Q2 2023 KULR Technology Group Inc Earnings Call

The opening statements from members of the cooler management team, including Chief Executive Officer, Michael Moe, President and Chief operating Officer, Keith Cochran, as well as Chief Financial Officer, Shawn Cantor.

After that we will transition to the Q&A portion of the call and will be joined by analysts who have been covering the company before I introduce and turn the call over to Michael Moe. Please pay attention to the following safe Harbor statement.

The statements made on this call do not constitute an offer to sell or a solicitation of offers to buy any securities of any entity. This call may contain certain forward looking statements based on the company's current expectations forecasts and assumptions that involve risks and uncertainties.

Forward looking statements made on this call are based on information available to cooler 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 uncertainties associated with coolers business, which include the risk factors disclosed.

In their Form 10-K filed with the Securities Exchange Commission on March 28, 2023 forward looking statements include statements regarding the company's expectations beliefs 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 are based on the information that is available at this time and management expects that internal projections and expectations may change over time. In addition, the forecasts are entirely on managements best estimate of the company's future financial performance given coolers current car.

Contracts current backlog of opportunities and conversations with new and existing customers about their products and services cooler technology group assumes no obligation to update the information included in this call whether as a result of new information future events or otherwise.

With that I will turn the call over to Chief Executive Officer, Michael Moe, Michael the call is yours.

Thank you Stuart.

Thanks, everyone for joining the <unk> Q2, 2023 earnings call.

This is Michael.

You and co founder of quarter Technology group.

I'm pleased to report that we achieved a record revenue quarter in Q2 2023.

While our overall revenue grew approximately 360% year over year, our service contract revenue grew over 2300% year over year.

Our business model and customer engagement process start.

With design and testing services for our customers, we expect the strong growth in our service contract revenue, yes, a early indication of our overall revenue growth potential in the future, which will be driven largely by product sales rep.

In Q2 of 2023, our product sales revenue grew approximately 250% year over year as multiple customers across multiple product markets started mass production and deployment of their products and services.

This impressive growth is largely to you by heart.

101 parcel.

Since we officially launched a corner one platform at sea.

In January this year.

Market reception has been overwhelming.

In April quarter was awarded a $1.13 million U S Army contract to develop next generation high energy battery packs deploy into quarter, one design solutions platform.

Cooler will fast track this new design through prototyping phase and into manufacturing readiness for U S. Army's immense aviation applications.

Development activities began at the end of April in 2023 and are slated to run through early 2024.

Management believes this timeline sets a new standard for what could have historically taken several years.

Qunar has also received an additional development contract for Brent.

In the United States Armed forces to develop high energy battery packs for Uninterruptible power supplies for mobile command centers cooler partnered with a world leading provider of draw power.

Delivery service E Commerce package delivery service quarter.

<unk> will leverage our cooler one platform and proprietary technology for the development of high capacity lithium ion battery pack for use in last mile delivery, which is the most expensive and time consuming part of the shipping process.

<unk> has partnered with a top five global manufacturer in the electric vertical takeoff and landing you Vito market to utilize the call alum platform to test your battery safety.

Together, we will further advance EV battery safety is federal regulators look to put forth.

Certification rules for the emerging <unk> market.

Earlier today, we announced that we received a contract from a world's top selling automaker for testing and analysis of why high energy battery cells for their next generation electric vehicles.

We utilized a quarter one design solutions platform to accelerate design readiness for the automakers advantaged.

The roadmap.

Another growth engine for US is our safe case product line.

In June we announced a joint collaboration with surplus solutions to establish a national groundbreaking program for a high wattage lithium ion battery packaging or recycling.

Surplus solution is the largest and the most comprehensive battery materials and management processor for end of life EV batteries. Thank you get fast manufacturing scrap.

This collaboration focuses on developing a safe transportation platform for original equipment manufacturers to store and transport prototype end of life.

Mitch the effective and recall lithium ion batteries up to two five kilowatt hours by utilizing quarter. Its safety is product line and surplus nationwide logistics and recycling services.

Together, we're starting to sell with the largest customers such as EV manufacturers smartphone makers consumer electronics companies Giga factories large retailers and operators for the battery recycling needs.

In addition to the quarter, one and save case, our engineering team continues to advance our energy management platforms across multiple fronts.

We'll be integrating wireless sensors vehicle onboard capabilities in the cloud based user interface to the next generation cooler bypass.

So it can best serve new markets, such as drone delivery electric aviation and also industrial applications. We expect to launch this new platform with strategic customers and partners in 2023.

Our vision is to integrate all of these hardware software and services together to generate the most amount of valuable proprietary data across our platforms.

We expect to unleash the full potential of this data product and service platform, where we're integrating machine learning and AI capabilities to provide the most comprehensive data safety intelligence.

The industry.

Keith will provide operational updates Keith please.

Hello, everyone and thank you for attending our Q2 23 earnings call.

I am pleased to report highlights from our operations.

In Q2, our operations team continued to display superior performance, while executing our impressive revenue growth.

The team held an exhaustive customer quality audits in May and completed the annual ISO 9001 audit in June .

In both cases, there were zero nonperformance just this once again demonstrates the organization's commitment to delivering a best in quality class quality management system to support our customers.

As discussed in our last call cooler has expanded our facilities to Webster at San Leon Texas.

The expansion has gone as planned and the sites are rapidly growing with the engineering talent.

We will continue to see additional expansions as it moved into the second half of the year.

As noted our Webster facility is the center of excellence for a cooler one battery design services.

Dislocations supports internal and external battery pack design fractional thermal runaway calorimetry, ICM mapping and many other testing services.

The team have been very successful in earning the trust of very large automotive Oems as well as tier one direct to consumer online retailers, which have awarded cooler purchase orders for.

For these services.

Our intentions are to further expand our capabilities and facilities in the Houston area as we continue to see significant demand growth.

Accordingly, we anticipate moving to a larger facility in Q1, 'twenty four and supportive engineering growth and also as we return a large portion of our thermal runaway shield manufacturing back to the U S for automated assembly in house.

We shared last quarter, our development of the only fully automated battery cell inspection and testing system performing to NASA work construction 37.

We were able to process more than 20018, $6 50 sales for the quarter and the automation is working as planned.

We are also on track to begin introducing 21 700 cell testing in Q4 dollars 23 in line with customer demand.

Again this is the highest battery cell testing standard for NASA.

It is required for all manned flight missions.

We are seeing strong interest from multiple industries and agencies for this level of testing to support mission critical applications.

I'm very pleased with the performance of all areas of operations in Q2.

Still we are very well prepared to deliver the rest of twenty-three through discontinued time of rapid growth for cooler.

Thank you and now I will turn the call over to our CFO , Sean Cantor for financial overview.

Thank you Keith.

You can see the financial results from our second quarter, and our 10-Q, which is now online.

On some highlights.

Second quarter 2023 revenue was approximately $2 7 million.

At this point $6 million in the same quarter last year and.

And over 360% increase.

Revenue per customer grew by approximately 200% from the second quarter 2023 of approximately 150000 versus 49000 in the same quarter 2022.

Gross margin for the second quarter of 2023 was approximately 37%.

Approximately 28% for the same quarter in 2022.

The second quarter of 2023 was another record revenue quarter for cooler.

Cooler generated more revenue in the first six months of 2023, and then in the entire 2022.

Trailing 12 months revenue trend continued with the fourth straight quarter of trailing 12 months revenue growth cooler.

Cooler management continues to be upbeat regarding the positive trends of coolers, increasing revenue ramp pipeline and expanding margins.

On what we're seeing today, we estimate full year 2023 revenue.

To be between $10 million and $14 million.

These estimates imply a year over year growth rate of 150% at the lower end and an estimated 250% at the higher end of the range.

Back to you Mike Thank you Sean.

Stuart we're ready for questions from analysts.

Alright excellent. Thank you Michael right now we will be joined by Howard Halpern is joined US on previous calls he is the senior equity analyst at <unk> brothers power. The call is yours. It looks like you have a handful of questions for the company.

Okay.

I also.

Yeah.

New question, which would be you know.

Of all the contracts that you have and.

Going through the deployment process.

What do you see the margin profile of all those projects being as you work your way through.

Design, and then the implementation and deployment.

Storage is Michael most of our I will take that.

Hi, how are you.

Thanks for the question.

Yes, and as you can see our Q2 margin was approximately 38%.

738%.

Which is a bump from last year's 28%.

As we move forward, we see that.

We're going to maintain the high 30% margins.

As we grow both our service and the product business.

And then.

As the <unk>.

Business grow.

We think we're going to settle somewhere in the low forties and our overall blended margin.

Okay.

Uh huh.

That sounds good.

Also in terms of.

Yeah.

Sales cycle I guess in getting these development contracts are you seeing even that.

Spanish shortening up as you become more recognized in the industry.

Yeah, I mean, both yes.

Sorry, Keith I was that was going to say, yes, both on the sales cycle.

And also the development cycle as well I mean, we have customers that have gone through our design and go to production.

In.

In years.

In the previous cycles are now in our army contract.

We're getting them in months or 12 months cycle right. So from engagement and start deploying it in April or start designing it in April 2023, we're going to get them to manufacturing readiness by April 2024.

No.

As we get more customers into the sales pipeline and execute them faster.

So youre going to see a.

How are we going to come to be comfortable with the revenue growth.

Okay and just.

One last one when you talk about like for the drone.

Contract, having an all encompassing.

You're now offering.

Is that going to include having the sensors that eventually maybe you could sell cool revive into those customers.

Very interesting yes.

The press release that we talked about with the drone customer was really focus on the corner one design solutions power.

This is really kind of in my opening remarks, we talked about the great reception.

The benefit of the leverage across.

All of that platform in terms of <unk> I'm, sorry, you asked that question. So we.

We have been.

Working on a quarter by two point out.

If you would launch to get that service out there.

We're working closely with strategic partners to integrate these features into their product and work with them to really get too.

Specific and quantified performance benefits for these new for these new applications.

So what you're going to find coming up is that in.

In the second half the second half this year as we launch this product and with our customers, they're going to be very targeted and very specific.

<unk> benefits and we are very very excited about it as.

As you kind of kind of alluded to that there is certainly we hope there is cross selling and up selling opportunity.

For qualified into these battery customers and that's the whole that's the whole goal.

Okay.

Thanks, and keep up the great work guys.

Thank you Howard.

Alright from Howard, we're going to move on to appeal to bend. The top he is a senior analyst at Litchfield Hills research a keel back I know you are there. So the call is yours. It looks like you've got a couple of questions for the company.

Yes. Thank you first of all congratulations on outstanding results. My question is.

Color has announced numerous new contracts with something you've generated more revenue in the first half of 2023, then in all of China, It's been it too.

My question is what is your capacity to add additional contracts and do you need to invest in capex to many tentpole feel your existing contracts.

Yeah, Hey, Michael I'll go ahead, and take that one and thank you very much for the question.

We are well positioned to handle the growth as I shared in my comments, there will continue to be some level of capex spend to support it.

However, the vast majority of this capex spend such as for our automated Trs have largely been paid for.

And also from my comments, we will move into a larger facility to accommodate growth in Q1 'twenty four.

Our current intent there is to lease the property.

To limit Capex outflow.

However, we are still in discussion with local governments for potential grant monies shall.

Should we decide to go to brick and mortar round.

Okay great.

And could you tell us about how the sales structure is set up.

Given the need for experts in diverse areas, how do you approach finding new business.

Yes, great question.

As you noted we do have a very diverse product line in support of a holistic solution for the electric vacation of the economy.

We have a multi pronged approach to how we handle this diversity our sales team is broken out by technology and by region. We provide significant training for sales team, which is led by our engineering leadership.

And Additionally, we contract with subject matter experts, where appropriate to assist in opening doors in areas, we need to support.

A good example of that would be navigating the military complex.

And that takes a person with a certain level experienced in context to make that sales process sufficient for us.

So yes.

So hope that provides the insight youre looking for.

Yes, Thank you and congrats congrats again.

Thank you so much.

Alright. Thank you <unk> now we're going to get questions from Jason Makowsky, Managing director and senior research Analyst at Alliance Global partners, Jake wasn't able to be with US. So he did E mail the question in and I have the first one here looking at the announcement made earlier today is the testing of battery.

<unk> sells under the contract with the global automakers specific to Silicon anode battery chemistry, or do you expect to apply <unk> across the spectrum of Chemistries for this customer.

Yes, so I'll take that our solution is chemistry ignostic. So we can apply the cooler one design solutions platform across multiple chemistries and and also multiple shapes of the battery cells.

We've been working with cylindrical cells a lot because NASA.

We really focus on that but now we're also working with pouch cells.

And also a large format surgical cells and also prismatic cells.

Prismatic cells were testing four sells over 100 empowers so for automotive and also large energy storage customers. That's that's demanded.

And we are the exclusive licensee from NASA on the large format at Trc.

So this has allowed us to provide we believe is the most comprehensive testing capabilities in the industry.

That has attracted a lot of customer attention.

Alright next question are you able to share any color on the structure of the contract at the automaker engage cooler to provide <unk> services for a specific period of time during test work.

Okay.

Yes.

Kind of like what.

Keith talked already about ourselves organization and also our sales strategy.

We kind of an employee kind of a land and expand model. So when we land a customer.

The engagement usually the customer is looking for one solution or maybe a couple of solutions out of our entire cooler one design solutions suite, but as we get into the organization to start building a relationship with a customer and we perform these tasks, we start expanding our relationship or engagement as they across local across other product.

Service offering that we have so as you can see in our Q2 financials.

Our number of customers grew from 12.

In Q.

Q2 of 2022 to 19.

And also our revenue per customer grew 200% in addition to the 60% growth.

And the customer number so we feel like this land and expand model is working and we will continue to execute on the strategy.

Yeah.

Okay margins were strong in both Q1 and Q2 of <unk> of this year are these levels something we should expect to remained constant during the second half of the year heading into 2024.

I'll take that one Mike.

Sean Thanks for the question.

Yes, as we grow and scale, we believe our gross margins should improve as the question indicates in fact.

If we look back this second quarter, our gross margin was about 37% in the same quarter last year was 28%.

Evidenced a significant enhancement so as we grow we estimate the gross margin enhancement from here.

And on the product side of the business will grow and our long term goal is to get to a gross margin in the in the low to hopefully mid forties.

Sean It looks like I have an additional question for you what's the status of your capital position relative to driving operational breakeven.

Sure.

As I guess as you know as you may be aware today cooler announced the capital raising transaction.

Because all of the available details about the offering are publicly accessible by reviewing the preliminary prospectus supplement filed this afternoon. We will refer you to that document for any further details.

Alright, very good Mike It looks like the final question will be towards you.

Cooler vibe been gaining customer awareness and traction in the market.

Yeah.

We have been.

Going to industry conferences to market will revive and as Howard.

Asked a question earlier or a similar question earlier about quarter by integrating with the.

Strong customer.

We have been.

In my in my prepared remarks, I talked about we've been really focused on executing on qunar while too.

And we're working with strategic partners and integrating those.

New features into the product so during those engagements where really.

Focus on how the new features.

The product offer specific and quantifiable performance benefits for these customers and new applications. So.

Later this year, we would be.

Emily these products with the customer will be very targeted very specific that we're super Super excited about that.

Well very good as mentioned at the outset of that question that was our final question I know the company along with myself would like to thank our analysts Howard Halpern Theodore O'neill, who is replace today by his associate <unk> to bend the cost was a senior analyst at Litchfield Hills research and Jake Zukowski managing.

<unk> Senior research analyst at Alliance Global Partners of course, we want to thank all the members of the management team CFO , Shawn Kantor, President O'keefe, Cochrane and Chief Executive Michael Moe that concludes our call for today that Q2 2023 earnings conference call I'll turn it.

Over now to our operator, Thomas Thank you Thomas.

Thank you very much sure and once again that does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.