Q4 2022 KULR Technology Group Inc Earnings Call
Speaker 1: You're in the right place for the Cooler Technology Group 4th Quarter and Full Year 2022 Earnings Call set for today, Thursday, March 23, 2023 at 4.30pm Eastern.
Speaker 1: All right everybody, thank you so much for joining us today. I'm your host Stuart Smith and before this call can begin, I need to read some statements for you that can be found at the bottom of every press release using the ticker symbol for the company KULR. And also the same way you find this information at the Securities and Exchange Commission.
Speaker 1: statements based on Cooler's current expectations, forecasts, assumptions that involve risks and uncertainties. Forward looking statements made on this call are based on the information available to the company as of the date hereof. The company's actual results may differ materially from those stated or implied in such forward looking statements due to risks and uncertainty.
Speaker 1: intentions or strategies regarding the future and can be identified by forward-looking words such as anticipate, believe, could, estimate, expect, intend, may, should and would or similar words. All forecasts are provided by management on this call or based on the information of the organization.
Speaker 1: and conversations with new and existing customers about their products and services. Cooler assumes no obligation to update the information included on this call, whether as a result of new information, future events, or otherwise.
Speaker 1: Joining me on the call today from the cooler management team will be CEO Michael Moe, President and COO Keith Cochran, as well as Chief Financial Officer Simon Westbrook. After opening comments are completed by the management team of Cooler Technology Group, we will be joined on the call by
Speaker 1: Howard Halpern from Taglich Brothers, Theodore O'Neill from Litchfield Hills Research, and Jake Sakelski from Alliance Global Partners for their questions. I will turn the call over now to Chief Executive Officer Michael Moe. Michael, the call is yours.
Speaker 2: Thank you, Stuart. This is Michael Mo. Thank you everybody for joining our call today. Quota's mission is to develop a world-leading energy management platform to accelerate the global transition to a sustainable electrification economy. We provide the hardware and software solutions.
Speaker 2: for renewable energy and advanced mobility applications. We achieve our mission by helping our customers to use less energy, to use energy more efficiently, to make energy consumption safer and cooler, to use less material to achieve these goals, and to complete the circular economy through recycling.
Speaker 2: The following are Q4 and full year 2022 financial highlights.
Speaker 2: Our Q4-22 revenue was $1.81 million, an increase of 137% over Q4 of 2021.
Speaker 2: Gross margin was 92% in Q422 compared to 70% in Q421.
Speaker 2: Revenue for 2022 full year was $3.99 million, an increase of 66% from 2021.
Speaker 2: Gross margin for 2022 was 59% compared to 54% in 2021.
Speaker 2: The strong revenue growth in Q3 and Q4 of 2022 and the gross margin expansion were the result of Quilter's long-term investment in our technology portfolio to complete our holistic approach to lithium-ion battery safety. As we gain more traction with large OEM customers, we will continue to improve our technology
Speaker 2: We expect revenue growth momentum to accelerate in 2023.
Speaker 2: Speaking of quarters, long-term investment. We'll be investing in our people, our infrastructure, our technology portfolio, and our brand.
Speaker 2: Keith Cochrane would update you on all the important milestones we've accomplished in building our team and infrastructure in North America. I'm particularly proud of our ISO 9001 certification and the completion of the automated cell screening line for NASA working instruction 37.
Speaker 2: and other DoD customers. At the end of 2022, we had $3.19 million in equipment and properties compared to $375,000 in 2021. We've been working on on-shoring our manufacturing capabilities in North America in 2022.
Speaker 2: We had $3.5 million in equipment deposits at the end of 2022, compared to $2.5 million in 2021.
Speaker 2: We believe that we have done our heavy investments in capital equipment for us to solidly grow our business in 2023. At the end of year 2022, we have $1.9 million in inventory compared to $191,000 in 2021.
Speaker 2: a nearly tenfold increase in inventory as we prepare for the revenue growth acceleration in 2023. In 2023, we're entering into the monetization phase of the investments we've made to build out our key technology platforms.
Speaker 2: we introduce an all new modular energy platform called Coder1 at this year's CES.
Speaker 2: Kuna One is a family of revolutionary battery packs accelerating the global transition to a sustainable electrification economy.
Speaker 2: These new and innovative designs bring a combination of safety, performance, intelligence, modularity, and reliability for the world's most demanding applications.
Speaker 2: Since the launch of the product in January , QuotaOne has half a dozen development engagements with electrical vehicles, DoD applications, and other products.
Speaker 2: electric aviation, and charging infrastructure customers.
Speaker 2: We expect Quoter 1 to have the revenue opportunity of over $200 million by 2026.
Speaker 2: Cooler One Design Solutions is a suite of products and services that comprise of a holistic approach to battery safety. This approach that we adopted from the NASA methodology and design flow to address some of the most critical battery safety problems. It starts from deep analysis of the battery cell from the time it's made. Understanding how it behaves when it goes into thermal runaway.
Speaker 2: through the FTRC test, then take all that data and design the battery pack.
Speaker 2: It runs through thermal and mechanical analysis before building and testing the battery pack. It provides real-time monitoring analysis through cell check. Our SafeCase suite of products enable large format batteries to be stored, transported, and recycled safely.
Speaker 2: Embedded in this process is a lot of proprietary IP, hands and no house that we've gained over the last 10 years.
Speaker 2: That includes 12 granted patents and many more pending patents. Energy storage is by far the largest market opportunity for us. This market is to reach over $400 billion by 2030.
Speaker 2: We believe our solution is a fundamental enabling technology that makes sure batteries are safe and compliant with government regulations.
Speaker 2: Our energy storage customers include Lockheem Martin for Phase 2 battery testing, ISC testing for the largest automotive manufacturer in the US, and in the same case production orders for top tier power too many factors. We expect to achieve over $100 million in revenue.
Speaker 2: for quarter one design solutions over the next three years, as we continue to gain traction with large OEM customers, and the products begin to ramp in volume. I'm very excited about the next phase of our technology and product development to integrate all these functions together with AI-powered software and solutions.
Speaker 2: Our cell check technology provides a real-time monitoring of battery to provide state of health data to our customers.
Speaker 2: We've recently acquired KodaVibe, which is a software technology that identifies, eliminates vibration-related loss of energy in motors. So by incorporating KodaVibe into our suite of tools, we will provide the capabilities for efficient energy source and energy usage.
Speaker 2: The future is to integrate AI tools such as GTT in our engineering flow to increase productivity and also into quarter-one design solutions to provide more intelligence and data analysis capabilities. Next, Keith Carcwin will provide operational updates.
Speaker 1: Keith, please. Thank you, Michael. Appreciate that. Hello, everyone. And thank you for joining our call today. 2022 has been an incredible year for cooler.
Speaker 1: So let's take a look back at some important milestones that leave us very well positioned for our future. In Q1, we shared with you Dr. William Walker, former NASA Johnson Space Center Senior Leader in Thermal Analysis, was hired as Director of Engineering to build out our suite of battery, thermal management, and safety products.
Speaker 3: as well as our next generation high performance computing thermal management initiatives.
Speaker 3: It became quickly apparent that Dr. Walker should take the home of our technological vision and was moved into the CTO role.
Speaker 3: He and his team have delivered on the initial charter, but rapidly expanded the cooler capabilities to include advanced offerings such as FTRC, which is fractional, thermal runaway, calorimetry, bomb calorimetry, and multi-physics modeling.
Speaker 3: Additionally, with the strategic hires of former NASA battery engineers, the team was able to develop and deliver at CES this January our first Cooler One battery. The product is highly configurable with a broad range of applications from e-vikes, EVA calls, CubeSat, and much more.
Speaker 3: We are now engaged in development work with multiple customers with the goal of delivering in volume starting in the second half of this year. Also in Q1, we noted our impact by COVID lockdowns in China. At that time, we said we were moving quickly to reduce supply chain risk.
Speaker 3: We've delivered on that commitment in Q2-22 by moving our safe case and safe sleeve production to Mexico.
Speaker 3: While we still have some risk remaining in China, we now have a dual source for our TRS manufacturing materials in Mexico.
Speaker 3: Furthermore, we have placed on order fully automated equipment for our TRS manufacturing that is scheduled for delivery this June . The equipment will be put into operation in the US during Q3 of 23, as we seek to provide you the more stability to the supply chain and significantly reduce our risk to China exposure.
Speaker 3: As we moved into Q2, our focus remained strong on operational excellence.
Speaker 3: Accordingly, the team worked very closely to achieve ISO 9001 certification.
Speaker 3: The audit found zero nonconformances, demonstrating cooler's dedication in the pursuit of manufacturing excellence in operational controls.
Speaker 3: This was a significant milestone delivered by our entire organization, as noted in Q2 call.
Speaker 3: cooler continue to expand our workforce in the area, the sales supply chain and engineering.
Speaker 3: The hires have been critical to delivering the growth in our service offerings as well the increase in our customer engagements.
Speaker 3: Moving on to Q3, I shared we have begun to install our automated lithium-ion 18650 and 21700 battery cell testing capability, which meets the performance requirements of NASA work construction 37 and that cooler would have the only fully end-to-end automated test system.
Speaker 3: capable of meeting for construction 37. This system allows for volume testing of battery cells required for all manned missions by NASA and many other DoD branches.
Speaker 3: We communicated on the call. The system would launch operations in December and cooler would begin shipping fully tested cells in January 23. While our system was fully operational in January , we did incur a slight delay due to final permitting. Accordingly, the team completed the first fully screened cells in February .
Speaker 3: and hand delivered to NASA the first week of March. This was a major milestone delivered by our dedicated ops organization.
Speaker 3: Cooler also announced in Q3 the introduction of Cooler Vide. We are very pleased to say the response has been extremely positive.
Speaker 3: Cooler previously announced we have signed a long-term service agreement to support a major helicopter operation.
Speaker 3: We have also had numerous favorable engagements with the Marine Corps, industrial drone operators, and commercial flight operators. We are very pleased with the progress the team has made to develop a significant sales funnel and align customer demonstrations for the superior balancing and vibration reduction technology.
Speaker 3: We do expect to see numerous new customer wins very soon. Moving on to Q4, the focus remained on operational efficiency, the delivery of the various platforms and services noted previously, and the start-up of our Texas facilities for advanced testing of battery cells and PAC development.
Speaker 3: We are pleased to say that both locations in Texas are fully operational and have already begun to contribute to cooler stop line growth.
Speaker 3: We have also continued to hire strategic personnel specifically in the area of battery technology.
Speaker 3: We have also continued to hire strategic personnel specifically in the area of battery technology. COLE currently has 72 employees.
Speaker 3: and has been able to attract and retain our strategic hires. With that said, our hiring in 23 will slow to a few strategic engineering hires and replacement hires. As we are moving our team to focus on the top line growth of the company for the platforms developed over the past two years. We are currently well staffed to deliver 23.
Speaker 3: and we have a plan for only minor capital outlays this year compared to the last two, we stand well poised to deliver our FY 23 vision. At this moment, I would like to say a big thank you to our employees. Their dedication and enthusiasm for where cooler is going is simply incredible.
Speaker 3: I also want to recognize our valued shareholders. We appreciate you.
Speaker 3: While I know the current market is tough, Kua has positioned the company for solid growth and has delivered on the vision presented as far back as Q221.
Speaker 3: with multiple platform developments deployed. These developments took capital investment and time, but they have also now delivered and are poised for significant top-line growth in 23.
Speaker 3: Our cooler team is committed to delivering for you. Thank you. I will now turn the call over to Simon Westbrook who will share Coolers financial highlights Simon Westbrook CFO we reported revenue of 1.8 million in the current quarter compared to 766,000 in the quarter ended December 31st, 2021
Speaker 4: That was an increase of 137% as a result of increased product shipments following the improvement in our supply constraint issues. So in general, our admin expenses increased to 4.5 million in the fourth quarter of 2022 from 3.8 million in the corresponding quarter of 2021.
Speaker 4: The 16% increase in SG&A expenses was due to additional marketing and advertising expenses, consulting fees, and non-cash stock-based compensation expense paid to employees and consultants, as well as the expansion and kicking out of new production facilities. R&D expenses increased 68%, from 705,000 in the fourth quarter of 2020 to 7.5% in the fourth quarter.
Speaker 4: 2021 to $1.2 million in the fourth quarter of 2022.
Speaker 4: reflecting a combination of headcounts and new and automated test and production equipment, continuing our investment in in-house manufacturing and assembly facilities that was begun in the last quarter of 2021. Our loss from operations decreased by 0.6%.
Speaker 4: from just over 4 million in the fourth quarter of 2021 to 3.9 million in the fourth quarter of the current year.
Speaker 4: The $25,000 increase in the operating loss included an increase in revenue offset by increases in payroll and research and development projects. Our net loss decreased by 9%. That's over 4 million in the fourth quarter of 2021.
Speaker 4: to 4.4 million in the whole quarter of this year. And our net loss per share for the full quarter of 222 was 4 cents compared to 6 cents for the compil period in 2021. Finance related costs increased by 411,000, largely used when incurred use in prepaid of vouchers. On the cash side, at December 31st.
Speaker 4: 2022, the company reported cash balances of 10.3 million compared with 14.9 million as of December 31st last year. Taking into account our capacities and raw further advances under the terms of the SEEPA, we believe they are well positioned to expand operations.
Speaker 4: support new business and consolidate our manufacturing operations in the US to ensure greater control over logistics in the face of continuing worldwide uncertainties. Thank you. And now I'll turn the call back to Michael. Thank you, Simon. Stuart, I'll turn the call to you to answer questions by our analyst.
Speaker 1: All right, very good. As stated at the beginning of the call, we're joined by several different analysts and I will let the members of the cooler management team decide which one of them will answer each question. With that, let me first introduce Howard Halpern from Hagewoods Brothers. Howard, the call is now yours. You have a few questions for the company.
Speaker 5: Okay, thank you. Congratulations. Great building of the momentum for this year and into next.
Speaker 5: I do want to clarify what I think I heard on the call. You said over the next three years, you anticipate generating cumulatively $100 million in revenue? Yeah, this is how our disc micomo. Yeah, this is our aspirations for the Kula 1 platform.
Speaker 2: With the, what we think is the current engagement and future engagement could be for this product as we start launching them. We think that 200 million in by 2026 is our aspiration.
Speaker 6: Okay.
Speaker 5: Okay, and in terms of, if you could just, I guess, give an example with Vibe and this brand new customer you have, how long did it take to materialize and then how long is it going to take to deploy it across their whole fleet?
Speaker 3: Yeah, hey, I'll take that one, Michael. So with our current customer, we've actually already deployed that across the entire fleet. So that particular customer that we announced has a universal system for track and balance in their helicopters. And so our technology was already completely ready to support their entire fleet.
Speaker 5: And are you seeing that with similar customers that it'll be a very quick deployment? Or is it just depends on the customer to have complex near systems or?
Speaker 3: For the major helicopter deployments that are out there, there's really just a handful of what I would call base helicopters that are used in mass service. And for all of those particular helicopters, we already have our solutions in place. Thank you.
Speaker 3: To support them 100%.
Speaker 3: You have to understand one thing about most of these helicopter services, the hardware that they use already have sensors in place so they can provide data rapidly to us, which will take that data they provide and will be able to help them eliminate their vibrations and improve their track and balance. Okay. And just, I guess one last one because you have so many different platforms.
Speaker 5: but you know to sell to different types of customers. Is there any one that we should focus on as being the big driver for at least with it this current fiscal year?
Speaker 7: So I would say.
Speaker 2: Yeah, okay, maybe I take this one, and you can add on top of that. So I would say the Cooler One Design Solutions Package Tower, I think that's what is gaining the most traction for 2023. This is what we see a lot of momentum, including some of the customer announcements that we recently have.
Speaker 2: So that's incorporating all the capabilities into that solutions package. And the showcase product of that package is quarter one, the unit. That one we announced in CES and like Keith and I talked about, we already have many customer engagements on this.
Speaker 2: So that's the second half, 2023 leading to 2024. Quarter Vibe is actually kind of in parallel track on this one. So but, you know, yeah, yeah. And when you get into, I think, later half the year, as all these platforms start getting traction, especially in the e-mobility, like e-vito customers.
Speaker 2: high performance e-mobility customers, we see opportunity to cross sell and upsell KulaVibe into those customers who already using our battery solution and then the drivetrain for that will be motors and to make the entire system more efficient.
Speaker 2: that those will be higher value engagements for us.
Speaker 5: Okay. Okay, guys. Thanks and keep up the great work.
Speaker 5: Okay, guys, thanks and keep up the great work. Yeah, thank you, Holly. Thank you, Holly. I appreciate it.
Speaker 1: All right, thank you, Howard. Now we will move on to Theodore O'Neill from Litchfield Hills Research. Theodore, are you with us?
Speaker 8: Yes, and congratulations on the good quarter. Thank you. Yes, great. So on the 13th, you announced the opening of an R&D center in Webster, Texas. It's going to be outfitted with state-of-the-art prototyping equipment, and that leads me to three questions.
Speaker 8: One, could you talk about the demand you're seeing for prototypes?
Speaker 8: and how these fit within the sales process and when you do get production type orders like the 2.68 million you got last month, where will production runs occur? Yeah, hey Michael I'll take that one and thanks for the question. So the demand for prototype battery systems is huge.
Speaker 3: given the push for electrification across many industries. And supporting the development of these systems under the umbrella of our K-1 design services is one of the major focuses of our engineers. And it's going to facilitate the internal growth projections that we have for 23.
Speaker 3: and to a much larger scale in 24, based on the projections Michael's already shared with you. And we're already engaged in prototype designs for high-rehabit reliability battery packs for companies in automotive, defense, aviation.
Speaker 3: energy storage and space markets. So we're also in collaboration with the major car manufacturer, some large retailers and marine vessels, as well as energy storage and variety mobility applications, all looking for our K1 design services.
Speaker 3: There's a tremendous amount of interest in the engineering team that we have been able to assemble and the capabilities that team has brought to the table.
Speaker 8: Great. Great. And when you do get production orders, where are those going to get built?
Speaker 3: Well, it depends upon the size of the order. So if it's a.
Speaker 3: a small lot type order that would actually be built within our own laboratories. If it's a large order in mass production, we intend to outsource the production.
Speaker 8: Okay, and following up on that $2.68 million order, the press release says it's partly about heavy construction and other mobile applications. Is this product being designed specifically for electric-powered construction equipment?
Speaker 3: No, not really. It's not specifically just for that. We can also support critical systems including medical equipment, emergency services, financial institutions that need backup power, data centers, etc. Okay. And my last question is, I went onto the website to try to understand how cooler vibe works.
Speaker 3: can balance and remove vibration for pretty much almost anything that spins. For HELOS, for example, those sensors are already in place as part of the track and balance system that's on board. So we just use the information already coming from those sensors when we have
Speaker 3: other products or technology that we need to remove vibrations from or improve the track and balance. We also have our own sensors that we're able to use in those environments along with our software to be able to perform the anti-vibration and balancing of those products.
Speaker 8: Does that mean you have to add? So I understand the sensors and I understand in some cases the sensors are already there for, for, for, for, obviously if you're stabilizing how the product sits in the air. But does that mean that there's, there's other components that have to get added as well beyond sensors?
Speaker 3: It's primarily the sensors, but in certain applications, we'll actually build fixtures for our customers. So we're able to not only perform the track and balance of that, we're able to use in certain cases, lasers, for example, to remove materials. We're able to show them exact placement of where weights.
Speaker 3: should be placed in order to balance the system. And we can do that with a visual representation for them. The product certainly in the helicopter business.
Speaker 3: is very straightforward for us. In other businesses, it can be more complex, but we have the team inside that can build the hardware and place the sensors properly, so we're able to do the adjustments. And what we're trying to get down to is 0.0 X its vibration. Okay, great. Thanks very much. Yeah, Ted, if I...
Speaker 2: Yeah, go ahead. Yeah, so hey, Ted, if I may add on top of that what Keith's saying, I think a lot of people want to dig deeper into QuotaVibe. So I think that it's fair to say that QuotaVibe will work with existing equipment and sensors and stuff like that. That's already built into some of the helicopters and applications that Keith just talked about.
Speaker 2: But what's also more exciting is that going forward, new applications like EVTOL that's coming online, you know, 2025, 2026, industrial applications like Wind Farm, and other applications, there's opportunity to develop very low cost sensor to be embedded into these new applications.
Speaker 2: and then embed our CoolerVive software onto the vehicle itself, either integrated into the computer that's on board, or CoolerVive can sit inside our CoolerOne battery unit to do the monitoring as well. We see an opportunity going forward where the CoolerOne becomes the power source.
Speaker 2: more energy efficient, that would be a really cool package.
Speaker 3: Okay, that makes sense. Thank you. All right. Thank you. We're going to be joined now by Jake. The Kelsey Jake is with Alliance Global Partners. Jake, are you with us?
Speaker 9: Yeah, hey Michael and team, thanks for taking my questions. Hey Jay. So just looking at the onshore of your supply chain, which I think is important, you know, in looking at the facility in Texas, there's been a lot of government funding across the battery supply chain that's becoming available. Are there any programs?
Speaker 2: either out there or on the horizon that you think Cooler might qualify for down the road? Yeah, this is something that frankly we haven't put a lot of focus on in 2022, but we are putting a lot more focus on in 2023 and going forward. A couple programs, I mean I think the biggest one is the bipartisan infrastructure bill.
Speaker 2: I think somewhere around $350 billion. So there is multiple phases. I know last year a whole bunch of companies got sizable chunks of that. Now we have our domestic North America supply chain in place. I think that we can start that initiative in applying for that government financing or funding source.
Speaker 2: There's also additional DOE ARPA and DOD financing available. So as we
Speaker 2: really start showcasing the North America, the US supply chain and manufacturing base, we will be very actively going after those government support.
Speaker 3: Yeah, just add to that. We are currently engaged with three third part base that specialize in being able to get those opportunities out of the deal. We and some of this government funding that's freed up now.
Speaker 3: So we've been working with them now for about the last month on different opportunities and narrowing down the list that we're going to pursue. Each of those opportunities take quite a bit of engineering hours to be able to address that and put them through the system, but there is solid money behind that.
Speaker 9: So, we're trying to make sure that we put our best proposals out there, but yes, it is on our radar and it is something that we're working on. Okay, that's good to hear. And then just looking at the $2.7 million follow-on order you announced earlier in Q1.
Speaker 9: It seems like demand from that customer is starting to ramp up a bit. Do you have any visibility on what demand might look like in the second half or going into 2024? Is it possible we see additional follow-on orders here later this year or next?
Speaker 2: Yeah, I would say that we don't want to steal the thunder from certain customers, so I'll let them speak for themselves. But I think just as with this customer and others, it takes quite a while to design tests......
Speaker 2: and certify these systems and comply with government regulations, U.R. certifications, and the whole bit. Once it's designed in, I think that the stickiness is very high and it's going to be a long cycle product to run its life. So I would not be surprised.
Speaker 2: And the customer has very high hope for their product.
Speaker 9: Fair enough. Okay, that's all for me. Thanks again, guys. All right, thank you very much.
Speaker 1: Thank you, Michael and Keith for handling these questions. And of course, thank you for all who have joined us on the call today. That does conclude this call. So at this time, we'll ask the operator to end the call. And thank you so much once again. Appreciate everyone. Thank you.
Speaker 1: Thank you, Michael and Keith for handling these questions and of course thank you for all who have joined us on the call today that does conclude this call. So at this time we'll ask the operator to end the call and thank you so much once again. Appreciate everyone. Thank you. Thank you.
Speaker 10: Thank you. This does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.