Q3 2023 KULR Technology Group Inc Earnings Call
No company, President and C. O O Keefe Cochrane will be also joining us and the C. F O the Chief Financial Officer, Shawn cancer as you probably know cooler technology group as a publicly traded company listed on the NYSE American under the ticker symbol K U L.
<unk> as such before we begin the call today, please listen to the following safe Harbor statement covering this call.
This call does 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 management's current expectations forecasts and assumptions that involve risks and uncertainties forward looking statements made on this call are based on the information available to the management team as of the date hereof the company's actual.
<unk> results may differ materially from those stated or implied in such forward looking statements due to risks and uncertainties associated with the company's 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 managements 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 wood.
Or similar words, all forecasts are provided by management on this call are based on the information available at this time and management expects that internal projections and expectations may change over time.
In addition, forecasts are entirely on managements best estimate of their financial performance given their current 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 on this call whether as a result of new information future events or otherwise with that I will now turn the call over to the CEO of cooler technology group, Michael Moe, Michael the call is yours.
Thank you sure thanks to everyone for joining the call or Q3 of 2023 earnings call. This is Michael Moe and the CEO and cofounder of cooler technology group.
I'm pleased to report that we achieved another record revenue quarter in Q3 of 2023.
While our overall revenue grew approximately 120% year over year to over $3 million or service contract revenue grew over 4800% year over year.
Our business model and customer engagement process start with design and testing services for our customers. We expect strong growth in our service contract revenue to be an early indication of our overall revenue growth potential which will be driven largely by product sales rep.
Our call on one platform continues to see strong.
Growth in design services and product sales in energy storage space battery recycling and electric transportation markets. In addition, our proprietary thermal management products for the aerospace and defense markets are contributing to the acceleration of our growth into 2024.
Our cooler one space battery cooler platform has received broad interest in Q4 across the board due to NASA lugging heavy safety requirements of acute set as small set an industry. As a result, the company has executed a contract to deliver a flight cooler one space units for new customer account for 20%.
For mission and the program begins in Q4 of 2023.
Based on continued record quarterly growth in the.
Broadening and deepening of our customer engagements across multiple market verticals.
Our sales funnel shows that our current 2020 for revenue potential to be between 26 and $34 million Q3 growth is largely fueled by our cooler one platform, which is well positioned to serve multiple fast growing multibillion dollar markets, where safety performance and sustain it.
<unk> is of the utmost importance to us.
Some of the highlights of our achievements.
Quarter is selected by a top five American electric truck manufacturer to personalize its next generation batteries with a corner one design solutions.
This manufacturer has forecasted a substantial ramp up in production of the electric SUV and truck over the next few years.
According to research and markets.
The U S electric truck market is expect to grow that.
54% CAGR to reach over $15 billion by 2030.
Corner in surplus solutions announced.
Groundbreaking national recycling program for lithium ion batteries and battery materials.
Collaboration focused on developing a safe transportation platform.
Original equipment manufacturers to store transport lithium ion batteries by utilizing cooler space case, and surplus solution nationwide logistics and recycling services.
Collaboration between coolers surplus solutions is an exclusive nationwide program.
Global batteries totally mark is projected to grow to 54 billion by 2030.
Quarter secured a third NASA order for automated battery testing service.
Ladies purchase order from NASA is part of a multi phase agreement four corners have been automated battery so screening system.
In addition, a NASA we're engaged with electric.
The Asian and battery cell companies to provide comprehensive <unk> testing service for their battery products.
The global battery testing market is anticipated to reach over $7 billion by 2030.
Quarter, Unfortunately formed a strategic partnership or <unk> safety and performance.
We utilized Qunar one design solutions platform to develop next generation battery packs with fortunate in those proprietary battery cell technology.
The strategic partnership is estimated to be $3 $5 million to $5 million revenue opportunity.
Recently, the U S Department of energy announced that it intends to make available a second round of funding to support U S battery production and recycling.
The announcement of this additional $3 billion in bipartisan infrastructure.
Is welcome to use to American businesses seeking to produce north American made batteries.
We expect this partnership to be well positioned to participate in U S Department of energy progress.
We partner with pillows rotors to provide <unk> service.
That is the enhancement to be those UAV drone platform to reduce vibration and also increased balance of the drone payloads that are highly sensitive to it.
My approach.
But reducing that I appreciate up to 90% quarter by significantly improved data quality and <unk>.
<unk> clarity for.
For Lidar and high resolution optical camera.
<unk> offers an important solution for the UAB.
Drone market, that's projected to reach 38 billion.
By 2028.
Next our CFO shelf cancer will go over Q3 financial highlights Sean Thank you Mike.
Cooler posted another record quarter the second in a row.
Adding to the record setting revenue in the second quarter.
Revenue for the quarter was approximately $3 million compared to approximately $1 4 million in the third quarter last year.
This represents approximately a 120% increase or more than doubling of revenue comparing the two periods.
For the first nine months of 2023 cooler generated approximately $7.5 million of revenue compared to approximately $2 $1 million in the first nine months of 2022 for approximately a 245% increase or more than a tripling of revenue comparing the same periods.
Our product revenue this quarter was approximately $1 9 million up about 38% from the same quarter last year.
Our service revenue this quarter was approximately $1 1 million up about 4800% from the same quarter last year.
As Mike mentioned earlier, our service revenue can be viewed as a foreshadowing a scalable product revenue opportunities.
Our gross margin for the third quarter was 44% up from 33% in the same period last year.
Achieving a gross margin in the mid Forty's, that's been a goal of the cooler team.
We continue to work to increase our gross margin based on revenue mix pricing and additional scale.
Our revenue per paying customer in the quarter was almost $170000 up approximately 94% versus the same quarter last year.
For the nine months ending Q3, our revenue per paying customer was over $200000 up approximately a 170% with the number of paying customers growing to 37 up 28% from the same nine months period last year.
Our revenue per employee in the quarter was approximately $43000, which is up 14% from the second quarter and 70% from the first quarter of this year, indicating.
Indicating increasing human capital productivity.
Turning to capital allocation, we want to highlight that for the first nine months of 2023 versus 2022 our.
Our cash used from operations is down approximately 20% and our cash used from operations and invest in combined is down approximately 26% all while increasing revenue by about 245% or almost three five times.
We believe our focus on resource optimization and productivity is beginning to show in the numbers.
Given what management sees today, we believe we are on track and comfortable with analysts' fourth quarter 2023 revenue estimates.
Stuart that concludes our comments and think we're ready for questions now.
Alright, Thank you for that Sean I'm going to turn the call over now to Theodore O'neill is the principle of equity research at Litchfield Hills Research Theodore the call is yours go ahead with your questions.
Thanks, very much and congratulations on the good quarter.
Uh huh.
So.
You just touched on the customer question I was going to ask it.
In your prepared remarks, saying that you have.
Increased number of customers, but in the last several quarters, you've had one customer has been responsible for about half your revenue and they're often no more than three customers that make up the majority of revenue.
Is this part of the plan or.
As you're suggesting here is there more diversity coming.
Maybe I'll I'll, it's Sean I'll take that one thanks for the question.
Uh huh.
Okay.
Okay.
B cell phone interference from you if you could find it.
To grow our revenue.
We expect it to grow two ways.
Oh sure.
Yeah, we need.
It sounds like it might be better go ahead and start with the response from Mckinney. Please.
Sure cyber.
Hum.
Yes.
So we are I would say as we grow our revenue we expect it to grow both by adding new customers. So that's customer diversity and growth.
Yes.
We believe.
Already.
Okay.
<unk>.
Uh huh.
Increased.
Okay.
Keeping increased customer Rebecca.
<unk> you can see that in our numbers.
Period for example, ending September 30th from customers, representing more than 10% of the total revenue for the period went down from 81% to 69% indicating increased diversity.
And it's worth noting again, we grew both revenue up about 245% and paying customers up about 20, 28% and then maybe I'll just make one last point, which is.
Many of.
Our customers, who use coolers patented products.
Often rely on these products to satisfy their their compliance and regulatory requirements.
Okay.
Our auditors.
Satisfy those requirements so they can be in market and.
And so we believe that while.
Certainly, sometimes we can have a customer call.
Hum as any particular customer may be ramping up its film production.
And thus it needs more of our products.
And shifts can be very sticky.
Maybe I'll leave it there thanks.
Hey, Sean before we get to you again. This is Stuart will need you to move again to a better location. If you don't mind I apologize for interrupting Theodore go ahead with your next question. Please yeah I was actually able to.
Understand a fair amount of it so that did answer that question.
I was wondering wondering also if you could give us an overview of your sell check platform and how youre planning to integrate AI into it.
Yes, I'll take that one thanks, a lot for your question there Theodore appreciate it.
So check platform is designed to provide real time information on the health of the battery pack.
And in addition, we use sensor information data to allow for deeper analytics for numerous factors such as.
Say degradation over time looking for correlation of impacts of temperature changes versus performance capability et cetera.
So of course now that there is much easier access or using AI to analyze multiple data points simultaneously.
We will use that to help draw it out opportunities.
Product enhancements.
So AI will be used for the analysis of our data.
But not actually integrated into the hardware that makes sense.
But with that said, we do have AI integrated into our cooler bite platform.
And that's at our software and this allows for real time algorithm adjustments to be made that further refine our ability.
To provide the optimal solution to achieve incredible checking balance portfolios.
Okay.
And the Army contract you announced on October 30th which is being extended would you said October 30th you said would be extended.
When it goes into production, what's the opportunity there for cooler.
Yes, hey, thanks, Michael.
I'll take that.
So the current contract is a development contract in nature and it extended and we expect to have other development contract on top of that.
Prototype production likely start in late 2024 into 2025.
We started.
With army on Airborne and <unk> applications Army is very interested in increasing our power and energy density of lithium ion battery, but lithium battery safety is a top concern as.
As you May note that they are one of the largest consumer of batteries in the world. So once we can prove out the come on batteries that we produce for them it's safe.
Their energy needs, we believe the opportunity opens up.
From the current approximately about $100 million.
Opportunity.
For these applications to a much much larger opportunity across the RV platform.
Okay. Thanks very much.
Thank you. Thank you Theodore we will now move on to managing director and Senior research Analyst at Alliance Global partners, that's shaped cow ski shake the call is now yours go ahead with your questions. Please.
Hey, guys. Thanks for taking my questions.
Hi, Jay exists star.
Starting with the contract announcement with the American EV, Truckmaker and I recognize that specifics haven't been disclosed.
Wondering what the timeline might look like.
From the testing phase to the product and implement.
Implementation phase I know, it's sometimes it's tough to gauge when partners are larger parties.
Just curious what your thoughts are here.
Yes.
We have started engaging with the customer.
And we are.
Likely to perform the test in Q4 of this year, so thats the quarter, we're in right now.
Going into 2000 and go into 2024 and based on the test results and we will continue to engage with the customer after we have the chance to annualize those results.
Okay. So you guys it sounds like Youre hitting the ground running there.
Yes yesterday.
In and then you know Sean I think you touched on this a bit but it looks like cash consumption has come down quite a bit year over year. While you were still able to continue to grow revenue.
I'm just curious if you feel there are any additional areas where expenses could be cut further without sacrificing growth obviously heading into next year.
Sorry, sorry, they just.
Patched me into my phone to try to get a better connection can you just give me the question one more time.
Yeah No problem. So I was just saying you touched on this earlier on cash consumption coming down a bit year over year, yes, without without sacrificing revenue growth obviously.
I'm just curious if you guys feel like there's any additional areas, where you could cut some expenses further without sacrificing growth.
Heading into next year.
Oh sure.
Well.
I can tell you that we are constantly reviewing all of our processes and procedures.
And we will continue to do that in order to become more and more efficient.
I think that.
In addition to that as we.
Our growing and gaining scale I think we'll be able to continue.
Continue to improve our margins.
And and you'll see those hopefully continue to improve.
As we as we move forward.
So.
While we've done a lot of work so far.
I think this is a.
Focusing on growing and focusing on optimizing our resources.
Across our across our various platforms.
We will continue so there's no specific area, we're targeting we're always looking at all the areas and how we can run more legally inefficiently.
Hey, Sean let me just get down there this is Keith Cochran.
Sure Thanks for that Jay.
The other thing to keep in mind is most of our product revenue is variable cost in other words, we used to outsource manufacturing for that.
So we're able to scale without a lot of significant investment into machinery and yeah.
And personnel, so we can flex there up and down.
On a variable cost basis, so that.
That's one of the strategic approaches we started from the beginning.
Got it that's helpful. Thanks again guys.
Thank you Jake.
Now, we're going to welcome Michael Legg senior he's the managing director of benchmark and emerging gross research Michael The call is now yours. Please go ahead with your questions.
Thanks, Good afternoon.
Can we talk you can contract service revenues came in strong R&D was up a little but R&D is also an indicator of future revenues I believe Sean I think we talked about that can you first talk about the Yale.
R&D pipeline.
Customer opportunities they are I'd say anything different than what we have in contract services.
And then.
On the SG&A declined down to $4 eight from 5.6 last quarter can you talk where you cut those expenses out and.
Well, what we're doing now and then.
The ability to keep expense SG&A at these levels.
And then just lastly can you talk a little about the cash position our cash flow and.
Any types of cash inflows and outflows without coming up near term and how are we going to handle that.
Sorry, sorry, Mike a lot of questions in there.
So I think the first one was about R&D yep.
Yep.
And how that is an indication of growth.
And so so yes.
Well, I think Mike and Keith obviously jump in here too but.
Our R&D expenses are.
Associated with the the work with that we are doing in order to satisfy.
The increase in customer demand pull that we're seeing and are on and going after those.
Contracts and going after those solutions that those customers demand from us. So I think you're right I think that you know.
While.
While we certainly are.
As I mentioned for Jake we certainly are cognizant of.
Maintaining our.
Trying to keep our costs.
As lean as possible.
What we don't want to do is we don't want to sacrifice growth and so where appropriate we will invest in and satisfying that customer demand.
I think the second question was around SG&A.
And Ah yeah, and so on that front as I said, we continue to.
Look at all of our processes, where we can reduce costs.
Or improve efficiency, which results in cost savings, we will continue to do that.
Hi, Sean.
Yeah.
Yes, let me just hit on this a little bit basis sure awkward here.
Yeah, you know what are the things that we've been able to do on an SGA.
Is really cut some of our marketing costs and the reason we're able to do that is we're starting to get very good brand recognition out in.
Out of the industry.
And we're getting to a point now that we.
We're kind of full if you know what I mean, we're really not having to beat the doors down of other.
OE is theyre coming to us proactively and some of the most recent large announcements that we've made.
I've been from people that have actually come to to cooler.
Our capabilities. So marketing is an area that we've been able to really reduce costs, that's sustainable at least for the foreseeable future.
So now, we're taking that capital and redeploying that back into RMB.
Then on the R&D side of the business will get a great leverage from the last two and a half years of investment that we've made in the cooler one platform.
And so what we see there is we're able to get much more efficient with those R&D dollars because from one battery pack for the next battery pack.
We're starting to get into situations, where it's.
It's almost a replication of previous work done so that improves the efficiency.
So.
Just kind of hope that answers your question a little bit.
That's perfect and then just on the on the cash and the cash uses coming up can you just go over that and where we stand.
Okay.
I'll turn that back.
Yes.
Oh, Thanks, Keith Yeah.
So.
In terms of cash.
Yeah.
We can we continue to.
Grow the business optimize our costs so between.
Our our cash our receivables.
Our current visibility in terms of what the pipeline looks like.
Our various partnerships and initiatives.
Uh huh.
We feel like we have.
We're in a.
Good position to.
We continue to.
Finance the growth of the business.
And we will continue to.
Use.
Cash flow generated internally and.
And.
So to the extent that external financing.
As appropriate we will do that.
To continue to to meet the growing but growing customer demand that we're experiencing.
Okay, congrats on the quarter. Thanks.
Thank you.
Thank you.
Alright. Thank you Michael for your questions next we have questions from Howard Halpern. He is a senior equity analyst with tablets brothers. Unfortunately ours not available to ask us questions. Today. So I will do my best to play the part of Howard Here's the first question do you believe the most recent announcement with <unk>.
To provide your cooler vibe service as an added enhancement to the <unk> three you A&D helicopter, who will provide you with an opportunity to accelerate the rollout of this offering to other helicopter companies as well as branch out into other verticals.
Okay. So I'll take this one.
First off I want to say <unk> is just a great partner and we really enjoy working with them. So so thanks to the <unk> team.
We appreciate them a lot.
Also thanks for the question.
So to answer your question the answer is an unequivocal yes.
In fact, just this week, we had a very positive meeting to display the cooler buyer capabilities for a German OEM.
It's a little diversity there away from the helicopters and entered the drone space of which we've been in place for quite a while.
But yes, if we're getting interest from Oems in the drone space, we're using our wireless sensing technology.
We are deploying into all those aircraft now.
And as for standard helicopters Coeur by users onboard sensor data to define the solution to provide optimal tracking balance loan for our customers to use the technology technology.
Simply by calling in the sensor readings to us over the phone.
We also have adapted the technology to run on iOS and Android platforms.
We can slow down on the tablets.
For the folks that are out in the field needing to use our technology.
Alright can you talk about how your relationship with forge nano is progressing and what are the long term opportunities.
Yes, I think that.
Fortunately Fortunately makes their batteries with their special coding technology for ADL.
So the partnership is to use our self screening line to.
To help them categorized here batteries and getting more data on performance out of those battery cells.
And then we use our quarter one design solutions to make battery packs with their sales force joint partners and customers. So so this is a great synergistic opportunity for us.
As I mentioned earlier. It is also the new deal programs up Youll specialty battery sales in the U S. That's about $3 billion.
And I think that the hour.
Automated so screening line is a perfect fit.
To incorporate into their.
Okay.
Mega factory.
Two.
Participating to this grant applications, so starts with about a three and half to $5 million opportunity.
And.
For the next couple of years, and I think that they can call much more substantially.
<unk>.
The factory up and running.
Okay.
Alright. The next question is how are your new facilities performing in terms of driving your timeline from design to deployment.
Okay.
Well the facilities are performing very well and we've added capabilities to further improve our time to market we.
We have added new CNC equipment, Q3, D printers and welders.
And orbit battery cycling as well as additional tooling.
Also having their own battery cell testing and Pat capabilities and Tim Lugo.
We can expedite our pack prove out testing as we need to control of the facility.
This provides a significant advantage by reducing our lead times with outsource suppliers. So we thought that was critical for us to invest in in house infrastructure for this.
Alright, Sean I know you've touched on this in Michael's question above, but let's talk about the status of your capital position relative to driving operational breakeven.
Okay.
Well I guess, the first thing I should say and.
I'm sure. It's clear it's obvious to everybody that we're working very hard to get to an operational cash breakeven point as quickly as we can.
And I guess this is evidenced by the growth trends that we're we've put up and people.
We've noted earlier and our continued efforts as we've as we've previously previously talked about.
Two.
Optimize our cost structure.
<unk>.
We continue to work on growth, we continue to work on resource optimization.
And I guess.
We.
I think we have a <unk>.
Good.
Line of sight to having operational breakeven.
In.
Think it potentially in the second quarter of next year.
Obviously, we will have to meet certain milestones, which can't guarantee we will but we think that they're very much possible based on what we see today and in the revenue visibility to pipeline.
The the various customer partnerships, we have and certain initiatives that are that are in place and so.
We're working very hard to get there as quickly as we can obviously that would be a big big.
Milestone for cooler in the team and so.
So we will continue to work towards that goal.
Alright, and how were just final question is how is the company attempting to drive brand awareness of their thermal runaway shield offering in order to prevent tragedies such as a fire that killed three generations of New York City family. It was sparked by a lithium ion battery used to.
Power and electric Scooter one of the victims. Their this is pulled from our New York post headline yesterday.
November 13th so that is his question how is the company attempting to drive brand awareness.
<unk> runway shield offering.
Well first off we're really excited to hear about the tragedy and we are aware of it.
I think the core mission of cooler is to make it cheaper battery products.
So.
Howard I know youre, well aware, the coolers <unk> products as well as our thermal management capabilities here.
Yeah, that's that's a key.
Core mission for coolers to save lives and prevent these types of traffic tragedies.
With these discrete we work that with regulatory agencies, we certainly don't want to be seen as somebody that's.
Taking advantage of a tragedy so when we do our.
Our <unk>.
Advertising and so forth, we do that directly with folks that control the regulatory environment.
So those are a little bit more behind the scenes to drive industry awareness. We think we're doing that pretty well already we have a variety of customers already consuming our products.
So I think we have pretty good brand awareness there now, but what we're trying to do is improve the situation with <unk>.
With the regulatory agencies.
And britta awareness of our products to them.
All right very good as I mentioned that was the final question I would like to thank Michael Moe, Keith Cochrane, and Sean Kantor of cooler technology group and of course, they would like to thank all of you for joining us on the call today Thomas as our operator, I will now turn the call over to you to close it out.
Thank you very much and thank you once again for your participation. Today you may disconnect at this time and have a wonderful day. Thank you once again for your participation.