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KNR: Expecting Stronger Results in H2

What you need to know:
• Kontrol reported Q2 financial results that were below our expectations due to tariff related uncertainty. Revenue came in at $1.3M vs. our estimate of $1.8M and adjusted EBITDA of ($0.3M) vs. our estimate of $0.2M.
• KNR highlighted that it expects stronger organic growth in H2 as its clients look to increase capex spending. Additionally, management stated that is has identified acquisition targets and is working on due diligence.
• KNR ended the quarter with $11.6M in cash & equivalents with minimal debt ($0.21/share in net cash), compared to its market cap of $8.2M.

Yesterday after market close, Kontrol Technologies (KNR:Cboe, KNRLF:OTC) reported Q2/25 financial results that came in below our estimates. Management attributed the soft quarter to tariff uncertainty harming client capex spending, but expects improved results through H2. KNR ended the quarter with cash and equivalents of $11.6M and negligible debt, compared to its market cap of $8.2M, placing it at a 27% discount to its net cash. Management also reiterated that it has identified acquisition targets and is currently completing due diligence. We are maintaining our BUY rating and $0.35/share target price on Kontrol Technologies.

Key Highlights
• Revenue in Q2 came in at $1.3M, below our estimate of $1.8M and down from $3.7M last year. The YoY decline reflects the sale of CEM in Q2/24, which reduced KNR’s revenue and earnings base. Management attributes the lack of organic growth to market softening on capex spending, primarily due to tariff uncertainty. Management expects improving results through the remainder of the year, led by the industrial HVAC group.
• Q2 gross margin of 59% compared to our expected 56% and 55% in Q2/24. The beat came on the back of strong maintenance and service solutions margins.
• Adjusted EBITDA came in at ($0.4M) compared to our estimate of $0.2M and ($0.5M) in Q2 last year. The loss was attributed to slower HVAC and energy consulting activity due to the timing of work order execution and less customer demand.
• Net income of $0.2M in Q2 vs. our estimate of $0.1M. This was largely due to a $0.8M gain from the revaluation of marketable securities.
• KNR ended the quarter with $11.6M in cash and equivalents and negligible debt. The $11.6M is made up of $0.8M in cash, $5.4M in GICs, $1.6M in USD term deposits, and $3.8M in the iShares Bitcoin Trust ETF and related call options.