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01/11 03:36
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals multiple negative factors: delayed commercialization of the KARNO Power Module, reduced revenue forecasts, and increased net losses. The Q&A section did not alleviate concerns, as major issues like LEMs and regen redesigns were only recently addressed, with commercialization pushed to 2026. Although new military contracts and tax credits offer some positives, the overall financial outlook and manufacturing challenges lead to a negative sentiment.
Revenue $1.5 million from research and development services related to contracts with the Office of Naval Research. This is a new revenue stream as there was no revenue recorded in the second quarter of 2024.
Cost of Sales $1.4 million, resulting in a gross profit of $131,000. This is also a new figure as there was no cost of sales recorded in the second quarter of 2024.
Operating Expenses $15.8 million compared to $14 million in the second quarter of 2024, an increase driven by higher research and development costs ($10.1 million compared to $8.3 million in 2024). The increase reflects a ramp-up in R&D work and growth in the production of additive components.
SG&A Expenses $6 million, down from $6.3 million in 2024, due to lower facilities, insurance, and professional services expenses, partly offset by higher labor costs.
Interest Income $2.2 million, down from $3.1 million in the prior year quarter, due to a lower level of investments this year.
Net Loss $13.4 million, up from $10.9 million in the second quarter of 2024, but down from $17.3 million in the first quarter of 2025. The increase year-over-year is attributed to higher operating expenses.
Year-to-Date Revenue $2 million, all from R&D services, with no revenue recorded in the first half of 2024.
Year-to-Date Operating Expenses $35.5 million compared to $33 million in the first half of 2024, an increase due to higher R&D expenses.
Year-to-Date Net Loss $30.7 million compared to $26.4 million last year, reflecting higher operating expenses.
Cash and Investments $185.3 million at the end of the second quarter, with $13.5 million spent during the quarter, down from $20.9 million in the first quarter of 2025. The reduction in cash use was partly due to lower capital spending.
KARNO Power Module: Highlighted as a major development with increased customer interest due to a 30% investment tax credit under the One Big Beautiful Bill Act. Delivered the second Early Adopter unit to the U.S. Navy and plans to deliver 10 units in 2025. Full commercialization expected in 2026.
Linear Electric Motor (LEM): Transitioned production in-house due to quality issues with contract manufacturers. Successfully assembling LEMs internally and scaling production for 2026.
Regen Component: Achieved a technical milestone by confirming the effectiveness of a new powder removal process, enabling a more complex and efficient design for the KARNO Core.
U.S. Navy and Air Force Partnerships: Awarded a $1.5 million Phase II research contract with the U.S. Navy and achieved awardable technology status with the U.S. Air Force for critical operations.
Saudi Arabia Deployment: Signed a $1 billion MOU with Alkhorayef Industries for KARNO Power Modules deployment in Saudi Arabia, with initial units expected in 2026.
MMR Group Partnership: Signed an LOI with MMR Group for the purchase of 3 KARNO Power Modules, with deployments expected in the second half of 2026.
Manufacturing Transition: Fully transitioned LEM production in-house to address quality issues, ensuring better control over production timelines and quality.
Inventory Build-Up: Building an inventory of printed components for KARNO Power Modules to support 2026 commercialization.
Tax Credit Impact: The 30% investment tax credit under the One Big Beautiful Bill Act is expected to accelerate customer adoption of KARNO technology.
Focus on Quality and Execution: Prioritizing in-house production and technical advancements to minimize risks and delays in commercialization.
Manufacturing Challenges: Persistent quality issues and delays with the contract manufacturer for Linear Electric Motors (LEMs) led to a full transition of production in-house, which could strain resources and delay scaling efforts.
Product Commercialization Delays: The commercialization of the KARNO Power Module has been delayed to 2026, which could impact revenue forecasts and customer confidence.
Technical Challenges: Issues with the regen component of the KARNO Core required redesign and validation, potentially delaying production and increasing costs.
Revenue and Financial Performance: Revenue forecasts for 2025 have been reduced from $10-15 million to $5-10 million due to delays in commercialization, and the company reported a net loss of $13.4 million in Q2 2025.
Economic and Regulatory Risks: EU tariffs on equipment imports are expected to increase capital spending, and the company is relying on favorable equipment financing terms to offset costs.
Non-Binding Agreements: The MOU with Alkhorayef Industries and LOI with MMR Group are non-binding, creating uncertainty around the realization of these potential deals.
Revenue Forecast for 2025: The company has adjusted its 2025 revenue forecast to $5 million to $10 million, down from the previous forecast of $10 million to $15 million, due to the shift in commercialization of KARNO Power Modules to 2026.
Commercialization Timeline: Full commercialization of the KARNO Power Module is now expected to begin in 2026, following the delivery of all 10 Early Adopter units in 2025.
Production Scaling: The company plans to scale in-house production of Linear Electric Motors (LEMs) to support larger volumes of KARNO systems in 2026.
Tax Credit Impact: A 30% investment tax credit under the One Big Beautiful Bill Act will apply to KARNO Power Module projects starting in 2026, expected to drive customer adoption and offset upfront costs.
Military and Commercial Partnerships: The company has signed a strategic MOU with Alkhorayef Industries for a potential $1 billion opportunity in Saudi Arabia, with initial deployments expected in 2026. Additionally, an LOI with MMR Group outlines plans to purchase 3 KARNO Power Modules for deployment starting in the second half of 2026.
Technical Milestones: The company has achieved key technical milestones, including transitioning LEM production in-house and finalizing the depowdering process and regen design, which are critical for achieving targeted power and efficiency levels.
Financial Position: The company expects to end 2025 with approximately $155 million in cash and investments, assuming $65 million in total expenditures for the year.
The selected topic was not discussed during the call.
The company has revised its revenue forecast downwards and delayed the commercialization of its key product, KARNO Power Module, to 2026. Despite achieving technical milestones and signing significant partnerships, the financial performance has been weak, with increased net losses and reduced interest income. The Q&A session revealed some uncertainties, including delays in customer acceptance and manufacturing scale-up challenges. These factors, combined with a lack of immediate positive catalysts, suggest a negative sentiment, likely leading to a stock price decline of -2% to -8% over the next two weeks.
The earnings call reveals multiple negative factors: delayed commercialization of the KARNO Power Module, reduced revenue forecasts, and increased net losses. The Q&A section did not alleviate concerns, as major issues like LEMs and regen redesigns were only recently addressed, with commercialization pushed to 2026. Although new military contracts and tax credits offer some positives, the overall financial outlook and manufacturing challenges lead to a negative sentiment.
The earnings call reveals several challenges: increased cash outlays, production issues, regulatory risks, and a widening net loss. The lack of a shareholder return plan and unclear guidance on commercialization timelines contribute to a negative sentiment. Despite some positive aspects like stable cash reserves and potential gross margin improvements, the overall outlook is marred by uncertainties and financial pressures, likely leading to a negative stock price reaction in the short term.
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