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KNR: Solid Q4; Still Trading at a Discount to Net Cash

What you need to know:
• Kontrol Technologies reported Q4 financial results that were in line with our expectations. Revenue came in at $1.7M vs. our estimate of $1.8M and adjusted EBITDA was ($0.3M) vs. our estimate of ($0.2M).
• KNR repurchased 1.8M shares in 2024 and 0.7M shares in 2025 thus far, decreasing its share count by 4% since Q4/23.
• KNR ended the quarter with $12.6M in cash & equivalents with minimal debt ($0.22/share in net cash), placing it at a negative enterprise value.
• Management continues to work on tuck-in acquisition opportunities to deploy its cash and grow the business.

Yesterday after market close, Kontrol Technologies (KNR:Cboe, KNRLF:OTC) reported Q4 and 2024 financial results that were in line with our expectations. KNR ended the quarter with a cash and equivalents of $12.6M and negligible debt, compared to its market cap of $8.7M, demonstrating the deep value opportunity. We remain bullish on Kontrol as its business shifts to operating profitability in 2025 and it deploys capital on tuck-in acquisitions, all while operating in an industry with long-term secular growth. We are maintaining our BUY rating and $0.35/share target price on Kontrol Technologies.

Key Highlights
• Revenue in Q4 was $1.7M compared to our estimate of $1.8M and $1.7M in Q2, declining YoY due to the two disposed subsidiaries. 2024 revenue was $10.9M vs. our expectation of $11.0M.
• Q4 gross margin of 51% compared to our expected 54% and 56% in Q4/23. Full year gross margin was 56% vs. 57% expected.
• Adjusted EBITDA in Q4 of ($0.3M) compared to our estimate of ($0.2M). We were encouraged to see the consulting expenses drop to $0.1M from $0.6M in Q2 and $1.1M in Q3 due to the transaction related due diligence. 2024 adjusted EBITDA was ($0.5M) compared to our estimate of ($0.4M).
• Net income of $0.1M in Q4 vs. our estimate of ($0.3M). 2024 net income was $12.2M compared to our estimate of $12.0M, including the $13.2M gain on the sale of assets from Q2.
• KNR ended the quarter with $12.6M in cash and equivalents and $0.4M in debt. The $12.6M is made up of $2.1M cash, $7.0M in GICs/fixed income, and $3.6M in the iShares Bitcoin Trust ETF and related call options.
• Management continues to expect a return to operating profitability in 2025 through cost reductions, streamlining of operations, organic growth, and operating leverage via tuck-in acquisitions.