

Scott Silverman: The simple answer to that, Bob, is yes, if we do $4 million in 2024, which is our goal, although we don’t put out formal guidance, $4 million is the goal we have. We will be net income in cash-flow positive.

Unidentified analyst: Perfect. And that’s one major, major reason that stock is very, very undervalued. So we just all got to get the word out.

Scott Silverman: Well, Bob, we’ve talked a number of times over the last year or two, and I appreciate your efforts and your group’s efforts. And as I’ve said to you before, if you ever want me to meet virtually with your entire group up there in Michigan, I’m happy to do so.

Unidentified analyst: Good. Thank you very much, and keep up the good work.

Scott Silverman: Thanks, Bob.

Allison Tomek: Thank you. Our next question comes from Mr. Smithston.

Unidentified analyst: Yes, I just had a question about why did we need to take that hard money loan this couple weeks ago?

Scott Silverman: Well, the good news is we have a lot of projects in the pipeline. And Mike Wankie, who’s on the phone, I’ll speak here, Mike, but if you want to chime in on this issue, feel free. The pipeline has some jobs that are in excess of $700,000 to $1million. And for example, the large oil company that we did was in excess of $700,000, and their payment terms were 75 days. So there will be times to come where we need short-term capital, and you define it as hard money. It’s not necessarily hard money, and it doesn’t have a conversion feature at all unless we don’t repay it. So in theory, it’s good money as far as I see it, because it doesn’t have that conversion feature, which we want to avoid, obviously, because that’s what hurt us in prior years when we, and then we paid the majority of that off, as you know.

So it’s project-related. It’s working capital-related. And as the company is not yet purely cash-flow positive on an operational basis, sometimes that will be needed, but they will be paid off when the projects are completed. Thank you for your question. Allison, in there?

Allison Tomek: [Operator instructions]. Our next question comes from 4top Capital Management.

Unidentified analyst: Thanks. Thank you, Allison. Congratulations on the great year and quarter. I was just wondering what was the cause of the increase in expenses from the fourth quarter over the third quarter and prior quarters? Was this perhaps due to gearing up for, as you said in the column, more training or what were the primary causes for that?

Scott Silverman: The majority of it was project-based, as I just said in the last answer. And also, there was some stock-based compensation that was included in the fourth quarter, so it was not cash.

Unidentified analyst: Okay. Thank you.

Allison Tomek: Our next question comes from Tom Slepinger.

Unidentified analyst: Hey, Scott. Hey, Allison, the question I have is, first of all, I’ve been following this company for a number of years now, and I love the product, and I think the approach potential is from what I can tell quite nice. And the numbers are beginning to line up, so balance sheets improved dramatically. So I love what you’ve done from a fundamental perspective. Can you give me a perspective, Scott, as to what the market share of C-Bond is with regards to the Texas school districts? I know they all have a mandate to improve their security, but with regards to competition, are you winning more of the opportunities than the competition or are schools opting for a lower-cost approach or a different approach than the C-Bond solution?

Scott Silverman: Tom, that’s a great question. And I’m going to take some time with this one because I need to go back in order to properly educate. I think you know it, but everyone on the line might not. In August of last year, the Texas School, it’s called the TEA, Texas Education Association, put in place a two-year mandate, whereby every public school in the state of Texas needed to have some type of security window film or fencing installed at their facility by August of 2025. So August 2023 to 2025 Initially, there was a deadline where they needed to choose a vendor in a rather short period of time. The bottom line is most schools don’t have the exact number, but most schools did not meet that deadline. And the TEA did nothing to enforce that deadline.

Rather, they simply said unofficially, just get it done within the next two years and you’ll be fine. So obviously we can’t control the legislature. We can’t control the TEA. We can just try and get business at all of the various school districts and private schools and parochial schools in the state of Texas. So you asked about a percentage. We don’t know, we don’t have visibility on which schools have chosen a vendor. As we’re now in over 170 schools and we don’t know whether that’s 10% of those that have made a choice or 50% of those that have made a choice. It is a competitive landscape. Our strength is our technology. We have the best of breed technology. We stop bullets. We meet NIJ certification standards. Many of our competitors do not.

Many of our competitors, however, are larger than us and have larger sales forces than us. I’ll name one, 3M. We’ve all heard of 3M, one of the largest companies in the country out of Minnesota. 3M Security Window Film Solution is an 8-mil piece of window film that goes on either existing glass or new glass that goes into the facility using soap and water as opposed to C-Bond proprietary technology, which we all know is better than soap and water. Their cost as a result is lower than ours. And there are competitive situations where the school district is choosing the least expensive route. And flat-out we lose that competition. But when we have the ability to show them how our technology works, in some cases to do a side-by-side with 3M and other technologies in a demo situation, and the wow factor of us stopping bullets and 3M technology not stopping bullets, in most cases we get that job.

So the answer to your question is it is competitive. There are at least four to five different companies, maybe more in the market in Texas. We are not the least expensive, but we are the best. So for those schools and school districts that want to choose the best and perhaps pay a little more for it in order to protect the students and faculty at that school, we get a lot of those jobs. Can I put a percentage basis on it? I cannot. I hope that answers your question.

Unidentified analyst: It does. Okay. Thank you, Scott. Appreciate it.

Allison Tomek: We have one question. I don’t have the individual’s name, but the area code 585, if you could please ask your question.

Unidentified analyst: Thanks, Allison. Yes, Scott, this is Tom. Scott, just a quick question for you; is the balance sheet improves, and if the stock price continues to remain depressed, would C-Bond ever consider permanently reducing your outstanding share account?

Scott Silverman: You know, I guess what your question is, Tom, is about a reverse split. I get that question a lot.

Unidentified analyst: Even buying back, Scott.

Scott Silverman: So let’s say you actually bought back yours. Yes, so let me answer both of those things, then. As of now, we’re not in a position to use our cash to buy back stock. We don’t think that that’s a good proposition given our, cash position. Even our cash position when we sold after the automotive business, I would not spend tens of thousands. Tens of thousands would have no impact, and hundreds of thousands is not an appropriate use of our capital. We want to use it to grow the business. As far as a reverse stock split goes, many people have asked that question. I’ve run four different public companies in the past, as many of you know. I’ve done reverse stock splits. I don’t like them just to do them. just to get the price higher and lower the share account, I don’t think it’s an effective use of a reverse stock split.

However, if there is significant momentum at any point in our business operations and in turn our market capitalization, that may be something we look at, but it is currently not on the table. So in simple context, what I mean by that is we will only do a reverse stock split into momentum, not simply for stock price and the lower the share count.

Allison Tomek: We do have one last question from Mr. Bushmire.

Unidentified analyst: Hello. How many states have you reached through film application companies in the United States?

Scott Silverman: Again, I’m not going to put an exact number on that, but we have now over 35 dealers, I think in approximately, Mike or Alice, and if I’m wrong on this, please correct me. I think it’s approximately 15 states. And we have five or six that are very active right now. And that’s, I think I said in the, in my opening remarks that, we recently got jobs in Tennessee, Nevada and Pennsylvania through that dealer network. So we expect 2024 to be a large growth for that. But I think it’s 15 or 16 states and over 35 dealers.

Allison Tomek: At this point in time, we have no further questions. So I will turn it back over to you for any closing remarks.