Q3 2024 KULR Technology Group Inc Earnings Call

C E O of cooler technology group, Michael Moe and the C. F O of the company Sean Cantor the call will consist of opening statements from both Michael Moe and Sean Cantor followed by a Q&A session that covers the questions that have been sent in prior to today's call from <unk>.

Shareholders via email and on social media, but before the call can begin please listen to the following safe Harbor statement. This call does not constitute an offer to sell or solicitation of offers to buy any securities of any entity.

This call contains 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 management as of the date here of the company's actual results may differ materially from those stated or implied.

And such forward looking statements due to risks and uncertainties associated with their businesses, which include risk factors disclosed in the company's Form 10-K filed with the Securities and Exchange Commission on April 12, 'twenty 'twenty four as may be amended or supplemented by other results the company files with.

The Securities and Exchange Commission from time to time.

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 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 their future financial performance given the company's current contracts current backlog of opportunities and conversations with new and existing customers about their products and services. The company assumes no obligation to update the information.

Included on this call whether as a result of new information future events or otherwise.

Speaker Change: Now with that I will turn the call over to the Chief Executive Officer of the company Michael Moe, Michael the call is yours.

The store.

Michael Moe: This is Michael Moe.

Michael Moe: Everyone for joining us today I'd like to go over some of the financial and operational highlights.

Michael Moe: In Q3, 'twenty 'twenty four we achieved record revenue of approximately $3, one 9 million.

Michael Moe: Total paying customers for the quarter increased 83%.

Michael Moe: Engineering service revenue increased 22%.

Michael Moe: Engineering service revenue customers increased 143%.

Michael Moe: Product revenue customers increased 54%.

Michael Moe: We're able to achieve all these growth numbers, while reducing the operating expenses by 38% year over year.

Michael Moe: We're achieving more with less by streaming our operations building out technology platforms that can scale quickly that increase in productivity with automation and AI enhanced tools. Our team members are working very hard to achieve these goals.

Michael Moe: In August we officially designated our facility in Webster, Texas is our new headquarters.

Michael Moe: We hosted our first open house that this facility a couple of weeks ago and achieved overwhelming support from our customers partners and local government officials were.

Michael Moe: We're committed to continue our investment in the talent and capabilities in our headquarter in Texas.

Michael Moe: These investments are important to drive revenue growth by providing comprehensive in house product and service solutions. The spend entire lifecycle of battery design testing prototyping and bonding production all under one roof.

Michael Moe: We're living in exciting times, because we're now at the cross section of Screwy, multi generational mega trends and technology.

Michael Moe: First at the privatization of the space economy, and NASA mission to go back to the Moon is fueling tremendous growth in our space economy, but the next 10 years.

Michael Moe: Its expected growth to one eight trillion.

Michael Moe: We believe that quarter, one space battery will participate in a 6 billion dollar space battery market and be a big growth driver for us.

AI is driving satiable appetite for energy.

Michael Moe: CECI P T search cost 10 times more energy than a Google search.

Michael Moe: Data center power consumption is expect to grow over 160% over the next few years.

Michael Moe: Now you're hearing that we're going to nuclear to power. These AI data centers for Microsoft, Google Oracle and others.

40% of data center power consumption is full cooling of the chips and the equipment.

Michael Moe: We expect to lower this energy consumption with a poorer zero life technology.

Michael Moe: By removing vibration and according fence quota zero <unk> enables that tends to consume less power make less noise and last longer.

Michael Moe: There are over a billion pounds sold in the World every year. Our ambition is to make every fan of perfectly balanced stand to save energy.

Michael Moe: The transition to electrification is powered by a battery and renewable energy, we believe our cooler one platform and the C. Tech platforms are going to contribute to this transition that would be big.

Michael Moe: Growth drivers for us.

Michael Moe: Place battery market is expected to reach $6 three 5 billion by 'twenty 30 up from 3.67 billion.

Michael Moe: In 2022.

Michael Moe: The acceleration of new space companies.

Michael Moe: And the sustained growth of established players are contributing to a space economy projected to surpass will put a trillion dollars by 2030.

Michael Moe: A big part of this growth growing market is this a Brazil is as reliance of small satellites.

Michael Moe: Chipsets satellite constellations and privacy space stations and.

Michael Moe: These products demand commercial off the shelf lithium ion batteries that are cost effective and can be customized quickly and ready for flight applications.

Michael Moe: At quarter, we're well positioned to serve that market with a cooler one space battery products available at 100 204 hundred watt hours.

Michael Moe: They are ready to be configured to meet the customer needs quickly and they are ready to meet the new NASA GSC to 0793 safety certification requirement for crew space missions.

Michael Moe: We're very excited about starting volume production for customers in 2025.

Michael Moe: In Q3, we expanded our development contract or army Def calm to over $2 4 million.

Michael Moe: Building on the momentum of this ongoing partnership the army will expand the development of additional prototypes and comprehensive environmental qualification testing unicorns tube mill standard 810 E.

Michael Moe: This expanded contract underscores quarters commitment to advancing the performance and reliability of silicon animal lithium ion battery cells under the most demanding conditions.

Michael Moe: These prototypes will undergo a rigorous testing to ensure that the increased energy density does not compromise safety and reliability in active duty environments.

Michael Moe: This country also aligns with coolers long term strategy of forming strong partnerships to develop technologies that enhance the energy efficiency and resiliency in mission critical military.

Michael Moe: Applications.

Michael Moe: Success in these efforts only reinforces <unk> role as a key contributor to mission readiness defense and aerospace sectors.

Michael Moe: As many of our long time shareholders know, we come from a long heritage of providing thermal technologies to defense and space applications. In many cases, we're the sole source provider for critical components for missile programs.

Michael Moe: For example, our face change material Houston.

Michael Moe: Is designed to manage extreme so more loads generally doing mission critical maneuvers, helping maintain optimum performance and reliability within the missiles electronic systems.

Michael Moe: Cooler will commit to continuing the advancement of our thermal management product platforms to serve our customers.

Well no one is going to be another revenue driver for us next year.

Michael Moe: President elect just announced these advanced air mobility policy push that will accelerate the development and adoption of EV, So electric air mobility in the United States.

Michael Moe: We already work with some of the largest EV total electric playing companies as well as some of the key battery cell providers in this market.

Michael Moe: Each 55 for example is already in production with quarters Panther's thermal runaway shield technology inside of that battery pack, which is the first one to two received European certification.

Michael Moe: We have strong partnerships with cell makers, such as Empress and Bonnie So under new high energy battery cells and to work with FAA to create an ecosystem of partners a customer to speed up the development testing and certification process.

Michael Moe: Our goal is to make quarter, one air to industry standard platform for electric aviation.

Michael Moe: Speaking of industry standards, we're working hard to establish Cooner safe X platform to be the industry standard for safe battery storage and transportation too.

Michael Moe: To create an ecosystem, where working with OEM customers regulators firefighters and insurance companies to serve all stakeholders.

Michael Moe: So in our open house, we hosted many firefighters and first responders, we had a life tests or the $3 four kilowatt hour battery pack in our safe case.

Michael Moe: The fire Department of New York for their demo the safe case performed flawlessly.

Michael Moe: In addition, we hosted an insurance industry panel book to save case with insurance experts customers and firefighter to discuss the risk and solutions.

Michael Moe: We're very excited to work with insurance companies to make safe tests available to their customers and lower the insurance premium.

Michael Moe: With our customers by reducing battery fire risk for all parties.

Michael Moe: Is AI dimmitt exponentially more computing power and energy consumption. So it doesn't need for cooling of these systems for air cooling.

Michael Moe: <unk> performance is critical to drive enough airflow two called the latest AI Gpus <unk> performance is limited by vibration and rotor speed.

Michael Moe: So we developed kudos zero Bonnie to virtually eliminate all type ratios in a cooling fan to make them run smoother consume less energy produced less noise and last longer.

Michael Moe: We believe this is a game changer technology is quoting fence are critical to run the modern datacenter crypto mining server farms.

Michael Moe: We announced a multi million dollar license Ethiopia quarter zero life technology in Q3.

Michael Moe: It is the first IP licensing deal of its kind for cooler.

Michael Moe: Highlighting a pivotal expansion in our business model to be more scalable and achieve higher margins, we'll explore more licensing deals for different applications across geographic regions.

Research firm Gartner predicts that the spending on data center systems will reach $318 billion. This year up 34% from year earlier in 2025 quarters, six data center spending going 15, 5% to $367 billion.

Michael Moe: Well, we're excited about this growth as well as our quota zero life business to explore other new applications such as <unk>.

Michael Moe: Electric aviation with our turbine to make them more energy efficient and last longer.

Michael Moe: When we put all of these products and services together, we're building, a new energy management platform or space electrification and our economy.

Michael Moe: We've been on this technology development and business model path for many years.

Michael Moe: And now we're starting to see the pieces fitting together and achieve the flywheel effect.

Michael Moe: It's taking a long time, because these things are hard to do by themselves.

Michael Moe: And when you do it altogether as a small company like cooler it gets harder but.

Michael Moe: But we're making great progress thanks to a very talented engineering team and the market is getting to know us better thanks to our sales and marketing team.

Michael Moe: We have a multi pronged business model to serve our customers as we continue to grow our customer base and provide them with more design and testing services. All in house, we're advancing these customers towards production base will see their revenue growth accelerate.

Michael Moe: Combined that with IP licensing business, we can achieve a scalable business model with high gross margin profile.

Michael Moe: Believer of AI and I think it's going to fundamentally change everything we do much faster than we realize we must think about it and play for it so that the future of cooler can benefit from it.

Michael Moe: We're looking at a two stream our streamline our operations and increase productivity on all fronts of our business.

Michael Moe: Software development is definitely an area, we'll benefit from it.

Michael Moe: Platforms, such as Google's Gemini powered of a cold too.

Michael Moe: <unk> dramatically lowered the cost of software development is speed up development time.

Michael Moe: We will also integrate more AI and machine learning capabilities into cooler when battery platforms and kudos Euro VI system to power to Nextgen next generation Datacenters.

Michael Moe: <unk> of up Leo believer of the new AI, each and powered industrial Revolution, four point out we're building our products and services to be ready to power to physical to digital world interface layer of AI agents more to come on that in 2025.

Speaker Change: Next shell Kantor, who will discuss financial highlights Sean.

Speaker Change: Thanks, Mike.

Sean Kantor: You can see the financial results from our third quarter and our Form 10-Q, which is now online.

Sean Kantor: Let's cover some key highlights.

Sean Kantor: Topics worth noting include.

A record revenue quarter.

Sean Kantor: Gross margins up meaningfully.

Sean Kantor: Operating expenses down.

Sean Kantor: Continued trend of expanding our paying customer base, which contributes to a shrinking customer concentration and.

Sean Kantor: In coolers balance sheet continues to get stronger.

Let's start with our income statement and revenue.

In the third quarter cooler set a new revenue record revenue was approximately $3 2 million.

Sean Kantor: This is about 5% higher than the same period last year, which was itself then a record revenue quarter.

Sean Kantor: Product revenue was approximately $765000, which was down 60% from the same period last year.

Sean Kantor: Some of this decline can be attributed to the nature of the timing of how the end markets we serve place orders.

Sean Kantor: Some is the impact of previously mentioned delayed get expected orders in 2024 from a significant customer from 'twenty to 'twenty three.

Currently our sales team expects orders from that customer to resume in 2025.

Sean Kantor: Service revenue was approximately $1.4 million in the third quarter up 22% from the same period last year.

Sean Kantor: As we have mentioned in the past as our service business grows.

Sean Kantor: Management believes the product business should follow.

And of course cooler signed its first revenue generating license agreement in the third quarter for over $1 million in revenue.

Sean Kantor: We are excited about this business model and hope to be able to announce similar type of deals in the coming quarters.

Sean Kantor: Gross margin for the third quarter was 71% versus 44% in the same period last year.

Even without the positive impact on gross margin from the cooler zero Vibe license deal that we signed in the third quarter gross margin would have been 57%.

Sean Kantor: Comparing the third quarter with the same quarter last year R&D costs came down 32%.

Sean Kantor: SG&A costs came down 41%.

Sean Kantor: And total operating expenses down by about 38%.

Sean Kantor: Earnings per share for the third quarter.

Sean Kantor: Was a one penny loss. This is an improvement of about 80% from the same period last year.

Sean Kantor: Now, let's spend a moment on customers.

Sean Kantor: Cooler had 33 total paying customers for the third quarter up 83% from the same period last year.

Sean Kantor: Total paying product customers number 20.

Sean Kantor: Up about 54% from the same quarter last year.

Sean Kantor: And cooler had 17 total paying service customers.

Sean Kantor: 143% from the same period last year.

Sean Kantor: As we broaden our customer base reliance on any one customer should be mitigated.

A few points on our balance sheet now.

Sean Kantor: Compared to the end of 2023, our balance sheet has improved materially.

Sean Kantor: Cash plus accounts receivable are up 71%.

Sean Kantor: Total assets are up 14% and total liabilities are down 45%.

Sean Kantor: While the cash used in operating plus investing activities did go up a little about 7% in the nine months ending third quarter this year versus last year.

Sean Kantor: This is largely due to increased accounts receivable, which we anticipate becoming cash upon collection.

Sean Kantor: And a significant decrease in accounts payable, which enhances vendor relations reduces debt in.

Sean Kantor: And indicates a stronger less risky balance sheet.

Speaker Change: Back to you Stuart.

Speaker Change: Well, thank you for that Sean and now as previously mentioned, we will begin the question and answer portion of todays call and here's our first question coolers business is focused on high performance thermal management for batteries and electronics can you provide updates on any upcoming product.

Speaker Change: Launches or significant innovations, we should expect in 2025.

Speaker Change: Yes, Stuart I'll take that I think I think we've given quite a bit of a good updates on all the secret in product developments and innovations coming in 2025.

Speaker Change: From cooler space kilowatt Guardian equivalent there as well as our quarter zero by platform for servers and potentially wind turbine.

Speaker Change: Bye bye.

Speaker Change: All these are all products and technology developments that are going to drive our growth in 2025.

Speaker Change: And equally exciting to me.

Speaker Change: Is how to explore new business models with customers with these products that we'll be looking for more licensing deals around different applications. It also geographic regions.

Speaker Change: Seatbacks products as we work closer with insurance companies.

Speaker Change: Maybe there is a subscription model to explore for our products. We will we will have to see in 2025.

Speaker Change: Alright. Thank you for that Michael next question operating expenses, particularly research and development and general administrative expenses remain high what steps are you taking to optimize these costs without compromising product development.

Sean Kantor: Thanks, Stuart, it's Sean I'll take that one.

Sean Kantor: Focusing on our investments continues to be important to us you'll note. Our operating expenses are down 38% are than they were in the third quarter last year.

Sean Kantor: We've reduced R&D down, 32% and SG&A down 42%, we remain diligent in looking for areas to streamline our processes to take our costs down.

We're vigilant looking first large or small cost savings wherever we can find them.

Sean Kantor: Because over the course of time, even small savings will add up to larger savings.

Speaker Change: Alright. Thank you for that Sean next question given the global supply chain disruptions, how is kul our insurer in the continued supply of key materials and managing vendor relationships to avoid future shortages or delays.

Speaker Change: Stuart It shot up I think I'll take that one too.

Speaker Change: This is an important topic given the current state of affairs in the World.

Speaker Change: One we definitely are thinking about it is important to note our vendor concentration has gone down with respect to vendors that represented 10% or more of inventory for the third quarter of this year versus last year, we went down from 25% to zero percent this quarter.

Speaker Change: So we are diversifying and reducing our risk are great supply chain team is always thinking about this topic and tries to qualify multiple sources and today, we haven't encountered any material issues, but we will keep.

Speaker Change: Staying focused on it.

Speaker Change: Alright again next question with a few customers accounting for a large portion of revenue how is cooler planning to diversify its customer base to mitigate risks associated with customer concentration.

Speaker Change: It's good question Stuart and I'll, Let me, let me offer some insight here.

Speaker Change: This is something we are definitely paying attention to.

Speaker Change: And I'll share some actual figures with you with respect to customers, who represented 10% or more of our business for the third quarter of this year compared to last year third.

Speaker Change: Third quarter, our customer concentration is down 38%.

Speaker Change: For the nine months ended the third quarter of this year versus the same period last year, our customer concentration is down 46%.

Speaker Change: As we continue the ongoing trend of growing our customer base customer concentration should continue to improve.

Speaker Change: Alright. Thank you Shawn next question, then with lithium battery transportation and storage likely to be more regulated by governments in the future, which could require batteries to be transported and stored in products similar to what cooler is currently producing how is cooler positioning themselves to.

Speaker Change: Able to quickly meet a large demand for their products in the future if it arises.

Stuart: Yes, it's Stuart I'll take that.

Stuart: And for first of all certainly hope and expect such large demand to pick up.

And if it were to happen to our <unk> product in our products as well so for the <unk> products, we have contract manufacturing partner.

Stuart: Scale up production very quickly with their existing factories and operations. These are partners that we've worked with for a while now and they are both in North America and also in Asia. So we can scale up the production very quickly without much capital expenditure from corn.

Speaker Change: Very good well lets move onto the next question then when do you feel like the stock price will reach one dollar and what are the strategies to get there.

Sean Kantor: Stuart It's Sean maybe I'll try to take a crack at that.

Speaker Change: Certainly this is the a multimillion dollar question so to speak.

Cooler continues to grow and diversify its revenue or our balance sheet and concentrations continued to improve as I referenced earlier are cool.

Speaker Change: Coolers efforts to streamline our showing up in lower expenses and while we cannot predict a when a stock will reach a certain price. We can continue to work on the factors that would traditionally be likely to increase demand for cooler stock, which all else equal.

Speaker Change: Should cause an upward trend in the stock.

Speaker Change: Okay. Thank you for that Sean a question about our current state politically that is and here's the question now that Trump has won the presidential election has there been any talk amongst the associates of Elon Musk about major investments.

Speaker Change: Coming in 2025, noting that Tesla and space X is a customer of cooler.

Stuart: Stuart I'll take that one.

Stuart: Yes, now that the election is complete.

Stuart: Certainly seeing more <unk>.

Stuart: Certainty in the marketplace, which is usually good core business.

Stuart: As I talked about earlier, we are already seeing some policy direction pushes from the administration.

Stuart: Having a big impact on electric aviation and the Ito market.

Stuart: We are already working with all of these customers and we're building a platform to accelerate the design testing and also the certification.

Stuart: These batteries with the FAA.

Stuart: And that's really exciting for us for the other product markets such as the EV in a space customers mentioned in the question that we will see how the new policy changes can impact those industries and how that can drive our coolers business.

Speaker Change: Alright, Thanks for that Michael now this will be our final question for the call today. When can we expect to start hearing about huge orders to where cooler profits would show advanced signs of growth.

Speaker Change: Sure I'll take that well, we will obviously continue to update our shareholders on the new customers and engagements.

Speaker Change: History has shown that our customer base is growing quickly.

Speaker Change: Order sizes are bigger and our gross margin is improving and so these are all the positive trends in our business model and how we execute.

Speaker Change: Executing on our business model and we will continue to execute on that and keep our shareholders updated.

Well very good as I mentioned that is our final question of the day I would like to thank once again CEO of the company, Michael Moe as well as the CFO for the company Sean Cantor for their participation in the call today and of course to all the shareholders that provided their questions via social media.

Speaker Change: Or email we appreciate your questions. We hope we got to everyone as I always say a lot of the same questions get asked different ways, but we consolidate them into what we feel like represents the vast majority of the questions that are sent in over the last well couple of weeks, but of course you.

Speaker Change: Send them in over the past quarter as well so for Sean Michel and myself I'd like to thank you and I will now turn the call over to the operator. Thank.

Speaker Change: Thank you. This does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you.

Speaker Change: You for your participation.

Speaker Change: Okay.